Edgar Filing: INTEGRA LIFESCIENCES HOLDINGS CORP

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K/A
(AMENDMENT NO. 1)

ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED COMMISSION FILE NO. 0-26224
DECEMBER 31, 2000

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 51-0317849
------------------------------- ---------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

311C ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536
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(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 275-0500

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, PAR VALUE $.01 PER SHARE

(TITLE OF CLASS)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of March 23, 2001 was approximately $126
million. (Reference is made to page 28 herein for a statement of the assumptions
upon which this calculation is based.)

The number of shares of the registrant's Common Stock outstanding as of
March 23, 2001 was 17,657,155.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant's definitive proxy statement relating to
its scheduled May 15, 2001 Annual Meeting of Stockholders are incorporated by
reference in Part III of this report.

EXPLANATORY NOTE

The 2000 and 1999 consolidated financial statements contained in this Amended
Annual Report on Form 10-K/A have been restated solely as a result of the
reclassification of the Company's Series B and Series C Convertible Preferred
Stock (collectively, the "Series B and Series C Preferred") from redeemable
preferred stock to stockholders' equity. The effects of these restatements are
to increase stockholders' equity by $15.9 million and $10.3 million at December
31, 2000 and 1999, respectively, to the following amounts (in thousands):

December 31,
2000 1999
---- ----
Before restatement........................ $37,863 $27,659
After restatement......................... 53,781 37,989

The carrying amount of the Series B and Series C Preferred was originally
reported in stockholders' equity in the consolidated financial statements
included in the quarterly reports on Form 10-Q for each of the quarters in the
period March 31, 1999 through September 30, 2000 and in the Annual Report on
Form 10-K for the year ended December 31, 1999. However, because of certain
redemption features of the Series B and Series C Preferred, the carrying amount
was reclassified from stockholders' equity to redeemable preferred stock at
December 31, 2000 in the Company's Annual Report on Form 10-K. After further
consideration, the Company has determined that the redemption features of the
Series B and Series C Preferred are within the control of the Company and
therefore, the carrying amount should be reflected in stockholders' equity,
consistent with its original classification. Accordingly, the Quarterly Reports
on Form 10-Q for the period March 31, 1999 through September 30, 2000 will not
be amended.

These restatements had no effect on the Company's net loss or net loss per
share, total assets or total liabilities for the years ended December 31, 2000
or 1999.

For additional information, see Note 2 to the consolidated financial statements.

This report should be read in conjunction with our Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission for the fiscal quarter ended
March 31, 2001, which is incorporated by reference herein.

PART I

ITEM 1. BUSINESS

The terms "we", "our", "us," "Company" and "Integra" refer to Integra
LifeSciences Holdings Corporation and its subsidiaries unless the context
suggests otherwise.

Integra develops, manufactures and markets medical devices, implants and
biomaterials. Our operations consist of (1) Integra NeuroSciences, which is a
leading provider of implants, devices, and monitors used in neurosurgery,
neurotrauma, and related critical care and (2) Integra LifeSciences, which
develops and manufactures a variety of medical products and devices, including
products based on our proprietary tissue regeneration technology which are used
to treat soft tissue and orthopedic conditions. Integra NeuroSciences sells
primarily through a direct sales organization, and Integra LifeSciences sells
primarily through strategic alliances and distributors.

Integra was founded in 1989 and over the next decade built a product portfolio
based on resorbable collagen and a product development platform based on
technologies directed toward tissue regeneration. During 1999 and 2000, we
expanded into the neurosurgical market, an attractive niche market, through
acquisitions and introductions of new products. As a result, our 2000 revenues
increased to $71.6 million, compared to $42.9 million in 1999 and $17.6 million
in 1998.

In 2000, we sold over 1,000 different products to over 2,000 hospitals and other
customers in more than 80 countries. We generate revenues from product sales,
strategic alliances and royalties and invested $7.5 million in research and
development relating to new products, including those using our biomaterials,
peptide chemistry and collagen engineering technologies.

Integra NeuroSciences accounted for 64% of total revenues in 2000. We market
these products to neurosurgeons and critical care units, which comprise a
focused group of hospital-based practitioners. As a result, we believe we are
able to access this market through a cost-effective sales and marketing
infrastructure. In the United States, we sell these products through a direct
sales force organized into five regions. We employ 44 direct sales personnel
called neurospecialists and five regional managers. We also employ seven
clinical education specialists who directly educate and train both the
neurospecialists and our customers in the use of our products, and a scientific
director with a Ph.D in neurosciences. The sales organization has more than
doubled in size since the acquisition of the first neurosciences business in
early 1999. We believe this expansion allows for smaller, more focused
territories, greater participation in trade shows and more extensive marketing
efforts. We also sell directly in the United Kingdom, through three
neurospecialists. Outside of the United States and the United Kingdom, we sell
our products through approximately 80 specialized neurosurgical distributors and
dealers.

For the majority of the products we manufacture under Integra LifeSciences, we
partner with market leaders, which we believe allows us to achieve our growth
objectives cost effectively while enabling us to focus our management efforts on
developing new products. These non-neurosurgical products address large, diverse
markets, and we believe that they can be more cost effectively promoted through
leveraging marketing partners than through developing a sales infrastructure
ourselves. Our strategic alliances include Ethicon, Inc., a division of Johnson
& Johnson, Sulzer Dental, a division of Sulzer Medica Ltd., the Genetics
Institute division of American Home Products Corporation, and Medtronic Sofamor
Danek.

STRATEGY

Our goal is to become a leader in the development, manufacture and marketing of
medical devices, implants and biomaterials in the markets in which we compete.
Our products are principally used in the diagnosis and treatment of spinal and
cranial, soft-tissue and orthopedic conditions and we intend to expand our
presence in those markets. Key elements of our strategy include the following:

EXPAND OUR NEUROSURGERY MARKET PRESENCE. Through acquisitions and internal
growth, we have rapidly grown Integra NeuroSciences into a leading provider of
products for the neurosurgery market. We believe there exists additional growth
potential in this market through:

o increasing market share of existing product lines;

o expanding our product portfolio through acquisitions; and

o expand our direct distribution into other international markets.

CONTINUE TO DEVELOP NEW AND INNOVATIVE MEDICAL PRODUCTS. As evidenced by our
development of INTEGRA(R) Dermal Regeneration Template, Biomend(TM), Biomend(TM)
Extend(TM) and DuraGen(R) Dural Graft Matrix, we have a leading proprietary
resorbable implant franchise. INTEGRA(R) Dermal Regeneration Template is a
proprietary resorbable matrix used to enable the human body to regenerate
functional dermal tissue. In 1999, we introduced our DuraGen(R) Dural Graft
Matrix to close brain and spine membranes. We are currently developing a variety
of innovative neurosurgical and other medical products as well as seeking
expanded applications for our existing products.

CONTINUE TO FORM STRATEGIC ALLIANCES FOR INTEGRA LIFESCIENCES PRODUCTS. We have
collaborated with leading companies to develop and market the majority of our
non-neurosurgical product lines. These products address large and diverse
markets which we believe can be more cost effectively accessed through marketing
partners than through developing our own sales infrastructure. In 1999, we
partnered with Ethicon, Inc. to market our INTEGRA(R) Dermal Regeneration
Template and intend to pursue additional strategic alliances selectively.

ADDITIONAL STRATEGIC ACQUISITIONS. Since March 1999 we have completed three
acquisitions in the neurosurgical market. We intend to seek additional
acquisitions in this market and in other niche medical technology markets
characterized by high margins, fragmented competition and focused target
customers.

PRODUCTS

We manufacture and market a broad range of medical products for the diagnosis
and treatment of spinal and cranial disorders, soft tissue repair and orthopedic
conditions. We are also actively engaged in a variety of research and
development programs relating to new products or product enhancements utilizing
our tissue regeneration technology. Our principal products and product lines are
summarized in the following table.

INTEGRA NEUROSCIENCES

PRODUCT LINES APPLICATION STATUS

NEURO INTENSIVE CARE UNIT

Camino(R) and Ventrix(R) fiber For continuous monitoring of Marketed
optic-based intracranial the pressure, oxygen and
monitoring systems, LICOX(R) temperature of the brain
oxygen monitoring systems, following injury, and drainage
Clinical Neuro Systems(TM) of excess fluid
drainage systems and
cranial access kits

NEURO OPERATING ROOM Specifically designed for the Marketed
Heyer-Schulte(R)neurosurgical management of hydrocephalus,
shunts a chronic condition involving
excess pressure in the brain

DuraGen(R) Dural Graft Matrix Graft to close brain and Marketed
(absorbable collagen-based) spine membrane

Selector(R) Integra Ultrasonic Uses ultrasound to ablate Marketed
Aspirator cancer tumors

Integra Coblation(R) Neurosurgical Uses radio frequency to ablate Marketed
System cancer tumors and other tissue
for neurosurgical applications

Redmond(TM)-Ruggles(TM) neuro- Specialized surgical Marketed
surgical and spinal instruments instruments for use in brain
or spinal surgery

Neuro Navigational(R) flexible For minimally invasive surgical Marketed
endoscopes for neurosurgery access to the brain

Peripheral nerve conduit Repair of peripheral nerves In clinical
trials

INTEGRA LIFESCIENCES
MARKETING/
PRODUCT LINES APPLICATION STATUS DEVELOPMENT
PARTNER
PRIVATE LABEL PRODUCTS
INTEGRA(R) Dermal Regenerate dermis and Marketed Ethicon, Inc.,
Regeneration Template repair skin defects a division of
Johnson &
Johnson, and
Century
Medical, Inc.
(Japan)
Dental surgery products:

- BioMend(TM) and Used in guided tissue Marketed Sulzer Dental,
Biomend(TM) Extend(TM) regeneration in a division
Absorbable Collagen periodontal surgery of Sulzer
Membrane Medica Ltd.

- CollaCote(R), CollaTape(R) Used to control Marketed Sulzer Dental
and CollaPlug(R) absorbable bleeding in
wound dressings dental surgery

Infection control products:

- VitaCuff(R) Provides protection Marketed Bard Access
against infection Systems, Inc.,
arising from Arrow Interna-
long-term catheters tional, Inc.,
Tyco Inter-
national

- BioPatch(R) Anti-microbial Marketed Ethicon, Inc.
wound dressing

Orthopedics:

- Collagen material for use Fracture management / Develop- Genetics
with bone morphogenetic enabling spinal fusion ment Institute
protein (rhBMP-2) division of
American Home
Products,
Medtronic
Sofamor
Danek

- Tyrosine polycarbonates Fixation or alignment Develop- Bionx
for fixation devices such of fractures ment Implants, Inc.
as resorbable screws,
plates, pins, wedges
and nails

- Articular cartilage repair Regeneration of Develop- None
joint cartilage ment

DISTRIBUTED PRODUCTS

Helitene(R) and Helistat(R) Control of bleeding Marketed Various
absorbable collagen distributors
hemostatic agents

Sundt(TM) and other Carotid endarterectomy Marketed Various
hemodynamic shunts shunts for shunting distributors
blood during surgical
procedures involving
blood vessels

Spembly Medical Allows surgeons to use Marketed Various
Cryosurgery products low temperature to distributors
more easily extract
diseased tissue

INTEGRA NEUROSCIENCES

IN GENERAL

We manufacture and market a multi-line offering of innovative neurosurgical
devices used for brain and spine injuries. We intend to be the neurosurgeon's
and neuro-intensive care unit's "one-stop shop" for these products. For the
intensive care unit, we sell the Camino(R), Ventrix(R) and LICOX(R) lines of
intracranial pressure, temperature and oxygen monitoring systems and external
drainage systems manufactured under the Camino(R), Heyer-Schulte(R) and Clinical
Neuro Systems(TM) brand names. For the operating room, we sell a wide range of
products, including Heyer-Schulte(R) cerebrospinal fluid ("CSF") shunting
products, the DuraGen(R) Dural Graft Matrix, the Selector(R) Integra Ultrasonic
Aspirator, Integra Coblation(R) Neurosurgical Systems, Neuro Navigational(R)
endoscopes, and Redmond(TM)-Ruggles(TM) neurosurgical instruments.

INDUSTRY

The neurosurgical device market consists of medical products, implants and
instruments used for the diagnosis, treatment and monitoring of chronic diseases
and acute injuries involving the brain and spinal chord. These products are
primarily used in the operating room and intensive care unit by neurosurgeons
and nurses. According to industry sources, the size of the market for our
products is approximately $400 million and is expected to grow at annual rate of
6-8%.

Integra NeuroSciences addresses the market need created by trauma cases,
hydrocephalus and other conditions of the brain and spine through its
established market positions in intracranial monitoring, neurosurgical shunting,
dural repair, tumor ablation and specialty neurosurgical instrumentation.

Intracranial monitoring is used by neurosurgeons in diagnosing and treating
cases of severe head trauma and other diseases. Integra NeuroSciences currently
has more than 3,000 intracranial monitors installed worldwide. There are
approximately 400,000 cases of head trauma each year in the United States, of
which the portion that requires monitoring and intervention represents a market
of approximately $40 million.

Hydrocephalus is an incurable condition resulting from an imbalance between the
amount of CSF produced by the body and the rate at which CSF is absorbed by the
brain. This condition causes the ventricles of the brain to enlarge and the
pressure inside the head to increase. Hydrocephalus often is present at birth,
but may also result from head trauma, spina bifida, intraventricular hemorrhage,
intracranial tumors and cysts. The most common method of treatment of
hydrocephalus is the insertion of a shunt into the ventricular system of the
brain to divert the flow of CSF out of the brain. A pressure valve then
maintains the CSF at normal levels within the ventricles. According to the
Hydrocephalus Association, hydrocephalus affects approximately one in 500
children born in the United States. Approximately 80% of total CSF shunt sales
address birth-related hydrocephalus with the remaining 20% addressing surgical
procedures involving excess CSF due to head trauma.

Based on industry sources, we believe that the total United States market for
the management of CSF, including monitoring, shunting and drainage, is
approximately $70 million. Of that amount, it is estimated that a little more
than half constitutes sales of monitoring products, and the balance constitutes
sales of shunts and drains for the management of hydrocephalus.

Our Selector(R) Integra Ultrasonic Aspirator and Integra Coblation(R) products
address the market for the surgical destruction and removal of cancer tumors.
More than 110,000 metastatic brain tumors are diagnosed annually in the United
States. According to the American Cancer Society, brain tumors are the second
fastest growing cause of cancer death among people over 65 and are among the
most common types of cancer found in children.

Our DuraGen(R) product line addresses the market for dural substitutes,
including cranial and spinal procedures.

Integra NeuroSciences' manufacture and production of minimally invasive
neuroendoscopy products addresses a market growing rapidly, in part, because of
the introduction of new procedures called third ventriculostomies which are
increasingly substituting for shunt placement for patients who meet the
criteria.

Integra NeuroSciences' Redmond(TM)-Ruggles(TM) line of neurosurgery and spinal
instrumentation products, including hand-held spinal and neurosurgery
instruments such as retractors, kerrisons, dissectors and curettes, addresses
the market for neurosurgical instruments.

PRODUCTS

NEURO INTENSIVE CARE UNIT

THE MONITORING OF BRAIN PARAMETERS. Integra NeuroSciences sells the Camino(R)
and Ventrix(R) lines of intracranial pressure monitoring systems, and the
LICOX(R) Brain Tissue Oxygen Monitoring System. The Camino(R) and Ventrix(R)
systems measure the intracranial pressure of the CSF, and the LICOX(R) system
allows for continuous qualitative regional monitoring of dissolved oxygen in
body fluids and tissues. Core technologies in the brain parameter monitoring
product line include the design and manufacture of the disposable catheters used
in the monitoring systems, pressure transducer technology, optical
detection/fiber optic transmission technology, sensor characterization and
calibration technology and monitor design and manufacture. Integra NeuroSciences
distributes the LICOX(R) Brain Tissue Oxygen Monitoring System in the United
States and the United Kingdom for GMSmbH ("GMS") of Germany. On March 16, 2001,
we signed an agreement to acquire all of the stock of GMS. The acquisition is
expected to close in the second quarter of 2001.

EXTERNAL DRAINAGE SYSTEM PRODUCT LINE. Integra NeuroSciences's external drainage
systems are manufactured under the Camino(R), Heyer-Shulte(R) and Clinical Neuro
Systems(TM) brand names. We manufacture the drainage systems in both Anasco,
Puerto Rico and in Exton, Pennsylvania.

NEURO OPERATING ROOM

SHUNTS FOR HYDROCEPHALUS MANAGEMENT. Our line of shunting products for
hydrocephalus management includes the Novus(R), LPV(R) and Pudenz(TM) shunts,
ventricular, peritoneal and cardiac catheters, physician-specified hydrocephalus
management shunt kits, Ommaya(R) CSF reservoirs and Spetzler(R) lumbar and
syringo-peritoneal shunts. Shunts are medical devices implanted in the patient
to drain excess CSF from the central nervous system into the peritoneal cavity
or externally.

DURAGEN(R) PRODUCT LINE. The DuraGen(R) Dural Graft Matrix is a resorbable
collagen matrix indicated for the repair of the dura mater. The dura mater is
the thick membrane that contains the CSF within the brain and the spine. The
dura mater must be penetrated during brain surgery and is often damaged during
spinal surgery. In either case, surgeons often close or repair the dura mater
with a graft. The graft may consist of other tissue taken from elsewhere in the
patient's body, or it may be one of the dural substitute products currently on
the market which are made of synthetic materials, processed human cadaver, or
bovine pericardium. We believe that each of the prevailing methods for repairing
the dura mater suffer from shortcomings addressed by the DuraGen(R) Dural Graft
Matrix.

Our DuraGen(R) product has been shown in clinical trials to be an effective
means for closing the dura mater without the need for suturing, which allows the
neurosurgeon to conclude the operation more efficiently. In addition, because
the DuraGen(R) product is ultimately resorbed by the body and replaced with new
natural tissue, the patient avoids some of the risks associated with a permanent
implant inside the cranium.

SELECTOR(R) INTEGRA ULTRASONIC ASPIRATOR. The Selector(R) Integra Ultrasonic
Aspirator uses very high frequency sound waves to pulverize cancer tumors, and
allows the surgeon to remove the damaged tumor tissue by aspiration. Unlike
other surgical techniques, ultrasonic surgery selectively dissects and fragments
soft tissue or calcified hard tissue leaving essential elastic structures such
as nerves and blood vessels intact. Ultrasonic aspiration facilitates the
ablation of unwanted tissue adjacent or attached to vital structures.

INTEGRA COBLATION(R). Integra NeuroSciences is the exclusive sales and
distribution partner for ArthroCare Corporation's Coblation(R) based surgical
system for neurosurgery in North America and certain other international
markets. ArthroCare's Coblation(R) products allow surgeons to operate with a
high level of precision and control, limiting damage to surrounding tissue and
thereby potentially reducing pain and speeding recovery for the patient.
Coblation(R) products, including the neurosurgery system that we distribute,
operate at lower temperatures than traditional electrosurgical or laser surgery
tools and enable surgeons to remove, shrink or sculpt soft tissue and to seal
bleeding vessels. ArthroCare's soft-tissue surgery systems consist of a
controller unit and an assortment of disposable devices that are specialized for
specific types of surgery. We are working with ArthroCare to develop handpieces
and other accessories particularly for the neurosurgical application.

REDMOND(TM)-RUGGLES(TM) PRODUCT LINE. We provide neurosurgeons and spine
surgeons with a full line of specialty hand-held spinal and neurosurgical
instruments sold under the Redmond(TM) and Ruggles(TM) brand names. These
products include retractors, kerrisons, dissectors and curettes. Major product
segments include spinal instruments, microsurgical neuro instruments, and
products customized by Integra NeuroSciences and sold through other companies
and distributors. Most of these products are manufactured to Integra's
specifications by specialty surgical steel fabricators in Germany.

NEURO NAVIGATIONAL(R) ENDOSCOPE PRODUCT LINE. We manufacture and sell disposable
minimally invasive neuroendoscopy products under the Neuro Navigational(R) brand
name. These fiber optic instruments are used to facilitate minimally invasive
neurosurgery.

PERIPHERAL NERVE CONDUIT PRODUCT LINE. Although peripheral nerves are one of the
few tissues of the body that spontaneously regenerate, in the majority of cases
they fail to make useful, functional connections. Consequently, peripheral nerve
injuries often result in permanent loss of sensation and motor control. The
conventional method of treatment for a severed peripheral nerve is microsurgical
repair or nerve grafts. Our peripheral nerve regeneration device is a collagen
matrix tube designed to facilitate regeneration of the severed nerve and to act
as a bridge between the severed nerve ends. The collagen conduit supports nerve
regeneration and is then absorbed into the body. Our pre-clinical studies have
demonstrated the closure of 5-cm gaps in peripheral nerves in non-human primates
with restored nerve function. Our proprietary resorbable conduit for
regenerating and reconnecting peripheral nerves has entered clinical trials in
Europe.

INTEGRA LIFESCIENCES

IN GENERAL

The Integra LifeSciences Division develops and manufactures tissue regeneration
products and surgical products that are primarily sold outside of neurosurgery
and neurotrauma. Many of the current products of Integra LifeSciences are built
on our expertise in resorbable collagen products. Integra LifeSciences's
research and development programs are generally constructed around strategic
alliances with leading medical device companies.

PRODUCTS

PRIVATE LABEL PRODUCTS

INTEGRA(R) DERMAL REGENERATION TEMPLATE. INTEGRA(R) Dermal Regeneration Template
is designed to enable the human body to regenerate functional dermal tissue.
Human skin consists of the epidermis and the dermis. The epidermis is the thin,
outer layer that serves as a protective seal for the body, and the dermis is the
thicker layer underneath that provides structural strength and flexibility and
supports the viability of the epidermis through a vascular network. The body
normally responds to severe damage to the dermis by producing scar tissue in the
wound area. This scar tissue is accompanied by contraction that pulls the edges
of the wound closer which, while closing the wound, often permanently reduces
flexibility. In severe cases, this contraction leads to a reduction in the range
of motion for the patient, who subsequently requires extensive physical
rehabilitation or reconstructive surgery. Physicians treating severe wounds,
such as full-thickness burns, seek to minimize scarring and contraction.

INTEGRA(R) Dermal Regeneration Template was designed to minimize scar formation
and wound contracture in full thickness skin defects. INTEGRA(R) Dermal
Regeneration Template consists of two layers, a thin collagen-glycosaminoglycan
sponge and a silicone membrane. The product is applied with the sponge layer in
contact with the excised wound. The sponge material serves as a template for the
growth of new functional dermal tissue. The outer membrane layer acts as a
temporary substitute for the epidermis to control water vapor transmission,
prevent re-injury and minimize bacterial contamination.

INTEGRA(R) Dermal Regeneration Template is marketed and sold, except in Japan,
by Ethicon. INTEGRA(R) Dermal Regeneration Template was approved by the FDA
under a premarket approval application ("PMA") for the post-excisional treatment
of life-threatening full-thickness or deep partial-thickness thermal injury
where sufficient autograft is not available at the time of excision or not
desirable due to the physiological condition of the patient.

We estimate that the worldwide market for use of skin replacement products (such
as INTEGRA(R) Dermal Regeneration Template) in the treatment of severe burns is
approximately $75 million. However, the potential market for the use of
INTEGRA(R) Dermal Regeneration Template for reconstructive surgery and

the treatment of chronic wounds is much larger, which we estimate to be in
excess of $1 billion. In June 1999, Integra LifeSciences entered into a
strategic alliance with Ethicon to distribute INTEGRA(R) Dermal Regeneration
Template throughout the world, except Japan. As part of that strategic alliance,
Ethicon has agreed to pay for clinical trials to support applications to the FDA
for these broader indications. We cannot be certain that such clinical trials
will be completed, or that INTEGRA(R) Dermal Regeneration Template will receive
the approvals necessary to permit Ethicon to promote it for such indications.

BIOMEND(TM) ABSORBABLE COLLAGEN MEMBRANE. Our BioMend(TM) Absorbable Collagen
Membrane is used for guided tissue regeneration in periodontal surgery. The
BioMend(TM) membrane is inserted between the gum and the tooth after surgical
treatment of periodontal disease, preventing the gum tissue from interfering
with the regeneration of the periodontal ligament that holds the tooth in place.
The BioMend(TM) product is intended to be absorbed after approximately four to
seven weeks, avoiding the requirement for additional surgical procedures to
remove a non-absorbable membrane. BioMend(R) Extend(TM), which was launched in
1999, has the same indication for use as BioMend(R), except that it absorbs in
approximately 16 weeks. The BioMend(TM) and BioMend(TM) Extend(TM) Absorbable
Collagen Membrane is sold through the Sulzer Dental division of Sulzer Medica.

COLLAGEN MATRICES FOR USE WITH BONE GROWTH FACTORS. We supply the Genetics
Institute division of American Home Products with absorbable collagen sponges
for use in developing bone regeneration implants. Since 1994, we have supplied
absorbable collagen sponges for use with Genetics Institute's recombinant human
bone morphogenic protein-2 (rhBMP-2). Recombinant human BMP-2 is a manufactured
version of human protein naturally present in very small quantities in the body.
Genetics Institute is developing rhBMP-2 for clinical evaluation in several
areas of bone repair and augmentation and, in February 2001, filed a PMA with
the United States Food and Drug Administration seeking approval for its rhBMP-2
on an absorbable collagen sponge matrix for use in the treatment of acute
long-bone fractures requiring open surgical management. Spine applications are
being developed through a related collaboration with Medtronic Sofamor Danek in
North America.

TYROSINE POLYCARBONATES FOR ORTHOPEDIC IMPLANTS. We are continuing to develop
additional biomaterial technologies that enhance the rate and quality of healing
and tissue regeneration with synthetic biodegradable scaffolds that support cell
attachment and growth. We are developing a new class of resorbable
polycarbonates created through the polymerization of tyrosine, a naturally
occurring amino acid. A well-defined and commercially scaleable manufacturing
process prepares these materials. Device fabrication by traditional techniques
such as compression molding and extrusion is readily achieved. We believe that
this new biomaterial will be useful in promoting full bone healing when
implanted in damaged sites. This material is currently being developed for
orthopedic and tissue engineering applications where strength and bone
compatibility are critical issues for success of healing. We have entered into
an agreement to supply the material to Bionx Implants, Inc. for specified
orthopedic implants. No medical device containing the material has yet been
approved for sale. A supply agreement with the Linvatec division of CONMED
Corporation for the development of specified orthopedic implants using tyrosine
polycarbonates was terminated in October 2000.

CARTILAGE REPAIR PRODUCTS. Damaged articular cartilage, which connects the
skeletal joints, is associated with the onset of progressive pain, degeneration
and, ultimately, long-term osteoarthritis. Normal articular cartilage does not
effectively heal. The conventional procedure for treating traumatic damage to
cartilage involves smoothing damaged portions of the tissue and removing
free-floating material from the joint using arthroscopic surgery with the
objective of reducing pain and restoring mobility. However, this therapy does
not stop joint surface degeneration, often requires two or more surgeries and
results in the formation of fibrocartilage, which is rough and non-weight
bearing over prolonged periods. Moreover, the long-term result of this procedure
often is permanent reduction of joint mobility and an increased risk of
developing osteoarthritis.

We are developing a device to allow in vivo regeneration of the patient's own
articular cartilage. This technology will allow the patient's body to regenerate
a smooth, weight-bearing surface. Our objective in developing this
cartilage-specific technology is to produce a product that provides the proper
matrix system to allow the natural regeneration of the patient's cartilage, with
full restoration of function and diminished risk of osteoarthritis.

The product under development would use our proprietary peptide technology to
encourage cells to grow into the template once implanted into the patient. Our
peptide portfolio includes bioactive agents designed to mimic natural proteins
to promote cell adhesion, cell survival and other important cellular functions.
Our product would employ proprietary designs based on multiple layers of
collagen material of varying but tightly controlled densities and pore sizes to
provide a scaffold for cell proliferation and cartilage formation.
Simultaneously it would prevent the in-growth of unwanted cells that could lead
to scar tissue formation. We anticipate that the device will be absorbed into
the body over a period of several weeks.

An agreement with the DePuy division of Johnson & Johnson for the development
and marketing of a new product to regenerate joint cartilage was terminated in
February 2001.

OTHER SURGICAL PRODUCTS. Other current products of Integra LifeSciences include
the VitaCuff(R)catheter access infection control device (sold to Bard Access
Systems, Inc., Arrow International, Inc. and Tyco International Ltd.), the
BioPatch(R)anti-microbial wound dressing (sold to Ethicon, Inc.), and a wide
range of resorbable collagen products for hemostasis (sold to Sulzer Dental for
use in periodontal surgery, and to Baxter International and other distributors
under the Helistat(R)and Helitene(R)Absorbable Collagen Hemostatic Agent brand
names).

Our Sundt(TM) and other carotid endarterectomy shunts are used to divert blood
to vital organs (such as the brain) during carotid artery surgical procedures.

Finally, our Spembly Medical cryosurgery products allow surgeons to use low
temperatures to extract diseased tissue more easily.

STRATEGIC ALLIANCES

We use distribution alliances to market the majority of our Integra LifeSciences
products. We have also entered into collaborative agreements relating to
research and development programs involving our technology. These arrangements
are described below.

ETHICON. In June 1999, we entered into a strategic alliance with Ethicon to
distribute INTEGRA (R) Dermal Regeneration Template throughout the world, except
in Japan. Ethicon is responsible for marketing and selling the product, has
agreed to make significant minimum product purchases, and will provide $2
million annual funding for research, development and certain clinical trials for
the first five years of the alliance and thereafter based on a percentage of net
sales. In addition, Ethicon is obligated to make contingent payments to Integra
LifeSciences in the event of certain clinical developments and to assist in the
expansion of our manufacturing capacity as we achieve certain sales targets.
Under the agreement, we are obligated to manufacture the product and are
responsible for continued research and development. The initial term of the
agreement is ten years, and Ethicon may at its option extend the agreement for
an additional ten years. Ethicon may terminate the agreement with notice prior
to the end of the initial term. Depending upon the reasons for any such
termination, Ethicon may be obligated to make significant payments to us.

CENTURY MEDICAL, INC. In 1997, we signed an exclusive importation and sales
agreement for INTEGRA(R)Dermal Regeneration Template in Japan with Century
Medical Inc., a subsidiary of ITOCHU Corporation. Under this agreement, Century
Medical, Inc. is conducting a clinical trial in Japan at its own expense to
obtain Japanese regulatory approvals for the sale of INTEGRA(R)Dermal
Regeneration Template in Japan.

OTHER ORTHOPEDICS. In addition to the cartilage program, Integra LifeSciences
has several other programs oriented toward the orthopedic market. These programs
include an alliance with Genetics Institute for the development of collagen
matrices to be used in conjunction with Genetics Institute's recombinant human
bone morphogenetic protein-2 ("rhBMP-2"). If approved, rhBMP-2 is expected to be
used in conjunction with our matrices to regenerate bone. Genetics Institute is
developing products based on rhBMP-2 for applications in orthopedics, oral and
maxillofacial surgery and spine surgery. Spine applications are being developed
through a related collaboration with Medtronic Sofamor Danek in North America.

In September 1998, we announced a strategic alliance with Bionx Implants, Inc.
("Bionx") for developing fixation devices using Integra's polymer technology.
Under the agreement with Bionx, Bionx has responsibility for clinical trials and
any necessary regulatory filings. Products covered under the agreement with
Bionx include a resorbable line of screws, plates, pins, wedges and nails used
for the fixation and/or alignment of fractures or osteotomies in all areas of
the musculoskeletal system except in the spine and cranium.

SULZER DENTAL. Sulzer Medica Ltd.'s dental division, Sulzer Dental, has marketed
and sold BioMend(TM) since 1995, BioMend(TM) Extend(TM) since 1999 and
CollaCote(R), CollaPlug(R) and CollaTape(R) since 1992.

RESEARCH STRATEGY

We have either acquired or secured the proprietary rights to several important
technological and scientific platforms, including collagen matrix technology,
peptide technology, biomaterials technology, and expertise in fiber optics.
These technologies provide support for our critical applications in
neurosciences and tissue regeneration, and additional opportunities for
generating near-term and long-term revenues from medical applications. We have
been able to identify and bring together critical platform technology components
from which we work to develop solutions for both tissue regeneration and
neurosciences. These efforts have led to the successful development of new
products, such as the DuraGen(R) product.

We spent approximately $7.5 million, $8.9 million, and $8.4 million during
fiscal years 2000, 1999, and 1998, respectively, on research and development
activities. Research and development activities funded by government grants and
contract development revenues amounted to $2.8 million, $1.6 million, and $1.8
million during fiscal years 2000, 1999, and 1998, respectively.

GOVERNMENT REGULATION

As a manufacturer of medical devices, we are subject to extensive regulation by
the FDA and, in some jurisdictions, by state and foreign governmental
authorities. These regulations govern the introduction of new medical devices,
the observance of certain standards with respect to the design, manufacture,
testing, labeling and promotion of such devices, the maintenance of certain
records, the ability to track devices, the reporting of potential product
defects, the export of devices and other matters. We believe that we are in
substantial compliance with these governmental regulations.

From time to time, we have recalled certain of our products. To date, no such
recall has had a material

adverse effect on the company, but we cannot assure that a future recall would
not have such an effect.

Our medical devices introduced in the United States market are required by the
FDA, as a condition of marketing, to secure a Premarket Notification clearance
pursuant to Section 510(k) of the Federal Food, Drug and Cosmetic Act, an
approved Premarket Approval ( "PMA") application or a supplemental PMA.
Alternatively, we may seek United States market clearance through a Product
Development Protocol approved by the FDA. Establishing and completing a Product
Development Protocol, or obtaining a PMA or supplemental PMA, can take up to
several years and can involve preclinical studies and clinical testing. In order
to perform clinical testing in the United States on an unapproved product, we
are also required to obtain an Investigational Device Exemption (IDE) from the
FDA. In addition to requiring clearance for new products, FDA rules may require
a filing and FDA approval, usually through a PMA supplement or a 510(k)
Premarket Notification clearance, prior to marketing products that are
modifications of existing products or new indications for existing products.
While the FDA Modernization Act of 1997, when fully implemented, is expected to
inject more predictability into the product review process, streamline
post-market surveillance, and promote the global harmonization of regulatory
procedures, the process of obtaining such clearances can be onerous and costly.

We cannot assure that all the necessary approvals, including approval for
product improvements and new products, will be granted on a timely basis, if at
all. Delays in receipt of, or failure to receive, such approvals could have a
material adverse effect on the our business. Moreover, after clearance is given,
if the product is shown to be hazardous or defective, the FDA and foreign
regulatory agencies have the power to withdraw the clearance or require us to
change the device, its manufacturing process or its labeling, to supply
additional proof of its safety and effectiveness or to recall, repair, replace
or refund the cost of the medical device. In addition, federal, state and
foreign regulations regarding the manufacture and sale of medical devices are
subject to future changes. We cannot predict what impact, if any, these changes
might have on its business. However, the changes could have a material impact on
the our business.

We are also required to register with the FDA as a device manufacturer. As such,
we are subject to periodic inspection by the FDA for compliance with the FDA's
QSR requirements and other regulations. These regulations require that we
manufacture our products and maintain our documents in a prescribed manner with
respect to design, manufacturing, testing and control activities. Further, we
are required to comply with various FDA requirements for labeling and promotion.
The Medical Device Reporting regulations require that we provide information to
the FDA whenever there is evidence to reasonably suggest that one of our devices
may have caused or contributed to a death or serious injury or, if a malfunction
were to recur, could cause or contribute to a death or serious injury. In
addition, the FDA prohibits us from promoting a medical device before marketing
clearance has been received or promoting an approved device for unapproved
indications. If the FDA believes that a company is not in compliance with
applicable regulations, it can institute proceedings to detain or seize
products, issue a warning letter, issue a recall order, impose operating
restrictions, enjoin future violations and assess civil penalties against the
company, its officers or its employees and can recommend criminal prosecution to
the Department of Justice. Such actions could have a material impact on our
business. Other regulatory agencies may have similar powers.

Medical device laws are also in effect in many of the countries outside the
United States in which we do business. These laws range from comprehensive
device approval and Quality System requirements for some or all of the our
medical device products to simpler requests for product data or certifications.
The number and scope of these requirements are increasing. In June 1998, the
European Union Medical Device Directive became effective, and all medical
devices must meet the Medical Device Directive standards and receive CE mark
certification. CE Mark certification involves a comprehensive Quality System
program, and submission of data on a product to the Notified Body in Europe. The
Medical Device Directive, the ISO 9000 series of standards, and EN46001 are
recognized international quality

standards that are designed to ensure we develop and manufacture quality medical
devices. Each of our facilities is audited on an annual basis by a recognized
Notified Body to verify our compliance with these standards. In 2000, each of
our facilities was audited and we have maintained our certification to these
standards.

In addition, we are required to notify the FDA if we export to certain countries
medical devices manufactured in the United States that have not been approved by
the FDA for distribution in the United States. We are also required to maintain
certain records relating to exports and make the records available to the FDA
for inspection, if required.

OTHER UNITED STATES REGULATORY REQUIREMENTS

In addition to the regulatory framework for product approvals, we are and may be
subject to regulation under federal and state laws, including requirements
regarding occupational health and safety; laboratory practices; and the use,
handling and disposal of toxic or hazardous substances. We may also be subject
to other present and possible future local, state, federal and foreign
regulations. Our research, development and manufacturing processes involve the
controlled use of certain hazardous materials. We are subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. Although we believe
that our safety procedures for handling and disposing of such materials comply
with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, we could be held liable for any
damages that result and any such liability could exceed our resources. Although
we believe that we are in compliance in all material respects with applicable
environmental laws and regulations, there can be no assurance that we will not
incur significant costs to comply with environmental laws and regulations in the
future, nor that our operations, business or assets will not be materially
adversely affected by current or future environmental laws or regulations.

PATENTS AND INTELLECTUAL PROPERTY

We pursue a policy of seeking patent protection of our technology, products and
product improvements both in the United States and in selected foreign
countries. When determined appropriate, we have enforced and plan to continue to
enforce and defend our patent rights. In general, however, we do not rely on our
patent estate to provide us with any significant competitive advantages. We rely
upon trade secrets and continuing technological innovations to develop and
maintain our competitive position. In an effort to protect our trade secrets, we
have a policy of requiring our employees, consultants and advisors to execute
proprietary information and invention assignment agreements upon commencement of
employment or consulting relationships with us. These agreements provide that
all confidential information developed or made known to the individual during
the course of their relationship with us must be kept confidential, except in
specified circumstances.

The Company has the following registered trademarks that are referred to in this
document: BioMend(TM) Camino(R), Clinical Neuro Systems(TM), CollaCote(R),
CollaPlug(R), CollaTape(R), DuraGen(R), Helistat(R), Extend(TM), Helitene(R),
Heyer-Schulte(R), INTEGRA(R) Artificial Skin(R), INTEGRA(R) Dermal Regeneration
Template, Neuro Navigational(R), Novus(R), LPV(R), Ommaya(R), Pudenz(TM),
Redmond(TM), Ruggles(TM), Selector(R), Spetzler(R), Sundt(TM), , Ventrix(R), and
VitaCuff(R) are some of the trademarks of Integra and its subsidiaries. All
other brand names, trademarks and service marks appearing in this prospectus are
the property of their respective holders.

COMPETITION

The largest competitors of Integra NeuroSciences in the neurosurgery markets are
the PS Medical division of Medtronic, Inc., the Codman division of Johnson &
Johnson, the Valleylab and Radionics divisions of Tyco International Ltd., and
NMT Neurosciences, a division of NMT Medical, Inc. In addition, various of the
Integra NeuroSciences product lines compete with smaller specialized companies
or larger companies that do not otherwise focus on neurosurgery. The products of
Integra LifeSciences face diverse and broad competition, depending on the market
addressed by the product. In addition, certain companies are known to be
competing particularly in the area of skin substitution or regeneration,
including Organogenesis and Advanced Tissue Sciences. Finally, in certain cases
competition consists primarily of current medical practice, rather than any
particular product (such as autograft tissue as a substitute for
INTEGRA(R)Dermal Regeneration Template). Depending on the product line, we
compete on the basis of our products' features, strength of our sales
organization or marketing partner, sophistication of our technology, and cost
effectiveness of our solution to the customer's medical requirements.

EMPLOYEES

At December 31, 2000, we had approximately 515 permanent employees engaged in
production and production support (including engineering, and facilities
personnel), quality assurance/quality control, research and development,
regulatory and clinical affairs, sales/marketing, distribution, and
administration and finance. None of our current employees are subject to a
collective bargaining agreement.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements in this report, including statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" which constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are subject to a number
of risks, uncertainties and assumptions about Integra, including, among other
things:

o general economic and business conditions, both nationally and in our
international markets;

o our expectations and estimates concerning future financial
performance, financing plans and the impact of competition;

o anticipated trends in our business;

o existing and future regulations affecting our business;

o our ability to obtain additional debt and equity financing to fund
capital expenditures and working capital requirements and
acquisitions;

o our ability to complete acquisitions and integrate operations
post-acquisition; and

o other risk factors described in the section entitled "Risk Factors" in
this prospectus.

You can identify these forward-looking statements by forward-looking words such
as "believe," "may," "could," "will," "estimate," "continue," "anticipate,"
"intend," "seek," "plan," "expect," "should," "would" and similar expressions in
this prospectus.

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.

RISK FACTORS

The Company believes that the following important factors, among others, have
affected, and in the future could affect, the Company's business, financial
condition, and results of operations and could cause the Company's future
results to differ materially from its historical results and those expressed in
any forward-looking statements made by the Company. Such factors are not meant
to represent an exhaustive list of the risks and uncertainties associated with
the Company's business. These factors as well as other factors may affect the
Company's future results and the Company's stock price, particularly on a
quarterly basis.

WE MAY BE UNABLE TO RAISE ADDITIONAL FINANCING NECESSARY TO CONDUCT OUR
BUSINESS, MAKE PAYMENTS WHEN DUE OR REFINANCE OUR DEBT.

We may need to raise additional funds in the future in order to implement our
business plan, to make scheduled principal and interest payments, to refinance
our debt, to conduct research and development, to fund marketing programs or to
acquire complementary businesses, technologies or services. Any required
additional financing may be unavailable on terms favorable to us, or at all. If
we raise additional funds by issuing equity securities, you may experience
significant dilution of your ownership interest and these securities may have
rights senior to those of the holders of our preferred or common stock. If we
cannot obtain additional financing when required on acceptable terms, we may be
unable to fund our expansion, develop or enhance our products and services, take
advantage of business opportunities or respond to competitive pressures.

WHILE OUR CURRENT CAPITAL REQUIREMENTS DO NOT INCLUDE A SIGNIFICANT INCREASE IN
OUR DEBT LEVELS, WERE CIRCUMSTANCES TO ARISE THAT REQUIRE US TO INCUR MORE DEBT,
WE WOULD BE LIMITED BY THE PROVISIONS OF OUR CURRENT DEBT INSTRUMENTS FROM
INCURRING SUCH INDEBTEDNESS.

Historically, the cash we generate from our operating activities, new equity
investments and borrowings has been sufficient to meet our requirements for debt
service, working capital, capital expenditures, and investments in and advance
to our affiliates, and we have depended on getting additional borrowings to meet
our liquidity requirements. Although in the past we have been able both to
refinance our debt and to obtain new debt, there can be no guarantee that we
will be able to continue to do so in the future or that the cost to us or the
other terms which would affect us would be as favorable to us as our current
loans and credit agreements. We believe that our business will continue to
generate cash and that we will be able to obtain new loans to meet our cash
needs. However, the covenants in the credit agreements for our current debt
limit our ability to borrow more money.

WE MAY CONTINUE TO INCUR OPERATING LOSSES.

To date, we have experienced significant operating losses in funding the
research, development, manufacturing and marketing of our products and may
continue to incur operating losses. At December 31, 2000, we had an accumulated
deficit of $105.7 million. Our ability to achieve profitability depends in part
upon our ability, either independently or in collaboration with others, to
successfully manufacture and market our products and services. We cannot assure
you that we can sustain profitability on an ongoing basis.

OUR OPERATING RESULTS MAY FLUCTUATE FROM TIME TO TIME, WHICH COULD AFFECT THE
VALUE OF YOUR SHARES.

Our operating results have fluctuated in the past and can be expected to
fluctuate from time to time in the future. Some of the factors that may cause
these fluctuations include:

o the impact of acquisitions;

o the timing of significant customer orders;

o market acceptance of our existing products, as well as products in
development;

o the timing of regulatory approvals;

o the timing of payments received and the recognition of such payments
as revenue under collaborative arrangements and strategic alliances;

o our ability to manufacture our products efficiently; and

o the timing of our research and development expenditures.

THE INDUSTRY AND MARKET SEGMENTS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE, AND
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES.

In general, the medical technology industry is characterized by intense
competition. We compete with established medical technology companies.
Competition also comes from early stage companies that have alternative
technological solutions for our primary clinical targets, as well as
universities, research institutions and other non-profit entities. Many of our
competitors have access to greater financial, technical, research and
development, marketing, manufacturing, sales, distribution services and other
resources than we do. Further, our competitors may be more effective at
implementing their technologies to develop commercial products.

Our competitive position will depend on our ability to achieve market acceptance
for our products, implement production and marketing plans, secure regulatory
approval for products under development, obtain patent protection and secure
adequate capital resources. We may need to develop new applications for our
products to remain competitive. Our present or future products could be rendered
obsolete or uneconomical by technological advances by one or more of our current
or future competitors. Our future success will depend upon our ability to
compete effectively against current technology as well as to respond effectively
to technological advances. We can not assure you that competitive pressures will
not adversely affect our profitability.

OUR CURRENT STRATEGY INVOLVES GROWTH THROUGH ACQUISITIONS, WHICH REQUIRES US TO
INCUR SUBSTANTIAL COSTS AND POTENTIAL LIABILITIES FOR WHICH WE MAY NEVER REALIZE
THE ANTICIPATED BENEFITS.

In addition to internal growth, our current strategy involves growth through
acquisitions. We cannot assure you that we will be able to continue to implement
our growth strategy, or that this strategy will ultimately be successful. A
significant portion of our growth in revenues has resulted from, and is expected
to continue to result from, the acquisition of businesses complementary to our
own. We engage in evaluations of potential acquisitions and are in various
stages of discussion regarding possible acquisitions. Acquisitions by us may
result in significant transaction expenses, increased interest and amortization
expense, increased depreciation expense and increased operating expense, any of
which could have a material adverse effect on our operating results. As we grow
by acquisitions, we must be able to integrate and manage the new businesses to
realize economies of scale and control costs. In addition, acquisitions involve
other risks, including diversion of management resources otherwise available for
ongoing development of our business and risks associated with entering new
markets with which our marketing and sales force has limited experience or where
experienced distribution alliances are not available. Our future profitability
will depend in part upon our ability to further develop our resources to adapt
to the particulars of such new products or business areas and to identify and
enter into satisfactory distribution networks. We may not be able to identify
suitable acquisition candidates in the future, obtain acceptable financing or
consummate any future acquisitions. If we cannot integrate acquired operations,
manage the cost of providing our products or price our products appropriately
our profitability would suffer. In addition, as a result of our acquisitions of
other healthcare businesses, we may be subject to the risk of unanticipated
business uncertainties or legal liabilities relating to such acquired businesses
for which we may not be indemnified by the sellers of the acquired businesses.
Future acquisitions may also result in potentially dilutive issuances of equity
securities.

TO MARKET OUR PRODUCTS UNDER DEVELOPMENT WE WILL FIRST NEED TO OBTAIN REGULATORY
APPROVAL. FURTHER, IF WE FAIL TO COMPLY WITH THE EXTENSIVE GOVERNMENTAL
REGULATIONS THAT AFFECT OUR BUSINESS, WE COULD BE SUBJECT TO PENALTIES AND COULD
BE PRECLUDED FROM MARKETING OUR PRODUCTS.

Our research and development activities and the manufacturing, labeling,
distribution and marketing of our existing and future products are subject to
regulation by numerous governmental agencies in the United States and in other
countries. The U.S. Food and Drug Administration ("FDA") and comparable agencies
in other countries impose mandatory procedures and standards for the conduct of
clinical trials and the production and marketing of products for diagnostic and
human therapeutic use. The FDA and other regulatory authorities require that our
products be manufactured according to rigorous standards. These regulatory
requirements may significantly increase our production or purchasing costs and
may even prevent us from making or obtaining our products in amounts sufficient
to meet market demand. If we, or a third party manufacturer, change our approved
manufacturing process, the FDA may require a new approval before that process
could be used. Failure to develop our manufacturing capability may mean that
even if we develop promising new products, we may not be able to produce them
profitably, as a result of delays and additional capital investment costs.
Manufacturing facilities, both international and domestic, are also subject to
inspections by or under the authority of the FDA.

Our products under development are subject to approval by the FDA prior to
marketing for commercial use. The process of obtaining necessary FDA approvals
can take years and is expensive and full of uncertainties. Our inability to
obtain required regulatory approval on a timely or acceptable basis could harm
our business. Further, approval may place substantial restrictions on the
indications for which the product may be marketed or to whom it may be marketed.
To gain approval for the use of a product for clinical indications other than
those for which the product was initially evaluated or for significant changes
to the product, further studies, including clinical trials and FDA approvals,
are required. In addition, for products with an approved pre-market approval
("PMA") application, the FDA requires postapproval reporting and may require
postapproval surveillance programs to monitor the product's safety and
effectiveness. Results of post approval programs may limit or expand the further
marketing of the product.

Approved products are subject to continuing FDA requirements relating to quality
control and quality assurance, maintenance of records and documentation and
labeling and promotion of medical devices. In addition, failure to comply with
applicable regulatory requirements could subject us to enforcement action,
including product seizures, recalls, withdrawal of clearances or approvals,
restrictions on or injunctions against marketing our product or products based
on our technology, and civil and criminal penalties.

Medical device laws and regulations are also in effect in many countries outside
the United States. These range from comprehensive device approval requirements
for some or all of our medical device products to requests for product data or
certifications. The number and scope of these requirements are increasing. The
requirements governing the conduct of clinical trials and product approvals vary
widely from country to country. Failure to comply with applicable federal, state
and foreign medical device laws and regulations would result in fines or other
censures or preclude our ability to market products. Because more than 20% of
our product sales are derived from international sales, any delay or withdrawal
of approval or change in international regulations could have an adverse effect
on our revenues and profitability.

CERTAIN OF OUR PRODUCTS CONTAIN MATERIALS DERIVED FROM ANIMAL SOURCES, AND MAY
AS A RESULT BECOME SUBJECT TO ADDITIONAL REGULATION.

Certain of our products, including the DuraGen(R) Dural Graft Matrix and the
INTEGRA(R) Dermal Regeneration Template, contain material derived from animal
tissue. Products, including food as well as pharmaceuticals and medical devices,
that contain materials derived from animal sources are increasingly subject to
scrutiny in the press and by regulatory authorities, who are concerned about the
potential for the transmission of disease from animals to humans via such
materials. This public scrutiny has been particularly acute in Western Europe
with respect to products derived from cattle, because of concern that materials
infected with the agent that causes bovine spongiform encephalopathy, otherwise
known as "BSE" or "mad cow disease," may, if ingested or implanted, cause a
variant of the human Creutzfeldt-Jakob Disease, an ultimately fatal disease with
no known cure.

We take great care to provide that our products are safe, and free of agents
that can cause disease. In particular, the collagen used in the manufacture of
our products is derived only from the Achilles tendon of cattle from the United
States, where no cases of BSE have been reported. Scientists and regulatory
authorities classify Achilles tendon as having a negligible risk of containing
the agent that causes BSE (an improperly folded protein known as a prion)
compared with other parts of the body. Additionally, we use processes in the
manufacturing of our products that are believed to inactivate prions.

Notwithstanding the foregoing, products that contain materials derived from
animals, including our products, may become subject to additional regulation and
have been banned in certain countries because

of concern over the potential for prion transmission. There can be no assurance
that new regulation or bans of our products would not have a significant adverse
effect on our business.

OUR DEPENDENCE ON SUPPLIERS FOR MATERIALS COULD IMPAIR OUR ABILITY TO
MANUFACTURE OUR PRODUCTS.

Outside vendors, some of whom are sole-source suppliers, provide key components
and raw materials used in the manufacture of our products. Although we believe
that alternative sources for these components and raw materials are available,
any supply interruption in a limited or sole source component or raw material
could harm our ability to manufacture our products until a new source of supply
is identified and qualified. In addition, an uncorrected defect or supplier's
variation in a component or raw material, either unknown to us or incompatible
with our manufacturing process, could harm our ability to manufacture products.
We may not be able to find a sufficient alternative supplier in a reasonable
time period, or on commercially reasonable terms, if at all, and our ability to
produce and supply our products could be impaired.

OUR BUSINESS DEPENDS SIGNIFICANTLY ON KEY RELATIONSHIPS WITH THIRD PARTIES WHICH
WE MAY NOT BE ABLE TO ESTABLISH AND MAINTAIN.

Our revenue stream and our business strategy depend in part on our entering into
and maintaining collaborative or alliance agreements with third parties
concerning product marketing as well as research and development programs. Our
ability to enter into agreements with collaborators depends in part on
convincing them that our technology can help achieve and accelerate their goals
and strategies. This may require substantial time, effort and expense on our
part with no guarantee that a strategic relationship will result. We may not be
able to establish or maintain these relationships on commercially acceptable
terms. Our future agreements may not ultimately be successful. Even if we enter
into collaborative or alliance agreements, our collaborators could terminate
these agreements or they could expire before meaningful developmental milestones
are reached. The termination or expiration of any of these relationships could
have a material adverse effect on our business.

Much of the revenue that we may receive under these collaborations will depend
upon our collaborators' ability to successfully introduce, market and sell new
products derived from our products. Our success depends in part upon the
performance by these collaborators of their responsibilities under these
agreements.

Some collaborators may not perform their obligations as we expect. Some of the
companies we currently have alliances with or are targeting as potential
alliances offer products competitive with our products or may develop
competitive production technologies or competitive products outside of their
collaborations with us that could have a material adverse effect on our
competitive position. In addition, our role in the collaborations is mostly
limited to the production aspects.

As a result, we may also be dependent on collaborators for other aspects of the
development, preclinical and clinical testing, regulatory approval, sales,
marketing and distribution of our products. If our current or future
collaborators do not effectively market our products or develop additional
products based on our technology, our revenues from sales and royalties will be
significantly reduced.

Finally, we have received and may continue to receive payments from
collaborators that may not be immediately recognized as revenue and therefore
may not contribute to reported profits until further conditions are satisfied.

OUR INTELLECTUAL PROPERTY RIGHTS MAY NOT PROVIDE MEANINGFUL COMMERCIAL
PROTECTION FOR OUR PRODUCTS, WHICH COULD ENABLE THIRD PARTIES TO USE OUR
TECHNOLOGY OR VERY SIMILAR TECHNOLOGY AND COULD REDUCE OUR ABILITY TO COMPETE IN
THE MARKET.

Our ability to compete effectively will depend, in part, on our ability to
maintain the proprietary nature of our technologies and manufacturing processes,
which includes the ability to obtain, protect and enforce patents on our
technology and to protect our trade secrets. You should not rely on our patents
to provide us with any significant competitive advantage. Others may challenge
our patents and, as a result, our patents could be narrowed, invalidated or
rendered unenforceable. Competitors may develop products similar to ours which
are not covered by our patents. In addition, our current and future patent
applications may not result in the issuance of patents in the United States or
foreign countries. Further, there is a substantial backlog of patent
applications at the U.S. Patent and Trademark Office, and the approval or
rejection of patent applications may take several years.

OUR COMPETITIVE POSITION IS DEPENDENT IN PART UPON UNPATENTED TRADE SECRETS,
WHICH WE MAY NOT BE ABLE TO PROTECT.

Our competitive position is also dependent upon unpatented trade secrets. Trade
secrets are difficult to protect. We cannot assure you that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets, that such trade
secrets will not be disclosed, or that we can effectively protect our rights to
unpatented trade secrets. In an effort to protect our trade secrets, we have a
policy of requiring our employees, consultants and advisors to execute
proprietary information and invention assignment agreements upon commencement of
employment or consulting relationships with us. These agreements provide that
all confidential information developed or made known to the individual during
the course of their relationship with us must be kept confidential, except in
specified circumstances. We cannot assure you, however, that these agreements
will provide meaningful protection for our trade secrets or other proprietary
information in the event of the unauthorized use or disclosure of confidential
information.

OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING OR
MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS.

We may be sued for infringing the intellectual property rights of others. In
addition, we may find it necessary, if threatened, to initiate a lawsuit seeking
a declaration from a court that we do not infringe the proprietary rights of
others or that these rights are invalid or unenforceable. If we do not prevail
in any litigation, in addition to any damages we might have to pay, we would be
required to stop the infringing activity or obtain a license. Any required
license may not be available to us on acceptable terms, or at all. In addition,
some licenses may be nonexclusive, and, therefore, our competitors may have
access to the same technology licensed to us. If we fail to obtain a required
license or are unable to design around a patent, we may be unable to sell some
of our products, which could have a material adverse effect on our revenues and
profitability.

WE MAY BE INVOLVED IN LAWSUITS TO PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, WHICH MAY BE EXPENSIVE.

In order to protect or enforce our intellectual property rights, we may have to
initiate legal proceedings against third parties, such as infringement suits or
interference proceedings. Intellectual property litigation is costly, and, even
if we prevail, the cost of such litigation could affect our profitability. In
addition, litigation is time consuming and could divert management attention and
resources away from our business. We may also provoke these third parties to
assert claims against us.

WE ARE EXPOSED TO A VARIETY OF RISKS RELATING TO OUR INTERNATIONAL SALES AND
OPERATIONS, INCLUDING FLUCTUATIONS IN EXCHANGE RATES, COMMERCIAL UNAVAILABILITY
OF, AND/OR GOVERNMENTAL RESTRICTIONS ON ACCESS TO, FOREIGN EXCHANGE AND DELAYS
IN COLLECTION OF ACCOUNTS RECEIVABLE.

We generate significant sales outside the United States, a substantial portion
of which are conducted with customers who generate revenue in currencies other
than the U.S. dollar. As a result, currency fluctuations between the U.S. dollar
and the currencies in which such customers do business may have an impact on the
demand for our products in foreign countries where the U.S. dollar has increased
compared to the local currency. We cannot predict the effects of exchange rate
fluctuations upon our future operating results because of the number of
currencies involved, the variability of currency exposure and the potential
volatility of currency exchange rates. Because we have operations based in
Andover, England and we generate certain revenues and incur certain operating
expenses in British pounds sterling and the Euro, we will experience currency
exchange risk with respect to such British pounds sterling and Euro denominated
revenues or expenses.

CHANGES IN THE HEALTH CARE INDUSTRY MAY REQUIRE US TO DECREASE THE SELLING PRICE
FOR OUR PRODUCTS OR COULD RESULT IN A REDUCTION IN THE SIZE OF THE MARKET FOR
OUR PRODUCTS, AND LIMIT THE MEANS BY WHICH WE MAY DISCOUNT OUR PRODUCTS, EACH OF
WHICH COULD HAVE A NEGATIVE IMPACT ON OUR FINANCIAL PERFORMANCE.

Trends toward managed care, health care cost containment, and other changes in
government and private sector initiatives in the United States and other
countries in which we do business are placing increased emphasis on the delivery
of more cost-effective medical therapies that could adversely affect the sale
and/or the prices of our products. For example:

o major third-party payors of hospital services, including Medicare,
Medicaid and private health care insurers, have substantially revised
their payment methodologies, which has resulted in stricter standards
for reimbursement of hospital charges for certain medical procedures;

o Medicare, Medicaid and private health care insurer cutbacks could
create downward price pressure;

o numerous legislative proposals have been considered that would result
in major reforms in the U.S. health care system that could have an
adverse effect on our business;

o there has been a consolidation among health care facilities and
purchasers of medical devices in the United States who prefer to limit
the number of suppliers from whom they purchase medical products, and
these entities may decide to stop purchasing our products or demand
discounts on our prices;

o there is economic pressure to contain health care costs in
international markets;

o there are proposed and existing laws and regulations in domestic and
international markets regulating pricing and profitability of
companies in the health care industry; and

o there have been initiatives by third party payors to challenge the
prices charged for medical products which could affect our ability to
sell products on a competitive basis.

Both the pressure to reduce prices for our products in response to these trends
and the decrease in the size of the market as a result of these trends could
adversely affect our levels of revenues and profitability of sales.

In addition, there are laws and regulations that regulate the means by which
companies in the health care industry may compete by discounting the prices of
their products. Although we exercise care in structuring our customer discount
arrangements to comply with such laws and regulations, we cannot assure you
that:

o government officials charged with responsibility for enforcing such
laws will not assert that such customer discount arrangements are in
violation of such laws or regulations, or

o government regulators or courts will interpret such laws or
regulations in a manner consistent with our interpretation.

IF ANY OF OUR MANUFACTURING FACILITIES WERE DAMAGED AND/OR OUR MANUFACTURING
PROCESSES INTERRUPTED, WE COULD EXPERIENCE LOST REVENUES AND OUR BUSINESS COULD
BE SERIOUSLY HARMED.

We manufacture our products in a limited number of facilities. Damage to our
manufacturing, development or research facilities due to fire, natural disaster,
power loss, communications failure, unauthorized entry or other events could
cause us to cease development and manufacturing of some or all of our products.

WE MAY HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE AND OUR INSURANCE MAY NOT
COVER ALL POTENTIAL CLAIMS.

We face an inherent business risk of exposure to product liability and other
claims in the event that our technologies or products are alleged to have caused
harm. We may not be able to obtain insurance for such potential liability on
acceptable terms with adequate coverage, or at reasonable costs. Any potential
product liability claims could exceed the amount of our insurance coverage or
may be excluded from coverage under the terms of the policy. Our insurance, once
obtained, may not be renewed at a cost and level of coverage comparable to that
then in effect.

WE ARE SUBJECT TO OTHER REGULATORY REQUIREMENTS RELATING TO OCCUPATIONAL HEALTH
AND SAFETY AND THE USE OF HAZARDOUS SUBSTANCES WHICH MAY IMPOSE SIGNIFICANT
COMPLIANCE COSTS ON US.

We are subject to regulation under federal and state laws regarding occupational
health and safety, laboratory practices, and the use, handling and disposal of
toxic or hazardous substances. Our research, development and manufacturing
processes involve the controlled use of certain hazardous materials. Although we
believe that our safety procedures for handling and disposing of such materials
comply with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, we could be held liable for any
damages that result and any such liability could exceed the limits or fall
outside the coverage of our insurance and could exceed our resources. We may not
be able to maintain insurance on acceptable terms, or at all. We may incur
significant costs to comply with environmental laws and regulations in the
future. We may also be subject to other present and possible future local,
state, federal and foreign regulations.

THE LOSS OF KEY PERSONNEL COULD HARM OUR BUSINESS.

We believe our success depends on the contributions of a number of our key
personnel, including Stuart M. Essig, our President and Chief Executive Officer.
If we lose the services of key personnel, that loss could materially harm our
business. We maintain "key person" life insurance on Mr. Essig. In addition,
recruiting and retaining qualified personnel will be critical to our success.
There is a shortage in the industry of qualified management and scientific
personnel, and competition for these individuals is intense. We can not assure
you that we will be able to attract additional personnel and retain existing
personnel.

OUR STOCK PRICE MAY CONTINUE TO BE HIGHLY VOLATILE AND YOU MAY NOT BE ABLE TO
RESELL YOUR SHARES AT OR ABOVE THE PRICE YOU PAID FOR THEM.

The stock market in general, and the stock prices of medical device companies,
biotechnology companies and other technology-based companies in particular, have
experienced significant volatility that often has been unrelated to the
operating performance of and beyond the control of any specific public
companies. The market price of our common stock has fluctuated widely in the
past and is likely to continue to fluctuate in the future. See Item 5 "Market
for Registrant's Common Equity and Related Stockholder Matters." Factors that
may have a significant impact on the market price of our common stock include:

o shortfall in our revenues or earnings relative to the levels
expected by securities analysts;

o future announcements concerning us or our competitors, including
the announcement of acquisitions;

o sales of significantamounts of our common stock by institutional
holders, employees or other insiders;

o changes in the prospects of our business partners or suppliers,
or in the ability of our suppliers to provide us with essential
components;

o developments regarding our patents or other proprietary rights or
those of our competitors;

o quality deficiencies in our products;

o competitive developments, including technological innovations by
us or our competitors;

o government regulation, including the FDA's review of our products
and developments;

o changes in recommendations of securities analysts and rumors that
may be circulated about us or our competitors;

o public perception of risks associated with our operations;

o conditions or trends in the medical device and biotechnology
industries; and

o additions or departures of key personnel.

Any of these factors could immediately, significantly and adversely affect the
trading price of our common stock.

WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.

We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We intend to retain future earnings to fund our growth.
Accordingly, you will not receive a return on your investment in our common
stock through the payment of dividends in the foreseeable future and may not
realize a return on your investment even if you sell your shares. As a result,
you may not be able to resell your shares at or above the price you paid for
them.

ITEM 2. PROPERTIES

Our principal executive offices are located in Plainsboro, New Jersey. Principal
manufacturing and research facilities are located in Plainsboro, New Jersey, San
Diego, California, Anasco, Puerto Rico and Andover, England, and we have a
National Distribution Center ("NDC") in Cranbury, New Jersey. In addition, we
lease several smaller facilities to support additional administrative, assembly,
and storage operations. Our total office, manufacturing and research space
approximates 180,000 square feet. Our Integra LifeSciences products are
manufactured in Plainsboro, Anasco and Andover and distributed through the NDC
and the Andover facility. Our Integra NeuroSciences products are manufactured
primarily in the Plainsboro, San Diego, Andover and Anasco facilities and are
distributed through the NDC and the Andover facility. All of our facilities are
leased.

All of our manufacturing and distribution facilities are registered with the
FDA. Our facilities are subject to inspection by the FDA to assure compliance
with QSR requirements. We believe that our manufacturing facilities are in
substantial compliance with QSR, suitable for their intended purposes and have
capacities adequate for current and projected needs for existing products. Some
capacity of the plants is being converted, with any needed modification, to meet
the current and projected requirements of existing and future products.

ITEM 3. LEGAL PROCEEDINGS

In July 1996, we filed a patent infringement lawsuit in the United States
District Court for the Southern District of California against Merck KGaA, a
German corporation, Scripps Research Institute, a California nonprofit
corporation, and David A. Cheresh, Ph.D., a research scientist with Scripps,
seeking damages and injunctive relief. The complaint charged, among other
things, that the defendant Merck KGaA willfully and deliberately induced, and
continues to willfully and deliberately induce, defendants Scripps Research
Institute and Dr. David A. Cheresh to infringe certain of our patents. These
patents are part of a group of patents granted to The Burnham Institute and
licensed by us that are based on the interaction between a family of cell
surface proteins called integrins and the arginine-glycine-aspartic acid (known
as "RGD") peptide sequence found in many extracellular matrix proteins. The
defendants filed a countersuit asking for an award of defendants' reasonable
attorney fees. This case went to trial in February 2000, and on March 17, 2000,
a jury returned a unanimous verdict for us finding that Merck KGaA had infringed
and induced the infringement of our patents, and awarded $15,000,000 in damages.
On September 29, 2000, the United States District Court for the Southern
District of California entered judgment in our favor and against Merck KGaA in
the case. In entering the judgment, the court also granted us pre-judgment
interest of approximately $1,350,000, bringing the total amount to approximately
$16,350,000, plus post-judgment interest. Various post-trial motions are
pending, including requests by Merck KGaA for a new trial or a judgment as a
matter of law notwithstanding the verdict, which could have the effect of
reducing the judgment or reversing the verdict of the jury. In addition, if we
win these post-trial motions, we expect Merck KGaA to appeal various decisions
of the Court. No amounts for this favorable verdict have been reflected in our
financial statements.

We are also subject to other claims and lawsuits in the ordinary course of our
business, including claims by employees or former employees and with respect to
our products. In the opinion of management, such other claims are either
adequately covered by insurance or otherwise indemnified, and are not expected,
individually or in the aggregate, to result in a material adverse effect on our
financial condition. Our financial statements do not reflect any material
amounts related to possible unfavorable outcomes of the matters above or others.
However, it is possible that our results of operations, financial position and
cash flows in a particular period could be materially affected by these
contingencies.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

Additional Information:

The following information is furnished in this Part I pursuant to Instruction 3
to Item 401(b) of Regulation S-K.

Executive Officers

The executive officers of the Company serve at the discretion of the Board of
Directors. The only family relationship between any of the executive officers
and directors of the Company is that Mr. Holtz is the nephew of Richard E.
Caruso, Ph.D., who is Chairman of the Company's Board of Directors. The
following information indicates the position and age of the Company's executive
officers as of the date of this report and their previous business experience.

NAME AGE POSITION

Stuart M. Essig, Ph.D.............. 39 President, Chief Executive Officer
and Director

George W. McKinney, III, Ph.D...... 57 Executive Vice President, Chief
Operating Officer, Director

John B. Henneman, III.............. 39 Senior Vice President, Chief
Administrative Officer and Secretary

Judith E. O'Grady.................. 50 Senior Vice President, Regulatory,
Quality Assurance and Clinical
Affairs

Michael D. Pierschbacher, Ph.D..... 49 Senior Vice President Research and
Development, General Manager,
Corporate Research Center

David B. Holtz..................... 34 Senior Vice President, Finance and
Treasurer

STUART M. ESSIG, PH.D. has served as President and Chief Executive Officer and a
director of Integra since December 1997. Before joining Integra, Mr. Essig
supervised the medical technology practice at Goldman, Sachs & Co. as a managing
director. Mr. Essig had ten years of broad health care experience at Goldman
Sachs serving as a senior merger and acquisitions advisor to a broad range of
domestic and international medical technology, pharmaceutical and biotechnology
clients. Mr. Essig received an A.B. degree from the Woodrow Wilson School of
Public and International Affairs at Princeton University and an MBA and a Ph.D.
degree in Financial Economics from the University of Chicago, Graduate School of
Business. Mr. Essig also serves on the Board of Directors of Vital Signs
Incorporated and St. Jude Medical Corporation.

GEORGE W. MCKINNEY, III, PH.D. has served Integra as Executive Vice President
and Chief Operating Officer since May 1997 and as a member of the Board of
Directors since December 1992. Between 1997 and 1999 Dr. McKinney also served as
Vice Chairman. Between 1990 and 1997, Dr. McKinney was Managing Director of
Beacon Venture Management Corporation, a venture capital firm. Between 1992 and
1997, Dr. McKinney also served as President and Chief Executive Officer of Gel
Sciences, Inc. and GelMed, Inc., a privately held specialty materials firm with
development programs in both the industrial and medical products fields. Before
1990, Dr. McKinney held other positions in the venture capital industry, was
President and Chief Executive Officer of American Superconductor, Inc., and
served in various manufacturing, engineering and financial positions at Corning,
Inc. Dr. McKinney holds a B.S. in

Management from MIT and a Ph.D. in Strategic Planning from Stanford University
School of Business. Dr. McKinney announced in February 2001 that he will step
down as Executive Vice President and Chief Operating Officer when his employment
agreement expires on December 31, 2001. Dr. McKinney plans to be available as a
consultant to the Company through June 30, 2002.

JOHN B. HENNEMAN, III is Integra's Senior Vice President, Chief Administrative
Officer and Secretary, and is responsible for the law department, business
development, human resources and investor relations. Mr. Henneman was our
General Counsel from September 1998 until September 2000. Prior to joining
Integra in August 1998, Mr. Henneman served Neuromedical Systems, Inc., a public
company developer and manufacturer of in vitro diagnostic equipment, in various
capacities for more than four years. From 1994 until June 1997, Mr. Henneman was
Vice President of Corporate Development, General Counsel and Secretary. From
June 1997 through November 1997, he served in the additional capacity of interim
Co-Chief Executive Officer and from December 1997 to August 1998 Mr. Henneman
was Executive Vice President, US Operations, and Chief Legal Officer. In March
1999, Neuromedical Systems, Inc. filed a petition under Chapter 11 of the
federal bankruptcy laws. Mr. Henneman practiced law in the Corporate Department
of Latham & Watkins (Chicago, Illinois) from 1986 to 1994. Mr. Henneman received
his A.B. (Politics) from Princeton University in 1983, and his J.D. from the
University of Michigan Law School in 1986.

JUDITH E. O'GRADY, Senior Vice President of Regulatory Affairs, Quality
Assurance and Clinical Research, has served Integra since 1985. Ms. O'Grady has
worked in the areas of medical devices and collagen technology for over 20
years. Prior to joining Integra, Ms. O'Grady worked for Colla-Tec, Inc., a
Marion Merrell Dow Company. During her career she has held positions with
Surgikos, a Johnson & Johnson company, and was on the faculty of Boston
University College of Nursing and Medical School. Ms. O'Grady led the team that
obtained the FDA approval for INTEGRA(R)Dermal Regeneration Template, the first
regenerative product approved by the FDA, and has led teams responsible for more
than 100 510(K) clearances. She received her BS degree from Marquette University
and MSN in Nursing from Boston University.

MICHAEL D. PIERSCHBACHER, PH.D. joined Integra in October 1995 as Senior Vice
President, Research and Development. In May 1998 he was named Senior Vice
President and Director of the Corporate Research Center. From June 1987 to
September 1995, Dr. Pierschbacher served as Senior Vice President and Scientific
Director of Telios Pharmaceuticals, Inc., ("Telios") which was acquired by us in
connection with the reorganization of Telios under Chapter 11 of the federal
bankruptcy code. He was a co-founder of Telios in May 1987 and is the
co-discoverer and developer of Telios' matrix peptide technology. Before joining
Telios as a full-time employee in October 1988, he was a staff scientist at the
Burnham Institute for five years and remained on staff there in an adjunct
capacity until the end of 1997. He received his post-doctoral training at
Scripps Clinical and Research Foundation and at the Burnham Institute. Dr.
Pierschbacher received his Ph.D. in Biochemistry from the University of
Missouri.

DAVID B. HOLTZ joined Integra as Controller in 1993 and has served as Vice
President, Finance and Treasurer since March 1997 and was promoted to Senior
Vice President, Finance and Treasurer in February 2001. His responsibilities
include managing all accounting and information systems functions. Before
joining Integra, Mr. Holtz was an associate with Coopers & Lybrand, L.L.P. in
Philadelphia and Cono Leasing Corporation, a private leasing company. He
received a BS degree in Business Administration from Susquehanna University in
1989 and has been certified as a public accountant.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock trades on The Nasdaq National Market under the symbol
"IART". The following table represents the high and low sales prices for the
Company's Common Stock for each quarter for the last two years.

HIGH LOW

2000

Fourth Quarter $16.125 $9.688
Third Quarter $15.000 $9.438
Second Quarter $12.625 $6.688
First Quarter $19.875 $5.875

1999

Fourth Quarter $6.4688 $5.375
Third Quarter $10.375 $5.625
Second Quarter $7.000 $3.875
First Quarter $5.1875 $3.000

The closing price for the Common Stock on March 23, 2001 was $12.25. For
purposes of calculating the aggregate market value of the shares of voting stock
of the Company held by non-affiliates, as shown on the cover page of this
report, it has been assumed that all the outstanding shares were held by
non-affiliates except for the shares held by directors and executive officers of
the Company and stockholders owning 10% or more of outstanding shares. However,
this should not be deemed to constitute an admission that all such persons are,
in fact, affiliates of the Company. Further information concerning ownership of
the Company's voting stock by executive officers, directors and principal
stockholders will be included in the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission.

The Company does not currently pay any cash dividends on its Common Stock and
does not anticipate paying as such dividends in the foreseeable future.

The number of stockholders of record as of March 23, 2001 was approximately 825,
which includes stockholders whose shares were held in nominee name. The number
of beneficial stockholders at that date was over 5,200.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth consolidated financial data with respect to the
Company for each of the five years in the period ended December 31, 2000. The
information set forth below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Company's consolidated financial statements and related notes included elsewhere
in this report.

YEARS ENDED DECEMBER 31,
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Statement of Operations Data (1):
Product sales ................................................. $ 64,987 $ 40,047 $ 14,182 $ 14,103 $ 11,300
Other revenue ................................................. 6,662 2,829 3,379 745 1,938
-------- -------- -------- -------- --------
Total revenue .............................................. 71,649 42,876 17,561 14,848 13,238
Cost of product sales ......................................... 29,511 22,678 7,580 7,184 6,808
Research and development ...................................... 7,524 8,893 8,424 6,406 6,294
Selling and marketing ......................................... 15,371 9,487 5,901 5,405 4,263
General and administrative (2) ................................ 28,483 13,324 9,787 14,764 5,320
Amortization .................................................. 2,481 874 49 -- --
-------- -------- -------- -------- --------
Total costs and expenses ................................... 83,370 55,256 31,741 33,759 22,685
Operating loss ................................................ (11,721) (12,380) (14,180) (18,911) (9,447)
Interest income (expense), net ................................ (473) 294 1,250 1,771 1,799
Gain on disposition of product line ........................... 1,146 4,161 -- -- --
Other income .................................................. 201 141 588 176 120
-------- -------- -------- -------- --------
Net loss before income taxes .................................. (10,847) (7,784) (12,342) (16,964) (7,528)
Income tax expense (benefit) (3) .............................. 108 (1,818) -- -- --
-------- -------- -------- -------- --------

Net loss before cumulative effect of accounting change ........ (10,955) (5,966) (12,342) (16,964) (7,528)

Cumulative effect of accounting change (4) .................... (470) -- -- -- --
-------- -------- -------- -------- --------
Net loss ...................................................... $(11,425) $ (5,966) $(12,342) $(16,964) $ (7,528)
======== ======== ======== ======== ========

Basic and diluted net loss per share before cumulative
effect of accounting change .............................. $ (0.95) $ (0.40) $ (0.77) $ (1.15) $ (.54)
Accounting change ............................................. $ (0.02) -- -- -- --
-------- -------- -------- -------- --------
Basic and diluted net loss per share .......................... $ (0.97) $ (0.40) $ (0.77) $ (1.15) $ (.54)
======== ======== ======== ======== ========
Weighted average common shares outstanding .................... 17,553 16,802 16,139 14,810 14,057
======== ======== ======== ======== ========

Pro Forma Data (5):
Total revenue ................................................. $ 71,649 $ 42,974 $ 16,993 $ 14,848 $ 13,238
Net loss ...................................................... (10,955) (5,868) (12,910) (16,964) (7,528)
Basic and diluted net loss per share .......................... $ (0.95) $ (0.40) $ (0.80) $ (1.15) $ (.54)

YEARS ENDED DECEMBER 31,
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
RESTATED (IN THOUSANDS)

Balance Sheet Data (1):
Cash, cash equivalents and short-term
investments ................................................. $ 15,138 $ 23,612 $ 20,187 $ 26,272 $ 34,276
Working capital ............................................... 25,177 28,014 23,898 29,407 37,936
Total assets .................................................. 86,514 66,253 34,707 38,356 48,741
Long-term debt ................................................ 4,758 7,625 -- -- --
Accumulated deficit ........................................... (105,729) (94,304) (88,287) (75,945) (58,981)
Total stockholders' equity .................................... 53,781 37,989 31,366 35,755 46,384

(1) As the result of the acquisitions of Rystan Company, Inc. ("Rystan") in
September 1998, the NeuroCare Group of companies ("NeuroCare") in March
1999 and the acquisition of Clinical Neuro Systems and product lines from
NMT Medical, Inc. in 2000, the consolidated financial results and balance
sheet data for certain of the periods presented above may not be directly
comparable.

(2) General and administrative expense in 2000 included a $13.5 million
stock-based compensation charge in connection with the extension of the
employment of the Company's President and Chief Executive Officer. General
and administrative expense in 1997 included the following two non-cash
charges: (a) $1.0 million related to an asset impairment charge; and (b)
$5.9 million related to a stock-based signing bonus for the Company's
President and Chief Executive Officer.

(3) The 1999 income tax benefit includes a non-cash benefit of $1.8 million
resulting from the reduction of the deferred tax liability recorded in the
NeuroCare acquisition to the extent that consolidated deferred tax assets
were generated subsequent to the acquisition. The 2000 and 1999 income tax
expense (benefit) includes $0.5 million and $0.6 million, respectively, of
benefits associated with the sale of New Jersey state net operating losses.

(4) As the result of the adoption of SEC Staff Accounting Bulletin No. 101
REVENUE RECOGNITION ("SAB 101"), the Company recorded a $470,000 cumulative
effect of an accounting change to defer a portion of a nonrefundable,
up-front fee received and recorded in other revenue in 1998. The cumulative
effect of this accounting change was measured as of January 1, 2000. As a
result of this accounting change, other revenue in 2000 includes $112,000
of amortization of the amount deferred as of January 1, 2000.

(5) Pro forma data reflects the amounts that would have been reported if SAB
101 had been retroactively applied.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the Company's
consolidated financial statements, the notes thereto and the other financial
information included elsewhere in this report.

General

Integra develops, manufactures and markets medical devices, implants and
biomaterials. Our operations consist of (1) Integra NeuroSciences, which is a
leading provider of implants, devices, and monitors used in neurosurgery,
neurotrauma, and related critical care and (2) Integra LifeSciences, which
develops and manufactures a variety of medical products and devices, including
products based on our proprietary tissue regeneration technology which are used
to treat soft tissue and orthopedic conditions. Integra NeuroSciences sells
primarily through a direct sales organization and Integra LifeSciences sells
primarily through strategic alliances and distributors.

In 1999, we initiated a repositioning of our business to focus selectively on
attractive niche markets. Implementation of this strategy included the purchase
of the NeuroCare Group of companies ("NeuroCare") in March 1999 and the
execution of an agreement (the "Ethicon Agreement") with Johnson & Johnson
Medical (now merged into Ethicon, Inc. ("Ethicon")). The Ethicon Agreement
provides Ethicon with exclusive marketing and distribution rights to INTEGRA(R)
Dermal Regeneration

Template worldwide, excluding Japan. As a result of these transactions, we
formed our Integra NeuroSciences segment and reorganized the remainder of our
products into our Integra LifeSciences segment. The Ethicon Agreement allowed
the Integra LifeSciences segment to focus on strategic collaborative
initiatives. The Integra LifeSciences segment now operates providing innovative
products and development activities through strategic alliances with marketing
partners and distributors. As a result of these activities, our segment
financial results for each of the years 2000, 1999 and 1998 may not be directly
comparable.

To date, we have experienced significant operating losses and may continue to
incur such losses. As of December 31, 2000 we had an accumulated deficit of
$105.7 million.

December 31,
2000 1999
---- ----
Before restatement........................ $37,863 $27,659
After restatement......................... 53,781 37,989

These restatements had no effect on the Company's net loss or net loss per
share, total assets or total liabilities for the years ended December 31, 2000
or 1999.

For additional information, see Note 2 to the consolidated financial statements.

Recent Acquisitions

On April 6, 2000, we purchased the Selector(R) Ultrasonic Aspirator, Ruggles(TM)
hand-held neurosurgical instruments and Spembly Medical cryosurgery product
lines, including certain assets and liabilities, from NMT Medical, Inc. ("NMT")
for $11.6 million in cash. The assets acquired included a manufacturing and
distribution facility in Andover, England.

On January 17, 2000, we purchased the business, including certain assets and
liabilities, of Clinical Neuro Systems, Inc. ("CNS") for $6.8 million. CNS
designs, manufactures and sells neurosurgical external ventricular drainage
systems, including catheters and drainage bags, as well as cranial access kits.
The purchase price of the CNS business consisted of $4.0 million in cash and a
5% $2.8 million promissory note issued to the seller. The promissory note, which
is payable in two principal payments of $1.4 million each, plus accrued
interest, in January 2001 and 2002, is collateralized by inventory, property and
equipment of the CNS business and by a collateral assignment of a $2.8 million
promissory note from one of the Company's subsidiaries.

On March 29, 1999 we acquired certain assets and stock held by Heyer-Schulte
NeuroCare, L.P. and its subsidiaries, Heyer-Schulte NeuroCare, Inc., Camino
NeuroCare, Inc. and Neuro Navigational, LLC (collectively, the "NeuroCare
Group") through our wholly-owned subsidiaries, NeuroCare Holding Corporation,
Integra NeuroCare LLC and Redmond NeuroCare LLC (collectively, "Integra
NeuroCare"). The purchase price for the NeuroCare Group consisted of $14.2
million in cash and approximately $11 million of assumed indebtedness under a
term loan from Fleet Capital Corporation. The NeuroCare Group's assets include a
manufacturing, packaging and distribution facility in San Diego, California and
a manufacturing facility in Anasco, Puerto Rico, as well as a corporate
headquarters in Pleasant Prairie, Wisconsin, which we closed in the third
quarter of 1999.

On September 28, 1998, we acquired Rystan Company, Inc. ("Rystan") for 800,000
shares of common stock of the Company and two warrants each having the right to
purchase 150,000 shares of our common

stock. The total purchase price was valued at $4.0 million. In January 1999, we
subsequently sold a Rystan product line, including the brand name and related
production equipment, for $6.4 million in cash and recognized a pre-tax gain of
$4.2 million after adjusting for the net cost of the assets sold and for
expenses associated with the divestiture.

These acquisitions have been accounted for using the purchase method of
accounting, and the results of operations of the acquired businesses have been
included in the consolidated financial statements since their respective dates
of acquisition. As adjusted for the sale of one of the Rystan product lines in
1999, the allocation of the purchase price of these acquisitions resulted in
acquired intangible assets, consisting primarily of completed technology,
customer lists and trademarks of approximately $19.8 million, which are being
amortized on a straight-line basis over lives ranging from 2 to 15 years, and
residual goodwill of approximately $9.1 million, which is being amortized on a
straight-line basis over 15 years.

RESULTS OF OPERATIONS

Product Sales and Gross Margins on Product Sales:

2000 1999 1998
------- ------- -------
Integra NeuroSciences:
- Neuro intensive care unit $23,521 $14,398 $ --
- Neuro operating room 21,324 8,014 --
------- ------- -------
Total product sales 44,845 22,412 --
Cost of product sales 19,198 12,893 --
------- ------- -------
Gross margin on product sales 25,647 9,519 --
Gross margin percentage 57% 42% --

Integra LifeSciences:
- Private label products $11,018 $10,226 $11,295
- Distributed products 9,124 7,409 2,887
------- ------- -------
Total product sales 20,142 17,635 14,182
Cost of product sales 10,313 9,785 7,580
------- ------- -------
Gross margin on product sales 9,829 7,850 6,602
Gross margin percentage 49% 45% 47%

Total product sales $64,987 $40,047 $14,182
Consolidated gross margin percentage 55% 43% 47%

2000 COMPARED TO 1999

Total product sales increased $24.9 million, or 62%, in 2000, with sales of
product lines acquired in 2000 accounting for $11.2 million, or 28%, of this
increase. Sales growth for the year was led by the Integra NeuroSciences
division, which reported an increase of $22.4 million, or 100%, from the prior
year. Included in this increase was $9.6 million of sales of product lines
acquired in 2000. The remainder of this increase is the result of a $5.5 million
increase in sales of the DuraGen(R) product, which was launched in the third
quarter of 1999, and organic growth in products acquired in the NeuroCare
acquisition at the end of the first quarter of 1999. Adjusted gross margin on
Integra NeuroSciences' product sales increased 7 percentage points to 58% in
2000 through an improved sales mix of higher margin products, including the
DuraGen(R) product and product lines acquired in 2000. The adjusted gross margin
excludes fair value inventory purchase accounting adjustments recorded in
connection with the acquisitions.

In 2001, product sales in the Integra NeuroSciences division are expected to
benefit from a full year of sales of products acquired in 2000 and the recent
launch of the LICOX(R) Brain Tissue Oxygen Monitoring System and the TrueTech
Tunneling Catheter for intra-cranial pressure monitoring.

Sales in the Integra LifeSciences division increased $2.5 million, or 14%, in
2000, with sales of a distributed product line acquired in 2000 accounting for
$1.6 million of this increase. The remainder of this increase relates primarily
to higher sales of private label products, with increased sales of orthopedic
biomaterials to our strategic partners for use in their clinical trials being
slightly offset by lower sales of INTEGRA(R) Dermal Regeneration Template. Sales
of INTEGRA(R) Dermal Regeneration Template decreased because of the lower
transfer price to Ethicon beginning in the second half of 1999. Adjusted gross
margin on Integra LifeSciences' product sales increased from 48% to 49% in 2000.
The improvement in gross margins was primarily related to increased capacity
utilization and increased sales of higher margin products in 2000, both of which
were offset by the lower gross margins on sales of the INTEGRA(R) Dermal
Regeneration Template through Ethicon and sales of a lower margin distributed
product line acquired in 2000.

Other revenue, which increased $3.9 million to $6.7 million in 2000, consisted
of $2.8 million of research and development funding from strategic partners and
government grants, $2.3 million of license, distribution, and other
event-related revenues from strategic partners and other third parties, and $1.6
million of royalty income.

Research and development expenses were as follows (in thousands):

2000 1999
------ ------

Integra NeuroSciences $2,469 $2,080
Integra LifeSciences 5,055 6,813
------ ------
Total $7,524 $8,893

Research and development expense in the Integra NeuroSciences segment increased
in 2000 primarily because there was a full year of research and development
activities from the acquired NeuroCare business in 2000. Significant ongoing
research and development programs in the Company's Integra NeuroSciences segment
include the development of the next generation of intra-cranial monitors and
catheters and shunting products and the continuation of clinical trials
involving the peripheral nerve guide, a bioabsorbable collagen conduit designed
to support guided regeneration of severed nerve tissues.

Research and development activities within the Integra LifeSciences segment
decreased in 2000 primarily because of the elimination of several non-core
research programs throughout 1999, reductions in headcount in the Company's New
Jersey-based research group and reduced spending in the articular cartilage
program. Offsetting these decreases were additional research activities related
to the INTEGRA(R) Dermal Regeneration Template program that were funded by
Ethicon and government grants. The Ethicon Agreement provides the Company with
research funding of $2.0 million per year through the year 2004. Significant
ongoing research and development programs in the Integra LifeSciences segment
include clinical and development activities related to INTEGRA(R) Dermal
Regeneration Template, additional applications for the Company's orthopedic
technologies, and other activities involving the Company's tissue regeneration
technologies.

The future allocation and timing of research and development expenditures
between segments and programs will vary depending on various factors, including
the timing and outcome of pre-clinical and clinical results, changing
competitive conditions, continued program funding levels, potential funding
opportunities and determinations with respect to the commercial potential of the
Company's technologies.

Selling and marketing expenses were as follows (in thousands):

2000 1999
------ ------
Integra NeuroSciences $12,868 $6,244
Integra LifeSciences 2,503 3,243
------ ------
Total $15,371 $9,487

Integra NeuroSciences selling and marketing expense increased significantly
because of a large increase in the direct sales force to over 50 personnel
throughout 2000, increased sales from acquired products and organic growth in
existing products, and increased tradeshow participation. Through acquisitions
and recruiting of experienced personnel, the Integra NeuroSciences division has
developed a leading sales and marketing infrastructure to market its products to
neurosurgeons and critical care units, which comprise a focused group of
hospital-based practitioners. A further increase in Integra NeuroSciences
selling and marketing expense is expected in 2001, as continuing costs
associated with the larger direct sales force and the national distribution
center opened in the second quarter of 2000 impact the full year 2001 results.

The decrease in Integra LifeSciences selling and marketing expenses is primarily
the result of the transition of INTEGRA(R) Dermal Regeneration Template selling
and marketing activities to Ethicon in June 1999, offset by costs associated
with the opening of our new national distribution center in New Jersey.

General and administrative expenses were as follows (in thousands):

2000 1999
------ ------

Integra NeuroSciences $4,981 $4,726
Integra LifeSciences 3,799 2,433
Corporate 19,703 6,165
------ ------
Total $28,483 $13,324

Integra NeuroSciences general and administrative expenses increased in 2000
primarily because of acquisitions and an allowance recorded against a
distributor's accounts receivable balance. Offsetting these increases were $1.0
million of severance costs incurred in 1999 in connection with the closure of
NeuroCare's corporate headquarters in July 1999. General and administrative
expense in the Integra LifeSciences segment increased in 2000 primarily due to
additional headcount and acquisitions. The increase in corporate general and
administrative in 2000 was almost entirely related to a $13.5 million
stock-based compensation charge recorded in connection with the extension of the
employment agreement of Integra's President and Chief Executive Officer. A
decrease in legal fees associated with the conclusion of the jury trial in the
patent infringement lawsuit against Merck KGaA in the first quarter of 2000 was
offset by increased corporate headcount.

Net interest expense consisted of interest expense of $1.3 million and interest
income of $0.8 million in 2000. In 1999, net interest income consisted of $1.0
million of interest income and $0.7 million of interest expense. Interest
expense increased in 2000 consistent with higher average bank loans outstanding
during 2000 and interest associated with the note issued to the seller of the
CNS business. Interest income decreased in 2000 consistent with lower average
cash and marketable securities balances during 2000.

The Company recorded a $1.1 million pre-tax gain on the disposition of two
product lines in 2000 and a $4.1 million pre-tax gain on the disposition of a
product line in 1999.

The income tax provision of $0.1 million recorded in 2000 consists of $0.6
million of income tax expense, which was offset by a $0.5 million benefit from
the sale of New Jersey state net operating losses ("NOL's") under a state
sponsored program. The income tax benefit of $1.8 million recorded in 1999
consists of a $1.8 million non-cash benefit resulting from the reduction of the
deferred tax liability recorded in the NeuroCare acquisition to the extent that
consolidated deferred tax assets were generated subsequent to the acquisition. A
tax benefit of $0.6 million associated with the sale of New Jersey state net
operating losses was offset by $0.6 million of income tax expense.

The reported net loss for the year ended December 31, 2000 was $11.4 million, or
$0.97 per share. The reported net loss per share includes $1.5 million of
preferred stock dividends and a $4.2 million beneficial conversion feature
associated with the issuance of convertible preferred stock and warrants in
March 2000, which is treated as a non-cash dividend in computing per share
earnings. The beneficial conversion dividend is based upon the excess of the
price of the underlying common stock as compared to the fixed conversion price
of the convertible preferred stock, after taking into account the value assigned
to the common stock warrants. Included in the reported net loss of $11.4 million
was a $1.1 million gain on the sale of product lines, the $13.5 million
stock-based compensation charge, a $0.5 million cumulative effect of an
accounting change and $0.4 million of fair value inventory purchase accounting
adjustments. Excluding these items, the Company would have reported net income
of $1.8 million. Excluding these items and the $4.2 million beneficial
conversion feature recorded on the convertible preferred stock, the Company
would have reported net income of $0.02 per share for the year ended December
31, 2000.

The reported net loss for the year ended December 31, 1999 was $6.0 million, or
$0.40 per share. The reported net loss per share includes $0.8 million of
preferred stock dividends. Included in the reported net loss of $6.0 million was
a $3.7 million gain (net of tax) on the sale of a product line and a $1.8
million tax benefit related to the NeuroCare acquisition, $2.5 million of fair
value inventory purchase accounting adjustments and $1.0 million of severance
costs associated with the NeuroCare acquisition. Excluding these items, the
Company would have reported a net loss of $8.0 million, or $0.52 per share.

Excluding the above items, adjusted Earnings before Interest, Taxes,
Depreciation and Amortization ("EBITDA") would have been $7.8 million in 2000,
as compared to a negative $5.6 million in 1999. EBITDA is calculated by adding
back interest, taxes, depreciation and amortization to net income or loss.

1999 COMPARED TO 1998

Total product sales increased $25.9 million, or 182%, in 1999, with sales of
product lines acquired in 1999 accounting for $24.5 million, or 172%, of this
increase. Sales growth for the year was led by the Integra NeuroSciences
division, which reported $21.9 million of sales from product lines acquired in
the NeuroCare acquisition and $0.5 million of sales of the DuraGen(R) product,
which was launched in the third quarter of 1999. Excluding fair value inventory
purchase accounting adjustments recorded in connection with the NeuroCare
acquisition, gross margins on Integra NeuroSciences product sales would have
been 51% in 1999.

Sales in the Integra LifeSciences division increased $3.5 million, or 24%, in
1999. An increase of $3.9 million from sales of distributed product lines
acquired in 1998 and 1999 was offset by a decrease of $2.1 million of sales of
INTEGRA(R) Dermal Regeneration Template through Ethicon in 1999. The remainder
of the increase in 1999 relates to organic sales growth in existing product
lines. Excluding fair value inventory purchase accounting adjustments, which
reduced reported 1998 gross margins by 2 percentage points, adjusted gross
margins on Integra LifeSciences product sales decreased 1 percentage point to
48% in 1999. The decline in adjusted gross margins in 1999 was related to the
lower gross margins on sales of the INTEGRA(R) Dermal Regeneration Template
through Ethicon.

Other revenue, which decreased $0.6 million to $2.8 million in 1999, consisted
of $1.3 million of research and development funding from strategic partners and
government grants, $0.9 million of license, distribution and other event-related
revenues from strategic partners and other third parties, and $0.6 million of
royalty income. In 1998, other revenue consisted of $1.5 million of license,
distribution and other event-related revenues from strategic partners and other
third parties, $1.6 million of research and development funding from strategic
partners and government grants, and $0.3 million of royalty income.

Research and development expenses were as follows (in thousands):

1999 1998
------ ------

Integra NeuroSciences $2,080 $ 945
Integra LifeSciences 6,813 7,479
------ ------
Total $8,893 $8,424

Research and development expense in the Integra NeuroSciences segment increased
in 1999 primarily because of the NeuroCare acquisition. Integra NeuroSciences
research and development activities in 1998 consisted of programs involving the
DuraGen(R) product and the peripheral nerve guide. Research and development
activities within the Integra LifeSciences segment decreased in 1999 primarily
because of the elimination of several non-core research programs throughout
1999.

Selling and marketing expenses were as follows (in thousands):

1999 1998
------ ------

Integra NeuroSciences $6,244 $ 628
Integra LifeSciences 3,243 5,273
------ ------
Total $9,487 $5,901

Integra NeuroSciences selling and marketing expense increased in 1999 primarily
because of the NeuroCare acquisition. Additional increases resulted from
expenses related to the domestic and international launch of the DuraGen(R)
product in the third quarter of 1999. The decrease in Integra LifeSciences
selling and marketing expenses is primarily the result of the transition of
INTEGRA(R) Dermal Regeneration Template selling and marketing activities to
Ethicon, offset by a slight increase in sales and marketing costs related to
acquired product lines.

General and administrative expenses were as follows (in thousands):

1999 1998
------ ------

Integra NeuroSciences $4,726 $ 437
Integra LifeSciences 2,433 2,111
Corporate 6,165 7,239
------ ------
Total $13,324 $9,787

Integra NeuroSciences general and administrative expense increased in 1999
primarily because of the NeuroCare acquisition. Included in this amount is $1.0
million of severance costs associated with the closure of NeuroCare's corporate
headquarters in July 1999. General and administrative expense in the Integra
LifeSciences segment increased in 1999 primarily due to additional headcount.
The decrease in

corporate general and administrative expenses in 1999 resulted primarily from
decreased legal fees and costs associated with maintenance of the Company's
intellectual property and the effects of a $0.2 million asset impairment charge
recorded in 1998, offset by increases related to additional headcount.

Net interest income consisted of interest income of $1.0 million and interest
expense of $0.7 million in 1999. Interest income decreased in 1999 consistent
with lower average cash and marketable securities balances during 1999.

Other income decreased in 1999 primarily because of a $0.6 million favorable
litigation settlement recorded in 1998.

International Product Sales and Operations

In 2000, sales to customers outside the United States totaled $13.6 million, or
21% of consolidated product sales, of which approximately 50% were to Europe. Of
this amount, $3.2 million of these sales were generated in foreign currencies
from our subsidiary based in Andover, England, which was acquired in April 2000.
Our international sales and operations are subject to the risk of foreign
currency fluctuations, both in terms of exchange risk related to transactions
conducted in foreign currencies and the price of our products in those markets
for which sales are denominated in the U.S. dollar.

We are seeking to increase our presence in international markets, particularly
in Europe, through acquisitions of businesses with an existing international
sales and marketing infrastructure or the capacity to develop such an
infrastructure.

In 1999 and 1998, respectively, sales outside the United States totaled $9.1
million and $2.3 million, respectively. All of these product sales were
generated from operations based in the United States and were denominated in
U.S. dollars.

LIQUIDITY AND CAPITAL RESOURCES

We have historically experienced significant operating losses. To date, we have
funded our operations primarily through private and public offerings of equity
securities, product revenues, research and collaboration funding, borrowings
under a revolving credit line and cash acquired in connection with business
acquisitions and dispositions.

Excluding the $13.5 million stock-based compensation charge, we would have
reported operating income of $1.8 million for the year ended December 31, 2000.
However, the Company did not generate positive operating cash flows in 2000
because of a significant increase in working capital. We expect that we will be
able to achieve sustained operating profitability and positive operating cash
flows in the future. At December 31, 2000, we had cash, cash equivalents and
short-term investments of approximately $15.1 million and $13.6 million in short
and long-term debt.

Our principal uses of funds during 2000 were $4.1 million for the acquisition of
CNS, $12.1 million for the acquisition of certain product lines from NMT, $3.3
million in purchases of property and equipment, $2.3 million of term loan
repayments, and $5.0 million used in operations. Operating cash flow was
negative in 2000 primarily because of increased inventory to support the growth
in the business, increased accounts receivable balances generated from higher
product sales, and an increase in demonstration equipment and sample product
provided to the significantly larger Integra NeuroSciences sales force. In 1999,
cash flow from operations was positive primarily because of a $5.7 million
increase in deferred revenues, most of which was provided by cash received under
the Ethicon Agreement.

In 2000, we raised $5.4 million from the sale of Series C Preferred Stock and
warrants to affiliates of Soros Private Equity Partners LLC, $5.0 million from a
private placement of common stock, $3.2 million from the issuance of common
stock through employee benefit plans, $3.1 million of proceeds from short-term
borrowings, and $1.6 million from the sale of product lines.

We maintain a term loan and revolving credit facility from Fleet Capital
Corporation (collectively, the "Fleet Credit Facility"), which is collateralized
by all of the assets and ownership interests of various of our subsidiaries
including Integra NeuroCare LLC, and NeuroCare Holding Corporation (the parent
company of Integra NeuroCare LLC) has guaranteed Integra NeuroCare LLC's
obligations. Integra NeuroCare LLC is subject to various financial and
non-financial covenants under the Fleet Credit Facility, including significant
restrictions on its ability to transfer funds to us or our other subsidiaries
and restrictions on its ability to borrow more money. The financial covenants
specify minimum levels of interest and fixed charge coverage and net worth, and
also specify maximum levels of capital expenditures and total indebtedness to
operating cash flow, among others. While we anticipate that Integra NeuroCare
LLC will be able to satisfy the requirements of these financial covenants, there
can be no assurance that Integra NeuroCare LLC will generate sufficient earnings
before interest, taxes, depreciation and amortization to meet the requirements
of such covenants. The term loan is subject to mandatory prepayment amounts if
certain levels of cash flow are achieved. In 2001, Integra NeuroCare LLC
anticipates prepaying approximately $2.1 million in principal as a result of
such provisions in addition to scheduled quarterly principal payments.

Additionally, in January 2000, we issued a 5% $2.8 million promissory note to
the seller of the CNS business. The promissory note, which is payable in two
principal payments of $1.4 million each, plus accrued interest, in January 2001
and 2002, is collateralized by inventory, property and equipment of the CNS
business and by a collateral assignment of a $2.8 million promissory note from
one of our subsidiaries. The first principal payment, including accrued
interest, was paid on January 16, 2001.

In the short-term, we believe that we have sufficient resources to fund our
operations. However, in the longer-term, there can be no assurance that we will
be able to generate sufficient revenues to obtain positive operating cash flows
or profitability or to find acceptable alternatives to finance future
acquisitions.

OTHER MATTERS

Net Operating Losses

At December 31, 2000, several of the Company's subsidiaries had unused NOL and
tax credit carryforwards arising from periods prior to the Company's ownership.
Excluding the Company's Telios Pharmaceuticals, Inc. subsidiary ("Telios")),
approximately $9 million of these NOL's for federal income tax purposes expire
between 2001 and 2005. The Company's Telios subsidiary has approximately $84
million of net operating losses, which expire between 2002 and 2010. The amount
of Telios' net operating loss that is available and the Company's ability to
utilize such loss is dependent on the determined value of Telios at the date of
acquisition. The Company's has a valuation allowance of $45 million recorded
against all deferred tax assets, including the net operating losses, due to the
uncertainty of realization. The timing and manner in which these acquired net
operating losses may be utilized in any year by the Company are severely limited
by the Internal Revenue Code of 1986, as amended, Section 382 and other
provisions of the Internal Revenue Code and its applicable regulations.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Investments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivatives and hedging activities and supercedes
several existing standards. SFAS No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The adoption of SFAS No. 133 will not have a material impact on the consolidated
financial statements.

In December 1999 (as amended in March 2000 and June 2000) the staff of the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101,
Revenue Recognition (the "SAB"). As the result of the adoption of the SAB, we
recorded a $470,000 cumulative effect of an accounting change to defer a portion
of a nonrefundable, up-front fee received and recorded in other revenue in 1998.
The cumulative effect of this accounting change was measured as of January 1,
2000. As a result of this accounting change, other revenue for the year ended
December 31, 2000 includes $112,000 of amortization of the amount deferred as of
January 1, 2000.

In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 "Accounting for Certain Transactions Involving Stock Compensation -an
interpretation of APB Opinion No. 25". ("FIN No. 44"). FIN No. 44 clarifies the
application of APB Opinion 25 for certain issues. FIN No. 44 became effective
July 1, 2000, but certain conclusions cover specific events that occurred after
either December 15, 1998, or January 12, 2000. The adoption of FIN No. 44 did
not have an impact on our consolidated financial statements.

In September 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities - a replacement of FASB
Statement No. 125" ("SFAS No. 140"). SFAS No. 140 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS No. 140 is effective for fiscal years
ending after December 15, 2000. The adoption of SFAS No. 140 did not have any
impact on the Company's consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks arising from an increase in interest rates
payable on the variable rate Fleet Credit Facility. For example, based on the
remaining term loan and revolving credit facility outstanding at December 31,
2000, an annual interest rate increase of 100 basis points would increase
interest expense by approximately $108,000.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements and the financial statement schedules specified by this
Item, together with the reports thereon of PricewaterhouseCoopers LLP, are
presented following Item 14 of this report.

Information on quarterly results of operations is set forth in our financial
statements under "Notes to Consolidated Financial Statements, Note 17 - Selected
Quarterly Information (Unaudited)".

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

INCORPORATED BY REFERENCE

The information called for by Item 10 "Directors and Executive Officers of the
Registrant" (other than the information concerning executive officers set forth
after Item 4 herein), Item 11 "Executive Compensation", Item 12 "Security
Ownership of Certain Beneficial Owners and Management" and Item 13 "Certain
Relationships and Related Transactions" is incorporated herein by reference to
the Company's definitive proxy statement for its Annual Meeting of Stockholders
scheduled to be held on May 15, 2001, which definitive proxy statement is
expected to be filed with the Commission not later than 120 days after the end
of the fiscal year to which this report relates.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as a part of this report.

1. Financial Statements. The following financial statements and financial
statement schedule are filed as a part of this report.

Report of Independent Accountants ....................................... F-1

Consolidated Balance Sheets as of December 31, 2000 and 1999 ............ F-2

Consolidated Statements of Operations for the years ended
December 31, 2000, 1999, and 1998 ...................................... F-3

Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998 ...................................... F-4

Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 2000, 1999, and 1998 .................. F-5

Notes to Consolidated Financial Statements .............................. F-6

Report of Independent Accountants on Financial Statement Schedules ...... F-28

Financial Statement Schedules ........................................... F-29

All other schedules not listed above have been omitted, because they are not
applicable or are not required, or because the required information is included
in the consolidated financial statements or notes thereto.

2. Exhibits.

Number Description Location
------- ------------------------------------------------------ ------------

2.1 Purchase Agreement dated January 5, 1999 among
Integra LifeSciences Corporation, Rystan Company,
Inc. and Healthpoint, Ltd.** (11) (Exh. 2)

2.2 Asset Purchase Agreement dated March 29, 1999 among
Heyer-Shulte NeuroCare, L.P., Neuro Navigational,
L.L.C., Integra NeuroCare LLC and Redmond NeuroCare
LLC.** (12) (Exh. 2)

2.3 Asset Purchase Agreement, dated as of January 14,
2000, among Clinical Neuro Systems Holdings LLC,
Clinical Neuro Systems, Inc., Surgical Sales
Corporation (trading as Connell Neurosurgical) and
George J. Connell. (15)** (Exh. 2)

Number Description Location
------- ------------------------------------------------------ ------------
2.4 Asset Purchase Agreement dated March 20, 2000 by and
among Integra Selector Corporation, NMT Neurosciences
(US), Inc. and NMT Medical, Inc. (16)** (Exh. 2.1)

2.5 Purchase Agreement dated March 20, 2000 by and among
NMT Medical, Inc., NMT Neurosciences (US), Inc., NMT
Neurosciences Holdings (UK) Ltd., NMT Neurosciences
(UK) Ltd., Spembly Medical Ltd., Spembly Cryosurgery
Ltd., Swedemed AB, Integra Neurosciences Holdings
(UK) Ltd. and Integra Selector Corporation. (16)** (Exh. 2.2)

3.1(a) Amended and Restated Certificate of Incorporation of
the Company (2) (Exh. 3.1)

3.1(b) Certificate of Amendment to Amended and Restated
Certificate of Incorporation dated May 23, 1998 (3) (Exh.3.1(b))

3.2 Amended and Restated By-laws of the Company (8) (Exh. 3)

4.1 Certificate of Designation, Preferences and Rights of
Series A Convertible Preferred Stock as filed with
the Delaware Secretary of State on April 14, 1998.
(6) (Exh. 3)

4.2(a) Certificate of Designation, Preferences and Rights of
Series B Convertible Preferred Stock as filed with
the Delaware Secretary of State on March 12, 1999 (3) (Exh. 4.2)

4.2(b) Certificate of Amendment of Certificate of
Designation, Rights and Preferences of Series B
Convertible Preferred Stock of Integra LifeSciences
Holdings Corporation dated March 21, 2000. (17) (Exh. 4.2)

4.3 Warrant to Purchase 60,000 shares of Common Stock of
Integra LifeSciences Corporation issued to SFM
Domestic Investments LLC. (12) (Exh. 4.2)

4.4 Warrant to Purchase 180,000 shares of Common Stock of
Integra LifeSciences Corporation issued to Quantum
Industrial Partners LDC. (12) (Exh. 4.3)

4.5 Certificate of Designation, Rights and Preferences of
Series C Convertible Preferred Stock of Integra
LifeSciences Holdings Corporation dated March 21,
2000. (17) (Exh. 4.1)

4.6 Warrant to Purchase 270,550 Shares of Common Stock of
Integra LifeSciences Holdings Corporation issued to
Quantum Industrial Partners LDC. (17) (Exh. 4.3)

4.7 Warrant to Purchase 29,450 Shares of Common Stock of
Integra LifeSciences Holdings Corporation issued to
SFM Domestic Investments LLC. (17) (Exh. 4.4)

4.8 Stock Option Grant and Agreement dated December 22,
2000 between Integra LifeSciences Holdings
Corporation and Stuart M. Essig* (22) (Exh. 4.1)

4.9 Stock Option Grant and Agreement dated December 22,
2000 between Integra LifeSciences Holdings
Corporation and Stuart M. Essig* (22) (Exh. 4.2)

4.10 Restricted Units Agreement dated December 22, 2000
between Integra LifeSciences Holdings Corporation and
Stuart M. Essig* (22) (Exh. 4.3)

10.1 License Agreement between MIT and the Company dated
as of December 29, 1993 (2) (Exh. 10.1)

10.2 Exclusive License Agreement between the Company and
Rutgers University dated as of December 31, 1994 (2) (Exh. 10.5)

10.3 License Agreement for Adhesion Peptides Technology
between La Jolla Cancer Research Foundation and
Telios dated as of June 24, 1987 (2) (Exh. 10.6)

10.4 Supply Agreement between Genetics Institute, Inc. and
the Company Dated as of April 1, 1994 (2) (Exh. 10.12)

10.5(a) Stockholder Rights Agreement between the Company and
Union Carbide dated as of April 30, 1993 ("Carbide
Agreement") (2) (Exh. 10.27(a))

10.5(b) Amendment dated November 30, 1993 to Carbide
Agreement (2) (Exh. 10.27(b))

Number Description Location
------- ------------------------------------------------------ ------------
10.6(a) Real Estate Lease & Usage Agreement between BHP
Diagnostics, Inc. Medicus Technologies, Inc.,
Integra, Ltd. and the Company dated as Of
May 1, 1994 (2) (Exh. 10.28)

10.6(b) Shared Facilities Usage Agreement Between BHP
Diagnostics, Inc., Medicus Technologies, Inc.,
Integra, Ltd. and the Company dated as of
May 1, 1994 (2) (Exh. 10.29)

10.6(c) Agreement dated June 30, 1998 by and among BHP
Diagnostics, Medicus Corporation, Integra
Lifesciences I, Ltd. and Integra Lifesciences
Corporation (3) (Exh. 10.18(c))

10.7 Lease between Plainsboro Associates and American
Biomaterials Corporation dated as of April 16, 1985,
as assigned to Colla-Tec, Inc. on October 24, 1989
and as amended through November 1, 1992 (2) (Exh. 10.30)

10.8 Equipment Lease Agreement between Medicus Corporation
and the Company, dated as of June 1, 2000. (20) (Exh. 10.1)

10.9 Form of Indemnification Agreement between the Company
and [ ] dated August 16, 1995, including a
schedule identifying the individuals that are a party
to such Indemnification Agreements(4) (Exh. 10.37)

10.10 1992 Stock Option Plan* (2) (Exh. 10.31)

10.11 1993 Incentive Stock Option and Non-Qualified Stock
Option Plan* (2) (Exh. 10.32)

10.12(a) 1996 Incentive Stock Option and Non-Qualified Stock
Option Plan* (5) (Exh. 4.3)

10.12(b) Amendment to 1996 Incentive Stock Option and
Non-Qualified Stock Option Plan* (8) (Exh. 10.4)

10.13 1998 Stock Option Plan* (7) (Exh. 10.2)

10.14 1999 Stock Option Plan* (18) (Exh. 10.13)

10.15 Employee Stock Purchase Plan* (7) (Exh. 10.1)

10.16 Deferred Compensation Plan* (18) (Exh. 10.15)

10.17 2000 Equity Incentive Plan* (23) (Exh. 10.17)

10.18 Series B Convertible Preferred Stock and Warrant
Purchase Agreement dated March 29, 1999 among Integra
LifeSciences Corporation, Quantum Industrial Partners
LDC and SFM Domestic Investments LLC (12) (Exh. 10.1)

10.19 Registration Rights Agreement dated March 29, 1999
among Integra LifeSciences Corporation, Quantum
Industrial Partners LDC and SFM Domestic Investments
LLC (12) (Exh. 10.2)

10.20 Series C Convertible Preferred Stock and Warrant
Purchase Agreement dated February 16, 2000 among
Integra LifeSciences Holdings Corporation, Quantum
Industrial Partners LDC and SFM Domestic Investments
LLC. (17) (Exh. 10.1)

10.21 Amended and Restated Registration Rights Agreement
dated March 29, 2000 among Integra LifeSciences
Holdings Corporation, Quantum Industrial Partners LDC
and SFM Domestic Investments LLC. (17) (Exh. 10.2)

10.22 Stock Purchase Agreement dated September 28, 2000
among Integra LifeSciences Holdings Corporation and
ArthroCare Corporation (21) (Exh. 10.1)

10.23(a)Employment Agreement dated December 27, 1997 between
the Company and Stuart M. Essig* (8) (Exh. 10.1)

10.23(b)Amended and Restated Employment Agreement dated
December 22, 2000 between Integra LifeSciences
Holdings Corporation and Stuart M. Essig* (22) (Exh. 10.1)

10.24 Stock Option Grant and Agreement dated December 27,
1997 between the Company and Stuart M. Essig*(8) (Exh. 10.2)

10.25 Restricted Units Agreement dated December 27, 1997
between the Company and Stuart M. Essig* (8) (Exh. 10.3)

Number Description Location
------- ------------------------------------------------------ ------------
10.26 Indemnity letter agreement dated December 27, 1997
from the Company to Stuart M. Essig* (8) (Exh. 10.5)

10.27 Registration Rights Provisions* (22) (Exh. 10.2)

10.28 Employment Agreement between John B. Henneman, III
and the Company dated September 11, 1998* (10) (Exh. 10)

10.29 Employment Agreement between George W. McKinney, III
and the Company dated December 31, 1998* (3) (Exh. 10.36)

10.30 Employment Agreement between Judith O'Grady and the
Company dated December 31, 1998* (3) (Exh. 10.37)

10.31 Employment Agreement between David B. Holtz and the
Company dated December 31, 1998* (3) (Exh. 10.38)

10.32 Employment Agreement between Michael D. Pierschbacher
and the Company dated December 31, 1998* (19) (Exh. 10.8)

10.33 Employment Agreement between Donald R. Nociolo and
the Company dated December 31, 1998* (19) (Exh. 10.9)

10.34(a) Amended and Restated Loan and Security Agreement
dated March 29, 1999 among the Lenders named therein,
Fleet Capital Corporation, Integra NeuroCare LLC and
other Borrowers named therein. (12) (Exh. 10.3)

10.34(b) Amendment No. 1, dated September 29, 1999, to the
Amended and Restated Loan and Security Agreement
dated March 29, 1999 among the Lenders named therein,
Fleet Capital Corporation, Integra NeuroCare LLC and
other Borrowers named therein. (14) (Exh. 10.1)

10.35 Substituted and Amended Term Note dated March 29,
1999 by Integra NeuroCare LLC, Redmond NeuroCare LLC,
Heyer-Schulte NeuroCare, Inc. and Camino NeuroCare,
Inc. to Fleet Capital Corporation. (12) (Exh. 10.4)

10.36 Secured Promissory Note, dated January 14, 2000, from
Clinical Neuro Systems Holdings LLC to Clinical Neuro
Systems, Inc. (15) (Exh. 10.1)

10.37 Security Agreement, dated as of January 14, 2000,
among Clinical Neuro Systems Holdings LLC, Clinical
Neuro Systems, Inc. and George J. Connell. (15) (Exh. 10.2)

10.38 Collateral Assignment, dated as of January 14, 2000,
from Clinical Neuro Systems Holdings LLC to Clinical
Neuro Systems, Inc. and George J. Connell. (15) (Exh. 10.3)

10.39 Subordinated Promissory Note, dated January 14, 2000,
from Integra LifeSciences Corporation to Clinical
Neuro Systems Holdings LLC. (15) (Exh. 10.4)

10.40 Consulting Agreement, dated January 14, 2000, between
Integra LifeSciences Corporation and George J.
Connell. (15) (Exh. 10.5)

10.41 Supply, Distribution and Collaboration Agreement
between Integra LifeSciences Corporation and Johnson
& Johnson Medical, a Division of Ethicon, Inc. dated
as of June 3, 1999, certain portions of which are
subject to a request for confidential treatment under
Rule 24b-2 of the Securities Exchange Act of 1934. (13) (Exh. 10.1)

10.42 Lease Contract dated June 30, 1994 between the Puerto
Rico Industrial Development Company and Heyer-Schulte
NeuroCare, Inc. (18) (Exh. 10.32)

10.43 Industrial Real Estate Triple Net Sublease dated
April 1, 1993 between GAP Portfolio Partners and
Camino Laboratories. (18) (Exh. 10.33)

10.44 Industrial Real Estate Triple Net Sublease dated
January 15, 1997 between Sorrento Montana, L.P. and
Camino NeuroCare, Inc. (18) (Exh. 10.34)

21 Subsidiaries of the Company (23) (Exh. 21)

23 Consent of PricewaterhouseCoopers LLP (1)

* Indicates a management contract or compensatory plan or arrangement.

** Schedules and other attachments to the indicated exhibit were omitted. The
Company agrees to furnish supplementally to the Commission upon request a
copy of any omitted schedules or attachments.

(1) Filed herewith.

(2) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form 10/A (File No. 0-26224) which became
effective on August 8, 1995.
44

(3) Incorporated by reference to the indicated exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.

(4) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-98698) which became
effective on January 24, 1996.

(5) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-8 (File No. 333-06577) which became
effective on June 22, 1996.

(6) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 10-Q for the quarter ended March 31, 1998.

(7) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-8 (File No. 333-58235) which became
effective on June 30, 1998.

(8) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 8-K filed on February 3, 1998.

(9) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 8-K filed on October 13, 1998.

(10) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 10-Q for the quarter ended September 30, 1998.

(11) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 8-K filed on January 20, 1999.

(12) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 8-K filed on April 13, 1999.

(13) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 10-Q for the quarter ended June 30, 1999.

(14) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 10-Q for the quarter ended September 30, 1999.

(15) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 8-K filed on January 27, 2000.

(16) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 8-K filed on March 28, 2000.

(17) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 8-K filed on April 10, 2000.

(18) Incorporated by reference to the indicated exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.

(19) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 10-Q for the quarter ended March 31, 2000.

(20) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 10-Q for the quarter ended June 30, 2000.

(21) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 8-K filed on October 12, 2000.

(22) Incorporated by reference to the indicated exhibit to the Company's Report
on Form 8-K filed on January 8, 2001.

(23) Incorporated by reference to the indicated exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 as filed on April
2, 2001.

(b) Reports on Form 8-K:

The Company filed with the Securities and Exchange Commission a Report on
Form 8-K dated December 22, 2000 with respect to execution of an Amended
and Restated Employment Agreement with Stuart M. Essig, Integra's current
President and Chief Executive Officer, extending the term of Mr. Essig's
employment with Integra as its President and Chief Executive Officer
through December 31, 2005.

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, as of the 24th day of May, 2001.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

By: /s/ Stuart M. Essig
-----------------------------
Stuart M. Essig
President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, on behalf of the
registrant in the capacities indicated, on the 24th day of May, 2001.

Signature Title

/s/ Stuart M. Essig President, Chief Executive Officer
-------------------------------- and Director
Stuart M. Essig (Principal Executive Officer)

/s/ George W. McKinney, III Executive Vice President, Chief
-------------------------------- Operating Officer and Director
George W. McKinney, III, Ph.D.

/s/ David B. Holtz Senior Vice President, Finance and Treasurer
-------------------------------- (Principal Financial and Accounting
David B. Holtz Officer)

/s/ Richard E. Caruso Chairman of the Board
--------------------------------
Richard E. Caruso, Ph.D.

/s/ Keith Bradley Director
--------------------------------
Keith Bradley, Ph.D.

/s/ Neal Moszkowski Director
--------------------------------
Neal Moszkowski

/s/ James M. Sullivan Director
--------------------------------
James M. Sullivan

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Integra LifeSciences
Holdings Corporation and Subsidiaries:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Integra
LifeSciences Holdings Corporation and Subsidiaries (the "Company") at December
31, 2000 and 1999 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.

As discussed more fully in Note 2 to the consolidated financial statements, the
Company has restated its 2000 and 1999 consolidated financial statements to
account for the redemption features of the Series B and Series C Convertible
Preferred Stock ("Series B and Series C Preferred") issued in March 1999 and
March 2000, respectively. The carrying value of the Series B and Series C
Preferred, which was previously presented as redeemable preferred stock, outside
of stockholders' equity, has been reclassified as a component of stockholders'
equity. The restatement of the 2000 and 1999 consolidated financial statements
had no effect on the Company's net loss, net loss per share, total assets or
total liabilities.

As discussed more fully in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for nonrefundable fees received under
its various research, license and distribution agreements.

PRICEWATERHOUSECOOPERS LLP

Florham Park, New Jersey
February 23, 2001, except for Note 18,
as to which the date is March 16, 2001,
and Note 2, as to which the date is
May 14, 2001

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

In thousands, except per share amounts

December 31,
-----------------------
Restated
(See Note 2)
ASSETS 2000 1999
--------- ---------
Current Assets:
Cash and cash equivalents ........................ $ 14,086 $ 19,301
Short-term investments ........................... 1,052 4,311
Accounts receivable, net of allowances
of $1,003 and $944 ............................. 13,087 8,365
Inventories ...................................... 16,508 10,111
Prepaid expenses and other current assets ........ 1,484 718
--------- ---------
Total current assets ......................... 46,217 42,806
Property, plant, and equipment, net ............... 11,599 9,699
Goodwill and other intangible assets, net ......... 25,299 13,219
Other assets ...................................... 3,399 529
--------- ---------
Total assets ....................................... $ 86,514 $ 66,253
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Short-term debt .................................. $ 8,872 $ 2,254
Accounts payable, trade .......................... 3,363 994
Income taxes payable ............................. 1,200 643
Customer advances and deposits ................... 823 3,901
Deferred revenue ................................. 1,675 1,460
Accrued expenses and other current liabilities ... 5,107 5,540
--------- ---------
Total current liabilities .................... 21,040 14,792

Long-term debt .................................... 4,758 7,625
Deferred revenue .................................. 4,728 5,049
Deferred income taxes ............................. 1,788 392
Other liabilities ................................. 419 406
--------- ---------
Total liabilities .................................. 32,733 28,264

Commitments and contingencies

Stockholders' Equity:

Common stock; $.01 par value;
60,000 authorized shares;
17,334 and 16,131 issued and
outstanding at December 31, 2000
and 1999 ....................................... 173 161
Additional paid-in capital ....................... 160,134 132,340
Treasury stock, at cost; 20 and 1 shares
at December 31, 2000 and 1999, respectively .... (180) (7)
Other ............................................ (66) (143)
Accumulated other comprehensive loss ............. (553) (64)
Accumulated deficit .............................. (105,729) (94,304)
--------- ---------
Total stockholders' equity ..................... 53,781 37,989
--------- ---------
Total liabilities
and stockholders' equity ....................... $ 86,514 $ 66,253
========= =========
The accompanying notes are an integral part
of these consolidated financial statements

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except per share amounts Years Ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
REVENUES
Product sales .............................. $ 64,987 $ 40,047 $ 14,182
Other revenue .............................. 6,662 2,829 3,379
-------- -------- --------
Total revenue .......................... 71,649 42,876 17,561

COSTS AND EXPENSES
Cost of product sales ...................... 29,511 22,678 7,580
Research and development ................... 7,524 8,893 8,424
Selling and marketing ...................... 15,371 9,487 5,901
General and administrative ................. 28,483 13,324 9,787
Amortization ............................... 2,481 874 49
-------- -------- --------
Total costs and expenses ............... 83,370 55,256 31,741

Operating loss ............................. (11,721) (12,380) (14,180)

Interest income ............................ 804 1,006 1,250
Interest expense ........................... (1,277) (712) --
Gain on dispositions of product lines ...... 1,146 4,161 --
Other income ............................... 201 141 588
-------- -------- --------
Net loss before income taxes ............... (10,847) (7,784) (12,342)

Income tax expense (benefit) ............... 108 (1,818) --
-------- -------- --------
Net loss before cumulative effect
of accounting change ..................... (10,955) (5,966) (12,342)

Cumulative effect of change in
accounting for nonrefundable fees
received under research, license
and distribution arrangements ............ (470) -- --
-------- -------- --------

Net loss ................................... $(11,425) $ (5,966) $(12,342)
======== ======== ========

Basic and diluted net loss per share:
Before cumulative effect of
accounting change ...................... $ (0.95) $ (0.40) $ (0.77)
Accounting change ........................ (0.02) -- --
-------- -------- --------
Net loss per share ................... $ (0.97) $ (0.40) $ (0.77)
======== ======== ========

Weighted average common shares
outstanding .............................. 17,553 16,802 16,139
======== ======== ========

Pro forma amounts assuming retroactive
application of accounting change:

Total revenues ............................. $ 71,649 $ 42,974 $ 16,993
Net loss ................................... (10,955) (5,868) (12,910)
Basic and diluted net loss per share ....... (0.95) (0.40) (0.80)

The accompanying notes are an integral part
of these consolidated financial statements

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands Years Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
OPERATING ACTIVITIES:
Net loss .................................. $(11,425) $ (5,966) $(12,342)
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Depreciation and amortization ............ 5,357 3,104 1,438
Gain on sale of product line and
other assets ......................... (1,316) (3,998) (64)
Deferred tax benefit ..................... -- (1,807) --
Amortization of discount and interest
on investments ....................... (181) (291) (481)
Stock based compensation ................. 13,587 370 319
Other, net ............................... 43 -- 145
Changes in assets and liabilities,
net of business acquisitions:
Accounts receivable .................... (3,475) (510) (287)
Inventories ............................ (3,061) 2,829 527
Prepaid expenses and other
current assets ....................... (571) 217 65
Non-current assets ..................... (3,565) (80) 64
Accounts payable, accrued expenses
and other current liabilities ........ 2,831 (677) 802
Customer advances and deposits ......... (3,078) 3,652 --
Deferred revenue ....................... (106) 5,659 --
-------- -------- --------
Net cash (used in) provided by
operating activities ................. (4,960) 2,502 (9,814)
-------- -------- --------
INVESTING ACTIVITIES:
Proceeds from sale of product line
and other assets ..................... 1,600 6,354 48
Proceeds from the sales/maturities
of investments ....................... 16,981 26,000 33,020
Purchases of available for
sale investments ..................... (13,391) (14,737) (23,774)
Purchases of property and equipment ....... (3,268) (2,309) (1,166)
Cash acquired in a business acquisition ... -- -- 1,118
Cash used in business acquisition,
net of cash acquired ................. (16,187) (14,944) --
Loans made ................................ (238) -- --
-------- -------- --------
Net cash (used in) provided by
investing activities ................. (14,503) 364 9,246
-------- -------- --------
FINANCING ACTIVITIES:
Net proceeds from revolving
credit facility ...................... 3,143 4 --
Repayments of term loan ................... (2,250) (1,125) --
Proceeds from sales of preferred stock
and warrants ......................... 5,375 9,942 4,000
Proceeds from the issuance of common stock 5,000 -- --
Proceeds from exercise of common stock
purchase warrants .................... 50 1,950 --
Proceeds from stock issued under
employee benefit plans ............... 3,156 467 95
Purchases of treasury stock ............... (170) -- (286)
Collection of related party
note receivable ...................... 35 -- --
Preferred dividends paid .................. (67) (80) (47)
-------- -------- --------
Net cash provided by
financing activities ................. 14,272 11,158 3,762
Effect of exchange rate changes on cash
and cash equivalents ................. (24) -- --
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents ..................... (5,215) 14,024 3,194
Cash and cash equivalents at beginning
of period ............................ 19,301 5,277 2,083
-------- -------- --------
Cash and cash equivalents at end of period .... $ 14,086 $ 19,301 $ 5,277
======== ======== ========
Cash paid during the year for interest ........ $ 922 $ 654 $ --
Cash paid during the year for income taxes .... 508 124 --

Supplemental disclosure of non-cash investing
and financing activities:
Issuance of Restricted Units .............. $ 13,515 $ -- $ --
Note issued in a business acquisition ..... 2,598 -- --
Common stock and warrants issued in
settlement of obligations ............ 641 15 56
Term loan assumed in connection with
a business acquisition ............... -- 11,000 --
Common stock and warrants issued in
business acquisition ................. -- -- 3,886

The accompanying notes are an integral part
of these consolidated financial statements

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

In thousands

Accumu-
Preferred lated
Common Stock Stock Additional Compre-
--------------- -------------- Treasury Paid-In hensive Accumulated Total
Shares Amount Shares Amount Stock Capital Other Loss Deficit Equity
------ ------ ------ ---- ----- --------- ----- ----- --------- --------

Balance, December 31, 1997 ..... 14,952 $ 150 -- $ -- $ -- $ 111,877 $(301) $ (26) $ (75,945) $ 35,755
====== ====== ====== ==== ===== ========= ===== ===== ========= ========

Net loss ....................... -- -- -- -- -- -- -- -- (12,342) (12,342)
Unrealized losses
on investments ............... -- -- -- -- -- -- -- (14) -- (14)
Issuance of Series A
Preferred Stock .............. -- -- 500 5 -- 3,995 -- -- -- 4,000
Issuance of common stock under
employee benefit plans ....... 31 -- -- -- -- 95 -- -- -- 95
Common stock and warrants
issued in connection with a
business acquisition ......... 800 8 -- -- -- 3,878 -- -- -- 3,886
Unearned compensation
related to non-employee
stock options ................ -- -- -- -- -- 145 (145) -- -- --
Amortization of unearned
compensation ................. -- -- -- -- -- -- 263 -- -- 263
Warrant issued for services
rendered ..................... -- -- -- -- -- 56 -- -- -- 56
Dividends paid on Series A
Preferred Stock .............. -- -- -- -- -- (47) -- -- -- (47)
Purchases of treasury stock .... -- -- -- -- (286) -- -- -- -- (286)

Balance, December 31, 1998 ..... 15,783 158 500 5 (286) 119,999 (183) (40) (88,287) 31,366
====== ====== ====== ==== ===== ========= ===== ===== ========= ========

Net loss ....................... -- -- -- -- -- -- -- -- (5,966) (5,966)
Unrealized losses on
investments.................. -- -- -- -- -- -- -- (24) -- (24)
Issuance of Series B
Preferred Stock and warrants.. -- -- 100 1 -- 9,941 -- -- -- 9,942
Issuance of common stock under
employee benefit plans ....... 48 -- -- -- 264 203 -- -- (51) 416
Warrants exercised for cash .... 300 3 -- -- -- 1,947 -- -- -- 1,950
Issuance of stock in
settlement of obligation ..... -- -- -- -- 15 -- -- -- -- 15
Unearned compensation related
to non-employee stock options -- -- -- -- -- 241 (241) -- -- --
Amortization of unearned
compensation ................. -- -- -- -- -- -- 281 -- -- 281
Compensation recorded in
connection with stock
options granted to employees . -- -- -- -- -- 89 -- -- -- 89
Dividends paid on Series A
Preferred Stock .............. -- -- -- -- -- (80) -- -- -- (80)
Balance, December 31, 1999 ..... 16,131 161 600 6 (7) 132,340 (143) (64) (94,304) 37,989
====== ====== ====== ==== ===== ========= ===== ===== ========= ========

Net loss ....................... -- -- -- -- -- -- -- -- (11,425) (11,425)
Unrealized losses on
investments .................. -- -- -- -- -- -- -- (32) -- (32)
Foreign currency translation
adjustment ................... -- -- -- -- -- -- -- (457) -- (457)
Issuance of Series C Preferred
Stock and warrants ......... -- -- 54 1 -- 5,374 -- -- -- 5,375
Conversion of Series A
Preferred Stock .............. 250 3 (500) (5) -- 2 -- -- -- --
Private placement of
common stock ................. 333 3 -- -- -- 4,997 -- -- -- 5,000
Issuance of common stock under
employee benefit plans ....... 564 6 -- -- -- 3,201 -- -- -- 3,207
Warrants exercised for cash .... 11 -- -- -- -- 50 -- -- -- 50
Issuance of stock in
settlement of obligation ..... 45 -- -- -- -- 641 -- -- -- 641
Amortization of unearned
compensation ................. -- -- -- -- -- -- 72 -- -- 72
Tax benefit related to
stock options ................ -- -- -- -- -- 51 -- -- -- 51
Issuance of Restricted Units ... -- -- -- -- -- 13,515 -- -- -- 13,515
Unearned compensation
related to non-employee
stock options ................ -- -- -- -- -- 30 (30) -- -- --
Dividends paid on Series A
Preferred Stock .............. -- -- -- -- -- (67) -- -- -- (67)
Purchases of treasury stock .... -- -- -- -- (173) -- -- -- -- (173)
Collection of related party
note receivable .............. -- -- -- -- -- -- 35 -- -- 35

Balance, December 31, 2000 ..... 17,334 $ 173 154 $ 2 $(180) $ 160,134 $ (66) $(553) $(105,729) $ 53,781
====== ====== ====== ==== ===== ========= ===== ===== ========= ========

The accompanying notes are an integral part
of these consolidated financial statements

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS

Integra LifeSciences Holdings Corporation (the "Company") develops, manufactures
and markets medical devices, implants and biomaterials. The Company's operations
consist of (1) Integra NeuroSciences, which is a leading provider of implants,
devices, and monitors used in neurosurgery, neurotrauma, and related critical
care and (2) Integra LifeSciences, which develops and manufactures a variety of
medical products and devices, including products based on our proprietary tissue
regeneration technology which are used to treat soft tissue and orthopedic
conditions. Integra NeuroSciences sells primarily through a direct sales
organization and Integra LifeSciences sells primarily through strategic
alliances and distributors.

There are certain risks and uncertainties inherent in the Company's business. To
date, the Company has experienced significant operating losses in funding the
research, development, manufacturing and marketing of its products and may
continue to incur operating losses. The industry and market segments in which
the Company operates are highly competitive, and the Company may not be able to
compete effectively with other companies with greater financial resources. In
general, the medical technology industry is characterized by intense
competition, which comes from established pharmaceutical and medical technology
companies and early stage companies that have alternative technological
solutions for the Company's primary clinical targets, as well as universities,
research institutions and other non-profit entities. The Company's competitive
position and profitability will depend on its ability to achieve market
acceptance for its products, implement production and marketing plans, secure
regulatory approval for products under development, obtain patent protection and
secure adequate capital resources.

The Company believes that current cash balances and funds available from
existing revenue sources will be sufficient to finance the Company's anticipated
operations for at least the next twelve months. The Company may in the future
seek to issue equity securities or enter into other financing arrangements with
strategic partners to raise funds in excess of its anticipated liquidity and
capital requirements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All intercompany accounts and
transactions are eliminated in consolidation.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current
year presentation.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Investments

The Company's current investment policy is to invest available cash balances in
high quality debt securities with maturities not to exceed 18 months. Realized
gains and losses are determined on the specific identification cost basis. All
investments are classified as available for sale, with unrealized gains and
losses reported in other comprehensive loss.

Inventories

Inventories, consisting of purchased materials, direct labor and manufacturing
overhead, are stated at the lower of cost, determined on the first-in, first-out
method, or market.

Property, Plant and Equipment

Property, plant and equipment is stated at cost. The Company provides for
depreciation using the straight-line method over the estimated useful lives of
the assets as follows: buildings, 30 to 40 years; machinery and equipment, 3 to
15 years; furniture and fixtures, 5 to 7 years; and leasehold improvements, over
the lesser of the minimum lease term or the remaining life of the asset. The
cost of major additions and improvements is capitalized. Maintenance and repair
costs that do not improve or extend the lives of the respective assets are
charged to operations as incurred.

Goodwill and Other Intangible Assets

Goodwill other intangible assets are stated at cost and are amortized on a
straight-line basis over periods ranging from two to fifteen years.

Long-Lived Assets

Long-lived assets held and used by the Company, including goodwill and other
intangibles, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets
to be held and used, a recoverability test is performed using projected
undiscounted net cash flows applicable to the long-lived assets. If an
impairment exists, the amount of such impairment is calculated based on the
estimated fair value of the asset. Impairments to long-lived assets to be
disposed of are recorded based upon the fair value of the applicable assets.

Preferred Stock

As described in Note 9, the Company issued 100,000 shares of Series B
Convertible Preferred Stock ("Series B Preferred") and warrants in March 1999
and 54,000 shares of Series C Convertible Preferred Stock ("Series C Preferred"
and, collectively, the "Series B and Series C Preferred") and warrants in March
2000. The Company has restated its 2000 and 1999 financial statements to account
for the redemption features of the Series B and Series C Preferred. The carrying
value of the Series B and Series C Preferred, which was previously presented as
redeemable preferred stock, outside of stockholders' equity, has been
reclassified as a component of stockholders equity. The effect of these
restatements are to increase stockholders' equity by $15.9 million and $10.3
million at December 31, 2000 and 1999, respectively, to the following amounts
(in thousands):

December 31,
2000 1999
---- ----
Before restatement........................ $37,863 $27,659
After restatement......................... 53,781 37,989

After further consideration, the Company has determined that the redemption
features of the Series B and Series C Preferred are within the control of the
Company and therefore, the carrying amount should be reflected in stockholders'
equity.

These restatements had no effect on the Company's net loss or net loss per
share, total assets or total liabilities for the years ended December 31, 2000
or 1999.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Foreign Currency Translation

All assets and liabilities of foreign subsidiaries are translated at the rate of
exchange at year-end, while sales and expenses are translated at the average
exchange rates in effect during the year. The net effect of these translation
adjustments is shown as a component of accumulated other comprehensive loss.

Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.

Revenue Recognition

Product sales are recognized when delivery has occurred and title has passed to
the customer, there is a fixed or determinable sales price, and collectibility
of that sales price is reasonably assured. Research grant revenue is recognized
when the related expenses are incurred. Under the terms of existing research
grants, the Company is reimbursed for allowable direct and indirect research
expenses. Non-refundable fees received under research, licensing and
distribution arrangements are recognized as revenue when received if the Company
has no continuing obligations to the other party. For those arrangements where
the Company has continuing performance obligations, revenue is recognized using
the lesser of the amount of non-refundable cash received or the result achieved
using percentage of completion accounting based upon the estimated cost to
complete its obligations. Royalty revenue is recognized over the period the
royalty products are sold.

Shipping and Handling Fees and Costs

Amounts billed to customers for shipping and handling are included in products
sales. The related shipping and handling fees and costs incurred by the Company
are included in cost of product sales.

Research and Development

Research and development costs are expensed in the period in which they are
incurred.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents and short-term
investments, which are held at major financial institutions, and trade
receivables. The Company's products are sold on an uncollateralized basis and on
credit terms based upon a credit risk assessment of each customer.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Net Loss per Share

Amounts used in the calculation of basic and diluted net loss per share
were as follows (in thousands, except per share data):

2000 1999 1998
-------- -------- --------
Net loss ...................................... $(11,425) $ (5,966) $(12,342)
Preferred stock dividends:
Series A Convertible Preferred Stock ....... (67) (80) (47)
Series B Convertible Preferred Stock ....... (1,000) (750) --
Series C Convertible Preferred Stock ....... (405) -- --
Beneficial conversion feature on
Series C Convertible Preferred Stock .... (4,170) -- --
-------- -------- --------

Net loss applicable to common stock ........... $(17,067) $ (6,796) $(12,389)

Weighted average common shares outstanding .... 17,553 16,802 16,139

Basic and diluted net loss per share .......... $ (0.97) $ (0.40) $ (0.77)

Basic loss per share is computed by dividing net loss applicable to common stock
by the weighted average number of common shares outstanding for the period.
Diluted per share amounts reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock. Options and
warrants to purchase 5,067,726, 4,401,000, and 3,095,000 shares of common stock
and preferred stock convertible into 3,217,800, 2,867,800, and 250,000 shares of
common stock at December 31, 2000, 1999 and 1998, respectively were not included
in the computation of diluted loss per share because their effect would be
antidilutive. Restricted Units issued by the Company (see Note 10) that entitle
the holder to 2,250,000 shares of common stock are included from their date of
issuance in the weighted average calculation because no further consideration is
due related to the issuance of the underlying common shares.

Comprehensive Loss

Comprehensive loss consists of net loss plus all other changes in net assets
from non-owner sources. Components of comprehensive loss consist of the
following:

(in thousands) Year Ended December 31,
-------------------------------
2000 1999 1998
-------- ------- --------
Net loss .................................... $(11,425) $(5,966) $(12,342)
Unrealized losses on investments ............ (32) (24) (14)
Foreign currency translation adjustment ..... (457) -- --
Comprehensive loss .......................... $(11,914) $(5,990) $(12,356)

Stock Based Compensation

Employee stock based compensation is recognized using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" and Financial Accounting Standards Board Interpretation No.
44 "Accounting for Certain Transactions Involving Stock Compensation -an
interpretation of APB Opinion No. 25". For disclosures purposes, pro forma net
loss and loss per share are presented as if the fair value method had been
applied.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, including disclosures of
contingent assets and liabilities, and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.

New Accounting Pronouncements

In December 1999 (as amended in March 2000 and June 2000) the staff of the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101,
Revenue Recognition (the "SAB"). As the result of the adoption of the SAB, we
recorded a $470,000 cumulative effect of an accounting change to defer a portion
of a nonrefundable, up-front fee received and recorded in other revenue in 1998
(see Note 14). The cumulative effect of this accounting change was measured as
of January 1, 2000. As a result of this accounting change, other revenue for the
year ended December 31, 2000 includes $112,000 of amortization of the amount
deferred as of January 1, 2000.

In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 "Accounting for Certain Transactions Involving Stock Compensation -an
interpretation of APB Opinion No. 25" ("FIN No. 44"). FIN No. 44 clarifies the
application of APB Opinion 25 for certain issues. FIN No. 44 became effective
July 1, 2000, but certain conclusions cover specific events that occurred after
either December 15, 1998, or January 12, 2000. The adoption of FIN No. 44 did
not have an impact on our consolidated financial statements.

3. BUSINESS ACQUISITIONS AND DISPOSITIONS

On April 6, 2000, the Company purchased the Selector(R) Ultrasonic Aspirator,
Ruggles(TM) hand-held neurosurgical instruments and Spembly Medical cryosurgery
product lines, including certain assets and liabilities, from NMT Medical, Inc.
("NMT") for $11.6 million in cash.

F10

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. BUSINESS ACQUISITIONS AND DISPOSITIONS, CONTINUED

On January 17, 2000, the Company purchased the business, including certain
assets and liabilities, of Clinical Neuro Systems, Inc. ("CNS") for $6.8
million. CNS designs, manufactures and sells neurosurgical external ventricular
drainage systems, including catheters and drainage bags, as well as cranial
access kits. The purchase price of the CNS business consisted of $4.0 million in
cash and a 5% $2.8 million promissory note issued to the seller. The promissory
note, which is payable in two principal payments of $1.4 million each, plus
accrued interest, in January 2001 and 2002, is collateralized by inventory,
property and equipment of the CNS business and by a collateral assignment of a
$2.8 million promissory note from one of the Company's subsidiaries.

On March 29, 1999 the Company acquired the business, including certain assets
and liabilities, of the NeuroCare group of companies ("NeuroCare"), a leading
provider of neurosurgical products. The $25.2 million acquisition price was
comprised of $14.2 million of cash and $11.0 million of assumed indebtedness
under a term loan from Fleet Capital Corporation ("Fleet"). The cash portion of
the purchase price was financed in part by affiliates of Soros Private Equity
Partners LLC, through the sale of $10.0 million of Series B Convertible
Preferred Stock.

On September 28, 1998, the Company acquired Rystan Company, Inc. ("Rystan") for
800,000 shares of common stock of the Company and two warrants each having the
right to purchase 150,000 shares of the Company's common stock. The total
purchase price was valued at $4.0 million. In January 1999, the Company
subsequently sold a Rystan product line, including the brand name and related
production equipment, for $6.4 million in cash and recognized a pre-tax gain of
$4.2 million after adjusting for the net cost of the assets sold and for
expenses associated with the divestiture.

Historical results of operations include the following (charges) / benefits
related to acquisitions:

(in thousands) Year Ended December 31,
----------------------
2000 1999 1998
----- ------- -----
Inventory fair value purchase
accounting adjustments .................... $(429) $(2,508) $(300)
Severance costs associated with the
closure of an acquired facility ........... -- (1,024) --
Deferred tax benefits ........................ -- 1,807 --

The following unaudited pro forma financial information summarizes the results
of operations for the periods indicated as if the acquisitions consummated in
2000 had been completed as of the beginning of each period:

(in thousands) Year Ended December 31,
-----------------------
2000 1999
-------- --------
(Unaudited)
Total revenue .............................. $ 74,665 $ 57,425
Net loss ................................... (11,111) (4,135)
Basic and diluted net loss per share ....... $ (0.96) $ (0.32)

F11

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. BUSINESS ACQUISITIONS AND DISPOSITIONS, CONTINUED

The historical and pro forma amounts for years ended December 31, 2000 and 1999,
respectively, include $1.1 million ($0.07 per share) and $3.7 million ($0.22 per
share) gains, net of tax, from the sale of product lines. These pro forma
amounts are based upon certain assumptions and estimates. The pro forma results
do not necessarily represent results that would have occurred if the acquisition
had taken place on the basis assumed above, nor are they indicative of the
results of future combined operations.

4. INVESTMENTS

The Company's current investment balances are classified as available for sale
and all debt securities have maturities within one year. Investment balances as
of December 31, 2000 and 1999 were as follows:

(in thousands) Unrealized Unrealized Fair
Cost Gains Losses Value
------ ---------- ---------- ----
2000:
U.S. Government agency securities ... $ 977 $ -- $ -- $ 977
Equity securities ................... 173 10 (108) 75
------ ----- ----- ------
Total ............................ $1,150 $ 10 $(108) $1,052

1999:
U.S. Government agency securities ... $3,975 $ -- $ -- $3,975
Equity securities ................... 400 -- (64) 336
------ ----- ----- ------
Total ............................ $4,375 $ -- $ (64) $4,311

5. INVENTORIES

Inventories consist of the following:

(in thousands) December 31,
------------------
2000 1999
------- -------

Finished goods ................................. $ 6,878 $ 3,786
Work-in-process ................................ 3,825 2,224
Raw materials .................................. 5,805 4,101
------- -------
$16,508 $10,111

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net, consists of the following:

(in thousands) December 31,
--------------------
2000 1999
-------- --------

Buildings and leasehold improvements .......... $ 9,632 $ 7,805
Machinery and equipment ....................... 11,371 8,923
Furniture and fixtures ........................ 810 559
Construction in progress ...................... 470 390
-------- --------
22,283 17,677
Less: Accumulated depreciation and amortization (10,684) (7,978)
-------- --------
$ 11,599 $ 9,699

Depreciation and amortization expense associated with property, plant and
equipment for the years ended December 31, 2000, 1999 and 1998 was $2,876,000,
$2,229,000, and $1,413,000, respectively.

F12

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. GOODWILL AND OTHER INTANGIBLES

Goodwill and other intangibles, net, consists of the following:

(in thousands) December 31,
--------------------
2000 1999
-------- --------

Technology .................................... $ 10,761 $ 3,730
Customer base ................................. 3,227 1,810
Trademarks .................................... 1,770 1,570
Other identifiable intangible assets .......... 3,899 2,661
Goodwill ...................................... 9,050 4,348
-------- --------
28,707 14,119
Less: Accumulated depreciation
and amortization ............................ (3,408) (900)
-------- --------
$ 25,299 $ 13,219

Amortization expense associated with goodwill and other intangibles for the
years ended December 31, 2000, 1999 and 1998 was $2,481,000, $874,000, $49,000,
respectively.

8. DEBT

The Company's borrowings consisted of the following:

(in thousands) December 31,
----------------
2000 1999
------ ------
Short term debt:
Bank loans
Current portion of term loan .................. $4,071 $2,250
Revolving credit facility ..................... 3,147 4
Current portion of note payable .................. 1,654 --
------ ------
$8,872 $2,254
Long term debt:
Bank loans
Term loan ..................................... $3,554 $7,625
Note payable ..................................... 1,204 --
------ ------
$4,758 $7,625

The NeuroCare acquisition was partially funded through an $11.0 million term
loan provided by Fleet. Fleet has also provided a $4.0 million revolving credit
facility to fund working capital requirements. The term loan and revolving
credit facility (collectively, the "Fleet Credit Facility") generally bear
interest at a variable rate that is based upon the prime lending rate charged
for commercial loans in the United States. An option is available to the Company
to borrow certain portions of the Fleet Credit Facility at variable rates based
upon the London Interbank Overnight Rate ("LIBOR"), subject to certain
limitations and restrictions. At December 31, 2000 and 1999, respectively, the
weighted average interest rate on balances outstanding under the Fleet Credit
Facility was 9.8% and 9.5%, respectively.

F13

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. DEBT, CONTINUED

The Fleet Credit Facility is collateralized by all the assets and ownership
interests of various subsidiaries of the company including Integra NeuroCare LLC
and NeuroCare Holding Corporation (the parent company of Integra NeuroCare LLC)
has guaranteed Integra NeuroCare LLC's obligations. Integra NeuroCare LLC is
subject to various financial and non-financial covenants under the Fleet Credit
Facility, including significant restrictions on its ability to transfer funds to
the Company or the Company's other subsidiaries. At December 31, 2000 and 1999,
respectively, approximately $20.5 million and $15.6 million of Integra NeuroCare
LLC's net assets were restricted under the provisions of the Fleet Credit
Facility. The financial covenants specify minimum levels of interest and fixed
charge coverage and net worth, and also specify maximum levels of capital
expenditures and total indebtedness to operating cash flow, among others.
Effective September 29, 1999 and December 31, 1999, certain of these financial
covenants were amended. These amendments did not change any other terms of the
Fleet Credit Facility. While the Company anticipates that Integra NeuroCare LLC
will be able to satisfy the requirements of these amended financial covenants,
there can be no assurance that Integra NeuroCare LLC will generate sufficient
earnings before interest, taxes, depreciation and amortization to meet the
requirements of such covenants.

Term loan repayments are due as follows (in thousands):

2001 ................................................ $4,071
2002 ................................................ 2,254
2003 ................................................ 1,300
------
$7,625

Notwithstanding the originally scheduled repayments, the term loan is subject to
mandatory prepayment amounts if certain levels of cash flow are achieved.
Included in the 2001 amount is approximately $2.1 million of anticipated
principal prepayment.

In connection with the purchase of the business, including certain assets and
liabilities, of CNS, the Company issued a 5% $2.8 million promissory note to the
seller. The promissory note, which is payable in two principal payments of $1.4
million each, plus accrued interest, in January 2001 and 2002, is collateralized
by inventory, property and equipment of the CNS business and by a collateral
assignment of a $2.8 million promissory note from one of the Company's
subsidiaries.

9. COMMON AND PREFERRED STOCK

Preferred Stock Transactions

The Company is authorized to issue up to 15,000,000 shares of preferred stock in
one or more series, of which 2,000,000 shares have been designated as Series A,
120,000 shares have been designated as Series B, and 54,000 shares have been
designated as Series C.

On March 29, 2000, the Company issued 54,000 shares of Series C Convertible
Preferred Stock ("Series C Preferred") and warrants to purchase 300,000 shares
of common stock at $9.00 per share to affiliates of Soros Private Equity
Partners LLC ("Soros") for $5.4 million, net of issuance costs. The Series C
Preferred ranks on a parity with the Company's Series B Convertible Preferred
Stock, and is senior to the Company's common stock and all other preferred stock
of the Company. The Series C Preferred is convertible into 600,000 shares of
common stock and has a liquidation preference of $5.8 million, including a 10%
cumulative annual dividend. This liquidation preference is payable upon i) the
redemption of the preferred shares at the Company's option, ii) the redemption
of the preferred shares in the event of the Company's sale of all or
substantially all of its assets or certain mergers or consolidations of the
Corporation into or with any other corporation, or iii) a legal liquidation of
the Company.

F14

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. COMMON AND PREFERRED STOCK, CONTINUED

The Series C Preferred was issued with a beneficial conversion feature that
resulted in a nonrecurring, non-cash dividend of $4.2 million, which has been
reflected in the net loss per share applicable to common stock for the year
ended December 31, 2000. The beneficial conversion dividend is based upon the
excess of the price of the underlying common stock as compared to the fixed
conversion price of the Series C Preferred, after taking into account the value
assigned to the common stock warrants. The warrants issued with the Series C
Preferred expire on December 31, 2001.

In connection with the NeuroCare acquisition, the Company issued 100,000 shares
of Series B Convertible Preferred Stock ("Series B Preferred") and warrants to
purchase 240,000 shares of common stock at $3.82 per share to Soros for $9.9
million, net of issuance costs. The Series B Preferred ranks on a parity with
the Series C Preferred, and is senior to the Company's common stock and all
other preferred stock of the Company. The Series B Preferred is convertible into
2,617,801 shares of common stock and has a liquidation preference of $11.8
million, including a 10% cumulative annual dividend. This liquidation preference
is payable upon i) the redemption of the preferred shares at the Company's
option, ii) the redemption of the preferred shares in the event of the Company's
sale of all or substantially all of its assets or certain mergers or
consolidations of the Corporation into or with any other corporation, or iii) a
legal liquidation of the Company. The warrants issued with the Series B
Preferred were exercised in March 2001.

During the second quarter of 1998, the Company sold 500,000 shares of Series A
Convertible Preferred Stock ("Series A Preferred") for $4.0 million to Century
Medical, Inc. ("CMI"). CMI converted the Series A Preferred into 250,000 shares
of the Company's common stock in October 2000. The Series A Preferred paid an
annual dividend of $0.16 per share, payable quarterly, and had a liquidation
preference of $4.0 million that was payable only upon the liquidation of the
Company.

Common Stock Transactions

In September 2000, the Company completed a $5.0 million private placement of
333,334 shares of common stock to ArthroCare Corporation.

F15

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. COMMON AND PREFERRED STOCK, CONTINUED

In September 1998, the Company issued 800,000 shares of common stock and two
warrants, each having the right to purchase 150,000 shares of the Company's
common stock at $6.00 and $7.00 per share, respectively, to GWC Health, Inc., a
subsidiary of Elan Corporation, plc., as consideration for the acquisition of
Rystan. Both of these warrants were exercised in October 1999.

Stock Split

The Company's stockholders approved a one-for-two reverse split of the Company's
common stock at the annual stockholders meeting held on May 18, 1998. All
outstanding common share and per share amounts have been retroactively adjusted
to reflect the reverse split.

Stockholders' Rights

As stockholders of the Company, Union Carbide Corporation affiliates of Soros
Private Equity Partners LLC, and GWC Health are entitled to certain registration
rights. The Company's President and Chief Executive Officer also has demand
registration rights under the Restricted Units issued in December 1997 and
December 2000 (see Note 10).

10. STOCK PURCHASE AND AWARD PLANS

Employee Stock Purchase Plan

The Company received stockholder approval for its Employee Stock Purchase Plan
("ESPP") in May 1998. The purpose of the ESPP is to provide eligible employees
of the Company with the opportunity to acquire shares of common stock at
periodic intervals by means of accumulated payroll deductions. Under the ESPP, a
total of 500,000 shares of common stock have been reserved for issuance. These
shares will be made available either from the Company's authorized but unissued
shares of common stock or from shares of common stock reacquired by the Company
as treasury shares. At December 31, 2000, approximately 354,000 shares remain
available for purchase under the ESPP.

Stock Option Plans

As of December 31, 2000, the Company had stock options outstanding under six
plans, the 1992 Stock Option Plan (the "1992 Plan"), the 1993 Incentive Stock
Option and Non-Qualified Stock Option Plan (the "1993 Plan"), the 1996 Incentive
Stock Option and Non-Qualified Stock Option Plan (the "1996 Plan"), the 1998
Stock Option Plan (the "1998 Plan"), the 1999 Stock Option Plan (the "1999
Plan") and the 2000 Equity Incentive Plan (the "2000 Plan" and collectively, the
"Plans"). No additional options can be granted out of the 1992 Plan and 175,000
shares reserved under the 1992 Plan were cancelled.

The Company has reserved 750,000 shares of common stock for issuance under both
the 1993 Plan and 1996 Plan, 1,000,000 shares under the 1998 Plan, and 2,000,000
shares each under the 1999 Plan and the 2000 Plan. The 1993 Plan, 1996 Plan,
1998 Plan, and the 1999 Plan permit the Company to grant both incentive and
non-qualified stock options to designated directors, officers, employees and
associates of the Company. The 2000 Plan permits the Company to grant incentive
and non-qualified stock options, stock appreciation rights, restricted stock,
performance stock, or dividend equivalent rights to designated directors,
officers, employees and associates of the Company. Options issued under the
Plans become exercisable over specified periods, generally within four years
from the date of grant, and generally expire six years from the grant date.

F16

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. STOCK PURCHASE AND AWARD PLANS, CONTINUED

For the three years ended December 31, 2000, option activity for all the Plans
was as follows:

(Shares in thousands) Weighted
Average
Exercise
Price Shares
------ -----
Shares Outstanding:
December 31, 1997 .............................. $ 7.68 1,541

Granted ........................................ $ 4.35 1,045
Exercised ...................................... $ 8.00 (1)
Cancelled ...................................... $ 8.21 (138)

December 31, 1998 .............................. $ 6.26 2,447

Granted ........................................ $ 5.10 1,757
Exercised ...................................... $ 4.24 (61)
Cancelled ...................................... $ 5.56 (352)

December 31, 1999 .............................. $ 5.82 3,791

Granted ........................................ $11.62 1,548
Exercised ...................................... $ 5.68 (493)
Cancelled ...................................... $ 6.90 (327)

December 31, 2000 .............................. $ 7.74 4,519

Shares Exercisable:
December 31, 1998 .............................. $ 8.45 730
December 31, 1999 .............................. $ 6.76 1,422
December 31, 2000 .............................. $ 6.27 1,759

Share available for grant, December 31, 2000 ... 307

In June 1999, the Company granted fully vested non-qualified stock options with
an intrinsic value of $90,000 on the grant date to certain employees for which a
corresponding charge was recorded to general and administrative expense.
Otherwise, the exercise price of all other stock options granted under the Plans
was equal to or greater than the fair market value of the common stock on dates
of grant. The weighted average exercise price and fair market value of options
granted in 2000, 1999 and 1998 were as follows:

Less Than Equal to In Excess of
Market Price Market Price Market Price
-------------------- -------------------- ---------------------
Exercise Exercise Exercise
Price Fair Value Price Fair Value Price Fair Value
-------- ---------- -------- ---------- -------- ----------
2000 $ -- $ -- $ 11.61 $ 8.20 $ -- $ --
1999 $ 3.46 $ 3.46 $ 5.11 $ 3.77 $ 7.61 $ 0.06
1998 $ -- $ -- $ 4.19 $ 2.59 $ 8.00 $ 1.98

F17

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. STOCK PURCHASE AND AWARD PLANS, CONTINUED

The following table summarizes information about stock options outstanding as of
December 31, 2000:

Options Outstanding Options Exercisable
------------------------------------- --------------------
Options in thousands Weighted Weighted Weighted
Average Average Average
Range of As of Remaining Exercise As of Exercise
Exercise Prices 12/31/00 Contractual Life Price 12/31/00 Price
--------------- -------- ---------------- ----- -------- -----
$3.375 - $5.125 1,075 3.9 years $ 3.77 537 $ 3.81
$5.375 - $5.875 1,224 5.6 years $ 5.86 605 $ 5.86
$5.906 - $11.00 1,432 5.5 years $ 8.96 572 $ 7.87
$11.12 - $23.00 788 5.5 years $ 13.86 45 $ 20.90
----- -----
4,519 1,759

The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock Based Compensation" ("SFAS 123"). Had the compensation
cost for the Company's stock option plans been determined based on the fair
value at the grant date for awards in grant since 1995 consistent with the
provisions of SFAS No. 123, the Company's net loss and basic and diluted net
loss per share would have increased to the pro forma amounts indicated below:

(In thousands) 2000 1999 1998
-------- -------- --------
Net loss applicable to common stock ........ $(17,067) $ (6,796) $(12,389)
Pro forma net loss applicable
to common stock .......................... (20,503) (9,991) (15,070)
Basic and diluted net loss per share ....... $ (0.97) $ (0.40) $ (0.77)
Pro forma basic and diluted
net loss per share ....................... (1.17) (0.59) (0.93)

As options vest over a varying number of years and awards are generally made
each year, the pro forma impacts shown here may not be representative of future
pro forma expense amounts. The pro forma additional compensation expense was
calculated based on the fair value of each option grant using the Black-Scholes
model with the following weighted-average assumptions:

2000 1999 1998
--------- ------- -------
Dividend yield..................... -0- -0- -0-
Expected volatility................ 90% 90% 80%
Risk free interest rate............ 6.5% 5.4% 5.2%
Expected option lives.............. 4.5 years 4 years 4 years

Restricted Units

In December 2000, the Company issued 1,250,000 restricted units ("Restricted
Units") under the 2000 Plan as a fully vested equity based bonus to the
Company's President and Chief Executive Officer ("Executive") in connection with
the extension of his employment agreement. Each Restricted Unit represents the
right to receive one share of the Company's common stock. In connection with the
issuance of the Restricted Units, the Company incurred a non-cash compensation
charge of $13.5 million in the fourth quarter of 2000, which is included in
general and administrative expenses. The Executive also received 1,000,000
Restricted Units in December 1997, each of which entitles him to receive one
share of the Company's common stock. The Restricted Units issued in December
1997 were not issued under any of the Plans.

No other stock-based awards are outstanding under any of the Plans.

F18

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. FINANCIAL INSTRUMENTS

Fair value of the Company's financial instruments are estimated as follows (in
thousands):

December 31, 2000 December 31, 1999
Fair Carrying Fair Carrying
Value Amount Value Amount
------- ------- ------- -------
Nonderivatives:
Cash and cash equivalents .............. $14,086 $14,086 $19,301 $19,301
Short-term investments ................. 1,052 1,052 4,311 4,311
Term loans and revolving
credit facility ...................... 10,772 10,772 9,879 9,879
Note payable ........................... 2,874 2,858 -- --

Fair value represents an estimate of the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation. The fair value of cash and cash equivalents and
short-term investments were estimated based on market prices. The carrying value
of the Company's term loan and borrowings under its revolving credit facility
approximate fair value because the interest rates on these financial instruments
are reset periodically to reflect current market rates. The carrying value of
the 5% note payable issued to the seller of the CNS business was discounted to
fair value to reflect a rate that the Company could obtain on similar debt.

12. LEASES

The Company leases administrative, manufacturing, research and distribution
facilities and various manufacturing, office and transportation equipment
through operating lease agreements.

In November 1992, a corporation whose shareholders are trusts whose
beneficiaries include beneficiaries of the Company's Chairman acquired from
independent third parties a 50% interest in the general partnership from which
the Company leases its manufacturing facility in Plainsboro, New Jersey. The
lease provides for rent escalations of 10.1% and 8.5% in the years 2002 and
2007, respectively, and expires in October 2012.

The lease agreement related to the Company's research facility in San Diego
provides for annual escalations.

In June 2000, the Company signed a five year lease related to certain production
equipment from a corporation whose sole stockholder is a general partnership,
for which the Company's Chairman is a partner and the President. Under the terms
of the lease, the Company paid $45,000 to Medicus Corporation during 2000.

In May 1994, the Company entered into a 5 year lease agreement with a related
party of the Company's Chairman for a facility in West Chester, Pennsylvania. In
January 1998, the Company suspended its operations at this facility and in June
1998, entered into a lease termination agreement related to the facility that
required the Company to pay $330,000 for the facility's maintenance, certain
operating costs and other commitments through April 1999. Additionally, the
Company recorded an asset impairment charge of $145,000 in 1998 related to
certain leasehold improvements made at the West Chester facility. This charge
was included in general and administrative expense.

F19

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. LEASES, CONTINUED

Future minimum lease payments under operating leases at December 31, 2000 were
as follows (in thousands):

Related Third
Parties Parties Total
------ ------ ------
2001 ................................ $ 300 $1,053 $1,353
2002 ................................ 303 920 1,223
2003 ................................ 321 915 1,236
2004 ................................ 321 737 1,058
2005 ................................ 321 283 604
Thereafter .......................... 2,075 577 2,652
------ ------ ------
Total minimum lease payments ..... $3,641 $4,485 $8,126
====== ====== ======

Total rental expense for the years ended December 31, 2000, 1999, and 1998 was
$1,422,000, $958,000, and $780,000, respectively, and included $255,000,
$219,000, and $267,000 in related party expense, respectively.

13. INCOME TAXES

The income tax expense (benefit) consisted of the following (in thousands):

2000 1999 1998
----- ------- -----
Current:
Federal ...................... $ 100 $ 100 $ --
State ........................ (131) (111) --
Foreign ...................... 139 -- --
----- ------- -----
Total current ................... $ 108 $ (11) $ --

Deferred:
Federal ...................... $ -- $(1,671) $ --
State ........................ -- (136) --
----- ------- -----
Total deferred .................. $ -- $(1,807) $ --

Income tax expense (benefit) .... $ 108 $(1,818) $ --

The temporary differences which give rise to deferred tax assets and
(liabilities) are presented below (in thousands):

December 31,
--------------------
2000 1999
-------- --------

Net operating loss and tax credit carryforwards ........ $ 33,676 $ 36,800
Inventory reserves and capitalization .................. 1,740 1,021
Other .................................................. 8,594 2,615
Depreciation and amortization .......................... -- --
Deferred revenue ....................................... 2,380 2,560
-------- --------
Total deferred tax assets before valuation allowance . 46,390 42,996
Valuation allowance .................................... (44,776) (41,434)

Depreciation and amortization .......................... (3,010) (1,562)
Other .................................................. (392) (392)
-------- --------

Net deferred tax liabilities ........................... $ (1,788) $ (392)
======== ========

F20

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. INCOME TAXES, CONTINUED

The Company's valuation allowance was provided against the deferred tax assets
due to the uncertainty of realization. The net change in the Company's valuation
allowance was $3,342,000, $18,000, and $4,380,000 in 2000, 1999, and 1998,
respectively. The 1999 change in valuation allowance includes a non-cash benefit
of $1.8 million resulting from the deferred tax liabilities recorded in the
NeuroCare acquisition to the extent that consolidated deferred tax assets were
generated subsequent to the acquisition.

A reconciliation of the United States Federal statutory rate to the Company's
effective tax rate for the years ended December 31, 2000, 1999, and 1998 is as
follows:

2000 1999 1998
------ ------ ------
Federal statutory rate ..................... (34.0%) (34.0%) (34.0%)
Increase (reduction) in income
taxes resulting from:
State income taxes ....................... 3.1% 6.9% --
Benefit from sale of state
net operating loss, net
of federal effect ...................... (4.3%) (5.5%) --
Foreign taxes booked at
different rates ........................ (0.5%) -- --
Alternative minimum tax,
net of state benefit ................... 0.9% 1.3% --
Nondeductible items ...................... 2.1% 8.2% 1.8%
Other .................................... 2.9% -- --
Change in valuation allowance ............ 30.8% (0.2%) 32.2%
------ ------ ------
Effective tax rate ......................... 1.0% (23.3%) --
====== ====== ======

At December 31, 2000, the Company had net operating loss carryforwards ("NOL's")
of approximately $41.6 million and $18.2 million for federal and state income
tax purposes, respectively, to offset future taxable income, if any. The federal
and state NOL's expire through 2020 and 2007, respectively. During 2000 and
1999, respectively, the Company recognized a tax benefit of $467,000 and
$645,000 from the sale of certain state net operating loss carryforwards through
a special program offered by the State of New Jersey.

F21

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. DEVELOPMENT, DISTRIBUTION, AND LICENSE AGREEMENTS AND GOVERNMENT GRANTS

The Company has various development, distribution, and license agreements and
government grant awards under which it receives payments. Significant agreements
and grant awards include the following:

- In 1999, the Company and Ethicon, Inc., a division of Johnson & Johnson,
signed an agreement (the "Ethicon Agreement") providing Ethicon with
exclusive marketing and distribution rights to INTEGRA(R) Dermal
Regeneration Template worldwide, excluding Japan. Under the Ethicon
Agreement, the Company will continue to manufacture INTEGRA(R) Dermal
Regeneration Template and will collaborate with Ethicon to conduct research
and development and clinical research aimed at expanding indications and
developing future products in the field of skin repair and regeneration.
Upon signing the Ethicon Agreement, the Company received a nonrefundable
payment from Ethicon of $5.3 million for the exclusive use of the Company's
trademarks and regulatory filings related to INTEGRA(R) Dermal Regeneration
Template and certain other rights. This amount was initially recorded as
deferred revenue and is being recognized as revenue in accordance with the
Company's revenue recognition policy for nonrefundable, up-front fees
received. The unamortized balance of $4.5 million at December 31, 2000 is
recorded in deferred revenue, of which $0.5 million is classified as
short-term. Additionally, the Ethicon Agreement requires Ethicon to make
nonrefundable payments to the Company each year based upon minimum
purchases of INTEGRA(R) Dermal Regeneration Template.

The Ethicon Agreement also provides for annual research funding of $2.0
million for the years 2000 through 2004, after which such funding amounts
will be determined based on a formula. Additional funding will be received
upon the occurrence of certain clinical and regulatory events and for
funding certain expansions of the Company's INTEGRA(R) Dermal Regeneration
Template production capacity. In 2000, the Company received $750,000 of
event-related payments from Ethicon which were recorded in Other revenue in
accordance with the Company's revenue recognition policy.

- The Company was awarded a three-year, $2.0 million Department of Commerce
grant award in April 1998 under the National Institute of Standards and
Technology program for continued work on a class of biodegradable polymers
licensed from Rutgers University.

- In March 1998, the Company entered into a series of agreements with Century
Medical, Inc ("CMI"), a wholly-owned subsidiary of ITOCHU Corporation,
under which CMI is underwriting the costs of the Japanese clinical trials
and regulatory approval processes for certain of the Company's
neurosurgical products and will distribute these products in Japan. In
connection with these agreements, CMI paid the Company a $1.0 million
non-refundable, upfront fee as partial reimbursement of research and
development costs previously expended by the Company, which was recorded in
Other revenue when received in 1998. In connection with the adoption of SAB
101 in 2000, the Company recorded a $470,000 cumulative effect of an
accounting change to defer a portion of this up-front fee (see Note 2).

- In January 1996, the Company and Cambridge Antibody Technology Limited
("CAT") entered into an agreement consisting of a license to CAT of certain
rights to use anti-TGF-(beta) antibodies for the treatment of fibrotic
diseases. The Company will receive royalties upon the sale by CAT of
licensed products. In September, 2000, Genzyme General ("Genzyme") and CAT
announced a broad collaboration for the development of human anti-TGF-beta
monocloncal antibodies, which collaboration would include the use of the
intellectual property licensed by the Company from The Burnham Institute
("Burnham"). In return for certain payments to the Company and Burnham, and
certain rights to other intellectual property owned by or licensed to CAT,
the Company and Burnham transferred various rights to anti-TGF-(beta)
antibodies to CAT and Genzyme. The Company received a nonrefundable payment
of $720,000 from CAT in connection with this transaction, which was
recorded in Other revenue in accordance with the Company's revenue
recognition policy.

F22

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. COMMITMENTS AND CONTINGENCIES

As consideration for certain technology, manufacturing, distribution and selling
rights and licenses granted to the Company, the Company has agreed to pay
royalties on the sales of products that are commercialized relative to the
granted rights and licenses. Royalty payments under these agreements by the
Company were not significant for any of the periods presented.

Various lawsuits claims and proceedings are pending or have been settled by the
Company. The most significant of those are described below.

In July 1996, the Company filed a patent infringement lawsuit in the United
States District Court for the Southern District of California against Merck
KGaA, a German corporation, Scripps Research Institute, a California nonprofit
corporation, and David A. Cheresh, Ph.D., a research scientist with Scripps,
seeking damages and injunctive relief. The complaint charged, among other
things, that the defendant Merck KGaA willfully and deliberately induced, and
continues to willfully and deliberately induce, defendants Scripps Research
Institute and Dr. David A. Cheresh to infringe certain of the Company's patents.
These patents are part of a group of patents granted to The Burnham Institute
and licensed by the Company that are based on the interaction between a family
of cell surface proteins called integrins and the arginine-glycine-aspartic acid
(known as "RGD") peptide sequence found in many extracellular matrix proteins.
The defendants filed a countersuit asking for an award of defendants' reasonable
attorney fees. This case went to trial in February 2000, and on March 17, 2000,
a jury returned a unanimous verdict for the Company, finding that Merck KGaA had
infringed and induced the infringement of the Company's patents, and awarded
$15,000,000 in damages. On September 29, 2000, the United States District Court
for the Southern District of California entered judgment in the Company's favor
and against Merck KGaA in the case. In entering the judgment, the court also
granted the Company pre-judgment interest of approximately $1,350,000, bringing
the total amount to approximately $16,350,000, plus post-judgment interest.
Various post-trial motions are pending, including requests by Merck KGaA for a
new trial or a judgment as a matter of law notwithstanding the verdict, which
could have the effect of reducing the judgment or reversing the verdict of the
jury. In addition, if the Company wins these post-trial motions, we expect Merck
KGaA to appeal various decisions of the Court. No amounts for this favorable
verdict have been reflected in the Company's financial statements.

Bruce D. Butler, Ph.D., Bruce A. McKinley, Ph.D., and C. Lee Parmley (the "Optex
Claimants"), each parties to a Letter Agreement (the "Letter Agreement") with
Camino NeuroCare, Inc., a wholly-owned subsidiary of the Company ("Camino"),
dated as of December 18, 1996, alleged that Camino breached the terms of the
Letter Agreement prior to the Company's acquisition of the NeuroCare Group
(Camino's prior parent company). In August, 2000, the Company and the Optex
Claimants reached an agreement whereby the Company paid the Optex Claimants
$250,000 cash and issued 45,000 shares of the Company's common stock, valued at
$641,250, in settlement of all claims under the Letter Agreement. Subsequent to
the settlement of this matter, the Company received $350,000 from the seller of
the NeuroCare Group through assertion of the Company's right of indemnification.
The Company did not record any provision for this matter, as liabilities
recorded at the time of the Company's acquisition of the NeuroCare Group and the
$350,000 indemnification payment were adequate to cover this liability.

In 1995, the Company's subsidiary filed a complaint against a distributor
claiming the distributor breached a distribution agreement by, among other
things, not paying the Company's subsidiary for certain products delivered. In
1998, the Company and the distributor entered into a settlement agreement in
which the distributor agreed to pay an aggregate of $550,000 in installments
over the remainder of 1998. The Company recorded a net gain in other income in
1998 of $550,000 as a result of the settlement.

F23

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. COMMITMENTS AND CONTINGENCIES, CONTINUED

The Company is also subject to other claims and lawsuits in the ordinary course
of our business, including claims by employees or former employees and with
respect to our products. In the opinion of management, such other claims are
either adequately covered by insurance or otherwise indemnified, and are not
expected, individually or in the aggregate, to result in a material adverse
effect on the Company's financial condition. The Company's financial statements
do not reflect any material amounts related to possible unfavorable outcomes of
the matters above or others. However, it is possible that the Company's results
of operations, financial position and cash flows in a particular period could be
materially affected by these contingencies.

16. SEGMENT AND GEOGRAPHIC INFORMATION

The Company's operations consist of (1) Integra NeuroSciences, which is a
leading provider of implants, devices, and monitors used in neurosurgery,
neurotrauma, and related critical care and (2) Integra LifeSciences, which
develops and manufactures a variety of medical products and devices, including
products based on the Company's proprietary tissue regeneration technology which
are used to treat soft tissue and orthopedic conditions. Integra NeuroSciences
sells primarily through a direct sales organization and Integra LifeSciences
sells primarily through strategic alliances and distributors.

Selected financial information on the Company's business segments is reported
below:

Integra Integra Total
Neuro- Life Reportable
(in thousands) Sciences Sciences Segments
-------- -------- --------

2000
----
Product sales .................... $ 44,845 $ 20,142 $ 64,987
Total revenue .................... 46,045 25,604 71,649
Operating expenses ............... 39,516 21,670 61,186
Operating income ................. 6,529 3,934 10,463

Depreciation included in segment
operating expenses ............ 1,457 1,158 2,615

1999
----
Product sales .................... $ 22,412 $ 17,635 $ 40,047
Total revenue .................... 22,662 20,214 42,876
Operating expenses ............... 25,943 22,274 48,217
Operating loss ................... (3,281) (2,060) (5,341)

Depreciation included in segment
operating expenses ............ 1,062 870 1,932

1998
----
Product sales .................... $ -- $ 14,182 $ 14,182
Total revenue .................... 1,027 16,534 17,561
Operating expenses ............... 2,010 22,443 24,453
Operating loss ................... (983) (5,909) (6,892)

Depreciation included in segment
operating expenses ............ 41 1,034 1,075

Product sales and the related cost of product sales between segments are
eliminated in computing segment operating results. The Company does not
disaggregate nonoperating revenues and expenses nor identifiable assets on a
segment basis.

F24

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. SEGMENT AND GEOGRAPHIC INFORMATION, CONTINUED

A reconciliation of the amounts reported for total reportable segments to the
consolidated financial statements is as follows:

(in thousands) 2000 1999 1998
-------- -------- --------

Operating expenses:
Total reportable segments ............ $ 61,186 $ 48,217 $ 24,453
Plus: Corporate general and
administrative expenses ........ 19,703 6,165 7,239
Amortization ................... 2,481 874 49
-------- -------- --------
Consolidated total operating expenses $ 83,370 $ 55,256 $ 31,741

Operating income (loss):
Total reportable segments ............ $ 10,463 $ (5,341) $ (6,892)
Less: Corporate general and
administrative expenses ........ 19,703 6,165 7,239
Amortization ................... 2,481 874 49
-------- -------- --------
Consolidated operating loss .......... $(11,721) $(12,380) $(14,180)

Included in corporate general and administrative expenses in 2000 was the $13.5
million stock-based charge recorded in connection with the issuance of the
Restricted Units in the fourth quarter of 2000.

Product sales and long-lived assets by major geographic area are summarized
below:

United Asia Other Consoli-
(in thousands) States Europe Pacific Foreign dated
------- ------ ------- ------- -------

Product sales:
2000 .................. $51,379 $6,759 $4,628 $2,221 $64,987
1999 .................. 30,982 4,664 3,299 1,102 40,047
1998 .................. 11,867 1,799 507 9 14,182

Long-lived assets:
2000 .................. $33,428 $6,869 $ -- $ -- $40,297
1999 .................. 23,447 -- -- -- 23,447
1998 .................. 7,780 -- -- -- 7,780

F25

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. SELECTED QUARTERLY INFORMATION (UNAUDITED)

(In thousands, except per share data) Fourth
Quarter Third Quarter Second Quarter First Quarter
-------- ------------------- --------------------- ---------------------
Previously Previously Previously
Reported Reported Restated Reported Restated Reported Restated
-------- ------- ------- -------- -------- -------- --------

Year Ended December 31, 2000:
Total revenue ...................................... $ 20,251 $19,559 $19,781 $ 16,915 $ 17,086 $ 14,407 $ 14,531
Cost of product sales .............................. 8,108 7,345 7,504 7,062 7,212 6,592 6,687
Total other operating expenses ..................... 24,037 10,258 10,294 10,469 10,462 9,065 9,066
-------- ------- ------- -------- -------- -------- --------
Operating income (loss) ............................ (11,894) 1,956 1,983 (616) (588) (1,250) (1,222)
Net income (loss) before cumulative
effect of accounting change ...................... (11,776) 1,717 1,744 84 112 (1,063) (1,035)
Cumulative effect of accounting change ............. -- -- -- -- -- -- (470)
-------- ------- ------- -------- -------- -------- --------
Net income (loss) .................................. $(11,776) $ 1,717 $ 1,744 $ 84 $ 112 $ (1,063) $ (1,505)
Basic net income (loss) per share before
cumulative effect of accounting change ........... $ (0.67) $ 0.08 $ 0.08 $ (0.02) $ (0.02) $ (0.32) $ (0.32)
Cumulative effect of accounting change ............. -- -- -- -- -- -- (0.03)
-------- ------- ------- -------- -------- -------- --------
Basic net income (loss) per share .................. $ (0.67) $ 0.08 $ 0.08 $ (0.02) $ (0.02) $ (0.32) $ (0.35)
Diluted net income (loss) per share before
cumulative effect of accounting change ........... $ (0.67) $ 0.07 $ 0.07 $ (0.02) $ (0.02) $ (0.32) $ (0.32)
Cumulative effect of accounting change ............. -- -- -- -- -- -- (0.03)
-------- ------- ------- -------- -------- -------- --------
Diluted net income (loss) per share ................ $ (0.67) $ 0.07 $ 0.07 $ (0.02) $ (0.02) $ (0.32) $ (0.35)

(In thousands, except per share data) Fourth Quarter Third Quarter Second Quarter First Quarter
-------------------- -------------------- ------------------- ------------------
Previously Previously Previously Previously
Reported Restated Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- -------- ------- -------

Year Ended December 31, 1999:
Total revenue ........................ $ 12,845 $ 12,963 $ 12,127 $ 12,243 $ 12,550 $ 12,681 $ 4,968 $ 4,989
Cost of product sales ................ 5,785 5,921 6,051 6,192 7,689 7,842 2,694 2,723
Total other operating expenses ....... 8,383 8,365 8,773 8,748 9,693 9,671 5,802 5,794
-------- -------- -------- -------- -------- -------- ------- -------
Operating income (loss) .............. (1,323) (1,323) (2,697) (2,697) (4,832) (4,832) (3,528) (3,528)
Net income (loss) .................... $ (1,277) $ (1,277) $ (2,570) $ (2,570) $ (4,823) $ (4,823) $ 886 $ 886

Basic net income (loss) per share .... $ (0.06) $ (0.06) $ (0.14) $ (0.14) $ (0.23) $ (0.23) $ 0.02 $ 0.02
Diluted net income (loss) per share .. $ (0.06) $ (0.06) $ (0.14) $ (0.14) $ (0.23) $ (0.23) $ 0.02 $ 0.02

As the result of the adoption of SEC Staff Accounting Bulletin No. 101 REVENUE
RECOGNITION, the Company recorded a $470,000 cumulative effect of an accounting
change in the first quarter of 2000 to defer a portion of an up-front licensing
fee received and recorded in other revenue in 1998. The cumulative effect of
this accounting change was measured as of January 1, 2000. As a result of this
accounting change, other revenue in each of the first three quarterly periods in
the year ended December 31, 2000 has been restated to reflect an additional
$28,000 of amortization related to this licensing fee.

As the result of the adoption of EITF 00-10 ACCOUNTING FOR SHIPPING AND HANDLING
FEES AND COSTS, we have reclassified shipping and handling fees billed to
customers into products sales and the related expenses in cost of product sales
for all quarterly periods presented. The adoption of this accounting policy did
not affect operating results or net income (loss).

F26

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. SUBSEQUENT EVENTS

On March 16, 2001, the Company signed an agreement to acquire all of the stock
of GMSmbH ("GMS"), the German manufacturer of the LICOX(R) Brain Tissue Oxygen
Monitoring System (the "LICOX system"), for approximately $1.2 million in cash
and approximately $1.3 million in assumed debt. The LICOX system allows for
continuous qualitative regional monitoring of dissolved oxygen in body fluids
and tissues. Prior to the acquisition of GMS, the Integra NeuroSciences division
served as the distributor of the LICOX system in the United States and the
United Kingdom. The acquisition is expected to close in the second quarter of
2001.

F27

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and
Stockholders of Integra LifeSciences
Holdings Corporation and Subsidiaries:

Our audits of the consolidated financial statements referred to in our report
dated February 23, 2001, (except for Note 18, as to which the date is March 16,
2001, and Note 2, as to which the date is May 14, 2001) appearing in the 2000
Annual Report on Form 10-K/A of Integra LifeSciences Holdings Corporation and
Subsidiaries (the "Company") also included an audit of the financial statement
schedules listed in the index in Item 14 of this Form 10-K/A. In our opinion,
these financial statement schedules presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.

As discussed more fully in Note 2 to the Company's consolidated financial
statements, the Company has restated its 2000 and 1999 consolidated financial
statements to account for the redemption features of the Series B and Series C
Convertible Preferred Stock ("Series B and Series C Preferred") issued in March
1999 and March 2000, respectively. In the accompanying condensed financial
information appearing on Schedule I, the carrying value of the Series B and
Series C Preferred, which was previously presented as redeemable preferred
stock, outside of stockholders' equity, has been reclassified as a component of
stockholders' equity. The restatement of the 2000 and 1999 condensed financial
information had no effect on net loss, net loss per share, total assets or total
liabilities.

PRICEWATERHOUSECOOPERS LLP

Florham Park, New Jersey
February 23, 2001, except
for Note 1, as to which the
date is May 14, 2001

F28

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SCHEDULE I

BALANCE SHEETS

In thousands

December 31,
----------------------
Restated
(See Note 1)
2000 1999
--------- ----------
ASSETS
------

Investments in and advances to
consolidated Subsidiaries ............................ $ 53,781 $ 37,989
--------- ---------
Total assets ........................................... $ 53,781 $ 37,989
========= =========
Stockholders' Equity:

Preferred stock; $0.01 par value; 15,000
authorized shares; 0 and 500 Series A
Convertible shares issued and
outstanding at December 31, 2000 and
1999, respectively; 100 Series B
Convertible shares issued and
outstanding at December 31, 2000 and
1999, $11,750 including a 10% annual
cumulative dividend liquidation
preference; 54 Series C Convertible
shares issued and outstanding at
December 31, 2000, $5,805 including a
10% annual cumulative dividend
liquidation preference.............................. 2 6
Common stock; $.01 par value; 60,000 authorized
shares; 17,334 and 16,131 issued and outstanding
at December 31, 2000 and 1999 ...................... 173 161
Additional paid-in capital .......................... 160,134 132,340
Treasury stock, at cost; 20 and 1 shares at
December 31, 2000 and 1999, respectively .......... (180) (7)
Other ............................................... (66) (143)
Accumulated other comprehensive loss ................ (553) (64)
Accumulated deficit ................................. (105,729) (94,304)
--------- ---------
Total stockholders' equity ....................... 53,781 37,989
--------- ---------

See notes to consolidated financial statements

F29

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS

In thousands, except per share amounts Years Ended December 31,
-----------------------------
2000 1999 1998
-------- ------- --------
Equity in loss of consolidated Subsidiaries .... $(11,425) $(5,966) $(12,342)
-------- ------- --------

Net loss ....................................... $(11,425) $(5,966) $(12,342)
======== ======= ========

Basic and diluted loss per share ............... $ (0.97) $ (0.40) $ (0.77)
======== ======= ========

See notes to consolidated financial statements

F30

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF CASH FLOWS

For the years ended
December 31,
-----------------------------
2000 1999 1998
-------- -------- -------
(in thousands)

INVESTING ACTIVITIES:

Net capital contribution to consolidated
Subsidiaries ................................. $(13,379) $(12,279) $(3,762)
-------- -------- -------
Cash flows used in investing activities ........ (13,379) (12,279) (3,762)

FINANCING ACTIVITIES:
Proceeds from sales of preferred stock and
warrants ..................................... 5,375 9,942 4,000
Proceeds from the issuance of
common stock ................................. 5,000 -- --
Proceeds from exercise of common
stock purchase warrants ...................... 50 1,950 --
Proceeds from stock issued under
employee benefit plans ....................... 3,156 467 95
Purchases of treasury stock .................... (170) -- (286)
Collection of related party
note receivable .............................. 35 -- --
Preferred dividends paid ....................... (67) (80) (47)
-------- -------- -------
Net cash provided by financing activities ...... 13,379 12,279 3,762

Net increase (decrease) in cash and
cash equivalents ............................. -- -- --

Cash and cash equivalents at beginning
of period .................................... -- -- --
-------- -------- -------

Cash and cash equivalents at end of period ..... $ -- $ -- $ --
======== ======== =======

See notes to consolidated financial statements

F31

Notes to Financial Statement Schedule

1. As described in Note 9 to the Integra LifeSciences Holdings Corporation
(the "Company") consolidated financial statements, the Company issued
100,000 shares of Series B Convertible Preferred Stock ("Series B
Preferred") and warrants in March 1999 and 54,000 shares of Series C
Convertible Preferred Stock ("Series C Preferred" and, collectively, the
"Series B and Series C Preferred") and warrants in March 2000. In the
accompanying condensed financial information appearing on Schedule I, the
2000 and 1999 financial statements have been restated to account for the
redemption features of the Series B and Series C Preferred. The carrying
value of the Series B and Series C Preferred, which was previously
presented as redeemable preferred stock, outside of stockholders' equity,
has been reclassified as a component of stockholders equity. The effect of
these restatements are to increase stockholders' equity by $15.9 million
and $10.3 million at December 31, 2000 and 1999, respectively, to the
following amounts (in thousands):

December 31,
2000 1999
---- ----
Before restatement........................ $37,863 $27,659
After restatement......................... 53,781 37,989

After further consideration, the Company has determined that the redemption
features of the Series B and Series C Preferred are within the control of
the Company and therefore, the carrying amount should be reflected in
stockholders' equity.

These restatements had no effect on the Company's net loss or net loss per
share, total assets or total liabilities for the years ended December 31,
2000 or 1999.

2. The Registrant did not receive any cash dividends from its consolidated
subsidiaries in any period presented.

3. The Registrant's investments in and advances to subsidiaries are recorded
using the equity method of accounting.

F32

INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II

Column A Column B Column C Column D Column E

Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description Of Period Expenses Accounts(1) Deductions Period
----------------------------------------------------------------------------------------------------------------

Year ended December 31, 2000
----------------------------

Allowance for doubtful accounts... $ 944 $ 489 $ 30 $ (460) $1,003

Inventory reserves................ 3,137 892 903 (1,512) 3,420

Year ended December 31, 1999
----------------------------

Allowance for doubtful accounts... $ 354 $ 406 $ 216 $ (32) $ 944

Inventory reserves................ 525 2,159 1,614 (1,161) 3,137

Year ended December 31, 1998
----------------------------

Allowance for doubtful accounts... $ 390 $ 76 $ 15 $ (127) $ 354

Inventory reserves................ 1,126 522 29 (1,152) 525

(1) Amounts recorded to goodwill in connection with acquisitions

F33