SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

                     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, 2001

                    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.)

     311 ENTERPRISE DRIVE
    PLAINSBORO, NEW JERSEY                                         08536
- -------------------------------                            ---------------------
    (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 15, 2002 was  approximately  $504
million.

The number of shares of the  registrant's  Common Stock  outstanding as of March
15, 2002 was 26,268,003.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant's  definitive proxy statement relating to its
scheduled  May 21, 2002  Annual  Meeting of  Stockholders  are  incorporated  by
reference in Part III of this report.




                                     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  is  a  global,   diversified  medical  device  company  that  develops,
manufactures,  and markets medical devices,  implants and biomaterials primarily
for use in  neurosurgery,  orthopedics  and soft tissue repair.  Our business is
divided   into   two   divisions:    Integra   NeuroSciences(TM)   and   Integra
LifeSciences(TM).

Integra was founded in 1989 and over the next decade developed  technologies and
built a product  portfolio  directed  toward  tissue  regeneration.  In 1999, we
entered into the  neurosurgery  market through an acquisition  and the launch of
our  DuraGen(TM)  Dural Graft  Matrix  product for the repair of the dura mater.
Since that time,  Integra  NeuroSciences  has grown to comprise more than 74% of
our total revenues,  which increased to $93.4 million in 2001, an average growth
rate of 47% per annum over the period  1999 to 2001.  The growth in our  overall
business has been accelerated through six acquisitions,  the introduction of six
significant new products, and the expansion of the Integra NeuroSciences' direct
sales force.

INTEGRA NEUROSCIENCES DIVISION

Our Integra NeuroSciences  division is a leading provider of implants,  devices,
and systems used in neurosurgery,  neurotrauma, and related critical care and is
a distributor of  disposables  and supplies used in the diagnosis and monitoring
of neurological disorders.

We market the majority of these products  directly 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
direct sales and  marketing  infrastructure  in the United States and Europe and
through a distribution network elsewhere.  Integra NeuroSciences' direct selling
effort in the United  States and Europe  currently  includes more than 80 people
and is  comprised  of direct  salespeople  (called  neurospecialists)  and their
management,  and a team of  clinical  educators  who  educate and train both the
neurospecialists and our customers in the use of our products. The United States
sales force is led by a national sales manager and seven regional  managers.  We
are planning to increase the number of domestic  neurospecialists  from 44 to 63
in 2002.  We believe the  expansion of our sales force allows for smaller,  more
focused territories,  better coverage of our customers, greater participation in
trade shows and more extensive marketing efforts.

INTEGRA LIFESCIENCES DIVISION

Our Integra LifeSciences division develops and manufactures a variety of medical
products  and  devices,  including  products  based  on our  proprietary  tissue
regeneration  technology  that are  used to treat  soft  tissue  and  orthopedic
conditions.  For  the  majority  of the  products  manufactured  by the  Integra
LifeSciences division, we have partnered with market leaders for the development
and  marketing  efforts  related  to  these  products.  These  non-neurosurgical
products  address  large,  diverse  markets,  and we  believe  that  they can be
promoted  more-cost  effectively  through  leveraging  marketing  partners  than
through developing a sales infrastructure  ourselves. This strategy allows us to
achieve our growth  objectives  cost-effectively  while enabling us to focus our
management efforts on developing new products.  We have strategic alliances with
Ethicon,  a division of Johnson & Johnson,  the Genetics  Institute  division of
Wyeth (formerly  American Home Products  Corporation),  Medtronic Sofamor Danek,
and Sulzer Dental.

Geographic financial information about our segments, including product sales and
long-lived  assets,  is set forth in our  financial  statements  under  Notes to
Consolidated   Financial   Statements,   Note  13  -  Division  and   Geographic
Information.

                                       2



STRATEGY

Our goal is to become a global  leader  in the  development,  manufacturing  and
marketing of medical devices,  implants and biomaterials in the markets in which
we compete. Key elements of our strategy include the following:

EXPAND INTEGRA NEUROSCIENCES' MARKET PRESENCE. Through acquisitions and internal
growth, we have rapidly grown Integra  NeuroSciences  into a leading provider of
products used in the diagnosis, monitoring and treatment of chronic diseases and
acute injuries  involving the brain,  spine and nervous system.  We believe that
additional  growth  potential  in  the  Integra  NeuroSciences  division  exists
through:

o  expanding our product portfolio and market reach through additional
   acquisitions;

o  increasing the penetration of our existing products into closely related
   markets, such as the ear, nose and throat (ENT), neurology, and spine
   markets;

o  continuing the development and promotion of innovative new products, such as
   the NeuraGen(TM)Nerve Guide and the LICOX(R)Brain Tissue Oxygen Monitoring
   System; and

o  increasing the market share of existing product lines.

ADDITIONAL  STRATEGIC  ACQUISITIONS.  Since  March  1999 we have  completed  six
acquisitions  focused primarily in the Integra  NeuroSciences  division.  We are
seeking  additional  acquisitions in this market and in other specialty  medical
technology  markets  characterized by high margins,  fragmented  competition and
focused target customers.

CONTINUE TO FORM STRATEGIC ALLIANCES FOR INTEGRA LIFESCIENCES' PRODUCTS. We have
collaborated with well-known  medical device companies to develop and market the
majority of our  non-neurosurgical  product  lines in the  Integra  LifeSciences
division.  Significant ongoing strategic alliances include those with Ethicon to
market our INTEGRA(R) Dermal  Regeneration  Template and Genetics  Institute and
Medtronic Sofamor Danek to develop products for use in orthopedics. We intend to
pursue additional strategic alliances selectively.

CONTINUE TO DEVELOP NEW AND  INNOVATIVE  MEDICAL  PRODUCTS.  As evidenced by our
development  of the  INTEGRA(R)  Dermal  Regeneration  Template,  Biomend(R) and
Biomend(R) Extend Absorbable Collagen Matrix,  DuraGen(R) Dural Graft Matrix and
the NeuraGen(TM) Nerve Guide, we have a leading  proprietary  absorbable implant
franchise. We currently are developing a variety of innovative neurosurgical and
other medical products, including a new class of absorbable biomaterials for the
orthopedic implant market. In addition, we are seeking expanded applications for
our existing products.


BUSINESS DIVISIONS

[INTEGRA NEUROSCIENCES LOGO]

OVERVIEW

The  products  sold  by the  Integra  NeuroSciences'  division  include  medical
devices, implants, systems and instruments used in the diagnosis, monitoring and
treatment of chronic diseases and acute injuries  involving the brain, spine and
nervous  system,  and  disposable  medical  supplies,  such as  electrodes,  for
neurological  testing.  These products are used primarily by  neurosurgeons  and
nurses in the intensive care unit and the operating room and by  neurologists in
hospital  and  out-patient  settings.  Additionally,  we sell  products  used by
cardiovascular  surgeons  to divert  blood to vital  organs,  such as the brain,
during  surgical  procedures  involving  blood  vessels.  According  to industry
sources and our  estimates,  the aggregate  size of the market  addressed by our
Integra  NeuroSciences  products exceeds $400 million and is expected to grow at
an annual rate of 6-8%.

                                       3



Our Integra NeuroSciences  division offers one of the most comprehensive product
lines  serving  the  neuro  intensive  care  unit and  operating  room.  We have
established  market positions in intracranial  monitoring,  dural repair,  tumor
ablation,   neurosurgical  shunting,  specialty  neurosurgical  instrumentation,
carotid shunting, and central nervous system diagnostic and monitoring supplies,
and are  developing  a market  position  in  peripheral  nerve  repair.  Integra
NeuroSciences'  products can be segmented by use into the  following  functional
areas: i) the neuro intensive care unit, ii) the  neurosurgical  operating room,
and iii) all other. The table below provides a summary of Integra NeuroSciences'
products:


- --------------------------------------------------------------------------------

PRODUCT LINES                            APPLICATION
- --------------------------------------------------------------------------------

NEURO INTENSIVE CARE UNIT
- --------------------------------------------------------------------------------

Camino(R) and Ventrix(R) fiber           Access, drainage and continuous
optic-based intracranial monitoring      monitoring of intracranial pressure,
systems, LICOX(R) oxygen monitoring      oxygen and temperature following injury
systems, Integra Systems of CSF          or neurosurgical procedures
Drainage and Cranial Access
- --------------------------------------------------------------------------------

NEUROSURGICAL OPERATING ROOM
- --------------------------------------------------------------------------------

DuraGen(R)Dural Graft Matrix             Graft to close brain and spine membrane
- --------------------------------------------------------------------------------

NeuraGen(TM)Nerve Guide                  Repair of peripheral nerves
- --------------------------------------------------------------------------------

Selector(R)Integra Ultrasonic            Use of ultrasonic energy to
Aspirator; Dissectron(R)Ultrasonic       ablate tumors
Aspirator
- --------------------------------------------------------------------------------

Heyer-Schulte(R)neurosurgical shunts     Specifically designed for the
                                         management of hydrocephalus, a chronic
                                         condition involving excess
                                         cerebrospinal fluid in the brain
- --------------------------------------------------------------------------------

Redmond(TM)-Ruggles(TM)neurosurgical     Specialized surgical instruments for
and spinal instruments; Neuro            use in   brain or spinal surgery
Navigational(R)flexible endoscopes
- --------------------------------------------------------------------------------

Helitene(R)Absorbable Fibrillar          Control of bleeding
Hemostatic Agent
- --------------------------------------------------------------------------------

ALL OTHER
- --------------------------------------------------------------------------------

Integra NeuroSupplies(TM)                Disposables and supplies used in the
                                         diagnosis and monitoring of
                                         neurological, ENT and pulmonary
                                         disorders
- --------------------------------------------------------------------------------

Sundt(TM)and other carotid shunts        For shunting blood during surgical
                                         procedures involving blood vessels
- --------------------------------------------------------------------------------

                                        4



MARKETS AND PRODUCTS

NEURO INTENSIVE CARE UNIT

THE  MONITORING  OF  BRAIN  PARAMETERS.   Intracranial   monitors  are  used  by
neurosurgeons  in diagnosing  and treating cases of severe head trauma and other
diseases.  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.

Integra  NeuroSciences  sells the Camino(R) and Ventrix(R) lines of intracranial
pressure and temperature monitoring systems and the LICOX(R) Brain Tissue Oxygen
Monitoring System.  Integra NeuroSciences  currently has over 3,000 intracranial
monitors installed  worldwide.  The Camino(R) and Ventrix(R) systems measure the
intracranial  pressure  and  temperature  in the brain and  ventricles,  and the
LICOX(R)  system  allows  for  continuous  qualitative  regional  monitoring  of
dissolved oxygen in cerebral  tissues.  Core  technologies  underlying 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.

EXTERNAL  DRAINAGE AND CRANIAL  ACCESS.  External  drainage  systems and cranial
access kits are used by  neurosurgeons  to gain access to the cranial cavity and
to drain excess  cerebrospinal  fluid from the  ventricles  of the brain into an
external container.  Integra NeuroSciences manufactures and markets a broad line
of cranial access kits and  ventricular  and lumbar  external  drainage  systems
under the Integra CSF Drainage and Cranial Access Systems brand name.

NEUROSURGICAL OPERATING ROOM

REPAIR OF THE DURA MATER. The dura mater is the thick membrane that contains the
cerebrospinal fluid within the brain and the spine. The dura mater often 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 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. The
worldwide market for dural repair, including cranial and spinal applications, is
estimated to be $200 million.

The DuraGen(R) Dural Graft Matrix is an absorbable collagen matrix indicated for
the repair of the dura mater  surrounding  the brain and spine.  We believe that
the  other  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  absorbed  by the body and  replaced  with new  natural  tissue,  the
patient avoids some of the risks associated with a permanent  implant inside the
cranium or spinal cavity.

REPAIR OF  PERIPHERAL  NERVES.  Peripheral  nerves  may become  severed  through
traumatic accidents or surgical injuries,  often resulting in the permanent loss
of motor and sensory  function.  Although severed  peripheral  nerves regenerate
spontaneously,  they do not establish  functional  connections  unless the nerve
stumps are  surgically  reconnected.  We  estimate  the market for the repair of
severed peripheral nerves is $40 million.

The NeuraGen(TM)  Nerve Guide is an absorbable implant for the repair of severed
peripheral  nerves.  The  NeuraGen(TM)  product is a collagen  tube  designed to
provide a protective  environment  for the  regenerating  nerve and to provide a
conduit  through  which  regenerating  nerves  can  bridge the gap caused by the
injury. The NeuraGen(TM) Nerve Guide offers a rapid method for rejoining severed
peripheral nerves.

We received FDA 510(k) clearance for the  NeuraGen(TM)  product in June 2001 and
launched  the  product in the United  States in October  2001.  In  addition  to
targeting  the   neurosurgical   operating  room,  we  are  also  marketing  the
NeuraGen(TM) product to the non-hospital and private practice-based  neurologist
customer base served by our Integra NeuroSupplies business and to hand surgeons.

                                       5



NEUROSURGICAL  SYSTEMS  FOR  TUMOR  ABLATION.  More  than  145,000  primary  and
metastatic  brain  tumors  are  diagnosed  annually  in the United  States.  Our
Selector(R) Integra Ultrasonic  Aspirator and Dissectron(R)  Ultrasonic Surgical
Aspirator systems address the market for the surgical destruction and removal of
malignant and non-malignant tumors and other tissue.

The  Selector(R)  Integra  Ultrasonic  Aspirator  and  Dissectron(R)  Ultrasonic
Surgical  Aspirator  use very high  frequency  sound waves to  pulverize  cancer
tumors and allow the surgeon to remove the damaged  tumor tissue by  aspiration.
Unlike other surgical  techniques,  ultrasonic surgery selectively  dissects and
fragments soft tissue leaving  fibrous  tissues such as nerves and blood vessels
intact.  Ultrasonic  aspiration  facilitates  the  removal  of  unwanted  tissue
adjacent or attached to vital structures.  The Dissectron(R) product is not sold
in the United States.

HYDROCEPHALUS MANAGEMENT. Hydrocephalus is an incurable condition resulting from
an imbalance between the amount of cerebrospinal fluid produced by the brain and
the rate at which  cerebrospinal  fluid is absorbed by the body.  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
cerebrospinal  fluid out of the brain.  A  pressure  valve  then  maintains  the
cerebrospinal fluid at normal levels within the ventricles.

According to the Hydrocephalus Association,  hydrocephalus affects approximately
one in 500 children born in the United  States.  We estimate that  approximately
80%  of  total   cerebrospinal   fluid   shunt   sales   address   birth-related
hydrocephalus,  with the remaining 20% addressing surgical procedures  involving
excess  cerebrospinal  fluid due to head trauma.  Based on industry sources,  we
believe  that the total  United  States  market  for  hydrocephalus  management,
including  monitoring,  shunting and drainage,  is approximately $70 million. Of
that amount,  it is estimated  that a little more than half consists of sales of
monitoring products,  and the balance consists of sales of shunts and drains for
the management of hydrocephalus.

Our Heyer-Schulte(R) line of hydrocephalus management shunting products includes
the Novus(R), LPV(R) and Pudenz(TM) shunts, ventricular,  peritoneal and cardiac
catheters,  physician-specified  hydrocephalus  management shunt kits, Ommaya(R)
cerebrospinal  fluid  reservoirs and Spetzler(R)  lumbar and  syringo-peritoneal
shunts.

We believe that the use of shunts containing  programmable  valves has increased
in recent  years.  Programmable  valves  allow the  neurosurgeon  to adjust  the
pressure  settings of a shunt while it is implanted in the patient.  Shunts that
do not  incorporate  programmable  valve  technology  must be  removed  from the
patient  for  subsequent  pressure  adjustments,  a  process  that  requires  an
additional surgical procedure. Because we do not market hydrocephalus management
shunts with  programmable  valves,  we believe that future domestic sales of the
Heyer-Schulte(R)  product line may be negatively  affected by the increasing use
of programmable valves.

NEUROSURGICAL  AND SPINAL  INSTRUMENTATION.  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 and a line of
disposable  neuroendoscopy  products sold under the Neuro  Navigational(R) brand
name.

The Redmond(TM)-Ruggles(TM) 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.  Specialty  surgical steel fabricators
in Germany  manufacture  most of the  Redmond(TM)  and  Ruggles(TM)  products to
Integra's  specifications.  The Neuro  Navigational(R)  product line consists of
fiber optic  instruments  used to facilitate  minimally  invasive  neurosurgery,
including third ventriculostomies,  which are increasingly substituted for shunt
placement for patients who meet the criteria.

SURGICAL HEMOSTATIC AGENTS.  Hemostatic agents are used to control bleeding. Our
Helitene(R) Absorbable Fibrillar Collagen Hemostatic Agent has been marketed for
surgical  applications  for over 15 years.  In June  2001,  the FDA  approved  a
premarket approval (PMA) application  supplement removing the labeling exclusion
for   neurosurgical   uses  of  the  Helitene(R)   product.   Helitene(R)  is  a
collagen-based  hemostatic  agent in fibrillar  form that  effectively  controls
bleeding  within two to five minutes when applied  directly to the bleeding site
and is designed to be totally absorbable if left in the body after hemostasis.

                                       6



ALL OTHER

NEUROLOGICAL SUPPLIES.  With the acquisition of NeuroSupplies,  Inc. in December
2001, we expanded into the neurological  supplies  market.  We distribute a wide
variety of  disposables  and  supplies,  including  surface  electrodes,  needle
electrodes, recording transducers and stimulators, and respiratory sensors, that
are used in the  diagnosis  and  monitoring  of  neurological  disorders.  These
products  are  designed to monitor and perform  tests of the nervous  system and
brain,   including   electromyography   (EMG),   evoked   potential   (EP)   and
electroencephalography (EEG) tests, and to test sleep disorders.

These  products  are  sold  primarily  through  a  catalog  to more  than  6,000
neurologists,  hospitals,  sleep clinics, and other physicians under the Integra
NeuroSupplies(TM)  name. Neurologists are the referring physicians for Integra's
existing  neurosurgeon  customers.  We  expect  that  our  sales  and  marketing
infrastructure will be able to deepen the penetration of Integra  NeuroSupplies'
products into hospitals,  Integra  NeuroSciences'  principal call point. We also
believe  that Integra  NeuroSupplies'  non-hospital  and private  practice-based
customers  may be receptive to certain of our existing  products,  including the
NeuraGen(TM)  and  Helitene(R)  products  and our line of  external  ventricular
drainage products.

HEMODYNAMIC  SHUNTS.  Our Sundt(TM) and other carotid  shunts are used to divert
blood to vital organs, such as the brain,  during surgical procedures  involving
blood vessels.  These products are used by vascular  surgeons and  neurosurgeons
and are now sold direct in the United States  through the Integra  NeuroSciences
sales force.




[INTEGRA LIFESCIENCES LOGO]


OVERVIEW

The Integra LifeSciences  division develops and manufactures  implants and other
medical  devices that are used primarily for the treatment of defects,  diseases
and injuries involving soft tissue and bone and for infection  control.  Many of
the  current  products of Integra  LifeSciences  are built on our  expertise  in
absorbable collagen products.

The Integra LifeSciences division is responsible for all of our products outside
the  neurosurgical  market.  Because these  non-neurosurgical  products  address
large,  diverse  markets,   Integra   LifeSciences'   marketing,   research  and
development  programs are generally  constructed around strategic alliances with
leading  medical  device  companies.  We believe that these products can be more
cost effectively  promoted through  leveraging  marketing  partners than through
developing a sales infrastructure  ourselves.  According to industry sources and
our  estimates,   the  aggregate  size  of  the  markets  addressed  by  Integra
LifeSciences' products exceeds $1 billion.

Integra  LifeSciences  has  established a reputation for being a value-added and
dependable contract development and manufacturing partner.  Integra LifeSciences
has  developed  an  expertise in the  development,  manufacture  and supply of a
variety  of  absorbable   materials.   Integra  LifeSciences  can  also  provide
experienced personnel to support product quality and regulatory review efforts.

                                       7



Although the Integra LifeSciences products serve a wide variety of markets, they
can be segmented  into two general  groups:  i) tissue  repair  products and ii)
other  medical  devices.  The table  below  provides  a summary  of our  Integra
LifeSciences products, their application, and marketing/development partner:

- --------------------------------------------------------------------------------

PRODUCT LINES              APPLICATION                MARKETING/DEVELOPMENT
                                                      PARTNER
- --------------------------------------------------------------------------------

TISSUE REPAIR PRODUCTS
- --------------------------------------------------------------------------------

INTEGRA(R)Dermal           Regenerate dermis and      Ethicon, Inc., a division
Regeneration Template      repair skin defects        of Johnson & Johnson, and
                                                      Century Medical, Inc. in
                                                      Japan
- --------------------------------------------------------------------------------

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


Orthopedic Biomaterials:

Absorbable Collagen        Fracture management/       Genetics Institute
Sponge and other matrices  enabling spinal fusion     division of Wyeth;
for use with bone                                     Medtronic Sofamor Danek
morphogenetic  protein                                (FDA Panel recommendation
(rhBMP-2)                                             received in January 2002)


Tyrosine polycarbonates    Fixation or alignment of   Bionx Implants, Inc.
for fixation devices       fractures                  (development program)
such as absorbable screws,
plates, pins, wedges
and nails
- --------------------------------------------------------------------------------

OTHER MEDICAL DEVICES
- --------------------------------------------------------------------------------


Infection Control:


VitaCuff(R)                Provides protection        Arrow International, Inc.,
                           against infection arising  Bard Access Systems, Inc.,
                           from long-term catheters   Tyco International

BioPatch(R)(1)             Anti-microbial wound       Ethicon, Inc.
                           dressing
- --------------------------------------------------------------------------------
CollaCote(R),              Used to control bleeding   Sulzer Dental
CollaTape(R) and           in dental surgery
CollaPlug(R) absorbable
wound dressings
- --------------------------------------------------------------------------------

Instat(R)(1) and           Control of bleeding        Ethicon and various
Helistat(R) Absorbable                                distributors
Collagen Hemostats
- --------------------------------------------------------------------------------

Spembly Medical            Allow surgeon to use low   Various distributors
cryosurgery products       temperature to more
                           easily extract diseased
                           tissue
- --------------------------------------------------------------------------------

(1)  BioPatch and Instat are registered trademarks of Johnson & Johnson.

                                       8



MARKETS AND PRODUCTS

TISSUE REPAIR PRODUCTS

SKIN REPLACEMENT.  Integra  LifeSciences' skin replacement  products address the
market need created by severe  burns and chronic  wounds.  We estimate  that the
worldwide  market for use of skin replacement  products,  such as the 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. We estimate this market to be in excess of $1 billion.

INTEGRA(R) Dermal Regeneration  Template is designed to enable the human body to
regenerate functional dermal tissue. The product was approved by the FDA under a
premarket   approval   application   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.  The  INTEGRA(R)  Dermal
Regeneration  Template is sold  exclusively by the Ethicon division of Johnson &
Johnson  worldwide,  except  in  Japan.  Century  Medical,  Inc.  has  rights to
distribute the product in Japan.

Through our strategic  alliance with Ethicon,  we are seeking to obtain  broader
indications  for this  product,  including  approval  for use in  reconstructive
surgery and treatment of chronic wounds.

GUIDED TISSUE  REGENERATION IN PERIODONTAL  SURGERY.  Our BioMend(R)  Absorbable
Collagen Membrane is used for guided tissue regeneration in periodontal surgery.
The BioMend(R) 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(R)  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 has the same indication for
use as  BioMend(R),  except  that it  absorbs  in  approximately  16 weeks.  The
BioMend(R) and BioMend(R) Extend Absorbable  Collagen Membranes are sold through
the Sulzer Dental division of Sulzer Medica.

ORTHOPEDIC BIOMATERIALS.  We sell or are developing the following new absorbable
materials for the orthopedic implant market:

          -  Absorbable   Collagen   Sponges  and  other  matrices  for  use  in
             developing bone regeneration implants; and

          -  Tyrosine-derived  polycarbonates  designed  to enhance the rate and
             quality of healing and tissue regeneration when implanted in bone.


BONE REGENERATION. Integra LifeSciences supplies the Genetics Institute division
of  Wyeth  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, including orthopedic, oral and maxillofacial surgery applications.


Spine  applications  are being developed  through a related  collaboration  with
Medtronic  Sofamor Danek in North  America.  On January 10, 2002, the Orthopedic
and   Rehabilitation   Devices   Panel  of  the  United  States  Food  and  Drug
Administration  (FDA)  unanimously  recommended for approval,  with  conditions,
Medtronic Sofamor Danek's InFUSE(TM) Bone Graft used with the LT-CAGE(TM) Lumbar
Tapered Fusion Device for use in spinal fusion procedures. The InFUSE Bone Graft
uses rhBMP-2  applied to an Absorbable  Collagen  Sponge  supplied by Integra in
place of a painful secondary  procedure to harvest small pieces of bone from the
patient's own hip (autograft).  When used with the LT-CAGE Lumbar Tapered Fusion
Device, the InFUSE Bone Graft will be indicated to treat certain types of spinal
degenerative  disc  disease,  a common  cause of low back  pain.  The FDA  panel
conditions for approval included three additional  post-approval  studies in the
areas of antibody response during pregnancy, dosing and tumorogenicity.

                                       9



Genetics  Institute  has filed a pre-market  approval  application  with the FDA
seeking  approval  for the use of rhBMP-2  in  conjunction  with our  Absorbable
Collagen Sponge for use in the treatment of acute long-bone  fractures requiring
open surgical management. In June 2001, Genetics Institute announced that it had
received a non-approvable  letter from the FDA regarding its pre-market approval
application  for the  treatment  of  long-bone  fractures,  which  may  delay or
ultimately  prevent the approval of rhBMP-2 for those uses.  The  non-approvable
letter   focuses  on  the  design  of  the  pivotal   clinical   study  and  the
interpretation of the clinical data submitted by Genetics Institute.

Additionally,  we also  receive  development  funding  and other  payments  from
Medtronic  Sofamor Danek related to the  development of additional  matrices for
various applications.


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   absorbable
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.  No medical  device
containing the material has yet been approved for sale.


Integra is continuing and has concluded several materials  transfer and research
collaborations for tyrosine-derived polycarbonates.  These collaborations, which
include evaluation for use in orthopedic,  craniomaxillofacial,  spinal and drug
delivery applications,  have progressed through animal studies. To date no human
studies have been undertaken.

We produced a Device  Master File for the polymer  technology  and filed it with
the FDA in April 2001.  Information  contained in the Device  Master File may be
used by  Integra's  strategic  partners  for  Premarket  Approval  Applications,
Investigational   Device   Exemptions,   and   510(k)   Premarket   Notification
submissions, as more fully described below under "Government Regulation".

OTHER MEDICAL DEVICES

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),  and a wide  range of  absorbable  collagen
products for hemostasis  (sold to Sulzer Dental for use in  periodontal  surgery
under the names  CollaCote(R),  CollaTape(R) and  CollaPlug(R),  through various
other distributors under the Helistat(R)  Absorbable  Collagen  Hemostatic Agent
name and through Ethicon under the Instat(R) Absorbable Collagen Hemostat name).

Finally,  our Spembly  Medical  cryosurgery  products  allow surgeons to use low
temperatures  to more easily extract  diseased  tissue in  ophthalmic,  general,
gynecological, urological and cardiac applications.


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.  The Ethicon  division of Johnson & Johnson  distributes the INTEGRA(R)
Dermal  Regeneration  Template throughout the world, except in Japan. As part of
this  strategic  alliance,  Ethicon  has  agreed to pay for  clinical  trials to
support  applications to the FDA for broader  indications beyond the severe burn
market,  including  the treatment of chronic  wounds.  We cannot be certain that
these clinical trials will be completed,  or that INTEGRA(R) Dermal Regeneration
Template  will receive the approvals  necessary to permit  Ethicon to promote it
for those  indications.  Ethicon is  responsible  for  marketing and selling the
product,  has  agreed to make  significant  minimum  product  purchases,  and is
providing $2 million of annual  funding for  research,  development  and certain
clinical trials through

                                       10



2004 and  thereafter  different  amounts 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 Ethicon  achieves  certain  sales
targets.  The  aggregate  amount  of  available  contingent  payments,   if  all
conditions for each payment are satisfied,  is $38 million.  Of that amount, $25
million  depends upon the achievement of specified sales targets and $13 million
depends upon the achievement of certain clinical and regulatory events,  such as
regulatory submissions and approvals for new intended uses for INTEGRA(R) Dermal
Regeneration  Template.  To date,  we have  received  $750,000 in  clinical  and
regulatory payments and no payments for the expansion of manufacturing capacity.
We expect to receive an additional  $500,000 clinical and regulatory  payment in
the first quarter of 2002.  Based upon current clinical and regulatory plans and
our estimates of future sales  growth,  we do not expect to receive more than $2
million  of such  contingent  payments  from  Ethicon  before  2004.  Under  the
agreement,  we are obligated to manufacture  the product and are responsible for
continued  research and development.  The initial term of the ten-year agreement
expires in 2009,  and  Ethicon  may at its option  extend the  agreement  for an
additional  ten years.  Ethicon may terminate the agreement  prior to the end of
the initial term by giving notice one year in advance of termination.  Depending
upon  the  reasons  for  any  termination,  Ethicon  may be  obligated  to  make
significant payments to us.

CENTURY MEDICAL,  INC. Century Medical Inc., a subsidiary of ITOCHU Corporation,
has  obtained  exclusive  importation  and sales  rights for  INTEGRA(R)  Dermal
Regeneration  Template,  the DuraGen(R)  Dural Graft Matrix and the NeuraGen(TM)
Nerve  Guide in Japan.  Under the  related  sales  and  importation  agreements,
Century  Medical  is  conducting  clinical  trials at its own  expense to obtain
Japanese  regulatory  approvals for the sale of INTEGRA(R)  Dermal  Regeneration
Template and the DuraGen(R) Dural Graft Matrix in Japan.

The  agreements  with Century  Medical will  terminate  seven years after we and
Century Medical obtain approval from Japanese  regulators to sell the applicable
product in Japan.  We do not receive any royalties  under the agreement,  but we
did receive an initial non-refundable payment of $1 million from Century Medical
in 1998.

GENETICS INSTITUTE AND MEDTRONIC SOFAMOR DANEK. Integra LifeSciences has several
programs  oriented  toward the orthopedic  market.  These  programs  include the
alliances  with  Genetics   Institute  and  Medtronic   Sofamor  Danek  for  the
development of collagen and other absorbable  matrices to be used in conjunction
with Genetics  Institute's  recombinant human bone morphogenetic  protein-2 in a
variety of bone regeneration applications. Our agreement with Genetics Institute
requires  us to  supply  Absorbable  Collagen  Sponges  at  specified  prices to
Genetics  Institute,  including those that Genetics Institute sells to Medtronic
Sofamor  Danek with  rhBMP-2 for use in  Medtronic  Sofamor  Danek's  InFUSE(TM)
product.  In  addition,  we will  receive a  royalty  equal to a  percentage  of
Genetics Institute's sales of surgical kits combining rhBMP-2 and our Absorbable
Collagen  Sponges.  The agreement  terminates  in 2004,  but may be extended for
successive  five-year terms at the option of Genetics  Institute.  The agreement
does not provide for  milestones  or other  contingent  payments,  but  Genetics
Institute pays us to assist with regulatory affairs and research.

SULZER DENTAL. Sulzer Medica Ltd.'s dental division, Sulzer Dental, has marketed
and sold BioMend(R) since 1995,  BioMend(R) Extend since 1999, and CollaCote(R),
CollaPlug(R) and CollaTape(R) since 1992 under a distribution  agreement.  Under
that agreement,  Sulzer Dental purchases  products for the dental market from us
at specified prices and in minimum quantities. The initial term of our agreement
with Sulzer Dental ends at the end of 2004, and the agreement may be extended at
the option of Sulzer Dental for an additional five years.


RESEARCH STRATEGY

Our research  programs focus on developing new products based our  biomaterials,
peptide  chemistry and collagen  engineering  technologies  and our expertise in
fiber optics. A portion of these research and development  activities are funded
by government grants and contract  development  revenues from strategic alliance
partners. We spent approximately $8.0 million, $7.5 million, and $8.9 million in
2001,  2000, and 1999,  respectively,  on research and  development  activities.
Research and  development  activities  funded by government  grants and contract
development revenues amounted to $3.9 million, $2.8 million, and $1.6 million in
2001, 2000, and 1999, respectively.

                                       11



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 and
intracranial  monitoring.  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  products  for both tissue
regeneration  and  neurosciences  applications.  These  efforts  have led to the
successful development of new products, such as the NeuraGen(TM) Nerve Guide and
DuraGen(R) Dural Graft Matrix.


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 the 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. Since the beginning
of 1998, we have voluntarily recalled products,  and we have never involuntarily
recalled a product. We have recalled defective components or devices supplied by
other vendors,  kits  assembled by us that included  incorrect  combinations  of
products  and  defective  devices  manufactured  by us.  None of  these  recalls
resulted  in  significant  direct  expense to us or  significant  disruption  of
customer or supplier  relationships.  However, a future voluntary or involuntary
recall of one of our major products,  particularly if it involved a potential or
actual  risk to  patients,  would have an adverse  financial  impact on us, as a
result both of direct expenses and disrupted customer relationships.

Our medical  devices  introduced in the United States market are required by the
FDA, as a condition of marketing,  to secure a Pre-market Notification clearance
pursuant  to Section  510(k) of the  Federal  Food,  Drug and  Cosmetic  Act, an
approved Pre-market Approval  application or a supplemental  pre-market approval
application. 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 pre-market approval application or
supplemental  pre-market approval application,  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 from the FDA. In addition
to requiring clearance for new products,  FDA rules may require a filing and FDA
approval,  usually  through a pre-market  approval  application  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 the 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,  the  approvals  could have a
material adverse effect on 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
our business.

We have received or acquired more than 130 pre-market  notification  clearances,
four approved  pre-market  approval  applications and 47 supplemental  premarket
approval applications.  We have one premarket notification  application pending,
but expect to file new  applications  during the next year to cover new products
and  variations  on  existing  products.  We have  one  supplemental  pre-market
approval  application pending for a proposed change in the approved uses for the
INTEGRA(R) Dermal Regeneration Template.

                                       12



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
Quality Systems  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 that
company, its officers or its employees and can recommend criminal prosecution to
the  Department of Justice.  These  actions could have a material  impact on our
business. Other regulatory agencies may have similar powers.

Medical  device  laws also are 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  requires 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 that we
develop and  manufacture  quality  medical  devices.  Each of our  facilities is
audited  on an  annual  basis by a  recognized  Notified  Body (an  organization
designated by the national  governments  of the European  Union member states to
make  independent  judgments  about  whether or not a product  complies with the
protection requirements  established by each CE marking directive) to verify our
compliance  with these  standards.  In 2001, 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  specified  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. We do not currently export medical devices manufactured
in the United States that have not been approved by the FDA, although we have in
the past.


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 these  materials  and certain  waste  products.  Although we believe that our
safety  procedures for handling and disposing of these materials comply with the
standards  prescribed  by the  controlling  laws  and  regulations,  the risk of
accidental  contamination  or injury from these  materials  cannot be completely
eliminated.  In the event of this type of an  accident,  we could be held liable
for any  damages  that  result and any  liability  could  exceed our  resources.
Although we believe  that we are in  compliance  in all material  respects  with
applicable environmental laws and regulations,  we cannot guarantee 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.

                                       13



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.

BioMend(R), Camino(R), CollaCote(R), CollaPlug(R), CollaStat(TM),  CollaTape(R),
Dissectron(R),    DuraGen(R),   Helistat(R),   Helitene(R),    Heyer-Schulte(R),
INTEGRA(R)  Dermal  Regeneration  Template,  Integra  LifeSciences(TM),  Integra
NeuroSciences(TM),    Integra   NeuroSupplies(TM),    LICOX(R),    NeuraGen(TM),
NeuroNavigational(R),  Novus(R),  LPV(R),  Ommaya(R),  Pudenz(TM),  Redmond(TM),
Ruggles(TM),  Selector(R),  Spetzler(R),  Sundt(TM), Ventrix(R), VitaCuff(R) are
some of the trademarks of Integra and its  Subsidiaries.  All other brand names,
trademarks and service marks  appearing in this report 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, and the Valleylab and Radionics divisions of Tyco International Ltd. 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 our products  compete  primarily  against
medical practices that treat a condition without using a medical device,  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, 2001, we had  approximately  600 permanent  employees engaged in
production  and  production  support  (including  warehouse,   engineering,  and
facilities  personnel),   quality   assurance/quality   control,   research  and
development, regulatory and clinical affairs, sales/marketing and administration
and  finance.  None  of  our  current  employees  are  subject  to a  collective
bargaining agreement.

Many  of  our  employees,  including  those  holding  senior  positions  in  our
regulatory,  operations,  research  and  development,  and sales  and  marketing
departments,  were recruited  from large  pharmaceutical  or medical  technology
companies.  Our  neurospecialists  and regional sales managers  attend  in-depth
product training meetings throughout the year, and our clinical development team
consists of medical  professionals who specialize in specific  therapeutic areas
that our Integra  NeuroSciences  products  serve.  We believe  that our clinical
development team differentiates us from our competition,  as their knowledge and
experience as medical  professionals allows them to more effectively educate and
train both our  neurospecialists  and the customers  who use our products.  This
team is  especially  valuable  in  communicating  the  clinical  benefits of new
products.

                                       14



                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
     report.

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 report.

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 report may not occur and actual  results  could
differ  materially  from those  anticipated  or  implied in the  forward-looking
statements.

                                       15



                                  RISK FACTORS

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

WE HAVE A HISTORY OF INCURRING 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.  As of  December  31,  2001,  we  had an
accumulated deficit of $79.6 million. The year 2001 was the first full year that
we experienced  profitability.  Profitability in the future 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.

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 those  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.

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

As of December  31, 2001,  we had cash,  cash  equivalents  and  investments  of
approximately  $131.0 million and short-term debt of approximately $3.6 million.
However,  we may  need to  raise  additional  funds  in the  future  in order to
implement  our  business  plan,  to conduct  research and  development,  to fund
marketing  programs  or to acquire  complementary  businesses,  technologies  or
services.  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.

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  pharmaceutical and 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

                                       16



and secure adequate capital  resources.  We may need to develop new applications
for our products to remain competitive. Technological advances by one or more of
our current or future  competitors  could render our present or future  products
obsolete or  uneconomical.  Our future  success  will depend upon our ability to
compete effectively against current technology as well as to respond effectively
to technological  advances. We cannot assure you that competitive pressures will
not adversely affect our profitability.

The largest competitors of Integra NeuroSciences in the neurosurgery markets are
the PS Medical  division of Medtronic,  Inc.,  the Codman  division of Johnson &
Johnson, and the Valleylab and Radionics divisions of Tyco International Ltd. 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 in the area of skin substitution or
regeneration,  including Organogenesis and Advanced Tissue Sciences. Finally, in
certain cases our products  compete  primarily  against  medical  practices that
treat a condition  without using a device,  rather than any particular  product,
such as autograft  tissue as a substitute  for  INTEGRA(R)  Dermal  Regeneration
Template.

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.  Since the  beginning of 2000,  we have  acquired  five  different
businesses for a total of $29.3 million.

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,  certain of which, if consummated,
could be significant to us. Any potential acquisitions 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 those 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  those  acquired
businesses  for which the sellers of the acquired  businesses  may not indemnify
us. 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 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.

Our products under development are subject to FDA approval or clearance prior to
marketing for commercial  use. The process of obtaining  necessary FDA approvals
or  clearances  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 or clearance 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

                                       17



other than those for which the product was initially  approved or cleared or for
significant changes to the product,  further studies,  including clinical trials
and FDA approvals,  may be required. In addition,  for products with an approved
pre-market approval application,  the FDA requires  post-approval  reporting and
may require post-approval  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.

We believe that the most significant risk of our recent  applications to the FDA
relates to the  regulatory  classification  of certain  of our new  products  or
proposed new uses for existing products.  In the filing of each application,  we
make a legal judgment about the appropriate form and content of the application.
If the FDA disagrees with our judgment in any particular  case and, for example,
requires us to file a pre-market approval application rather than allowing us to
market for approved uses while we seek broader  approvals or requires  extensive
additional  clinical data, the time and expense  required to obtain the required
approval might be significantly  increased or might not be granted. For example,
we have filed, and expect to file, a series of post-approval supplements for the
INTEGRA(R) Dermal Regeneration  Template seeking approval to promote the product
for new uses.  It is  possible  that the FDA will  require  additional  clinical
information  to  support  these  applications  or that the FDA will  reject  our
applications entirely.

Approved products are subject to continuing FDA requirements relating to quality
control and quality  assurance,  maintenance  of records,  reporting  of adverse
events, and documentation, and labeling and promotion of medical devices.

The  FDA and  foreign  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 may 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.  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.  We have  voluntarily
recalled  various  products in the last four years, but none of our recalls have
resulted in significant  expense.  There have been no involuntary recalls of our
products. See "Business -- Government Regulation".

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.  The  authorities  are
concerned  about the potential for the  transmission  of disease from animals to
humans via those materials.  This public scrutiny has been particularly acute in
Japan and 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  the  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.
Nevertheless,  products that contain materials  derived from animals,  including
our products, may become subject to additional regulation,  or even be banned in
certain countries, because of concern over the potential for prion transmission.
Accordingly,  new regulation, or a ban of our products, could have a significant
adverse effect on our current business or our ability to expand our business.

                                       18



LACK OF MARKET ACCEPTANCE FOR OUR PRODUCTS OR MARKET PREFERENCE FOR TECHNOLOGIES
WHICH COMPETE WITH OUR PRODUCTS WOULD REDUCE OUR REVENUES AND PROFITABILITY.

We cannot be certain that our current  products,  or any other  products that we
develop or market,  will achieve or maintain market  acceptance.  Certain of the
medical  indications  that can be treated by our  devices can also be treated by
other medical devices or by medical practices that do not include a device.  The
medical  community  widely accepts many alternative  treatments,  and certain of
these other  treatments  have a long  history of use.  For  example,  the use of
autograft tissue is a  well-established  means for repairing the dermis,  and it
may interfere with the widespread acceptance in the market for INTEGRA(R) Dermal
Regeneration Template.

We cannot be certain  that our  devices and  procedures  will be able to replace
those established  treatments or that either physicians or the medical community
in general  will accept and utilize  our devices or any other  medical  products
that we may  develop.  For example,  we cannot be certain that the  NeuraGen(TM)
Nerve  Guide  will  be  accepted  by the  medical  community  over  conventional
microsurgical techniques for connecting severed peripheral nerves.

In addition,  our future  success  depends,  in part,  on our ability to develop
additional  products.  Even if we determine that a product candidate has medical
benefits,  the cost of commercializing that product candidate may be too high to
justify  development.  Competitors may develop products that are more effective,
cost less, or are ready for commercial  introduction before our products.  If we
are unable to  develop  additional,  commercially  viable  products,  our future
prospects could be adversely affected.

Market acceptance of our products depends on many factors, including our ability
to convince  prospective  collaborators  and customers that our technology is an
attractive  alternative  to  other  technologies,  to  manufacture  products  in
sufficient  quantities  and at an  acceptable  cost,  and to supply and  service
sufficient  quantities  of  our  products  directly  or  through  our  strategic
alliances.  In addition,  limited  funding  available for product and technology
acquisitions  by our  customers,  as  well as  internal  obstacles  to  customer
approvals of purchases of our products, could harm our technology.  The industry
is subject to rapid and  continuous  change  arising  from,  among other things,
consolidation and technological  improvements.  One or more of these factors may
vary  unpredictably,  which could  materially  adversely  affect our competitive
position.  We may not be able to adjust our contemplated  plan of development to
meet changing market demands.

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
most  important  strategic  alliances  are our agreement  with Ethicon,  Inc., a
division  of Johnson &  Johnson,  relating  to  INTEGRA(R)  Dermal  Regeneration
Template,  and our agreement with the Genetics  Institute  division of Wyeth for
the  development of collagen  matrices to be used in  conjunction  with Genetics
Institute's  recombinant  bone protein,  a protein that stimulates the growth of
bone in humans.  Termination of either of these  alliances would have an adverse
effect on our revenues and would reduce our  expectations  for the growth of our
Integra LifeSciences division.

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  those  agreements   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.

                                       19



Some  collaborators may not perform their obligations as we expect.  Some of the
companies we currently have alliances with or are targeting as potential  allies
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  sales  and  other  revenues  could
significantly be 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.  We own or have licensed  patents
that cover significant aspects of many of our product lines. However, 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 our  patents do not  cover.  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 those 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.

                                       20



IT MAY BE DIFFICULT TO REPLACE SOME OF OUR SUPPLIERS.

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. We believe that these factors
are most likely to affect our Camino(R) and  Ventrix(R)  lines of  intra-cranial
pressure  monitors  and  catheters,  which are  assembled  using many  different
electronic  parts  from  numerous  suppliers.  While  we are  not  dependent  on
sole-source suppliers,  if we were suddenly unable to purchase products from one
or more of these companies, we would need time to qualify a replacement, and the
production of any affected  products could be disrupted.  While it is our policy
to maintain  sufficient  inventory of components so that our production will not
be  significantly  disrupted  even if a particular  component or material is not
available  for a period  of time,  we remain at risk that we will not be able to
qualify new  components or materials  quickly  enough to prevent a disruption if
one or more of our  suppliers  ceases  production  of  important  components  or
materials.

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.
In  particular,  our  San  Diego,  California  facility  that  manufactures  our
Camino(R) and Ventrix(R) product line is as susceptible to earthquake damage and
power losses from electrical  shortages as are other  businesses in the Southern
California  area.  Our silicone  manufacturing  plant in Anasco,  Puerto Rico is
vulnerable  to  hurricane  damage.  Although  we  maintain  property  damage and
business interruption insurance coverage on these facilities, we may not be able
to renew or obtain  such  insurance  in the  future  on  acceptable  terms  with
adequate coverage or at reasonable costs.

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 that 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, LOCAL ECONOMIC CONDITIONS,
AND DELAYS IN COLLECTION OF ACCOUNTS RECEIVABLE.

We generate  significant sales outside the United States, a substantial  portion
of which are U.S.  dollar-denominated  transactions 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 those 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 operating  subsidiaries  based in Europe and we generate certain
revenues and incur certain operating expenses in British Pounds and the Euro, we
will experience  currency  exchange risk with respect to those foreign  currency
denominated  revenues or expenses.  Although  product sales in these  currencies
amounted  to  approximately  8% of our total  product  sales for the year  ended
December 31, 2001, we expect that the amount of sales denominated in the British
Pound and Euro will  increase as a percentage  of total sales  because of recent

                                       21



acquisitions  of European  companies and our decision to sell  directly,  rather
than through distributors, in major European countries.

Our sales to foreign  markets  may be  affected  by local  economic  conditions.
Relationships  with  customers and effective  terms of sale  frequently  vary by
country,  often  with  longer-term  receivables  than are  typical in the United
States.

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 those laws and  regulations,  we cannot  assure you
that:

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

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

                                       22



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 the  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 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 those materials
comply with the standards prescribed by the applicable 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 related 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, those losses 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 cannot 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  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  our actual financial results differing from guidance provided by management;

o  our actual  financial  results  differing  from that  expected by  securities
   analysts;

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

o  changes in the prospects of our business partners or suppliers;

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;

o  additions or departures of key personnel; and

                                       23



o  sales of our common stock.

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

OUR MAJOR STOCKHOLDERS COULD MAKE DECISIONS ADVERSE TO YOUR INTERESTS.

Our directors and executive  officers and affiliates of certain directors own or
control  more than  one-third of our  outstanding  voting  securities  and would
generally have  significant  influence  over the election of all directors,  the
outcome of corporate  actions  requiring  stockholder  approval,  and  otherwise
influence the business. The ability of the board of directors to issue preferred
stock,  while providing  flexibility in connection with financing,  acquisitions
and other corporate purposes,  could have the effect of discouraging,  deferring
or preventing a change in control or an unsolicited acquisition proposal,  since
the issuance of preferred stock could be used to dilute the share ownership of a
person or entity  seeking to obtain  control of us. This  significant  influence
could preclude any unsolicited acquisition of Integra and consequently adversely
affect the market  price of the common  stock.  Furthermore,  we are  subject to
Section 203 of the Delaware General Corporation Law, which could have the effect
of delaying or preventing a change of control.


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,  Andover,  England and  Mielkendorf,
Germany. Our primary  distribution  centers are located in Cranbury,  New Jersey
and Andover,  England.  In addition,  we lease  several  smaller  facilities  to
support additional  administrative,  assembly, and distribution operations.  Our
total office  manufacturing and research space approximates  190,000 square feet
with  lease  payments  of   approximately   $130,000  per  month.   All  of  our
manufacturing  facilities  make  at  least  one  of  our  Integra  NeuroSciences
products,  and  our  Integra  LifeSciences  products  are  manufactured  in  the
Plainsboro, Anasco and Andover facilities. All of our facilities are leased. The
lease  agreement  for our  manufacturing  facility in San Diego  expires in June
2003. We believe that we will be able to renew this lease on acceptable terms.

All of our  manufacturing  and  distribution  facilities are registered with the
FDA. Our  facilities  are subject to FDA  inspection to assure  compliance  with
Quality System Regulations.  We believe that our manufacturing facilities are in
substantial  compliance  with  Quality  System  Regulations,  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  (the "Court")  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. 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 ("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 in March 2000, a jury returned a
unanimous verdict for Integra,  finding that Merck KGaA had willfully  infringed
and induced the  infringement  of our  patents,  and awarded us  $15,000,000  in
damages. The Court dismissed Scripps and Dr. Cheresh from the case.

In October,  2000,  the Court  entered  judgment in Integra's  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. Merck KGaA filed various
post-trial motions requesting a

                                       24



judgment as a matter of law  notwithstanding the verdict or a new trial, in each
case  regarding  infringement,  invalidity and damages.  In September  2001, the
Court  entered  orders in favor of Integra and  against  Merck KGaA on the final
post-judgment  motions in the case, and denied Merck KGaA's motions for judgment
as a matter of law and for a new trial.

Merck KGaA and Integra have each  appealed  various  decisions of the Court.  We
expect the court of appeals to hear  arguments in the appeal  during 2002 and to
issue its opinion during 2003. Post-judgment interest continues to accrue at the
rate of  approximately  $20,000 per week.  Integra has not  recorded any gain in
connection with this favorable judgment.

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 our opinion,  these 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  Integra  are  elected  annually  and  serve at the
discretion of the Board of Directors.  The only family relationship  between any
of the  executive  officers  and our Board of Directors is that Mr. Holtz is the
nephew of Richard E. Caruso,  Ph.D.,  who is Chairman of the Board of Directors.
The  following  information  indicates  the  position  and age of our  executive
officers as of the date of this report and their previous business experience.


NAME                              AGE  POSITION

Stuart M. Essig .................  40   President, Chief Executive Officer
                                        and Director

John B. Henneman, III............  40   Senior Vice President, Chief
                                        Administrative Officer and Secretary

David B. Holtz...................  35   Senior Vice President, Finance
                                        and Treasurer

Donald R. Nociolo ...............  39   Senior Vice President, Operations

Judith E. O'Grady................  51   Senior Vice President, Regulatory,
                                        Quality Assurance and Clinical Affairs

Michael D. Pierschbacher, Ph.D...  50   Senior Vice President Research and
                                        Development, Director of the Corporate
                                        Research Center

Deborah A. Leonetti..............  46   Vice President, Marketing

Robert D. Paltridge .............  44   Vice President, Sales

                                       25



STUART M.  ESSIG 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.

JOHN B. HENNEMAN,  III is Integra's Senior Vice President,  Chief Administrative
Officer and Secretary,  and is responsible  for the law  department,  regulatory
affairs,  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 and his J.D.
from the University of Michigan Law School.

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 financial  reporting,  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 and has been certified as a public accountant.

DONALD R. NOCIOLO  joined Integra as Director of  Manufacturing  in 1994 and has
served as Vice President, Operations since March 1997 and was promoted to Senior
Vice President of Operations in May 2000. His responsibilities  include managing
all manufacturing and distribution  operations in the United States. Mr. Nociolo
has over fifteen  years  experience  working in  engineering  and  manufacturing
management in the medical device industry. Six of those years were spent working
at Ethicon,  Inc., a division of Johnson & Johnson.  Mr.  Nociolo  received a BS
degree  in  Industrial  Engineering  from  Rutgers  University  and  an  MBA  in
Industrial Management from Fairleigh Dickinson University.

JUDITH E. O'GRADY Senior Vice President of Regulatory Affairs, Quality Assurance
and Clinical  Affairs,  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  500  FDA  and
international submissions.  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
1995.  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.

                                       26



DEBORAH A. LEONETTI  joined  Integra in May of 1997 as Director of Marketing and
was promoted to Vice President of Marketing in April 1999. Her  responsibilities
include worldwide strategic  marketing for all Integra products.  From September
1989 through May 1997, Ms.  Leonetti  worked for Cabot Medical,  which was later
acquired by Circon Corporation, and held positions in sales, sales training, and
marketing.  Prior to her  experience at  Cabot-Circon,  Ms.  Leonetti  completed
fifteen years of clinical  practice as a registered  nurse at St.  Christopher's
Hospital for Children in Philadelphia.  She received her Nursing degree from St.
Joseph's Hospital School of Nursing and La Salle University.

ROBERT D.  PALTRIDGE  joined Integra as National Sales Director in February 1995
and has served as Vice President,  North American Sales since September 1997. He
was   promoted  to  Vice   President,   Direct  Sales  in  October   2001.   His
responsibilities  include  managing  the  direct  sales  activities  of  Integra
NeuroSciences  products in the United States,  the United Kingdom,  France,  and
Germany and managing  distributor sales in Canada. Mr. Paltridge has 19 years of
sales and sales  management  experience in the medical device  industry.  Before
joining Integra,  he was National Sales Manager at Strato Medical, a division of
Pfizer,  Inc. He received a BS degree in Business  Administration  from  Rutgers
University.

                                       27



                                     PART II

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

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

                                         HIGH           LOW
                      2001

                 Fourth Quarter        $ 31.030       $ 22.770
                 Third Quarter         $ 32.150       $ 18.800
                 Second Quarter        $ 22.450       $ 11.400
                 First Quarter         $ 18.313       $  9.875

                      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

The  closing  price for the  Common  Stock on March  15,  2002 was  $28.80.  For
purposes of calculating the aggregate market value of the shares of voting stock
of Integra 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 our  directors  and  executive  officers  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 Integra. Further information concerning ownership of the Integra's
voting stock by executive officers, directors and principal stockholders will be
included in the our definitive  proxy  statement to be filed with the Securities
and Exchange Commission.

We do not  currently  pay any cash  dividends  on our  Common  Stock  and do not
anticipate paying as such dividends in the foreseeable future.

The number of stockholders of record as of March 15, 2002 was approximately 375,
which includes  stockholders  whose shares were held in nominee name. The number
of beneficial stockholders at that date was over 5,000.

RECENT SALES OF UNREGISTERED SECURITIES

In March and December 2001, respectively,  we sold 240,000 and 300,000 shares of
Common Stock to affiliates of Soros Private  Equity  Partners LLC through Soros'
exercise of stock purchase  warrants in a transaction  exempt from  registration
under Section 4(2) of the Securities Act of 1933, as amended,  and the rules and
regulations  promulgated  thereunder (the "Securities Act"). Proceeds from these
sales of Common Stock were $916,800 and $2,700,000, respectively.

In June 2001, we issued  2,617,800 shares of Common Stock to affiliates of Soros
Private  Equity  Partners  LLC upon their  conversion  of all 100,000  shares of
Series B Preferred Stock owned by them in a transaction exempt from registration
under Section 4(2) of the Securities  Act. The holders of this Common Stock have
registration rights.

In  December  2001,  we issued  10,000  shares of Common  Stock to the seller of
NeuroSupplies,   Inc.  as  partial   consideration   for  our   acquisition   of
NeuroSupplies, Inc. in a transaction exempt from registration under Section 4(2)
of the Securities Act.

                                       28



ITEM 6. SELECTED FINANCIAL DATA

The information set forth below should be read in conjunction with  Management's
Discussion and Analysis of Financial Condition and Results of Operations and our
consolidated  financial  statements and related notes included elsewhere in this
report.  We have  acquired  numerous  businesses  and product  lines  during the
previous  four  years.  As a result  of  these  acquisitions,  the  consolidated
financial  results and balance  sheet data for certain of the periods  presented
above may not be directly comparable.



                                                                          Years Ended December 31,
                                                            2001        2000        1999        1998        1997
                                                          --------    --------    --------    --------    --------
                                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                             
Operating Results:
Total revenue .........................................     93,442      71,649      42,876      17,561      14,848
Total operating costs and expenses (1) ................     79,156      83,370      55,256      31,741      33,759
                                                          --------    --------    --------    --------    --------
Operating income (loss) ...............................     14,286     (11,721)    (12,380)    (14,180)    (18,911)

Interest income (expense), net ........................      1,393        (473)        294       1,250       1,771
Gain on disposition of product line ...................         --       1,146       4,161          --          --
Other income (expense), net ...........................       (136)        201         141         588         176
                                                          --------    --------    --------    --------    --------
Income (loss) before income taxes .....................     15,543     (10,847)     (7,784)    (12,342)    (16,964)
Income tax expense (benefit)(2) .......................    (10,863)        108      (1,818)         --          --
                                                          --------    --------    --------    --------    --------
Net income (loss) before extraordinary item and
   cumulative effect of accounting change .............     26,406     (10,955)     (5,966)    (12,342)    (16,964)

Extraordinary loss on the early retirement of debt,
   net of income tax benefit(3) .......................       (243)         --          --          --          --
Cumulative effect of accounting change(4) .............         --        (470)         --          --          --
                                                          --------    --------    --------    --------    --------
Net income (loss) .....................................   $ 26,163    $(11,425)   $ (5,966)   $(12,342)   $(16,964)
                                                          ========    ========    ========    ========    ========

Diluted net income (loss) per share ...................   $   0.94    $  (0.97)   $  (0.40)   $  (0.77)   $  (1.15)
Weighted average shares outstanding ...................     27,796      17,553      16,802      16,139      14,810

Pro Forma Data (4):
Total revenue ..........................................                          $ 42,974    $ 16,993
Net loss ...............................................                            (5,868)    (12,910)
Basic and diluted net loss per share ...................                          $  (0.40)   $  (0.80)

                                                                                December 31,
                                                            2001        2000        1999        1998        1997
                                                          --------    --------    --------    --------    --------
                                                                               (IN THOUSANDS)
Financial Position(3):
Cash, cash equivalents, and non-current investments ...   $131,036    $ 15,138    $ 23,612    $ 20,187    $ 26,272
Working capital .......................................     89,086      25,177      28,014      23,898      29,407
Total assets ..........................................    227,588      86,514      66,253      34,707      38,356
Long-term debt ........................................         --       4,758       7,625          --          --
Accumulated deficit ...................................    (79,600)   (105,729)    (94,304)    (88,287)    (75,945)
Stockholders' equity ..................................    204,056      53,781      37,989      31,366      35,755



(1)  Total  operating  costs and  expenses  include  the  following  significant
     special items:  a $13.5 million  stock-based  compensation  charge from the
     extension of the employment of our President and Chief Executive Officer in
     2000;  $2.5  million in fair value  inventory  charges and $1.0  million in
     severance  costs related to  acquisitions in 1999; and a $1.0 million asset
     impairment  charge and a $5.9  million  stock-based  signing  bonus for our
     President and Chief Executive Officer in 1997.


(2)  In 2001,  Integra  recognized an $11.5 million  deferred income tax benefit
     related to the reduction of a portion of the valuation  allowance  recorded
     against its deferred tax assets. In 1999, Integra recognized a $1.8 million
     deferred  income  tax  benefit  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.

(3)  In August 2001,  we issued  4,747,500  shares of common stock at $25.50 per
     share in a follow-on  public  offering.  The net proceeds  generated by the
     offering,  after  expenses,  was $113.4  million.  We  subsequently  used a
     portion of these proceeds to repay outstanding  indebtedness  totaling $9.3
     million,  for which we recorded a $243,000  extraordinary loss, net of tax,
     on the early  retirement of debt.

(4)  As the result of the  adoption  of SEC Staff  Accounting  Bulletin  No. 101
     "Revenue  Recognition" (SAB 101), 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 in 2001 and 2000 includes $112,000 of
     amortization  of the amount  deferred as of January 1, 2000. Pro forma data
     reflects  the  amounts  that would have been  reported  if SAB 101 had been
     retroactively applied.

                                       29



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


The following  discussion and analysis of our financial condition and results of
operations should be read together with the selected consolidated financial data
and our financial  statements and the related notes appearing  elsewhere in this
report.  This discussion and analysis contains  forward-looking  statements that
involve  risks,  uncertainties  and  assumptions.  The actual results may differ
materially  from those  anticipated  in these  forward-looking  statements  as a
result of many  factors,  including  but not  limited to those under the heading
"Risk Factors".

GENERAL

Integra  is  a  global,   diversified  medical  device  company  that  develops,
manufactures,  and markets medical devices,  implants and biomaterials primarily
for use in  neurosurgery,  orthopedics  and soft tissue repair.  Our business is
divided   into   two   divisions:    Integra   NeuroSciences(TM)   and   Integra
LifeSciences(TM).

INTEGRA NEUROSCIENCES DIVISION

Our Integra NeuroSciences  division is a leading provider of implants,  devices,
and systems used in neurosurgery,  neurotrauma,  and related critical care and a
distributor of disposables  and supplies used in the diagnosis and monitoring of
neurological  disorders.  Integra NeuroSciences sells primarily through a direct
sales  force of more than 80 people in the United  States,  the United  Kingdom,
Germany and France.

INTEGRA LIFESCIENCES DIVISION

Our Integra LifeSciences division develops and manufactures a variety of medical
products  and  devices,  including  products  based  on our  proprietary  tissue
regeneration  technology  that are  used to treat  soft  tissue  and  orthopedic
conditions.  For  the  majority  of the  products  manufactured  by the  Integra
LifeSciences division, we have partnered with market leaders for the development
and  marketing  efforts  related  to  these  products.  These  non-neurosurgical
products  address  large,  diverse  markets,  and we  believe  that  they can be
promoted  more  cost-effectively  through  leveraging  marketing  partners  than
through developing a sales infrastructure ourselves. We have strategic alliances
with Ethicon,  a division of Johnson & Johnson,  the Genetics Institute division
of Wyeth, Medtronic Sofamor Danek, and Sulzer Dental.

ACQUISITIONS

The recent  growth in  products  sales has been  generated  through  new product
launches and six acquisitions. Reported product sales for 2001 and 2000 included
the following amounts in sales of acquired product lines:

                                                     2001 Sales   2000 Sales
                                                     ----------   ----------
                                                         (IN THOUSANDS)
     Integra NeuroSciences
       Products acquired in 2001(1) ................   $ 2,044     $    --
       Products acquired in 2000 ...................    15,290       9,587
                                                       -------     -------
       Subtotal ....................................    17,334       9,587
       All other product sales .....................    50,998      39,615
                                                       -------     -------
       Total Integra NeuroSciences product sales ...    68,332      49,202

     Integra LifeSciences
       Products acquired in 2001 ...................   $    --     $    --
       Products acquired in 2000 ...................     2,222       1,622
                                                       -------     -------
       Subtotal ....................................     2,222       1,622
       All other product sales .....................    17,133      14,163
                                                       -------     -------
       Total Integra LifeSciences product sales ....    19,355      15,785

     Consolidated product sales ....................   $87,687     $64,987

(1)  Excludes sales of the LICOX(R) product in those  territories  where Integra
     NeuroSciences had exclusive distribution rights to the product prior to our
     acquisition of GMSmbH.

                                       30



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS (CONTINUED)


Recent business and product line acquisitions include the following:

On December 6, 2001, we acquired NeuroSupplies, Inc., a specialty distributor of
disposables and supplies for neurologists,  pulmonologists and other physicians,
for $4.3 million.  The purchase price  consisted of $0.4 million in cash paid at
closing,  a $3.6  million  note payable in January  2002,  and 10,000  shares of
Integra Common Stock. Integra  NeuroSupplies  markets a wide variety of supplies
that are sold to neurologists, hospitals, sleep clinics, and other physicians in
the  United  States  as  well  as  to  original   equipment   manufacturers  and
distributors.  Revenues of the acquired business were approximately $4.0 million
in 2000.

On  April  27,  2001,  we  acquired  Satelec   Medical,   a  subsidiary  of  the
Satelec-Pierre  Rolland group, for $3.7 million in cash. Satelec Medical,  based
in France,  manufactures  and  markets  the  Dissectron(R)  ultrasonic  surgical
aspirator  console and a line of related  handpieces.  Revenues of the  acquired
business were approximately $1.5 million in 2000.

On April 4, 2001, we acquired  GMSmbH,  the German  manufacturer of the LICOX(R)
product,  for $2.9 million. The purchase price consisted of $2.3 million in cash
paid at  closing,  the  forgiveness  of $0.2  million in notes  receivable  from
GMSmbH, and $0.4 million of future minimum royalty payments to the seller. Prior
to the acquisition,  the Integra NeuroSciences  division had exclusive marketing
rights to the LICOX(R)  products in the United States and certain other markets.
Revenues of the  acquired  business  were  approximately  $1.2  million in 2000,
consisting primarily of sales of the LICOX(R) products in Germany and to various
international distributors, including approximately $0.4 million to Integra.

On April 6, 2000, we purchased the  Selector(R)  Ultrasonic  Aspirator,  Ruggles
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. Sales of the cryosurgery product line are reported in
the Integra LifeSciences division.

On January 17, 2000,  we purchased the business,  including  certain  assets and
liabilities,  of  Clinical  Neuro  Systems,  Inc.  (CNS) for $6.8  million.  The
purchase  price  consisted  of  $4.0  million  in  cash  and a 5%  $2.8  million
promissory  note  issued to the  seller,  which was repaid in full in 2001.  CNS
designs and manufactures  neurosurgical  external  ventricular drainage systems,
including catheters and drainage bags, as well as cranial access kits.

On March 29,  1999 we  acquired  the  business,  including  certain  assets  and
liabilities, of the NeuroCare group of companies (NeuroCare), a leading provider
of  neurosurgical  products for $25.2 million.  The purchase price  consisted of
$14.2  million in cash and $11.0  million of assumed  indebtedness  under a term
loan from Fleet  Capital,  which was repaid in full in 2001. 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.

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 our consolidated  financial  statements since their respective dates
of  acquisition.  The following table provides a comparison of pro forma product
sales for the years 2001 and 2000 as if all acquisitions completed after January
1, 2000 had occurred as of the  beginning of that year.  This pro forma  product
sales data is based upon  estimates of product  sales  generated by the acquired
businesses  during the period prior to which Integra  acquired them and does not
necessarily  represent  results that would have occurred if the acquisitions had
taken place on the basis assumed above.



                                                 2001                   2000          Growth Over  Prior Year
                                          Reported  Pro Forma    Reported  Pro Forma    Reported   Pro Forma
                                          --------  ---------    --------  ---------  -----------  ----------
                                                       ($ IN THOUSANDS)
                                                                                    
Integra NeuroSciences product sales ....  $ 68,332  $  73,539    $ 49,202  $  57,904      38.9%       27.0%
Integra LifeSciences product sales .....    19,355     19,355      15,785     16,467      22.6%       17.5%
                                          --------  ---------    --------  ---------    --------   ---------
Consolidated product sales .............    87,687     92,894      64,987     74,371      34.9%       24.9%
Other revenue ..........................     5,755      5,755       6,662      6,662     (13.6%)     (13.6%)
                                          --------  ---------    --------  ---------    --------   ---------
Total revenue ..........................  $ 93,442  $  98,649    $ 71,649  $  81,033      30.4%       21.7%


                                       31



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS (CONTINUED)


RESULTS OF OPERATIONS

We have acquired  numerous  businesses and product lines since 1999. As a result
of these  acquisitions,  the  following  financial  results  may not be directly
comparable.

                                                   Years Ended December 31,
                                                2001         2000         1999
                                            --------     --------     --------
                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)

Product sales ............................  $ 87,687     $ 64,987     $ 40,047
Total revenue ............................    93,442       71,649       42,876

Cost of product sales ....................    36,014       29,511       22,678
GROSS MARGIN ON PRODUCT SALES ............    51,673       35,476       17,369
GROSS MARGIN AS A PERCENTAGE
  OF PRODUCT SALES .......................        59%          55%          43%

Total other operating costs
  and expenses ...........................    43,142       53,859       32,578
                                            --------     --------     --------
Operating income (loss) ..................    14,286      (11,721)     (12,380)

Interest income (expense), net ...........     1,393         (473)         294
Gain on disposition of product line ......        --        1,146        4,161
Other income (expense), net ..............      (136)         201          141
                                            --------     --------     --------
Income (loss) before income taxes ........    15,543      (10,847)      (7,784)
Income tax expense (benefit) .............   (10,863)         108       (1,818)
                                            --------     --------     --------
Net income (loss) before extraordinary
  item and accounting change .............    26,406      (10,955)      (5,966)

Extraordinary loss / accounting change ...      (243)        (470)          --
                                            --------     --------     --------
Net income (loss) ........................  $ 26,163     $(11,425)    $ (5,966)
                                            ========     ========     ========

Diluted net income (loss) per share ......  $   0.94     $  (0.97)    $  (0.40)
Weighted average shares outstanding ......    27,796       17,553       16,802

In 2001, total revenues  increased 30% over 2000 to $93.4 million,  led by a 35%
increase in product sales to $87.7  million.  Domestic  product sales  increased
$17.0 million in 2001 to $68.4  million,  or 78% of total sales,  as compared to
79% of product sales in 2000 and 77% of product  sales in 1999.  Growth in total
revenues  and  product  sales  in  2001  was  led by the  Integra  NeuroSciences
division,  which  reported an $18.9 million  increase in total revenues to $69.4
million, a 37% increase over 2000. The Integra LifeSciences  division reported a
$2.9 million  increase in total revenues to $24.0  million,  a 14% increase over
2000.

In 2000, total revenues  increased 67% over 1999 to $71.6 million,  led by a 62%
increase in product  sales to $65.0  million.  The increase in product sales was
primarily the result of the $11.2 million in sales of products acquired in 2000,
increased  sales of the  DuraGen(R)  product,  which was  launched  in the third
quarter of 1999, and a full year of sales of the NeuroCare products,  which were
acquired in March 1999.  Growth in total  revenues and product sales in 2000 was
led by the Integra  NeuroSciences  division,  which  reported  an $24.6  million
increase in total  revenues to $50.5  million,  a 95%  increase  over 1999.  The
Integra LifeSciences division reported a $4.2 million increase in total revenues
to $21.1 million, a 24% increase over 1999.

Cost of product  sales  included  $203,000,  $429,000,  and $2.5 million in fair
value  inventory  purchase  accounting  adjustments  recorded in connection with
acquisitions in 2001, 2000, and 1999, respectively. Excluding these adjustments,
gross margin as a percentage  of product  sales in 1999 would have been 50%. The
continued  improvement  in gross  margins is primarily the result of an improved
sales mix of higher margin  products and increased  capacity  utilization in our
manufacturing facilities.

                                       32



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS (CONTINUED)


Net income in 2001 was $26.2 million, or $0.94 per diluted share, as compared to
a net loss of $11.4  million in 2000,  or $(0.97) per diluted  share,  and a net
loss of $6.0 million in 1999,  or $(0.40) per diluted  share.  Included in these
amounts are the following significant special items:

RECORDED IN 2001

- -  an $11.5 million  deferred income tax benefit from the reduction of a portion
   of the valuation allowance recorded against our deferred tax assets; and

- -  an extraordinary  loss of $243,000,  net of tax, from the early retirement of
   debt;

RECORDED IN 2000

- -  a $13.5 million  non-cash,  stock-based  compensation  charge  related to the
   extension of the Chief Executive Officer's  employment  agreement recorded in
   operating expenses;

- -  a $1.1 million gain on the sale of product lines;

- -  a $470,000 charge recorded as the cumulative  effect of an accounting  change
   associated  with  the  adoption  of  a  new  accounting  policy  for  revenue
   recognition; and

- -  a $4.2 million  non-recurring,  non-cash  dividend  related to the beneficial
   conversion  feature of our Series C Convertible  Preferred  Stock when it was
   issued in March 2000 that did not affect the  reported  net loss for 2000 but
   was reflected in the calculation of net loss per share for 2000;

RECORDED IN 1999

- -  a $2.5 million fair value  purchasing  accounting  inventory  charge and $1.0
   million of  severance  costs  related to  acquisitions  recorded in operating
   expenses;

- -  a $3.7 million gain, net of tax, on the sale of a product line; and

- -  a $1.8 million deferred income tax benefit 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.

As adjusted for the above  special  items,  we would have reported net income of
$14.9  million in 2001,  as compared to net income of $1.4 million in 2000 and a
net loss of $7.9 million in 1999.

The following  discussion of divisional  financial  results  excludes  corporate
general and administrative expenses and amortization of intangible assets, which
are not included in the measurement of divisional operating results.

INTEGRA NEUROSCIENCES DIVISION
                                                     2001      2000      1999
                                                   --------  --------  --------
                                                          (IN THOUSANDS)
Product sales:
   - Neuro intensive care unit ..................  $ 27,830  $ 23,521  $ 14,398
   - Neuro operating room .......................    36,213    21,820     8,458
   - Other NeuroSciences products ...............     4,289     3,861     2,588
                                                   --------  --------  --------
Total product sales .............................    68,332    49,202    25,444
Other revenue ...................................     1,061     1,312       450
                                                   --------  --------  --------
Total revenue ...................................    69,393    50,514    25,894

Cost of product sales ...........................    25,973    20,485    14,185
GROSS MARGIN ON PRODUCT SALES ...................    42,359    28,717    11,259
GROSS MARGIN AS A PERCENTAGE OF PRODUCT SALES ...       62%       58%       44%

Research and development expenses ...............     3,027     2,470     2,080
Sales and marketing expenses ....................    18,750    13,165     6,442
General and administrative expenses .............     3,682     4,358     4,726
                                                   --------  --------  --------
Operating income (loss) .........................  $ 17,961  $ 10,036  $ (1,539)

Product sales in the Integra  NeuroSciences  division increased $19.1 million in
2001 to $68.3 million,  a 39% increase over 2000.  Product sales increased $23.8
million in 2000 to $49.2 million, a 93% increase over 1999. This growth has been
generated through acquisitions, new product launches, and increased direct sales
and marketing efforts, both domestically and in Europe.

                                       33



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS (CONTINUED)


Sales of the DuraGen(R) Dural Graft Matrix,  the Selector(R)  Integra Ultrasonic
Aspirator  for the  ablation  of cranial  tumors,  and our line of  intracranial
monitoring  and drainage  products for the neuro  intensive care unit have grown
particularly well.

In 2001, we launched three innovative new products in the United States. For the
neuro  intensive  care unit,  we  launched  the  LICOX(R)  Brain  Tissue  Oxygen
Monitoring  System for continuous  monitoring of intracranial  oxygen levels and
the  Ventrix(R)  TrueTech  Catheter,  the only  advanced  intracranial  pressure
monitoring  and  drainage  catheter  designed to tunnel  away from the brain,  a
proven clinical  technique used  previously only in fluid-filled  ICP monitoring
systems.  Both of these  products  were  launched in April  2001.  For the neuro
operating  room,  we  launched  the  NeuraGen(TM)  Nerve Guide for the repair of
severed   peripheral   nerves  in  October  2001.   These   products   generated
approximately $700,000 in domestic sales in 2001.

In April 2001,  we acquired the LICOX(R)  product (for which we  previously  had
distribution  rights in the United  States and certain  other  markets)  and the
Dissectron(R)  Ultrasonic  Aspirator  for tumor  removal.  In December  2001, we
acquired the neurological  disposables and supplies  business of  NeuroSupplies,
Inc. Sales of these products  (excluding  sales of the LICOX(R) product in those
markets where we previously  had  distribution  rights)  totaled $2.0 million in
2001.

Future  sales  growth is expected  to be driven by our  planned  increase in the
domestic sales force, the continued  implementation of our direct sales strategy
in Europe and from the recently launched and acquired products.

Cost of product  sales  included  $203,000,  $339,000,  and $2.5 million in fair
value  inventory  purchase  accounting  adjustments  recorded in connection with
acquisitions in 2001, 2000, and 1999, respectively. Excluding these adjustments,
gross margin as a percentage  of product sales would have been 62%, 59% and 54%,
respectively. The continued improvement in gross margins is primarily the result
of an improved sales mix of higher margin  products.  While gross margins on the
products  that we  manufacture  are  expected to continue to improve in the near
term,  the lower  gross  margins  from sales of the  recently  acquired  Integra
NeuroSupplies  business will limit the effect of such expected  improvements  on
overall divisional gross margins.

Other revenue consisted  primarily of royalties on a product technology obtained
in the NeuroCare acquisition. Other revenue increased $862,000 in 2000 primarily
as the result of a full year of royalty  revenues  recognized in 2000 related to
the product  technology  acquired in 1999. Other revenue is expected to decrease
by $950,000 in 2002 from the expiration of the related royalty agreement.

Research and  development  expenses  increased in 2001 primarily  related to the
development  of a new  collagen  hemostatic  device  for  use  in  neurosurgical
procedures  and continued  development  costs for the  NeuraGen(TM)  Nerve Guide
product.  Research and development expenses increased in 2000 primarily from the
inclusion  of the full year of  research  and  development  activities  from the
NeuroCare acquisition. Research and development expenses represented 4%, 5%, and
8% of total product sales in 2001, 2000, and 1999, respectively.

Sales and marketing expenses have increased significantly since 1999, consistent
with the  expansion  of our  domestic  and  international  sales  and  marketing
infrastructure,  increased  trade show  activities and the opening of a national
distribution center in 2000. Sales and marketing expenses  represented 27%, 27%,
and 25% of total product sales in 2001, 2000, and 1999, respectively.

                                       34



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS (CONTINUED)


Since the end of 1999, the domestic sales  organization has more than doubled to
64 professionals that include  neurospecialists,  regional managers and clinical
educators. With the acquisitions of GMSmbH and Satelec Medical in April 2001, we
have a direct  sales and  marketing  presence  in the key  European  markets  of
Germany,  France  and the  United  Kingdom.  Sales and  marketing  expenses  are
expected to continue to increase in 2002 as a result of the planned  increase in
the domestic direct sales organization to more than 80 professionals and because
we will  incur the first full year of direct  selling  expenses  in Germany  and
France. We believe the smaller territories that result from the expansion of the
sales force in the United States will allow each  neurospecialist  to focus more
closely on each hospital account.

General and administrative expenses decreased $676,000 in 2001. Bad debt expense
was  $400,000  lower in 2001,  primarily  as the result of a writeoff of a large
distributor   account  recorded  in  2000  and  improved   accounts   receivable
collections in 2001.  Additionally,  general and administrative expenses in 2000
included  $200,000 of  consulting  fees paid to the seller of the CNS  business.
General and  administrative  expenses in 1999 included $1.0 million in severance
costs related to the NeuroCare acquisition.

INTEGRA LIFESCIENCES DIVISION
                                                      2001      2000      1999
                                                    -------   -------   -------
                                                            (IN THOUSANDS)
Product sales:
   - Tissue repair products ......................  $ 8,698   $ 6,168   $ 5,781
   - Other medical devices .......................   10,657     9,617     8,822
                                                    -------   -------   -------
Total product sales ..............................   19,355    15,785    14,603
Other revenue ....................................    4,694     5,350     2,379
                                                    -------   -------   -------
Total revenue ....................................   24,049    21,135    16,982

Cost of product sales ............................   10,041     9,026     8,493
GROSS MARGIN ON PRODUCT SALES ....................    9,314     6,759     6,110
GROSS MARGIN AS A PERCENTAGE OF PRODUCT SALES ....      48%       43%       42%

Research and development expenses ................    4,965     5,054     6,813
Sales and marketing expenses .....................    1,572     2,206     3,045
General and administrative expenses ..............    1,423     1,470     2,433
                                                    -------   -------   -------
Operating income (loss) ..........................  $ 6,048   $ 3,379   $(3,802)

Product sales in the Integra  LifeSciences  division  increased  $3.6 million in
2001 to $19.4  million,  a 23%  increase  over 2000.  This growth was  generated
primarily by a $2.5 million  increase in sales of tissue  repair  products and a
$600,000  increase  in sales of the  cryosurgery  product  line  acquired in the
second  quarter of 2000.  The  increase in sales of tissue  repair  products was
primarily  generated  by  higher  sales of the  INTEGRA(R)  Dermal  Regeneration
Template and our Absorbable Collagen Sponge for use in orthopedic applications.

Product sales in 2000 increased  $1.2 million to $15.8  million,  an 8% increase
over 1999,  primarily  from sales of the acquired  cryosurgery  product line and
increased sales of orthopedic products. Partially offsetting this were decreased
sales of the INTEGRA(R) product, for which direct sales and marketing activities
were  transferred to Ethicon in June 1999, and decreased sales of a product line
disposed of in the first quarter of 1999.

Gross  margins have  continued  to improve  primarily as the result of increased
capacity utilization and increasing sales of higher margin orthopedic products.

Other revenue  consists of i) research and  development  funding from  strategic
partners  and  government   grants,   ii)  license,   distribution,   and  other
event-related revenues from strategic partners and other third parties, and iii)
product royalty  income.  The decline in other revenue in 2001 was primarily the
result of $1.5 million of event-related  revenues  received in 2000, as compared
to none in 2001,  which was partially  offset by higher research and development
funding  received in 2001.  Other revenue in 2001 and 2000 includes $2.0 million
per year in research and development  funding related to the Company's strategic
alliance with Ethicon.  The Ethicon Agreement  provides us with research funding
of $2.0 million per year through the year 2004. After 2004,  funding amounts are
based  on a  percentage  of net  sales  of the  INTEGRA(R)  Dermal  Regeneration
Template.

                                       35



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS (CONTINUED)


Although  the  research,   development  and  distribution  agreements  with  our
strategic  partners  provide us with funding when certain events occur,  such as
advances in research programs,  critical publications or product approvals,  the
timing of these event  payments is uncertain  and  difficult to predict.  In the
first quarter of 2002, we expect to receive an additional $500,000 event payment
from Ethicon for the achievement of a contract goal.

The  decrease in research and  development  expenses in 2001 was the result of a
decline in costs  associated  with a program to develop a product to  regenerate
articular cartilage, partially offset by increased spending on programs with our
other development  partners.  Research and development  activities  decreased in
2000 primarily  because of the elimination of several non-core research programs
throughout  1999 and  reductions in headcount in our New  Jersey-based  research
group.  Offsetting  these  decreases were  additional  research and  development
activities related to the INTEGRA(R) Dermal Regeneration Template programs.

Sales  and  marketing  activities  in  the  Integra  LifeSciences  division  are
primarily  the   responsibility   of  our  strategic   marketing   partners  and
distributors. Sales and marketing costs have decreased since 1999 as a result of
the transition of INTEGRA(R) Dermal Regeneration  Template selling and marketing
activities to Ethicon in June 1999 and lower distributor selling costs in 2001.

The $1.0  million  decrease in general and  administrative  expenses in 2000 was
primarily  the  result  of  reduced   headcount  and  the   assumption  of  more
administrative responsibilities by the corporate staff.

CORPORATE EXPENSES AND AMORTIZATION
                                                    2001       2000       1999
                                                  --------   --------   --------
                                                          (IN THOUSANDS)
Total divisional operating costs and expenses ... $ 69,433   $ 58,234   $ 48,217
Corporate general and administrative expenses ...    6,939     22,655      6,165
Amortization ....................................    2,784      2,481        874
                                                  --------   --------   --------
Consolidated total operating expenses ...........   79,156     83,370     55,256

Corporate general and administrative expenses in 2000 included the $13.5 million
non-cash,  stock-based compensation charge related to the extension of the Chief
Executive  Officer's  employment  agreement.  Excluding  this  amount,  the $2.2
million  decrease  in  corporate  general  and  administrative  expenses in 2001
resulted  primarily from a decrease in legal expenses  related to the conclusion
of the jury trial in the patent  infringement  lawsuit against Merck KGaA in the
first  quarter  of 2000  as well as a  reduction  in  other  litigation  matters
outstanding  in  2001,  and  reduced  spending  in  other  corporate  functions.
Excluding  the $13.5  million  stock-based  charge  recorded in 2000,  corporate
general and  administrative  expenses increased $3.0 million in 2000 as compared
to 1999 primarily because of increased headcount.

The  allocation of the purchase price of business  acquisitions  has resulted in
(i) acquired  intangible assets,  consisting  primarily of technology,  customer
lists and relationships,  and trademarks,  of approximately $22.2 million, which
are  amortized on a  straight-line  basis over lives ranging from 2 to 15 years,
and (ii)  residual  goodwill  of  approximately  $16.3  million,  which has been
amortized  on a  straight-line  basis  over 15  years.  In  connection  with the
implementation in 2002 of the recently issued Statement of Financial  Accounting
Standards No. 142,  "Goodwill and Other Intangible Assets" (Statement 142), this
residual  goodwill  will no longer be  amortized,  but will be reviewed at least
annually for  impairment.  The  implementation  of Statement  142 is expected to
reduce   amortization   expense  by   approximately   $1.0   million  per  year.
Additionally,  a further $500,000 reduction in amortization  expense is expected
in 2002 related to an  intangible  asset that was fully  amortized at the end of
2001, which will be partially  offset by an increase of  approximately  $100,000
from a full year of  amortization  of  intangible  assets  related to businesses
acquired in 2001.

We  reported  operating  earnings  before  interest,   taxes,  depreciation  and
amortization  (EBITDA) of $20.2 million in 2001, as compared to an adjusted $7.2
million  in 2000  and an  adjusted  $(5.7)  million  in 1999.  Operating  EBITDA
represents operating income or loss before depreciation and amortization.

                                       36



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS (CONTINUED)


NON-OPERATING INCOME AND EXPENSES

In August 2001, we raised $113.4 million from a follow-on public offering of 4.7
million shares of common stock, of which $9.3 million was  subsequently  used to
repay all  outstanding  indebtedness.  Accordingly,  net interest income in 2001
increased to $1.4  million,  as compared to net interest  expense of $473,000 in
2000 and net interest income of $294,000 in 1999.

We recorded a $1.1 million  pre-tax gain on the disposition of two product lines
in 2000 and a $4.2 million  pre-tax gain on the disposition of a product line in
1999.

INCOME TAXES

Based upon our recent trend of generating  continued taxable  earnings,  current
projections for future taxable earnings, and the expected timing of the reversal
of deductible temporary differences,  we concluded in the fourth quarter of 2001
that a portion of the valuation allowance recorded against federal and state net
operating loss  carryforwards  and certain other  temporary  differences  was no
longer necessary.  The valuation  allowance was reduced by $12.0 million in 2001
because we believe  that it is more  likely  than not that we will  realize  the
benefit of that  portion of the  deferred  tax assets  recorded at December  31,
2001.  The $12.0 million  reduction in the valuation  allowance  consisted of an
$11.5 million  deferred  income tax benefit and a $450,000  credit to additional
paid-in capital related to net operating loss  carryforwards  generated  through
the  exercise  of stock  options.  A  valuation  allowance  of $34.4  million is
recorded  against  the $44.6  million of net  deferred  tax assets  recorded  at
December 31, 2001.  However,  we may recognize  additional  deferred  income tax
benefit in future periods if we determine that all or a portion of the remaining
deferred tax assets can be realized.  At December 31, 2001,  the Company had net
operating loss  carryforwards of  approximately  $90.4 million and $19.8 million
for  federal  and state  income tax  purposes,  respectively,  to offset  future
taxable income.  The federal and state net operating loss  carryforwards  expire
through 2018 and 2008, respectively.

This partial  reduction of the  valuation  allowance is expected to result in an
effective tax rate for Integra of approximately 34% in 2002, assuming no further
changes in our  judgment  regarding  the  realizability  of our net deferred tax
assets.  However,  the  utilization of our net operating loss  carryforwards  to
offset future taxable income is expected to  substantially  reduce the amount of
income taxes actually paid. Accordingly, our actual cash tax rate is expected to
be in the 8-12% range through the year 2003.

The $10.9  million  net tax benefit  recorded in 2001 is net of $1.2  million in
current income tax expense.

The income tax  provision  of  $108,000  recorded in 2000  includes  $600,000 of
income tax expense,  partially offset by a $500,000 benefit from the sale of New
Jersey state net operating loss  carryforwards  under a state sponsored program.
The income tax  benefit of $1.8  million  recorded  in 1999  consists  of a $1.8
million  deferred tax benefit 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
$600,000  associated  with the  sale of New  Jersey  state  net  operating  loss
carryforwards in 1999 was offset by $600,000 of current income tax expense.


INTERNATIONAL PRODUCT SALES AND OPERATIONS

Product sales by major geographic area are summarized below:

                    United                    Asia        Other
                    States      Europe       Pacific     Foreign    Consolidated
                    ------     --------     ---------   ---------   ------------
                                         (IN THOUSANDS)
Product sales:
2001 ...........   $ 68,391    $ 10,577     $  4,838    $  3,881      $ 87,687
2000 ...........     51,379       6,759        4,628       2,221        64,987
1999 ...........     30,982       4,664        3,299       1,102        40,047

                                       37



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS (CONTINUED)


In 2001, sales to customers outside the United States totaled $19.3 million,  or
22% of consolidated  product sales, of which  approximately 55% were to European
customers. Of this amount, $7.2 million of these sales were generated in foreign
currencies from our  foreign-based  subsidiaries in the United Kingdom,  Germany
and France.  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.  Sales to
customers outside the United States and sales denominated in foreign  currencies
are expected to increase in 2002 because of our  establishment of a direct sales
and marketing  infrastructure in the United Kingdom,  Germany and France in 2001
and the transfer of certain distributor accounts to our operations in the United
Kingdom.

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 European
customers. Of this amount, $3.2 million of these sales were generated in foreign
currencies from our subsidiary  based in the United Kingdom,  which was acquired
in April 2000.

In 1999  sales  outside  the  United  States  totaled  $9.1  million,  or 23% of
consolidated  product  sales.  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

Historically, 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.  Since 1999, we have
substantially  reduced  our net use of cash from  operations  and,  in 2001,  we
generated  positive  operating  cash  flows  of  $15.7  million.  This  positive
operating  cash  flow was  reduced  by a $7.0  million  use of cash to  increase
inventory.  Inventory levels increased during 2001 as part of a planned build-up
of certain  product lines in connection  with new product  launches and specific
sales promotion programs. We also increased inventories in advance of changes in
the  manufacturing  of certain  product lines to ensure that there were no sales
disruptions during the transition.

Our principal uses of funds in 2001 were $13.7 million for debt repayments, $6.3
million for business  acquisitions,  and $2.9 million for  purchases of property
and equipment. Principal sources of funds were approximately $123.1 million from
the issuance of common stock and $15.7 million of positive operating cash flow.

On August 13,  2001,  we issued 4.7 million  shares of common  stock in a public
offering at $25.50 per share. The net proceeds generated by the offering,  after
expenses,  were $113.4  million.  With the proceeds from the public  offering of
common stock,  we repaid all  outstanding  debt,  including $7.9 million of bank
loans and $1.4  million  payable  under the terms of a promissory  note,  in the
third quarter of 2001. Additionally,  the related term loan and revolving credit
facility with Fleet Capital was terminated in August 2001. At December 31, 2001,
we had $3.6 million in debt outstanding  relating to a short-term note issued in
connection  with the Integra  NeuroSupplies  acquisition in December 2001.  This
note was repaid in full in January 2002.

At December 31, 2001, we had cash, cash  equivalents and current and non-current
investments totaling  approximately  $131.0 million.  Investments consist almost
entirely  of  highly-liquid,   interest  bearing  debt  securities.   Given  the
significant  level of liquid assets and our objective to grow by acquisition and
alliances,  our  financial  position and future  financial  results could change
significantly  if we were to  complete a business  acquisition  by  utilizing  a
significant portion of our liquid assets.

In February,  2002,  our Board of Directors  reauthorized  our share  repurchase
program. Under the program, we may repurchase up to 500,000 shares of our common
stock for an aggregate  purchase price not to exceed $15 million.  Shares may be
repurchased  under this  program  through  December  31, 2002 either in the open
market or in privately negotiated transactions. We did not repurchase any shares
of our common stock under this program in 2001.

                                       38



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS (CONTINUED)


USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of financial  condition and results of operations is
based upon our consolidated  financial  statements,  which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The  preparation  of these  financial  statements  requires us to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities,  the disclosure of contingent liabilities, and the reported amounts
of revenues and expenses.  Significant  estimates  affecting amounts reported or
disclosed  in the  consolidated  financial  statements  include  allowances  for
doubtful  accounts  receivable  and  sales  returns,  net  realizable  value  of
inventories,  estimates of future cash flows  associated with  long-lived  asset
valuations,   depreciation  and  amortization  periods  for  long-lived  assets,
valuation  allowances  recorded against deferred tax assets, loss contingencies,
and  estimates  of costs to complete  performance  obligations  associated  with
research,   licensing,  and  distribution  arrangements  for  which  revenue  is
accounted for using  percentage of completion  accounting.  These  estimates are
based  on  historical  experience  and on  various  other  assumptions  that are
believed to be reasonable under the current circumstances.  Actual results could
differ from these estimates.

We  believe  the  following  accounting  policies,  which  form  the  basis  for
developing these estimates, are those that are most critical to the presentation
of our  financial  statements  and require the most  difficult,  subjective  and
complex judgments:

ALLOWANCES   FOR  DOUBTFUL   ACCOUNTS  AND  SALES   RETURNS.   We  evaluate  the
collectibility  of accounts  receivable  based on a combination  of factors.  In
circumstances  where  a  specific  customer  is  unable  to meet  its  financial
obligations to us, we record an allowance  against amounts due to reduce the net
recognized  receivable to the amount that we reasonably  expect to collect.  For
all other  customers,  we record  allowances for doubtful  accounts based on the
length of time the  receivables are past due, the current  business  environment
and our historical  experience.  If the financial  condition of customers or the
length of time that  receivables are past due were to change,  we may change the
recorded amount of allowances for doubtful accounts in the future.

We record a provision  for  estimated  sales  returns and  allowances on product
sales in the same period as the related  revenues  are  recorded.  We base these
estimates on historical  sales returns and other known  factors.  Actual returns
could be  different  from our  estimates  and the related  provisions  for sales
returns and  allowances,  resulting in future  changes to the sales  returns and
allowances provision.

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. At each balance sheet date, we evaluate
ending inventories for excess quantities, obsolescence or shelf-life expiration.
Our  evaluation  includes an analysis of historical  sales levels by product and
projections of future demand.  To the extent that we determine there are excess,
obsolete or expired inventory  quantities,  we record valuation reserves against
all or a  portion  of the value of the  related  products.  If future  demand or
market  conditions  are  different  than our  projections,  a change in recorded
inventory  valuation  reserves may be required and would be reflected in cost of
sales in the period the revision is made.

LONG-LIVED  ASSETS. We review  long-lived assets to be held and used,  including
property,  plant,  and equipment and goodwill and other intangible  assets,  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,  we  perform a
recoverability  test using projected  undiscounted  net cash flows applicable to
the long-lived  assets. If an impairment exists, we calculate the amount of such
impairment based on the estimated fair value of the asset.  Upon the adoption of
Statement  of  Financial  Accounting  Standards  No.  142,  "Goodwill  and Other
Intangible  Assets" in January 2002,  our  assessment of the  recoverability  of
goodwill will change to a method based upon a comparison  of the carrying  value
of the reporting  units to which goodwill is assigned with its  respective  fair
value. We record  impairments to long-lived  assets to be disposed of based upon
the fair value of the applicable  assets. If future events that would trigger an
impairment  review  occur  or  we  change  our  estimates  of  projected  future
undiscounted net cash flows related to long-lived assets to be held and used, we
may need to record an impairment charge.

                                       39



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS (CONTINUED)


DEPRECIATION  AND  AMORTIZATION   PERIODS.   We  provide  for  depreciation  and
amortization  using the straight-line  method over the estimated useful lives of
property,  plant and equipment and goodwill and other intangible assets. We base
the  determination  of these useful lives on the period over which we expect the
related assets to contribute to our cash flows.  If our assessment of the useful
lives of these long-lived assets changes,  we may change future depreciation and
amortization expense.

INCOME TAXES. We recognize deferred tax assets and liabilities 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. We record a valuation allowance to reduce our deferred tax
assets  to the  amount  that is more  likely  than not to be  realized.  We have
considered our projections  for future taxable  earnings and the expected timing
of the reversal of deductible temporary  differences in determining the need for
a valuation  allowance.  In 2001,  this  analysis  resulted in our  reducing the
recorded  valuation  allowance by $12.0 million.  In the event that we determine
that we would be able to realize  more or less than the  recorded  amount of net
deferred  tax assets,  we would record an  adjustment  to the deferred tax asset
valuation allowance in the period we make such a determination.  We would record
the  adjustment  in the earnings of such period or, to the extent the  valuation
allowance  relates to tax  benefits  from the  exercise of stock  options,  as a
credit to additional paid-in capital.

REVENUE  RECOGNITION.  We recognize product sales 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.  We  recognize
research grant revenue when the related  expenses are incurred.  Under the terms
of existing research grants, we are reimbursed for allowable direct and indirect
research  expenses.  We recognize  royalty revenue over the period our customers
sell the royalty  products.  We recognize  non-refundable  fees  received  under
research, licensing and distribution arrangements as revenue when received if we
have no continuing  obligations to the other party. For those arrangements where
we have  continuing  performance  obligations,  we recognize  revenue  using the
lesser of the amount of  non-refundable  cash  received  or the result  achieved
using  percentage of  completion  accounting  based upon our  estimated  cost to
complete  these  obligations.  If our  estimates of the costs to complete  these
obligations  change,  we may change the amount of revenue we recognized for fees
received under research,  licensing and distribution  arrangements where we have
continuing performance obligations.

LOSS CONTINGENCIES. We are subject to claims and lawsuits in the ordinary course
of our  business,  including  claims by employees or former  employees  and with
respect to our products.  Our  financial  statements do not reflect any material
amounts related to possible unfavorable outcomes of claims and lawsuits to which
we are  currently  a party  because we  currently  believe  that such claims and
lawsuits 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.  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 if we change our assessment
of the likely outcome of these matters.

                                       40



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 14 - Selected
Quarterly Information - Unaudited.

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

Not applicable.

                                       41



                                    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 21,  2002,  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, 2001 and 2000 .............. F-2

Consolidated Statements of Operations for the years ended
 December 31, 2001, 2000, and 1999 ........................................ F-3

Consolidated Statements of Cash Flows for the years ended
 December 31, 2001, 2000, and 1999 ........................................ F-4

Consolidated Statements of Changes in Stockholders' Equity
 for the years ended December 31, 2001, 2000, and 1999 .................... F-5

Notes to Consolidated Financial Statements ................................ F-7

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

Financial Statement Schedule .............................................. 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 and Reports on Form 8-K.

                                                                     Location of
                                                                      Exhibits
                                                                    Incorporated
Number           Description                                        by Reference
- -------  ------------------------------------------------------     ------------

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. (14)**                                 (Exh. 2)
2.4      Asset Purchase Agreement dated March 20, 2000 by and
         among Integra Selector Corporation, NMT Neurosciences
         (US), Inc. and NMT Medical, Inc. (15)**                   (Exh. 2.1)

                                       42



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

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

4.3      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)

4.4(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)

4.4(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. (16)           (Exh. 4.2)

4.5      Certificate of Designation, Rights and Preferences of
         Series C Convertible Preferred Stock of Integra
         LifeSciences Holdings Corporation dated March 21,
         2000. (16)                                                (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. (16)                     (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. (16)                        (Exh. 4.4)

4.8      Stock Option Grant and Agreement dated December 22,
         2000 between Integra LifeSciences Holdings
         Corporation and Stuart M. Essig* (21)                     (Exh. 4.1)

4.9      Stock Option Grant and Agreement dated December 22,
         2000 between Integra LifeSciences Holdings
         Corporation and Stuart M. Essig* (21)                     (Exh. 4.2)

4.10     Restricted Units Agreement dated December 22, 2000
         between Integra LifeSciences Holdings Corporation and
         Stuart M. Essig* (21)                                     (Exh. 4.3)

4.11     Second Amendment to Certificate of Rights, Designations
         and Preferences of Series B Convertible Preferred
         Stock. (24)                                               (Exh. 3i.1)

4.12     First Amendment to Certificate of Rights, Designations
         and Preferences of Series C Convertible Preferred
         Stock. (24)                                               (Exh. 3i.2)

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)

                                       43



10.5     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)

10.6     Equipment Lease Agreement between Medicus Corporation
         and the Company, dated as of June 1, 2000. (19)           (Exh. 10.1)

10.7     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)

10.8     1993 Incentive Stock Option and Non-Qualified Stock
         Option Plan* (2)                                          (Exh. 10.32)

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

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

10.10    1998 Stock Option Plan* (7)                               (Exh. 10.2)

10.11    1999 Stock Option Plan* (17)                              (Exh. 10.13)

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

10.13    Deferred Compensation Plan* (17)                          (Exh. 10.15)

10.14    2000 Equity Incentive Plan* (22)                          (Exh. 10.17)

10.15    2001 Equity Incentive Plan (23)                           (Exh. 4)

10.16    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)

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

10.18    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. (16)                                                 (Exh. 10.1)

10.19    Amended and Restated Registration Rights Agreement
         dated March 29, 2000 among Integra LifeSciences
         Holdings Corporation, Quantum Industrial Partners LDC
         and SFM Domestic Investments LLC. (16)                    (Exh. 10.2)

10.20    Stock Purchase Agreement dated September 28, 2000
         among Integra LifeSciences Holdings Corporation and
         ArthroCare Corporation (20)                               (Exh. 10.1)
10.21(a) Employment Agreement dated December 27, 1997 between
         the Company and Stuart M. Essig* (8)                      (Exh. 10.1)

10.21(b) Amended and Restated Employment Agreement dated
         December 22, 2000 between Integra LifeSciences
         Holdings Corporation and Stuart M. Essig* (21)            (Exh. 10.1)

10.22    Indemnity letter agreement dated December 27, 1997
         from the Company to Stuart M. Essig* (8)                  (Exh. 10.5)

10.23    Registration Rights Provisions* (21)                      (Exh. 10.2)

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

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

10.25(b) Amended Employment Agreement between George W. McKinney,
         III and the Company dated February 22, 2001* (25)         (Exh. 10.1)

                                       44



10.25(c) Amended Employment Agreement between George W. McKinney,
         III and the Company dated December 20, 2001* (1)

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

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

10.28    Employment Agreement between Michael D. Pierschbacher
         and the Company dated December 31, 1998* (18)             (Exh. 10.8)

10.29    Employment Agreement between Donald R. Nociolo and
         the Company dated December 31, 1998* (18)                 (Exh. 10.9)

10.30    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)

10.31    Lease Contract dated June 30, 1994 between the Puerto
         Rico Industrial Development Company and Heyer-Schulte
         NeuroCare, Inc. (17)                                      (Exh. 10.32)

10.32    Industrial Real Estate Triple Net Sublease dated
         April 1, 1993 between GAP Portfolio Partners and
         Camino Laboratories. (17)                                 (Exh. 10.33)

10.33    Industrial Real Estate Triple Net Sublease dated
         January 15, 1997 between Sorrento Montana, L.P. and
         Camino NeuroCare, Inc. (17)                               (Exh. 10.34)

21       Subsidiaries of the Company (1)

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.

(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

                                       45



     ended June 30, 1999.

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

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

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

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

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

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

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

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

(22) 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.

(23) Incorporated by reference to the indicated exhibit to the Company's
     Registration Statement on Form S-8 (File No. 333-73512) which became
     effective on November 16, 2001.

(24) Incorporated by reference to the indicated exhibit to the Company's Report
     on Form 8-K filed on May 25, 2001.

(25) Incorporated by reference to the indicated exhibit to the Company's Report
     on Form 10-Q for the quarter ended March 31, 2001.

Reports on Form 8-K: None

                                       46



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 23rd day of March, 2002.

                    INTEGRA LIFESCIENCES HOLDINGS CORPORATION






                     BY: /s/ STUART M. ESSIG
                     -----------------------------
                     STUART M. ESSIG
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER


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 23rd day of March, 2002.



         SIGNATURE                                  TITLE

/S/ STUART M. ESSIG                 PRESIDENT, CHIEF EXECUTIVE OFFICER
- --------------------------------    AND DIRECTOR
STUART M. ESSIG                     (PRINCIPAL EXECUTIVE OFFICER)

/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/ GEORGE W. MCKINNEY, III         DIRECTOR
- --------------------------------
GEORGE W. MCKINNEY, III, PH.D.

/S/ NEAL MOSZKOWSKI                 DIRECTOR
- --------------------------------
NEAL MOSZKOWSKI

/S/ JAMES M. SULLIVAN               DIRECTOR
- --------------------------------
JAMES M. SULLIVAN

                                       47



                        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,
2001 and 2000 and the results of their  operations and their cash flows for each
of the three years in the period ended  December 31, 2001,  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.

As discussed more fully in Note 2 to the consolidated  financial statements,  in
2000 the  Company  changed  its  method of  accounting  for  nonrefundable  fees
received under its various research, license and distribution agreements.


/s/ PricewaterhouseCoopers LLP
- ------------------------------


Florham Park, New Jersey
February 22, 2002

                                       F-1



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
                                                               December 31,
                                                           --------------------
 ASSETS ................................................     2001        2000
                                                           --------    --------
Current Assets:
  Cash and cash equivalents ............................   $ 44,518    $ 14,086
  Short-term investments ...............................     22,183       1,052
  Trade accounts receivable, net of allowances
    for doubtful accounts of $964 and $1,003 ...........     14,024      13,087
  Inventories ..........................................     24,609      16,508
  Prepaid expenses and other current assets ............      2,898       1,484
                                                           --------    --------
      Total current assets .............................    108,232      46,217

 Noncurrent investments ................................     64,335          --
 Property, plant, and equipment, net ...................     11,662      11,599
 Deferred income taxes, net ............................     10,243          --
 Goodwill and other intangible assets, net .............     31,525      25,299
 Other assets ..........................................      1,591       3,399
                                                           --------    --------
Total assets ...........................................   $227,588    $ 86,514
                                                           ========    ========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Short-term debt ......................................   $  3,576    $  8,872
  Accounts payable, trade ..............................      2,924       3,363
  Income taxes payable .................................      1,481       1,200
  Customer advances and deposits .......................      4,843         823
  Deferred revenue .....................................        772       1,675
  Accrued expenses and other current liabilities .......      5,550       5,107
                                                           --------    --------
      Total current liabilities ........................     19,146      21,040

 Long-term debt ........................................         --       4,758
 Deferred revenue ......................................      3,949       4,728
 Deferred income taxes .................................         --       1,788
 Other liabilities .....................................        437         419
                                                           --------    --------
Total liabilities ......................................     23,532      32,733

Commitments and contingencies

Stockholders' Equity:

  Preferred stock; $0.01 par value;
    15,000 authorized shares; 0 and 100 Series B
    Convertible shares issued and outstanding
    at December 31, 2001 and 2000, respectively;
    54 Series C Convertible shares issued and
    outstanding at December 31, 2001 and 2000,
    $6,345 including a 10% annual cumulative
    dividend liquidation preference ....................          1           2
  Common stock; $.01 par value; 60,000 authorized
    shares; 26,129 and 17,334 issued and
    outstanding at December 31, 2001 and 2000 ..........        261         173
  Additional paid-in capital ...........................    284,021     160,134
  Treasury stock, at cost; 6 and 20 shares at
    December 31, 2001 and 2000, respectively ...........        (51)       (180)
  Other ................................................        (37)        (66)
  Accumulated other comprehensive loss .................       (539)       (553)
  Accumulated deficit ..................................    (79,600)   (105,729)
                                                           --------    --------
    Total stockholders' equity .........................    204,056      53,781
                                                           --------    --------
 Total liabilities and stockholders' equity ............   $227,588    $ 86,514
                                                           ========    ========


                  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS

                                       F-2



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


IN THOUSANDS, EXCEPT PER SHARE AMOUNTS              Years Ended December 31,
                                                 ------------------------------
                                                   2001       2000       1999
                                                 --------   --------   --------
REVENUES
Product sales .................................  $ 87,687   $ 64,987   $ 40,047
Other revenue .................................     5,755      6,662      2,829
                                                 --------   --------   --------
    Total revenue .............................    93,442     71,649     42,876

COSTS AND EXPENSES
Cost of product sales .........................    36,014     29,511     22,678
Research and development ......................     7,992      7,524      8,893
Selling and marketing .........................    20,322     15,371      9,487
General and administrative ....................    12,044     28,483     13,324
Amortization ..................................     2,784      2,481        874
                                                 --------   --------   --------
    Total costs and expenses ..................    79,156     83,370     55,256

Operating income (loss) .......................    14,286    (11,721)   (12,380)

Interest income (expense), net ................     1,393       (473)       294
Gain on dispositions of product lines .........        --      1,146      4,161
Other income (expense), net ...................      (136)       201        141
                                                 --------   --------   --------
Income (loss) before income taxes .............    15,543    (10,847)    (7,784)

Income tax expense (benefit) ..................   (10,863)       108     (1,818)
                                                 --------   --------   --------
Income (loss) before extraordinary item and
  cumulative effect of accounting change ......    26,406    (10,955)    (5,966)

Extraordinary loss, net of income
  tax benefit .................................      (243)        --         --
Cumulative effect of accounting change ........        --       (470)        --
                                                 --------   --------   --------
Net income (loss) .............................  $ 26,163   $(11,425)  $ (5,966)
                                                 ========   ========   ========

Earnings (loss) per share:

  Basic net income (loss) per share before
    extraordinary item and cumulative effect
    of accounting change ......................  $   1.09   $  (0.95)  $  (0.40)
  Basic net income (loss) per share ...........  $   1.08   $  (0.97)  $  (0.40)

  Diluted net income (loss) per share before
    extraordinary item and cumulative effect
    of accounting change ......................  $   0.95   $  (0.95)  $  (0.40)
  Diluted net income (loss) per share .........  $   0.94   $  (0.97)  $  (0.40)

Weighted average common shares outstanding:
  Basic .......................................    23,353     17,553     16,802
  Diluted .....................................    27,796     17,553     16,802

Pro forma amounts assuming retroactive
  application of accounting change:
  Total revenues ..............................                          42,974
  Net loss ....................................                          (5,868)
  Basic and diluted net loss per share ........                           (0.40)


                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS

                                       F-3



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS



IN THOUSANDS                                                                      Years Ended December 31,
                                                                              --------------------------------
                                                                                2001        2000        1999
                                                                              --------    --------    --------
                                                                                             
OPERATING ACTIVITIES:
    Net income (loss) .....................................................   $ 26,163    $(11,425)   $ (5,966)
    Adjustments to reconcile net income (loss)
          to net cash provided by (used in) operating activities:
     Depreciation and amortization ........................................      5,959       5,357       3,104
     Loss (gain) on sale of product line and other assets .................         --      (1,316)     (3,998)
     Loss on early retirement of debt .....................................        256          --          --
     Deferred tax benefit .................................................    (12,085)         --      (1,807)
     Amortization of discount and premium on investments ..................        298        (181)       (291)
     Stock based compensation .............................................         29      13,587         370
     Other, net ...........................................................        158          43          --
     Changes in assets and liabilities, net of business
          acquisitions:
       Accounts receivable ................................................         98      (3,475)       (510)
       Inventories ........................................................     (6,987)     (3,061)      2,829
       Prepaid expenses and other current assets ..........................     (1,443)       (571)        217
       Non-current assets .................................................      1,858      (3,565)        (80)
       Accounts payable, accrued expenses and other
          current liabilities .............................................       (941)      2,831        (677)
       Customer advances and deposits .....................................      4,020      (3,078)      3,652
       Deferred revenue ...................................................     (1,682)       (106)      5,659
                                                                              --------    --------    --------
     Net cash provided by (used in) operating activities ..................     15,701      (4,960)      2,502
                                                                              --------    --------    --------
INVESTING ACTIVITIES:
    Proceeds from sale of product line and other assets ...................         --       1,600       6,354
    Proceeds from the sales/maturities of investments .....................      3,000      16,981      26,000
    Purchases of available for sale investments ...........................    (88,533)    (13,391)    (14,737)
    Purchases of property and equipment ...................................     (2,860)     (3,268)     (2,309)
    Cash used in business acquisitions, net of cash acquired ..............     (6,348)    (16,187)    (14,944)
    Loans made ............................................................         --        (238)         --
                                                                              --------    --------    --------
     Net cash (used in) provided by investing activities ..................    (94,741)    (14,503)        364
                                                                              --------    --------    --------
FINANCING ACTIVITIES:
    Net proceeds (repayments) from revolving credit facility ..............     (3,147)      3,143           4
    Repayments of term loan ...............................................     (7,705)     (2,250)     (1,125)
    Repayment of note payable .............................................     (2,800)         --          --
    Proceeds from sales of preferred stock and warrants ...................         --       5,375       9,942
    Proceeds from the issuance of common stock ............................    113,433       5,000          --
    Proceeds from exercise of common stock purchase warrants ..............      3,616          50       1,950
    Proceeds from stock issued under employee benefit plans ...............      6,060       3,156         467
    Purchases of treasury stock ...........................................         --        (170)         --
    Collection of related party note receivable ...........................         --          35          --
    Preferred stock dividends paid ........................................         --         (67)        (80)
                                                                              --------    --------    --------
     Net cash provided by financing activities ............................    109,457      14,272      11,158

Effect of exchange rate changes on cash and cash equivalents ..............         15         (24)         --
                                                                              --------    --------    --------
Net increase (decrease) in cash and cash equivalents ......................     30,432      (5,215)     14,024
Cash and cash equivalents at beginning of period ..........................     14,086      19,301       5,277
                                                                              --------    --------    --------
Cash and cash equivalents at end of period ................................   $ 44,518    $ 14,086    $ 19,301
                                                                              ========    ========    ========

Cash paid during the year for interest ....................................   $    778    $    922    $    654
Cash paid during the year for income taxes ................................        928         508         124

Supplemental disclosure of non-cash investing and financing activities:
     Note issued / loan assumed in business acquisitions ..................   $  3,576    $  2,598    $ 11,000
     Issuance of Restricted Units .........................................         --      13,515          --
     Common stock and warrants issued in settlement
        of obligations ....................................................         --         641          15
     Common stock issued in a business acquisition ........................        276          --          --


                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS

                                       F-4



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

In thousands



                           Preferred                                                 Accumulated   Compre-
                             Stock       Common Stock             Additional            Other      hensive
                        --------------  --------------  Treasury   Paid-In          Comprehensive   Income   Accumulated   Total
                        Shares  Amount  Shares  Amount   Stock     Capital    Other     Loss        (Loss)     Deficit     Equity
                        ------  ------  ------  ------  -------   ---------- ------ -------------  --------  -----------  ---------
                                                                                         
Balance,
  December 31, 1998 ....    500  $    5  15,783  $  158  $  (286)  $ 119,999  $(183)    $  (40)               $ (88,287)   $ 31,366
                         ------  ------  ------  ------  -------   ---------  ------    ------               ---------    --------


Net loss ...............                                                                              (5,966)    (5,966)    (5,966)
Unrealized losses on
  investments ..........                                                                   (24)          (24)                   (24)
                                                                                                      ------
Total comprehensive
  loss .................                                                                            $ (5,990)
                                                                                                    ========
Issuance of Series B
  Preferred Stock
  and warrants .........    100       1                                9,941                                                  9,942
Issuance of common
  stock through
  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 for stock
  options granted to
  employees ............                                                 89                                          89
Dividends paid on
  Series A Preferred ...                                                (80)                                        (80)
Balance,
  December 31, 1999 ....    600       6  16,131     161       (7)    132,340    (143)      (64)                 (94,304)     37,989
                         ======  ======  ======  ======  =======   =========  ======    ======                =========    ========

Net loss ...............                                                                             (11,425)   (11,425)    (11,425)
Unrealized losses on
  investments ..........                                                                   (32)          (32)                   (32)
Foreign currency
  translation ..........                                                                  (457)         (457)                  (457)
Total comprehensive
  loss .................                                                                            $(11,914)
                                                                                                    ========
Issuance of Series C
  Preferred Stock
  and warrants .........     54       1                                5,374                                                  5,375
Conversion of Series A
  Preferred Stock ......   (500)     (5)    250       3                    2
Private placement of
  common stock..........                    333       3                4,997                                                  5,000
Issuance of common
  stock through
  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 ...                                                 (67)                                                   (67)
Purchases of treasury
  stock ................                                    (173)                                                              (173)
Collection of related
  party note ...........                                                          35                                             35
Balance,
  December 31, 2000 ....    154       2  17,334     173     (180)    160,134     (66)     (553)                (105,729)     53,781
                         ======  ======  ======  ======  =======   =========   =====   =======                =========    ========



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

                                      F-5



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

In thousands



                           Preferred                                                 Accumulated   Compre-
                             Stock       Common Stock             Additional            Other      hensive
                        --------------  --------------  Treasury   Paid-In          Comprehensive   Income   Accumulated   Total
                        Shares  Amount  Shares  Amount   Stock     Capital    Other     Loss        (Loss)     Deficit     Equity
                        ------  ------  ------  ------  -------   ---------- ------ -------------  --------  -----------  ---------
                                                                                         
Balance,
  December 31, 2000 ....    154       2  17,334     173     (180)    160,134     (66)     (553)                (105,729)     53,781
                         ======  ======  ======  ======  =======   =========  ======    ======                =========    ========

Net income .............                                                                              26,163     26,163      26,163
Unrealized gains on
  investments ........                                                                     238           238                    238
Other than temporary
  impairment of
  available for sale
  securities ...........                                                                    95                                   95
Foreign currency
  translation ..........                                                                  (319)         (319)                  (319)
                                                                                                    --------
Total comprehensive
  income ...............                                                                            $ 26,082
                                                                                                    ========
Conversion of Series B
  Preferred ............   (100)     (1)  2,618      26                  (25)
Public offering of
  common stock .........                  4,748      48              113,385                                                113,433
Issuance of common
  stock through
  employee benefit
  plans ................                    879       9      129       5,998                                        (34)      6,102
Warrants exercised
  for cash .............                    540       5                3,611                                                  3,616
Common stock issued
  in acquisition .......                     10                          276                                                    276
Amortization of
  unearned
  compensation .........                                                          29                                             29
Tax benefit related to
  stock options ........                                                 642                                                    642
Balance,
  December 31, 2001 ....     54  $    1  26,129  $  261  $   (51)  $ 284,021  $  (37)   $ (539)               $ (79,600)   $204,056
                         ======  ======  ======  ======  =======   =========  ======    ======                =========    ========


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

                                      F-6



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   BUSINESS

Integra   LifeSciences   Holdings  Corporation  (the  "Company")  is  a  global,
diversified  medical  device company that  develops,  manufactures,  and markets
medical devices,  implants and  biomaterials  primarily for use in neurosurgery,
orthopedics and soft tissue repair.  Our business is divided into two divisions:
Integra NeuroSciences(TM) and Integra LifeSciences(TM).

The Integra NeuroSciences  division is a leading provider of implants,  devices,
and systems used in neurosurgery,  neurotrauma,  and related critical care and a
distributor of disposables  and supplies used in the diagnosis and monitoring of
neurological   disorders.   The  Integra  LifeSciences   division  develops  and
manufactures a variety of medical products and devices, including products based
on the Company's  proprietary  tissue  regeneration  technology that 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.


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.

FINANCIAL INSTRUMENTS

Investments  in  marketable  debt  and  equity  securities  are  classified  and
accounted for as  available-for-sale  securities  and are carried at fair value,
which  was based on quoted  market  prices.  Unrealized  gains  and  losses  are
reported as a component of accumulated other  comprehensive loss. Realized gains
and losses are determined on the specific identification cost basis and reported
in other income (expense),  net. Investment balances as of December 31, 2001 and
2000 were as follows:




                                                         Unrealized        Fair
                                              Cost     Gains   Losses      Value    Maturity
                                            -------   -------  -------    -------  ----------
                                                        (in thousands)
                                                                              
2001:
- -----
Marketable debt securities, current.......  $22,092   $   53   $   (35)   $22,110  less than 1 year
Marketable equity securities .............       78        3        (8)        73
Marketable debt securities, non-current...   64,116      352      (133)    64,335  less than 30 months
                                            -------   ------   -------    -------
                                            $86,286   $  408   $  (176)   $86,518
2000:
- -----
Marketable debt securities, current.......  $   977   $  --    $   --     $   977  less than 1 year
Marketable equity securities .............      173       10      (108)        75
                                            -------   ------   -------    -------
                                            $ 1,150   $   10   $  (108)   $ 1,052



The  carrying  values of all other  financial  instruments  were not  materially
different from their estimated fair values.

                                      F-7



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ALLOWANCES FOR DOUBTFUL ACCOUNTS RECEIVABLE AND SALES RETURNS

The Company  evaluates  the  collectibility  of accounts  receivable  based on a
combination of factors.  In circumstances where a specific customer is unable to
meet its financial  obligations to us, an allowance is recorded  against amounts
due to reduce the net  recognized  receivable  to the amount that is  reasonably
expected to be  collected.  For all other  customers,  allowances  for  doubtful
accounts are recorded based on the length of time the  receivables are past due,
the current business environment and our historical experience.

The Company  records a provision for estimated  sales returns and  allowances on
product  sales in the same period as the related  revenues are  recorded.  These
estimates are based on historical sales returns and other known factors.

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. Inventories consisted of the following:

                                               December 31,
                                             2001       2000
                                          ---------- ----------
                                             (IN THOUSANDS)
Finished goods ..........................  $ 13,557   $  6,878
Work in process .........................     3,493      3,825
Raw materials ...........................     7,559      5,805
                                          ---------- ----------
                                           $ 24,609   $ 16,508

At each balance sheet date, the Company evaluates ending  inventories for excess
quantities,  obsolescence or shelf-life expiration.  This evaluation includes an
analyses of historical sales levels by product and projections of future demand.
To the extent that management  determines there are excess,  obsolete or expired
inventory  quantities,  valuation reserves are recorded against all or a portion
of the value of the related products.

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.  The cost of major additions and improvements is capitalized,  while
maintenance  and  repair  costs  that do not  improve or extend the lives of the
respective  assets are charged to  operations as incurred.  Property,  plant and
equipment balances and corresponding lives were as follows:

                                                 December 31,
                                               2001       2000        Lives
                                            ---------- ---------- --------------
                                                (IN THOUSANDS)
Buildings and leasehold improvements ....... $ 10,095   $  9,632  up to 40 years
Machinery and equipment ....................   13,320     11,371    3 - 15 years
Furniture and fixtures .....................    1,657        810    5 -  7 years
Construction in progress ...................      310        470
                                            ---------  ---------
                                               25,382     22,283
Less: Accumulated depreciation
  and amortization..........................  (13,720)   (10,684)
                                            ---------  ---------
                                             $ 11,662   $ 11,599

Depreciation  and  amortization  expense  associated  with  property,  plant and
equipment for the years ended December 31, 2001,  2000 and 1999 was  $3,176,000,
$2,876,000, and $2,229,000, respectively.

                                      F-8



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

GOODWILL AND OTHER INTANGIBLE ASSETS

The excess of the cost over the fair value of net assets of acquired  businesses
is recorded as goodwill.  Goodwill  acquired prior to July 1, 2001 was amortized
on a straight line basis over a period of 15 years. Goodwill acquired after July
1,  2001 is not  subject  to  amortization.  Beginning  in 2002,  all  goodwill,
including balances  outstanding at December 31, 2001, will cease being amortized
and will  instead  be subject to annual  impairment  reviews.  The cost of other
acquired  intangible  assets is  amortized  on a straight  line basis over their
estimated  useful  lives,  ranging  from  2 to  15  years.  Goodwill  and  other
intangible assets, net, consisted of the following:

                                                          December 31,
                                                        2001       2000
                                                      --------   --------
                                                        (IN THOUSANDS)
Technology ......................................     $ 11,255   $ 10,761
Customer base ...................................        3,576      3,227
Trademarks ......................................        1,715      1,770
Other ...........................................        3,405      3,899
Goodwill ........................................       16,334      9,050
                                                      --------   --------
                                                        36,285     28,707
Less: Accumulated amortization ..................       (4,760)    (3,408)
                                                      --------   --------
                                                      $ 31,525   $ 25,299

LONG-LIVED ASSETS

Long-lived assets held and used by the Company,  including  property,  plant and
equipment and goodwill and other intangible  assets, 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.  Upon the  adoption  of  Statement  of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
in January 2002, our assessment of the recoverability of goodwill will change to
a method based upon a comparison of the carrying value of the reporting units to
which  goodwill is assigned  with its  respective  fair  value.  Impairments  to
long-lived  assets to be disposed of are  recorded  based upon the fair value of
the applicable assets.

FOREIGN CURRENCY

All assets and liabilities of foreign subsidiaries are translated at the rate of
exchange at year-end,  while elements of the income  statement 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. Foreign currency  transaction gains and losses are reported
in other income (expense), net.

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.

                                      F-9



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 these  obligations.  Royalty  revenue is recognized over the period the
royalty products are sold by our customers.

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"  (SAB 101). As the result of the adoption of SAB 101, the
Company recorded a $470,000 cumulative effect of an accounting change in 2000 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
each of the  years  ended  December  31,  2001 and  2000  includes  $112,000  of
amortization of the amount deferred as of January 1, 2000.

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.

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
income  (loss) and pro forma  earnings  per share are  presented  as if the fair
value method had been applied.

CONCENTRATION OF CREDIT RISK

Financial  instruments,  which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents, which are held
at major financial institutions, investment-grade marketable debt securities 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.

                                      F-10



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the reported amount of assets and  liabilities,  the
disclosure of contingent  liabilities,  and the reported amounts of revenues and
expenses.  Significant  estimates affecting amounts reported or disclosed in the
consolidated  financial  statements  include  allowances  for doubtful  accounts
receivable and sales returns, net realizable value of inventories,  estimates of
future cash flows associated with long-lived asset valuations,  depreciation and
amortization  periods  for  long-lived  assets,  valuation  allowances  recorded
against  deferred  tax assets,  loss  contingencies,  and  estimates of costs to
complete  performance  obligations  associated  with  research,  licensing,  and
distribution arrangements for which revenue is accounted for using percentage of
completion accounting. These estimates are based on historical experience and on
various other  assumptions  that are believed to be reasonable under the current
circumstances. Actual results could differ from these estimates.

RECENTLY ISSUED ACCOUNTING STANDARDS

In  October  2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  of  Financial  Accounting  Standards  No.  144,  "Accounting  for the
Impairment  or Disposal of Long-Lived  Assets"  (Statement  144).  Statement 144
supercedes  Statement of Financial  Accounting  Standards No 121 "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed
Of".  Statement 144 applies to all  long-lived  assets,  including  discontinued
operations,  and consequently amends Accounting Principles Board Opinion No. 30,
"Reporting Results of Operations  Reporting the Effects of Disposal of a Segment
of a Business".  Statement  144 will be effective  for the Company on January 1,
2002.  Statement 144 is not expected to have a material  impact on the Company's
financial statements.

In July 2001, the FASB issued Statements of Financial  Accounting  Standards No.
141, "Business  Combinations"  (Statement 141), and No. 142, "Goodwill and Other
Intangible  Assets"  (Statement  142).  Statement 141 requires that all business
combinations  initiated after June 30, 2001, be accounted for using the purchase
method of accounting and further clarifies the criteria to recognize  intangible
assets  separately from goodwill.  Under Statement 142,  goodwill and indefinite
lived  intangible  assets  will no be  longer  amortized,  but will be  reviewed
annually (or more  frequently if impairment  indicators  arise) for  impairment.
Separable  intangible assets that are not deemed to have an indefinite life will
continue to be amortized over their useful lives. Goodwill and intangible assets
acquired  prior to July 1,  2001  were  amortized  through  December  31,  2001.
Starting in 2002, all goodwill and indefinite lived intangible assets will cease
being  amortized.  The  implementation  of  Statement  142 is expected to reduce
amortization expense by approximately $1.0 million per year.


3.   BUSINESS ACQUISITIONS

On  December 6, 2001,  the Company  acquired  NeuroSupplies,  Inc.,  a specialty
distributor of disposables  and supplies for  neurologists,  pulmonologists  and
other physicians, for $4.3 million. The purchase price consisted of $0.4 million
in cash paid at closing, a $3.6 million note payable in January 2002, and 10,000
shares of Integra common stock. Integra  NeuroSupplies markets a wide variety of
supplies that are sold to  neurologists,  hospitals,  sleep  clinics,  and other
physicians in the United States as well as to original  equipment  manufacturers
and  distributors.  Revenues of the acquired  business were  approximately  $4.0
million in 2000.

On April 27, 2001, the Company  acquired  Satelec  Medical,  a subsidiary of the
Satelec-Pierre  Rolland group, for $3.7 million in cash. Satelec Medical,  based
in France,  manufactures  and  markets  the  Dissectron(R)  ultrasonic  surgical
aspirator  console and a line of related  handpieces.  Revenues of the  acquired
business were approximately $1.5 million in 2000.

                                      F-11



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.   BUSINESS ACQUISITIONS (CONTINUED)

On April 4, 2001, the Company  acquired GMSmbH,  the German  manufacturer of the
LICOX(R) Brain Tissue Oxygen Monitoring System,  for $2.9 million.  The purchase
price consisted of $2.3 million in cash paid at closing, the forgiveness of $0.2
million in notes  receivable  from GMSmbH,  and $0.4  million of future  minimum
royalty payments to the seller. Prior to the acquisition,  the Company's Integra
NeuroSciences  division had exclusive  marketing rights to the LICOX(R) products
in the  United  States and  certain  other  markets.  Revenues  of the  acquired
business were approximately $1.2 million in 2000,  consisting primarily of sales
of the LICOX(R) products in Germany and to various  international  distributors,
including approximately $0.4 million to Integra.

On April 6, 2000, the Company  purchased the Selector(R)  Ultrasonic  Aspirator,
Ruggles  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.

On January 17, 2000,  the Company  purchased  the  business,  including  certain
assets and liabilities,  of Clinical Neuro Systems, Inc. (CNS) for $6.8 million.
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,  which was repaid in full
in  2001.  CNS  designs  and  manufactures  neurosurgical  external  ventricular
drainage  systems,  including  catheters  and drainage  bags, as well as cranial
access kits.

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. 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.

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.  The  allocation  of the purchase  price of these  acquisitions
resulted in acquired  intangible  assets,  consisting  primarily of  technology,
customer  lists  and  relationships,  and  trademarks,  of  approximately  $22.2
million,  which are amortized on a straight-line basis over lives ranging from 2
to 15 years,  and residual  goodwill of approximately  $16.3 million,  which has
been amortized on a straight-line basis over 15 years.

The following unaudited pro forma financial  information  summarizes the results
of operations for the periods  indicated as if the  acquisitions  consummated in
2001 and 2000 had been completed as of the beginning of each period presented:


                                                              2001       2000
                                                            --------   --------
                                                              (IN THOUSANDS)


Product sales ..........................................    $ 92,894   $ 74,371
Total revenue ..........................................      98,649     81,033
Cost of product sales ..................................      39,484     34,893

Income (loss) before extraordinary loss ................      26,589    (11,469)
Diluted income (loss) per share before
   extraordinary loss ..................................    $   0.96   $  (0.98)

Net income (loss) ......................................      26,346    (11,469)
Diluted net income (loss) per share ....................    $   0.95   $  (0.98)

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.

                                      F-12



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.   SPECIAL CHARGES (CREDITS)

The  following   special  charges  (credits)  are  reflected  in  the  Company's
statements of operations:


                                                    2001       2000      1999
                                                  --------   --------   -------
                                                          (IN THOUSANDS)
Inventory fair value purchase accounting
  adjustments (Cost of product sales) ..........  $    203   $    429   $ 2,508
Severance costs (General and administrative) ...        --         --     1,024
Stock-based compensation charge for issuance
  of Restricted Units (General and
  administrative -- see Note 7) ................  $     --   $ 13,515   $    --
Gain on sale of product lines ..................        --     (1,146)   (4,161)
Deferred tax benefits (Income tax benefit --
see Note 9) ....................................   (11,512)        --    (1,807)



5.   DEBT

The Company's borrowings consisted of the following:


                                                        December 31,
                                                       2001      2000
                                                     ------    ------
                                                      (IN THOUSANDS)
Short term debt:
Current portion of note payable ...................  $3,576    $1,654
Bank loans
  Current portion of term loan ....................      --     4,071
  Revolving credit facility .......................      --     3,147
                                                     ------    ------
                                                     $3,576    $8,872
Long term debt:
Bank loans
  Term loan .......................................  $   --    $3,554
Note payable ......................................      --     1,204
                                                     ------    ------
                                                     $   --    $4,758


In connection  with the  acquisition  of  NeuroSupplies  in December  2001,  the
Company issued a one month,  interest-free  $3.6 million  promissory note to the
seller that was repaid in January 2002.

In connection  with the CNS acquisition in January 2000, the Company issued a 5%
$2.8 million  promissory note to the seller that was payable in two equal annual
principal payments. For valuation purposes, the note was discounted using a rate
of 10.5%,  which was more comparable to market  borrowing rates available to the
Company at that time. The Company made the first scheduled  principal payment of
$1.4 million, plus accrued interest, in January 2001. Subsequently, in September
2001,  the Company  prepaid in full the  remaining  $1.4 million  balance,  plus
accrued interest,  and recorded an extraordinary loss on the early retirement of
debt of $28,000, net of $2,000 of taxes.

The acquisition of NeuroCare in March 1999 was partially funded through an $11.0
million term loan provided by Fleet Capital.  Fleet Capital also provided a $4.0
million  revolving  credit  facility to fund working  capital  requirements.  In
August 2001, the Company repaid in full all  outstanding  loans to Fleet Capital
and  terminated  the revolving  credit  facility.  In  connection  with the $7.9
million  prepayment of the Fleet Capital loans and the termination of the credit
facility,  the Company recorded an extraordinary loss on the early retirement of
debt of $215,000,  net of $11,000 of taxes.  At December 31, 2000,  the weighted
average interest rate on outstanding loan balances to Fleet Capital was 9.8%.

                                      F-13



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.   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  $6.3  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 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 in 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 were exercised in December 2001 for proceeds of $2.7
million.

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. On June 26, 2001,  Soros converted the Series B
Preferred  into  2,617,800  shares of the Company's  common stock.  The Series B
Preferred ranked on a parity with the Series C Preferred,  and was senior to the
Company's  common  stock  and all  other  preferred  stock of the  Company.  The
warrants  issued with the Series B Preferred  were  exercised  in March 2001 for
proceeds of $916,800.

Soros is  entitled  to certain  registration  rights for shares of common  stock
obtained  through  conversion of the Series B Preferred or Series C Preferred or
the exercise of the related warrants.

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 August 2001,  the Company issued  4,747,500  shares of common stock at $25.50
per share in a follow-on  public  offering.  The net  proceeds  generated by the
offering, after expenses, were $113.4 million.

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

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  a  business
acquisition.  Both of these warrants were exercised in October 1999 for proceeds
of $1,950,000.

                                      F-14



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.   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, 2001,  approximately  297,000  shares  remain
available for purchase under the ESPP.

STOCK OPTION PLANS

As of December 31, 2001,  the Company had stock  options  outstanding  under six
plans, 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), the 2000 Equity Incentive Plan (the 2000 Plan), and
the 2001 Equity Incentive Plan (the 2001 Plan and collectively, the Plans).

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, the 2000 Plan and the 2001 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 and 2001 Plan permit 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.

For the three years ended December 31, 2001,  option  activity for all the Plans
was as follows:

                                Options Outstanding         Options Exercisable
                              -----------------------     ----------------------
                               Wtd. Avg.                   Wtd. Avg.
                               Exercise                    Exercise
                                 Price       Shares          Price       Shares
                              ----------   ----------     ----------   ---------
                                             (SHARES IN THOUSANDS)

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        $ 6.76         1,422

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

December 31, 2000 ...........   $ 7.74         4,519        $ 6.27         1,759

Granted .....................   $24.61           748
Exercised ...................   $ 6.49          (836)
Cancelled ...................   $11.88          (170)

December 31, 2001 ...........   $10.79         4,261        $ 6.89         1,986

Share available for grant,
  December 31, 2001 .........                  1,729

                                      F-15



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.   STOCK PURCHASE AND AWARD PLANS (CONTINUED)

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 2001, 2000 and 1999 were as follows:

                 Less Than              Equal to              In Excess of
                Market Price          Market Price            Market Price
           --------------------  ----------------------  ----------------------
            Exercise     Fair      Exercise      Fair      Exercise      Fair
             Price      Value       Price       Value       Price       Value
           ---------  ---------  ----------  ----------  ----------  ----------
2001 .....  $   --     $   --     $  24.61    $  16.14    $    --     $    --
2000 .....  $   --     $   --     $  11.62    $   8.20    $    --     $    --
1999 .....  $  3.46    $  3.46    $   5.11    $   3.77    $   7.61    $   0.06

The following table summarizes information about stock options outstanding as of
December 31, 2001:

                                Options Outstanding          Options Exercisable
                      ------------------------------------   -------------------
                                Wtd. Avg     Wtd. Avg.                 Wtd. Avg.
    Range Of           As Of    Exercise     Remaining        As Of    Exercise
 Exercise Prices      12/31/01   Price    Contractual Life   12/31/01   Price
- -----------------     --------  --------  ----------------   --------  ---------
                                         (SHARES IN THOUSANDS)
$ 3.375 - $ 4.375         748     $ 3.69      3.0 years          512     $ 3.73
$ 4.438 - $ 5.875       1,141     $ 5.81      4.7 years          827     $ 5.82
$ 5.906 - $11.000         939     $ 9.55      6.2 years          408     $ 8.85
$11.125 - $16.070         792     $13.62      4.9 years          239     $14.02
$16.190 - $30.500         641     $26.23      5.9 years          --         --
                       -------   -------     -----------      -------  --------
                        4,261     $10.79      5.0 years        1,986     $ 6.89

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 income (loss) and basic and diluted net income
(loss) per share would have been as follows:

                                             2001        2000         1999
                                           --------    --------     --------
                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (loss):
   As reported ..........................  $ 26,163    $(11,425)    $ (5,966)
   Pro forma ............................    20,252     (14,861)      (9,161)

Net income (loss) per share:
   BASIC
   As reported ..........................  $   1.08    $  (0.97)    $  (0.40)
   Pro forma ............................  $   0.82    $  (1.17)    $  (0.59)

   DILUTED
   As reported ..........................  $   0.94    $  (0.97)    $  (0.40)
   Pro forma ............................  $   0.75    $  (1.17)    $  (0.59)

                                      F-16



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.   STOCK PURCHASE AND AWARD PLANS (CONTINUED)

As options  vest over a varying  number of years and awards are  generally  made
each year, the pro forma impacts shown above 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:

                                                 2001       2000       1999
                                              ---------  ---------  ---------

     Dividend yield ......................         0%         0%         0%
     Expected volatility .................        80%        90%        90%
     Risk free interest rate .............      4.50%      6.50%      5.40%
     Expected option lives ...............    4.5 years  4.5 years  4.0 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.  The  Executive  has  demand
registration  rights  under the  Restricted  Units  issued in December  1997 and
December 2000.

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


8.   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 ten  year  agreement  to  lease  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 agreement,  the Company paid $90,000 and $45,000 to
the related party lessor in 2001 and 2000, respectively.

                                      F-17



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.   LEASES (CONTINUED)

Future minimum lease payments under  operating  leases at December 31, 2001 were
as follows:

                                           Related       Third
                                           Parties      Parties       Total
                                          ---------    ---------    ---------
                                                    (IN THOUSANDS)
    2002 ............................      $   303      $ 1,345      $ 1,648
    2003 ............................          321        1,150        1,471
    2004 ............................          321          822        1,143
    2005 ............................          321          340          661
    2006 ............................          321           14          335
    Thereafter ......................        1,754          571        2,325
                                          ---------    ---------    ---------
    Total minimum lease payments.....      $ 3,341      $ 4,242      $ 7,583
                                          =========    =========    =========

Total rental expense for the years ended  December 31, 2001,  2000, and 1999 was
$1,886,000,  $1,422,000,  and  $958,000,  respectively,  and included  $306,000,
$255,000, and $219,000 in related party expense, respectively.


9.   INCOME TAXES

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

                                               2001         2000         1999
                                             --------     --------     --------
                                                       (IN THOUSANDS)
Current:
  Federal ..............................     $    221     $    100     $    100
  State ................................          446         (131)        (111)
  Foreign ..............................          555          139          --
                                             --------     --------     --------
Total current ..........................        1,222          108          (11)

Deferred:
  Federal ..............................     $(10,774)    $    --      $ (1,671)
  State ................................         (739)         --          (136)
  Foreign ..............................         (572)         --           --
                                             --------     --------     --------
Total deferred .........................      (12,085)         --        (1,807)

Income tax expense (benefit) ...........     $(10,863)    $    108     $ (1,818)
                                             ========     ========     ========

The  extraordinary  loss on the early  retirement  of debt is reported  net of a
$13,000 income tax benefit.

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

                                                                December 31
                                                             2001         2000
                                                           --------    --------
                                                              (IN THOUSANDS)
Net operating loss and tax credit carryforwards .......... $ 32,765    $ 33,676
Inventory reserves and capitalization ....................    2,616       1,740
Other ....................................................    9,159       8,594
Deferred revenue .........................................    2,403       2,380
                                                           --------    --------
  Total deferred tax assets before valuation allowance ...   46,943      46,390

Valuation allowance ......................................  (34,356)    (44,776)

Depreciation and amortization ............................   (1,952)     (3,010)
Other ....................................................     (392)       (392)
                                                           --------    --------
Net deferred tax assets (liabilities) .................... $ 10,243    $ (1,788)
                                                           ========    ========


                                      F-18



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.   INCOME TAXES (CONTINUED)


Since 1999,  the Company has generated  positive  taxable income on a cumulative
basis.  In light of this recent trend,  current  projections  for future taxable
earnings,  and the  expected  timing of the  reversal  of  deductible  temporary
differences,  management  concluded in the fourth quarter of 2001 that a portion
of the valuation allowance recorded against federal and state net operating loss
carryforwards  and certain other temporary  differences was no longer necessary.
The valuation  allowance was reduced by $12.0 million in 2001 because management
believes  that it is more  likely  than not that the  Company  will  realize the
benefit of that  portion of the  deferred  tax assets  recorded at December  31,
2001.  The $12.0 million  reduction in the valuation  allowance  consisted of an
$11.5 million  deferred  income tax benefit and a $450,000  credit to additional
paid-in capital related to net operating loss  carryforwards  generated  through
the  exercise  of stock  options.  A  valuation  allowance  of $34.4  million is
recorded  against  the $44.6  million of net  deferred  tax assets  recorded  at
December 31,  2001.  In the event that the Company  determines  that it would be
able to  realize  more or less  than the  recorded  amount of net  deferred  tax
assets,  an adjustment to the deferred tax asset  valuation  allowance  would be
recorded in the period such a determination is made.  Approximately $5.9 million
of this valuation allowance is recorded against deferred tax assets arising from
net operating loss  carryforwards  that were  generated  through the exercise of
stock options.  Any subsequent reduction in the valuation allowance to recognize
these stock  option-related  deferred tax assets will be recorded as a credit to
additional paid-in capital.


The  net  change  in  the  Company's   valuation  allowance  was  $(10,420,000),
$3,342,000,  and $18,000 in 2001, 2000, and 1999, respectively.  The 1999 change
in valuation allowance includes a non-cash benefit of $1,807,000  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, 2001,  2000, and 1999 is as
follows:

                                                     2001      2000      1999
                                                    ------    ------    ------
Federal statutory rate ...........................    34.0%    (34.0%)   (34.0%)
Increase (reduction) in income taxes
    resulting from:
  State income taxes - before deferred benefit ...     1.9%      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 ........    (1.3%)    (0.5%)      --
  Alternative minimum tax, net of state benefit ..     1.4%      0.9%      1.3%
  Nondeductible items ............................     1.1%      2.1%      8.2%
  Other ..........................................     1.9       2.9%       --
  Change in valuation allowance ..................  (108.9%)    30.8%     (0.2%)
                                                    ------    ------    ------
Effective tax rate ...............................   (69.9%)     1.0%    (23.3%)
                                                    ======    ======    ======

At December  31,  2001,  the Company had net  operating  loss  carryforwards  of
approximately  $90.4  million and $19.8 million for federal and state income tax
purposes,  respectively,  to offset future taxable income. The federal and state
net operating loss  carryforwards  expire  through 2018 and 2008,  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.

At December  31,  2001,  several of the  Company's  subsidiaries  had unused net
operating loss carryforwards and tax credit  carryforwards  arising from periods
prior to the Company's  ownership which expire between 2002 and 2010. The timing
and manner in which any  acquired  net  operating  losses or tax  credits may be
utilized in any year by the Company are limited by the Internal  Revenue Code of
1986, as amended,  Section 382 and other provisions of the Internal Revenue Code
and its applicable regulations.

                                      F-19



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.   NET INCOME (LOSS) PER SHARE

Amounts used in the calculation of basic and diluted net income (loss) per share
were as follows:

                                                       2001     2000      1999
                                                     -------  --------  -------
                                                            (IN THOUSANDS,
                                                      EXCEPT PER SHARE AMOUNTS)
BASIC NET INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary item and
   cumulative effect of accounting change .......... $26,406  $(10,955) $(5,966)
Dividends on preferred stock .......................  (1,026)   (1,472)    (830)
Beneficial conversion feature on preferred stock ...      --    (4,170)      --
                                                     -------  --------  -------
Income (loss) before extraordinary item and
   cumulative effect of accounting change
   applicable to common stock ...................... $25,380  $(16,597) $(6,796)

Basic income (loss) per share before
  extraordinary item and cumulative effect
  of accounting change ............................. $  1.09  $  (0.95) $ (0.40)
                                                     =======  ========  =======

Net income (loss) .................................. $26,163  $(11,425) $(5,966)
Dividends on preferred stock .......................  (1,026)   (1,472)    (830)
Beneficial conversion feature on preferred stock ...      --    (4,170)      --
                                                     -------  --------  -------
Net income (loss) applicable to common stock ....... $25,137  $(17,067) $(6,796)

Basic net income (loss) per share .................. $  1.08  $  (0.97) $ (0.40)
                                                     =======  ========  =======

Weighted average common shares outstanding for
   basic earnings per share ........................  23,353    17,553   16,802
                                                     =======  ========  =======


DILUTED NET INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary item and
   cumulative effect of accounting change .......... $26,406  $(10,955) $(5,966)
Dividends on preferred stock .......................      --    (1,472)    (830)
Beneficial conversion feature on preferred stock ...      --    (4,170)      --
                                                     -------  --------  -------
Income (loss) before extraordinary item and
   cumulative effect of accounting change
   applicable to common stock ...................... $26,406  $(16,597) $(6,796)

Diluted income (loss) per share before
   extraordinary item and cumulative effect of
   accounting change ............................... $  0.95  $  (0.95) $ (0.40)
                                                     =======  ========  =======

Net income (loss) .................................. $26,163  $(11,425) $(5,966)
Dividends on preferred stock .......................      --    (1,472)    (830)
Beneficial conversion feature on preferred stock ...      --    (4,170)      --
                                                     -------  --------  -------
Net income (loss) applicable to common stock ....... $26,163  $(17,067) $(6,796)

Diluted net income (loss) per share ................ $  0.94  $  (0.97) $ (0.40)
                                                     =======  ========  =======

Weighted average common shares outstanding for
   basic earnings per share ........................  23,353    17,553   16,802

Effect of dilutive securities:
   Assumed conversion of Series B Preferred Stock ..   1,273        --       --
   Assumed conversion of Series C Preferred Stock ..     600        --       --
   Stock options ...................................   2,364        --       --
   Stock purchase warrants .........................     206        --       --
                                                     -------  --------  -------
Weighted average common shares outstanding
   for diluted earnings per share ..................  27,796    17,553   16,802
                                                     =======  ========  =======


                                      F-20



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.   NET INCOME (LOSS) PER SHARE (CONTINUED)

The $243,000  extraordinary  loss on the early  retirement of debt reduced basic
and diluted earnings per share by $0.01 in 2001. The $470,000  cumulative effect
of the  accounting  change for SAB 101 reduced  basic and diluted  earnings  per
share by $0.02 in 2000.

Shares of common stock issuable  through exercise or conversion of the following
dilutive  securities  were not included in the computation of diluted net income
(loss)  per  share  for  each  period  because  their  effect  would  have  been
antidilutive:

                                                     2001     2000     1999
                                                     ----    -----    -----
                                                         (IN THOUSANDS)

        Convertible Preferred Stock ...............    --    3,218    2,868
        Stock options and warrants ................    65    5,068    4,401

In  connection  with the  issuance of 54,000  shares of Series C  Preferred  and
common  stock  warrants in March  2000,  the  Company  reflected a $4.2  million
nonrecurring,  non-cash dividend related to the beneficial conversion feature of
the Series C Preferred  in the  calculation  of net loss per share in 2000.  The
beneficial  conversion  feature  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.

Restricted  Units  issued by the Company (see Note 7) that entitle the holder to
2,250,000  shares of common stock are included in the  weighted  average  shares
outstanding   calculation  from  their  date  of  issuance  because  no  further
consideration is due related to the issuance of the underlying common shares.


11.   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  $5,280,000  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  $3,960,000 at December 31, 2001 is
     recorded  in  deferred   revenue,   of  which  $528,000  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
     $2,000,000   through  2004,  after  which  such  funding  amounts  will  be
     determined based on a percentage of net sales of the INTEGRA(R) product, as
     defined. 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.


                                      F-21



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



11.  DEVELOPMENT,  DISTRIBUTION,  AND LICENSE  AGREEMENTS AND GOVERNMENT  GRANTS
     (CONTINUED)


- -    The Company has an agreement with the Genetics  Institute division of Wyeth
     (formerly  American Home Products  Corporation) and Medtronic Sofamor Danek
     for the development of collagen and other absorbable matrices to be used in
     conjunction with Genetics Institute's  recombinant human bone morphogenetic
     protein-2  (rhBMP-2) in a variety of bone  regeneration  applications.  The
     agreement with Genetics  Institute  requires  Integra to supply  Absorbable
     Collagen  Sponges to  Genetics  Institute  (including  those that  Genetics
     Institute  sells  to  Medtronic  Sofamor  Danek  with  rhBMP-2  for  use in
     Medtronic  Sofamor  Danek's  InFUSE(TM)  product) at specified  prices.  In
     addition,  the Company  will  receive a royalty  equal to a  percentage  of
     Genetics  Institute's  sales of  surgical  kits  combining  rhBMP-2 and the
     Absorbable Collagen Sponges.  The agreement  terminates in 2004, but may be
     extended  for  successive  five  year  terms  at  the  option  of  Genetics
     Institute.   The  agreement  does  not  provide  for  milestones  or  other
     contingent payments, but Genetics Institute pays the Company to assist with
     regulatory affairs and research. The Company received $1,100,000,  $310,000
     and $300,000 of research and  development  revenues  under the agreement in
     2001, 2000, and 1999, respectively.

- -    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.

- -    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.


12.  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.

                                      F-22



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.   COMMITMENTS AND CONTINGENCIES (CONTINUED)

In July 1996,  the  Company  filed a patent  infringement  lawsuit in the United
States  District  Court for the Southern  District of  California  (the "Court")
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. 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  ("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 in March,  2000, a jury returned a
unanimous  verdict  for the  Company,  finding  that  Merck  KGaA had  willfully
infringed and induced the  infringement  of the Company's  patents,  and awarded
$15,000,000  in damages.  The Court  dismissed  Scripps and Dr. Cheresh from the
case.

In October,  2000, the Court 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.  Merck KGaA
filed  various  post-trial  motions  requesting  a  judgment  as a matter of law
notwithstanding the verdict or a new trial, in each case regarding infringement,
invalidity and damages.  In September 2001, the Court entered orders in favor of
the  Company and against  Merck KGaA on the final  post-judgment  motions in the
case,  and denied Merck KGaA's motions for judgment as a matter of law and for a
new trial.

Merck KGaA and Integra have each  appealed  various  decisions of the Court.  We
expect the court of appeals to hear  arguments in the appeal  during 2002 and to
issue its opinion during 2003. Post-judgment interest continues to accrue at the
rate of  approximately  $20,000 per week.  Integra has not  recorded any gain in
connection with this favorable judgment.

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 a
wholly-owned  subsidiary of the Company  (Subsidiary),  dated as of December 18,
1996,  alleged that Subsidiary  breached the terms of the Letter Agreement prior
to the Company's  acquisition of the NeuroCare Group  (Subsidiary'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.

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.

                                      F-23



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.   DIVISION AND GEOGRAPHIC INFORMATION

Integra's  business is divided into two  divisions:  Integra  NeuroSciences  and
Integra LifeSciences.

The Integra NeuroSciences  division is a leading provider of implants,  devices,
and systems used in neurosurgery,  neurotrauma,  and related critical care and a
distributor of disposables  and supplies used in the diagnosis and monitoring of
neurological   disorders.   The  Integra  LifeSciences   division  develops  and
manufactures a variety of medical products and devices, including products based
on the Company's  proprietary  tissue  regeneration  technology that are used to
treat soft tissue and orthopedic conditions.

Integra NeuroSciences sells primarily through a direct sales force in the United
States and Europe and through a network of distributors elsewhere throughout the
world. For the majority of the products manufactured by the Integra LifeSciences
division,  the Company has partnered with market leaders for the development and
marketing efforts related to these products.

In the fourth quarter of 2001, the Company changed the classification of certain
products between the Integra LifeSciences and Integra  NeuroSciences  divisions.
Sales of the  Helitene(R)  fibrillar  hemostat  product and the  carotid  shunts
product line are now classified in the Integra NeuroSciences  division's product
sales. These products,  both of which are now sold by the Integra  NeuroSciences
direct  salesforce,  were  previously  classified  in the  Integra  LifeSciences
division's product sales. All prior period divisional financial results provided
below have been revised to reflect the retroactive  application of this division
reporting change. Additionally, the Company has reclassified certain general and
administrative  expenses  from 2000 and 1999 within the  divisions and corporate
general and  administrative  expenses to conform to the current  methodology for
determining divisional profitability.  These reclassifications were not material
and did not change the basic nature of the business divisions.

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

                                                                       Total
                                       Integra        Integra        Reportable
                                    NeuroSciences   LifeSciences      Divisions
                                    -------------   ------------     ----------
                                                   (IN THOUSANDS)
2001
- ------
Product sales ......................   $ 68,332        $ 19,355        $ 87,687
Total revenue ......................     69,393          24,049          93,442
Operating expenses .................     51,432          18,001          69,433
Operating income ...................     17,961           6,048          24,009

Depreciation included in segment
  operating expenses ...............      2,030           1,064           3,094


2000
- ------
Product sales ......................   $ 49,202        $ 15,785        $ 64,987
Total revenue ......................     50,514          21,135          71,649
Operating expenses .................     40,478          17,756          58,234
Operating income ...................     10,036           3,379          13,415

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

1999
- ------
Product sales ......................   $ 25,444        $ 14,603        $ 40,047
Total revenue ......................     25,894          16,982          42,876
Operating expenses .................     27,433          20,784          48,217
Operating loss .....................     (1,539)         (3,802)         (5,341)
Depreciation included in segment
  operating expenses ...............      1,062             870           1,932

                                      F-24



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.   DIVISION AND GEOGRAPHIC INFORMATION (CONTINUED)

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

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



                                                               2001        2000        1999
                                                             --------    --------    --------
                                                                      (IN THOUSANDS)
                                                                            
Operating expenses:
Total reportable divisions ...............................   $ 69,433    $ 58,234    $ 48,217
Plus: Corporate general and administrative expenses ......      6,939      22,655       6,165
      Amortization .......................................      2,784       2,481         874
                                                             --------    --------    --------
Consolidated total operating expenses ....................     79,156      83,370      55,256

Operating income (loss):
Total reportable divisions ...............................   $ 24,009    $ 13,415    $ (5,341)
Less: Corporate general and administrative expenses ......      6,939      22,655       6,165
      Amortization .......................................      2,784       2,481         874
                                                             --------    --------    --------
Consolidated operating income (loss) .....................   $ 14,286    $(11,721)   $(12,380)


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 consisted of the following:



                                                               2001        2000        1999
                                                             --------    --------    --------
                                                                      (IN THOUSANDS)
                                                                            
Integra NeuroSciences:
   Neuro intensive care unit .............................   $ 27,830    $ 23,521    $ 14,398
   Neuro operating room ..................................     36,213      21,820       8,458
   Other NeuroSciences products ..........................      4,289       3,861       2,588
                                                             --------    --------    --------
   Total product sales ...................................     68,332      49,202      25,444

Integra LifeSciences:
   Tissue repair products ................................   $  8,698    $  6,168    $  5,781
   Other medical devices .................................     10,657       9,617       8,822
                                                             --------    --------    --------
   Total product sales ...................................     19,355      15,785      14,603

   Consolidated product sales ............................   $ 87,687    $ 64,987    $ 40,047


Product  sales  and  long-lived  assets  (excluding  financial  instruments  and
deferred tax assets) by major geographic area are summarized below:

                       United                  Asia        Other
                       States     Europe      Pacific     Foreign   Consolidated
                      --------   --------    --------    --------   ------------
                                          (IN THOUSANDS)
Product sales:
2001 ...............  $ 68,391   $ 10,577    $  4,838    $  3,881     $ 87,687
2000 ...............    51,379      6,759       4,628       2,221       64,987
1999 ...............    30,982      4,664       3,299       1,102       40,047

Long-lived assets:
2001 ...............  $ 33,001   $ 11,777    $    --     $    --      $ 44,778
2000 ...............    33,428      6,869         --          --        40,297
1999 ...............    23,447        --          --          --        23,447

                                  F-25



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


14.   SELECTED QUARTERLY INFORMATION -- UNAUDITED

                                           Fourth    Third     Second    First
                                          Quarter   Quarter   Quarter   Quarter
                                          -------   -------   -------   -------
                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
2001:
- -----
Total revenue ........................... $25,088   $23,750   $22,920   $21,684

Cost of product sales ...................   9,957     9,153     8,310     8,594
Total other operating expenses ..........  10,419    10,861    11,154    10,708

Operating income ........................   4,712     3,736     3,456     2,382

Interest income (expense), net ..........   1,029       556      (114)      (78)
Other income (expense), net .............     (19)       96      (151)      (62)

Income before income taxes ..............   5,722     4,388     3,191     2,242
Income tax expense (benefit) ............ (11,903)      365       429       246

Income before extraordinary loss ........  17,625     4,023     2,762     1,996
Extraordinary loss on early
   retirement of debt, net of
   income tax benefit ...................      --      (243)       --        --

Net income .............................. $17,625   $ 3,780   $ 2,762   $ 1,996

Basic income per share before
   extraordinary loss ................... $  0.63   $  0.15   $  0.12   $  0.08
Basic net income per share ..............    0.63      0.14      0.12      0.08

Diluted income per share before
  extraordinary loss .................... $  0.56   $  0.14   $  0.10   $  0.07
Diluted net income per share ............    0.56      0.13      0.10      0.07


2000:
- -----
Total revenue ........................... $20,251   $19,781   $17,086   $14,531

Cost of product sales ...................   8,108     7,504     7,212     6,687
Total other operating expenses ..........  24,037    10,294    10,462     9,066

Operating income (loss) ................. (11,894)    1,983      (588)   (1,222)

Interest income (expense), net ..........    (101)     (204)     (179)       11
Gain on sale of product line ............      --        --     1,031       115
Other income (expense), net .............      24        45         9       123

Income (loss) before income taxes ....... (11,971)    1,824       273      (973)
Income tax expense (benefit) ............    (195)       80       161        62

Income (loss) before cumulative
   effect of accounting change .......... (11,776)    1,744       112    (1,035)
Cumulative effect of accounting change ..      --        --        --      (470)

Net income (loss) ....................... $(11,776) $ 1,744   $   112   $(1,505)

Basic income (loss) per share before
  cumulative effect of accounting change  $ (0.67)  $  0.08   $ (0.02)  $ (0.32)
Basic net income (loss) per share .......   (0.67)     0.08     (0.02)    (0.35)

Diluted income (loss) per share before
  cumulative effect of accounting change  $ (0.67)  $  0.07   $ (0.02)  $ (0.32)
Diluted net income (loss) per share .....   (0.67)     0.07     (0.02)    (0.35)

                                      F-26



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


14.   SELECTED QUARTERLY INFORMATION -- UNAUDITED (CONTINUED)

The following special charges (credits) are reflected in the selected  quarterly
information:

                                           Fourth    Third     Second    First
                                          Quarter   Quarter   Quarter   Quarter
                                          -------   -------   -------   -------
                                                      (IN THOUSANDS)
2001:
- -----
Inventory fair value purchase accounting
   adjustments (Cost of product sales) ....  $    51   $    --  $   152  $    --

Deferred tax benefit from the reduction
   of the valuation allowance recorded
   against deferred tax assets
   (Income tax benefit) ...................  (11,512)       --       --       --


2000:
- -----
Inventory fair value purchase accounting
   Adjustments (Cost of product sales) ....  $    --   $    --  $   334  $    95

Stock-based compensation charge for
   issuance of Restricted Units
   (Total other operating expenses) .......   13,515        --       --       --

                                      F-27



        REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

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  22, 2002,  appearing in the 2001 Annual  Report on Form 10-K of
Integra  LifeSciences  Holdings  Corporation and  Subsidiaries  also included an
audit of the financial statement schedule listed in the index in Item 14 of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in
all  material  respects,   the  information  set  forth  therein  when  read  in
conjunction with the related consolidated financial statements.



/s/ PricewaterhouseCoopers LLP
- ------------------------------


Florham Park, New Jersey
February 22, 2002


                                      F-28



           INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS

                                   SCHEDULE II



                                           Balance at      Charged to       Charged                       Balance at
                                           Beginning       Costs and        to Other                        End of
Description                                Of Period        Expenses       Accounts(1)     Deductions(2)    Period
- --------------------------------------------------------------------------------------------------------------------
                                                                         (IN THOUSANDS)
                                                                                             
YEAR ENDED DECEMBER 31, 2001

Allowance for doubtful accounts ..........  $ 1,003         $    54         $     4         $   (97)        $   964

Inventory reserves .......................    3,420           3,734             --           (1,342)          5,812

Deferred tax asset valuation allowance ...   44,776           1,544             --          (11,964)         34,356

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

Deferred tax asset valuation allowance ...   41,434           3,342             --              --           44,776

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

Deferred tax asset valuation allowance ...   41,844             --             (392)            (18)         41,434


(1)  All  amounts   shown  were   recorded  to  goodwill  in   connection   with
     acquisitions.

(2)  The $12.0 million  deduction to the deferred tax asset valuation  allowance
     in 2001 includes a $450,000 credit to additional paid-in capital.

                                      F-29