INTEGRA LIFESCIENCES HOLDINGS CORP - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

COMMISSION FILE NUMBER 0-26224

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 EXECUTIVE OFFICES) (ZIP CODE)

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

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.

/X/ - YES / / - NO

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER /X/YES//NO

AS OF NOVEMBER 2, 2004 THE REGISTRANT HAD OUTSTANDING 28,838,946 SHARES OF
COMMON STOCK, $.01 PAR VALUE.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

In thousands, except per share amounts
September 30, December 31,
2004 2003
------------ ------------

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

General

In the opinion of management, the September 30, 2004 unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position, results of operations and cash flows of the Company. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted in accordance with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. These unaudited consolidated financial statements
should be read in conjunction with the Company's consolidated financial
statements for the year ended December 31, 2003 included in the Company's Annual
Report on Form 10-K. Operating results for the three and nine month periods
ended September 30, 2004 are not necessarily indicative of the results to be
expected for the entire year.

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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, and loss
contingencies. 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.

Accounting Policies

Product revenues include both product sales and royalties earned on sales by
distribution partners of the Company's products or of products incorporating one
or more of the Company's products. Product sales are recognized when delivery
has occurred and title has passed to the customer, there is a fixed or
determinable sales price, and collectability of that sales price is reasonably
assured. Product royalties are recognized as the royalty products are sold by
our customers and the amount earned by Integra is fixed and determinable.

Other revenues include research grants, fees received under research, licensing,
and distribution arrangements, and technology-related royalties. Research grant
revenue is recognized when the related expenses are incurred. Non-refundable
fees received under research, licensing and distribution arrangements or for the
licensing of technology 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 the proportional performance method of accounting based upon the estimated
cost to complete these obligations.

Recently Issued Accounting Standards

In October 2004, the Financial Accounting Standards Board (FASB) Emerging Issue
Task Force (EITF) reached a consensus on Issue 04-08 "The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share" that would require
issuers of contingent convertible securities to account for these securities on
an "if-converted" basis pursuant to Statement of Financial Accounting Standards
No. 128 "Earnings Per Share", in computing their diluted earnings per share
whether or not the issuer's stock is above the contingent conversion price. The
provisions of Issue 04-08 are effective for all periods ending after December
15, 2004 and will be applied retroactively and will require restatement of prior
period diluted earnings per share, subject to certain transition provisions. The
Company expects that the adoption of Issue 04-08 in the fourth quarter of 2004
will reduce its previously reported diluted earnings per share results for the
year ended December 31, 2003 by $0.02. The adoption of Issue 04-08 would not
have affected reported diluted earnings per share results for the nine months
ended September 30, 2004 because the use of the "if-converted" method would have
been anti-dilutive for that period. The adoption of Issue 04-08 is expected to
have a dilutive effect on the Company's future earnings per share results.

In March 2004, the EITF reached a consensus on Issue 03-01, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments".
Issue 03-01 provides guidance regarding recognition and measurement of
unrealized losses on available-for-sale debt and equity securities accounted for
under Statement of Financial Accounting Standard No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The Company does not expect
that the adoption of Issue 03-01 will have a material impact on its financial
position, cash flows or results of operations.

In March 2004, the EITF reached a consensus on Issue 03-6, "Participating
Securities and the Two-Class Method Under FASB Statement No. 128". Issue 03-6
expanded the notion of participation rights in calculating earnings per share
from previous practice. Issue 03-6 does not focus on a security holder's
contractual rights to ultimately receive the undistributed earnings and net
assets of the company upon redemption or liquidation. Instead, it defines
participation rights based solely on whether the holder would be entitled to
receive any dividends declared during the period, even if the company would not
declare any dividends during the period due to economic or practical concerns or
legal or contractual limitations on the company's ability to pay dividends.

Under Issue 03-6, all securities that meet the definition of a participating
security, regardless of whether the securities are convertible, non-convertible,
or potential common stock securities, will be considered for inclusion in the
computation of basic earnings per share using the two-class method. The
application of the two-class method may also have an impact on the diluted
earnings per share calculation due to the need to consider each type of
potential common shares in the proper sequence to arrive at maximum dilution.

Integra adopted the provisions of Issue 03-6 during the second quarter ended
June 30, 2004. The transition provisions of Issue 03-6 require prior period
earnings per share amounts to be restated to conform to the new standard,
including the impact relating to securities that have been extinguished but were
outstanding for a portion of some prior period that is presented for comparative
purposes. Accordingly, in the future, Integra will restate its earnings per
share calculations for the year ended December 31, 2001 to conform to the
two-class method required by Issue 03-6 as it relates to the dividend
participation rights included in the Series B and Series C Convertible Preferred
Stock that were outstanding during that period. The adoption of Issue 03-6 will
reduce previously reported basic earnings per share by $0.05 to $1.03 and
diluted earnings per share by $0.02 to $0.92 in 2001. The adoption of Issue 03-6
will not change the previously reported basic or diluted earnings per share for
any other year.

Equity-Based Compensation

The Company recognizes employee stock based compensation using the
intrinsic value method prescribed by APB Opinion No. 25 "Accounting for
Stock Issued to Employees" and FASB Interpretation No. 44 "Accounting for
Certain Transactions Involving Stock Compensation - an interpretation of APB
Opinion No. 25".

Had the compensation cost for the Company's stock option plans been determined
based on the fair value at the date of grant 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:

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.

On March 31, 2004, the FASB issued an Exposure Draft "Share-Based Payment - An
Amendment of FASB Statements No. 123 and 95." The Exposure Draft addresses the
accounting for transactions in which a company receives employee services in
exchange for (a) equity instruments of the company or (b) liabilities that are
based on the fair value of the company's equity instruments or that may be
settled by the issuance of such equity instruments. The proposed Statement would
eliminate the ability to account for share-based compensation transactions using
APB Opinion No. 25, and generally would require instead that such transactions
be accounted for using a fair-value based method. The Exposure Draft proposes
that the cost of all forms of equity-based compensation granted to employees,
excluding employee stock ownership plans, be recognized in a company's income
statement and that such cost be measured at the fair value of the stock options.
At its October 2004 meeting, the FASB decided to defer the effective date of
this proposed new accounting standard from fiscal years beginning after December
31, 2004 to interim and annual periods beginning after June 15, 2005. The
Company is currently evaluating option valuation methodologies and assumptions
in light of the evolving accounting standards related to employee stock options.
Current estimates of option values using the Black-Scholes method (as shown
above) may not be indicative of results from valuation methodologies ultimately
adopted in the final rules for future option grants.

2. BUSINESS ACQUISITIONS

In May 2004, the Company acquired the MAYFIELD(R) Cranial Stabilization and
Positioning Systems and the BUDDE(R) Halo Retractor System business from
Schaerer Mayfield USA, Inc. (formerly Ohio Medical Instrument Company) for $20.0
million in cash paid at closing and a $0.3 million working capital adjustment.
The MAYFIELD and BUDDE lines include skull clamps, headrests, reusable and
disposable skull pins, blades, retractor systems, and spinal implants. MAYFIELD
systems are the market leader in the United States and have been used by
neurosurgeons for over thirty years. The products are sold in the United States
through the Integra NeuroSciences direct sales organization and through
distributors in international markets.

The acquired business includes a facility located in Cincinnati, Ohio that
manufactures, packages and distributes MAYFIELD and BUDDE stabilization
products, as well as a broad line of related instruments and disposables used in
many neurosurgical and spinal procedures. In addition, as part of the
acquisition, Integra entered into a long-term license with SM USA, Inc., a
wholly owned subsidiary of Schaerer Mayfield USA, Inc., for the use of the
MAYFIELD name in connection with the acquired business.

In connection with this acquisition, the Company recorded $8.2 million of
goodwill and $8.0 million of intangible assets, consisting of a non-compete
agreement, trade name, and technology, which are being amortized on a
straight-line basis over lives ranging from 5 to 30 years. The following table
summarizes the fair value of the assets acquired and liabilities assumed in this
acquisition (in thousands):

In May 2004, the Company acquired all of the capital stock of Berchtold
Medizin-Elektronik GmbH, now named Integra ME, from Berchtold Holding GmbH for
$5.0 million in cash. Integra ME manufactures and markets the ELEKTROTOM(R) line
of electrosurgery generators and the SONOTOM(R) ultrasonic surgical aspirator,
as well as a broad line of related handpieces, instruments and disposables used
in many surgical procedures, including neurosurgery. Integra ME markets and
sells its products to hospitals and physicians primarily through a network of
distributors.

The acquired business includes a facility located in Tuttlingen, Germany that
manufactures, packages and distributes the ELEKTROTOM and SONOTOM products. This
acquisition provided Integra with additional devices for the European and
international markets and an existing infrastructure through which it can sell
certain of its other products directly into Germany.

In connection with this acquisition, the Company recorded $1.9 million of
goodwill and $1.3 million of intangible assets, consisting primarily of trade
name, technology, and customer relationships, which are being amortized on a
straight-line basis over lives ranging from 3 to 10 years.

In January 2004, the Company acquired the R&B instrument business from R&B
Surgical Solutions, LLC for approximately $2.0 million in cash. The R&B
instrument line is a complete line of high-quality handheld surgical instruments
used in neuro- and spinal surgery. The Company markets these products through

its JARIT sales organization. In connection with this acquisition, the Company
recorded approximately $1.5 million of intangible assets and goodwill. The
acquired intangible assets are being amortized on a straight-line basis over
lives ranging from 5 to 20 years. If the Company had consummated this
acquisition as of the beginning of 2003, its operating results would not have
been materially different from those presented herein.

In January 2004, the Company acquired the Sparta disposable critical care
devices and surgical instruments business from Fleetwood Medical, Inc. for
approximately $1.6 million in cash. The Sparta product line includes products
used in plastic and reconstructive, ear, nose and throat (ENT), neuro,
ophthalmic and general surgery. The Company sells the Sparta products through a
direct marketing organization and an existing distributor network. In connection
with this acquisition, the Company recorded approximately $1.5 million of
intangible assets and goodwill. The acquired intangible assets are being
amortized on a straight-line basis over 5 years. If the Company had consummated
this acquisition as of the beginning of 2003, its operating results would not
have been materially different from those presented herein.

The goodwill acquired in the MAYFIELD/BUDDE, R&B, and Sparta transactions is
expected to be deductible for tax purposes.

In November 2003, the Company acquired all of the outstanding capital stock of
Spinal Specialties, Inc. for $6.4 million in cash. Spinal Specialties markets
its products primarily to anesthesiologists and interventional radiologists
through an in-house telemarketing team and a network of distributors.

In August 2003, the Company acquired substantially all of the assets of Tissue
Technologies, Inc. The Company paid $0.6 million in cash and is obligated to pay
the seller up to an additional $1.5 million in contingent consideration based
upon a multiple of the Company's sales of the UltraSoft(TM) product in the third
year following the acquisition. If the Company had consummated this acquisition
as of the beginning of 2003, its operating results would not have been
materially different from those herein.

In March 2003, the Company acquired all of the outstanding capital stock of J.
Jamner Surgical Instruments, Inc. (doing business as JARIT(R) Surgical
Instruments) ("JARIT") for $43.5 million in cash. In the United States, JARIT
sells through a twenty-person sales management force that works with over 100
distributor sales representatives.

The results of operations of acquired businesses are included in the
consolidated financial statements since the respective dates of acquisition.

The following unaudited pro forma financial information assumes that the
Mayfield, Integra ME, Spinal Specialties and JARIT acquisitions had occurred as
of the beginning of 2003 (in thousands, except per share data):

3. INVENTORIES

Inventories consisted of the following:

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the nine months ended September
30, 2004, were as follows:

The components of the Company's identifiable intangible assets were as follows:

Annual amortization expense is expected to approximate $4.3 million in 2004,
$4.6 million in 2005, $4.6 million in 2006, $4.3 million in 2007, and $3.7
million in 2008. Identifiable intangible assets are initially recorded at fair
market value at the time of acquisition generally using an income or cost
approach.

5. SHARE-BASED COMPENSATION CHARGE

In July 2004, Stuart M. Essig, the Company's President and Chief Executive
Officer, renewed his employment agreement with the Company through December 31,
2009. In connection with the renewal of the agreement, Mr. Essig received a
grant of fair market value options to acquire up to 250,000 shares of Integra
common stock and a fully vested contract stock unit award providing for the
payment of 750,000 shares of Integra common stock which shall generally be
delivered to Mr. Essig upon a change of control, following his termination of
employment or retirement after December 31, 2009, or later under certain
circumstances. In connection with the fully vested contract stock award, the
Company recorded a share-based compensation charge of $23.9 million, including
payroll taxes, in the third quarter of 2004 for the compensation expense related
to the fully-vested contract stock unit grant.

6. COMPREHENSIVE INCOME(LOSS)

7. NET INCOME (LOSS) PER SHARE

Options outstanding at September 30, 2004 to purchase 3,315,000 shares of common
stock were excluded from the computation of diluted net income per share for the
three month period ended September 30, 2004 because their impact would be
anti-dilutive. Options and warrants outstanding at September 30, 2004 and 2003,
respectively, to purchase 364,100 and 464,000 shares of common stock were
excluded from the computation of diluted net income per share for the nine month
periods ended September 30, 2004 and 2003 because their exercise price exceeded
the average market price of the Company's common stock during the period.

Notes payable outstanding at September 30, 2004 and 2003 that were convertible
into 3.5 million shares of common stock were excluded from the computation of
diluted net income per share for the three and nine month periods ended
September 30, 2004 and 2003, respectively, because the conditions required to
convert the notes were not met. Holders have the right to convert their notes
into shares of the Company's common stock at any time prior to their maturity,
if any of the following conditions is met:
- - the last sale price of the Company's common stock on the trading day
prior to the conversion date was 110% or more of the conversion price
on such trading day;
- - the Company distributes to holders of its common stock certain rights
entitling them to purchase common stock at less than the last sale
price of our common stock on the day preceding the declaration for such
distribution;
- - the Company distributes to holders of its common stock assets, debt,
securities or certain rights to purchase its securities, which
distribution has a per share value exceeding 10% of the last sale price
of the Company's common stock on the day preceding the declaration of
such distribution; or
- - the Company becomes a party to a consolidation, merger or sale of all
or substantially all of its assets or a change in control occurs
pursuant to which the Company's common stock would be converted into
cash, stock or other property that is not common equity interests
traded on a national securities exchange or quoted on the Nasdaq
National Market;

Holders may also convert their notes into shares of the Company's common stock
as follows:

- - at any time prior to March 15, 2006 after any 5 consecutive trading-day
period in which the average trading prices for the notes for that 5
trading-day period was less than 103% of the average conversion value
for the notes during that period; or
- - at any time on or after March 15, 2006 and prior to maturity after any
5 consecutive trading-day period in which the average trading prices
for the notes for that 5 trading-day period was less than 97% of the
average conversion value for the notes during that period (however,
holders may not convert their notes on or after March 15, 2006 if, at
the time of the calculation, the closing sale price of shares of the
Company's common stock is between the then current conversion price on
the notes and 110% of the then current conversion price on the notes.)

8. PRODUCT REVENUE AND GEOGRAPHIC INFORMATION

Integra develops, manufactures, and markets medical devices for use primarily in
neuro-trauma and neurosurgery, plastic and reconstructive surgery, and general
surgery. The Company's product lines include monitoring and drainage systems,
surgical instruments, fixation systems, and innovative tissue repair products
that incorporate the Company's proprietary absorbable implant technology. The
Company reports its financial results under a single operating segment - the
development, manufacturing, and distribution of medical devices.

Product revenues are segregated into the following categories:

Beginning in 2004, the Company has included the sales of INTEGRA(R) Dermal
Regeneration Template in operating room product revenues. In the prior year
period, these product sales were included in private label product revenues.

Certain of the Company's products, including the DuraGen(R) Dural Graft
products, NeuraGen(TM) Nerve Guide, INTEGRA(R) Dermal Regeneration Template,
INTEGRA(TM) Bilayer Matrix Wound Dressing, and BioMend(R) Absorbable Collagen
Membrane, contain material derived from bovine tissue. Products that contain
materials derived from animal sources, including food as well as pharmaceuticals
and medical devices, are increasingly subject to scrutiny from the press and
regulatory authorities. These products comprised approximately 31% and 28% of
product revenues in the nine month periods ended September 30, 2004 and
September 30, 2003, respectively. Accordingly, widespread public controversy
concerning collagen products, new regulation, or a ban of the Company's products
containing material derived from bovine tissue, could have a material adverse
effect on the Company's current business or its ability to expand its business.
Additionally, competitive pressures on our collagen-based products could
adversely affect the Company's profitability. For example, two of our largest
competitors have recently introduced an onlay dural graft matrix and other
companies may be preparing to introduce similar products. The introduction of
such products could reduce the sales, growth in sales, and the profitability of
our duraplasty products, including our DuraGen(R), DuraGen Plus(TM), and
Endura(TM) product lines, which are among our largest and fastest growing
products.

Product revenues by major geographic area are summarized below:

9. COMMITMENTS AND CONTINGENCIES

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

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

In July 1996, Integra filed a patent infringement lawsuit in the United States
District Court for the Southern District of California (the "Trial 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 willfully and deliberately to 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 Integra 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.

In March 2000, a jury returned a unanimous verdict in the Company's favor and
awarded Integra $15.0 million in damages, finding that Merck KGaA had willfully
infringed and induced the infringement of Integra's patents. The Trial Court
dismissed Scripps and Dr. Cheresh from the case.

In October 2000, the Trial Court entered judgment in Integra's favor and against
Merck KGaA in the case. In entering the judgment, the Trial Court also granted
to the Company pre-judgment interest of approximately $1.4 million, bringing the
total award to approximately $16.4 million, 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 Trial 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 the Company each appealed various decisions of the Trial Court to
the United States Court of Appeals for the Federal Circuit (the "Circuit
Court"). In June 2003, the Circuit Court affirmed the Trial Court's finding that
Merck KGaA had infringed Integra's patents. The Circuit Court also held that the

basis of the jury's calculation of damages was not clear from the trial record,
and remanded the case to the Trial Court for further factual development and a
new calculation of damages consistent with the Circuit Court's decision.

In September 2004, the Trial Court ordered Merck KgaA to pay Integra
LifeSciences $6.4 million in damages. Integra has filed a motion requesting
pre-judgment and post-judgment interest. The Trial Court award remains subject
to appeal and Integra has not recorded any gain in connection with this matter,
pending final resolution and completion of the appeals process.

Three of the French subsidiaries that the Company acquired from the
neurosciences division of NMT Medical, Inc. received a tax reassessment notice
from the French tax authorities seeking in excess of 1.7 million euros in back
taxes, interest and penalties. NMT Medical, Inc., the former owner of these
entities, has agreed to specifically indemnify Integra against any liability in
connection with these tax claims. In addition, NMT Medical, Inc. has agreed to
provide the French tax authorities with payment of the tax liabilities on behalf
of each of these subsidiaries.

The Company is also subject to various claims, lawsuits and proceedings in the
ordinary course of our business, including claims by current or former employees
and distributors and with respect to our products. In the opinion of management,
such claims are either adequately covered by insurance or otherwise indemnified,
or 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.

ITEM 2. 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 in conjunction with our consolidated financial
statements and the related notes thereto appearing elsewhere in this report and
our consolidated financial statements for the year ended December 31, 2003
included in our Annual Report on Form 10-K.

This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. Our 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 set forth below under the heading
"Factors That May Affect Our Future Performance."

GENERAL

Integra develops, manufactures, and markets medical devices for use primarily in
neuro-trauma, neurosurgery, plastic and reconstructive surgery, and general
surgery. Our product lines include monitoring and drainage systems, surgical
instruments, fixation systems and innovative tissue repair products that
incorporate our proprietary absorbable implant technology.

Our business is organized into product groups and distribution channels. Our
product groups include implants and other devices for use in the operating room,
monitoring systems for the measurement of various parameters in tissue (such as
pressure, temperature, and oxygen), hand-held and ultrasonic surgical
instruments, and private label products that we manufacture for other medical
device companies.

Our distribution channels include a sales organization that we employ to call on
neurosurgeons, another employed sales force to call on plastic and
reconstructive surgeons, and networks of third-party distributors that we
manage. We invest substantial resources and management effort to develop our
sales organizations, and we believe that we compete very effectively in this
aspect of our business.

We manufacture most of the operating room, monitoring and private label products
that we sell in various plants located in the United States, Puerto Rico,
France, the United Kingdom and Germany. We also manufacture the ultrasonic
surgical instruments that we sell, but we purchase most of our hand-held
surgical instruments from specialized third-party vendors.

We believe that we have a particular advantage in the development, manufacture
and sale of specialty tissue repair products derived from bovine collagen. We
develop and build these products in our manufacturing facility in Plainsboro,
New Jersey. Taken together, these products accounted for approximately 31% and
28% of product revenues in the nine months ended September 30, 2004 and
September 30, 2003, respectively.

We manage these multiple product groups and distribution channels on a
centralized basis. Accordingly, we report our financial results under a single
operating segment - the development, manufacturing, and distribution of medical
devices.

Our objective is to build a customer-focused and profitable medical device
company by developing or acquiring innovative medical devices and other products
to sell through our sales channels. Our strategy therefore entails substantial
growth in product revenues both through internal means - through launching new
and innovative products and selling existing products more intensively - and by
acquiring existing businesses or product lines. We aim to achieve this growth in

revenues while maintaining strong financial results. While we pay attention to
any meaningful trend in our financial results, we pay particular attention to
measurements that tend to support the view that our profitability can grow for a
period of years. These measurements include revenue growth from products
internally developed or acquired products, gross margins on products revenues,
which we hope to increase to more than 65% over a period of several years,
operating margins, which we hope to increase from the level we reported in 2003,
and earnings per fully diluted share of common stock.

RESULTS OF OPERATIONS

Our strategy for growing our business includes the acquisition of complementary
product lines, technologies, and companies. Recent acquisitions (as discussed in
Note 2 to our unaudited consolidated financial statements), may make our
financial results for the three and nine month periods ended September 30, 2004
not directly comparable to those of the corresponding prior year period.

Our revenues for the periods were as follows:

QUARTER ENDED SEPTEMBER 30, 2004 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2003

Total Revenues And Gross Margin On Product Revenues:

For the quarter ended September 30, 2004, total revenues were $59.1 million, an
increase of $12.1 million, or 26%, over the quarter ended September 30, 2003.
This increase was primarily attributable to an increase in product revenues of
$15.3 million, or 35%, over the prior-year period. Other revenue decreased by
$3.3 million primarily due to the termination of the ETHICON distribution and
development agreement in December 2003.

Revenues from product lines acquired since the third quarter of 2003 accounted
for $5.8 million of the $12.1 million increase in total revenues over the prior
year period. Changes in foreign currency exchange rates resulted in a $643,000
increase in total revenues. Domestic product revenues increased $12.2 million in
the third quarter of 2004 to $46.7 million, or 79% of product revenues, the same
percentage reported for the third quarter ended September 30, 2003.

Revenues from our monitoring product lines increased $1.0 million, or 9%, over
the prior-year period, primarily as a result of increased sales of our
intracranial monitoring products. Our operating room product line revenues
increased over the prior-year period by $7.3 million, or 54%. This increase is
largely the result of growth in sales of our DuraGen(R) and DuraGen Plus(TM)
Dural Graft Matrix products and the inclusion of INTEGRA(R) Dermal Regeneration
Template and the INTEGRA Bilayer Matrix Wound Dressing sales in the operating
room category. Prior to resuming the direct sale and marketing of the INTEGRA
product on January 1, 2004, we reported sales of the INTEGRA product to ETHICON,
Inc. in the private label category.

Revenues from our instrument product lines increased by $6.8 million, or 52%,
over the prior-year period and included $5.8 million of revenues from product
lines acquired since the end of the second quarter of 2003. The remaining $1.0
million increase was led by growth in the JARIT surgical instrument line. Our
private label product revenue increased by $320,000, or 6%, over the prior year
period as increased revenues from the Absorbable Collagen Sponge we supply for
use in Medtronic's INFUSE bone graft product and increased sales of our
infection control products offset the removal of INTEGRA Dermal Regeneration
Template revenues from this category. Although sales of certain private label
products vary highly from quarter to quarter depending on the timing and size of
orders placed by our marketing partners, we do not believe that the variability
is as significant on an annual basis.

We have generated our product revenue growth through acquisitions, new product
launches and increased direct sales and marketing efforts both domestically and
in Europe. We expect that our expanded domestic sales forces, the continued
implementation of our direct sales strategy in Europe, enhancements to existing
products, and internally developed and acquired products will drive our future
revenue growth. We also intend to continue to acquire businesses that complement
our existing businesses and products.

Our gross margin on product revenues was 62% in the quarter ended September 30,
2004, as compared to 57% in the prior-year period. The current quarter's gross
margin benefited from strong sales growth of our higher margin products during
the quarter and the resumption of direct sales of INTEGRA Dermal Regeneration
Template and the INTEGRA Bilayer Matrix Wound Dressing. Our reported gross
margins for the third quarter of 2004 and 2003 included $155,000 and $401,000,
respectively, of fair value purchase accounting adjustments for acquired
inventory sold during the quarter.

Other Operating Expenses:

The following is a summary of other operating expenses as a percent of product
revenues:

Total other operating expenses, which exclude cost of product revenue but
include amortization, increased to $48.9 million in the third quarter of 2004,
compared to $17.3 million in the third quarter of 2003, due primarily to a $23.9
million share-based compensation charge associated with the renewal of the
Company's Chief Executive Officer's employment agreement. The compensation
charge results from the award of a fully vested contract stock unit award
providing for the payment of 750,000 shares of Integra common stock.

Research and development expenses increased $2.5 million to $5.1 million in the
third quarter of 2004. The increase was due primarily to a $1.4 million
milestone payment, a $500,000 licensing fee, and increased internal product
development efforts. The subject technologies underlying the milestone payment
and the licensing fee arrangement have not been commercialized into a product
for which regulatory clearance has been obtained. Accordingly, we recorded these
payments as research and development expenses. Increased clinical activities and
new product development activities in neurosurgical and plastic and
reconstructive applications largely offset the savings that resulted from the
closing of our San Diego research center in the fourth quarter of 2003.

Sales and marketing expenses increased 24% over the prior-year period to $12.5
million as a result of the continued expansion of our domestic direct sales and
marketing organizations, increased spending to support our plastic and
reconstructive surgery product lines, and the recently acquired MAYFIELD, BUDDE,
ELEKTROTOM and SONOTOM product lines. Sales and marketing expenses were 21% and
23% of product revenues in the three months ended September 30, 2004 and
September 30, 2003, respectively.

General and administrative expenses includes a $23.9 million compensation charge
related to the renewal of the Company's Chief Executive Officer's employment
agreement. The remaining $2.4 million increase in general and administrative
expenses was largely the result of increased professional fees related to
Sarbanes-Oxley internal control initiatives, the implementation of our new
global enterprise resource management system, and increased headcount at our
corporate offices.

Amortization expense increased $422,000 to $1.2 million in the third quarter of
2004 as a result of amortization of intangible assets from recent acquisitions.

Non-Operating Income And Expenses

We recorded net interest income of $243,000 in the nine months ended September
30, 2004, as compared to net interest expense of $188,000 in the prior-year
period. The $431,000 increase as compared to the third quarter of 2003 reflects
the reduction in interest expense from an interest rate swap executed in August
2003.

Our reported interest expense includes $205,000 of non-cash amortization of debt
issuance costs. Debt issuance costs totaled $4.1 million and are being amortized
using the straight-line method over the five-year term of the notes.

We will pay additional interest ("Contingent Interest") on our convertible notes
under certain conditions. The fair value of this Contingent Interest obligation
is marked to its fair value at each balance sheet date, with changes in the fair
value recorded to interest expense. In the third quarter of 2004 and 2003, the
change in the estimated fair value of the Contingent Interest obligation was not
significant.

In August 2003, we entered into an interest rate swap agreement with a $50
million notional amount to hedge the risk of changes in fair value attributable
to interest rate risk with respect to a portion of our fixed rate convertible
notes. The interest rate swap agreement qualifies as a fair value hedge under
SFAS No. 133, as amended "Accounting for Derivative Instruments and Hedging
Activities". The net amount to be paid or received under the interest rate swap
agreement is recorded as a component of interest expense. Included in interest
expense for the three months ended September 30, 2004 and 2003, respectively, is
a $155,000 and $118,000 reduction associated with the interest rate swap.

The net fair value of the interest rate swap at June 30, 2004 was $2.0 million.
During the quarter ended September 30, 2004, the net fair value of the interest
rate swap decreased $0.9 million to $1.1 million, and this amount is included in
other liabilities. In connection with this fair value hedge transaction, during
the third quarter of 2004, we recorded a $0.9 million net increase in the
carrying value of our convertible notes. The net difference between changes in
the fair value of the interest rate swap and the contingent convertible notes
represents the ineffective portion of the hedging relationship, and is recorded
in other income.

Income tax (benefit)/expense was approximately 35% and 38% of income (loss)
before income taxes for the third quarters of 2004 and 2003, respectively.
Included in income taxes for the third quarters of 2004 and 2003 was a deferred
income tax benefit/(provision) of $3.4 million and ($3.2) million, respectively.
The change in the effective income tax rate in the third quarter of 2004 is the
largely the result of a reported loss for the quarter and the adverse effect on
our full year effective rate of a $760,000 tax charge incurred in connection
with the reorganization of certain European operations. This reorganization is
expected to have a beneficial impact on our effective tax rate starting in 2005.

For the third quarter of 2004, we reported net loss of $7.6 million, or $0.25
per diluted share, as compared to net income of $6.8 million, or $0.23 diluted
per share, for the prior year quarter.

To date, the "if-converted" method has not been used to determine the dilutive
effect on earnings per share of our contingent convertible notes because the
conditions required to convert the notes were not met. However, at its October
2004 meeting, the FASB Emerging Issue Task Force (EITF) reached a consensus on
Issue 04-08 "The Effect of Contingently Convertible Instruments on Diluted
Earnings per Share" that would require issuers of contingent convertible
securities to account for these securities on an "if-converted" basis pursuant
to Statement of Financial Accounting Standards No. 128 "Earnings Per Share", in
computing their diluted earnings per share whether or not the issuer's stock is
above the contingent conversion price. The provisions of Issue 04-08 are
effective for all periods ending after December 15, 2004 and will be applied
retroactively and will require restatement of prior period diluted earnings per
share, subject to certain transition provisions. We expect that the adoption of
Issue 04-08 in the fourth quarter of 2004 will reduce our previously reported
diluted earnings per share results for the year ended December 31, 2003 by
$0.02. The adoption of Issue 04-08 would not have affected our reported diluted
earnings per share results for the nine months ended September 30, 2004 because
the use of the "if-converted" method would have been anti-dilutive for that
period. Issue 04-08 is expected to have a dilutive effect on our future earnings
per share results.

NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003

For the nine months ended September 30, 2004, total revenues increased by $41.4
million, or 33%, over the nine months ended September 30, 2003 to $168 million.
Product revenues increased by $46.9 million, or 39%, over the prior year period.
Other revenue decreased by $5.5 million primarily due to the termination of the
ETHICON distribution and development agreement in December 2003.

Revenues from products acquired since the beginning of 2003 accounted for $37.8
million and $15.8 million of total revenues in 2004 and 2003, respectively.
Changes in foreign currency exchange rates contributed $2.2 million to
the increase in total revenues. Domestic product revenues increased $37.2
million during 2004 to $132 million, or 79% of product revenues, the same
percentage reported for the nine months ended September 30, 2003.

Revenues from our monitoring product lines increased $2.9 million, or 9%, over
the prior-year period primarily as a result of increased sales of our
intracranial monitoring products and drainage systems. Our operating room
product line revenues increased over the prior year period by $19.6 million, or
50%. This increase is largely the result of growth in sales of our DuraGen(R)
and DuraGen Plus(TM) Dural Graft Matrix products and the inclusion of INTEGRA(R)
Dermal Regeneration Template and INTEGRA(TM) Bilayer Matrix Wound Dressing sales
in the operating room category.

Revenues from our instrument product lines increased by $23.2 million, or 73%,
over the prior-year period. This increase resulted from the impact of recently
acquired product lines and strong sales growth in each of our existing hand-held
instrument product lines. Our private label product revenue increased by $1.1
million, or 7%, over the prior-year period, as increased revenues from the
Absorbable Collagen Sponge we supply for use in Medtronic's INFUSE bone graft
product offset the removal of INTEGRA Dermal Regeneration Template revenues from
this category.

Our gross margin on product revenues for the nine months ended September 30,
2004 was 62%, as compared to 59% for the prior-year period. The benefit of
strong growth in sales of our higher margin products, the resumption of direct
sales of INTEGRA Dermal Regeneration Template in 2004, and a reduction in fair
value purchase accounting adjustments more than offset the impact of the lower
margins associated with recently acquired instrument product lines. Our reported
gross margins for the nine months ended September 30, 2004 and September 30,
2003 included $225,000 and $1.0 million, respectively, of fair value purchase
accounting adjustments for acquired inventory sold during the periods.

Other Operating Expenses:

The following is a summary of other operating expenses as a percent of product
revenues:

Total other operating expenses, which exclude cost of product revenue but
include amortization, increased $42.5 million to $92.8 million due primarily to
a $23.9 million share-based compensation charge associated with the renewal of
the Company's President and Chief Executive Officer's employment agreement.

Research and development expenses increased $2.5 million to $10.6 million in the
nine months ended September 30, 2004 and included the $1.4 million milestone
payment and a $500,000 licensing fee. Increased clinical activities and new
product development activities in neurosurgical and plastic and reconstructive
applications offset the savings that resulted from closing our San Diego
research center.

Sales and marketing expenses increased 38% over the prior year period to $36.8
million as a result of the continued expansion of our domestic direct sales and
marketing organizations, increased spending to support our plastic and
reconstructive surgery product lines, and sales and marketing expenses of
recently acquired businesses.

The increase in general and administrative expenses included the $23.9 million
share-based compensation charge associated with the renewal of the Company's
President and Chief Executive Officer's employment agreement. The remaining
increase was largely the result of increased professional fees related to
Sarbanes-Oxley internal control initiatives and our litigation with Merck KGaA,
the implementation of our new global enterprise resource management system, and
increased headcount.

Amortization expense increased $1 million to $3.1 million in 2004 as a result of
amortization of intangible assets from recent acquisitions.

Non-Operating Income and Expenses

We recorded net interest income of $460,000 in the nine months ended September
30, 2004, as compared to net interest income of $390,000 in the prior-year
period. This increase resulted from a reduction in interest expense from the
interest rate swap and increased interest income earned on our investment
securities.

Our reported interest expense in 2004 and 2003, respectively, includes $615,000
and $430,000 of non-cash amortization of debt issuance costs. Included in
interest expense for the nine months ended September 30, 2004 and 2003,
respectively, is a $581,000 and $118,000 reduction associated with the interest
rate swap.

The net fair value of the interest rate swap at September 30, 2004 and December
31, 2003 was $1.1 million. This amount is included in other liabilities. In
connection with this fair value hedge transaction, during the nine months ended
September 30, 2004, we recorded a $91,000 net decrease in the carrying value of
our convertible notes. The net difference between changes in the fair value of
the interest rate swap and the contingent convertible notes represents the
ineffective portion of the hedging relationship, and this amount is recorded in
other income (expense), net.

Our net other income decreased by $685,000 to $424,000 in 2004. In 2003, we
recorded $609,000 of gains realized on the sale of marketable securities.

Income tax expense was approximately 39% and 37% of income before income taxes
for 2004 and 2003, respectively. Included in income tax expense in 2004 and 2003
was a deferred income tax provision of $3.4 million and $8.2 million,
respectively. The increase in the effective income tax rate in 2004 resulted
primarily from a change in the geographic mix of projected taxable income for
2004 and a $760,000 tax charge incurred in connection with the reorganization of
certain European operations.

For the nine months ended September 30, we reported net income of $7.4 million,
or $0.24 per diluted share, as compared to net income of $17.7 million, or $0.58
diluted per share, for the prior year period.

International Product Revenues and Operations

Because we have operations based in Europe and we generate revenues and incur
operating expenses in euros and British pounds, we have currency exchange risk
with respect to foreign currency denominated revenues or expenses.

In the nine-month period ended September 30, 2004, the cost of products we
manufactured in our European facilities or purchased in foreign currencies
exceeded our foreign currency-denominated revenues. We expect this imbalance to
continue. We currently do not hedge our exposure to foreign currency risk.
Accordingly, a weakening of the dollar against the euro and British pound could
negatively affect future gross margins and operating margins. We will continue
to assess the potential effects that changes in foreign currency exchange rates
could have on our business. If we believe this potential impact presents a
significant risk to our business, we may enter into derivative financial
instruments to mitigate this risk.

Additionally, we generate significant revenues outside the United States, a
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.

Our sales to foreign markets may be affected by local economic conditions,
regulatory or political considerations, the effectiveness of our sales
representatives and distributors, local competition, and changes in local
medical practice.

Relationships with customers and effective terms of sale frequently vary by
country, often with longer-term receivables than are typical in the United
States.

Product revenues by major geographic area are summarized below:

In the nine months ending September 30, 2004, product revenues from customers
outside the United States totaled $34.7 million, or 21% of consolidated product
revenues, of which approximately 65% were to European customers. Of this amount,
$24.6 million was generated in foreign currencies.

In the nine months ending September 30, 2003, product revenues from customers
outside the United States totaled $25.0 million, or 21% of consolidated product
revenue, of which approximately 64% were to European customers. Of this amount,
$13.9 million was generated in foreign currencies.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Marketable Securities

At September 30, 2004, we had cash, cash equivalents and current and non-current
investments totaling approximately $191 million. Our investments consist almost
entirely of highly liquid, interest bearing debt securities.

Cash Flows

Cash provided by operations has recently been and is expected to continue to be
our primary means of funding existing operations and capital expenditures.
Operating cash flows for the nine months ending September 30, 2004, were $32.5
million compared to $31.2 million for the same period last year. Operating cash
flows for the nine months ended September 30, 2004 reflect additional
investments in inventory to support our growth in product revenues and higher
accounts receivable balances related to increased sales.

Our principal uses of funds during the nine month period ended September 30,
2004 were $29.2 million for acquisition consideration, $31.1 million for
purchases of investments, net of maturities and sales, $14.2 million for the

repurchase of common stock, and $5.6 million for purchases of property and
equipment. In 2004, we have increased cash outlays for capital expenditures as
compared to 2003, primarily because of an estimated $4 million of expenditures
associated with planned information system upgrades. In addition to the $32.5
million in operating cash flows, we received $3.6 million from the issuance of
common stock through the exercise of stock options during the period.

Working Capital

At September 30, 2004 and December 31, 2003, working capital was $150 million
and $167 million, respectively. The decrease in working capital was primarily
due to cash invested in long-term marketable debt securities during the period.

Convertible Debt and Related Hedging Activities

We have outstanding $120 million of 2 1/2% contingent convertible subordinated
notes due 2008. We are obligated to pay $3.0 million of interest per year on the
notes and to repay their principal amount on March 15, 2008, if the notes are
not converted into common stock before that date. We will also pay contingent
interest on the notes if, at thirty days prior to maturity, Integra's common
stock price is greater than $37.56, subject to certain conditions.

We also have outstanding an interest rate swap agreement with a $50 million
notional amount to hedge the risk of changes in fair value attributable to
interest rate risk with respect to a portion of the convertible notes. We
receive a 2 1/2% fixed rate from the counterparty, payable on a semi-annual
basis, and pay to the counterparty a floating rate based on 3 month LIBOR minus
35 basis points, payable on a quarterly basis. The interest rate swap agreement
terminates on March 15, 2008, subject to early termination upon the occurrence
of certain events, including redemption or conversion of the contingent
convertible notes.

Share Repurchase Plans

In March 2004, our Board of Directors authorized us to repurchase up to 1.5
million shares of our common stock for an aggregate purchase price not to exceed
$40 million. We may repurchase shares under this program through March 2005
either in the open market or in privately negotiated transactions. We
repurchased 500,000 shares of common stock during the third quarter 2004 for
$14.2 million under this program.

Dividend Policy

We have not paid any cash dividends on our common stock since our formation. Any
future determinations to pay cash dividends on our common stock will be at the
discretion of our Board of Directors and will depend upon our financial
condition, results of operations, cash flows, and other factors deemed relevant
by the Board of Directors.

Requirements and Capital Resources

We believe that our cash and marketable securities are sufficient to finance our
operations and capital expenditures for at least the next twelve months. In
2004, we have increased cash outlays for capital expenditures as compared to
2003, primarily because of an estimated $4 million of expenditures associated
with planned information system upgrades.

Given the significant level of liquid assets and our objective to grow by
acquisition and alliances, our financial position could change significantly if
we were to complete a business acquisition by utilizing a significant portion of
our liquid assets.

Currently, we do not have any existing borrowing capacity or other credit
facilities in place to raise significant amounts of capital if such a need
arises.

Contractual Obligations and Commitments

Under certain agreements, we are required to make payments based on sales levels
of certain products or if specific development milestones are achieved.

RECENTLY ISSUED ACCOUNTING STANDARDS

In October 2004, the Financial Accounting Standards Board (FASB) Emerging Issue
Task Force (EITF) reached a consensus on Issue 04-08 "The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share" that would require
issuers of contingent convertible securities to account for these securities on
an "if-converted" basis pursuant to Statement of Financial Accounting Standards
No. 128 "Earnings Per Share", in computing their diluted earnings per share
whether or not the issuer's stock is above the contingent conversion price. The
provisions of Issue 04-08 are effective for all periods ending after December
15, 2004 and will be applied retroactively and will require restatement of prior
period diluted earnings per share, subject to certain transition provisions. We
expect that the adoption of Issue 04-08 in the fourth quarter of 2004 will
reduce our previously reported diluted earnings per share results for the year
ended December 31, 2003 by $0.02. The adoption of Issue 04-08 would not have
affected reported diluted earnings per share results for the nine months ended
September 30, 2004 because the use of the "if-converted" method would have been
anti-dilutive for that period. The adoption of Issue 04-08 is expected to have a
dilutive effect on our future earnings per share results.

In March 2004, the EITF reached a consensus on Issue 03-01, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments".
Issue 03-01 provides guidance regarding recognition and measurement of
unrealized losses on available-for-sale debt and equity securities accounted for
under Statement of Financial Accounting Standard No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". We do not expect that the
adoption of Issue 03-01 will have a material impact on our financial position,
cash flows or results of operations.

In March 2004, the EITF reached a consensus on Issue 03-6, "Participating
Securities and the Two-Class Method Under FASB Statement No. 128". Issue 03-6
expanded the notion of participation rights in calculating earnings per share
from previous practice. Issue 03-6 does not focus on a security holder's
contractual rights to ultimately receive the undistributed earnings and net
assets of the company upon redemption or liquidation. Instead, it defines
participation rights based solely on whether the holder would be entitled to
receive any dividends declared during the period, even if the company would not
declare any dividends during the period due to economic or practical concerns or
legal or contractual limitations on the company's ability to pay dividends.

Under Issue 03-6, all securities that meet the definition of a participating
security, regardless of whether the securities are convertible, non-convertible,
or potential common stock securities, will be considered for inclusion in the
computation of basic earnings per share using the two-class method. The
application of the two-class method may also have an impact on the diluted
earnings per share calculation due to the need to consider each type of
potential common shares in the proper sequence to arrive at maximum dilution.

Integra adopted the provisions of Issue 03-6 during the second quarter ended
June 30, 2004. The transition provisions of Issue 03-6 require prior period
earnings per share amounts to be restated to conform to the new standard,
including the impact relating to securities that have been extinguished but were
outstanding for a portion of some prior period that is presented for comparative
purposes. Accordingly, in the future, Integra will restate its earnings per
share calculations for the year ended December 31, 2001 to conform to the
two-class method required by Issue 03-6 as it relates to the dividend
participation rights included in the Series B and Series C Convertible Preferred
Stock that were outstanding during that period. The adoption of Issue 03-6 will
reduce previously reported basic earnings per share by $0.05 to $1.03 and
diluted earnings per share by $0.02 to $0.92 in 2001. The adoption of Issue 03-6
will not change the previously reported basic or diluted earnings per share for
any other year.

On March 31, 2004, the FASB issued an Exposure Draft "Share-Based Payment - An
Amendment of FASB Statements No. 123 and 95." The Exposure Draft addresses the
accounting for transactions in which a company receives employee services in
exchange for (a) equity instruments of the company or (b) liabilities that are
based on the fair value of the company's equity instruments or that may be
settled by the issuance of such equity instruments. The proposed Statement would
eliminate the ability to account for share-based compensation transactions using
APB Opinion No. 25, and generally would require instead that such transactions
be accounted for using a fair-value based method. The Exposure Draft proposes
that the cost of all forms of equity-based compensation granted to employees,
excluding employee stock ownership plans, be recognized in a company's income
statement and that such cost be measured at the fair value of the stock options.
At its October 2004 meeting, the FASB decided to defer the effective date of
this proposed new accounting standard from fiscal years beginning after December
31, 2004 to interim and annual periods beginning after June 15, 2005. We are
currently evaluating option valuation methodologies and assumptions in light of
the evolving accounting standards related to employee stock options. Current
estimates of option values using the Black-Scholes method may not be indicative
of results from valuation methodologies ultimately adopted in the final rules
for future option grants.

FACTORS THAT MAY AFFECT OUR FUTURE PERFORMANCE

Our Operating Results May Fluctuate.

Our operating results, including components of operating results, such as gross
margin on product sales, may fluctuate from time to time, which could affect our
stock price. 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:

|X| the impact of acquisitions;
|X| the timing of significant customer orders;
|X| market acceptance of our existing products, as well as products in
development;
|X| the timing of regulatory approvals;
|X| the timing of payments received and the recognition of those
payments as revenue under collaborative
arrangements and other alliances;
|X| changes in the rate of exchange between the U.S. dollar, the euro and
the British pound;
|X| expenses incurred and business lost in connection with product field
corrections or recalls;
|X| our ability to manufacture our products efficiently; and
|X| the timing of our research and development expenditures.

Non-Cash Compensation Charges May Affect Our Future Earnings

On March 31, 2004, the FASB issued an Exposure Draft "Share-Based Payment - An
Amendment of FASB Statements No. 123 and 95." The Exposure Draft addresses the
accounting for transactions in which a company receives employee services in
exchange for (a) equity instruments of the company or (b) liabilities that are
based on the fair value of the company's equity instruments or that may be
settled by the issuance of such equity instruments. The proposed Statement would
eliminate the ability to account for share-based compensation transactions using
APB Opinion No. 25, and generally would require instead that such transactions
be accounted for using a fair-value based method. The Exposure Draft proposes
that the cost of all forms of equity-based compensation granted to employees,
excluding employee stock ownership plans, be recognized in a company's income
statement and that such cost be measured at the fair value of the stock options.
At its October 2004 meeting, the FASB decided to defer the effective date of
this proposed new accounting standard from fiscal years beginning after December
31, 2004 to interim and annual periods beginning after June 15, 2005. We are
currently evaluating option valuation methodologies and assumptions in light of
the evolving accounting standards related to employee stock options. Current
estimates of option values using the Black-Scholes method may not be indicative
of results from valuation methodologies ultimately adopted in the final rules
for future option grants.

The Industry And Market Segments in Which We Operate Are Highly Competitive, And
We May Be Unable to Compete Effectively with Other Companies.

In general, the medical technology industry is characterized by intense
competition. We compete with established medical technology and pharmaceutical
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, develop new products, implement production and marketing
plans, secure regulatory approval for products under development, and obtain
patent protection. 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. Competitive pressures could adversely affect our
profitability. For example, two of our largest competitors have recently
introduced an onlay dural graft matrix and other companies may be preparing to
introduce similar products. The introduction of such products could reduce the
sales, growth in sales, and the profitability of our duraplasty products,
including our DuraGen(R), DuraGen Plus(TM), and Endura(TM) product lines, which
are among our largest and fastest growing products.

Our largest competitors in the neurosurgery markets are the Medtronic
Neurotechnologies division of Medtronic, Inc., the Codman division of Johnson &
Johnson, the Aesculap division of B. Braun, and the Valleylab division of Tyco
International Ltd. In addition, many of our product lines compete with smaller
specialized companies or larger companies that do not otherwise focus on
neurosurgery. Our plastic and reconstructive surgery business is small compared
to its principal competitors, which include major medical device and wound care
companies such as the ETHICON division of Johnson & Johnson, Smith and Nephew,
Inamed, Mentor, and Zimmer. Our private label products face diverse and broad
competition, depending on the market addressed by the product. 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 an alternative for the INTEGRA(R) Dermal
Regeneration Template, our duraplasty products, and the NeuraGen(TM) Nerve
Guide.

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 1999, we have acquired 19 businesses or product lines at a
total cost of approximately $160 million.

We may be unable to continue to implement our growth strategy, and our strategy
may be ultimately unsuccessful. 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 material 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 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 develop further our
resources to adapt to these 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 could suffer. In addition, as a result of our acquisitions of

other healthcare businesses, we may be subject to the risk of unanticipated
business uncertainties, regulatory matters, 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 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 Food and Drug Administration (FDA) and comparable agencies in
other countries impose mandatory procedures and standards for the conduct of
clinical trials and the production and marketing of products for diagnostic and
human therapeutic use.

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. Further studies, including clinical trials and FDA
approvals, may be required to gain approval for the use of a product for
clinical indications other than those for which the product was initially
approved or cleared or for significant changes to the product. In addition, for
products with an approved PMA, the FDA requires annual reports and may require
post-approval surveillance programs to monitor the products' safety and
effectiveness. Results of post-approval programs may limit or expand the further
marketing of the product.

Another risk of application to the FDA relates to the regulatory classification
of 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 PMA 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 approval might
not be granted.

Approved products are subject to continuing FDA requirements relating to quality
control and quality assurance, maintenance of records, reporting of adverse
events and product recalls, 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.

Certain Of Our Products Contain Materials Derived From Animal Sources
And May Become Subject To Additional Regulation.

Certain of our products, including the DuraGen(R) Dural Graft Matrix products,
the NeuraGen(TM) Nerve Guide, and the INTEGRA(R) Dermal Regeneration Template,
contain material derived from bovine tissue. Products that contain materials
derived from animal sources, including food as well as pharmaceuticals and
medical devices, are increasingly subject to scrutiny in the press and by
regulatory authorities. Regulatory 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. Recent cases of BSE in cattle discovered in Canada and the United
States have increased awareness of the issue in North America.

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 deep flexor tendon of cattle from the United
States that are less than 24 months old. The World Health Organization
classifies different types of cattle tissue for relative risk of BSE
transmission. Deep flexor tendon, the sole source of our collagen, is in the
lowest risk category for BSE transmission (the same category as milk, for
example), and is therefore considered to have a negligible risk of containing
the agent that causes BSE (an improperly folded protein known as a prion).
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.
Significant new regulation, or a ban of our products, could have a material
effect on our current business or our ability to expand our business.

In addition, we have been notified that Japan has issued new regulations
regarding medical devices that contain tissue of animal origin. Among other
regulations, Japan may require that the tendon used in the manufacture of
medical devices sold in Japan originate in a country that has never had a case
of BSE. Currently, we purchase all of our tendon from the United States. We
expect to manufacture some of our products from tendon purchased from New
Zealand, a country which has never had a case of BSE. If we cannot qualify a
source of tendon from New Zealand or another country that has never had a case
of BSE, we will not be permitted to sell our collagen hemostatic agents and
products for oral surgery in Japan. We do not currently sell our dural or skin
repair products in Japan.

Lack Of Market Acceptance For Our Products Or Market Preference For
Technologies That Compete With Our Products Could Reduce Our Revenues And
Profitability.

We cannot be certain that our current products or any other products that we may
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
competes for acceptance in the market with the 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 medical
community will accept the NeuraGen(TM) Nerve Guide 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. For
example, our sales of shunt products could decline if neurosurgeons increase
their use of programmable valves and we fail to introduce a competitive product,
or our sales of certain catheters may be adversely affected by the recent
introduction by other companies of catheters that contain anti-microbial agents
intended to reduce the incidence of infection after implantation. 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 acceptable costs, and to supply and service
sufficient quantities of our products directly or through our distribution
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 acceptance of our products.
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 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 depends 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
aspects of certain 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 that 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 Depends, In Part, Upon Unpatented Trade Secrets Which
We May Be Unable To Protect.

Our competitive position also depends 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 our 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, except in specified
circumstances, all confidential information developed or made known to the
individual during the course of their relationship with us must be kept
confidential. 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 their 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 be unavailable to us on acceptable terms, or at all. In addition,
some licenses may be nonexclusive, and allow our competitors to access the same
technology we license. If we fail to obtain a required license or are unable to
design our product so as not to infringe on the proprietary rights of others, we
may be unable to sell some of our products, which could have a material adverse
effect on our revenues and profitability.

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 many of 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 the following products that
we manufacture:
- - our collagen-based products, such as INTEGRA(R) Dermal Regeneration
Template, DuraGen(R) and DuraGen Plus(TM) Dural Graft Matrix products,
and our Absorbable Collagen Sponges;
- - our products made from silicone, such as our neurosurgical shunts
and drainage systems and hemodynamic shunts; and
- - products which use many different electronic parts from numerous
suppliers, such as our Camino(R), Ventrix(R) and NeuroSensor(TM) lines
of intracranial monitors and catheters.

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 could need a
significant period of 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 Or
Business 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,
wildfire 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.

In addition, we are implementing an enterprise resource system for use in all of
our facilities. This system will replace several systems on which we now rely.
We are also planning to outsource our product distribution function. A delay or
other problem in our implementation schedule or with the resulting system for
either of these initiatives could have a material adverse effect on our
operations.

We May Be Involved In Lawsuits To Protect Or Enforce Our Intellectual Property
Rights, Which May Be Expensive.

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 revenues outside the United States in euros, British
pounds and in U.S. dollar-denominated transactions conducted with customers who
generate revenue in currencies other than the U.S. dollar. For those foreign
customers who purchase our products in U.S. dollars, 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 in value compared to the local currency.

Because we have operations based in Europe and we generate revenues and incur
operating expenses in euros and British pounds, we experience currency exchange
risk with respect to those foreign currency-denominated revenues and expenses.
In 2003 and 2004, the cost of products we manufactured in our European
facilities or purchased in foreign currencies exceeded our foreign
currency-denominated revenues. We expect this imbalance to continue. We
currently do not hedge our exposure to foreign currency risk. Accordingly, a
further weakening of the dollar against the euro and British pound could
negatively affect future gross margins and operating margins.

Currently, we do not use derivative financial instruments to manage foreign
currency risk. As the volume of our business transacted in foreign currencies
increases, we will continue to assess the potential effects that changes in

foreign currency exchange rates could have on our business. If we believe that
this potential impact presents a significant risk to our business, we may enter
into derivative financial instruments to mitigate this risk.

In general, we cannot predict the consolidated 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.

Our sales to foreign markets may be affected by local economic conditions,
regulatory or political considerations, the effectiveness of our sales
representatives and distributors, local competition, and changes in local
medical practice. 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 Reduce The Size Of The Market For Our Products, Either 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:

|X| 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;
|X| Medicare, Medicaid and private health care insurer cutbacks could
create downward price pressure on our products;
|X| 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;
|X| 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;
|X| we are party to contracts with group purchasing organizations that
require us to discount our prices for certain of our products and limit
our ability to raise prices for certain of our products, particularly
surgical instruments;
|X| there is economic pressure to contain health care costs in
international markets;
|X| there are proposed and existing laws, regulations and industry policies
in domestic and international markets regulating the sales and
marketing practices and the pricing and profitability of companies in
the health care industry; and
|X| there have been initiatives by third-party payors to challenge the
prices charged for medical products that could affect our ability to
sell products on a competitive basis.

Both the pressures 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.

Regulatory Oversight Of The Medical Device Industry Might Affect The Manner In
Which We May Sell Medical Devices

There are laws and regulations that regulate the means by which companies in the
health care industry may market their products to health care professionals and
may compete by discounting the prices of their products. Although we exercise
care in structuring our sales and marketing practices and customer discount
arrangements to comply with those laws and regulations, we cannot assure you
that:

|X| government officials charged with responsibility for enforcing those
laws will not assert that our sales and marketing practices or customer
discount arrangements are in violation of those laws or regulations; or
|X| government regulators or courts will interpret those laws or
regulations in a manner consistent with our interpretation.

In January 2004, ADVAMED, the principal U.S. trade association for the medical
device industry, put in place a model "code of conduct" that sets forth
standards by which its members should abide in the promotion of their products.
In addition, we have in place policies and procedures for compliance that we
believe are at least as stringent as those set forth in the ADVAMED Code, and we
provide routine training to our sales and marketing personnel on our policies
regarding sales and marketing practices. Nevertheless, we believe that the sales
and marketing practices of our industry will be subject to increased scrutiny
from government agencies.

Our Private Label Business Depends Significantly On Key Relationships With
Third Parties, Which We May Be Unable To Establish And Maintain.

Our private label business depends 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
alliance is our agreement with the Wyeth BioPharma division of Wyeth for the
development of collagen matrices to be used in conjunction with Wyeth
BioPharma's recombinant bone protein, a protein that stimulates the growth of
bone in humans. Termination of any of our alliances would require us to develop
other means to distribute the affected products and could adversely affect our
expectations for the growth of private label products.

We May Have Significant Product Liability Exposure And Our Insurance May Not
Cover All Potential Claims.

We are exposed 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

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.

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" 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 the Company, including those described under "Factors that
May Affect Our Future Performance" in the Company's Annual Report on Form 10-K
for the year ended December 31, 2003 filed with the Securities and Exchange
Commission and those set forth under the heading "Factors That May Affect our
Future Performance" in this report. 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.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including changes in foreign currency
exchange rates and interest rates that could adversely impact our results of
operations and financial condition. To manage the volatility relating to these
typical business exposures, we may enter into various derivative transactions
when appropriate. We do not hold or issue derivative instruments for trading or
other speculative purposes.

Foreign Currency Exchange Rate Risk

A discussion of foreign currency exchange risks is provided under the caption
"International Product Revenues and Operations" under "Management's Discussion
and Analysis of Financial Condition and Results of Operations".

Interest Rate Risk - Marketable Securities

We are exposed to the risk of interest rate fluctuations on the fair value and
interest income earned on our cash and cash equivalents and investments in
available-for-sale marketable debt securities. A hypothetical 100 basis point
movement in interest rates applicable to our cash and cash equivalents and
investments in marketable debt securities outstanding at September 30, 2004
would increase or decrease interest income by approximately $1.9 million on an
annual basis. We are not subject to material foreign currency exchange risk with
respect to these investments.

Interest Rate Risk - Long Term Debt and Related Hedging Instruments

We are exposed to the risk of interest rate fluctuations on the net interest
received or paid under the terms of an interest rate swap. At September 30,
2004, we had outstanding a $50 million notional amount interest rate swap used
to hedge the risk of changes in fair value attributable to interest rate risk
with respect to a portion of our $120 million principal amount fixed rate 2 1/2%
contingent convertible subordinated notes due March 2008.

Our interest rate swap agreement qualifies as a fair value hedge under SFAS No.
133, as amended, "Accounting for Derivative Instruments and Hedging Activities".
At September 30, 2004, the net fair value of the interest rate swap approximated
$1.0 million and is included in other liabilities. The net fair value of the
interest rate swap represents the estimated receipts or payments that would be
made to terminate the agreement. A hypothetical 100 basis point movement in
interest rates applicable to the interest rate swap would increase or decrease
interest expense by approximately $500,000 on an annual basis.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Senior Vice President, Finance and Treasurer, as appropriate, to
allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that

any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we have carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Senior Vice President, Finance and Treasurer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the quarter covered by this report. Based on the
foregoing, our Chief Executive Officer and Senior Vice President, Finance and
Treasurer concluded that our disclosure controls and procedures were effective
at the reasonable assurance level.

No changes in the Company's internal controls over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during
the third quarter ended September 30, 2004, that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In July 1996, Integra filed a patent infringement lawsuit in the United States
District Court for the Southern District of California (the "Trial 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 willfully and deliberately to 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 Integra 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.

In March 2000, a jury returned a unanimous verdict in the Company's favor and
awarded Integra $15.0 million in damages, finding that Merck KGaA had willfully
infringed and induced the infringement of Integra's patents. The Trial Court
dismissed Scripps and Dr. Cheresh from the case.

In October 2000, the Trial Court entered judgment in Integra's favor and against
Merck KGaA in the case. In entering the judgment, the Trial Court also granted
to the Company pre-judgment interest of approximately $1.4 million, bringing the
total award to approximately $16.4 million, 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 Trial 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 the Company each appealed various decisions of the Trial Court to
the United States Court of Appeals for the Federal Circuit (the "Circuit
Court"). In June 2003, the Circuit Court affirmed the Trial Court's finding that
Merck KGaA had infringed Integra's patents. The Circuit Court also held that the
basis of the jury's calculation of damages was not clear from the trial record,
and remanded the case to the Trial Court for further factual development and a
new calculation of damages consistent with the Circuit Court's decision.

In September 2004, the Trial Court ordered Merck KgaA to pay Integra
LifeSciences $6.4 million in damages. Integra has filed a motion requesting
pre-judgement and post-judgment interest. The Trial Court award remains subject
to appeal. Integra has not recorded any gain in connection with this matter,
pending final resolution and completion of the appeals process.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES

In March 2004, our Board of Directors authorized us to repurchase up to 1.5
million shares of our common stock for an aggregate purchase price not to exceed
$40 million. We may repurchase shares under this program through March 2005
either in the open market or in privately negotiated transactions. The following
table summarizes our repurchases of our common stock during the quarter ended
September 30, 2004 under this program:

ITEM 6. EXHIBITS

10.1 Second Amended and Restated Employment Agreement dated as of July 27,
2004 between Integra LifeSciences Holdings Corporation and Stuart M.
Essig.
31.1 Certification of Principal Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. Section 1350, as created by Section 906
of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements 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.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

Date: November 9, 2004 /s/ Stuart M. Essig
-------------------
Stuart M. Essig
President and Chief Executive Officer

Date: November 9, 2004 /s/ David B. Holtz
-------------------
David B. Holtz
Senior Vice President, Finance
and Treasurer

Exhibits

10.1 Second Amended and Restated Employment Agreement dated as of July 27,
2004 between Integra LifeSciences Holdings Corporation and Stuart M.
Essig.
31.1 Certification of Principal Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906
of the Sarbanes-Oxley Act of 2002

EXHIBIT 31.1

Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Stuart M. Essig, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Integra
LifeSciences Holdings Corporation;

2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;

4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made
known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the
end of the period covered by this report based on
such evaluation; and
c) disclosed in this report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has
materially affected, or is reasonably likely to
materially affect, the registrant's internal control
over financial reporting; and

5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.

Date: November 9, 2004
/s/ Stuart M. Essig
-------------------
Stuart M. Essig
Chief Executive Officer

EXHIBIT 31.2

Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David B. Holtz, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Integra
LifeSciences Holdings Corporation;

2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;

4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made
known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the
end of the period covered by this report based on
such evaluation; and
c) disclosed in this report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has
materially affected, or is reasonably likely to
materially affect, the registrant's internal control
over financial reporting; and

5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.

Date: November 9, 2004
/s/ David B. Holtz
---------------------
David B. Holtz
Senior Vice President, Finance
and Treasurer

Exhibit 32.1

Certification of Principal Executive Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

I, Stuart M. Essig, Chief Executive Officer of Integra LifeSciences
Holdings Corporation (the "Company"), hereby certify that, to my knowledge:

1. The Quarterly Report on Form 10-Q of the Company for the
period ending September 30, 2004 (the "Report") fully complies
with the requirement of Section 13(a) or Section 15(d), as
applicable, of the Securities Exchange Act of 1934, as
amended; and

2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.

Date: November 9, 2004

By: /s/ Stuart M. Essig
-------------------
Stuart M. Essig
Chief Executive Officer

Certification of Principal Financial Officer
Pursuant to Section 906 of the
Sarbanes -Oxley Act of 2002

I, David B. Holtz, Senior Vice President, Finance and Treasurer of
Integra LifeSciences Holdings Corporation (the "Company"), hereby certify that,
to my knowledge:

1. The Quarterly Report on Form 10-Q of the Company for the
period ending September 30, 2004 (the "Report") fully complies
with the requirement of Section 13(a) or Section 15(d), as
applicable, of the Securities Exchange Act of 1934, as
amended; and

2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.

Date: November 9, 2004

By: /s/ David B. Holtz
------------------
David B. Holtz
Sr. Vice President, Finance
and Treasurer

SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of July 27,
2004 between Integra LifeSciences Holdings Corporation, a Delaware corporation
("Company"), and Stuart M. Essig ("Executive") (the "Agreement").

BACKGROUND

A. Since December 1997, the Executive has served as the Company's
President and Chief Executive Officer pursuant to the terms and conditions of an
Employment Agreement dated as of December 27, 1997 between the Company and the
Executive (the "Initial Employment Agreement").

B. The Initial Employment Agreement was first amended and restated
pursuant to an Amended and Restated Employment Agreement dated as of December 2,
2000 (the "Amended and Restated Employment Agreement").

C. Company and Executive now wish to amend the terms and conditions of
the Amended and Restated Employment Agreement to provide for the continued
employment of Executive by the Company on the terms and conditions contained in
this Agreement, which shall supercede and replace the Amended and Restated
Employment Agreement (and any surviving provisions of the Initial Employment
Agreement) to the extent provided herein.

D. Executive will continue to be substantially involved with Company's
operations and management and will continue to learn trade secrets and other
confidential information relating to Company and its customers; accordingly, the
noncompetition agreement and other restrictive covenants contained in Section 7
of this Agreement constitute essential elements hereof.

NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and intending to be legally bound hereby, the
parties hereto agree as follows:

TERMS

SECTION 1. CAPACITY AND DUTIES

1.1 Continuation of Employment. Company hereby continues to
employ Executive and Executive hereby accepts the continued employment by
Company for the period and upon the terms and conditions hereinafter set forth.

1.2 Capacity and Duties.

(a) During the Term (as defined in Section 2.1),
Executive shall continue to serve as President and
Chief Executive Officer of Company. Executive shall perform such other duties
and shall have such authority consistent with his position as may from time to
time be specified by the Board of Directors of Company (the "Board"). Executive
shall report directly to the Board and shall perform his duties for Company
principally at Company's office in Plainsboro, New Jersey, except for travel
that may be necessary or appropriate in connection with the performance of
Executive's duties hereunder.

(b) Executive shall devote substantially all his
working time, energy and attention (other than
absences due to illness or vacation) to the performance of his duties hereunder,
in a manner that will faithfully and diligently further the business and
interests of Company. Notwithstanding the above, Executive shall be permitted,
to the extent such activities do not impair the performance by Executive of his
duties and responsibilities hereunder or violate Sections 7.1, 7.2 or 7.3 of
this Agreement, to (i) manage Executive's personal, financial and legal affairs,
and (ii) to serve on civic or charitable boards or committees (it being
expressly understood and agreed that Executive's continuing to serve on any such
board and/or committees on which Executive is serving, or with which Executive
is otherwise associated (each of which has been disclosed to the Company prior
to the execution of this Agreement or will be disclosed promptly thereafter), as
of the Commencement Date (as defined below), shall be deemed not to interfere or
conflict with the performance by Executive of his duties and responsibilities
under this Agreement). The Company acknowledges and agrees that the Executive
may continue to serve as a member of those respective boards of directors of
public companies of which he is currently a member and which board memberships
have previously been disclosed to, and approved by the Board. Executive shall
promptly notify the Board of any proposed changes to such external
directorships.

SECTION 2. TERM OF EMPLOYMENT

2.1 Term. The term of Executive's employment hereunder shall
commence on the date hereof (the "Commencement Date") and continue until
December 31, 2009, as further extended or unless sooner terminated in accordance
with the other provisions hereof (the "Term"). Except as hereinafter provided,
on December 31, 2009 and on each subsequent one-year anniversary thereof, the
Term shall be automatically extended for one year unless either party shall have
given to the other party written notice of termination of this Agreement at
least six months prior to such anniversary. If written notice of termination is
given as provided above, Executive's employment under this Agreement shall
terminate on the last day of the then-current Term.

SECTION 3. COMPENSATION

3.1 Basic Compensation. As compensation for Executive's
services during the period from the Commencement Date through December 31, 2004,
Company shall continue to pay to Executive a salary at his current annual rate
of $400,000 in periodic installments in accordance with Company's regular
payroll practices in effect from time to time. Commencing with the twelve-month
period beginning January 1, 2005 and for each subsequent twelve-month period of
Company shall increase Executive's salary at an annual rate of not less than
$50,000 with such additional increases, if any, as may be established by the
Board or Compensation Committee of the Board (the "Compensation Committee") from
time to time. Executive's annual salary, as determined in accordance with this
Section 3.1, is hereinafter referred to as his "Base Salary."

3.2 Equity Awards.

(a) Prior Grants. For purposes hereof, all stock
options and restricted units granted to the Executive prior to the date hereof
(whether pursuant to the Initial Employment Agreement, the Amended and Restated
Employment Agreement or otherwise) which are still outstanding shall be referred
to herein, respectively, as "Prior Options" and as "Prior Restricted Units".
Pursuant to the registration rights provisions attached as Exhibit B to

each of the Initial Employment Agreement and the Amended and Restated Employment
Agreement (the "Prior Registration Rights Provisions"), Executive is entitled to
certain registration rights with respect to the shares of common stock of the
Company, par value $.01 per share (the "Common Stock"), issued or with respect
to Prior Options and Prior Restricted Units. Unless otherwise specifically set
forth herein, all rights and obligations of the Company and the Executive in
accordance with the agreements evidencing the Prior Options and the Prior
Restricted Units (including, respectively, under the Prior Registration Rights
Provisions, the Initial Employment Agreement and the Amended and Restated
Employment Agreement) shall continue in effect and shall not be affected hereby.

(b) Stock Options (i) (A) The Company shall grant
annually to Executive during the Term at the time that it makes grants to other
executives (commencing with a grant expected to be made in the fourth quarter of
2004) a stock option under the Company's then current stock option plan (the
"Option Plan") to purchase between 100,000 and 200,000 shares of the Company's
Common Stock, at an exercise price equal to the fair market value of the Common
Stock on such date (such number of stock options to be determined by the
Compensation Committee in its sole discretion based upon performance for the
preceding 12-month period, with the minimum and maximum numbers of stock options
adjusted, as necessary, to reflect any changes in the capitalization of Common
Stock) on the date of grant thereof, and (B) on the Commencement Date, a
non-qualified stock option under the Company's 2003 Equity Incentive Plan (the
"2003 Plan") to purchase 250,000 shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock (the "2003 Plan Option") on
such date. Each stock option granted hereunder ("Additional Company Stock
Options" and, together with Prior Options, the "Stock Options") shall have a
ten-year term and, in the case of grants to be made under clause (A) of the
preceding sentence in the fourth quarter of 2004 and in clause (B) of the
preceding sentence, shall be granted on the other terms and conditions set forth
in the Stock Option Grant and Agreements attached as Exhibits A-1 and A-2
hereto. In the event of any inconsistency between the terms of this Agreement
and the Stock Option Grant and Agreements, the Company Stock Option Grant and
Agreements shall govern.

(ii) The Company hereby represents and
warrants to Executive that (A) the 2003 Plan has and
will have sufficient shares available to effect the grant and exercise of the
2003 Plan Option, and the 2003 Plan (and any subsequent plan under which
Additional Company Stock Options may be granted to Executive) has been approved
by the Company's stockholders, (B) each Additional Company Stock Option has been
properly authorized and approved by the Board and/or its Compensation Committee,
(C) the issuance of the Company Stock underlying each Additional Company Stock
Option has been or will be registered on Form S-8 and (D) stockholder approval
is not required to grant the stock options referenced in Section 3.2(b)(i)
above.

(iii) The Company hereby further represents
and warrants to Executive that (i) the Company's
Restated and Amended 1996 Incentive Stock Option and Non-Qualified Stock Option
Plan (the "1996 Plan"), 1999 Stock Option Plan (the "1999 Plan"), the 2000
Equity Incentive Plan (the "2000 Plan") and the 2001 Equity Incentive Plan (the
"2001 Plan"), (collectively, the 1996 Plan, the 1999 Plan, the 2000 Plan and the
2001 Plan are hereinafter referred to as the "Prior Option Plans") have and will
have sufficient shares available to effect the grant and exercise of the Prior
Options, and the Prior Option Plans have been approved by the Company's

stockholders, (ii) the Prior Options have been properly authorized and approved
by the Board and/or its stock option committee, and (iii) the issuance of the
Common Stock underlying the Prior Options to continue to be registered on Form
S-8.

(iv) The Company at its expense hereby
undertakes and agrees, upon the written request of
Executive, to as soon as practicable put an effective shelf-registration in
place in favor of Executive in respect of the Common Stock underlying each Stock
Option and the Additional Restricted Units (as defined in Section 3.3), subject
to the terms of Exhibit B hereto (the "Additional Registration Rights
Provisions") and the Prior Restricted Units pursuant to the Prior Registration
Rights Provisions.

(c) Restricted Units Signing Award Bonus; Original
Restricted Units.

(i) The Company shall issue to Executive on
the Commencement Date a fully-vested equity-based signing award bonus in the
form of contract stock for 750,000 shares of the Company's common stock (the
"Additional Restricted Units" and, together with Prior, "Restricted Units")
pursuant to the 2003 Plan and the terms and conditions set forth in the
restricted units agreement attached as Exhibit C hereto (the "Restricted Units
Agreement"). In the event of any inconsistency between the terms of this
Agreement and the Restricted Units Agreement, the Restricted Units Agreement
shall govern. Except to the extent provided in Section 4.3 herein, the shares
underlying the Additional Restricted Units (the "Additional Unit Shares") shall
be delivered to Executive on the first business day following the date Executive
terminates employment for any reason unless the Additional Unit Shares shall
have been previously delivered to Executive pursuant to Section 5 upon the
occurrence of a Change in Control (as defined in Section 6.1) or upon a Tax
Event (as defined herein); provided, however, that Executive shall have a
one-time right to elect to defer delivery of the Additional Unit Shares to such
later specified delivery date as Executive determines by giving written notice
to the Company (but in no event shall Executive defer delivery of the Additional
Unit Shares beyond December 31, 2029) and in no event shall Executive's deferral
election be effective unless (i) made at least twelve months prior to the
otherwise applicable distributing date and (ii) the deferred delivery date is at
least five years (or such shorter period as may be allowed under applicable law
without causing any immediate taxation or imposition of interest or penalties)
beyond the scheduled delivery date. The Executive's right to defer delivery of
the Additional Unit Shares or Prior Restricted Unit Shares shall be permitted
only if such election shall not cause constructive receipt of such shares under
applicable law or otherwise directly result in any interest or penalties being
imposed on Executive. If such right to elect to defer would cause Executive to
be subject to immediate taxation or would result in any interest or penalties
being imposed, such right shall be deemed automatically modified to the minimum
extent necessary (as mutually agreed by the Company and the Executive) to avoid
such immediate taxation or imposition of interest or penalties. In the event
that Executive should become subject to immediate taxation on any Additional
Restricted Units before the scheduled delivery date (or deferred date or dates,
if applicable, that he has elected) to receive the shares of Common Stock
underlying the Additional Restricted Units (a "Tax Event"), the Company shall
immediately deliver the shares of Common Stock in respect of such affected
Additional Restricted Units to the Executive notwithstanding his written
election specifying a later date of delivery.

(ii) The shares underlying the Prior
Restricted Units (the "Prior Restricted Unit Shares" and, collectively with
Additional Restricted Unit Shares, the "Restricted Unit Shares") shall be
delivered to Executive on the dates specified in the Initial Employment
Agreement or Amended and Restated Employment Agreement and the award agreements
that were exhibits thereto, as applicable, if Executive is still employed by the
Company on the dates specified in such respective agreements and, except as
provided in the following sentence, this Agreement shall not be deemed to modify
the Prior Restricted Units or Prior Restricted Unit Shares in any respect.
Notwithstanding the foregoing, Executive's right to defer delivery of Prior
Restricted Unit Shares on six months' advance notice shall be deemed modified to
be 12 months' advance notice.

(iii) The Company hereby represents and
warrants to Executive that (i) stockholder approval is not required to grant the
Additional Restricted Units or to distribute to Executive the Additional Unit
Shares, (ii) the 2003 Plan has and will have sufficient shares available to
effect the distribution of the Additional Unit Shares, (iv) the Additional
Restricted Units have been properly authorized and approved by the Board and/or
its Compensation Committee and (v) the Company will use commercially reasonable
best efforts to cause the issuance of the Additional Unit Shares underlying the
Additional Restricted Units to be registered on Form S-8.

3.3 Employee Benefits; Performance Bonus. During the Term,
Executive shall be entitled to participate in such of Company's employee benefit
plans and benefit programs, including medical, hospitalization, dental,
disability, accidental death and dismemberment and travel accident plans and
programs, as may from time to time be provided by Company for its senior
executives. In addition, during the Term, Executive shall be eligible to
participate in all pension, retirement, savings and other employee benefit plans
and programs maintained from time to time by the Company for the benefit of its
senior executives, including the right to participate in any annual incentive or
long-term performance plans maintained for the benefit of the Company's senior
executives, including the opportunity to receive a performance bonus of not less
than 100% of Executive's Base Salary, based upon the satisfaction of certain
performance goals as determined by the Board or the Compensation Committee in
its sole discretion.

3.4 Other Benefits. During the Term, the Company shall provide
Executive with a Company-provided medical examination on an annual basis at a
medical clinic selected by Executive and reasonably satisfactory to the Board
and such other perquisites as are generally made available to other senior
executives of the Company.

3.5 Vacation. During the Term, Executive shall be entitled to
the number of weeks of vacation per year provided to senior executives of the
Company.

3.6 Expense Reimbursement. Company shall reimburse Executive
for all reasonable expenses incurred by him in connection with the performance
of his duties hereunder in accordance with its regular reimbursement policies as
in effect from time to time.

SECTION 4. TERMINATION OF EMPLOYMENT

4.1 Death of Executive. If Executive dies during the Term,
Company shall pay to Executive's estate amounts (including Base Salary, bonuses,
expense reimbursement, etc.) accrued as of the date of Executive's employment

termination (all such accrued amounts as of Executive's employment
termination shall be referred to as "Accrued Obligations") and a lump sum equal
to one (1) times Executive's annual rate of Base Salary. To the extent permitted
by the Company's benefit plans and programs in effect on the date of such
termination, Company shall also provide Executive's spouse and dependents, at
the same cost charged Executive immediately prior to his death, with continued
medical, dental, hospitalization and other health care benefits ("Health
Benefits") (subject to continued contribution, if any, required by such spouse
and dependents for such Health Benefits) for a period of one (1) year from such
termination; provided, that if Executive's spouse or dependents cannot continue
to participate in the Company programs providing such benefits, the Company
shall pay or reimburse any premiums for a health care program for Executive's
spouse and dependents that is substantially equivalent to the Company's
then-current Health Benefits. If the Health Benefits are then provided by the
Company programs, then following such one year period, Executive's spouse and
dependents shall have such Health Benefits coverage continuation rights as
afforded them under the law known as "COBRA". Upon Executive's death, all Stock
Options shall immediately vest (to the extent not already vested) and shall be
exercisable until one year following his death, but in no event beyond their
respective original expiration dates. As promptly as practicable following
Executive's death, but in no event later than the first business day of the
calendar year following the calendar year in which his death occurs (or, if
later, 90 days following his death), all Additional Unit Shares shall be
distributed to Executive's estate (to the extent not previously delivered to
Executive pursuant to Section 5 upon the occurrence of a Change in Control or
upon a Tax Event).

4.2 Disability of Executive. If Executive, in the reasonable
opinion of a qualified physician jointly selected by Company and Executive (or a
representative of Executive) (a "Qualified Physician"), has been materially
unable to perform his duties hereunder for a period of 180 consecutive days by
reason of physical or mental illness or disability ("Disability"), then the
Board shall have the right to terminate Executive's employment upon 30 days'
prior written notice to Executive at any time during the continuation of such
Disability (a "Disability Termination"). Until a Disability Termination, he
shall continue to receive his full Base Salary and other payments and benefits
hereunder. In the event of a Disability Termination, Company shall not
thereafter be obligated to make any further payments to Executive hereunder
other than (a) Accrued Obligations, (b) the amount that is equal to (x) if such
payments are taxable, then-current Base Salary or, alternatively, (y) if such
payments are not taxable, the after tax equivalent of the then-current Base
Salary, in either case until December 31, 2009, and (c) Health Benefits (subject
to continued contributions required by Executive for such benefits at the same
cost charged Executive immediately prior to his Disability Termination) to the
extent permitted by the Company's benefit plans and programs in effect on the
date of such termination (and the life insurance set forth in Section 3.6(i))
for one (1) year following the Date of Termination (as defined in Section 8.6
herein); provided, that if Executive, his spouse or his dependents cannot
continue to participate in the Company programs providing Health Benefits, the
Company shall pay or reimburse the premiums for a health care program for
Executive, his spouse and his dependents that is substantially equivalent to the
Company's then-current Health Benefits. If the Health Benefits are then provided
by the Company programs, then, following such one year period, Executive's
Spouse and dependents shall have such Health Benefits coverage continuation
rights as afforded them under COBRA. Following December 31, 2009, Executive
shall continue to be entitled to receive long-term disability benefits under the
Company's long-term disability program in effect at such time to the extent
Executive is eligible to receive such benefits. In the event of a Disability
Termination, all Stock Options shall immediately vest (to the extent not already
vested) and shall be exercisable until one year following the date of

termination, but in no event later than their respective original expiration
dates. All Additional Unit Shares shall be distributed to Executive (to the
extent not previously delivered to Executive pursuant to Section 5 upon the
occurrence of a Change in Control or upon a Tax Event) as promptly as
practicable, but in no event later than the first business day of the calendar
year following the calendar year in which such Disability Termination occurs
(or, if later, 90 days following such Disability Termination) unless Executive
has elected in writing to defer such delivery to a later date.

4.3 Termination for Cause. Executive's employment hereunder
shall terminate immediately upon notice (following satisfaction of the
procedures set forth below) that the Board is terminating Executive for Cause
(as defined herein), in which event Company shall not thereafter be obligated to
make any further payments hereunder other than Accrued Obligations excluding any
bonus accruals. If Executive's employment hereunder is terminated for Cause in
accordance with this Section 4.3 prior to December 31, 2009, (i) the portion of
the Prior Options and Additional Company Stock Options that is vested on the
Date of Termination shall be exercisable until their original respective
expiration dates, (ii) the non-vested portions of the Prior Options and each
Additional Company Stock Option shall terminate on the Date of Termination and
(iii) the Additional Unit Shares shall be distributed to Executive on the first
business day of calendar year 2017 unless the Additional Unit Shares shall have
been previously delivered to Executive pursuant to Section 5 upon the occurrence
of a Change in Control or upon a Tax Event. In addition, if the Executive's
employment is terminated for Cause in accordance with this Section 4.3, the
Prior Restricted Unit Shares shall be distributed to Executive in accordance
with the terms of the Amended and Restated Employment Agreement. "Cause" shall
be limited to the following:

(i) Executive's willful and continued failure
to use reasonable best efforts to substantially perform his duties as President
and Chief Executive Officer (other than such failure resulting from Executive's
physical or mental illness, in the reasonable opinion of a Qualified Physician,
or the failure of Executive to perform such duties during the remedy period set
forth in Section 4.4(b) hereof following the issuance of a Notice of Termination
by Executive for Good Reason, unless an arbitration panel finds Executive to
have acted in bad faith in issuing such Notice of Termination) after demand for
substantial performance is delivered by the Company in writing that specifically
identifies the manner in which the Company believes Executive has not used
reasonable best efforts to substantially perform his duties;

(ii) Executive's willful misconduct that is
materially and demonstrably injurious to the Company or any of its
subsidiaries; or

(iii) Executive's conviction or plea of
guilty or nolo contendere to a felony or to any other crime involving moral
turpitude which conviction or plea is materially and demonstrably injurious to
the Company or any of its subsidiaries.

For purposes of this Section 4.3, no act, or failure to act, by Executive shall
be considered "willful" unless committed in bad faith, giving due consideration
to Executive's duties and status as President and Chief Executive Officer of the
Company, and without a reasonable belief that the act or omission was in the
best interests of the Company or any of its subsidiaries. Cause shall not exist
under this Section 4.3 unless and until the Company has delivered to Executive a
copy of a resolution duly adopted by a majority of the Board (excluding
Executive for purposes of determining such majority) at a meeting of the Board

called and held for such purpose (after reasonable, but in no event less
than ten (10) days' notice, to Executive and an opportunity for Executive,
together with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, Executive was guilty of the conduct set forth
in this Section 4.3 and specifying the particulars thereof in detail. This
Section 4.3 shall not prevent Executive from challenging in any court of
competent jurisdiction the Board's determination that Cause exists or that
Executive has failed to cure any act (or failure to act) that purportedly formed
the basis for the Board's determination. The Company must provide notice to
Executive that it is intending to terminate his employment for Cause within one
hundred and twenty (120) days after the Company has knowledge of the occurrence
of the event it believes constitutes Cause.

If, prior to December 31, 2009, Executive voluntarily leaves his employment with
the Company (other than for Good Reason (as defined in Section 4.4(b)) or due to
Disability), such voluntary leaving shall not be treated as a breach of this
Agreement by Executive and shall not give rise to a claim by the Company for
monetary damages, but shall be treated as if it were a termination for Cause
under this Section 4.3 for the purposes of this entitlement to the benefits
described herein above.

4.4 Termination without Cause or by Executive for Good Reason.

(a) If (i) Executive's employment is terminated by
the Company for any reason other than Cause or the death or Disability
Termination of Executive, or (ii) Executive's employment is terminated by
Executive for Good Reason (as defined herein), then (A) the Company shall pay
to Executive a lump sum cash payment equal to the sum of (x) the Accrued
Obligations and (y) his Base Salary (including the minimum increases provided
therein) during the remainder of the then-current Term, (B) all Stock Options
granted to Executive shall become immediately vested (to the extent not
already vested) on the date of such termination and shall be exercisable through
their original respective expiration dates and (D) all Additional Unit Shares
shall be delivered to Executive as soon as practicable, but in no event later
than the first business day of the calendar year following the calendar year in
which such termination occurs unless the Additional Unit Shares shall have been
previously delivered to Executive pursuant to Section 5 upon the occurrence of a
Change in Control or upon a Tax Event or unless the Executive has elected in
writing to defer such delivery to a later date. Further, the Company shall
maintain in full force and effect for the continued benefit of Executive, his
spouse and his dependents for the remaining balance of the Term the Health
Benefits and life insurance programs (including, without limitation, the
insurance set forth in Section 3.5(i)) in which Executive, his spouse and his
dependents were participating immediately prior to the date of such termination
at the level in effect and upon substantially the same terms and conditions
(including without limitation contributions required by Executive for such
benefits) as existed immediately prior to the date of termination; provided,
that if Executive, his spouse or his dependents cannot continue to participate
in the Company programs providing such benefits, the Company shall pay or
reimburse the premiums for a health care program for Executive, his spouse and
his dependents that is substantially equivalent to the then-current Health
Benefits; but further provided, that such Health Benefits shall terminate upon
the date or dates Executive receives equivalent coverage and benefits that do
not include waiting period or pre-existing condition limitations, under the
plans and programs of a subsequent employer (such coverage and benefits to be
determined on a coverage-by-coverage or benefit-by-benefit basis). If such
coverage is provided under the Company programs, then upon termination of such
coverage, Executive and his dependents shall be afforded Health Benefits
continuation rights in accordance with COBRA.

(b) "Good Reason" shall mean the following, provided
that Executive shall have given written notice thereof to the Company within
one hundred and twenty (120) days after Executive has knowledge of the
occurrence of the event he believes constitutes Good Reason, and the Company
shall have failed to remedy the circumstances within 90 days after receipt of
such notice (or acknowledges in writing that Good Reason will not be remedied),
except in the case of (iv) and (x) below, in which case the remedy period shall
be 15 days, and (viii) below, in which case the remedy period shall be five
days:

(i) material breach of the Company's
obligations hereunder;

(ii) any decrease in Executive's salary as
increased during the Term (except for decreases
that are in conjunction with decreases in executive salaries generally) or a
failure by the Company to pay any such amounts when due or any amounts due under
Sections 3.1 and 3.3 or the assignment to Executive of duties and/or
responsibilities inconsistent with his status as President and Chief Executive
Officer of the Company, or a material diminution in the nature of Executive's
duties and/or responsibilities, reporting obligations, titles or authority, or
the failure of the Board to nominate Executive as a candidate for director;

(iii) the failure of Executive to be
appointed to the positions set forth in Section 1.2(a) or to be appointed as
a member of the Board;

(iv) the relocation by the Company of
Executive's office location to a location more than thirty (30) miles from
Princeton, New Jersey, or sixty (60) miles from New York, New York;

(v) the Company's material breach of
the 1996 Plan, the 1999 Plan, the 2000 Plan, the 2003 Plan, any Option Plan
implemented after the Commencement Date or any of the agreements evidencing the
award of Stock Options or Restricted Units;

(vi) the Company's material failure to
provide the benefits set forth in Sections 3.4 and 3.5 or the failure of the
Company to substantially provide any material employee benefits due to be
provided to Executive (other than any such failure not inconsistent with any
express provisions contained herein which failure affects all senior executive
officers);

(vii) the Company's failure to provide in
all material respects the indemnification set forth in Section 7.7 of this
Agreement;

(viii) the failure of any successor in
interest of the Company to become bound by the terms of this Agreement in
accordance with Section 8.4 below;

(ix) the Company's failure, after notice
from Executive, to initiate the procedures, as soon as practicable, to establish
and maintain the registration statements provided for in the Prior Registration
Rights Provisions and Exhibit B hereto.

Executive's right to terminate his employment hereunder for Good Reason shall
not be affected by his Disability. Subject to compliance by Executive with the
notice provisions of this Section 4.4(b), Executive's continued employment prior
to terminating employment for Good Reason shall not constitute consent to, or a
waiver of rights with respect to, any act or failure to act constituting Good
Reason. In the event Executive delivers to the Company a notice of termination
for Good Reason, Executive agrees to appear before a meeting of the Board called
and held for such purpose (after reasonable notice, but no more than ten days
(or four days under (viii) above) at Executive's election) and specify to the
Board the particulars as to why Executive believes adequate grounds for
termination for Good Reason exist. No action by the Board, other than the remedy
of the circumstances within the time periods specified by the first sentence of
Section 4.4(b), shall be binding on Executive.

No termination of Executive without Cause shall be effective unless such
termination is in writing pursuant to action by a majority of the Board at a
properly constituted meeting thereof.

4.5 Failure to Extend. A failure to extend this Agreement
pursuant to Section 2.1 by either party shall not be treated as a termination of
Executive's employment for purposes of this Agreement.

4.6 Mitigation.

(a) Executive shall not be required to mitigate
amounts payable under this Section 4 by seeking other employment or otherwise,
and there shall be no offset against amounts due Executive under this Agreement
on account of subsequent employment.

(b) Amounts owed to Executive under this Agreement,
or any of the agreements evidencing the award of Stock Options or Restricted
Units shall not be offset by any claims the Company may have against Executive
(other than an offset for any good faith liquidated dollar claim with respect to
a breach of this Agreement) and, except with respect to such good faith
liquidated dollar claim as set forth above, the Company's obligation to make the
payments provided for in this Agreement or any of the agreements evidencing the
award of Stock Options or Restricted Units (including the Registration Rights
Provisions), and otherwise to perform its obligations hereunder and under such
agreements, shall not be affected by any other circumstances, including, without
limitation, any counterclaim, recoupment, defense or other right which the
Company may have against Executive or others.

SECTION 5. ACCELERATION OF ORIGINAL OPTION VESTING AND DELIVERY OF UNIT SHARES

5.1 Triggering Events. Unless Executive has been terminated
for Cause in accordance with Section 4.3 hereof or has voluntarily left his
employment with the Company (other than for Good Reason or due to Disability),
in each case prior to December 31, 2009, upon the occurrence of a Change in
Control, each Additional Company Stock Option shall vest (to the extent not
already vested) and be exercisable through its original expiration date and,
notwithstanding any notice of deferral delivered by Executive to the Company
pursuant to Section 3.3(a) hereof, all Additional Unit Shares shall be
distributed to Executive on the date of the Change in Control; provided,
however, that in the event legislation is passed after the Commencement Date

which would require that the Additional Unit Shares be delivered after a
minimum period following the Change in Control in order to avoid the taxation of
such Additional Unit Shares to Executive prior to the delivery date of such
shares, such Additional Unit Shares shall be delivered on the earliest date
permitted under such legislation, but not to exceed one year and one day from
the date of the Change in Control (the "Deferred Delivery Date").
Notwithstanding the preceding sentence, in the event that the Deferred Delivery
Date would be a date later than the date the Additional Unit Shares would
otherwise be deliverable under Sections 3.2(c) or 4.3 hereof, then the
Additional Unit Shares shall be delivered on the date specified in Sections
3.2(c) or 4.3 as if the Change in Control had not occurred, but only if this
does not result in taxation of the Additional Unit Shares prior to their
delivery to Executive. In the event that the Additional Unit Shares are to be
delivered on a Deferred Delivery Date and cash is paid as consideration for the
Company's common stock in the Change in Control, then the Company, or it
successor in the Change in Control, shall deposit in an irrevocable rabbi trust
with a reputable financial institution acceptable to Executive the cash
equivalent of the Additional Unit Shares and such cash equivalent and any
interest or earnings thereon shall be delivered to Executive on the Deferred
Delivery Date.

SECTION 6. CHANGE IN CONTROL

6.1 Definition of Change in Control. A "Change in Control"
of the Company shall be deemed to have occurred:

(a) if the "beneficial ownership" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934)of securities representing
more than thirty-five percent (35%) of the combined voting power of the Company
Voting Securities (as herein defined) is acquired by any individual, entity or
group (a "Person"), other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the Company or an
affiliate thereof, or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company (for purposes of this Agreement, "Company
Voting Securities" shall mean the then outstanding voting securities of the
Company entitled to vote generally in the election of directors); provided,
however, that any acquisition from the Company or any acquisition pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of paragraph (c) of
this Section 6.1 shall not be a Change in Control under this paragraph (a); or

(b) if individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or

(c) upon consummation by the Company of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of assets or
stock of another entity (a "Business Combination"), in each case, unless
immediately following such Business Combination; (i) more than 50% of the

combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of (x) the corporation resulting from
such Business Combination (the "Surviving Corporation"), or (y) if applicable, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries (the "Parent Corporation"), is represented, directly or indirectly,
by Company Voting Securities outstanding immediately prior to such Business
Combination (or, if applicable, is represented by shares into which such Company
Voting Securities were converted pursuant to such Business Combination), and
such voting power among the holders thereof is in substantially the same
proportions as their ownership, immediately prior to such Business Combination,
of the Company Voting Securities, (ii) no Person (excluding any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 50% or more of
the combined voting power of the then outstanding voting securities eligible to
elect directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) except to the extent that such ownership
of the Company existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation) were members of
the Incumbent Board at the time of the execution of the initial agreement, or
the action of the Board, providing for such Business Combination; provided that
a Business Combination that is a tax-free stock for stock merger between the
Company and another entity shall not be treated as a Change in Control if
Executive is the chief executive officer of the surviving public entity of such
Business Combination immediately following its consummation, and such surviving
entity remains publicly traded on a national securities exchange or on the
NASDAQ (an "Exempt Business Combination"); or

(d) upon approval by the stockholders of the Company
of a complete liquidation or dissolution of the Company.

6.2 Gross-Up.

(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment, award,
benefit or distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) to or for the
benefit of Executive (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any corresponding provisions of state or local
tax laws, or any interest or penalties are incurred by Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. The payment of a Gross-Up Payment shall not be
conditioned upon the occurrence of a termination of employment.

(b) Subject to the provisions of Section 6.2(a), all
determinations required to be made under this Section 6.2, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving

at such determination, shall be made by a nationally-recognized
independent accounting firm selected by the Audit Committee of the Company's
Board of Directors as of immediately prior to the Change in Control (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and Executive within fifteen (15) business days of the receipt of
notice from Executive that there has been a Payment, or such earlier time as is
requested by the Company. All fees and expenses of the Accounting Firm shall be
borne solely by the Company. In making its calculations, the Accounting Firm may
make reasonable assumptions and approximations concerning applicable taxes and
may rely upon good faith interpretations concerning the application of Code
Sections 4999 and 280G, provided that such Accounting Firm's determinations are
made with substantial authority, within the meaning of Section 6662 of the Code;
provided, however, that Executive shall be assumed to pay federal, state and
local income taxes at the highest marginal bracket. Any Gross-Up Payment, as
determined pursuant to this Section 6.2, shall be paid by the Company to
Executive within five (5) days of receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that Executive
thereafter is required to make a payment of any Excise Tax (or any additional
Excise Tax), the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive. In the event of any claim by the
Internal Revenue Service for any Excise Tax or additional Excise Tax, the
Company shall have the right to control the defense of such claim and Executive
shall cooperate and assist the Company in connection therewith as reasonably
requested by the Company; provided that all expenses of such claim (including
any additional interest or penalties) shall be paid by the Company, and the
Company shall indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including any interests and penalties) imposed
as a result of such representation and payment of costs and expenses. In
addition, Executive will cooperate as reasonably requested by the Company with
the Company in making any refund claim for any Excise Tax already paid, and any
refunds of any such tax (or any Gross-Up Payments or other payments made by the
Company in respect thereof) obtained by the Executive shall be promptly returned
to the Company.

If the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority. In
the event that the foregoing advance of funds is determined to constitute an
impermissible loan to the Executive under applicable law, the Company shall
advance funds to the Executive as provided in this Section 6 but shall have no
right to any portion of the refund (if any such refund is obtained) unless it
provides Executive with express written authorization from the applicable
government authority.

SECTION 7. RESTRICTIVE COVENANTS

7.1 Confidentiality. Executive acknowledges a duty of
confidentiality owed to Company and shall not, at any time during or after his
employment by Company, retain in writing, use, divulge, furnish, or make
accessible to anyone, without the express authorization of the Board, any trade
secret, private or confidential information or knowledge of Company obtained or
acquired by him while so employed, except as required by law. All computer
software, business cards, telephone lists, customer lists, price lists, contract
forms, catalogs, Company books, records, files and know-how acquired while an
employee of Company are acknowledged to be the property of Company and shall not
be duplicated, removed from Company's possession or premises or made use of
other than in pursuit of Company's business or as may otherwise be required by
law or any legal process, or as is necessary in connection with any adversarial
proceeding against the Company and, upon termination of employment for any
reason, Executive shall deliver to Company, without further demand, all copies
thereof which are then in his possession or under his control. No information
shall be treated as "confidential information" if it is generally available
public knowledge at the time of disclosure or use by Executive.

7.2 Inventions and Improvements. Executive shall promptly
communicate to Company all ideas, discoveries and inventions which are or may be
useful to Company or its business. Executive acknowledges that all such ideas,
discoveries, inventions, and improvements which heretofore have been or are
hereafter made, conceived, or reduced to practice by him at any time during his
employment with Company heretofore or hereafter gained by him at any time during
his employment with Company are the property of Company, and Executive hereby
irrevocably assigns all such ideas, discoveries, inventions, and improvements to
Company for its sole use and benefit, without additional compensation. The
provisions of this Section 7.2 shall apply whether such ideas, discoveries,
inventions, or improvements were or are conceived, made or gained by him alone
or with others, whether during or after usual working hours, whether on or off
the job, whether applicable to matters directly or indirectly related to
Company's business interests (including potential business interests), and
whether or not within the specific realm of his duties. Executive shall, upon
request of Company, but at no expense to Executive, at any time during or after
his employment with Company, sign all instruments and documents reasonably
requested by Company and otherwise cooperate with Company to protect its right
to such ideas, discoveries, inventions, or improvements including applying for,
obtaining, and enforcing patents and copyrights thereon in such countries as
Company shall determine.

7.3 Noncompetition. During the Term and (A) with respect to a
Date of Termination prior to January 1, 2006, for a period through December 31,
2007, and (B) thereafter, for a period of two (2) years, in each case following
the Date of Termination of Executive's employment (other than a termination
under Section 4.4(a), Executive shall not, without the express written consent
of the Company, directly or indirectly: (i) engage, anywhere within the
geographical areas in which the Company is conducting business operations or
providing services as of the date of Executive's termination of employment, in
the tissue engineering business (the use of implantable absorbable materials,
with or without a bioactive component, to attempt to elicit a specific cellular
response in order to regenerate tissue or to impede the growth of tissue or
migration of cells) (the "Tissue Engineering Business"), neurosurgery business
(the use of surgical instruments, implants, monitoring products or disposable
products to treat the brain or central nervous system) ("Neurosurgery Business")

or in any other line of business the revenues of which constituted at
least 50% of the Company's revenues during the six (6) month period prior to the
Date of Termination (together with the Tissue Engineering Business and
Neurosurgery Business, the "Business"); (ii) be or become a stockholder,
partner, owner, officer, director or employee or agent of, or a consultant to or
give financial or other assistance to, any person or entity engaged in the
Business; (iii) seek in competition with the business of Company to procure
orders from or do business with any customer of Company; (iv) solicit, or
contact with a view to the engagement or employment by any person or entity of,
any person who is an employee of Company; (v) seek to contract with or engage
(in such a way as to adversely affect or interfere with the business of Company)
any person or entity who has been contracted with or engaged to manufacture,
assemble, supply or deliver products, goods, materials or services to Company;
or (vi) engage in or participate in any effort or act to induce any of the
customers, associates, consultants, or employees of Company to take any action
which might be disadvantageous to Company; provided, however, that nothing
herein shall prohibit Executive and his affiliates from owning, as passive
investors, in the aggregate not more than 5% of the outstanding publicly traded
stock of any corporation so engaged; and provided, further, that Executive shall
not be prohibited from (1) making any investment in, being or becoming a
partner, owner, officer, director or employee or agent of, or consultant to, or
give financial or other assistance to, any business enterprise (including,
without limitation, any investment or venture capital fund or investment bank)
that makes or has made any investment in or that provides advisory, financing or
underwriting services to any Person or entity engaged in the Business provided
that Executive does not render services (whether as an employee, consultant,
advisor or otherwise) to the division or portion of such person or entity
engaged in the Business or (2) rendering services (including under (1) above) to
an entity conducting its business operations or providing services in the
Business, if such entity is diversified and Executive does not render services,
directly or indirectly, to the division or portion of the entity which is
conducting its business operations or providing services in the Business.
Executive shall not be prevented from engaging in the activities set forth in
(i) through (vi) above if he terminates employment or his employment is
terminated, in each case in accordance with Section 4.4(a) of this Agreement.

7.4 Injunctive and Other Relief.

(a) Executive acknowledges and agrees that the
covenants contained herein are fair and reasonable in
light of the consideration paid hereunder, and that damages alone shall not be
an adequate remedy for any breach by Executive of his covenants contained herein
and accordingly expressly agrees that, in addition to any other remedies which
Company may have, Company shall be entitled to injunctive relief in any court of
competent jurisdiction for any breach or threatened breach of any such covenants
by Executive. Nothing contained herein shall prevent or delay Company from
seeking, in any court of competent jurisdiction, specific performance or other
equitable remedies in the event of any breach or intended breach by Executive of
any of its obligations hereunder.

(b) Notwithstanding the equitable relief available to
Company, Executive, in the event of a breach of
his covenants contained in Section 7 hereof, understands and agrees that the
uncertainties and delay inherent in the legal process would result in a
continuing breach for some period of time, and therefore, continuing injury to
Company until and unless Company can obtain such equitable relief. Therefore, in
addition to such equitable relief, Company shall be entitled to monetary damages
for any such period of breach until the termination of such breach, in an amount
up to the amount of all monies received by Executive as a result of said breach.

If Executive should use or reveal to any other person or entity any confidential
information, such use or revelation would be considered a continuing violation
on a daily basis for as long as such confidential information is made use of by
Executive.

(c) If any provision of Section 7 is determined
to be invalid or unenforceable by reason of its duration or scope, such duration
or scope, or both, shall be deemed to be reduced to a duration or scope to the
extent necessary to render such provision valid and enforceable. In such event,
Executive shall negotiate in good faith to provide Company with lawful and
enforceable protection that is most nearly equivalent to that found to be
invalid or unenforceable.

7.5 Definition of "Company." "Company" as used in Section 7
includes all majority-owned subsidiaries of Company.

7.6 Continuing Operation. Except as specifically provided in
this Section 7, the termination of Executive's employment or of this Agreement
shall have no effect on the continuing operation of this Section 7.

7.7 Indemnification. Executive shall be entitled to
indemnification in accordance with the Company's by-laws in effect on the date
hereof and to the fullest extent permitted under Delaware law. The Company shall
maintain directors' and officers' liability insurance covering the Executive on
the same basis as it covers other directors and officers of the Company.

SECTION 8. MISCELLANEOUS

8.1. Arbitration. Any dispute or controversy arising under or
in connection with this Agreement, other than injunctive relief sought under
Section 7.4 above, shall be settled exclusively by arbitration in Princeton, New
Jersey, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Executive shall be entitled
to recover from the Company the amount of his legal fees (and related expenses)
in excess of $50,000 in the aggregate in connection with claims or disputes
under this Agreement, any of the respective agreements evidencing the grant of
Stock Options, the Restricted Units and the registration statements provided for
in the Prior Registration Rights Provisions and Exhibit B hereto, unless
Executive is determined by the arbitrator or a court to have acted frivolously
or in bad faith with respect to such claim or dispute. The reimbursement shall
be made as soon as practicable following the resolution of such contest or
dispute (whether or not appealed) to the extent the Company receives reasonable
written evidence of such fees and expenses.

8.2. Key Employee Insurance. Company shall have the right at
its expense to purchase insurance on the life of Executive, in such amounts as
it shall from time to time determine, of which Company shall be the beneficiary.
Executive shall submit to such physical examinations as may reasonably be
required and shall otherwise cooperate with Company in obtaining such insurance.

8.3. Assignment; Benefit. This Agreement shall not be
assignable by Executive, other than his rights to payments or benefits

hereunder, which may be transferred only by will or the laws of descent and
distribution. Upon Executive's death, this Agreement and all rights of Executive
hereunder shall inure to the benefit of and be enforceable by Executive's
beneficiary or beneficiaries, personal or legal representatives, or estate, to
the extent any such person succeeds to Executive's interests under this
Agreement. No rights or obligations of the Company under this Agreement may be
assigned or transferred except that the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
(by merger, purchase or otherwise) which executes and delivers the agreement
provided for in this Section 8.3 or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law.

8.4 Notices. All notices hereunder shall be in writing and
shall be sufficiently given if hand-delivered, sent by documented overnight
delivery service or registered or certified mail, postage prepaid, return
receipt requested or by telegram or telefax (confirmed by U.S. mail), receipt
acknowledged, addressed as set forth below or to such other person and/or at
such other address as may be furnished in writing by any party hereto to the
other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against any party if given as provided in this Agreement; provided that nothing
herein shall be deemed to affect the right of any party to serve process in any
other manner permitted by law.

If to Company:

Integra LifeSciences Holdings Corporation
311 Enterprise Drive
Plainsboro, NJ 08536
Attention: Chairman
(with a copy to the Company's General Counsel)
Facsimile: (609) 275-9006

If to Executive:

Stuart M. Essig
26 Coniston Court
Princeton, NJ 08540
Facsimile: (609) 924-7264

8.5 Termination Procedures.

(a) Any termination of Executive's employment by the
Company or by Executive during the Term (other
than termination pursuant to death) shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 8.4 For

purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.

(b) "Date of Termination" shall mean (i) if
Executive's employment is terminated by his death, the
date of death, (ii) if Executive's employment is terminated pursuant to Section
4.2, thirty (30) days after Notice of Termination (provided that Executive shall
not have returned to the substantial performance of his duties on a full-time
basis during such thirty (30) day period), or (iii) if Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given or any later date (within thirty (30) days after the giving of such
notice) set forth in such Notice of Termination; provided that in the event of a
termination for Good Reason, the Date of Termination shall not be prior to the
expiration of any remedy period with respect to Good Reason in Section 4.4(b).

8.6 Entire Agreement and Modification; Waiver. This Agreement
constitutes the entire agreement between the parties hereto with respect to the
matters contemplated herein and supersedes all prior agreements and
understandings with respect thereto, including without limitation the Initial
Employment Agreement and the Amended and Restated Employment Agreement each of
which is hereby terminated; provided, that nothing herein shall affect the
validity or enforceability of the Prior Stock Options, the Prior Restricted
Units or the Prior Registration Rights Provisions, each of which is in full
force and effect on the date hereof (provided that all references in the
respective agreements evidencing such grants to "Employment Agreement" shall
hereafter mean this Agreement and not the Initial Employment Agreement and the
Amended and Restated Employment Agreement, as applicable). No amendment,
modification, or waiver of this Agreement shall be effective unless in writing.
Neither the failure nor any delay on the part of any party to exercise any
right, remedy, power or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same or of any other
right, remedy, power, or privilege with respect to such occurrence or with
respect to any other occurrence.

8.7 Governing Law. This Agreement is made pursuant to, and
shall be construed and enforced in accordance with, the laws of the State of
Delaware and the federal laws of the United States of America, to the extent
applicable, without giving effect to otherwise applicable principles of
conflicts of law.

8.8 Withholding. All payments hereunder shall be subject to
any required withholding of Federal, state and local taxes pursuant to any
applicable law or regulation.

8.9 Headings; Counterparts. The headings of paragraphs in this
Agreement are for convenience only and shall not affect its interpretation. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original and all of which, when taken together, shall be deemed
to constitute the same Agreement.

8.10 Further Assurances. Each of the parties hereto shall
execute such further instruments and take such other actions as the other party
shall reasonably request in order to effectuate the purposes of this Agreement.

8.11 Stockholder Approval. The Company represents and warrants
to Executive that no shareholder approval is required for the Company to enter
into this Agreement and (except with respect to Stock Options to be granted
under plans subsequent to the 2003 Plan) provide the benefits hereunder (or
thereunder), or that such stockholder approval has been obtained.

8.12 Noncontravention. The Company represents that the Company
is not prevented from entering into or performing this Agreement by the terms of
any law, order, rule or regulation, its by-laws or certificate of incorporation,
or any agreement to which it is a party, other than which would not have a
material adverse effect on the Company's abilities to enter into or perform this
Agreement.

8.13 Survivorship. The respective rights and obligations of
the Company and Executive hereunder shall survive any termination of this
Agreement or Executive's employment to the extent necessary for the intended
preservation of such rights and obligations.

8.14 Validity. The invalidity or enforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
force and effect.

IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

By:
Richard E. Caruso, Chairman

STUART M. ESSIG

Exhibit B

REGISTRATION UNDER THE SECURITIES ACT

1. Registration for Registrable Securities Underlying Options or Units. The
Company agrees to file a "shelf" registration statement, providing for the
registration of, and the sale on a continuous or delayed basis by the Executive
in accordance with the methods of distribution specified by the Executive and
consistent with the terms and provisions hereof, of Registrable Securities (as
defined in Paragraph 6 hereof) pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), and/or any similar rule that may be
adopted by the Securities and Exchange Commission (the "Commission") as soon as
practicable following the request of the Executive, and to use its commercially
reasonable best efforts to cause such registration tatement to be declared
effective by the Commission under the Securities Act as soon as practicable
following such filing. The Company further agrees to use its commercially
reasonable best efforts to maintain the effectiveness of such registration
statement or registration statements until the securities registered thereunder
cease to be Registrable Securities.

2. Registration Procedures. In connection with any shelf registration statement
contemplated hereby, the following provisions shall apply:

(a) The Company shall furnish to the Executive, prior to the filing thereof with
the Commission, a copy of such shelf registration statement and each amendment
thereto and each amendment or supplement, if any, to the prospectus included
therein and, subject to Paragraph 1 above, shall use its best efforts to reflect
in each such document, when so filed with the Commission, such comments as the
Executive reasonably may propose; provided, however, that the Company shall not
be obligated to include in any such shelf registration statement, prospectus,
prospectus supplement or amendment to such shelf registration statement any
equested information that is unreasonable in scope taking into account the
Company's most recent prospectus or prospectus supplement used in connection
with a primary or secondary offering of equity securities by the Company and the
Company's periodic reports under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").

(b) The Company shall take such action as may be necessary so that (i) such
shelf registration statement and any amendment thereto and any prospectus
forming part thereof and any amendment or supplement thereto (and each report or
other document incorporated therein by reference in each case) complies in all
material respects with the Securities Act, the Exchange Act and the respective
rules and regulations thereunder, (ii) such shelf registration statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) such prospectus forming part of any shelf registration statement, and any
amendment or supplement to such prospectus, does not include an untrue tatement
of a material fact or omit to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.

(c) The Company shall advise the Executive:

(i) when such shelf registration statement and any amendment thereto has been
filed with the Commission and when such shelf registration statement or any
post-effective amendment thereto has become effective;

(ii) of any request by the Commission for amendments or supplements to such
shelf registration statement or the prospectus included therein or for
additional information;

(iii) of the issuance by the Commission of any stop order suspending
effectiveness of such shelf registration statement or the initiation of any
proceedings for that purpose;

(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the securities included in such shelf
registration statement for sale in any jurisdiction or the initiation of any
proceeding for such purpose; and

(v) upon the receipt of a Request for Sale under paragraph 2(f), of the
existence of any circumstances or the happening of any events that would require
the making of any changes in such shelf registration statement or the prospectus
so that, as of such date, such shelf registration statement and the prospectus
would not contain an untrue statement of a material fact and would not omit to
state a material fact required to be stated therein or necessary to make the
statements therein (in the case of the prospectus, in light of the circumstances
under which they were made) not misleading (which advice shall be accompanied by
an instruction to suspend the use of the prospectus until the requisite changes
have been made).

(d) The Company shall use its commercially reasonable best efforts to prevent
the issuance, and if issued to obtain the withdrawal, of any order suspending
the effectiveness of such shelf registration statement at the earliest possible
time.

(e) The Company shall furnish to the Executive, without charge, as many copies
of the prospectus (including each preliminary prospectus) included in such shelf
registration statement and any amendment or supplement thereto as the Executive
may reasonably request; and the Company consents (except during the continuance
of any event described in Paragraph 2(c)(iii), (iv) (limited to the jurisdiction
of such suspension) or (v) above) to the use of the prospectus and any amendment
or supplement thereto by the Executive in connection with the offering and sale
of the Registrable Securities covered by the prospectus and any amendment or
supplement thereto until such time as the Securities so covered cease be
Registrable Securities.

(f) The Executive shall notify the Company in writing of his intention to sell
securities registered pursuant to any registration statement filed pursuant to
Paragraph 1 above (any such notice, a "Request for Sale") not less than 10 days

prior to the proposed Trade Date of any such sale, which Request for Sale
shall include a request from the Executive or (if applicable) a managing
underwriter to prepare and file an amendment or supplement to such shelf
registration statement or the prospectus contained therein. "Trade Date" shall
mean the date the Executive enters into any underwriting, agency or other
purchase agreement or understanding for the sale of, or otherwise agrees to sell
securities registered pursuant to such registration statement. No such
notification shall obligate the Executive to consummate any such sale.

(g) Prior to any offering of Registrable Securities pursuant to such shelf
registration statement, the Company shall register or qualify or cooperate with
the Executive in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as the Executive reasonably requests in writing and do any
and all other acts or things necessary or advisable to enable the offer and sale
in such jurisdictions of the Registrable Securities covered by such shelf
registration statement; provided, however, that in no event shall the Company be
obligated to (i) qualify as a foreign corporation or as a dealer in securities
in any jurisdiction where it would not otherwise be required to so qualify but
for this Paragraph 2(g) or (ii) file any general consent to service of process
in any jurisdiction where it is not as of the date hereof so subject.

(h) The Company shall cooperate with the Executive to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to such shelf registration statement free of any restrictive
legends and in such permitted denominations and registered in such names the
Executive may request in connection with the sale of Registrable Securities
pursuant to such shelf registration statement.

(i) Subject to Paragraph 8 below, upon the occurrence of any event contemplated
by Paragraph 2(c)(v) above, the Company shall promptly prepare a post-effective
amendment to such shelf registration statement or an amendment or supplement to
the related prospectus or file any other required document so that, as
thereafter delivered to purchasers of the Registrable Securities included
therein, the prospectus will not include an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. If
the Company notifies the Executive of the occurrence of any event contemplated
by Paragraphs 2(c)(iii), (iv) (limited to the jurisdiction of such suspension)
or (v) above or of a delay pursuant to Paragraph 8 below, the Executive shall
suspend the use of the prospectus and any proposed sales of securities
registered pursuant to such registration statement until the requisite changes
to the prospectus have been made or the Company has notified the Executive that
the reason for such delay no longer exists, as the case may be and the Executive
has received copies of a supplemented or amended prospectus which is no longer
defective.

(j) The Company shall use its best efforts to comply with all applicable rules
and regulations of the Commission and shall make generally available to its
security holders or otherwise provide in accordance with Section 11(a) of the
Securities Act as soon as practicable after the effective date of such shelf
registration statement an earnings statement satisfying the provisions of
Section 11(a) of the Securities Act.

(k) The Company may require the Executive to furnish to the Company such
information regarding the Executive and the distribution of such Registrable
Securities as may be required by applicable law or regulation for inclusion in
such shelf registration statement.

(l) The Company shall, if requested, promptly include or incorporate in a
prospectus supplement or post-effective amendment to such shelf registration
statement, such information as the managing underwriters reasonably agree should
be included therein and to which the Company does not reasonably object and
shall make all required filings of such prospectus supplement or post-effective
amendment as soon as practicable after they are notified of the matters to be
included or incorporated in such prospectus supplement or post-effective
amendment; provided, however, that the Company shall not be obligated to include
in any such prospectus supplement or post-effective amendment to such shelf
egistration statement any requested information that is unreasonable in scope
taking into account the Company's most recent prospectus or prospectus upplement
used in connection with a primary or secondary offering of equity securities by
the Company and the Company's periodic reports under the Exchange Act.

(m) The Company shall enter into such customary agreements (including an
underwriting agreement in customary form in the event of an underwritten
offering as set forth in Paragraph 7 below) to take all other appropriate
actions in order to expedite or facilitate the registration and the disposition
of the Registrable Securities, and in connection therewith, if an underwriting
agreement is entered into, cause the same to contain indemnification provisions
and procedures substantially identical to those set forth in Paragraph 5 below
with respect to the underwriters and controlling persons of the underwriters.

(n) The Company shall:

(i) make reasonably available for inspection by the Executive, any underwriter
participating in any disposition pursuant to such shelf registration statement,
and any attorney, accountant or other agent retained by the Executive or any
such underwriter all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries;

(ii) cause the Company's officers, directors and employees to make reasonably
available for inspection all relevant information reasonably requested by the
Executive or any such underwriter, attorney, accountant or agent in connection
with any shelf registration statement, in each case, as is customary for similar
due diligence examinations; provided, however, that any information that is
designated in writing by the Company, in good faith, as confidential at the time
of delivery of such information shall be kept confidential by the Executive or
any such underwriter, attorney, accountant or agent, unless such disclosure is
made in connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a third party
without an accompanying obligation of confidentiality;

(iii) make such representations and warranties to the Executive and the managing
underwriters, if any, in form, substance and scope as are customarily made by
the Company to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in Paragraph 4 below;

(iv) obtain opinions of counsel to the Company (which counsel and opinions (in
form and substance) shall be reasonably satisfactory to the managing
underwriters, if any) addressed to the Executive and underwriters, if any,
covering such matters as are customarily covered in opinions requested in
underwritten offerings; provided, however, that the Company shall not be
obligated to obtain such opinions in connection with any sale (other than in an
underwritten offering) of securities by the Executive more than twice during any
12 consecutive month period;

(v) obtain "cold comfort" letters from the independent public accountants of the
Company addressed to the Executive and the underwriters, if any, in customary
form and covering matters of the type customarily covered in "cold comfort"
letters in connection with primary underwritten offerings; provided, however,
that the Company shall not be obligated to obtain such letters in connection
with any sale (other than in an underwritten offering) of securities by the
Executive more than twice during any 12 consecutive month period or, if
applicable accounting procedures and practices do not permit the rendering of
such "cold comfort" letter in an offering of the type being effected; and

(vi) deliver such documents and certificates as may be reasonably requested by
managing underwriters, if any, and in accordance with customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company.

(o) The Company shall use its commercially reasonable best efforts to take all
other steps necessary to effect the registration, offering and sale of the
Registrable Securities covered by such shelf registration statement contemplated
hereby.

(p) Executive shall not, during any period in which of any his Registrable
Securities are included in any effective registration statement, effect any
stabilization or other transactions or engage in any stabilization or other
activity in connection with equity securities of the Company in contravention of
Rule 10b-7, Regulation M, or Rule 10b-2 under the Exchange Act.

Executive shall furnish each broker through whom Executive offers Registrable
Securities such number of copies of the prospectus as the broker may require and
otherwise comply with the prospectus delivery requirements under the Securities
Act.

3. Expenses. The Company agrees to pay Registration Expenses connection with any
registration pursuant to Paragraph 1 above.

4. Representations. The Company represents and warrants to, and agrees with, the
Executive that:

(a) Any registration statement and each prospectus contained therein filed
pursuant to Paragraph 1 above and any further amendments or supplements to any
such registration statement or prospectus, when it becomes effective or is filed
with the Commission and, in the case of an underwritten offering of Registrable
Securities, at the time of the closing under the underwriting agreement relating
thereto, will conform in all material respects to the requirements of the
Securities Act and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information set forth in a questionnaire
(or any other written information) furnished to the Company by the Executive.

(b) Any documents incorporated by reference in any Prospectus referred to in
Paragraph 3(a) above, when they become or became effective or are or were filed
with the Commission, as the case may be, will conform or conformed in all
material respects to the requirements of the Securities Act or the Exchange Act,
as applicable, and none of such documents will contain or contained an untrue
statement of a material fact or will omit or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.

(c) No person has been or shall be granted registration rights inconsistent with
this Agreement; provided, however, that the Company may permit any registration
statement filed pursuant hereto to include securities of securityholders other
than the Executive. Notwithstanding the foregoing, the Company agrees that no
other securityholder of the Company shall be granted any "piggyback" rights with
respect to any underwritten offering of securities being made by the Executive
in accordance with the terms hereof.

5.Indemnification.

(a) Upon the registration of the Registrable Securities pursuant to a
registration statement filed as contemplated by Paragraph 1 hereof (a
"Registration Statement"), the Company shall, and it hereby agrees to, indemnify
and hold harmless the Executive against any losses, claims, damages or
liabilities to which the Executive may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
(pending or threatened) in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
such Registration Statement under which such Registrable Securities were
registered under the Securities Act, or any prospectus contained therein or
furnished by the Company to the Executive, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Company shall, and it hereby
agrees to, reimburse the Executive for any legal or other expenses reasonably
incurred by him in connection with investigating or defending any such action

or claim; provided, however, that the Company shall not be liable to the
Executive in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement or
prospectus, or amendment or supplement, in reliance upon and in conformity with
any written information (including without limitation, any questionnaire)
furnished to the Company by the Executive expressly for use therein or from the
failure of the Executive to comply with the prospectus delivery requirements or
other applicable provisions of the securities laws.

(b) The Company may require, as a condition to filing any Registration
Statement, that the Company shall have received an undertaking reasonably
satisfactory to it from the Executive to (i) indemnify and hold harmless the
Company, its directors, officers who sign any Registration Statement, each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, and any other holder of
Common Stock that are included in such Registration Statement against any
losses, claims, damages or liabilities to which the Company or such other
persons may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in such Registration Statement, or any prospectus
contained therein or furnished by the Company to any such holder or underwriter,
or any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished in writing to the
Company by the Executive expressly for use therein (including, without
limitation, any questionnaire), and (ii) reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim;

(c) Promptly after receipt by an indemnified party under Paragraph 5(a) or (b)
above of written notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party pursuant to the indemnification provisions of or contemplated by this
Paragraph 5, notify such indemnifying party in writing of the commencement of
such action; but the omission to so notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party other
than under the indemnification provisions of or contemplated by Paragraph 5(a)
or (b) above, and then only to the extent that the indemnifying party is
actually prejudiced thereby. In case any such action shall be brought against
any indemnified party and it shall notify an indemnifying party of the
commencement thereof, such indemnifying party shall be entitled to participate
therein and (unless the indemnified party reasonably concludes that such
representation would involve a conflict of interest), to the extent that it
shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be counsel to
the indemnifying Party), and, after notice from the indemnifying party to such

indemnified party of its election so to assume the defense thereof, such
indemnifying party shall not be liable to such indemnified party for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement. compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act, by
or on behalf of any indemnified party. An indemnifying party will ot be liable
for any settlement of any action or claim effected without its written consent
(which shall not be unreasonably withheld).

(d) Each party hereto agrees that, if for any reason the indemnification
provisions contemplated by Paragraph 5(a) or (b) are unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the indemnifying party and the indemnified
party in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such indemnifying party or by such indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or ommission. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Paragraph 5(d) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in this Paragraph 5(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.

6. Definitions.

(a) "Registrable Securities" shall mean (i) the 500,000-1,000,000 shares of
Common Stock issuable upon exercise of the Additional Company Stock Options to
be granted by the Company to the Executive pursuant to Section 3.2(b)(i)(A) of

the Agreement, (ii) the 250,000 shares of Common Stock issuable upon
exercise of the Additional Company Stock Options to be granted by the Company to
the Executive pursuant to Section 3.2(b)(i)(B) of the Agreement and (iii) the
750,000 shares of Common Stock issuable under the Additional Restricted Units to
be granted to the Executive pursuant to Section 3.2(c) of the Agreement, and in
each case, any securities issued as a distribution on or acquired upon exercise
of rights distributed with respect to such shares of Common Stock (collectively
with the Common Stock, the "Securities"); provided that such Securities shall
cease to be Registrable Securities when such Securities (x) have been sold or
otherwise transferred by the Executive, whether pursuant to an effective
registration statement or otherwise, or (y) have become eligible for sale
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act.

(b) "Registration Expenses" means all expenses incident to the Company's
performance of or compliance with its obligations hereunder, including without
limitation, (i) all Commission and any NASD registration and filing fees and
expenses, (ii) all fees and expenses in connection with the qualification of the
Registrable Securities for offering and sale under the State securities and blue
sky laws of such States as may be reasonably requested by the Executive
(provided, however, that nothing herein shall require the Company to qualify as
a foreign corporation in any jurisdiction where it would not otherwise be
required to qualify but for such qualification, to consent to general service of
process or taxation in any such jurisdiction or to make any changes to the
Company s certificate of incorporation or bylaws, (iii) all expenses relating to
the preparation, printing, distribution and reproduction of any registration
statement required to be filed as contemplated herein, each prospectus included
therein or prepared for distribution, each amendment or supplement to the
foregoing, the certificates representing the Securities and all other documents
relating there, (iv) messenger and delivery expenses, (v) internal expenses
(including, without limitation, all salaries and expenses of the Company
officers and employees performing legal or accounting duties), (vi) fees,
disbursements and expenses of counsel and independent certified public
accountants of disbursements of underwriters and distribution participants
customarily paid by the issuer. To the extent that any Registration Expenses are
incurred, assumed or paid by the Executive, the Company shall reimburse the
Executive for the full amount of the Registration Expenses so incurred, assumed
or paid promptly after receipt of a request therefor. Notwithstanding the
foregoing, the Executive shall pay all agency fees and commissions and
underwriting discounts and commissions and the legal and other fees of
underwriters, if any, resulting from any failure by Executive to consummate an
underwritten offering or not covered by clause (vii), if any, attributable to
the sale of such Registrable Securities and the fees and disbursements of any
counsel or other advisors or experts retained by the Executive or underwriters,
other than those specifically referred to above.

7. Underwriting Offering. The Executive, if he so desires, may sell Registrable
Securities in an underwritten offering. In any such underwritten offering, the
investment banker or bankers and manager or managers that will administer the
offering will be selected by, and the underwriting arrangements with respect
thereto will be approved by the Executive; provided, however, that (i) such
investment bankers and managers and underwriting arrangements must be reasonably
satisfactory to the Company, such satisfaction not to be unreasonably withheld,
(ii) the Company shall not be obligated to arrange for more than one

underwritten offering during any consecutive twelve-month period or more than a
total of five underwritten offerings and (iii) each underwritten offering shall
include at least the lesser of (x) $5 million in value of Registrable
Securities, or (y) 750,000 shares of Common Stock (or the equivalent thereof),
or (z) the balance of the Executive's Registrable Securities. In connection with
any such underwritten offering of securities, the Company will agree to
customary restrictions on the ability of the Company to sell securities
substantially similar to the Registrable Securities for a period not to exceed
90 days from the date of the related prospectus supplement.

8. Suspension. Notwithstanding anything contained herein, upon receipt of a
Request for Sale or for registration from the Executive or a managing
underwriter, the Company may delay the filing of any such registration statement
or amendment or supplement if the Company in good faith has a valid business
reason for such delay, including without limitation (i) that the filing of such
amendment or supplement would require the Company to include therein material
information that has not theretofore been made public and which the Company is
not then prepared to disclose or (ii) that the offering and sale of Registrable
Securities by the Executive at such time will adversely affect any offering by
the Company, as the case may be, of its securities or any material acquisition
or financing transaction then contemplated or pending. In connection with any
public offering of its securities by the Company, executive shall enter into
such "Lock up" or other agreements restricting his sales of securities of the
Company for such reasonable periods not to exceed 180 days as the lead
underwriters may require.

Exhibit C

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONTRACT STOCK / RESTRICTED UNITS AGREEMENT
Pursuant to
2003 EQUITY INCENTIVE PLAN

AGREEMENT, dated as of July 27, 2004, by and between Integra
LifeSciences Holdings Corporation, a Delaware corporation (the "Company"), and
Stuart M. Essig ("Executive").

WHEREAS, the Company and Executive have entered into an Amended and
Restated Employment Agreement (the "Employment Agreement"), dated as of July 27,
2004, pursuant to which Executive will continue to serve as President and Chief
Executive Officer of the Company, on the terms and conditions set forth and
described therein; and

WHEREAS, pursuant to the Employment Agreement, the Company has agreed
to grant to Executive an aggregate of 750,000 (seven hundred fifty thousand)
shares of contract stock in the form of restricted units (the "Units")
representing an equal number of shares of restricted common stock of the
Company, par value $.01 per share ("Common Stock"), on the terms set forth
herein; and

WHEREAS, the grant of Units and restricted Common Stock hereunder is
being made under the Integra LifeSciences Holdings Corporation 2003 Equity
Incentive Plan (the "2003 Plan"), a copy of which is attached.

NOW, THEREFORE, the parties agree as follows:

1. Definitions. Capitalized terms not otherwise defined herein shall have the
meaning set forth in the Employment Agreement, unless otherwise indicated.

2. Grant of Units. Pursuant to Section 3.2(c) of the Employment Agreement,
Executive is hereby granted, as of July 27, 2004, deferred compensation in the
form of 750,000 (seven hundred fifty thousand) Units pursuant to the terms of
this Agreement and to the 2003 Plan.

3. Dividend Equivalents. Executive shall be paid, on a quarterly basis with
respect to all outstanding Units (as such Units may be adjusted under Section
6), dividend equivalent amounts equal to the regular quarterly cash dividend
payable to holders of Common Stock (to the extent regular quarterly cash
dividends are paid) as if Executive were an actual shareholder with respect to
the number of shares of Common Stock equal to his outstanding Units. Such
dividend equivalents shall be paid on the same date as the regular quarterly
cash dividend is paid by the Company in respect of the Common Stock.

4. Payments of Units.

(a) The shares of Common Stock underlying the Units (the "Unit Shares") shall be
paid out to Executive on the first business day following the date Executive's

employment with the Company terminates; provided, however, that Executive
shall have a one-time right to elect to defer the delivery of the Unit Shares by
giving written notice to the Company (but in no event shall Executive defer
delivery of the Unit Shares beyond June 30, 2029) and in no event shall
Executive's deferral election be effective unless (i) made at least twelve
months prior to the otherwise applicable distributing date and (ii) the deferred
delivery date is at least five years (or such shorter period as may be allowed
under applicable law without causing any immediate taxation or imposition of
interest or penalties) beyond the scheduled delivery date. The Executive's right
to defer delivery of the Unit Shares shall be permitted only if such election
shall not cause constructive receipt of such shares under applicable law or
otherwise directly result in any interest or penalties being imposed on
Executive. If such right to elect to defer would cause Executive to be subject
to immediate taxation or would result in any interest or penalties being
imposed, such right shall be deemed automatically modified to the minimum extent
necessary (as mutually agreed by the Company and the Executive) to avoid such
immediate taxation or imposition of interest or penalties. In the event a Change
in Control occurs, the timing of the payment of the Unit Shares shall be
governed by the terms of the Employment Agreement. Notwithstanding any election
by Executive to defer delivery of Unit Shares, in the event that Executive
becomes subject to income taxation on any Units or Unit Shares prior to the then
currently scheduled date (or dates, as applicable) of delivery, Executive shall
receive an immediate distribution of all Unit Shares which are then subject to
immediate taxation. The Company shall consult with Executive before making any
such distribution of Unit Shares to confirm whether Executive intends to dispute
any asserted recognition of taxation on Units of Unit Shares prior to the
scheduled deferred delivery date.

(b) Any Unit Shares delivered shall be deposited in an account designated by
Executive and maintained at a brokerage house selected by Executive. Any such
Unit Shares shall be duly authorized, fully paid and non-assessable shares,
listed with NASDAQ or the principal United States securities exchange on which
the Common Stock is admitted to trading and registered on the Company
Registration Statement, if registration is requested by Executive.

(c) Except as otherwise provided in this Agreement, Executive shall not be
deemed to be a holder of any Common Stock pursuant to a Unit until the date of
the issuance of a certificate to him for such shares and, except as otherwise
provided in this Agreement, Executive shall not have any rights to dividends or
any other rights of a shareholder with respect to the shares of Common Stock
covered by a Unit until such shares of Common Stock have been issued to him,
which issuance shall not be unreasonably delayed.

(d) The Company may require that Executive pay to the Company, or the Company
may otherwise withhold, at the time of payment of the value of a Unit, any such
amount as is required by law or regulation to be withheld for Federal, state or
local income tax or any other taxes incurred by reason of the payment.

(e) Executive's right to receive payment of any amounts under this Agreement
shall be an unfunded entitlement and shall be an unsecured claim against the
general assets of the Company.

(f) After payment in accordance with this Section 4, the Unit Shares may not be
sold, transferred or otherwise disposed of by Executive for a period of five
days after receipt of such shares by Executive, except that no such restrictions
shall apply in the case of a Change in Control or if Executive determines to
sell (or instruct the Company to withhold) any Unit Shares in order to satisfy
any obligations Executive may have with respect to any applicable tax
withholding requirements on receipt of Unit Shares.

5. Representations. The Company represents and warrants that this Agreement has
been authorized by all necessary action of the Company, has been approved by the
Board and is a valid and binding agreement of the Company enforceable against it
in accordance with its terms and that the Unit Shares will be issued pursuant to
and in accordance with the 2003 Plan, will be listed with NASDAQ or the
principal United States securities exchange on which the Common Stock is
admitted to trading, and will be validly issued, fully paid and non-assessable
shares. The Company further represents and warrants that the grant of Units
under this Agreement has been approved by the Company's Compensation Committee,
that the 2003 Plan has and will have sufficient shares available to effect the
distribution of the Unit Shares, and that the Company will file a Hart Scott
Rodino application with respect to Executive on a timely basis, if necessary, in
connection with the acquisition of Unit Shares by Executive under this
Agreement.

6. Changes in the Common Stock and Adjustment of Units.

(a) In the event the outstanding shares of the Common Stock shall be changed
into an increased number of shares, through a share dividend or a split-up of
shares, or into a decreased number of shares, through a combination of shares,
then immediately after the record date for such change, the number of Units then
subject to this Agreement shall be proportionately increased, in case of such
share dividend or split-up of shares, or proportionately decreased, in case of
such combination of shares. In the event the Company shall issue any of its
shares of stock or other securities or property (other than Common Stock which
is covered by the preceding sentence), in a reclassification of the Common Stock
(including without limitation any such reclassification in connection with a
consolidation or merger in which the Company is the continuing entity), the kind
and number of Units subject to this Agreement immediately prior thereto shall be
adjusted so that the Executive shall be entitled to receive the same kind and
number of shares or other securities or property which the Executive would have
owned or have been entitled to receive after the happening of any of the events
described above, had he owned the shares of the Common Stock represented by the
Units under this Agreement immediately prior to the happening of such event or
any record date with respect thereto, which adjustment shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.

(b) In the event the Company shall distribute to all holders of the Common Stock
evidences of its indebtedness or assets (including leveraged recapitalizations
with special cash distributions, but excluding regular quarterly cash
dividends), then in each case the number of Units thereafter subject to this
Agreement shall be determined by multiplying the number of Units theretofore
subject to this Agreement by a fraction, (i) the numerator of which shall be the
then current market price per share of Common Stock (as determined in paragraph
(c) below) on the record date for such distribution, and (ii) the denominator of

which shall be the then current market price per share of the Common
Stock less the then fair value (as mutually determined in good faith by the
Board and the Executive) of the portion of the assets or evidences of
indebtedness so distributed applicable to a share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to the record date for
the determination of shareholders entitled to receive such distribution.

(c) For the purpose of any computation under paragraph (b) of this Section 6,
the current market price per share of the Common Stock at any date shall be
deemed to be the average of the daily Stock Prices (as defined herein) for 15
consecutive Trading Days (as defined herein) commencing 20 Trading Days before
the date of such computation. "Stock Price" for each Trading Day shall be the
"Fair Market Value" of the Common Stock (as defined in the Company Stock Option
Plan, as in effect on the date of this Agreement) for such Trading Day. "Trading
Day" shall be each Monday, Tuesday, Wednesday, Thursday and Friday, other than
any day on which the Common Stock is not traded on the exchange or in the market
which is the principal United States market for the Common Stock.

(d) For the purpose of this Section 6, the term "Common Stock" shall mean (i)
the class of Company securities designated as the Common Stock at the date of
this Agreement, or (ii) any other class of equity interest resulting from
successive changes or reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value. In the event that at any time, as a result of an adjustment made
pursuant to the second sentence of Section 6(a) above, the Executive shall
become entitled to Units representing any shares other than the Common Stock,
thereafter the number of such other shares represented by a Unit shall be
subject to adjustment from time to time in a manner and on the terms as nearly
equivalent as practicable to the provisions with respect to the shares contained
in this Section 6, and the provisions of this Agreement with respect to the
shares of Common Stock represented by the Units shall apply on like terms to any
such other shares.

(e) In case of any consolidation of the Company or merger of the Company with
another corporation as a result of which Common Stock is converted or modified,
or in case of any sale or conveyance to another corporation of the property,
assets and business of the Company as an entirety or substantially as an
entirety, the Company shall modify the Units so as to provide the Executive with
Units reflecting the kind and amount of shares and other securities and property
that he would have owned or have been entitled to receive immediately after the
happening of such consolidation, merger, sale or conveyance had his Units
immediately prior to such action actually been shares and, if applicable, other
securities of the Company represented by those Units. The provisions of this
Section 6(e) shall similarly apply to successive consolidations, mergers, sales
or conveyances.

(f) If the Company distributes rights or warrants to all holders of its Common
Stock entitling them to purchase shares of Common Stock at a price per share
less than the current market price per share on the record date for the
distribution, the Company shall distribute to Executive equivalent amounts of
such rights or warrants as if Executive were an actual shareholder with respect
to the number of shares of Common Stock equal to his outstanding Units. Such
rights or warrants shall be exercisable at the same time, on the same terms, and
for the same price as the rights or warrants distributed to holders of the
Common Stock.

(g) In case any event shall occur as to which the provisions of this Section 6
are not applicable but the failure to make any adjustment would not fairly
protect the rights represented by the Units in accordance with the essential
intent and principles of this Section 6 then, in each such case, the Company
shall make an adjustment, if any, on a basis consistent with the essential
intent and principles established in this Section 6, necessary to preserve,
without dilution, the rights represented by the Units. The Company will promptly
notify the Executive of any such proposed adjustment.

(h) Notwithstanding anything to the contrary contained herein, the provisions of
Section 6 shall not apply to, and no adjustment is required to be made in
respect of, any of the following: (i) the issuance of shares of Common Stock
upon the exercise of any other rights, options or warrants that entitle the
holder to subscribe for or purchase such shares (it being understood that the
sole adjustment pursuant to this Section 6 in respect of the issuance of shares
of Common Stock upon exercise of rights, options or warrants shall be made at
the time of the issuance by the Company of such rights, options or warrants, or
a change in the terms thereof); (ii) the issuance of shares of Common Stock to
the Company's employees, directors or consultants pursuant to bona fide benefit
plans adopted by the Company's Board; (iii) the issuance of shares of Common
Stock in a bona fide public offering pursuant to a firm commitment offering;
(iv) the issuance of shares of Common Stock pursuant to any dividend
reinvestment or similar plan adopted by the Company's Board to the extent that
the applicable discount from the current market price for shares issued under
such plan does not exceed 5%; and (v) the issuance of shares of Common Stock in
any arm's length transaction, directly or indirectly, to any party.

(i) Notwithstanding anything in this Agreement to the contrary, in the event of
a spin-off by the Company to its shareholders, Executive's participation in such
spin-off with respect to the Units and the adjustment of the Units shall be
determined in an appropriate and equitable manner, and it is the intention of
the parties hereto that, to the extent practicable, such adjustment shall
include an equity interest in the spin-off entity.

(j) In the event the parties hereto cannot agree upon an appropriate and
equitable adjustment to the Units, the services of an independent investment
banker mutually acceptable to Executive and the Company shall (at the sole
expense of the Company) be retained to determine an appropriate and equitable
adjustment, and such determination shall be binding upon the parties.

7. No Right to Employment. Nothing in this Agreement shall confer upon Executive
the right to remain in employ of the Company or any subsidiary of the Company.

8. Nontransferability. This Agreement shall not be assignable or transferable by
the Company (other than to successors of the Company) and this Agreement and the
Units shall not be assignable or transferable by the Executive otherwise than by
will or by the laws of descent and distribution, and the Units may be paid out

during the lifetime of the Executive only to him. More particularly, but
without limiting the generality of the foregoing, the Units may not be assigned,
transferred (except as provided in the preceding sentence), pledged, or
hypothecated in any way (whether by operation of law or otherwise), and shall
not be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Units
contrary to the provisions of this Agreement, and any levy of any attachment or
similar process upon the Units, shall be null and void and without effect.

9. Arbitration, Legal Fees and Expenses. If any contest or dispute shall arise
between the Company and Executive regarding any provision of this Agreement, the
Company shall reimburse Executive for all legal fees and expenses reasonably
incurred by Executive in connection with such contest or dispute, pursuant to
the provisions of Section 8.1 of the Employment Agreement. The application of
this Section 9 (and Section 8.1 of the Employment Agreement) shall survive the
termination of the Employment Agreement. Such reimbursement shall be made as
soon as practicable following the resolution of such contest or dispute (whether
or not appealed) to the extent the Company receives reasonable written evidence
of such fees and expenses. Any dispute or controversy arising under or in
connection with this Agreement, shall be settled exclusively by arbitration in
Wilmington, Delaware in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.

10. Entire Agreement. This Agreement and the Employment Agreement contain all
the understandings between the parties hereto pertaining to the matters referred
to herein, and supersede all undertakings and agreements, whether oral or in
writing, previously entered into by them with respect thereto. The Executive
represents that, in executing this Agreement, he does not rely and has not
relied upon any representation or statement not set forth herein made by the
Company with regard to the subject matter, basis or effect of this Agreement or
otherwise.

11. Amendment or Modification; Waiver. No provision of this Agreement may be
amended, modified or waived unless such amendment or modification is agreed to
in writing, signed by the Executive and by a duly authorized officer of the
Company, and such waiver is set forth in writing and signed by the party to be
charged. No waiver by any party hereto of any breach by another party hereto of
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same time, any prior time or any subsequent time.

12. Notices. Any notice to be given hereunder shall be in writing and shall be
deemed given when delivered personally, sent by courier or telecopy or
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:

To the Executive:

Stuart M. Essig
26 Coniston Court
Princeton, NJ 08540
Facsimile: 609-924-7264

To the Company:

Integra LifeSciences Holdings Corporation
311 Enterprise Drive
Plainsboro, NJ 08536
Attention: Chairman
Facsimile: 609-275-9006

(with a copy to the Company's General Counsel)

Any notice delivered personally or by courier under this Section 12
shall be deemed given on the date delivered and any notice sent by telecopy or
registered or certified mail, postage prepaid, return receipt requested, shall
be deemed given on the date telecopied or mailed.

13. Severability. If any provision of this Agreement or the application of any
such provision to any party or circumstances shall be determined by any court of
competent jurisdiction to be invalid and unenforceable to any extent, the
remainder of this Agreement or the application of such provision to such person
or circumstances, other than those to which it is so determined to be invalid
and unenforceable, shall not be affected thereby, and each provision hereof
shall be validated and shall be enforced to the fullest extent permitted by law.

14. Noncontravention. The Company represents that the Company is not prevented
from entering into, or performing, this Agreement by the terms of any law,
order, rule or regulation, its certificate of incorporation or by-laws, or any
agreement to which it is a party.

15. Survivorship. The respective rights and obligations of the parties hereunder
shall survive any termination of this Agreement or Executive's employment to the
extent necessary for the intended preservation of such rights and obligations.

16. Successors. This Agreement shall inure to the benefit of and be binding upon
each successor of the Company, and upon the Executive's beneficiaries, legal
representatives or estate, as the case may be.

17. Governing Law. This agreement will be governed by and construed in
accordance with the laws of the State of Delaware, without regard to its
conflicts of laws principles.

18. Headings. All descriptive headings of sections and paragraphs in this
Agreement are for convenience of reference only, and they form no part of this
Agreement and shall not affect its interpretation.

19. Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Contract
Stock / Restricted Units Agreement as of the date first above written.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

By:
-----------------------------------------------
Richard Caruso, Chairman

-----------------------------------------------
Stuart M. Essig