CALIPER TECHNOLOGIES CORP, 424B4, 1999-12-15

CALIPER TECHNOLOGIES CORP
424B4, 1999-12-15
LABORATORY ANALYTICAL INSTRUMENTS

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<PAGE> 1

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-88827
4,500,000 Shares

Caliper Technologies Corp.Logo

Common Stock

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

Caliper Technologies Corp. is selling shares of common stock. Prior to this
offering, there has been no public market for our common stock. Our common stock
has been approved for listing on The Nasdaq Stock Market's National Market under
the symbol "CALP."

The underwriters have an option to purchase a maximum of 675,000 additional
shares to cover over-allotments of shares.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS CALIPER
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share............................................ $16.00 $1.12 $14.88
Total................................................ $72,000,000 $5,040,000 $66,960,000
</TABLE>

Delivery of the shares of common stock will be made on or about December
20, 1999.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

CREDIT SUISSE FIRST BOSTON

CIBC WORLD MARKETS
HAMBRECHT & QUIST
The date of this prospectus is December 14, 1999.
<PAGE> 2

[DESCRIPTION OF GRAPHICS]

Captions

Headline: CALIPER'S LABCHIP SYSTEMS

PUTTING THE LAB ON A CHIP

Illustration: This illustration, centered on the page, depicts Caliper's
LabChip technology by showing how laboratory experimental
functions, processes and equipment can be miniaturized,
integrated and automated and put on a microfluidic chip. In the
top half of the illustration, a cross-section of a laboratory
environment is pictured in which five researchers at various lab
stations are shown carrying out various steps of experiments
manually, using various pieces of equipment. The various
processes and pieces of equipment they are using are identified
with a number in a color dot that corresponds to the legend and
captions on the page. Below the illustration of the lab is an
illustration of a LabChip. The activities of the researchers that
are carried out on the chip are identified with connecting lines
to the area on the chip where they take place. The dimensions of
the chip are also described.

Caption:

Researchers typically conduct experiments by performing a series
of steps requiring multiple pieces of equipment and significant
manual handling. In our LabChip systems, these functions can be
performed on a single chip.

Caption for side of chip: Actual size ~ 1"

Legend:

Red dot#1 Test tubes, beakers and other glassware are replaced by
microscopic channels in the chip.

Lime dot#2 The chip measures and dispenses fluids, performing the functions
of manual liquid measuring instruments and robotic workstations.

Yellow dot#3 Chemicals are mixed as they move through the channels, allowing
reactions to take place.

Purple dot#4 Like an incubator, the LabChip system controls temperature
and reaction time.

Orange dot#5 The chip replaces the manual work of moving samples from one lab
station to another.

Blue dot#6 Like chemical analysis equipment, the chip can separate molecules
from each other.

Green dot#7 The results of the experiment are automatically detected and
displayed.
<PAGE> 3

Fold-Out P.2

Inside Front Cover

The series of four photographs on the right side of the page shows actual
elements of Caliper's personal laboratory system, based on the Agilent 2100
Bioanalyzer. The first image shows a LabChip device with wells and channels. The
second image shows one of the first chips that Caliper and its commercialization
partner, Agilent, are commercializing. The third image shows the chip inside
the Agilent 2100 Bioanalyzer with the top of the Agilent 2100 Bioanalyzer
open. The fourth image shows the entire Agilent 2100 Bioanalyzer system,
including chips, reagents, the chip instrument and a personal computer,
monitor, keyboard and printer.

Top Caption: We have developed two types of LabChip systems. Our first
personal laboratory system, the Agilent 2100 Bioanalyzer,
is designed to enhance individual researcher
productivity. Our high throughput system, which rapidly
conducts experiments using different chemicals in each
experiment, is designed for use by centralized laboratories
that produce large amounts of data.

Headline Personal Laboratory System

Captions:

Magnified chip: Each chip contains a network of microchannels through which
chemicals are moved to perform experiments.

Actual Agilent A menu of LabChip kits is being developed for a wide
2100 chip: range of routine laboratory experiments.

Chip in Agilent The chip is placed in an instrument that controls the
2100: movement of chemicals and detects the results of the
experiment.

Full System: The Agilent 2100 Bioanalyzer is currently being marketed
and sold by Agilent Technologies, a subsidiary of
Hewlett-Packard.
<PAGE> 4

Fold-out P.3

This series of photographs shows actual elements of Caliper's high throughput
system. The first image shows two Sipper chips in the palm of a hand. One chip
has a single capillary or sipper, the other has 4 capillaries. The second image
is a close-up photograph of the capillary of the Sipper chip poised over a
96-well plate. It is just about to draw a one nanoliter sample from one of the
wells. The third image shows the assay development station that Caliper provides
to customers. The fourth image shows the current high throughput system that
Caliper's technology access program customers are using for drug screening.

Top Caption: Same as above; text will apply to both pages

Headline: High Throughput System

Captions:

Hand with Sipper chips: Sipper chips are the core of our high throughput
systems. They have a short glass tube which draws minute
samples into the chip.

Close-up of sipper: The Sipper chip can access chemical samples from
standard laboratory storage systems.

Development station: Our development systems enable our pharmaceutical
company customers to modify experimental conditions in
ways that suit their needs.

Full System: Our first high throughput system combines the Sipper
chip with automated sample handling to perform thousands
of experiments per day.
<PAGE> 5

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 7
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 15
USE OF PROCEEDS....................... 16
DIVIDEND POLICY....................... 16
CAPITALIZATION........................ 17
DILUTION.............................. 18
SELECTED FINANCIAL DATA............... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 20
BUSINESS.............................. 27
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT............................ 44
TRANSACTIONS WITH EXECUTIVE OFFICERS,
DIRECTORS AND FIVE PERCENT
STOCKHOLDERS........................ 55
PRINCIPAL STOCKHOLDERS................ 57
DESCRIPTION OF CAPITAL STOCK.......... 60
SHARES ELIGIBLE FOR FUTURE SALE....... 63
UNDERWRITING.......................... 64
NOTICE TO CANADIAN RESIDENTS.......... 67
LEGAL MATTERS......................... 68
EXPERTS............................... 68
WHERE YOU CAN FIND MORE INFORMATION... 68
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.

DEALER PROSPECTUS DELIVERY OBLIGATION

UNTIL JANUARY 8, 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 6

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all the information you should consider before
buying shares in the offering. You should read the entire prospectus carefully.

CALIPER

We are a leader in lab-on-a-chip technologies, which enable experiments
that ordinarily require laboratories full of equipment and people to be
conducted on a chip small enough to fit in the palm of a child's hand. Each chip
contains a network of microscopic channels through which fluids and chemicals
are manipulated in order to perform experiments. We believe our LabChip systems
have the potential to revolutionize experimentation in a wide range of
industries by enabling individuals and organizations to perform laboratory
experiments at a speed, cost and scale previously unattainable.

We believe that we are the first company to sell and deliver lab-on-a-chip
products to customers. During 1999, we introduced our first two LabChip systems:

- Personal Laboratory System. In collaboration with Hewlett-Packard, we
launched the Agilent 2100 Bioanalyzer system, our first personal
laboratory system for use by individual laboratory researchers.
Hewlett-Packard is transferring our collaboration to its subsidiary,
Agilent Technologies.

- High Throughput System. High throughput systems rapidly conduct
experiments using different chemicals in each experiment. Under our
technology access program, we have sold and delivered initial versions of
our high throughput systems for drug screening to Amgen and Hoffmann-La
Roche, and have contracted to deliver a high throughput system to Eli
Lilly.

We develop, manufacture and sell our proprietary LabChip systems to
pharmaceutical and other companies. The pharmaceutical, agriculture, clinical
diagnostics and chemical industries rely on laboratory experimentation to obtain
important information that can be used to discover and develop new products.
These companies, however, still rely on manual, multi-step experiments that use
tools such as test tubes, beakers and large pieces of equipment that utilize
decades-old technology. These tools and processes are expensive and
labor-intensive, rendering them inadequate to handle these companies'
accelerating needs for greater research and development productivity.

We believe that our LabChip systems represent a revolutionary advance in
laboratory experimentation. Our LabChip systems have the potential to expand the
capabilities and improve the productivity of individual researchers and, on an
institutional level, enable pharmaceutical companies to perform the massive
scale experimentation they need to advance the drug discovery process. As a
result, our LabChip technology has the potential to reduce the time it takes to
discover and commercialize new drugs.

Our LabChip systems miniaturize, integrate and automate experimentation to
an unprecedented degree. Because we have great flexibility in channel design and
can exert split-second computer control over fluid flow, we have the ability to
create chips for a multitude of experiments, or applications. We believe the key
benefits of our LabChip systems are:

- High Speed. Our LabChip systems accelerate experiments as much as 10-fold
or more, depending on the application.

- Reduced Reagent and Labor Cost. Our LabChip systems use only a small
fraction of the normal amount of expensive reagents, as little as
1/100,000th in some cases, and also reduce labor involved in each
experiment.

- Expanded Individual Researcher Capability. Because our LabChip systems
can collapse a multi-step, complex experiment into one step, individual
researchers can perform experiments previously outside their areas of
expertise.

- Improved Data Accuracy. Our LabChip systems generally produce more
accurate and consistent data by reducing human error and the variability
caused by the use of multiple instruments.

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<PAGE> 7

Our objective is to be the leading lab-on-a-chip company. Key elements of
our strategy to achieve this objective are as follows:

- Focus on the pharmaceutical industry first

- Rapidly build our installed customer base

- Leverage our installed customer base by expanding the menu of chip
applications

- Generate recurring revenue from high-value chips

- Build a substantial intellectual property estate

- Maintain leadership in chip technology and manufacturing

- Opportunistically penetrate new industries

We have applied for registration of the following trademarks: Caliper, the
Caliper logo, LabChip, the LabChip logo, and LibraryCard. Sipper is a trademark
of Caliper. This prospectus also includes trademarks of companies other than
Caliper.

Caliper was incorporated in Delaware on July 26, 1995. Our principal
offices and manufacturing facilities are located at 605 Fairchild Drive,
Mountain View, California 94043-2234, and our telephone number is (650)
623-0700. Our website is located at http://www.calipertech.com. Information
contained on our website is not a part of this prospectus.

4
<PAGE> 8

THE OFFERING

<TABLE>
<S> <C>
Common stock offered.................................... 4,500,000 shares
Common stock to be outstanding after the offering....... 20,304,501 shares
Use of proceeds......................................... For general corporate purposes, including
capital expenditures, manufacturing
scale-up, product development and technology
research. See "Use of Proceeds."
Nasdaq National Market symbol........................... CALP
</TABLE>

The number of shares to be outstanding after this offering is based on the
number of shares outstanding on September 30, 1999 and excludes:

- 1,669,891 shares that may be issued upon exercise of options outstanding
as of September 30, 1999 at a weighted average exercise price of $0.82
per share

- 2,008,211 additional shares that we could issue under our stock option
plans, of which options to purchase 740,048 shares of common stock were
granted from October 1999 to December 13, 1999 at a weighted average
exercise price of $5.44 per share

- 300,000 shares that we could issue under our employee stock purchase plan

- 74,503 shares that may be issued upon exercise of warrants outstanding as
of September 30, 1999 at a weighted average exercise price of $1.22 per
share

- 38,460 shares that may be issued at an exercise price of $1.22 per share
upon exercise of warrants that will be issued if a patent milestone is
met

ASSUMPTIONS USED IN THIS PROSPECTUS

Unless otherwise indicated, information in this prospectus assumes the
following:

- the conversion of all of our outstanding shares of convertible preferred
stock into shares of common stock upon the closing of this offering

- a 1-for-1.56 reverse stock split that has been completed

- the filing of our amended and restated certificate of incorporation
immediately following the closing of this offering

- no exercise of the underwriters' over-allotment option

We entered into a collaboration agreement with Hewlett-Packard in May 1998
under which Hewlett-Packard agreed to manufacture, market and distribute some of
our products, as we further describe in this prospectus. Hewlett-Packard is
transferring our collaboration to its subsidiary, Agilent Technologies. Where we
refer to Agilent in this prospectus, we are referring to Hewlett-Packard prior
to the transfer of this collaboration and Agilent following the transfer of this
collaboration.

5
<PAGE> 9

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JULY 26, 1995) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------------- -----------------
1995 1996 1997 1998 1998 1999
--------------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.............................. $ -- $ 132 $ 2,266 $ 8,155 $ 4,425 $ 8,859
Costs and expenses................... 534 4,952 9,678 12,516 9,228 17,786
Operating loss....................... (534) (4,820) (7,412) (4,361) (4,803) (8,927)
Net loss............................. (536) (4,710) (6,281) (2,975) (3,745) (8,126)
Accretion on redeemable convertible
preferred stock.................... -- (262) (1,470) (2,174) (1,587) (1,822)
Net loss attributable to common
stockholders....................... $ (536) $(4,972) $(7,751) $(5,149) $(5,332) $(9,948)
Net loss per common share, basic and
diluted............................ $(1.71) $ (3.90) $ (4.38) $ (2.39) $ (2.54) $ (3.71)
Shares used in computing net loss per
common share, basic and diluted.... 313 1,274 1,768 2,157 2,099 2,684
Pro forma net loss per share, basic
and diluted (unaudited)............ $ (0.21) $ (0.53)
Shares used in computing pro forma
net loss per share, basic and
diluted (unaudited)................ 14,347 15,217
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 27,820 $ 93,830
Working capital............................................. 23,278 89,288
Total assets................................................ 34,658 100,668
Long-term obligations, less current portion................. 3,483 3,483
Redeemable convertible preferred stock...................... 50,538 --
Total stockholders' equity (deficit)........................ (25,262) 91,286
</TABLE>

The increase in net loss attributable to common stockholders due to
accretion on redeemable convertible preferred stock will not occur after this
offering because all of the outstanding preferred stock will be converted to
common stock at the closing of the offering.

See Note 1 of notes to our financial statements for an explanation of the
determination of the number of shares used in computing per share data.

The as adjusted balance sheet data reflects the receipt and application of
the net proceeds from the sale of the 4,500,000 shares of common stock in this
offering at the initial public offering price of $16.00 per share after
deducting underwriting discounts and commissions and estimated offering expenses
and the conversion of all outstanding preferred stock into common stock. See
"Use of Proceeds" and "Capitalization."

6
<PAGE> 10

RISK FACTORS

You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. If any of the
following risks actually occurs, we may not be able to conduct our business as
currently planned and our financial condition and operating results could be
seriously harmed. In addition, the trading price of our common stock could
decline due to the occurrence of any of these risks, and you may lose all or
part of your investment. See "Special Note Regarding Forward-Looking
Statements."

RISKS RELATED TO OUR BUSINESS

OUR LABCHIP SYSTEMS MAY NOT ACHIEVE MARKET ACCEPTANCE, WHICH COULD CAUSE OUR
REVENUE TO DECLINE.

Our technologies are still in the early stages of development, and our
LabChip systems incorporating these technologies have only recently been made
commercially available. If our LabChip systems do not gain market acceptance, we
will be unable to generate sales and our revenue will decline. The commercial
success of our LabChip systems will depend upon market acceptance of the merits
of our LabChip systems by pharmaceutical and biotechnology companies, academic
research centers and other companies that rely upon laboratory experimentation.
We have not yet demonstrated these benefits. Market acceptance will depend on
many factors, including:

- our ability to demonstrate the advantages and potential economic value of
our LabChip systems over alternative well-established technologies and
products

- the extent of Agilent's efforts to market the Agilent 2100 Bioanalyzer

- our ability to market our high throughput systems through our technology
access program

Because the products comprising our LabChip systems have been in operation
for a limited period of time, their accuracy, reliability, ease of use and
commercial value have not been fully established. If the initial Agilent 2100
Bioanalyzer customers or our initial technology access program customers do not
approve of our initial LabChip systems because these systems fail to generate
the quantities and quality of data they expect, are too difficult or costly to
use, or are otherwise deficient, market acceptance of these LabChip systems
would suffer and we may not be able to generate further sales. We cannot assure
you that these customers' efforts to put our LabChip systems into use will
continue or will be expeditious or effective. Potential customers for our high
throughput systems may also wait for indications from our three initial
technology access program customers that our high throughput systems work
effectively and generate substantial benefits. Further, non-acceptance by the
market of our initial LabChip systems could undermine not only those systems but
subsequent LabChip systems as well.

WE EXPECT TO INCUR FUTURE OPERATING LOSSES AND MAY NOT ACHIEVE PROFITABILITY.

We have experienced significant operating losses each year since our
inception and expect to incur substantial additional operating losses for at
least the next two years, primarily as a result of expected increases in
expenses for manufacturing capabilities, research and product development costs
and general and administrative costs. We may never achieve profitability. For
example, we experienced net losses of approximately $6.3 million in 1997, $3.0
million in 1998 and $8.1 million in the first nine months of 1999. As of
September 30, 1999, we had an accumulated deficit of approximately $28.4
million, which includes $5.7 million of accretion on redeemable convertible
preferred stock. Our losses have resulted principally from costs incurred in
research and development and from general and administrative costs associated
with our operations. These costs have exceeded our revenue and interest income
which, to date, have been generated principally from collaborative research and
development agreements, technology access fees, cash and investment balances
and, to a lesser extent, product sales and government grants.

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<PAGE> 11

OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND ANY FAILURE TO MEET FINANCIAL
EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A
DECLINE IN OUR STOCK PRICE.

Our quarterly operating results have fluctuated significantly in the past
and we expect they will fluctuate in the future as a result of many factors,
some of which are outside of our control. For example, our revenues have varied
dramatically as a result of the timing of fees obtained under our technology
access program, as these fees are comparatively large and are recognized
unevenly over time. It is possible that in some future quarter or quarters, our
operating results will be below the expectations of securities analysts or
investors. In this event, the market price of our common stock may fall abruptly
and significantly. Because our revenue and operating results are difficult to
predict, we believe that period-to-period comparisons of our results of
operations are not a good indication of our future performance.

If revenue declines in a quarter, whether due to a delay in recognizing
expected revenue or otherwise, our earnings will decline because many of our
expenses are relatively fixed. In particular, research and development and
general and administrative expenses are not affected directly by variations in
revenue.

WE ARE INVOLVED IN INTELLECTUAL PROPERTY LITIGATION WITH ACLARA BIOSCIENCES THAT
MAY HURT OUR COMPETITIVE POSITION, MAY BE COSTLY TO US AND MAY PREVENT US FROM
SELLING OUR PRODUCTS.

Our suit against Aclara is costly to litigate and if we are not successful
then we will not recover these costs. We have filed a suit against Aclara
Biosciences, Inc. and our former patent counsel alleging that they
misappropriated our trade secrets, and that our former patent counsel breached
their duties to us as our attorneys. We may not be successful in our lawsuit
against them, in which case we will have incurred substantial litigation costs
that we will not recover.

If we lose Aclara's suit against us it will hurt our competitive position,
may be costly to us and may prevent us from selling our products. In addition,
subsequent to the filing of our suit, Aclara sued us claiming we are infringing
one of its patents with our LabChip systems that use electrical charges to move
fluids and chemicals through the channels of the chip. If we lose this case, we
will need to obtain from Aclara a license to this technology in order to
continue to market our products that have been found to infringe Aclara's
patent, which may include all products currently marketed by Agilent. This
license could be expensive, or could require us to license to Aclara some of our
technology which would result in a partial loss of our competitive advantage in
the marketplace, each of which could seriously harm our ability to conduct our
business, and hurt our financial condition and results of operations. We believe
that we have meritorious defenses in this action. However, litigation is
unpredictable and we may not prevail with any of these defenses. If Aclara is
successful in its suit against us and is unwilling to grant us a license, we
will be required to stop selling our products that are found to infringe
Aclara's patent unless we can redesign them so they do not infringe Aclara's
patent, which we may be unable to do. In addition, if we lose the patent suit,
we could be required to pay Aclara damages, including treble damages, which
could be substantial and seriously harm our financial position.

This litigation will be expensive to us, may be protracted and our
confidential information may be compromised. Whether or not we are successful in
these lawsuits, we expect this litigation to consume substantial amounts of our
financial and managerial resources. At any time Aclara may file additional
claims against Caliper, or we may file additional claims against Aclara, which
could increase the risk, expense and duration of the litigation. Further,
because of the substantial amount of discovery required in connection with this
type of litigation, there is a risk that some of our confidential information
could be compromised by disclosure. For more information on our litigation with
Aclara, see "Business -- Legal Proceedings."

PUBLIC ANNOUNCEMENTS OF LITIGATION EVENTS WITH ACLARA BIOSCIENCES MAY HURT OUR
STOCK PRICE.

During the course of our lawsuits with Aclara there may be public
announcements of the results of hearings, motions, and other interim proceedings
or developments in the litigation. If securities analysts or investors perceive
these results to be negative, it could have a substantial negative effect on the
trading price of our stock.
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<PAGE> 12

IF AGILENT DETERMINES THAT WE MAY BE VIOLATING A THIRD-PARTY PATENT, IT MAY
TERMINATE SALES OF THE AGILENT 2100 BIOANALYZER, WHICH WILL DECREASE OUR
REVENUE.

Under our collaboration agreement with Agilent, Agilent may elect at any
time to stop developing, manufacturing or distributing any product that it
reasonably determines, on the advice of counsel, poses a substantial risk of
infringing a third-party patent. For example, if we lose the Aclara litigation,
or if any adverse developments occur during the course of this litigation, or if
any other third-party claims that we are violating their patent, then Agilent
may terminate marketing and selling of the Agilent 2100 Bioanalyzer system,
which Agilent began marketing and selling in September 1999, which will decrease
our future revenue.

OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
MAY CAUSE US TO ENGAGE IN COSTLY LITIGATION AND, IF WE ARE NOT SUCCESSFUL, COULD
ALSO CAUSE US TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT US FROM SELLING OUR
PRODUCTS.

Third parties may assert infringement or other intellectual property claims
against us, such as in the Aclara litigation described above and under
"Business-Legal Proceedings." We may have to pay substantial damages, including
treble damages, for past infringement if it is ultimately determined that our
products infringe a third party's proprietary rights. Further, we may be
prohibited from selling our products before we obtain a license, which, if
available at all, may require us to pay substantial royalties. Even if these
claims are without merit, defending a lawsuit takes significant time, may be
expensive and may divert management attention from other business concerns. We
are aware of third-party patents that may relate to our technology or potential
products. We have also been notified that third parties have attempted to
provoke an interference with one issued U.S. patent that we have exclusively
licensed to determine the priority of inventions. Any public announcements
related to litigation or interference proceedings initiated or threatened
against us could cause our stock price to decline.

WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS, WHICH WOULD
BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO LOSE SOME OF OUR INTELLECTUAL
PROPERTY RIGHTS, WHICH WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.

We rely on patents to protect a large part of our intellectual property and
our competitive position. In order to protect or enforce our patent rights, we
may initiate patent litigation against third parties, such as infringement suits
or interference proceedings. These lawsuits could be expensive, take significant
time, and could divert management's attention from other business concerns. They
would put our patents at risk of being invalidated or interpreted narrowly and
our patent applications at risk of not issuing. We may also provoke these third
parties to assert claims against us. Patent law relating to the scope of claims
in the technology fields in which we operate is still evolving and,
consequently, patent positions in our industry are generally uncertain. We
cannot assure you that we will prevail in any of these suits or that the damages
or other remedies awarded, if any, will be commercially valuable. During the
course of these suits, there may be public announcements of the results of
hearings, motions and other interim proceedings or developments in the
litigation. If securities analysts or investors perceive any of these results to
be negative, it could cause our stock to decline.

THE RIGHTS WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY UNDERLYING OUR
PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO USE OUR
TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.

In addition to patents, we rely on a combination of trade secrets,
copyright and trademark laws, nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual property rights.
Nevertheless, these measures may not be adequate to safeguard the technology
underlying our products. If they do not protect our rights, third parties could
use our technology, and our ability to compete in the market would be reduced.
In addition, employees, consultants and others who participate in the
development of our products may breach their agreements with us regarding our
intellectual property, and we may not have adequate remedies for the breach. We
also may not be able to

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<PAGE> 13

effectively protect our intellectual property rights in some foreign countries.
For a variety of reasons, we may decide not to file for patent, copyright or
trademark protection outside of the United States. We also realize that our
trade secrets may become known through other means not currently foreseen by us.
Notwithstanding our efforts to protect our intellectual property, our
competitors may independently develop similar or alternative technologies or
products that are equal or superior to our technology and products without
infringing on any of our intellectual property rights or design around our
proprietary technologies. For further information on our intellectual property
and the difficulties in protecting it, see "Business -- Intellectual Property."

IF WE DO NOT SUCCESSFULLY INTRODUCE NEW PRODUCTS AND EXPAND THE RANGE OF
APPLICATIONS FOR OUR LABCHIP SYSTEMS, WE MAY EXPERIENCE A DECLINE IN REVENUE OR
SLOW REVENUE GROWTH AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.

We intend to develop LabChip systems with increasingly high throughput
capabilities and develop a broad range of applications for our LabChip
technology. If we are unable to do so, our LabChip systems may not become widely
used and we may experience a decline in revenue or slow revenue growth and may
not achieve or maintain profitability.

In order for our high throughput systems to achieve the levels of
throughput necessary to meet customers' demands, we need to develop and
manufacture Sipper chips with more than one capillary, which we may not be able
to do. Our current high throughput systems operate with Sipper chips with only
one capillary, a small glass tube used to draw compounds into the chip. In order
to achieve the levels of throughput that our customers desire, we will need to
develop a LabChip system accommodating multiple capillaries, which we may not be
able to do. If we cannot cost-effectively deliver chips with multiple
capillaries, we may not be able to attract new customers to purchase our high
throughput systems, which would seriously harm our future prospects. Further,
our existing technology access program customers may decide not to renew their
annual access subscriptions, which would seriously reduce our revenue.

We must develop new applications for existing LabChip instruments, which we
may not be able to do. The Agilent 2100 Bioanalyzer uses LabChip kits that we
specifically design for each application. We currently have LabChip kits
commercially available for only three applications relating to DNA and RNA
sizing and quantification. DNA and RNA are commonly used acronyms for chemicals
that contain, or transmit, genetic information in living things. We currently
are developing LabChip kits for other applications. If we are unable to develop
LabChip kits for specific applications required by potential customers, those
customers will not purchase the Agilent 2100 Bioanalyzer.

We must also continue to develop applications for our high throughput
systems. If we are not able to complete the development of these applications,
or if we experience difficulties or delays, we may lose our current technology
access program customers and may not be able to obtain new customers.

WE RELY HEAVILY ON AGILENT TO MANUFACTURE, MARKET AND DISTRIBUTE THE AGILENT
2100 BIOANALYZER. IF AGILENT FAILS TO PERFORM UNDER OUR AGREEMENT OR
SUCCESSFULLY COMMERCIALIZE OUR COLLABORATIVE PRODUCTS, OUR REVENUE FROM THE
AGILENT 2100 BIOANALYZER WOULD BE REDUCED AND WE MAY LOSE THE DEVELOPMENT
FUNDING WE CURRENTLY RECEIVE FROM AGILENT.

Agilent manufactures, markets and distributes the Agilent 2100 Bioanalyzer
under an agreement we entered into in May 1998. We also rely on Agilent for
significant financial and technical contributions in the development of products
covered by the agreement. Our ability to develop, manufacture and market these
products successfully depends significantly on Agilent's performance under this
agreement. If Agilent experiences manufacturing or distribution difficulties,
does not actively market the Agilent 2100 Bioanalyzer, or does not otherwise
perform under this agreement, our revenue from the Agilent 2100 Bioanalyzer
would be reduced. In addition, Agilent may terminate the agreement at their
discretion at any time after May 2001. If Agilent terminates this agreement, we
would need to obtain development funding from other sources, and we may be
required to find one or more other collaborators for the development and
commercialization of our products. Our inability to enter into agreements with
commercialization

10
<PAGE> 14

partners or develop our own marketing, sales, and distribution capabilities
would increase costs and impede the commercialization of our products.

AGILENT MAY COMPETE WITH US IF OUR COLLABORATION TERMINATES AFTER MAY 2003,
WHICH COULD REDUCE THE POTENTIAL REVENUE FROM OUR INDEPENDENT PRODUCT SALES.

Under the terms of our agreement with Agilent, if they, or we, terminate
our agreement after May 2003, we will grant to Agilent a non-exclusive license
to our LabChip technologies as then developed for use in the research products
field. Consequently, there is the possibility that we may experience competition
from Agilent after May 2003, which would reduce our ability to sell products
independently or through other commercial partners. See
"Business -- Commercialization -- Strategic Alliance with Agilent" for a further
description of the terms of our collaboration with Agilent.

WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR PRODUCTS AND MAY ENCOUNTER
MANUFACTURING PROBLEMS OR DELAYS WHICH COULD RESULT IN LOST REVENUE.

Although Agilent manufactures the Agilent 2100 Bioanalyzer, we manufacture
the chips used in this instrument and also currently manufacture instruments and
Sipper chips for our high throughput systems. We currently have limited
manufacturing capacity for our LabChip systems and products and experience
variability in manufacturing yields for chips, particularly Sipper chips. If we
fail to deliver chips and high throughput screening products in a timely manner,
our relationships with our customers could be seriously harmed, and revenue
would decline. We currently have one manufacturing facility located in Mountain
View, California. The actual number of chips we are able to sell or use depends
in part upon the manufacturing yields for these chips. We have only recently
begun to manufacture significant numbers of Sipper chips and are continuing to
develop our quality control procedures for these chips. In order to offer Sipper
chips with multiple capillaries for ultra high throughput applications, we will
need to achieve consistently high yields in the process of inserting
capillaries. We cannot assure you that manufacturing or quality control problems
will not arise as we attempt to scale-up our production of chips or that we can
scale-up manufacture and quality control in a timely manner or at commercially
reasonable costs. If we are unable to consistently manufacture Sipper chips or
chips for the Agilent 2100 Bioanalyzer on a timely basis because of these or
other factors, our product sales will decline. We are currently manufacturing
high throughput instruments in-house, in limited volumes and with largely manual
assembly. If demand for our high throughput instruments increases, we will
either need to expand our in-house manufacturing capabilities or outsource to
Agilent or other manufacturers.

IF A NATURAL DISASTER STRIKES OUR MANUFACTURING FACILITY WE WOULD BE UNABLE TO
MANUFACTURE OUR PRODUCTS FOR A SUBSTANTIAL AMOUNT OF TIME AND WE WOULD
EXPERIENCE LOST REVENUE.

We rely on a single manufacturing facility to produce our chips and high
throughput systems, and have no alternative facilities. The facility and some
pieces of manufacturing equipment are difficult to replace and could require
substantial replacement lead-time. Our manufacturing facility may be affected by
natural disasters such as earthquakes and floods. Earthquakes are of particular
significance since the manufacturing facility is located in Mountain View,
California, an earthquake-prone area. In the event our existing manufacturing
facility or equipment is affected by man-made or natural disasters, we would be
unable to manufacture products for sale, meet customer demands or sales
projections. If our manufacturing operations were curtailed or ceased, it would
seriously harm our business.

BECAUSE A SMALL NUMBER OF CUSTOMERS AND AGILENT HAVE ACCOUNTED FOR, AND ARE
LIKELY TO CONTINUE TO ACCOUNT FOR, A SUBSTANTIAL PORTION OF OUR REVENUE, OUR
REVENUE COULD DECLINE DUE TO THE LOSS OF ONE OF THESE CUSTOMERS OR THE
TERMINATION OF OUR AGREEMENT WITH AGILENT.

Historically we have had very few customers and one commercial partner,
Agilent, from which we have derived the majority of our revenue and, if we were
to lose any one of these, our revenue would decrease substantially. Agilent and
three customers accounted for 91% of total revenue in the nine months ended
September 30, 1999, and two customers and Agilent accounted for 97% of total
revenue in fiscal
11
<PAGE> 15

year 1998. We and Agilent introduced the Agilent 2100 Bioanalyzer system in
September 1999 and have not yet derived significant revenue from the sale of
this product on a commercial scale. Although we anticipate that the introduction
of the Agilent 2100 Bioanalyzer system will expand our revenue base, we expect
that we will continue to rely on our large customers and on Agilent for the
majority of our revenue.

FAILURE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS COULD REDUCE OUR
ABILITY TO COMPETE AND RESULT IN LOWER REVENUE.

We anticipate that our existing capital resources and the net proceeds from
this offering will enable us to maintain currently planned operations through at
least the year 2000. However, we premise this expectation on our current
operating plan, which may change as a result of many factors. Consequently, we
may need additional funding sooner than anticipated. Our inability to raise
capital would seriously harm our business and product development efforts. In
addition, we may choose to raise additional capital due to market conditions or
strategic considerations even if we believe we have sufficient funds for our
current or future operating plans. To the extent that additional capital is
raised through the sale of equity or convertible debt securities, the issuance
of these securities could result in dilution to our stockholders.

We currently have no credit facility or committed sources of capital other
than an equipment lease line with $1.7 million unused and available. To the
extent operating and capital resources are insufficient to meet future
requirements, we will have to raise additional funds to continue the development
and commercialization of our technologies. These funds may not be available on
favorable terms, or at all. If adequate funds are not available on attractive
terms, we may be required to curtail operations significantly or to obtain funds
by entering into financing, supply or collaboration agreements on unattractive
terms.

WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO
COMPETE.

We are highly dependent on Daniel L. Kisner, M.D., our President and Chief
Executive Officer, and our three founding executive officers, Calvin Y. H. Chow,
Michael R. Knapp, Ph.D. and J. Wallace Parce, Ph.D., as well as the other
principal members of our management and scientific staff. The loss of services
of any of these persons could seriously harm our product development and
commercialization efforts. In addition, research, product development and
commercialization will require additional skilled personnel in areas such as
chemistry and biology, software engineering and electronic engineering. Our
business is located in Silicon Valley, California, where demand for personnel
with these skills is extremely high and is likely to remain high. As a result,
competition for and retention of personnel, particularly for employees with
technical expertise, is intense and the turnover rate for these people is high.
If we are unable to hire, train and retain a sufficient number of qualified
employees, our ability to conduct and expand our business could be seriously
reduced. The inability to retain and hire qualified personnel could also hinder
the planned expansion of our business.

OUR OR THIRD PARTIES' COMPUTER SYSTEMS MAY FAIL IN THE YEAR 2000, WHICH WOULD
DELAY OUR PRODUCT DEVELOPMENT AND THE MANUFACTURING OF OUR PRODUCTS.

Failure of our computer systems could seriously delay our product
development processes and/or reduce our ability to cost-effectively manage our
business during the time required to fix these problems. In addition, computer
failures could cause Agilent to incur delays in manufacturing the Agilent 2100
Bioanalyzer, or our customers to postpone or cancel orders for our products. We
have assessed the readiness of our computer systems to handle dates beyond the
year 1999. We have not assessed the readiness of our non-software suppliers or
our customers. Unforeseen problems may arise in our own computers, our products,
and embedded systems, and from customers, suppliers and other organizations with
which we conduct transactions worldwide. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000
Readiness" for more information on the status of our preparation relating to
this issue.

12
<PAGE> 16

RISKS RELATED TO THIS OFFERING

NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.

The initial public offering price is substantially higher than the book
value per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $11.50 in net tangible
book value per share of common stock, based on the initial public offering price
of $16.00 per share. In addition, the number of shares available for issuance
under our stock option and employee stock purchase plans will automatically
increase without stockholder approval. Investors will incur additional dilution
upon the exercise of outstanding stock options and warrants. See "Dilution" for
a more detailed discussion of the dilution new investors will incur in this
offering.

CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.

Following this offering our directors, entities affiliated with our
directors, and our executive officers will beneficially own, in the aggregate
approximately 31% of our outstanding common stock. These stockholders as a group
will be able to substantially influence the management and affairs of Caliper
and, if acting together, would be able to influence most matters requiring the
approval by our stockholders, including the election of directors, any merger,
consolidation or sale of all or substantially all of our assets and any other
significant corporate transaction. The concentration of ownership may also delay
or prevent a change of control of Caliper at a premium price if these
stockholders oppose it. See "Principal Stockholders" for details on our stock
ownership.

PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER,
WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR
OUR COMMON STOCK.

Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing an acquisition, merger in which we are not the
surviving company or changes in our management. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law. These provisions may prohibit large
stockholders, in particular those owning 15% or more of the outstanding voting
stock, from consummating a merger or combination including us. These provisions
could limit the price that investors might be willing to pay in the future for
our common stock.

THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. If there are more shares of our common stock offered for sale than
buyers are willing to purchase, then the market price of our common stock may
decline to a market price at which buyers are willing to purchase the offered
shares of common stock and sellers remain willing to sell the shares. The number
of shares of common stock available for sale in the public market is limited by
restrictions under federal securities law and under lock-up agreements that our
stockholders have entered into with the underwriters and with us. Those lock-up
agreements restrict our stockholders from selling, pledging our otherwise
disposing of their shares for a period of 180 days after the date of this
prospectus without the prior written consent of Credit Suisse First Boston
Corporation. However, Credit Suisse First Boston Corporation may, in its sole
discretion, release all or any portion of the common stock from the restrictions
of the lock-up agreements. The following table indicates approximately when the
15,804,501 shares of our common stock that are not being sold in the

13
<PAGE> 17

offering but which were outstanding as of September 30, 1999 will be eligible
for sale into the public market:

<TABLE>
<CAPTION>
DAYS AFTER THE SHARES ELIGIBLE
EFFECTIVE DATE FOR SALE COMMENT
-------------- --------------- ------------------------------------------------
<S> <C> <C>
On Effectiveness....... 289,676 Shares not locked-up and saleable under Rule 144
90 days................ 79,293 Shares not locked-up and saleable under Rules
144 and 701
180 days............... 15,435,532 Lock-up released: shares saleable under Rules
144 and 701
</TABLE>

Additionally, of the 1,669,891 shares that may be issued upon the exercise
of options outstanding as of September 30, 1999, approximately 434,170 shares
will be vested and eligible for sale 180 days after the date of this prospectus.
For a further description of the eligibility of shares for sale into the public
market following the offering, see "Shares Eligible for Future Sale."

14
<PAGE> 18

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. We have attempted
to identify forward-looking statements by terminology including "anticipates,"
"believes," "can," "continue," "could," "estimates," "expects," "intends,"
"may," "plans," "potential," "predicts," "should" or "will" or the negative of
these terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Risk Factors," that may cause our
or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels or
activity, performance or achievements expressed or implied by these
forward-looking statements.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are not under any duty to update any
of the forward-looking statements after the date of this prospectus to conform
these statements to actual results, unless required by law.

15
<PAGE> 19

USE OF PROCEEDS

Our net proceeds from the sale of the 4,500,000 shares of common stock we
are offering, at the initial public offering price of $16.00 per share, are
estimated to be approximately $66.0 million after deducting underwriting
discounts and commissions and estimated offering expenses payable by us. We
expect to use the net proceeds for general corporate purposes, including capital
expenditures, manufacturing scale-up, product development and technology
research.

The amounts and timing of our actual expenditures will depend upon numerous
factors, including the status of our product development and commercialization
efforts, the amount of proceeds actually raised in this offering, the amount of
cash generated by our operations, competition, and sales and marketing
activities. We may also use a portion of the proceeds for the acquisition of, or
investment in, companies, technologies or assets that complement our business.
However, we have no present understandings, commitments or agreements to enter
into any potential acquisitions and investments. Further, we have not determined
the amounts we plan to spend on any of the areas listed above or the timing of
these expenditures. As a result, our management will have broad discretion to
allocate the net proceeds from this offering. Pending application of the net
proceeds as described above, we intend to invest the net proceeds of the
offering in short-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

We have never paid any cash dividends on our capital stock. We currently
anticipate that we will retain earnings to support operations and to finance the
growth and development of our business and do not anticipate paying cash
dividends for at least the next 24 months.

16
<PAGE> 20

CAPITALIZATION

The following table presents the following information:

- Our actual capitalization as of September 30, 1999

- Our pro forma capitalization reflecting the conversion of all outstanding
shares of preferred stock into common stock upon the closing of this
offering

- Our pro forma as adjusted capitalization reflecting the sale of the
4,500,000 shares of common stock offered by us at the initial public
offering price of $16.00 per share, less the underwriting discounts and
commissions and estimated offering expenses

This table should be read with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, less current portion............... $ 3,483 $ 3,483 $ 3,483
-------- -------- --------
Redeemable convertible preferred stock, $0.001 par value;
19,579,039 shares authorized, 11,703,692 shares issued and
outstanding, actual; no shares authorized or outstanding
pro forma and pro forma as adjusted....................... 50,538 -- --
-------- -------- --------
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value; 1,420,961
shares authorized, 829,142 shares issued and
outstanding, actual; 5,000,000 shares authorized, no
shares issued and outstanding pro forma and pro forma
as adjusted.......................................... 1 -- --
Common stock, $0.001 par value; 32,000,000 shares
authorized, 3,271,667 shares issued and outstanding,
actual; 70,000,000 shares authorized pro forma and
pro forma as adjusted, 15,804,501 shares issued and
outstanding pro forma, 20,304,501 shares issued and
outstanding pro forma as adjusted.................... 3 16 20
Additional paid-in capital................................ 8,948 59,474 125,480
Deferred stock compensation............................... (5,858) (5,858) (5,858)
Accumulated deficit....................................... (28,356) (28,356) (28,356)
-------- -------- --------
Total stockholders' equity (deficit).................... (25,262) 25,276 91,286
-------- -------- --------
Total capitalization................................. $ 28,759 $ 28,759 $ 94,769
======== ======== ========
</TABLE>

This table excludes the following shares:

- 1,669,891 shares that may be issued upon exercise of options outstanding
as of September 30, 1999 at a weighted average exercise price of $0.82
per share

- 300,000 shares that we could issue under our employee stock purchase plan

- 74,503 shares that may be issued upon exercise of warrants outstanding as
of September 30, 1999 at a weighted average exercise price of $1.22 per
share

- 38,460 shares that may be issued at an exercise price of $1.22 per share
upon exercise of warrants that will be issued if a patent milestone is
met

17
<PAGE> 21

DILUTION

The pro forma net tangible book value of our common stock on September 30,
1999, reflecting the conversion of all outstanding shares of preferred stock
into shares of common stock upon the closing of this offering, was approximately
$25.3 million, or approximately $1.60 per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities divided by the number of shares of common stock outstanding.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of our common
stock immediately afterwards. Assuming our sale of 4,500,000 shares of common
stock offered by this prospectus at the initial public offering price of $16.00
per share, and after deducting underwriting discounts and commissions and
estimated offering expenses, our net tangible book value at September 30, 1999
would have been approximately $91.3 million or $4.50 per share. This represents
an immediate decrease in net tangible book value of $11.50 per share to new
investors purchasing shares of common stock in this offering. The following
table illustrates this dilution on a per share basis:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $16.00
Pro forma net tangible book value per share at September 30,
1999........................................................ $1.60
Increase per share attributable to new investors....... 2.90
-----
Pro forma net tangible book value per share after this
offering.................................................. 4.50
------
Dilution per share to new investors......................... $11.50
======
</TABLE>

The following table summarizes, on a pro forma basis, as of September 30,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors purchasing shares in this
offering. We have used the initial public offering price of $16.00 per share,
and we have not deducted underwriting discounts and commissions and estimated
offering expenses in our calculations.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 15,804,501 77.8% $ 43,754,000 37.8% $ 2.77
New investors......................... 4,500,000 22.2 72,000,000 62.2 16.00
---------- ----- ------------ -----
Total............................ 20,304,501 100.0% $115,754,000 100.0%
========== ===== ============ =====
</TABLE>

The foregoing discussion and tables assume no exercise of any outstanding
stock options or warrants. The exercise of all options and warrants outstanding
as of September 30, 1999 having an exercise price less than the offering price
would increase the dilutive effect to new investors to $11.79 per share. See
"Capitalization," "Management -- Employee Benefit Plans" and "Description of
Capital Stock."

If the underwriters exercise their over-allotment in full, the following
will occur:

- the number of shares of common stock held by existing stockholders will
decrease to approximately 75.3% of the total number of shares of our
common stock outstanding

- the number of shares held by new investors will increase to 5,175,000
shares, or approximately 24.7% of the total number of our common stock
outstanding after this offering

18
<PAGE> 22

SELECTED FINANCIAL DATA

The statements of operations data for each of the years ended December 31,
1996, 1997 and 1998, and the balance sheet data as of December 31, 1997 and
1998, have been derived from our audited financial statements included elsewhere
in this prospectus which have been audited by Ernst & Young LLP, independent
auditors. The statements of operations data for the nine months ended September
30, 1998 and 1999, and the balance sheet data as of September 30, 1999, have
been derived from our unaudited financial statements included elsewhere in this
prospectus. The balance sheet data as of December 31, 1996 have been derived
from our audited financial statements not included in this prospectus. The
statements of operations data for the period from inception (July 26, 1995)
through December 31, 1995 and the balance sheet data at December 31, 1995 have
been derived from our unaudited financial statements not included in this
prospectus. Our historical results are not necessarily indicative of results to
be expected for any future period. The data presented below have been derived
from financial statements that have been prepared in accordance with generally
accepted accounting principles and should be read with our financial statements,
including the notes, and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION NINE MONTHS
(JULY 26, 1995) YEAR ENDED ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------------- -----------------
1995 1996 1997 1998 1998 1999
--------------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.................................................. $ -- $ 132 $ 2,266 $ 8,155 $ 4,425 $ 8,859
Costs and expenses:
Research and development............................... 406 2,734 7,200 9,584 7,232 12,302
General and administrative............................. 128 1,240 2,478 2,932 1,996 3,487
Amortization of deferred stock compensation............ -- -- -- -- -- 1,997
Acquired in-process research and development........... -- 978 -- -- -- --
------ ------- ------- ------- ------- -------
Total costs and expenses................................. 534 4,952 9,678 12,516 9,228 17,786
------ ------- ------- ------- ------- -------
Operating loss........................................... (534) (4,820) (7,412) (4,361) (4,803) (8,927)
Interest income (expense), net........................... (2) 110 1,131 1,386 1,058 801
------ ------- ------- ------- ------- -------
Net loss................................................. (536) (4,710) (6,281) (2,975) (3,745) (8,126)
Accretion on redeemable convertible preferred stock...... -- (262) (1,470) (2,174) (1,587) (1,822)
------ ------- ------- ------- ------- -------
Net loss attributable to common stockholders............. $ (536) $(4,972) $(7,751) $(5,149) $(5,332) $(9,948)
====== ======= ======= ======= ======= =======
Net loss per common share, basic and diluted............. $(1.71) $ (3.90) $ (4.38) $ (2.39) $ (2.54) $ (3.71)
====== ======= ======= ======= ======= =======
Shares used in computing net loss per common share, basic
and diluted............................................ 313 1,274 1,768 2,157 2,099 2,684
Pro forma net loss per share, basic and diluted
(unaudited)............................................ $ (0.21) $ (0.53)
======= =======
Shares used in computing pro forma net loss per share,
basic and diluted (unaudited).......................... 14,347 15,217
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999
----- ------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 40 $12,450 $ 26,549 $ 31,052 $ 27,820
Working capital............................................. 74 11,783 24,679 30,074 23,278
Total assets................................................ 83 13,112 29,107 35,730 34,658
Long-term obligations, less current portion................. -- 417 1,430 2,008 3,483
Redeemable convertible preferred stock...................... -- 16,913 38,283 48,716 50,538
Total stockholders' deficit................................. (536) (4,986) (12,665) (17,654) (25,262)
</TABLE>

The financial data as of December 31, 1996 and for the year then ended
reflects the acquisition of ChemCore Corporation in February 1996. This
acquisition was accounted for as a purchase. See Note 3 of notes to our
financial statements.

See Note 1 of notes to our financial statements for an explanation of the
determination of the number of shares used in computing per share data.

19
<PAGE> 23

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read with "Selected
Financial Data" and our financial statements and notes included elsewhere in
this prospectus. The discussion in this prospectus contains forward-looking
statements that involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. The cautionary statements made
in this prospectus should be read as applying to all related forward-looking
statements wherever they appear in this prospectus. Our actual results could
differ materially from those discussed here. Factors that could cause or
contribute to these differences include those discussed in "Risk Factors," as
well as those discussed elsewhere. See "Risk Factors" and "Special Note
Regarding Forward-Looking Statements."

OVERVIEW

We are a leader in lab-on-a-chip technologies that miniaturize, integrate
and automate many laboratory processes. We develop, manufacture and sell our
proprietary LabChip systems to pharmaceutical and other companies. We believe
our LabChip systems have the potential to assemble the power and reduce the
scale of entire laboratories full of equipment and people. From inception in
July 1995 through September 1999, our operating activities were primarily
devoted to research and development of technologies involving the manipulation
of very small amounts of fluid, which are referred to as "microfluidic
technologies," and first-generation products such as the Agilent 2100
Bioanalyzer, LabChip kits and our high throughput system, recruiting personnel,
business development, raising capital and acquiring assets. In the first half of
1999, we recognized revenue from our first product sales when we sold initial
versions of our high throughput system for drug screening to two of our
technology access program customers. In addition, in September 1999, Agilent,
our commercial partner, introduced our first LabChip system for use by
individual researchers.

Since our inception, we have incurred significant losses and, as of
September 30, 1999, we had an accumulated deficit of $28.4 million, which
includes $5.7 million of accretion on redeemable convertible preferred stock.
Our losses have resulted principally from costs incurred in research and
development, manufacturing scale-up, and from general and administrative costs
associated with our operations. We expect to continue to incur substantial
research and development, manufacturing scale-up, and general and administrative
costs. As a result, we will need to generate significantly higher revenue to
achieve profitability.

Our quarterly operating results will depend upon many factors, including
market acceptance of our products, the success and timing of signing new
customers to our technology access program, the introduction of new products by
our competitors, the timing of commercial availability of new applications for
our LabChip technology, and the timing and extent of our research and
development efforts. For a more complete discussion of factors that could cause
our quarterly operating results to vary, see "Risk Factors -- Our operating
results fluctuate significantly and any failure to meet financial expectations
may disappoint securities analysts or investors and result in a decline in our
stock price."

Our revenue has been derived principally from contract revenue earned under
our collaboration agreement with Agilent and from our technology access program
customers. To a lesser extent, we have derived revenue from the sale of products
and government grants. Although we are developing and plan to introduce future
products, we cannot assure you that we will be successful in these efforts. To
date, we have generated a substantial portion of our revenue from a limited
number of sources. Our three technology access program customers, Hoffmann-La
Roche, Amgen and Eli Lilly, and our commercial partner, Agilent, each accounted
for in excess of 10% of our revenue in the nine months ended September 30, 1999.
Agilent alone accounted for 50% of our revenue in this period, and our three
technology access program customers collectively accounted for 41% of our
revenue in this period. Hoffmann-La Roche and Agilent each accounted for 40% of
our revenue in the year ended December 31, 1998, and Amgen accounted for 17% of
our revenue in this period. Hoffmann-La Roche alone accounted for 94% of our
revenue in the year ended December 31, 1997. Although we are seeking to expand
our customer base, we cannot assure you that these efforts will be successful.

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Under our agreement, Agilent funds our research and development
expenditures related to the collaboration, reimburses us for our costs of
supplying chips, and chemicals used in the experiment, which are referred to as
"reagents," to Agilent and pays us a share of the gross margin earned on all
components of LabChip systems they sell. We recognize revenue related to
research and development funding received from Agilent as we actually conduct
the related activities. We recognize revenue related to the reimbursement of our
costs of supplying chips and reagents to Agilent when we ship these products. We
expect to recognize revenue from our share of the gross margin earned on all
components of LabChip systems as Agilent ships these products. Under our
technology access program agreements, we recognize as revenue non-refundable
license fees upon the transfer of a license, subscription fees over the term of
the subscription, product sales upon the transfer of title to the customer, and
development and support fees in the period in which the costs are incurred.
Subscription fees and development and support fees may be received annually or
quarterly in advance depending upon the terms of the agreement. Payments
received in advance under all of these agreements are recorded as deferred
revenue until earned. As of September 30, 1999, a total of $2.4 million of
revenue was deferred. We expect to recognize this deferred revenue through the
third quarter of year 2000.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 1999 and 1998

Revenue. Revenue increased to $8.9 million for the nine months ended
September 30, 1999 from $4.4 million for the comparable period in 1998. Of the
$4.5 million increase, $2.5 million was derived from our collaboration with
Agilent, which began in May 1998, and $1.4 million was derived from our
technology access program customers. The remaining $571,000 increase was derived
from our grant from the Advanced Technology Program of the National Institute of
Standards and Technology, which began in January 1999. This grant is for $2
million in aggregate and will continue until December 2001.

Research and Development Expenses. Research and development expenses
consist primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers for chip development, material costs
for prototype and test units, legal expenses resulting from intellectual
property prosecution and litigation, and other expenses related to the design,
development, testing, and enhancement of our products. We expense our research
and development costs as they are incurred. Research and development expenses
increased to $12.3 million during the nine months ended September 30, 1999 from
$7.2 million in the comparable period in 1998. The increase of $5.1 million was
attributable to continued growth of research and development activities,
including $2.1 million related to increased personnel and services to support
our technology access program and initial product launches, $1.4 million related
to higher operating expenses as a result of our move to a larger facility in
January 1999, $1.2 million for costs related to intellectual property protection
and the remainder due to expansion in operating activities. We expect research
and development spending to increase significantly over the next several years
as we expand our research and product development efforts.

General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related expenses for executive, finance and
other administrative personnel, recruiting expenses, professional fees, and
other corporate expenses including business development and general legal
activities. General and administrative expenses increased to $3.5 million during
the nine months ended September 30, 1999 from $2.0 million in the comparable
period in 1998. The increase of $1.5 million was due to $790,000 related to
compensation for general and administrative personnel, $298,000 related to
higher operating expenses as a result of our move to a larger facility in
January 1999, $101,000 related to increased general and administrative supply
costs and the remaining balance due to overall expansion in our operations. We
expect general and administrative expenses to continue to increase over the next
several years to support our growing business activities, the commercialization
of our products, and due to the costs associated with operating a public
company.

Amortization of Deferred Stock Compensation. Deferred stock compensation
represents the difference between the deemed fair value of our common stock for
accounting purposes and the exercise price of options at the date of grant.
During the year ended December 31, 1998 and the nine months ended September 30,

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1999, we recorded deferred stock compensation totaling $7.9 million. We
anticipate that additional deferred compensation totalling $5.3 million will be
recorded for options granted in October 1999. These amounts are being amortized
over the respective vesting periods of the individual stock options using the
graded vesting method. We recorded amortization of deferred compensation of $2.0
million for the nine months ended September 30, 1999. We expect to record
amortization expense for deferred compensation as follows: $1.9 million during
the quarter ended December 31, 1999, $4.6 million during 2000, $2.5 million
during 2001, $1.4 million during 2002, $670,000 during 2003 and $122,000 during
2004. The amount of deferred compensation expense to be recorded in future
periods may decrease if unvested options for which deferred compensation has
been recorded are subsequently canceled.

Interest Income (Expense), Net. Net interest income consists of income
from our cash and investments offset by expenses related to our financing
obligations. Interest income decreased to $801,000 in the nine months ended
September 30, 1999 from net interest income of $1.1 million in the comparable
period of 1998. This decrease resulted from a declining cash and investment
balance due to cash used in operating activities and from higher financing
obligation balances.

Income Taxes. As of December 31, 1998, we had federal and California net
operating loss carryforwards of approximately $10.3 million and $1.4 million. We
also had federal research and development tax credit carryforwards of
approximately $700,000. The net operating loss and credit carryforwards will
expire at various dates beginning on 2002 through 2018, if not utilized.
Utilization of the net operating losses and credits may be substantially limited
due to the change in ownership provisions of the Internal Revenue Code of 1986
and similar state provisions. The annual limitation may result in the expiration
of net operating losses and credits before utilization.

As of December 31, 1998 and 1997, we had deferred tax assets of
approximately $6.3 million and $5.3 million. The net deferred tax asset has been
fully offset by a valuation allowance. The net valuation allowance increased by
$1 million during the year ended December 31, 1998. Deferred tax assets relate
primarily to net operating loss carryforwards, research credit carryforwards,
and capitalized research and development costs.

Years Ended December 31, 1998 and 1997

Revenue. Revenue increased to $8.2 million in 1998 from $2.3 million in
1997. Of the $5.9 million increase, $3.2 million was due to revenue received
through the collaboration agreement with Agilent entered into in May 1998, and
$2.6 million was due to revenue received through technology access program
agreements with Hoffmann-La Roche and Amgen, which we entered into at the end of
1998.

Research and Development Expenses. Our research and development expenses
increased to $9.6 million in 1998 from $7.2 million in 1997. The increase of
$2.4 million was due to $1.4 million related to compensation for additional
scientific personnel, $503,000 due to supplies required to assemble, build and
test prototypes of LabChip systems, $357,000 for costs related to intellectual
property protection and the remaining balance due to expansion in our operating
activities.

General and Administrative Expenses. General and administrative expenses
increased to $2.9 million in 1998 from $2.5 million in 1997. The increase was
due to hiring of additional personnel to support our growing business
activities.

Interest Income (Expense), Net. Net interest income increased to $1.4
million in 1998 from $1.1 million in 1997. This increase was due to increases in
cash and investment balances as a result of our equity financing in May 1998.

Years Ended December 31, 1997 and 1996

Revenue. Revenue increased to $2.3 million in 1997 from $132,000 in 1996.
The increase was due primarily to increased efforts devoted to our previous
collaboration agreement with Hoffmann-La Roche that was executed in October 1996
and a research agreement with Perkin Elmer, each of which has since expired.

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Research and Development Expenses. Our research and development expenses
increased to $7.2 million in 1997 from $2.7 million in 1996. The increase of
$4.5 million was due to $1.6 million in compensation for research and
development personnel, $1.5 million was due to sponsored research, $554,000 was
related to higher operating expenses as a result of our move to a larger
facility in May 1997, $411,000 was due to supplies required to assemble, build
and test prototypes of LabChip systems, $235,000 was paid to outside service
providers for chip development and the remaining balance was due to expansion in
our operating activities.

General and Administrative Expenses. General and administrative expenses
increased to $2.5 million in 1997 from $1.2 million in 1996. The increase was
due to $933,000 in compensation and fees for additional general and
administrative personnel and consultants, $119,000 was related to higher
operating expenses as a result of our move to a larger facility in May 1997,
$105,000 was for recruiting fees and the remainder was due to overall expansion
in our operations.

Interest Income (Expense), Net. Net interest income increased to $1.1
million in 1997 from $110,000 in 1996. This increase was due to an increase in
our cash and investment balances from the proceeds of our equity financings in
the first half of 1997.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations from inception primarily through private
sales of preferred stock, contract and milestone payments to us under our
collaboration and technology access program agreements, and equipment financing
arrangements. As of September 30, 1999, we had received net proceeds of $43.8
million from issuances of common and preferred stock and $21.4 million from
collaborations, technology access program customers and government grants. In
addition, through September 30, 1999 we had financed equipment purchases and
leasehold improvements totaling approximately $6.3 million. We have used leases
and loans to finance capital expenditures. As of September 30, 1999, we had $4.6
million in capitalized lease obligations. These obligations are secured by the
equipment financed, bear interest at a weighted-average fixed rate of
approximately 10.4%, and are due in monthly installments through June 2004.
Under the terms of one equipment financing agreement, the financed equipment may
be purchased by us at a fair value at the end of the financing term. Other
equipment financing agreements require a balloon payment at the end of each loan
term.

As of September 30, 1999, we had $27.8 million in cash, cash equivalents
and marketable securities, as compared to $31.1 million as of December 31, 1998.
We used $2.2 million for operations in the nine months ended September 30, 1999.
This consisted of the net loss for the period of $8.1 million offset in part by
non-cash charges of $2.9 million related to deferred stock compensation
amortization and depreciation expense, and working capital changes of $3.2
million. We used $3.0 million in investing activities for the nine month period
ended September 30, 1999, which consisted of capital expenditures. We received
$2.0 million from financing activities for the nine months ended September 30,
1999, which consisted principally of proceeds from equipment financing of $2.5
million offset by repayments of equipment financing arrangements of $821,000.
See Note 7 of notes to our financial statements.

In January 1999 we entered into a $2.5 million financing arrangement for
the purchase of property and equipment. As of September 30, 1999, we had drawn
down approximately $752,000 and had $1.7 million remaining available under this
arrangement. As of September 30, 1999, we had $4.6 million in capitalized lease
obligations outstanding compared to $2.9 million at December 31, 1998. See Note
7 of notes to our financial statements.

Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing and supporting
our products, and other factors. We expect to devote substantial capital
resources to continue our research and development efforts, to expand our
support and product development activities, and for other general corporate
activities. We believe that our current cash balances, together with the net
proceeds of this offering and revenue to be derived from our collaboration with
Agilent and our technology access program agreements will be sufficient to fund
our operations at least through the year 2000. During or after this period, if
cash generated by operations is insufficient to

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satisfy our liquidity requirements, we may need to sell additional equity or
debt securities or obtain additional credit arrangements. Additional financing
may not be available on terms acceptable to us or at all. The sale of additional
equity or convertible debt securities may result in additional dilution to our
stockholders.

IMPACT OF INFLATION

The effect of inflation and changing prices on our operations was not
significant during the periods presented.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133 is effective for fiscal years beginning after June
15, 1999 and is not anticipated to have an impact on our results of operations
or financial condition when adopted as we hold no derivative financial
instruments and do not currently engage in hedging activities.

In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires that entities capitalize costs related to internal use software once
criteria have been met. We adopted the provisions of SOP 98-1 on January 1,
1999. Through September 30, 1999, we had not capitalized any cost related to
internal use software.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. To minimize this risk in the
future, we intend to maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, money market
funds, government and non-government debt securities. The average duration of
all of our investments in 1998 was less than one year. Due to the short term
nature of these investments, we believe we have no material exposure to interest
rate risk arising from our investments. Therefore, no quantitative tabular
disclosure is required.

We have operated primarily in the United States and all sales to date have
been made in U.S. dollars. Accordingly, we have not had any material exposure to
foreign currency rate fluctuations.

YEAR 2000 READINESS

The "Year 2000 issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.

We designed the Agilent 2100 Bioanalyzer to be Year 2000 compliant when
configured and used with the related documentation, and provided that the
underlying operating system of the host machine and any other software used with
or in the host machine or our product are Year 2000 compliant. However, we have
not exhaustively tested our other products for Year 2000 compliance. We continue
to respond to customer questions about our products.

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We have defined Year 2000 compliance as the ability to:

- correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change

- function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration

- respond to two-digit date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner

- store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century

- recognize Year 2000 as a leap year

We have sought and received certifications from our material software
vendors that licensed software is Year 2000 compliant. Despite testing by us and
current and potential customers, and assurances from developers of products
incorporated into our products, our products may contain undetected errors or
defects associated with Year 2000 date functions. Known or unknown errors or
defects in our product could result in delay or loss of revenues, diversion of
development resources, damage to our reputation, increased service and warranty
costs, or liability from our customers, any of which could harm our business.

Some commentators have predicted significant litigation regarding Year 2000
compliance issues. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we may be affected by it. Congress recently
passed a law that is intended to limit liability for some failures to achieve
Year 2000 compliance. We cannot assure you that this bill will provide us with
any protection, and it does not provide us with protection from any violations
arising under federal securities laws.

We have assessed our material internal information technology systems,
including both our own software products and third-party software and hardware
technology. We have also assessed our non-information technology systems. To the
extent that we are not able to test the technology provided by third-party
vendors, we have sought and received certifications from these vendors that
their systems are Year 2000 compliant. We are not currently aware of any
material operational issues or costs associated with preparing our internal
information technology and non-information technology systems for the Year 2000.
However, we may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal information
technology and non-information technology systems.

Other than publicly available information, we do not currently have any
information concerning the Year 2000 compliance status of our technology access
customers or Agilent. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our products and services. As a result, our business could be
harmed. If Agilent experiences problems related to Year 2000 compliance, it may
delay manufacture or distribution of our current products or development of our
future products.

We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could harm our business.

We do not have a contingency plan to address situations that may result if
our critical operations are not Year 2000 compliant, and we do not anticipate
the need to do so. The cost of developing and implementing the plan may itself
be material. In addition, we may also experience external forces that

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might generally affect industry and commerce, including utility or
transportation company Year 2000 compliance failure interruptions.

Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:

- claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our product and services
to function properly, and any resulting settlements or judgments

- our inability to manage our own business.

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BUSINESS

OVERVIEW

We are a leader in lab-on-a-chip technologies. We believe our LabChip
systems can assemble the power and reduce the size of entire laboratories full
of equipment and people. Our LabChip systems miniaturize, integrate and automate
many laboratory processes, and put them on a chip that can fit in the palm of a
child's hand. Each chip contains a network of microscopic channels through which
fluids and chemicals are moved, using electricity or pressure, in order to
perform experiments. The chips are the key components of our LabChip systems,
which also include reagents as well as instruments and software that together
control and read the chips. We believe our LabChip systems have the potential to
revolutionize experimentation in a wide range of industries by enabling
individuals and organizations to perform laboratory experiments at a speed, cost
and scale previously unattainable. Our initial commercialization focus is the
pharmaceutical industry, where there is an urgent need to improve the efficiency
and reduce the cost of drug discovery and development. Future target industries
potentially include agriculture, clinical diagnostics, chemicals and consumer
products. We believe that we are the first company to sell and deliver
lab-on-a-chip products to customers. During 1999 we introduced our first two
LabChip systems, a personal laboratory system and a high throughput system.

INDUSTRY BACKGROUND

Laboratory Technology

The pharmaceutical, agriculture, clinical diagnostics and chemical
industries rely on laboratory experimentation to obtain important information
that can be used to discover and develop new products. Despite the critical
value of laboratory results to these industries, improvements to the basic
processes and tools used in laboratory experiments have only been incremental
and have not kept pace with technological advances in other industries,
including electronics and computing. Laboratory work still relies on manual
steps and tools, such as test tubes and beakers, and large pieces of equipment
that utilize technology that is decades old. These tools and processes are
expensive, labor-intensive and often imprecise, presenting significant
productivity and efficiency challenges for these industries.

New processes and tools are needed to enable individual researchers and
organizations to work more productively and efficiently. This need has been
recognized and some improvements have been made. In an attempt to increase speed
and reduce costs in many laboratory experiments, researchers have replaced test
tubes with plastic plates having 96 small reservoirs, or "wells," to facilitate
parallel experimentation. Further attempts to reduce costs have led researchers
to replace the 96-well plate with 384- and 1536-well plates in which reactions
can be performed in volumes that are 10 to 100-fold smaller. To enhance
efficiency, some suppliers have integrated multiple pieces of equipment into one
large piece of equipment. Organizations that perform high value, high volume
experimentation have attempted to automate processes by using liquid-handling
robotics to improve the quality and quantity of data achieved in centralized
testing. While these and other advances have helped researchers to work faster
and more efficiently, they still represent only incremental, not revolutionary,
improvements because they continue to rely on time-consuming, imprecise and
labor-intensive processes that can create bottlenecks throughout the entire
experimental process.

A Need for Better Laboratory Technology in the Pharmaceutical Industry

Pharmaceutical companies have realized that to stay competitive and meet
their goals for growth they will have to increase significantly the number of
new drugs they introduce each year. To achieve this, pharmaceutical companies
have found that they will have to engage in experimentation on a massive scale.
Pharmaceutical companies' investments in the comprehensive study of genetic
material, or "genomics," and novel methods of producing large numbers of new
chemical compounds, or "combinatorial chemistry," are examples of this decision.
These activities are generating a wealth of potential targets and new compounds
to be tested and offer the opportunity to discover many new drugs. However, they
also create a

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technological quandary: how to perform significantly more experiments, in less
time, without unacceptable increases in research and development spending. We
believe that recent incremental advances in laboratory technology are not enough
to enable pharmaceutical companies to achieve their growth targets. New
technologies are needed to improve the volume and quality of information
generated in each stage of the drug discovery process, while simultaneously
reducing the cost of experimentation.

THE STAGES OF PHARMACEUTICAL DISCOVERY

Target identification involves acquiring knowledge about the role a particular
molecule, usually a protein, plays in the body in order to determine whether it
might be a good target for further investigation. Today, this activity is most
often initiated with genomics studies, in particular by DNA sequencing, RNA
analysis and genetic mapping.

Target validation is the demonstration that affecting the function of a
particular target has a positive effect on the course of a disease. Target
validation employs a variety of methods including RNA analysis, protein analysis
and cell biology.

Primary screening involves the large-scale testing of collections of chemical
compounds, or libraries, against validated targets. The goal is to find "hits,"
or individual members of the compound library that bind to, inhibit, or activate
a particular target. These libraries are tested in high throughput experiments.
The major pharmaceutical companies are moving towards screening up to 100
targets annually with libraries of up to one million compounds.

Lead optimization is a term that describes the process of sorting through the
compounds that emerge from the primary screen and conducting successive rounds
of chemical alterations and biological tests to find compounds likely to have
appropriate drug properties. Like target validation, lead optimization involves
a variety of methods, including protein analysis, cell biology, chemical
synthesis, as well as high throughput experiments. This stage also involves the
testing of compounds for therapeutic activity in animal models of disease.

Preclinical development involves testing of compounds to assure that they are
safe, have appropriate distribution throughout the body and are appropriately
metabolized. Formulation tests to ensure convenient delivery to patients are
performed, as are tests to ensure that the compounds can be manufactured with
consistent quality.

Clinical development is the testing of pharmaceutical compounds in humans to
demonstrate their safety and efficacy. Because clinical trials are the most
expensive part of drug development, pharmaceutical companies are trying to
improve the outcomes of clinical trials by using the methods of
"pharmacogenetics," the scientific discipline focused on how genetic differences
determine or predict responsiveness or adverse reactions to particular drugs. In
order to use pharmacogenetics in a clinical trial, each patient in the trial
will need his genetic make-up analyzed. This could entail analysis of
approximately 100,000 different sites in a patient's DNA. For a 1,000 patient
trial, this would require generating approximately 100 million data points.

The drug discovery process can be summarized by the six stages described
above. In each of these stages, researchers face many productivity bottlenecks
due to the limitations of current laboratory technologies. Individual
researchers conducting even the simplest, most common experiments must often
perform labor-intensive, time-consuming, multi-step processes on multiple pieces
of equipment. For example, to analyze DNA, researchers must first extract the
DNA and treat it with reagents. Then they pour gels and mount them in equipment
to separate the DNA. After loading the samples into the gels, they activate the
gels for a precise period of time. The gels must then be processed to reveal the
location of the DNA and scanned to see the results. The whole process takes
approximately half a day and produces only a few dozen data points of genetic
information. Thousands of pharmaceutical company researchers perform this
experiment on a routine basis.

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Even "automated" experiments, such as high throughput screening, are still
laborious and time-consuming. For example, to perform one high throughput
screen, researchers typically need to remove thousands of compounds from storage
and transfer small amounts of these compounds to hundreds of new plates. Then
they add fluid to dilute them and transfer a portion of the diluted compound to
another set of plates. After adding more reagents, they move the plates to an
incubation station and incubate the mixture for a precise period of time. They
then transfer the plates to a detection instrument and scan the plates to see
the results. Finally, they discard all the plates. The whole process can take a
team of researchers weeks or months to complete, and has to be repeated to test
the same compounds against the next pharmaceutical target.

As currently performed, these processes are not well suited to the massive
scale-up we believe pharmaceutical companies are seeking. The number of people
and pieces of equipment required would be unmanageable. More importantly, data
quality has often suffered as companies have tried to implement higher
throughput versions of existing procedures, such as 384-well plates in place of
96-well plates. Pharmaceutical companies need a breakthrough in tools for
experimentation to free scientists from the limitations of current technology.

A Broad Need Across Industries for New Laboratory Technology

Other industries dependent upon biological and chemical information face
technology challenges similar to those facing the pharmaceutical industry. The
agricultural-biotechnology industry, for example, is adopting many of the same
research strategies used by the pharmaceutical industry, including genomics,
screening and combinatorial chemistry. In addition, the multi-billion dollar
clinical diagnostics industry continues to search for miniaturized and automated
equipment solutions that will facilitate patient point-of-care testing, as well
as high throughput, automated analysis platforms for use in centralized
reference laboratories. In these and other industries, technology for laboratory
experimentation is limiting the ability to access information about chemicals
and biochemicals, and therefore is limiting companies' ability to transform that
information into novel and commercially valuable products.

CALIPER SOLUTIONS

We believe that our LabChip technology represents a revolutionary advance
in laboratory experimentation needed by the pharmaceutical and other industries
today. The chips are the key components of our LabChip systems that also include
a particular LabChip instrument together with experiment-specific reagents and
software. Our chips contain a network of microscopic channels through which
fluids and chemicals are moved to perform experiments. A single type of chip
used with particular reagents and software to perform a particular experiment
make up one LabChip application. Depending on the chip format, reagents are
introduced either automatically or by the user. The chip is placed in the
instrument, which uses software to control the movement of fluids with pressure
or electricity. The instrument also has an optical system for detecting the
results. Because we have great flexibility in channel design and can exert
split-second computer control over fluid flow, we have the ability to create
chips for a multitude of experiments. Our LabChip systems miniaturize, integrate
and automate experiments providing, we believe, the benefits of high speed,
reduced cost, expanded individual researcher capability, improved data accuracy
and improved enterprise-wide productivity.

Features of LabChip Systems

- Miniaturization. Conventional laboratory equipment typically uses about a
drop of fluid, or 50 to 100 microliters, to perform each experiment. In
some LabChip applications, this volume is reduced to 1 nanoliter, or one
billionth of a liter, an improvement of up to 100,000-fold over
conventional systems.

- Integration. Integration is the compression of multiple processes into a
single process. Today most laboratory systems perform only one or two
steps of an experimental protocol. Our LabChip systems can integrate
complete experiments involving half a dozen or more steps into one
continuous process performed on a single chip.

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<PAGE> 33

- Automation. Today most laboratory experiments are performed using
multiple instruments in combination with multiple manual steps. With our
LabChip systems, entire experiments can be automated and performed inside
a chip using one instrument. The same instrument is used with different
chips to perform other automated experiments.

MINIATURIZATION, INTEGRATION AND AUTOMATION ON A SIPPER CHIP

LOGO
[This illustration is an actual schematic of a current Sipper chip that can be
used to prepare drug samples for analysis and to determine their potency, all on
the same high throughput chip. The specific functions that are part of this
experiment, and where they take place on the chip, are described in the
caption.]
Above is a diagram of a Sipper chip that can be used to prepare drug samples for
analysis and to determine their potency at high throughput. This is an example
of one of the many types of complicated experiments that our chips can perform,
which would normally be performed in a laboratory full of people and equipment.
Potency studies are done by diluting a drug into different concentrations and
testing each one for its effect on a pharmaceutical target. Higher potency drugs
will reduce target activity even at low concentrations. Potency provides
critical information for determining the quality of a drug candidate. We expect
to make this chip commercially available in the first half of the year 2000.

A one nanoliter drug sample, 1/50,000th of a drop, is drawn into the chip
through a small glass tube, or a capillary, attached at point (a). In assembly
line fashion, a different drug enters the chip every 30 seconds, and multiple
experiments are processed on the chip simultaneously. Each nanoliter is divided
sequentially into four portions (b), each of which contains ten times less than
the previous portion. Each portion is then diluted with an appropriate solution
to restore the original volume of sample and achieve four different
concentrations (c). Each of the four diluted drug samples is then mixed with the
target (d), and later, another reagent (e), and incubated for precisely the same
amount of time (f), to enable direct comparison of the results which are
detected on all reactions simultaneously (g).

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Key Benefits of LabChip Systems

- High Speed. We believe our LabChip systems accelerate experiments as much
as 10-fold or more, depending on the application. For example, molecular
separations such as electrophoresis normally take one hour or more using
conventional equipment. On a chip, we can perform these separations in
less than one minute. Another example is that chemical reactions are
usually incubated for 30 minutes or more before the results are
determined. Often, these long incubation periods are necessary only to
provide enough time for manual steps to be performed on large numbers of
samples. By integrating sample processing and detection, we can perform
reactions in one minute or less and achieve comparable results. We
believe our customers can take advantage of this acceleration to increase
throughput or to complete experiments faster, depending on their needs.

- Reduced Reagent and Labor Cost. Our LabChip systems use only a small
fraction of the normal amount of expensive reagents used in experiments
performed in test tubes or 96-well plates, sometimes as little as
1/100,000th, and also reduce labor involved in each experiment. We
believe that saving on reagent cost and labor can enable pharmaceutical
companies to expand the scale of experimentation in ways that would
otherwise not be feasible.

- Expanded Individual Researcher Capability. Because our LabChip systems
can collapse a multi-step, complex experiment into one step, we believe
that individual researchers can perform experiments previously outside
their areas of expertise. By comparison, with conventional, non-
integrated equipment researchers need to acquire the equipment and master
the complexities of performing each individual step.

- Improved Data Accuracy. We believe our LabChip systems generally produce
more accurate and consistent data by reducing human error and the
variability caused by the use of multiple instruments. With higher
quality data, our customers can make better decisions. For example,
biochemical determinations typically require accurate liquid measurements
and precise incubation times. When these are manually performed
significant variations can occur in liquid dispensing and in the duration
of reaction times.

- Improved Enterprise-Wide Productivity. We believe our LabChip systems can
improve data quality to the point where researchers can rely on data
generated outside their laboratory or organization. We believe this would
improve enterprise-wide productivity by supporting data sharing and
reducing the need to repeat experiments. When different research groups
use different assortments of conventional equipment to perform
experiments, they often produce data that is not strictly comparable.

We believe that our LabChip systems have the potential to expand the
capabilities and improve the productivity of individual researchers and, on an
institutional level, to streamline and bring greater efficiency and speed to the
drug discovery and development process. Not all laboratory processes, however,
are ideally suited to be performed with our LabChip systems. For example,
detecting clinically important materials that appear in low concentrations in a
sample, such as the virus that causes AIDS or some hormones, is not always
practical with our LabChip systems. This is because there is a risk that these
materials will not be found in the very small volume employed by our chips. As a
result, without pre-processing the sample to increase the concentration our
LabChip system may fail to detect the material. Furthermore, if the analysis of
a sample must involve even one process that cannot currently be performed in the
LabChip system, then use of the LabChip system for the parts it can perform is
often impractical. This is because the very small scale of the chip experiment
does not generally produce enough material to be analyzed by conventional
laboratory equipment.

The faster pharmaceutical companies can identify and validate targets,
screen massive numbers of compounds, optimize leads and identify promising
compounds to take into clinical development, the greater their chances of seeing
a return on investment for their research and development dollars. LabChip
technology has the potential to reduce the time it takes to discover and
commercialize new drugs. In the future, we believe we can bring similar benefits
to other industries.

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STRATEGY

Our objective is to be the leading lab-on-a-chip company. Key elements of
our strategy to achieve this objective include:

Focus on the Pharmaceutical Industry First. We are focusing on developing
our LabChip systems for the pharmaceutical industry, where the investment in
research and development is large and growing and the need for new technologies
to improve research and development efficiency is urgent. We are addressing the
need for enhanced productivity for individual pharmaceutical researchers with
our first LabChip personal laboratory system, featuring the Agilent 2100
Bioanalyzer, developed in collaboration with Agilent. We also have developed a
high throughput system for use by pharmaceutical companies for drug screening.
We are developing ultra high throughput systems and new chip applications to
bring greater efficiency to the drug discovery process.

Rapidly Build Our Installed Customer Base. We intend to take advantage of
our first-to-market position to rapidly build our installed customer base. Our
goal is to increase customer familiarity with lab-on-a-chip technology and to
establish our LabChip systems as the platform of choice. Our strategy is to
offer products for applications that are practiced widely and to bring LabChip
technology to market through the combination of a major commercialization
partnership and direct selling. Our first commercial collaborator, Agilent, is
an established leader in analytical instrumentation and has initiated a
multi-faceted sales and marketing campaign designed to achieve wide penetration.
Our direct selling strategy is focused primarily on large pharmaceutical
companies and is designed to encourage early adoption of our LabChip systems
through our technology access program.

Leverage Our Installed Customer Base by Expanding the Menu of Chip
Applications. A significant portion of our internal research and development
efforts is dedicated to new chip applications development. We intend to expand
our menu of chip applications and sell them to customers that have already
purchased LabChip instruments. For example, we are developing LabChip
applications for genomics to bring significant advances in functionality to this
technology-hungry area. We also intend to expand current markets by implementing
a LabChip instrumentation "operating system" strategy that encourages other
companies, such as reagent manufacturers, to develop compatible products that
can operate with our chips.

Generate Recurring Revenue From High-Value Chips. We expect to generate
recurring revenue from the sale of single-use chips for the Agilent 2100
Bioanalyzer. In addition, we intend to value price the chips for our high
throughput systems to reflect the cost savings and other benefits that our
customers may achieve, possibly by charging customers for the amount of data
they generate. While we are focused on generating revenues from the sale and use
of our chips, we also will receive revenue from the sale of the Agilent 2100
Bioanalyzer, software and reagents. We also intend to generate recurring revenue
from our technology access program through license fees and ongoing subscription
fees as well as through the sale of instruments.

Build a Substantial Intellectual Property Estate. We pursue an
intellectual property strategy of licensing important patents and pursuing
patent protection for our own inventions. As of September 30, 1999, we owned, or
held licenses to, 34 issued U.S. patents and 120 pending U.S. patent
applications. These patents and applications are directed to various
technological areas that we believe are valuable to our business. We believe
that maintaining a deep and broad intellectual property estate will be an
important competitive advantage.

Maintain Leadership in Chip Technology and Manufacturing. We believe that
our long-term success will derive from maintaining leadership in lab-on-a-chip
technology and chip manufacturing. We focus on improving the power and
capabilities of our chips to increase their value. We are also working to
enhance manufacturing processes to reduce our production costs.

Opportunistically Penetrate New Industries. We believe that LabChip
technology has the potential to transform the way that laboratory
experimentation is performed across multiple industries. We expect to
selectively pursue these other industries, leveraging our pharmaceutical
industry experience and products. We may pursue these opportunities alone or
with collaborators.

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PRODUCTS AND SERVICES

We have developed two types of LabChip systems, personal laboratory systems
and high throughput systems, based on distinct chip formats. Our personal
laboratory systems use chips with reservoirs for the various chemical reagents,
which the user introduces manually. Our high throughput systems use our Sipper
chips that have a short glass tube, or capillary, that draws nanoliter volumes
of reagents into the chip.

Personal Laboratory Systems

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION STATUS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Agilent 2100 Bioanalyzer Desktop LabChip instrument and Marketed by Agilent
software
- -----------------------------------------------------------------------------------------------
DNA 7500 LabChip Kit Chips and reagents for analyzing Marketed by Agilent
small DNA fragments
- -----------------------------------------------------------------------------------------------
DNA 12000 LabChip Kit Chips and reagents for analyzing Marketed by Agilent
large DNA fragments
- -----------------------------------------------------------------------------------------------
RNA 6000 LabChip Kit Chips and reagents for analyzing Marketed by Agilent
RNA samples
- -----------------------------------------------------------------------------------------------
New LabChip Kits A series of kits containing In development
chips and reagents for
applications in molecular and
cell biology
- -----------------------------------------------------------------------------------------------
</TABLE>

Agilent 2100 Bioanalyzer System. Our first personal laboratory system is
based on the Agilent 2100 Bioanalyzer, a desktop instrument designed to perform
a wide range of everyday scientific applications using a menu of different
LabChip kits. Each kit contains a chip and reagents designed specifically for
the application. This LabChip system brings the benefits of miniaturized,
integrated and automated experimentation to the researcher's desktop. Agilent
launched this product in September 1999.

Agilent is selling the Agilent 2100 Bioanalyzer with an initial menu of
three LabChip kits for DNA and RNA sizing and concentration analysis. For these
initial applications, we believe the system's principal advantages are that it:

- reduces analysis time from hours to minutes

- integrates several experimentation steps into one

- significantly reduces consumption of costly reagents

- produces higher quality data than conventional methods

Because these applications are among the most common experiments performed
in genetic research, the potential customer base for these applications includes
most pharmaceutical and biotechnology companies, as well as human genome
research centers and other academic laboratories.

We are developing new applications involving analysis of protein and cells,
as well as additional applications involving DNA and RNA analysis. We believe
that protein and cell applications on the Agilent 2100 Bioanalyzer may be
particularly attractive to researchers in those disciplines because their
existing tools are generally less advanced than those available to genetic
researchers.

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<PAGE> 37

High Throughput Systems

<TABLE>
- -----------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION STATUS
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Caliper 110 Sipper System High throughput LabChip Direct sales to customers
instrument and software for
single capillary Sipper chips
- -----------------------------------------------------------------------------------------------
Fluorogenic Assay Sipper Sipper chip for screening Direct sales to customers
Chip several types of enzyme and
protein receptor targets
- -----------------------------------------------------------------------------------------------
Mobility Shift Assay Sipper Sipper chip for screening other Direct sales to customers
Chip types of enzyme and protein
receptor targets
- -----------------------------------------------------------------------------------------------
Assay Development Station Instrument system and software Direct sales to customers
for developing LabChip
experimental methods
- -----------------------------------------------------------------------------------------------
Assay Development Chips Chips for use with the assay Direct sales to customers
development station
- -----------------------------------------------------------------------------------------------
Cell-based Assay Sipper Sipper chip for screening cell In development
Chip receptor targets
- -----------------------------------------------------------------------------------------------
Dilutor Sipper Chips Sipper chips that do sample In development
preparation and screening on the
same chip
- -----------------------------------------------------------------------------------------------
Caliper 220 Sipper System Ultra high throughput LabChip In development
instrument and software for
multiple capillary Sipper chips
- -----------------------------------------------------------------------------------------------
Multi-capillary Sipper Multiple capillary versions of In development
Chips the Sipper chips described above
- -----------------------------------------------------------------------------------------------
</TABLE>

Our high throughput systems are being designed to perform thousands or tens
of thousands of pharmaceutical experiments per day on each Sipper chip.

Caliper 110 Sipper System. Our first high throughput system is based on
the Caliper 110, which uses a Sipper chip with a single capillary. Like the
Agilent 2100 Bioanalyzer, the Caliper 110 is designed to perform a wide range of
experiments using a menu of different chips. We currently offer two Sipper chips
used for performing drug screening experiments for several classes of enzymes.
High throughput enzyme experiments are among the most common experiments used in
primary drug screening. Some of the reagents used in these experiments are
expensive and it can take months to produce them in the quantities required for
conventional screening systems. We believe the principal advantages of the
Caliper 110 are that it:

- reduces costly reagent consumption up to 100,000-fold

- integrates multiple experimental functions

- reduces the need for user intervention

- produces higher data quality than conventional methods

We expect to add several more Sipper chips enabling our technology access
program customers to use the Caliper 110 for a significant percentage of the
types of experiments they run. Another important advantage of the Caliper 110 is
that it can be used not only for primary screening but also for lead
optimization. Furthermore, the Caliper 110 is compact and could be placed in
locations outside the centralized screening group, allowing for more efficient
drug development efforts.

Caliper 220 Ultra High Throughput System. We expect to increase throughput
by increasing the number of channels and capillaries on each chip. We intend to
introduce chips with four and then eight or

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<PAGE> 38

more capillaries per chip and to enable customers to effectively utilize
multiple instruments by providing integrated plate handling capabilities. We are
currently testing a prototype of our Caliper 220 ultra high throughput
instrument and expect to offer this product to technology access program
customers in 2000. In this way, we expect to offer systems that can perform more
than 100,000 experiments per day.

We are also working to integrate compound storage and sample preparation
into our screening systems. These activities represent major expenses for
pharmaceutical companies. We believe that our LabChip systems can offer dramatic
cost reductions in these areas. We intend to offer a Sipper chip which can
dilute compounds on the chip prior to performing the screening experiment, or
"assay." We expect that this will reduce the amount of expensive compounds used
by approximately 1,000-fold and eliminate the major expense of diluting
thousands of compounds in wells. The next integration step will be to enable
researchers to place entire compound libraries onto our proprietary LibraryCard
reagent array, and then dilute and access compounds using the capillary of our
Sipper chips. For a description of our LibraryCard reagent array program, see
"-- Research and Development."

We sell our current high throughput systems to technology access program
customers and provide training and support. We also develop initial assays for
them and offer some level of customization in order to integrate our systems
most effectively into each customer's production processes.

We sell assay development systems to our technology access program
customers so that they can modify experimental conditions used with our standard
assay chips to be suitable for each new pharmaceutical target. This process is
comparable to the assay development they already carry out with existing
screening systems, which typically takes several weeks to a few months. In fact,
we believe that the process likely will be accelerated and improved using
chip-based systems.

Services

<TABLE>
- -----------------------------------------------------------------------------------------------
SERVICE DESCRIPTION STATUS
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Value Added Screening Assay development, compound Direct sales to customers
Collaborations leasing and screening services
for customers' pharmaceutical
targets
- -----------------------------------------------------------------------------------------------
</TABLE>

We are using our high throughput systems internally to offer screening
services to pharmaceutical and biotechnology customers that prefer to outsource
this activity. Under our value added screening collaboration program, we develop
LabChip assays for targets selected by a customer. We then screen the targets
against the customer's compound library, our own library, or both, and provide
the data to the customer.

We believe that our screening services also add substantial value to our
product businesses. We deploy our most advanced high throughput screening
systems in our internal screening services operation. By making intensive use of
those systems in this business, we can provide critical feedback to our product
development groups. This accelerates development and enables us to deliver
better systems to our technology access program customers. We also intend to use
our screening services capability to demonstrate to potential technology access
program customers how our LabChip systems can streamline screening operations
and enhance productivity.

COMMERCIALIZATION

We currently are commercializing our first personal laboratory system, the
Agilent 2100 Bioanalyzer system, through our collaboration with Agilent. We are
also directly selling our high throughput systems through our technology access
program and are providing high throughput screening services through our value
added screening collaboration program.

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Strategic Alliance with Agilent

We have established a broad relationship with Agilent to create a line of
commercial research products based on our LabChip technologies. This
relationship provides us with the scale and expertise of a leading analytical
instrumentation company to bring these novel products to market. When this
relationship was established in May 1998, Agilent and Caliper publicly stated
their intention to invest over $100 million collectively to create and
commercialize this line of products over the ensuing five years. In September
1999, Agilent introduced the Agilent 2100 Bioanalyzer with three different
LabChip kits, our first LabChip products under this agreement.

In this collaboration, Caliper primarily focuses on developing core
technology and LabChip applications. We also manufacture the chips and supply
the chips and reagents to Agilent. If we elect, however, not to manufacture
chips for a LabChip application or we are unable to meet minimum supply
commitments to be mutually established in the future, Agilent would have the
right to manufacture those chips. Agilent primarily focuses on developing
instruments and software, manufacturing instruments, and marketing, selling and
supporting complete systems. Agilent has the contractual right to develop the
marketing plan under the collaboration, although to date we and Agilent have
made these decisions in a collaborative manner.

Agilent funds our product development efforts under the collaboration,
reimburses our costs of supplying chips and reagents, and pays us a share of the
gross margin on all components of LabChip systems. The gross margin share varies
depending on the type of collaboration product, whether we or Agilent
manufacture the collaboration product, and whether the collaboration product is
sold during the collaboration or after the collaboration has terminated. These
financial arrangements allow us to offset a portion of the substantial risks
inherent in introducing novel technologies. At the same time, they enable us to
support a broad product development program and to retain a substantial
financial interest in the products we create.

Our agreement with Agilent is mutually exclusive in the field of
lab-on-a-chip technologies for the research products market. It requires our
consent before Agilent may offer products exceeding established sample
throughput limits, and it requires Agilent's consent before we may offer these
products outside the collaboration in excess of established volume limitations.

The term of the Agilent agreement is eight years, beginning in May 1998.
After three years, Agilent may elect not to meet annual funding requirements, in
which case either party may terminate the agreement. In any event either party
may terminate the agreement after five years. If the agreement terminates after
three years, we will continue to offer the collaboration's products through
Agilent but Agilent will have no rights to our technologies for the development
of new products. If either party terminates the agreement after five years, we
will grant Agilent a non-exclusive license to use the lab-on-a-chip technologies
that we have developed up to that time in order to develop new products in
substantially the same field that applied during the collaboration. We will also
transfer chip manufacturing know-how and receive royalties on Agilent's sales of
systems that employ our patented technologies. Regardless of whether the
collaboration terminates after three or five years, both Caliper and Agilent
will have the right to sell collaboration products, with reciprocal supply
arrangements.

Technology Access Program

Our technology access program is initially focused on high throughput
systems for drug screening. In this program, we work directly with
pharmaceutical company customers during the product development process to
create successive generations of products. We provide technology access program
customers with early access to new products, and offer technical training,
support and customization services. By working closely with these customers, we
focus our technology and product development efforts where we believe they can
have maximum impact for the pharmaceutical marketplace.

Our technology access program customers have non-exclusive access to all of
the high throughput screening products we offer during the term of the
agreement. These agreements generally provide for

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<PAGE> 40

customers to pay an up-front license fee and annual subscription fees, and to
reimburse us for our costs of providing development and support services.
Instruments and chips are generally sold separately on a product-by-product
basis, although some agreements establish prices for critical instruments or
estimates of the price we will charge them for Sipper chips based on the amount
of data they generate. Our technology access program customers can terminate
their participation in the program and still have the right to purchase those
products that we offered to them during their participation in the program.

We currently have three technology access program customers for our high
throughput screening systems: Eli Lilly, Amgen, and Hoffmann-La Roche. Our
agreements with these customers generally contain the terms described above. Key
terms unique to each agreement are described below.

Eli Lilly. We signed our most recent technology access agreement with Eli
Lilly in August 1999. The term is three years, although Eli Lilly may
temporarily suspend its technology access program participation and later
reinitiate participation, during which time our support and assistance
obligations will also be suspended. Under this agreement our obligations include
support for assay development for targets, training for Eli Lilly personnel, and
support for custom development projects. Eli Lilly may terminate the agreement
on any anniversary.

Amgen. We entered into a technology access agreement with Amgen in
December 1998. Under this agreement, Amgen may delay payment of its second
annual subscription fee until we have delivered an initial ultra high throughput
system. The term of this agreement is three years, although Amgen may terminate
the agreement on any anniversary or if we fail to deliver the ultra high
throughput screening system in a timely manner.

Hoffmann-La Roche. We entered into a technology access agreement with
Hoffmann-La Roche in November 1998, which is due to expire in July 2000. This
agreement supersedes an earlier agreement under which Roche funded early
development of the high throughput screening technology in exchange for
exclusive rights to an ultra high throughput screening system. Roche now has
non-exclusive rights similar to other technology access program customers. We
did not receive an up-front license fee or annual subscription fee from
Hoffmann-La Roche.

Value Added Screening Collaboration Program

In our value added screening collaboration program we offer high throughput
screening services using our LabChip systems. This can enable smaller companies
that may not be able to afford to participate in our technology access program
to take advantage of our high throughput systems in the early phases of
commercialization. Our first value added screening collaboration agreement was
established with Neurocrine Biosciences in December 1998. We receive screening
fees based on the amount of data generated, preclinical milestones and royalties
on Neurocrine products emerging from the collaboration. This agreement has a
three-year term, but may be terminated by either party under limited
circumstances after the first year.

TECHNOLOGY

We believe that we have established a leading position in three areas of
lab-on-a-chip technology.

Microfabrication

We create lab-on-a-chip devices using the same manufacturing methods that
are used to make microchips in the computer industry called "microfabrication."
Microfabrication makes it possible to create intricate designs of interconnected
channels that are extremely small. Each pattern is designed to produce the
series of fluid manipulation steps that will execute an experiment. We use the
principles of fluid dynamics, chemical and electrical engineering and biophysics
to create initial designs using computer-aided design tools. Because we have
designed, manufactured and tested hundreds of different chips, we have developed
proprietary design rules that make each round of chip creation more predictable
and likely to succeed. We design our chips to be disposable and relatively
inexpensive to manufacture. We place the more expensive electronic controls and
sensing capability in a separate instrument.

Once a design pattern is completed, we use microchip manufacturing methods
to recreate the design as channels in a sheet of quartz, glass or plastic. This
process creates highly precise channels with

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<PAGE> 41

dimensions that can be varied by width and depth. A typical channel is roughly
50 microns wide and 10 microns deep, approximately the size of a strand of hair.

In the next step, a second sheet of quartz, glass or plastic with a precise
pattern of holes is fused to the first sheet using a proprietary process. This
covers the channels and converts them to closed microfluidic conduits. The end
of each channel connects to an open reservoir through which fluids are
introduced. The sheets are then cut into individual chips, which can be less
than one inch to a few inches on a side. The individual chips are then packaged
into plastic holders that make them easier for the user to handle.

We currently make two basic chip formats. In our planar chips, such as
those used in the Agilent 2100 Bioanalyzer, the user introduces all of the
chemical reagents into the reservoirs, including the various samples to be
tested, using pipets. In our Sipper chips, such as those used in the Caliper
110, a small glass tube, or capillary, inserted into the chip draws a few
nanoliters of each sample into the channel network. In this way, minute
quantities of a large number of samples can be tested in a single chip. The
samples are introduced into the capillary one after the other, spaced by buffer
solution. They proceed through the channel network in a continuous flow,
assembly-line fashion to perform a complete experiment. We have an issued U.S.
patent claiming this assay technique.

Microfluidics

In our LabChip systems the movement of minute quantities of fluids, or
"microfluidics," is actively controlled by computer programs. We use two
different methods of generating fluid motion in microchannels: electrokinetics
and pressure.

Electrokinetic flow is generated when electrodes attached to
computer-driven power supplies are placed in the reservoirs at each end of a
channel and activated to generate electrical current through the channel. Under
these conditions, fluids of the appropriate type will move by a process known as
"electro-osmosis." Typical flow rates within the channel are about a millimeter
per second and the flow rate can be controlled with a high degree of precision.
Programs can then be written to generate highly specific and complex networks of
flow. One key to designing complex systems is controlling and directing the flow
at intersections. Fundamental techniques for accomplishing this were invented by
Dr. J. Michael Ramsey, one of our co-founders and a member of our Scientific
Advisory Board, and are covered by a series of issued and pending U.S. patent
applications. We hold an exclusive license to these patents for most
applications and a non-exclusive license for remaining applications.

Another electrokinetic phenomenon known as "electrophoresis" occurs in the
channels. This is the movement of charged molecules or particles in an electric
field. Electrophoresis is often used in conventional laboratories for analyzing
molecules since they move differently according to their physical make-up.
Electrophoresis can be used to move molecules in solution, or to separate
molecules with very subtle differences. Electrophoresis and electro-osmosis
generally occur at the same time in channels. However, we have developed
proprietary techniques for minimizing either force while maintaining the other,
as appropriate, for a given application.

Pressure can also be used to move fluid in the channels. On the
microfluidic scale, small amounts of pressure produce highly predictable and
reproducible fluid flow. We use both computer-controlled pressure and
electrokinetic forces to gain precise control over fluid flow in the
microfluidic channel network. It is possible to use electrokinetic forces alone,
pressure forces alone, or a combination of the two methods.

Lab-on-a-Chip Applications Development

We have developed a large amount of expertise at discovering new functions
that microfluidic chips can perform. We have generated proprietary computer
models of how an experiment can be carried out. We store these functional
designs and we can incorporate them into new designs that simulate complete
experiment pathways. In this way, we believe the value of new microfluidic
inventions can be rapidly expanded across many application development projects.

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<PAGE> 42

We have also developed expertise at making experiments work in our chips.
Currently, all of our systems use fluorescent chemical reagents and optical
detection instruments to read experimental results. We often need to explore
chemical strategies for labeling relevant reagents that can reveal how different
molecular interactions take place. Another area of investigation addresses the
fact that in these small dimensions, the amount of channel surface material
relative to the amount of liquid is many times higher than in a test tube or
microwell plate. Because of this, the surface material can exert a chemical
influence on the biochemical reactions taking place. We have created strategies
to avoid the problems this can cause, or benefit from it if possible. We have
developed Sipper chips that perform and analyze enzyme reactions using part of
the channel design as a tiny, continuously operating electrophoresis machine.
Thus, reactions with one sample are going on in one area of the chip while
electrophoretic separation of the products of another sample is taking place in
a different part of the chip. We have also found that, in many cases,
fluorescence polarization spectroscopy, an optical detection method that can
determine the proportion of a fluorescent molecule that is attached to a larger
molecule or is unbound in solution, can be used to read reaction results without
needing to electrophoretically separate the biochemicals. We have built this
optical detection capability into our high throughput systems. In general, our
experience is that microfabrication and microfluidics provide a rich tool set
with which to create innovative new applications.

RESEARCH AND DEVELOPMENT

We have made substantial investments in lab-on-a-chip research and product
development since our inception. We explored fundamental issues of lab-on-a-chip
technology as early as possible in order to find solutions to important
technical challenges and seek patent protection for our solutions. Today we are
supplementing these core technology research efforts with applied product
development efforts in several areas.

Technology Research

Our technology research activities fall into several classes.

Chemical Engineering. We are increasing our understanding of the design
rules guiding the development of new chips. Using the principles of chemical
engineering we create patterns of interconnected channels that permit execution
of the various common steps of experimentation. Designs from one chip can be
used for other chips needing similar fluidic functions for a different
application. Mathematics and computer models also help minimize the number of
iterations necessary to achieve new functional chip designs.

Chip Manufacturing. We continue to seek ways to improve the yield and
decrease the cost of manufacturing our chips. We are exploring novel fabrication
techniques and the use of new materials that offer functional advantages, such
as manufacturing in quartz to take advantage of its superior optical features.
We have development programs in manufacturing technology for chips made of
plastic. Plastic devices potentially offer cost advantages and can offer
favorable surface chemical features for some applications. A major area of
development is micromachining technology for precisely attaching capillaries to
our Sipper chips to access reagents. In high throughput experimentation, the
number of capillaries and channels determines the level of throughput.
Accordingly we are developing high yield fabrication methods to enable us to
cost-effectively manufacture chips with many capillaries to perform ultra high
throughput experimentation.

Engineering and Software. We use the skills of electrical engineers,
optical engineers, mechanical engineers, product designers and software
engineers to create new instrumentation to run our chips. These instruments
control fluid movement inside the chip, present the reagents to the chip from
conventional fluid sources, and detect the results of biochemical or cell-based
experiments with optical methods. Software engineers write computer programs
that control the sources of fluid motion, communicate between different
instrument components and interpret signals from the detection system. Currently
we develop the software for our high throughput systems. We collaborate with
Agilent to develop software for our personal laboratory systems.

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Product Development

Our product development efforts are currently focused on new applications
and capabilities for
our existing instruments, our LibraryCard system, and high throughput genomic
systems.

Extensions of Existing Product Lines. For each of our first generation
instruments, we are expanding the menu of applications to address other stages
of the pharmaceutical development process. For the Agilent 2100 Bioanalyzer, we
intend to introduce new applications that address everyday productivity needs in
many areas of genomics, protein chemistry and cell biology. We are broadening
the application menu for high throughput systems as well to include assays that
measure many important activities of cells and proteins.

LibraryCard System. We are developing a new format for storing and
accessing reagents, which we call the LibraryCard reagent array. We have learned
how to reconstitute very small quantities of dried reagents stored at high
density on a planar surface. We can conveniently access reagents stored in this
way using our Sipper chips. The LibraryCard reagent array could produce a
fundamental change in the way large libraries of reagents are used. Today, these
libraries are only accessible in centralized reference-style laboratories that
can conveniently work with automated warehouses of reagents. When libraries can
be reduced to the size of a postcard, high throughput experimentation involving
massive data acquisition can be decentralized. We believe that this will
increase the size of the market for applications that run on this type of
system. We believe this type of system could significantly impact several stages
of the pharmaceutical development process, particularly primary screening and
pharmacogenetic studies.

Genomics. Genomics is the high throughput analysis of DNA and RNA.
Genomics applications include sequencing DNA and DNA genotyping. Genotyping is
the determination of the DNA sequence variation present at a particular site in
an individual's DNA. One type of these variations, called single nucleotide
polymorphisms or "SNPs," are believed to be important determinants of disease.
Like all experimentation processes, these applications are a combination of
various fluid manipulations, biochemical reactions, molecular separations and
detection. We believe they can be performed on the same basic high throughput
platform we have built for other applications. In early 1999, we began a
project, funded in part by the Advanced Technology Program of the National
Institute of Standards and Technology, to adapt the platform and develop chips
to run high throughput nucleic acids analyses. While the specific aim of the
program is to develop a diagnostics system, the first commercial products to
emerge from the technology could be genomics products, such as a system for high
throughput SNP genotyping. Our goal is to apply lab-on-a-chip technology to some
of the most important areas of biology today, including DNA sequencing, and
emerging areas such as genetic analysis for pharmacogenetics.

Our research and development expenses for the first nine months of 1999,
and for the years ended 1998, 1997 and 1996, were approximately $12.3 million,
$9.6 million, $7.2 million, and $2.7 million, respectively. We intend to
increase our research and development budget and staffing levels during the
remainder of 1999 and into 2000. As of September 30, 1999, we had 70 employees
engaged in research and development, including 42 with advanced degrees.

MANUFACTURING

We manufacture our chips in-house and are currently manufacturing high
throughput instruments in limited volumes. We rely upon Agilent to manufacture
the Agilent 2100 Bioanalyzer. Our high throughput instruments are generally
integrated with plate stacking and handling units offered commercially by other
companies. We contract with third parties to supply most reagents for the
research products business. We currently depend on suppliers to supply prepared
materials for use in the manufacture of chips. We intend to continue and may
extend the subcontracting of portions of our manufacturing processes to
subcontractors where we feel it best leverages the supplier's manufacturing
experience, costs, and/or improves our ability to meet customer demands. For a
discussion of the methods we use to manufacture our chips see "-- Technology"
and "-- Research and Development."

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COMPETITION

Although we believe that we are currently the only company selling and
delivering lab-on-a-chip products to customers, we expect to encounter intense
competition from a number of companies that offer products for laboratory
experimentation. We anticipate that our competitors will come primarily from the
following two sectors:

- companies providing conventional products based on established
technologies

- companies developing their own microfluidics or lab-on-a-chip
technologies

In order to compete against vendors of conventional products, we will need
to demonstrate the advantages of our LabChip products over alternative
well-established technologies and products. We will also need to demonstrate the
potential economic value of our LabChip products relative to these conventional
technologies and products. Some of the companies that provide these products
include PE Corp., Agilent, Beckman-Coulter, Amersham Pharmacia Biotech, Bio-Rad
Laboratories, Molecular Devices, and LJL BioSystems.

We will also need to compete effectively with companies developing their
own microfluidics or lab-on-a-chip technologies and products, such as Aclara
Biosciences and Orchid Biocomputer. Other companies known to have initiated
microfluidic programs include Motorola, 3M and PE Corp. Microfluidic
technologies have undergone and are expected to continue to undergo rapid and
significant change. Our future success will depend in large part on our ability
to establish and maintain a competitive position in these and future
technologies which we may not be able to do. Rapid technological development may
result in our products or technologies becoming obsolete. Products offered by us
could be made obsolete either by less expensive or more effective products based
on similar or other technologies.

In addition, there is the possibility that we may experience competition
from Agilent if they, or we, terminate our agreement after May 2003. Under the
terms of our agreement, upon termination we will grant to Agilent a
non-exclusive license to our LabChip technologies as then developed for use in
the research products field.

In many instances, our competitors have or will have substantially greater
financial, technical, research, and other resources and larger, more established
marketing, sales, distribution, and service organizations than we do. Moreover,
competitors may have greater name recognition than we do, and may offer
discounts as a competitive tactic. We cannot assure you that our competitors
will not succeed in developing or marketing technologies or products that are
more effective or commercially attractive than our products, or that would
render our technologies and products obsolete. Also, we may not have the
financial resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. Our success will depend in
large part on our ability to maintain a competitive position with our
technologies.

INTELLECTUAL PROPERTY

We seek patent protection on our lab-on-a-chip technologies. As of
September 30, 1999, we owned or held licenses to 34 issued U.S. patents and 120
pending U.S. patent applications, some of which derive from a common parent
application. Our issued patents expire between 2012 and 2018. Foreign
counterparts of many of these patents and applications have been filed and/or
issued in one or more other countries, resulting in a total of more than 330
issued patents and pending patent applications in the United States and foreign
countries. Our issued patents expire between 2012 and 2019. These patents and
applications are directed to various technological areas which we believe are
valuable to our business, including:

- control of movement of fluid and other material through interconnected
microchannels

- continuous flow high throughput screening assay methods and systems

- analytical and control instrumentation

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- analytical system architecture

- chip-based assay chemistries and methods

- chip compatible sample accession

- software for control of microfluidic based systems and data analysis

- chip manufacturing processes

We also rely upon copyright protection, trade secrets, know-how, continuing
technological innovation and licensing opportunities to develop and maintain our
competitive position. Our success will depend in part on our ability to obtain
patent protection for our products and processes, to preserve our copyrights and
trade secrets, to operate without infringing the proprietary rights of third
parties and to acquire licenses related to enabling technology or products used
with our lab-on-a-chip technology.

We are party to various exclusive and non-exclusive license agreements with
third parties which give us rights to use certain technologies. For example, we
have an exclusive license in the fields we are currently operating in from
Lockheed Martin Energy Research Corporation, relating to patents covering
inventions by Dr. J. Michael Ramsey. A failure to maintain some or all of the
rights to these technologies could seriously harm our business.

EMPLOYEES

As of September 30, 1999, we had a total of 101 employees, including 70 in
research and development, 14 in manufacturing and 17 in administration and
finance. None of our employees is represented by a collective bargaining
agreement, nor have we experienced any work stoppage. We consider our relations
with our employees to be good.

FACILITIES

Our principal research and development, manufacturing and administrative
facilities are currently located in approximately 53,000 square feet of leased
space in Mountain View, California. The lease for this space will expire in
December 2008. We believe that our current facilities are adequate for our needs
through the year 2000.

LEGAL PROCEEDINGS

On March 22, 1999, we filed a lawsuit in California Superior Court for the
County of Santa Clara (Case No. CV 780743), against Aclara Biosciences Inc., a
patent attorney named Bertram Rowland and the law firm of Flehr, Hohbach, Test,
Albritton and Herbert LLP, alleging that all three defendants misappropriated
our trade secrets relating to our business plans, patents and intellectual
property strategy. The suit also alleges that Mr. Rowland and Flehr Hohbach
committed a breach of the duties they owed to us as our former attorneys. The
suit seeks damages and equitable remedies to prevent Aclara, Mr. Rowland and
Flehr Hohbach from benefiting from the alleged misappropriation and breach of
duties. While we believe that our complaint is meritorious, we cannot assure you
that we will prevail in our action against any or all of the defendants, or that
if we prevail, the damages or equitable remedies awarded, if any, will be
commercially valuable. Furthermore, we have incurred and are likely to continue
to incur substantial costs and expend substantial personnel time in pursuing our
claims against Aclara, Mr. Rowland and Flehr Hohbach.

On April 23, 1999, Aclara Biosciences filed a lawsuit in United States
District Court for the Northern District of California (Case No. C-99-1968BZ)
alleging that we are making, using, selling or offering for sale microfluidic
devices that infringe United States Patent Number 5,750,015 in willful disregard
of Aclara's patent rights. This patent concerns methods and devices for moving
molecules by the application of electrical fields. The Aclara action seeks
damages for past and future reduced sales or lost profits based upon the making,
using, selling and offering for sale of our products and processes, and seeks to
enjoin our continued activities relating to these products. This action subjects
us to potential liability for damages,

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including treble damages, and could require us to cease making, using or selling
the affected products, or to obtain a license in order to continue to
manufacture, use or sell the affected products. While we believe we have
meritorious defenses to this action, we cannot assure you that we will prevail
in this action nor can we assure you that any license required would be made
available on commercially acceptable terms, if at all. Furthermore, we have
incurred and are likely to continue to incur substantial costs and expend
substantial personnel time in defending against the claims filed by Aclara.
Failure to successfully defend ourselves against the Aclara action could have a
material adverse effect on our business, financial condition and operating
results. For further information on the risks associated with this litigation
see "Risk Factors -- We are involved in intellectual property litigation with
Aclara Biosciences that may hurt our competitive position, may be costly to us
and may prevent us from selling our products."

SCIENTIFIC ADVISORY BOARD

We have assembled a group of scientific advisors who are leaders in fields
related to microfluidics technology and systems. These advisors assist us in
formulating our research, development and commercialization strategy and
include:

George Whitesides, Ph.D., Chair, Mallinckrodt Professor of Chemistry at Harvard
University and Member of the National Academy of Sciences. Dr. Whitesides is the
Chairman of our Scientific Advisory Board.

J. Michael Ramsey, Ph.D., a co-founder of Caliper and Corporate Research Fellow
and Head of the Laser Spectroscopy and Microinstrumentation Group in the
Chemical and Analytical Sciences Division at Oak Ridge National Laboratory.

Robert H. Austin, Ph.D., Professor of Physics at Princeton University.

Charles P. Cantor, Ph.D., Professor of Biomedical Engineering and Biophysics at
Boston University, and Member of the National Academy of Sciences.

George Church, Ph.D., Senior Investigator at the Howard Hughes Medical Institute
at Harvard Medical School.

Jed Harrison, Ph.D., Professor of Analytical Chemistry at the University of
Alberta.

Richard Haugland, Ph.D., President and Corporate Research Director of Molecular
Probes, Inc.

James W. Jorgenson, Ph.D., Francis P. Venable Professor of Chemistry at the
University of North Carolina.

Barry Karger, Ph.D., James L. Waters Chair in Analytical Chemistry and Director
of the Barnett Institute of Chemical Analysis and Materials Science at
Northeastern University, Boston, Massachusetts.

Butrus T. Khuri-Yakub, Ph.D., Professor of Electrical Engineering at the E.L.
Ginzton Laboratory of Stanford University.

Andreas Manz, Ph.D., SmithKline Beecham Chair of Analytical Chemistry at the
Imperial College of Science, London.

Stephen D. Senturia, Ph.D., Barton L. Weller Professor of Electrical Engineering
at the Massachusetts Institute of Technology.

Christopher T. Walsh, Ph.D., Hamilton Kuhn Professor of Biological Chemistry and
Molecular Pharmacology at Harvard Medical School and Member of the National
Academy of Sciences.

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MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND FOUNDERS

The following presents information about our directors, executive officers
and co-founders as of September 30, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Daniel L. Kisner, M.D. ................... 52 President, Chief Executive Officer and Director
Calvin Y. H. Chow......................... 44 Chief Operating Officer and Co-founder
James L. Knighton......................... 45 Chief Financial Officer
Michael R. Knapp, Ph.D. .................. 47 Vice President of Science and Technology and
Co-founder
J. Wallace Parce, Ph.D. .................. 49 Vice President of Research and Co-founder
William M. Wright III..................... 51 Vice President of Operations
David V. Milligan, Ph.D.(1)(2)............ 59 Chairman of the Board of Directors
Anthony B. Evnin, Ph.D.(1)................ 58 Director
Charles M. Hartman(2)..................... 58 Director
Regis P. McKenna.......................... 60 Director
Robert T. Nelsen(2)....................... 36 Director
Michael Steinmetz, Ph.D.(1)............... 52 Director
Lawrence A. Bock.......................... 40 Co-founder
J. Michael Ramsey, Ph.D. ................. 47 Co-founder
</TABLE>

- ---------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

DANIEL L. KISNER, M.D., has served as our President and Chief Executive
Officer since February 1999 and as a Director since March 1999. From May 1994 to
January 1999, Dr. Kisner served as President and Chief Operating Officer of Isis
Pharmaceuticals, Inc., a biotechnology company. From February 1993 to May 1994,
Dr. Kisner served as Executive Vice President and Chief Operating Officer of
Isis Pharmaceuticals, Inc. From March 1991 to February 1993, he served as
Executive Vice President of Isis Pharmaceuticals, Inc. and was responsible for
business and product development, and manufacturing. From December 1988 to March
1991, Dr. Kisner served as Division Vice President of Pharmaceutical Development
for Abbott Laboratories. Dr. Kisner has held a tenured position in the Division
of Oncology at the University of Texas, San Antonio School of Medicine and is
certified by the American Board of Internal Medicine and certified in Medical
Oncology. Dr. Kisner holds a B.A. from Rutgers University and an M.D. from
Georgetown University.

CALVIN Y. H. CHOW, co-founded Caliper and has served as our Chief Operating
Officer since February 1998. Mr. Chow also served as our Vice President of
Development from September 1995 to February 1998. From October 1985 to September
1995, Mr. Chow served as Vice President of Engineering and Operations of
Molecular Devices Corporation, a bioanalytical instrumentation company, where he
was responsible for product development and company-wide manufacturing. Mr. Chow
holds a B.S. in Electrical Engineering from Illinois Institute of Technology and
an M.S. in Electrical Engineering from Stanford University.

JAMES L. KNIGHTON, has served as our Chief Financial Officer since
September 1999. From October 1998 to September 1999, Mr. Knighton served as
Senior Vice President and Chief Financial Officer of SUGEN, Inc., a
biotechnology company. From July 1997 to October 1998, Mr. Knighton served as
Vice President of Investor Relations and Corporate Communications at Chiron
Corporation, a biotechnology company. From 1985 to 1994, Mr. Knighton served in
various operations, planning and R&D functions at

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<PAGE> 48

E. I. DuPont de Nemours Inc., a global, diversified chemical and life science
company. Mr. Knighton holds a B.S. in Biology from the University of Notre Dame,
an M.S. in Genetics from the University of Pennsylvania and an M.B.A. from the
Wharton School at the University of Pennsylvania.

MICHAEL R. KNAPP, PH.D., co-founded Caliper and has served as our Vice
President of Science and Technology since September 1995. From November 1994
through August 1995, Dr. Knapp was engaged in activities related to forming
Caliper, including securing our core technology license and procuring financing.
From October 1988 to October 1994, Dr. Knapp served as President and Scientific
Director at Molecular Tool, Inc., a genetics technology company he co-founded in
1988. Previously, Dr. Knapp was on the staff of the Center for Neurobiology and
Behavior at Columbia University and was a Scientific Director of Genetica SARL,
an affiliate of Rhone Poulenc SA in Paris, France. Dr. Knapp holds a B.S. in
Biology from Trinity College (Hartford) and a Ph.D. in Medical Microbiology from
Stanford University.

J. WALLACE PARCE, PH.D., co-founded Caliper and has served as our Vice
President of Research since October 1995. Prior to joining Caliper, Dr. Parce
spent 12 years with Molecular Devices Corporation as a founder, consultant,
Director of Research and Vice President of Research. From 1980 until 1984 he was
an Assistant Professor in the Department of Biochemistry at Wake Forest
University, from 1982 until 1987 an associate in the Department of Microbiology
and Immunology, and from 1984 until 1987, an Associate Professor of
Biochemistry. Dr. Parce received his B.A. in Chemistry from Western Maryland
College in 1972 and his Ph.D. in Biochemistry from Wake Forest University in
1976. From 1976 until 1980 Dr. Parce was a Post Doctoral Fellow in Chemistry at
Stanford University.

WILLIAM M. WRIGHT III, has served as our Vice President of Operations since
September 1998. From November 1995 to May 1998, Mr. Wright served as Vice
President of Operations of Biocircuits Corporation, a medical diagnostic
company, where he was responsible for instrument and immunoassay cartridge
manufacturing. From 1984 to 1995, Mr. Wright was Vice President of Site
Operations with Dade International Inc., formerly a division of Baxter
International, Inc., a medical products manufacturing company, where he assisted
in the start-up and launch of the Baxter International Paramax Analytical
Clinical Chemistry Business. Mr. Wright holds a B.S. in Industrial Technology
from California State University at Long Beach.

DAVID V. MILLIGAN, PH.D., has been a Director since October 1996 and the
Chairman of the Board since April 1997. He has been a Vice President and Special
Limited Partner of Bay City Capital, Merchant Bank since 1997. From 1979 to
1996, Dr. Milligan served in a variety of management positions at Abbott
Laboratories, a healthcare products company. During his career at Abbott
Laboratories he led both the diagnostic products and pharmaceutical products
research and development organizations and was Senior Vice President and Chief
Scientific Officer when he retired at the end of 1996. He is also a director of
ICOS Corporation and Diametrics Medical, Inc. He is a member of the chemistry
department advisory boards of the University of California at Berkeley and
Princeton University. Dr. Milligan holds an A.B. in Chemistry from Princeton
University and an M.S. and a Ph.D. in Organic Chemistry from the University of
Illinois.

ANTHONY B. EVNIN, PH.D., has been a Director since June 1996. He has been a
General Partner of Venrock Associates, a venture capital partnership since 1975.
He is also a director of Centocor, Inc., Ribozyme Pharmaceuticals, Inc. and
Triangle Pharmaceuticals, Inc. Dr. Evnin holds an A.B. from Princeton University
and a Ph.D. in Chemistry from Massachusetts Institute of Technology.

CHARLES M. HARTMAN, has been a Director since June 1996. He has been a
General Partner of CW Group, a manager of medical venture capital funds since
April 1983. From 1966 to 1983, Mr. Hartman served in various positions at
Johnson & Johnson where he was responsible for identification, evaluation and
negotiation situations ranging from single product opportunities to company
acquisitions, both domestically and internationally. Mr. Hartman is a director
of The Hastings Center, a non-profit organization devoted to the study of
bioethical issues in medicine and the life sciences. Mr. Hartman holds a B.S. in
Chemistry from the University of Notre Dame and an M.B.A. from the University of
Chicago.

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REGIS P. MCKENNA, has been a Director since September 1998. Mr. McKenna has
been Chairman of The McKenna Group, an international consulting firm
specializing in the application of information and telecommunications
technologies to business strategies since 1973. Mr. McKenna is on the board of
The Economic Strategies Institute and the Competitiveness Council. He is
Chairman of the Board of the Santa Clara University Center for Science,
Technology and Society and was a founding board member of Smart Valley. He is a
trustee at Santa Clara University and President of the Board of Trustees for The
New Children's Shelter of Santa Clara County. Mr. McKenna is on the board of
directors of a number of high technology start-up companies. Mr. McKenna holds a
B.A. from Duquesne University.

ROBERT T. NELSEN, has been a Director since September 1995. Since July
1994, Mr. Nelsen has served as a senior principal of various venture capital
funds associated with ARCH Venture Partners, including ARCH Venture Fund II,
L.P., ARCH Venture Fund III, L.P. and ARCH Venture Fund IV, L.P. From April 1987
to July 1994, Mr. Nelsen was Senior Manager at ARCH Development Corporation, a
company affiliated with the University of Chicago, where he was responsible for
new company formation. He holds a B.S. in Biology and Economics from the
University of Puget Sound and an M.B.A. from the University of Chicago.

MICHAEL STEINMETZ, PH.D., has been a Director since July 1997. He has been
a partner of MPM Asset Management LLC in Cambridge, MA, a venture capital firm
focusing on investments in private biotechnology companies in the U.S. and
Europe, since 1997. From 1997 to 1998, Dr. Steinmetz was also a partner of the
Bellevue Group in Zurich, Switzerland. From 1986 to 1997, Dr. Steinmetz worked
at Hoffmann-La Roche Inc. He headed the Biology Department in Basel and its
worldwide biotechnology research activities. He also was Vice President of
Preclinical Research and Preclinical Research and Development in Nutley, New
Jersey. Dr. Steinmetz was a member of the Board of Directors at Roche USA and
Millennium Pharmaceuticals. Dr. Steinmetz holds a Ph.D. in Natural Sciences from
the University of Munich, has lectured at the University of Basel and is Adjunct
Professor at Rutgers University.

LAWRENCE A. BOCK, co-founded Caliper and served as a director of Caliper
and acting Chief Executive Officer from inception until April 1997 and since
then has been an advisor to Caliper. He has been a General Partner of CW Group,
a medical venture capital fund since June 1998. From 1988 to 1998, Mr. Bock was
General Partner of Avalon Ventures, a seed stage venture capital firm, where he
founded Vertex Pharmaceuticals, Athena Neurosciences, Pharmacopeia, Neurocrine
Biosciences and Argonaut Technologies. He is a founder and director of Illumina
Inc. and FastTrack Systems, Inc. Mr. Bock holds a B.S. in Biochemistry from
Bowdoin College and an M.B.A. from the University of California, Los Angeles.

J. MICHAEL RAMSEY, PH.D., co-founded Caliper and has served on our
Scientific Advisory Board since September 1995. Since February 1979 Dr. Ramsey
has served on the research staff at Oak Ridge National Laboratory where he is
presently a Corporate Research Fellow and Head of the Laser Spectroscopy and
Microinstrumentation Group. Dr. Ramsey holds a B.S. degree in Chemistry from
Bowling Green State University and a Ph.D. in Chemistry from Indiana University.

BOARD COMPOSITION

We currently have seven directors. Upon the closing of this offering the
terms of office of the board of directors will be divided into three classes. As
a result, a portion of our board of directors will be elected each year. The
division of the three classes, the initial directors and their respective
election dates are as follows:

- the class I directors will be Anthony B. Evnin, Ph.D. and Robert T.
Nelsen and their term will expire at the annual meeting of stockholders
to be held in 2000

- the class II directors will be Charles M. Hartman, David V. Milligan,
Ph.D. and Michael Steinmetz, Ph.D. and their term will expire at the
annual meeting of stockholders to be held in 2001

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- the class III directors will be Daniel L. Kisner, M.D. and Regis P.
McKenna and their term will expire at the annual meeting of stockholders
to be held in 2002

At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the authorized number of directors may be
changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of Caliper.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 1998, Mr. Hartman and Drs. Milligan and Steinmetz served as
members of the compensation committee of our board of directors. No member of
the compensation committee serves as a member of the board of directors or
compensation committee of any other entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee. Prior to the formation of the compensation committee in June 1996,
our board of directors as a whole made decisions relating to compensation of our
executive officers.

BOARD COMMITTEES

Audit Committee. Our audit committee reviews our internal accounting
procedures and consults with, and reviews the services provided by, our
independent auditors. Current members of our audit committee are Drs. Evnin,
Milligan and Steinmetz.

Compensation Committee. Our compensation committee reviews and recommends
to the board of directors the compensation and benefits of all our officers and
reviews general policy relating to compensation and benefits of our employees.
The compensation committee also administers the issuance of stock options and
other awards under our stock plans. Current members of the compensation
committee are Messrs. Hartman and Nelsen and Dr. Milligan.

DIRECTOR COMPENSATION

Directors currently receive no cash compensation from us for their services
as members of the board or for attendance at committee meetings. Directors may
be reimbursed for expenses in connection with attendance at board of directors
and committee meetings.

In September of 1996, we granted Dr. Milligan, in connection with his
attendance at our board and committee meetings, the right to purchase 19,230
shares of common stock at $0.11 per share. Our right to repurchase these shares
lapses in 60 equal monthly installments. In November 1997, we granted Dr.
Milligan an additional stock option to purchase 6,410 shares of common stock at
an exercise price of $0.62 per share. This option fully vested in September
1998. In April 1999, we granted Dr. Milligan an additional stock option to
purchase 6,410 shares of common stock at an exercise price of $0.97 per share.
This option fully vested in September 1999. In October 1999, we granted Dr.
Milligan an additional stock option to purchase 6,410 shares of common stock at
an exercise price of $3.12. This option will fully vest in September 2000. In
September 1998, we granted Mr. McKenna, in connection with his attendance at our
board meetings, a stock option to purchase 19,230 shares of common stock at an
exercise price of $0.97 per share. This option vests in 60 equal monthly
installments. In October 1999, we granted Mr. McKenna an additional stock option
to purchase 3,205 shares of common stock at an exercise price of $3.12 per
share. This option fully vests in September 2000. We have also entered into
consulting agreements with each of Dr. Milligan and Mr. McKenna. See
"Transactions with Executive Officers, Directors and Five Percent Stockholders"
for a description of these agreements.

In October 1999, we adopted the 1999 Non-Employee Directors' Stock Option
Plan to provide for the automatic grant of options to purchase shares of common
stock to our non-employee directors who are not employees of Caliper or of any
affiliate of Caliper. Any non-employee director elected after the closing of

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this offering will receive an initial option to purchase 20,000 shares of common
stock. Starting at the annual stockholder meeting in 2000, all non-employee
directors will receive an annual option to purchase 3,200 shares of common stock
and the chairman of the board will receive an annual option to purchase 6,400
shares of common stock. See "-- Employee Benefit Plans -- 1999 Non-Employee
Directors' Stock Option Plan" for a more detailed explanation of the terms of
these stock options.

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY

Our bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to the
fullest extent permitted by Delaware law. We are also empowered under our bylaws
to enter into indemnification contracts with our directors and officers and to
purchase insurance on behalf of any person we are required or permitted to
indemnify. Pursuant to this provision, we expect to enter into indemnification
agreements with each of our directors and executive officers.

We have obtained officer and director liability insurance to cover
liabilities our officers and directors may incur in connection with their
services to Caliper, including matters arising under the Securities Act. In
addition, our certificate of incorporation provides that, to the fullest extent
permitted by Delaware law, our directors will not be liable for monetary damages
for breach of the directors' fiduciary duty of care to us and our stockholders.
This provision in the certificate of incorporation does not eliminate the duty
of care, and in appropriate circumstances, equitable remedies including an
injunction or other forms of non-monetary relief would remain available under
Delaware law. Under current Delaware law, a director's liability to us or our
stockholders may not be limited:

- to any breach of the director's duty of loyalty to us or our stockholders

- for acts or omissions not in good faith or involving intentional
misconduct

- for knowing violations of law

- for any transaction from which the director derived an improper personal
benefit

- for improper transactions between the director and us

- and for improper distributions to stockholders and loans to directors and
officers

This provision also does not affect a director's responsibilities under any
other laws including the federal securities laws or state or federal
environmental laws.

There is no pending litigation or proceeding involving a director or
officer of Caliper as to which indemnification is being sought, nor are we aware
of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.

48
<PAGE> 52

EXECUTIVE COMPENSATION

The following table presents summary information for the fiscal year ended
December 31, 1998, regarding the compensation of each of our most highly
compensated executive officers whose salary and bonus for 1998 were in excess of
$100,000. We did not have a Chief Executive Officer or Chief Financial Officer
during 1998. Dr. Daniel L. Kisner joined Caliper in February 1999 as our
President and Chief Executive Officer, and Mr. James L. Knighton joined Caliper
in September 1999 as our Chief Financial Officer. See "-- Employment Agreements"
below for a description of Dr. Kisner's and Mr. Knighton's employment
arrangements.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
Calvin Y. H. Chow......................................... $194,775 $38,000 64,102
Chief Operating Officer
Michael R. Knapp, Ph.D. .................................. 165,746 22,000 32,051
Vice President of Science and Technology
J. Wallace Parce, Ph.D. .................................. 186,200 22,000 32,051
Vice President of Research
</TABLE>

Mr. Chow's bonus figure includes $19,000 received in cash and 19,644 shares
of common stock received in lieu of cash. Dr. Knapp's bonus figure includes
$14,740 received in cash and 7,506 shares of common stock received in lieu of
cash. Dr. Parce's bonus figure includes $14,740 received in cash and 7,506
shares of common stock received in lieu of cash.

OPTION GRANTS IN FISCAL YEAR 1998

The following table presents each grant of stock options during the fiscal
year ended December 31, 1998, to each of the individuals listed in the Summary
Compensation Table.

The exercise price of each option was equal to the fair market value of our
common stock as valued by the board of directors on the date of grant. In
determining the fair market value of our common stock on the date of grant our
board of directors considered many factors, including:

- the option grants involved illiquid securities in a nonpublic company

- prices of preferred stock issued by Caliper to outside investors in
arm's-length transactions

- the rights, preferences and privileges of the preferred stock over the
common stock

- Caliper's performance and operating results at the time of grant

- Caliper's stage of development and business strategy

- the likelihood of achieving a liquidity event for the shares of common
stock underlying these options, such as an initial public offering or a
sale of Caliper

The exercise price may be paid in cash, promissory notes, in shares of our
common stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased shares.
The options granted to Mr. Chow, Drs. Knapp and Parce vest as to 20% on
September 16, 1999 and 1/60th per month thereafter.

The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities

49
<PAGE> 53

and Exchange Commission and does not represent our prediction of our stock price
performance. The potential realizable values at 5% and 10% appreciation are
calculated by:

- multiplying the number of shares of common stock under the option by the
initial public offering price of $16.00 per share

- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options

- subtracting from that result the aggregate option exercise price

Percentages shown under "Percentage of Total Options Granted in 1998" are
based on an aggregate of 423,253 options granted to employees, consultants and
directors of Caliper under our stock option plans during 1998.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES APPRECIATION FOR
UNDERLYING PERCENTAGE OF TOTAL EXERCISE OPTION TERM
OPTIONS OPTIONS PRICE PER EXPIRATION -----------------------
NAME GRANTED GRANTED IN 1998 SHARE DATE 5% 10%
- ---- ---------- ------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Calvin Y. H. Chow............ 64,102 15.15% $0.97 09/16/08 $1,528,913 $2,356,208
Michael R. Knapp, Ph.D. ..... 32,051 7.57 0.97 09/16/08 764,456 1,178,104
J. Wallace Parce, Ph.D. ..... 32,051 7.57 0.97 09/16/08 764,456 1,178,104
</TABLE>

OPTION VALUES AT DECEMBER 31, 1998

The following table presents the number and value of securities underlying
unexercised options that are held by each of the individuals listed in the
Summary Compensation Table as of December 31, 1998. No shares were acquired on
the exercise of stock options by these individuals during the year ended
December 31, 1998.

Amounts shown under the column "Value of Unexercised In-the-Money Options
at December 31, 1998" are based on the initial public offering price of $16.00,
without taking into account any taxes that may be payable in connection with the
transaction, multiplied by the number of shares underlying the option, less the
exercise price payable for these shares.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Calvin Y. H. Chow.......................... 23,236 106,250 $359,627 $1,614,450
Michael R. Knapp, Ph.D..................... 30,663 74,200 477,648 1,132,649
J. Wallace Parce, Ph.D..................... 22,701 74,734 351,317 1,140,944
</TABLE>

EMPLOYMENT AGREEMENTS

In January 1999, we entered into an employment agreement with Daniel L.
Kisner, M.D. to serve as our President and Chief Executive Officer at a base
salary of $350,000 a year starting on February 28, 1999, with an annual
discretionary bonus of up to 50% of his base salary based upon specific
objectives to be agreed upon by Dr. Kisner and the board. Pursuant to the
employment agreement, Dr. Kisner received an option to purchase 641,025 shares
of our common stock at an exercise price of $0.97 per share. This option vests
over a period of five years in 60 equal monthly installments. In addition, Dr.
Kisner is entitled to a housing loan of up to $500,000 which may be forgiven
over time, and monthly mortgage assistance to support a $500,000 mortgage, plus
additional payments to compensate for the tax payable on these portions of his
compensation. The employment agreement is at-will and contains a
non-solicitation agreement. This agreement also provides that if Dr. Kisner is
terminated without cause or Dr. Kisner voluntarily terminates
50
<PAGE> 54

his employment after a constructive termination, he will be paid his then
current salary for 12 months in monthly installments or until he becomes
employed, whichever is earlier, and a portion of his options will be partially
accelerated.

In September 1999, we entered into an employment agreement with James L.
Knighton to serve as our Chief Financial Officer at a base salary of $245,000 a
year starting in September, 1999, with a sign-on bonus of $50,000 and an annual
discretionary bonus set by the board based upon specific objectives to be
determined, with a minimum bonus of 30% of his base salary guaranteed during the
first 12 months of employment. In addition, Mr. Knighton will receive a stock
bonus equal to $100,000 divided by the initial public offering price when our
common stock trades at or above 125% of the initial public offering price for
six consecutive months. Pursuant to the employment agreement, Mr. Knighton
received an option to purchase 269,230 shares of our common stock at an exercise
price of $3.12 per share, plus a bonus payable at the time of exercise in the
amount of $1.56 per share of stock exercised, plus an additional amount to cover
taxes on the bonus. Mr. Knighton's stock option was approved by our board in
October 1999. In addition, Mr. Knighton is entitled to a housing loan of up to
$500,000. The employment agreement is at-will, and provides that if Mr. Knighton
is terminated without cause or Mr. Knighton voluntarily terminates his
employment after a constructive termination, he will be paid his base salary for
12 months in monthly installments or until he becomes employed, whichever is
earlier, and a portion of his options will be partially accelerated.

EMPLOYEE BENEFIT PLANS

1999 Equity Incentive Plan

We adopted our 1999 equity incentive plan in October 1999. The incentive
plan is an amendment and restatement of our 1996 stock incentive plan and will
terminate in 2009 unless the board terminates it sooner.

Share Reserve. We have reserved a total of 4,000,000 shares of our common
stock for issuance under the 1999 equity incentive plan. As of September 30,
1999, under the 1999 equity incentive plan (a) options to purchase 1,578,492
shares of common stock were outstanding and (b) options to purchase 613,307
shares had been exercised. If the recipient of a stock award does not purchase
the shares under the stock award before the stock award expires or otherwise
terminates, the shares that are not purchased again become available for
issuance under the incentive plan.

On the day after each annual meeting of our stockholders for 10 years,
beginning in 2000, the number of shares in the reserve automatically will be
increased by the greater of:

- 5% of our outstanding shares on a fully-diluted basis; or

- that number of shares that could be issued under awards granted under the
incentive plan during the prior 12-month period.

The automatic share reserve increase in the aggregate may not exceed 12,820,000
shares over the 10-year period.

Effect on Options of a Merger. If we dissolve or liquidate, then
outstanding stock awards will terminate immediately prior to the event. If we
sell, lease or dispose of all, or substantially all, of our assets, or are
acquired pursuant to a merger or consolidation then, the surviving entity will
either assume or substitute all outstanding awards under the incentive plan. If
it declines to do so, then generally the vesting and exercisability of the stock
awards will accelerate.

1996 Equity Incentive Plan

Our 1996 equity incentive plan was adopted by the board of directors in
January 1996 and approved by the stockholders in August 1996. The board
authorized and reserved an aggregate of 705,128 shares of Caliper common stock
for issuance under the 1996 equity incentive plan. The 1996 equity incentive
plan provides for the grant of incentive stock options to employees and
nonstatutory stock options to employees,

51
<PAGE> 55

directors and consultants of Caliper and its affiliates. The 1996 equity
incentive plan provides that it will be administered by the board, or a
committee appointed by the board, which determines recipients and types of
options to be granted, including number of shares under the option and the
exercisability of the shares.

As of September 30, 1999, under the 1996 equity incentive plan (a) options
to purchase 91,399 shares of common stock were outstanding and (b) options to
purchase 116,425 shares had been exercised. In July 1996, the board voted that
no additional grants would be made under the 1996 equity incentive plan.

1999 Non-Employee Directors' Stock Option Plan

We adopted the 1999 non-employee directors' stock option plan in October
1999. The directors' plan provides for the automatic grant to our non-employee
directors of options to purchase shares of our common stock. The directors' plan
will terminate in 2009 unless the board terminates it sooner.

Share Reserve. We have reserved a total of 200,000 shares of our common
stock for issuance under the directors' plan. On the day after each annual
meeting of our stockholders, for 10 years, starting in 2000, the share reserve
will automatically be increased by a number of shares equal to the greater of:

- 0.3% of our outstanding shares on a fully-diluted basis, or

- that number of shares that could be issued under options granted under
the directors' plan during the prior 12-month period.

If an optionholder does not purchase the shares under the option before the
option expires or otherwise terminates, the shares that are not purchased again
become available for issuance under the directors' plan.

Eligibility and Option Terms. Each person who is first elected or appointed
as a non-employee director after this initial public offering will automatically
receive an option for 20,000 shares. The initial grant will be fully exercisable
upon date of grant and will vest monthly over 5 years.

In addition, on the day after each of our annual meetings of the
stockholders, starting with the annual meeting in 2000, each non-employee
director will automatically receive another option if the recipient has been a
non-employee director for at least the prior six months. The annual grant will
cover 6,400 shares for the chairman of the board and 3,200 shares otherwise,
will be fully exercisable upon date of grant and will vest in 12 months. Options
have an exercise price equal to 100% of the fair market value of our common
stock on the grant date. The option term is 10 years.

Effect on Options of a Merger. If we dissolve or liquidate, then
outstanding options will terminate immediately prior to the event. If we sell,
lease or dispose of all, or substantially all, of our assets, or are acquired
pursuant to a merger or consolidation then, the surviving entity will either
assume or replace all outstanding options under the directors' plan. If it
declines to do so, then generally the vesting and exercisability of the options
will accelerate. However, if an option is assumed or replaced but the
optionholder is not elected to the board of directors of the acquiring or
surviving corporation at the first meeting of the board after the event, then
the vesting of that option will accelerate by 18 months.

Options Issued. The directors' plan will not be effective until the date of
this initial public offering of our stock. Therefore, we have not issued any
options under the directors' plan.

52
<PAGE> 56

1999 Employee Stock Purchase Plan

We adopted the 1999 employee stock purchase plan in October 1999. The
purchase plan has no set termination date. It will terminate when all of the
shares reserved under it have been issued unless the board terminates it
earlier.

Share Reserve. We authorized the issuance of 300,000 shares of our common
stock pursuant to purchase rights granted to eligible employees under the
purchase plan. On the day after each annual meeting of our stockholders for 10
years, beginning in 2000, the number of shares in the reserve automatically will
be increased by the greater of:

- 0.5% of our outstanding shares on a fully-diluted basis, or

- that number of shares that have been issued under the purchase plan
during the prior 12-month period.

The automatic share reserve increase in the aggregate may not exceed
3,000,000 shares over the 10-year period.

Eligibility. We intend to qualify the purchase plan as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which eligible employees may purchase our
common stock through payroll deductions. We implement the purchase plan by
offerings of purchase rights to eligible employees. Generally, all of our
full-time employees and full-time employees of our affiliates incorporated in
the United States who have been employed for at least 10 days may participate in
offerings under the purchase plan. However, no employee may participate in the
purchase plan if immediately after we grant the employee a purchase right, the
employee has voting power over 5% or more of our outstanding capital stock. As
of the date hereof, no shares of common stock have been purchased under the
purchase plan.

Offerings. Under the purchase plan, the board may specify offerings of up
to 27 months. Unless the board otherwise determines, common stock is purchased
for accounts of participating employees at a price per share equal to the lower
of:

- 85% of the fair market value of a share on the first day of the offering,
or

- 85% of the fair market value of a share on the purchase date.

The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:

- 85% of the fair market value of a share on the day they began
participating in the purchase plan, or

- 85% of the fair market value of a share on the purchase date.

Participating employees may authorize payroll deductions of up to 10% of
their compensation for the purchase of stock under the purchase plan. Employees
may end their participation in the offering at any time up to 10 days before a
purchase period ends. Their participation ends automatically on termination of
their employment.

Other Provisions. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase plans established by
us or by our affiliates, if any, do not permit the employee's rights to purchase
our stock to accrue at a rate which exceeds $25,000 of fair market value of our
stock for each calendar year in which the purchase rights are outstanding.

If we sell, lease or dispose of all, or substantially all, of our assets,
or are acquired pursuant to a merger or acquisition then, the board may provide
that the successor corporation will assume or substitute for outstanding
purchase rights. Alternatively, the board may shorten the offering period and
provide that our stock will be purchased for the participants immediately before
the event.

53
<PAGE> 57

401(k) Plan and Deferred Compensation Plan

We maintain a retirement and deferred savings plan for our employees that
is intended to qualify as a tax-qualified plan under the Internal Revenue Code.
The 401(k) Plan provides that each participant may contribute up to a statutory
limit, which is $10,000 in calendar year 1999. In December 1999, we established
a deferred compensation plan, which is an unfunded plan established primarily
for the purpose of providing deferred compensation for our executive officers
and highly compensated employees. The plan will take effect on February 1, 2000.
Under the terms of the plan, participants in the plan are permitted to defer
receipt and therefore income taxation on a portion or all of their taxable wages
from Caliper until they terminate their employment with Caliper.

54
<PAGE> 58

TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND
FIVE PERCENT STOCKHOLDERS

The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts as of the
dates shown below.

<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
COMMON --------------------------------------------------------
STOCK SERIES B SERIES C SERIES D SERIES E
----------------- ------------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Daniel L. Kisner, M.D............... 64,101 -- -- -- --
Calvin Y. H. Chow................... 218,178 -- -- -- --
Michael R. Knapp, Ph.D.............. 210,263 20,479 5,342 -- --
J. Wallace Parce, Ph.D.............. 193,220 -- -- -- --
William M. Wright III............... 10,256 -- -- -- --
David V. Milligan, Ph.D............. 96,152 -- -- -- --
Charles M. Hartman.................. 7,692 -- -- -- --
Regis P. McKenna.................... 19,230 -- -- 32,051 --
5% STOCKHOLDERS
Venrock Associates(1)............... 76,181 1,062,536 44,267 55,128 --
Venrock Associates II, L.P.(1)...... 46,692 652,779 66,401 73,077 --
CW Partners III, L.P.(2)............ 122,874 -- -- -- --
CW Ventures II, L.P.(2)............. -- 1,414,831 90,906 -- --
Lombard Odier & Cie................. -- 409,594 641,026 480,769 224,359
The Dow Chemical Company............ -- -- -- 1,041,667 --
Hoffmann-La Roche Inc............... -- -- 854,701 -- --
BB BioVentures, L.P.(3)............. -- -- -- 801,282 --
Price Per Share..................... $0.00156 to $0.97 $1.2207211 $4.68 $6.24 $9.36
Date(s) of Purchase................. 8/95 to 9/99 4/96 to 10/96 10/96 to 12/96 1/97 to 3/98 5/98
</TABLE>

- ---------------
(1) Anthony B. Evnin, Ph.D., one of our directors, is a general partner of
Venrock Associates.

(2) Charles M. Hartman, one of our directors, is a general partner of CW Group.

(3) Michael Steinmetz, Ph.D., one of our directors, is a partner of MPM Asset
Management LLC, the management advisor of BB BioVentures, L.P.

We have entered into the following agreements with our executive officers,
directors and holders of more than five percent of our voting securities.

Amended and Restated Investors' Rights Agreement. Caliper and the
preferred stockholders described above have entered into an agreement, pursuant
to which these and other preferred stockholders will have registration rights
with respect to their shares of common stock following this offering. Upon the
completion of this offering, all shares of our outstanding preferred stock will
be automatically converted into common stock on a one for one basis. See
"Description of Capital Stock -- Registration Rights" for a further description
of the terms of this agreement.

Dow Chemical Agreement. On January 14, 1997, we entered into a development
agreement with The Dow Chemical Company to work together on polymer chip
manufacturing technologies. This work concluded in 1998. In consideration of
Dow's contribution under the development agreement, we issued 240,385 shares of
our Series D preferred stock to Dow. The remaining shares of Series D preferred
stock held by Dow were purchased with cash in connection with our Series D
financing.

MPM Capital Advisors LLC Agreement. On July 24, 1997, we entered into an
agreement with MPM Capital Advisors LLC. Under the terms of this agreement, MPM
agreed to develop a strategic overview and business plan for Caliper. In
consideration for these services we paid MPM $125,000 and issued 39,262 shares
of our common stock. This agreement was terminated on April 23, 1998.

55
<PAGE> 59

David V. Milligan, Ph.D. Consulting Agreement. As part of our ongoing
program of research and development, we entered into a twelve-month consulting
agreement with Dr. David V. Milligan, our Chairman of the Board, effective April
30, 1997. The term of this agreement may be renewed annually for up to five
years. Under the terms of this agreement, Dr. Milligan has agreed to provide
consultation and advice concerning our core competitive strengths and the
development of optimal growth strategies. In exchange, we have agreed to pay Dr.
Milligan $80,000 per year and granted Dr. Milligan a stock option to purchase
64,102 shares of our common stock at $0.47 per share. This option vests monthly
over a period of five years. This agreement has been renewed and remains in
effect. We have also granted Dr. Milligan stock options in connection with his
services as one of our directors. See "Management -- Director Compensation."

Regis P. McKenna Consulting Agreement. We entered into a twelve-month
consulting agreement with Regis P. McKenna, one of our directors, on April 30,
1997. Under the terms of this agreement, Mr. McKenna agreed to provide
assistance in developing our technology and business strategies. In exchange,
Mr. McKenna was allowed to purchase 19,230 shares of common stock at $0.62 per
share. In July 1998, Mr. McKenna was granted a stock option for 19,230 shares of
common stock at $0.97 per share. In August 1999, Mr. McKenna was granted a stock
option for 19,230 shares of common stock at $0.97 per share. This option vests
in twelve equal monthly installments beginning in May 1999. This agreement has
been renewed and remains in effect. We have also granted Mr. McKenna stock
options in connection with his services as one of our directors. See
"Management -- Director Compensation."

Executive Employment Agreements. We have entered into employment contracts
with Daniel L. Kisner, M.D. our President and Chief Executive Officer, and James
L. Knighton, our Chief Financial Officer. See "Management -- Employment
Agreements."

Indebtedness of Management. In March 1997, we loaned Michael R. Knapp, our
Vice President of Science and Technology, $200,000 in connection with the
purchase of a residence. The interest on this loan is 6.61% per year and begins
to accrue on January 1, 2002. The principal and accrued interest is to be repaid
in five equal annual installments beginning June 30, 2002. The promissory note
will accelerate and become due and payable should Dr. Knapp's employment with us
be terminated for any reason. The promissory note is full recourse and is
secured by a deed of trust on the residence. In September 1999, we loaned Daniel
L. Kisner, M.D. our President and Chief Executive Officer, $425,000 in
connection with the purchase of a residence. The loan has a maximum term of six
years with an annual interest rate of 5.96%. The loan may be forgiven by our
board based upon Dr. Kisner's performance over five years.

Warrants. In August 1995, we entered into an agreement, as amended, with
Michael R. Knapp, Ph.D., our Vice President of Science and Technology, under
which we agreed to issue to Dr. Knapp two warrants, each for 19,230 shares of
our common stock at $1.22 per share, upon the achievement of performance
milestones. In October 1996, we issued to Dr. Knapp the first of the two
warrants. This warrant is exercisable until October 11, 2006.

Stock Options. In October 1996, in connection with his services as a
consultant to us, we granted to Charles M. Hartman, one of our directors, a
stock option to purchase 7,692 shares of common stock at an exercise price $0.47
per share.

We believe that all of the transactions described above were made on terms
no less favorable to Caliper than could have been obtained from unaffiliated
third parties. All future transactions, including loans, between Caliper and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested directors, and will continue to be on terms no
less favorable to Caliper than could be obtained from unaffiliated third
parties.

Indemnification Agreements. We intend to enter into indemnification
agreements with our directors and officers for the indemnification of these
persons to the full extent permitted by law. We also intend to execute these
agreements with our future directors and officers.

56
<PAGE> 60

PRINCIPAL STOCKHOLDERS

The following table presents information regarding the beneficial ownership
of our common stock as of September 30, 1999, and as adjusted to reflect the
sale of our common stock offered by this prospectus, by:

- each of the individuals listed in the "Summary Compensation Table" above

- each of our directors

- each person, or group of affiliated persons, who is known by us to own
beneficially five percent or more of our common stock

- all current directors and executive officers as a group

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock under options held by that person that are currently
exercisable or exercisable within 60 days of September 30, 1999 are considered
outstanding. These shares, however, are not considered outstanding when
computing the percentage ownership of each other person.

Except as indicated in the footnotes to this table and pursuant to state
community property laws, each stockholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by them. Percentage
of ownership is based on 15,804,501 shares of common stock outstanding on
September 30, 1999 and 20,304,501 shares of common stock outstanding after
completion of this offering. This table assumes no exercise of the underwriters'
over-allotment option. Unless otherwise indicated in the footnotes, the address
of each of the individuals named below is: c/o Caliper Technologies Corp., 605
Fairchild Drive, Mountain View, California 94043.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
-------------------------------------------------
SHARES ISSUABLE
PURSUANT TO
OPTIONS AND SHARES
WARRANTS CALIPER MAY PERCENTAGE
EXERCISABLE REPURCHASE BENEFICIALLY
NUMBER OF WITHIN WITHIN OWNED
SHARES 60 DAYS OF 60 DAYS OF -------------------
BENEFICIALLY SEPTEMBER 30, SEPTEMBER 30, BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED 1999 1999 OFFERING OFFERING
- ------------------------------------ ------------ ----------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Daniel L. Kisner, M.D.(1)................... 64,101 32,050 -- * *
Calvin Y. H. Chow(2)........................ 218,178 5,373 25,641 1.4% 1.1%
Michael R. Knapp, Ph.D...................... 236,084 29,944 4,807 1.7 1.3
J. Wallace Parce, Ph.D.(3).................. 193,220 10,180 28,205 1.3 1.0
David V. Milligan, Ph.D..................... 96,152 -- 39,102 * *
Anthony B. Evnin, Ph.D.(4).................. 2,077,061 -- -- 13.1 10.2
Charles M. Hartman(5)....................... 1,636,303 -- -- 10.4 8.1
Regis P. McKenna(6)......................... 51,281 33,332 -- * *
Robert T. Nelsen(7)......................... 708,837 -- -- 4.5 3.5
Michael Steinmetz, Ph.D.(8)................. 840,544 -- -- 5.3 4.1
5% STOCKHOLDERS
Venrock Associates(4)....................... 2,077,061 -- -- 13.1 10.2
Lombard Odier & Cie(9)...................... 1,755,748 -- -- 11.1 8.7
CW Group(5)................................. 1,628,611 -- -- 10.3 8.0
The Dow Chemical Company(10)................ 1,041,667 -- -- 6.6 5.1
Hoffmann-La Roche Inc.(11).................. 854,701 -- -- 5.4 4.2
BB BioVentures, L.P.(8)..................... 840,544 -- -- 5.3 4.1
All directors and executive officers as a
group (12 persons)(12).................... 6,132,017 112,587 97,755 39.2% 30.6%
</TABLE>

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<PAGE> 61

- ---------------
* Represents beneficial ownership of less than 1 percent.

(1) Includes 38,461 shares held by The Kisner Revocable Trust u/a/d 9/23/99, of
which Dr. Kisner is a trustee, 12,820 shares held by The Jordan Renee
Kisner Exempt Irrevocable Trust u/a/d 9/23/99, of which Dr. Kisner is a
trustee and 12,820 shares held by The Griffin Daniel Kisner Exempt
Irrevocable Trust u/a/d 9/23/99, of which Dr. Kisner is a trustee.

(2) Includes 25,872 shares that are held by Tiffany Chow, 12,820 shares held by
Harrison Chow and 12,820 shares held by Stephanie Chow, the children of Mr.
Chow.

(3) Includes 12,820 shares held by Charles Andrew Parce and 12,820 shares held
by Laura Marie Parce, the children of Dr. Parce.

(4) Consists of 1,238,112 shares held by Venrock Associates, and 838,949 shares
held by Venrock Associates II, L.P. Venrock Associates is located at 30
Rockefeller Plaza, Suite 5508, New York, NY 10112. Dr. Evnin, David R.
Hathaway, Patrick F. Latterell, Ted H. McCourtney, Ray A. Rothrock,
Kimberley A. Rummelsburg and Anthony Sun are general partners of Venrock
Associates and disclaim beneficial ownership of these shares except to the
extent of each of their proportionate partnership interest in these shares.

(5) Includes 122,874 shares held by CW Partners III, L.P., and 1,505,737 shares
held by CW Ventures II, L.P. CW Group is located at 1041 Third Avenue, 2nd
Floor, New York, NY 10021. Mr. Hartman, Barry Weinberg and Walter Channing
are general partners of CW Ventures and disclaim beneficial ownership of
these shares except to the extent of each of their proportionate
partnership interest in these shares.

(6) Includes 32,051 shares held by The Regis P. and Dianne T. McKenna Trust, of
which Mr. McKenna is a trustee.

(7) Consists of 708,837 shares held by ARCH Venture Fund II, L.P., a limited
partnership managed by ARCH Management Partners II, L.P. ARCH Venture
Partners, L.P. is the general partner of ARCH Management Partners II, L.P.
Mr. Nelsen, is the Managing Director of ARCH Venture Corporation, which is
the general partner of ARCH Venture Partners, L.P. Messrs. Steven Lazarus
and Keith Crandell are each a Managing Director of ARCH Venture Partners,
L.P. ARCH Venture Fund II, L.P. is located at 8725 W. Higgins Road, Suite
290, Chicago, Illinois 60631. Messrs. Nelsen, Lazarus and Crandell each
disclaim beneficial ownership of these shares except to the extent of each
of their pecuniary interest in these shares.

(8) Includes 801,282 shares held by BB BioVentures, L.P. BB BioVentures, L.P.
is located at One Cambridge Center, 9th Floor, Cambridge, MA 02142. Dr.
Steinmetz is a partner of MPM Asset Management LLC, the management advisor
of BB BioVentures, L.P. Dr. Steinmetz disclaims beneficial ownership of
these shares. Also includes 39,262 shares held by MPM Capital Advisors LLC,
a wholly owned subsidiary of MPM Capital L.P. MPM Capital L.P. also owns
51% of MPM Asset Management LLC. Dr. Steinmetz disclaims beneficial
ownership of these shares except to the extent of his proportional
partnership interest in these shares. Ansbert Gadicke is the managing
director of BAB BioVentures, N.V., the general partner of BAB BioVentures
L.P., which is the general partner of BB BioVentures, L.P. Mr. Gadicke
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in these shares.

(9) Lombard Odier & Cie is located at 11, Rue de la Corraterie, 1204 Geneva,
Switzerland. Lombard Odier & Cie is a private Swiss banking institution.
Approximately 88% of the shares held by Lombard Odier & Cie are held for
Lombard Odier Immunology Fund, with the remaining being held for private
banking clients. There is no one single person at Lombard Odier & Cie that
exercises voting control over the shares held by Lombard Odier & Cie.
Voting of the shares is conducted by an internal mechanism at Lombard Odier
& Cie which requires, prior to any vote, that two of more than two hundred
designated employees sign on behalf of Lombard Odier & Cie. In addition,
any one of eight managing partners could sign on behalf of Lombard Odier &
Cie without a separate concurring signature.

(10) The Dow Chemical Company is located at 2030 Dow Center, Midland, Michigan
48674. The Dow Chemical Company is a publicly traded company and is listed
on the NYSE under the symbol "DOW".

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<PAGE> 62

(11) Hoffmann-La Roche Inc. is located at 340 Kingland Street, Nutley, New
Jersey 07110. Hoffmann-La Roche Inc. is a subsidiary of Roche Holding Ltd.
which is a publicly traded company and is listed on the Swiss Market.

(12) Total number of shares includes 5,255,053 shares of common stock held by
entities affiliated with directors and executive officers. See footnotes 1
through 8 above.

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<PAGE> 63

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, our authorized capital stock will consist
of 70,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value.

COMMON STOCK

As of September 30, 1999, there were 15,804,501 shares of common stock
outstanding held of record by 158 stockholders. The holders of common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders. The holders of common stock are entitled to receive
ratably any dividends as may be declared by the board of directors out of
legally available funds, after the superior rights of the holders of preferred
stock have been satisfied. See "Dividend Policy." Upon a liquidation,
dissolution or winding up of Caliper, holders of the common stock are entitled
to share ratably in all assets remaining after payment of liabilities and
amounts due to the holders of preferred stock as described below. Holders of
common stock have no preemptive rights and no right to convert their common
stock into any other securities. There are no redemption or sinking fund
provisions that apply to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and non-assessable.

PREFERRED STOCK

The board of directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon the preferred stock,
including dividend rights, conversion rights, terms of redemption, liquidation
preference, sinking fund terms and the number of shares constituting any series
or the designation of a series, without any further vote or action by the
stockholders. The board of directors, without stockholder approval, can issue
preferred stock with voting and conversion rights which could adversely affect
the voting power of the holders of common stock. The issuance of preferred stock
could have the effect of delaying, deferring or preventing a change in control
of Caliper. We have no present plan to issue any shares of preferred stock.

WARRANTS

As of September 30, 1999, one warrant to purchase 32,767 shares of Series B
preferred stock was outstanding at an exercise price of $1.22 per share. This
warrant expires upon the earlier of May 10, 2002 or three years after completion
of this offering. The warrant contains provisions for the adjustment of the
exercise price and the aggregate number of shares that may be issued upon the
exercise of the warrant if a stock dividend, stock split, reorganization,
reclassification or consolidation occurs. Upon the closing of this offering, the
warrant to purchase Series B preferred stock will become exercisable for common
stock at the rate of one share of common stock for each share of preferred stock
underlying the warrant.

As of September 30, 1999, three warrants to purchase a total of 41,736
shares of common stock were outstanding at an exercise price of $1.22 per share.
One of the warrants expires on the earlier of January 3, 2002 or the closing of
a merger or acquisition of Caliper. Two of the warrants expire on October 11,
2006. Each warrant contains provisions for the adjustment of the exercise price
and the aggregate number of shares that may be issued upon the exercise of the
warrants if a stock dividend, stock split, reorganization, reclassification or
consolidation occurs.

Upon the achievement of a patent milestone we will be obligated to issue
two warrants, each to purchase 19,230 shares of common stock at an exercise
price of $1.22 per share. If issued, the warrants will expire in January 2006.

REGISTRATION RIGHTS

On the date 180 days after the completion of this offering, the holders of
11,855,090 shares of common stock or their transferees will be entitled to
rights to register these shares under the Securities Act of 1933. If we propose
to register any of our securities under the Securities Act, either for our own

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<PAGE> 64

account or for the account of other securityholders, the holders of these shares
will be entitled to notice of the registration and will be entitled to include,
at our expense, their shares of common stock. In addition, the holders of these
shares may require us, at our expense and on not more than two occasions at any
time beginning approximately six months from the date of the closing of this
offering, to file a registration statement under the Securities Act covering
their shares of common stock, and we will be required to use our best efforts to
have the registration statement declared effective. Further, the holders may
require us at our expense to register their shares on Form S-3 when this form
becomes available. These rights shall terminate on the earlier of five years
after the effective date of this offering, or when a holder is able to sell all
its shares pursuant to Rule 144 under the Securities Act in any 90-day period.
Attached to these registration rights are conditions and limitations, including
the right of the underwriters to limit the number of shares included in the
registration statement.

ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS

Delaware Law

In general, Section 203 of the Delaware General Corporation Law prohibits a
publicly held Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years following the date
that the stockholder became an interested stockholder unless:

- prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;

- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held under the plan will be tendered in a tender or
exchange offer; or

- on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.

Section 203 defines "business combination" to include:

- any merger or consolidation involving the corporation and the interested
stockholder;

- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;

- in general, any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the interested
stockholder; or

- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.

Charter Provisions

Our certificate of incorporation and bylaws include a number of provisions
that may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of Caliper. First, our certificate
of incorporation provides that all stockholder actions upon completion of this
offering must be effected at a duly called meeting of holders and not by a
consent in writing. Second, our bylaws provide that special meetings of the
holders may be called only by the chairman of the board of directors, the

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<PAGE> 65

chief executive officer, or our board of directors pursuant to a resolution
adopted by a majority of the total number of authorized directors. Third, our
certificate of incorporation provides that our board of directors can issue up
to 5,000,000 shares of preferred stock, as described under "-- Preferred Stock"
above. Fourth, our certificate of incorporation and the bylaws provide for a
classified board of directors, in which approximately one-third of the directors
would be elected each year. Consequently, any potential acquiror would need to
successfully complete two proxy contests in order to take control of the board
of directors. Finally, our bylaws establish procedures, including advance notice
procedures with regard to the nomination of candidates for election as directors
and stockholder proposals. These provisions of our certificate of incorporation
and bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control or management of Caliper.

California Law.

We are currently subject to Section 2115 of the California Corporations
Code. Section 2115 provides that, regardless of a company's legal domicile,
provisions of California corporate law relating to shareholder rights, election
and removal of directors and distributions to shareholders will apply to that
company if the company meets the requirements of Section 2115. We will not be
subject to Section 2115 if:

- we are qualified for trading as a national market security on the Nasdaq
National Market, and we have at least 800 stockholders of record as of
the record date of our most recent annual meeting, or

- during any income year less than 50% of our outstanding voting securities
are held of record by persons having addresses in California.

Our certificate of incorporation includes a provision requiring cumulative
voting for directors whenever Section 2115 of the California Corporations Code
applies to us. Under cumulative voting, a minority stockholder holding a
sufficient percentage of a class of shares may be able to ensure the election of
one or more directors.

TRANSFER AGENT AND REGISTRAR

Norwest Bank Minnesota, N.A. has been appointed as the transfer agent and
registrar for our common stock.

NATIONAL MARKET LISTING

Our common stock has been approved for listing on the Nasdaq Stock Market's
National Market under the symbol "CALP."

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<PAGE> 66

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices. Furthermore, because a
large number of our shares of common stock outstanding will not be available for
sale shortly after this offering because of contractual and legal restrictions
on resale as described below. Sales of substantial amounts of our common stock
in the public market after these restrictions lapse could depress the prevailing
market price and limit our ability to raise equity capital in the future.

Upon completion of this offering, we will have outstanding an aggregate of
20,304,501 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
these shares are purchased by affiliates. The remaining 15,804,501 shares of
common stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under the Securities Act.

As a result of the contractual restrictions described below and the rules
under the Securities Act, the restricted shares will be available for sale in
the public market as follows:

Lock-Up Agreements

All of our officers and directors, and a majority of our stockholders,
warrant holders and option holders, have agreed not to transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for shares of our common stock,
for a period of 180 days after the date the registration statement of which this
prospectus is a part is declared effective. Transfers or dispositions can be
made sooner with the prior written consent of Credit Suisse First Boston
Corporation.

Registration Rights

On the date 180 days after the completion of this offering, the holders of
11,855,090 shares of our common stock will have rights to require us to register
their shares under the Securities Act. Upon the effectiveness of a registration
statement covering these shares, the shares would become freely tradeable.

Stock Options

Immediately after this offering, we intend to file a registration statement
under the Securities Act covering approximately 3,978,102 shares of common stock
reserved for issuance under our stock option plans and employee stock purchase
plan. The registration statement is expected to be filed and become effective as
soon as practicable after the closing of this offering. Accordingly, shares
registered under the registration statements will be available for sale in the
open market, beginning 180 days after the effective date of the registration
statement of which this prospectus is a part.

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<PAGE> 67

UNDERWRITING

Under the terms and conditions contained in the underwriting agreement
dated December 14, 1999, we have agreed to sell to the underwriters named below,
for whom Credit Suisse First Boston Corporation, CIBC World Markets Corp. and
Hambrecht & Quist LLC are acting as representatives, the following respective
number of shares of common stock:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation...................... 1,912,500
CIBC World Markets Corp. ................................... 956,250
Hambrecht & Quist LLC....................................... 956,250
Dain Rauscher Wessels....................................... 84,375
a division of Dain Rauscher Incorporated
A.G. Edwards & Sons, Inc. .................................. 84,375
E*Offering Corp. ........................................... 84,375
First Security Van Kasper................................... 84,375
Invemed Associates LLC...................................... 84,375
Ladenburg Thalmann & Co. Inc. .............................. 84,375
Needham & Company, Inc. .................................... 84,375
Punk, Ziegel & Company, L.P. ............................... 84,375
----------
Total............................................. 4,500,000
==========
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 675,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. This option may
be exercised only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock to the public
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $0.67 per share. The
underwriters and selling group members may allow a discount of $0.10 per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.

The following table summarizes the compensation and estimated expenses we
will pay.

<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us............. $1.12 $1.12 $5,040,000 $5,796,000
Expenses payable by us............... $0.21 $0.18 $ 950,000 $ 950,000
</TABLE>

The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

We, our directors, officers and the majority of our stockholders have
agreed that we and they will not:

- offer, sell, contract to sell, announce our intention to sell, pledge or
otherwise dispose of, directly or indirectly; or

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<PAGE> 68

- file with the Securities and Exchange Commission a registration statement
under the Securities Act of 1933 relating to;

any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock without the prior
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus, except in connection with our stock option and
employee stock purchase plans.

The underwriters have reserved for sale, at the initial public offering
price, up to 225,000 shares of the common stock for employees, directors and
other persons associated with us who may wish to purchase common stock in the
offering. The number of shares available for sale to the general public in the
offering will be reduced to the extent these persons purchase these reserved
shares. Any reserved shares not so purchased will be offered by the underwriters
to the general public on the same terms as the other shares.

A limited number of shares may be made available via the Internet to
customers of one or more underwriters participating in this offering. If any
underwriter uses the Internet to make offers and sales, a copy of our
preliminary prospectus in electronic format will be made available on a web site
maintained by the underwriter or pursuant to a hosting arrangement entered into
by the underwriter with a third party. After the prospectus is made available,
the underwriter will accept conditional offers to purchase shares from its
customers that complete and pass an online eligibility profile. All conditional
offers to purchase shares must be reconfirmed by the customer or they will not
be accepted. Conditional offers may be withdrawn at any time before the customer
receives a notice of acceptance from the underwriter. In the event that the
demand for shares from customers submitting online conditional offers exceeds
the amount of shares available for Internet distribution, the underwriter will
use a random allocation method to distribute shares to customers. There are no
plans to direct shares to particular purchasers via the Internet.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933 or to contribute to payments which the underwriters may
be required to make as a result of these liabilities.

Our common stock has been approved for listing on The Nasdaq Stock Market's
National Market under the symbol "CALP."

Prior to this offering, there has been no public market for our common
stock. The initial public offering price was determined by negotiation between
us and the underwriters. The principal factors considered in determining the
public offering price included:

- the information presented in this prospectus and otherwise available to
the underwriters

- the history and the prospects for the industry in which we will compete

- the ability of our management

- the prospects for our future earnings

- the present state of our development and our current financial condition

- the general condition of the securities markets at the time of this
offering

- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.

- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

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<PAGE> 69

- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.

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<PAGE> 70

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the province in Canada in which the resale is made, and which
may require resales to be made in accordance with statutory exemptions available
in the province in which the resale is made or pursuant to a discretionary
exemption granted by the securities regulatory authority in that province.
Purchasers are advised to seek legal advice prior to any resale of the common
stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (1) the purchaser is entitled under the
securities laws of the province in which the common stock is purchased to
purchase the common stock without the benefit of a prospectus qualified under
these securities laws, (2) if required by the laws of the province in which the
common stock is purchased, that the purchaser is purchasing as principal and not
as agent, and (3) the purchaser has reviewed the text above under "Resale
Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions of
the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from Caliper. Only one report must be
filed for common stock acquired on the same date and under the same prospectus
exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common stock should consult their own legal and tax
advisors about the tax consequences of an investment in the common stock in
their particular circumstances and regarding the eligibility of the common stock
for investment by the purchaser under relevant Canadian legislation.

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<PAGE> 71

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. As of the date of this
prospectus, partners and associates of Cooley Godward LLP own an aggregate of
approximately 18,696 shares of common stock through an investment partnership.
The underwriters have been represented by Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C., Boston, Massachusetts.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1997 and 1998, and for each of the three years in the
period ended December 31, 1998, presented in their report. We have included our
financial statements in this prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 regarding the shares of
common stock offered by us. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information contained in the
registration statement, some items of which are contained in exhibits to the
registration statement as permitted by the rules and regulations of the
Commission. For further information on Caliper and the common stock offered,
reference is made to the registration statement, including the exhibits, and the
financial statements and notes filed as a part of the registration statement. A
copy of the registration statement, including the exhibits and the financial
statements and notes filed as a part of it, may be inspected without charge at
the public reference facilities maintained by the Securities and Exchange
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part of the registration statement may be obtained from the
Securities and Exchange Commission upon the payment of fees prescribed by it.
The Securities and Exchange Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding companies that file electronically with it.

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<PAGE> 72

CALIPER TECHNOLOGIES CORP.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)............................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 73

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Caliper Technologies Corp.

We have audited the accompanying balance sheets of Caliper Technologies Corp. as
of December 31, 1997 and 1998, and the related statements of operations,
redeemable convertible preferred stock and stockholders' equity (deficit), and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Caliper Technologies Corp. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Palo Alto, California
March 5, 1999

F-2
<PAGE> 74

CALIPER TECHNOLOGIES CORP.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, (DEFICIT) AT
------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
-------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 312 $ 5,158 $ 3,628
Marketable securities..................................... 26,237 25,894 24,192
Accounts receivable....................................... -- 1,082 390
Inventories............................................... -- -- 206
Prepaid expenses and other current assets................. 189 600 761
-------- -------- --------
Total current assets........................................ 26,738 32,734 29,177
Property and equipment, net................................. 2,050 2,796 4,856
Deposits and other assets................................... 119 -- --
Notes receivable............................................ 200 200 625
-------- -------- --------
Total assets................................................ $ 29,107 $ 35,730 $ 34,658
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 148 $ 228 $ 912
Accrued compensation...................................... 283 432 690
Other accrued liabilities................................. 1,142 493 606
Deferred revenue.......................................... -- 626 2,399
Current portion of equipment financing.................... 486 881 1,292
-------- -------- --------
Total current liabilities................................... 2,059 2,660 5,899
Noncurrent portion of equipment financing................... 1,430 2,008 3,299
Deferred rent............................................... -- -- 184
Commitments
Redeemable convertible preferred stock, $0.001 par value,
issuable in series; 17,308,333 shares authorized in 1997
and 19,579,039 shares authorized in 1998 and 1999 (none
pro forma); 10,774,309 shares issued and outstanding in
1997, 11,703,692 shares issued and outstanding in 1998 and
1999 (none pro forma); aggregate liquidation preference of
$44,810 at December 31, 1998 and September 30, 1999 (none
pro forma)................................................ 38,283 48,716 50,538 $ --
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value; 1,691,667
shares authorized in 1997, 1,420,961 shares authorized
in 1998 and 1999 (5,000,000 shares pro forma); 829,142
shares issued and outstanding in 1997, 1998, and 1999
(none pro forma); aggregate liquidation preference of
$1,009 at December 31, 1998 and September 30, 1999 (none
pro forma).............................................. 1 1 1 --
Common stock, $0.001 par value; 28,000,000 shares
authorized in 1997, 32,000,000 shares authorized in 1998
and 1999 (70,000,000 shares pro forma); 2,478,711,
2,772,343, and 3,271,667 shares issued and outstanding
in 1997, 1998, and 1999, respectively (15,804,501 shares
pro forma).............................................. 3 3 3 16
Additional paid-in capital................................ 590 1,250 8,948 59,474
Deferred stock compensation............................... -- (500) (5,858) (5,858)
Accumulated deficit....................................... (13,259) (18,408) (28,356) (28,356)
-------- -------- -------- --------
Total stockholders' equity (deficit)........................ (12,665) (17,654) (25,262) $ 25,276
-------- -------- -------- ========
$ 29,107 $ 35,730 $ 34,658
======== ======== ========
</TABLE>

See accompanying notes.
F-3
<PAGE> 75

CALIPER TECHNOLOGIES CORP.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.................................................... $ 132 $ 2,266 $ 8,155 $ 4,425 $ 8,859
Costs and expenses:
Research and development................................. 2,734 7,200 9,584 7,232 12,302
General and administrative............................... 1,240 2,478 2,932 1,996 3,487
Amortization of deferred stock compensation.............. -- -- -- -- 1,997
Acquired in-process research and development............. 978 -- -- -- --
------- ------- ------- ------- -------
Total costs and expenses................................... 4,952 9,678 12,516 9,228 17,786
------- ------- ------- ------- -------
Operating loss............................................. (4,820) (7,412) (4,361) (4,803) (8,927)
Interest income............................................ 179 1,191 1,581 1,183 1,076
Interest expense........................................... (69) (60) (195) (125) (275)
------- ------- ------- ------- -------
Net loss................................................... (4,710) (6,281) (2,975) (3,745) (8,126)
Accretion on redeemable convertible preferred stock........ (262) (1,470) (2,174) (1,587) (1,822)
------- ------- ------- ------- -------
Net loss attributable to common stockholders............... $(4,972) $(7,751) $(5,149) $(5,332) $(9,948)
======= ======= ======= ======= =======
Net loss per common share, basic and diluted............... $ (3.90) $ (4.38) $ (2.39) $ (2.54) $ (3.71)
======= ======= ======= ======= =======
Shares used in computing net loss per common share, basic
and diluted.............................................. 1,274 1,768 2,157 2,099 2,684
Pro forma net loss per share, basic and diluted
(unaudited).............................................. $ (0.21) $ (0.53)
======= =======
Shares used in computing pro forma net loss per share,
basic and diluted (unaudited)............................ 14,347 15,217
</TABLE>

See accompanying notes.
F-4
<PAGE> 76

CALIPER TECHNOLOGIES CORP.

STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
STOCKHOLDERS EQUITY (DEFICIT)
REDEEMABLE ----------------------------------------------------
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------ ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------- --------- ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995....... -- $ -- -- $-- 416,660 $1 $ --
Issuance of common stock for cash... -- -- -- -- 1,208,237 1 26
Issuance of common stock and Series
A convertible preferred stock in
exchange for all of the
outstanding common and preferred
stock of ChemCore Corporation..... -- -- 829,142 1 678,786 1 492
Issuance of Series B redeemable
convertible preferred stock for
cash.............................. 5,448,454 6,651 -- -- -- -- --
Issuance of Series C redeemable
convertible preferred stock for
cash.............................. 2,136,752 10,000 -- -- -- -- --
Accretion on redeemable convertible
preferred stock................... -- 262 -- -- -- -- --
Net loss and comprehensive net
loss.............................. -- -- -- -- -- -- --
---------- ------- --------- -- --------- -- -------
Balances at December 31, 1996....... 7,585,206 16,913 829,142 1 2,303,683 3 518
Issuance of Series D redeemable
convertible preferred stock for
cash.............................. 3,089,744 19,280 -- -- -- -- --
Issuance of Series D redeemable
convertible preferred stock for
services.......................... 99,359 620 -- -- -- -- --
Issuance of common stock upon
exercise of stock options......... -- -- -- -- 155,798 -- 60
Issuance of common stock for cash... -- -- -- -- 19,230 -- 12
Accretion on redeemable convertible
preferred stock................... -- 1,470 -- -- -- -- --
Net loss and comprehensive loss..... -- -- -- -- -- -- --
---------- ------- --------- -- --------- -- -------
Balances at December 31, 1997....... 10,774,309 38,283 829,142 1 2,478,711 3 590
Issuance of Series D redeemable
convertible preferred stock for
services.......................... 141,026 880 -- -- -- -- --
Issuance of Series E redeemable
convertible preferred stock for
cash.............................. 788,357 7,379 -- -- -- -- --
Issuance of common stock upon
exercise of stock options......... -- -- -- -- 191,831 -- 84
Issuance of common stock for
services.......................... -- -- -- -- 101,801 -- 76
Accretion on redeemable convertible
preferred stock................... -- 2,174 -- -- -- -- --
Deferred stock compensation......... -- -- -- -- -- -- 500
Net loss and comprehensive loss..... -- -- -- -- -- -- --
---------- ------- --------- -- --------- -- -------
Balances at December 31, 1998....... 11,703,692 48,716 829,142 1 2,772,343 3 1,250
Issuance of common stock upon
exercise of stock options
(unaudited)....................... -- -- -- -- 490,040 -- 260
Issuance of common stock for
services (unaudited).............. -- -- -- 9,294 -- 83
Accretion on redeemable convertible
preferred stock (unaudited)....... -- 1,822 -- -- -- -- --
Deferred stock compensation
(unaudited)....................... -- -- -- -- -- -- 7,355
Amortization of deferred stock
compensation (unaudited).......... -- -- -- -- -- -- --
Net loss and comprehensive loss
(unaudited)....................... -- -- -- --
---------- ------- --------- -- --------- -- -------
Balances at September 30, 1999
(unaudited)....................... 11,703,692 $50,538 829,142 $1 3,271,667 $3 $ 8,948
========== ======= ========= == ========= == =======

<CAPTION>
STOCKHOLDERS EQUITY (DEFICIT)
--------------------------------------------
TOTAL
STOCKHOLDERS'
DEFERRED STOCK ACCUMULATED EQUITY
COMPENSATION DEFICIT (DEFICIT)
-------------- ----------- -------------
<S> <C> <C> <C>
Balances at December 31, 1995....... $ -- $ -- $ 1
Issuance of common stock for cash... -- -- 27
Issuance of common stock and Series
A convertible preferred stock in
exchange for all of the
outstanding common and preferred
stock of ChemCore Corporation..... -- -- 494
Issuance of Series B redeemable
convertible preferred stock for
cash.............................. -- -- --
Issuance of Series C redeemable
convertible preferred stock for
cash.............................. -- -- --
Accretion on redeemable convertible
preferred stock................... -- (262) (262)
Net loss and comprehensive net
loss.............................. -- (5,246) (5,246)
------- -------- --------
Balances at December 31, 1996....... -- (5,508) (4,986)
Issuance of Series D redeemable
convertible preferred stock for
cash.............................. -- -- --
Issuance of Series D redeemable
convertible preferred stock for
services.......................... -- -- --
Issuance of common stock upon
exercise of stock options......... -- -- 60
Issuance of common stock for cash... -- -- 12
Accretion on redeemable convertible
preferred stock................... -- (1,470) (1,470)
Net loss and comprehensive loss..... -- (6,281) (6,281)
------- -------- --------
Balances at December 31, 1997....... -- (13,259) (12,665)
Issuance of Series D redeemable
convertible preferred stock for
services.......................... -- -- --
Issuance of Series E redeemable
convertible preferred stock for
cash.............................. -- -- --
Issuance of common stock upon
exercise of stock options......... -- -- 84
Issuance of common stock for
services.......................... -- -- 76
Accretion on redeemable convertible
preferred stock................... -- (2,174) (2,174)
Deferred stock compensation......... (500) -- --
Net loss and comprehensive loss..... -- (2,975) (2,975)
------- -------- --------
Balances at December 31, 1998....... (500) (18,408) (17,654)
Issuance of common stock upon
exercise of stock options
(unaudited)....................... -- -- 260
Issuance of common stock for
services (unaudited).............. -- -- 83
Accretion on redeemable convertible
preferred stock (unaudited)....... -- (1,822) (1,822)
Deferred stock compensation
(unaudited)....................... (7,355) -- --
Amortization of deferred stock
compensation (unaudited).......... 1,997 -- 1,997
Net loss and comprehensive loss
(unaudited)....................... -- (8,126) (8,126)
------- -------- --------
Balances at September 30, 1999
(unaudited)....................... $(5,858) $(28,356) $(25,262)
======= ======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 77

CALIPER TECHNOLOGIES CORP.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(4,710) $ (6,281) $ (2,975) $ (3,745) $ (8,126)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 87 356 921 656 935
Amortization of deferred stock compensation............. -- -- -- -- 1,997
Acquired in-process research and development............ 978 -- -- -- --
Issuance of common and preferred stock for services..... -- 620 956 951 83
Changes in operating assets and liabilities:
Accounts receivable................................... -- -- (1,082) (158) 692
Notes receivable...................................... -- (200) -- -- (425)
Inventories........................................... -- -- -- -- (206)
Prepaid expenses and other assets..................... (58) (88) (411) (73) (161)
Deposits and other assets............................. -- (119) 119 100 --
Accounts payable and other accrued liabilities........ (674) 1,022 (569) (800) 797
Accrued compensation.................................. 75 208 149 69 258
Deferred revenue...................................... 275 (275) 626 77 1,773
Deferred rent......................................... -- -- -- -- 184
------- -------- -------- -------- --------
Net cash used in operating activities..................... (4,027) (4,757) (2,266) (2,923) (2,199)
------- -------- -------- -------- --------
INVESTING ACTIVITIES
Purchases of available-for-sale securities................ (5,050) (51,448) (39,996) (35,203) (16,610)
Proceeds from sales of available-for-sale securities...... -- -- 6,233 2,143 4,813
Proceeds from maturities of available-for-sale
securities.............................................. 147 30,114 34,106 29,283 13,499
Capital expenditures...................................... (648) (1,845) (1,667) (1,252) (2,995)
------- -------- -------- -------- --------
Net cash used in investing activities..................... (5,551) (23,179) (1,324) (5,029) (1,293)
------- -------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from equipment financing......................... 640 1,574 1,586 1,337 2,523
Payments of obligations under equipment financing......... (73) (225) (613) (404) (821)
Proceeds from issuance of common and preferred stock...... 16,678 19,352 7,463 7,423 260
Repayments of notes payable............................... (160) -- -- -- --
------- -------- -------- -------- --------
Net cash provided by financing activities................. 17,085 20,701 8,436 8,356 1,962
------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents...... 7,507 (7,235) 4,846 404 (1,530)
Cash and cash equivalents at beginning of period.......... 40 7,547 312 312 5,158
------- -------- -------- -------- --------
Cash and cash equivalents at end of period................ $ 7,547 $ 312 $ 5,158 $ 716 $ 3,628
======= ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................. $ 69 $ 60 $ 195 $ 125 $ 275
======= ======== ======== ======== ========
SCHEDULE OF NONCASH TRANSACTIONS
Issuance of common and preferred stock upon acquisition of
ChemCore................................................ $ 494 $ -- $ -- $ -- $ --
======= ======== ======== ======== ========
Deferred stock compensation............................... $ -- $ -- $ 500 $ -- $ 7,355
======= ======== ======== ======== ========
</TABLE>

See accompanying notes.
F-6
<PAGE> 78

CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

Caliper Technologies Corp. ("Caliper") was incorporated in the state of
Delaware on July 26, 1995. Caliper develops lab-on-a-chip technologies and
manufactures LabChip systems. These systems perform laboratory experiments for
use in the pharmaceutical industry and other industries.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

INTERIM FINANCIAL INFORMATION

The financial information at September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 is unaudited but, in the opinion of
management, has been prepared on the same basis as the annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) that Caliper considers necessary for a fair presentation of the
financial position at such date and the operating results and cash flows for
such periods. Results for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for any subsequent period.

UNAUDITED PRO FORMA INFORMATION

If Caliper's initial public offering as described in Note 11 is
consummated, all of the preferred stock outstanding will automatically be
converted into common stock. The unaudited pro forma redeemable convertible
preferred stock and stockholders' equity at September 30, 1999 has been adjusted
for the assumed conversion of preferred stock based on the shares of preferred
stock outstanding at September 30, 1999.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, generally
five years. Furniture and equipment acquired under equipment financing is
amortized over the shorter of the useful lives or the financing period.
Leasehold improvements are amortized over the shorter of the estimated useful
life of the assets or lease term.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), Caliper reviews long-lived
assets, including property and equipment, for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. Under SFAS 121, an impairment loss would be
recognized when estimated undiscounted future cash flows expected to result from
the use of the asset and its eventual disposition is less than its carrying
amount. Impairment, if any, is assessed using discounted cash flows. Through
September 30, 1999, there have been no such losses.

F-7
<PAGE> 79
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS AND MARKETABLE SECURITIES

Caliper considers all highly liquid investments with maturities of three
months or less from the date of purchase to be cash equivalents. Management
determines the appropriate classification of its cash equivalents and investment
securities at the time of purchase and reevaluates such determination as of each
balance sheet date. Management has classified Caliper's cash equivalents and
marketable securities as available-for-sale securities in the accompanying
financial statements. Available-for-sale securities are carried at fair value,
with unrealized gains and losses reported in a separate component of
stockholders' equity, when material. Realized gains and losses are included in
interest income. The cost of securities sold is based on the specific
identification method.

Caliper invests its excess cash in U.S. government and agency securities,
debt instruments of financial institutions and corporations, and money market
funds with strong credit ratings. Caliper has established guidelines regarding
diversification of its investments and their maturities which should maintain
safety and liquidity.

STOCK-BASED COMPENSATION

Caliper accounts for employee stock option grants in accordance with
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Employee
Stock Issued to Employees." Stock option grants to nonemployees are accounted
for in accordance with Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") and Emerging Issues Task
Force Consensus No. 96-18.

REVENUE RECOGNITION

Revenues are earned from services performed pursuant to collaboration
agreements, technology access program agreements and government grants.
Non-refundable license fees under technology access programs are recognized as
revenues upon the transfer of the license to third parties and when no further
performance obligations exist. Subscription fees received under the technology
access programs are recognized ratably over the subscription period. Payments
received in advance under these arrangements are recorded as deferred revenue
until earned.

Revenue from grants and development and support activities under
collaboration agreements and technology access programs are recorded in the
period in which the costs are incurred. Direct costs associated with these
contracts and grants are reported as research and development expense. Milestone
fees are recognized upon completion of specified milestones according to
contract terms. Revenue related to the reimbursement of costs for the supply of
chips and reagents to collaboration partners is recognized upon shipment.
Caliper's share of gross margin on components of the LabChip system sold by the
collaboration partners is recognized as revenue upon shipment by the
collaboration partner.

Product revenue is recognized upon the transfer of title to customers and
is recorded net of discounts, rebates and allowances.

RESEARCH AND DEVELOPMENT

Caliper expenses research and development costs as incurred.

F-8
<PAGE> 80
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES

Inventories are stated at the lower of standard cost (which approximates
actual cost) or market. At September 30, 1999, inventories consisted mainly of
raw materials.

COMPREHENSIVE INCOME (LOSS)

As of January 1, 1998, Caliper adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires unrealized gains or losses on Caliper's available-for-sale securities
to be included in other comprehensive income. For the years ended December 31,
1997 and 1998 and for the nine months ended September 30, 1999, comprehensive
loss approximated net loss as other comprehensive income (loss) was not
material.

SEGMENT REPORTING

Effective in January 1998, Caliper adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Caliper has determined that it operates in only one segment. Accordingly, the
adoption of SFAS 131 had no impact on Caliper's financial statements.

NET LOSS PER SHARE

Basic earnings per share is calculated based on the weighted-average number
of common shares outstanding during the period. Diluted earnings per share would
give effect to the dilutive effect of common stock equivalents consisting of
stock options and warrants (calculated using the treasury stock method).
Potentially dilutive securities have been excluded from the diluted earnings per
share computations as they have an antidilutive effect due to Caliper's net
loss.

The computation of pro forma net loss per share includes shares issuable
upon the conversion of outstanding shares of convertible preferred stock (using
the as-if converted method) from the original date of issuance.

F-9
<PAGE> 81
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of shares used in the calculations is as follows (in
thousands):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic and diluted:
Net loss............................... $(4,710) $(6,281) $(2,975) $(3,745) $(8,126)
Accretion on redeemable convertible
preferred stock..................... (262) (1,470) (2,174) (1,587) (1,822)
------- ------- ------- ------- -------
Net loss attributable to common
stockholders........................... $(4,972) $(7,751) $(5,149) $(5,332) $(9,948)
======= ======= ======= ======= =======
Weighted-average shares of common stock
outstanding............................ 2,052 2,365 2,596 2,563 2,953
Less: weighted-average shares subject to
repurchase............................. (778) (597) (439) (464) (269)
------- ------- ------- ------- -------
Weighted-average shares used in basic and
diluted net loss per share............. 1,274 1,768 2,157 2,099 2,684
======= ======= ======= ======= =======

Pro forma basic and diluted:
Net loss............................... $(2,975) $(8,126)
======= =======

Shares used above........................ 2,157 2,684
Adjustment to reflect weighted-average
effect of assumed conversion of
preferred stock (unaudited)............ 12,190 12,533
------- -------
Weighted-average shares used in pro forma
basic and diluted net loss per share
(unaudited)............................ 14,347 15,217
======= =======
</TABLE>

The following outstanding options and warrants (prior to the application of
the treasury stock method), and convertible preferred stock (on an as-converted
basis) were excluded from the computation of diluted net loss per share as they
had an antidilutive effect (in thousands):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Options and warrants................. 625 1,359 1,263 1,308 1,744
Convertible preferred stock.......... 8,414 11,603 12,533 12,533 12,533
</TABLE>

SIGNIFICANT CONCENTRATIONS

Financial instruments that potentially subject Caliper to concentrations of
credit risk primarily consist of cash equivalents and marketable securities (see
Note 4).

In 1996, two companies represented 66% and 34% of total revenues. In 1997,
Hoffmann-La Roche represented 94% of total revenues. In 1998, Hoffmann-La Roche,
Agilent Technologies and Amgen represented 40%, 40%, and 17% of total revenues,
respectively. For the nine months ended September 30, 1998, Hoffmann-La Roche
and Agilent Technologies represented 51% and 45% of total revenues,
respectively. For the nine months ended September 30, 1999, Agilent Technologies
represented 50% of

F-10
<PAGE> 82
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
total revenues and Caliper's three technology access program customers accounted
for 17%, 13% and 11% of total revenues.

Caliper relies on several companies as the sole source of various materials
in its manufacturing process. Any extended interruption in the supply of these
materials could result in the failure to meet customer demand.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 and is not anticipated to have an impact on
Caliper's results of operations or financial condition when adopted as Caliper
holds no derivative financial instruments and does not currently engage in
hedging activities.

In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires that entities capitalize certain costs related to
internal use software once certain criteria have been met. The Company adopted
the provisions of SOP 98-1 on January 1, 1999. Through September 30, 1999, the
Company has not capitalized any costs related to internal use software.

2. CONTRACTS AND GRANTS

Strategic Alliance with Agilent

In May 1998, Caliper executed a collaboration agreement with
Hewlett-Packard Company ("Hewlett-Packard") to create a line of commercial
research products based on LabChip technologies. In November 1999,
Hewlett-Packard transferred this collaboration to its subsidiary, Agilent
Technologies, Inc. ("Agilent"). In this collaboration, Caliper primarily focuses
on developing core technology and LabChip applications. Caliper also
manufactures the chips and supplies the chips and reagents to Agilent. If
Caliper elects, however, not to manufacture chips for a LabChip application or
is unable to meet minimum supply commitments to be mutually established in the
future, Agilent would have the right to manufacture those chips. Agilent
primarily focuses on developing instruments and software, manufacturing
instruments, and marketing, selling and supporting complete systems.

Agilent funds Caliper's product development efforts under the
collaboration, reimburses Caliper's costs of supplying chips and reagents, and
pays Caliper a share of the gross margin on all components of LabChip systems.
The gross margin share varies depending on the type of collaboration product,
whether Caliper or Agilent manufacture the collaboration product, and whether
such collaboration product is sold during the collaboration or after the
collaboration has terminated. Under this agreement, Hewlett-Packard purchased
534,188 shares of Caliper's redeemable convertible preferred stock Series E with
an aggregate cost of $5.0 million. At December 31, 1998 this represented 3.5% of
Caliper's outstanding common and convertible preferred stock.

The term of the Agilent agreement is eight years, beginning in May 1998.
After three years, Agilent may elect not to meet certain annual funding
requirements, in which case either party may terminate the agreement. In any
event either party may terminate the agreement after five years.

F-11
<PAGE> 83
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

2. CONTRACTS AND GRANTS (CONTINUED)
Technology Access Program

Caliper maintains a technology access program which provides customers with
early access to new products, and offers technical training, support and
customization services. Technology access program customers have non-exclusive
access to all of the high throughput screening products Caliper offers during
the term of the agreement. These agreements generally provide for customers to
pay an up-front license fee and annual subscription fees, and to reimburse
Caliper for its costs of providing development and support services. Instruments
and chips are generally sold separately on a product-by-product basis, although
some agreements establish prices for initial instruments or estimates of per
data point charges for Sipper chips.

Caliper currently has three technology access program customers for its
high throughput screening systems: Eli Lilly and Company ("Eli Lilly"), Amgen,
Inc. ("Amgen"), and Hoffmann-La Roche Inc. ("Roche").

Eli Lilly. Caliper signed a technology access agreement with Eli Lilly in
August 1999. The term is three years, although Eli Lilly may temporarily suspend
its technology access program participation and later reinitiate participation,
during which time Caliper's support and assistance obligations will also be
suspended. Eli Lilly may terminate the agreement on any anniversary.

Amgen. Caliper entered into a technology access agreement with Amgen in
December 1998. Under this agreement, Amgen may delay payment of its second
annual subscription fee until Caliper has delivered an initial ultra high
throughput system. The term of this agreement is three years, although Amgen may
terminate the agreement on any anniversary or if Caliper fails to deliver the
ultra high throughput screening system in a timely manner.

Hoffmann-La Roche. Caliper entered into a technology access agreement with
Hoffmann-La Roche in November 1998, which is due to expire in July 2000. This
agreement supersedes an earlier agreement under which Roche funded early
development of the high throughput screening technology in exchange for certain
exclusive rights to an ultra high throughput screening system. Under this
earlier agreement, Roche purchased 854,701 shares of Caliper's redeemable
convertible preferred stock Series C with an aggregate cost of $4.0 million. At
December 31, 1998, this represented 5.6% of Caliper's outstanding common and
convertible preferred stock. Roche now has non-exclusive rights similar to other
technology access program customers. Caliper did not receive an up-front license
fee or annual subscription fee from Hoffmann-La Roche.

Value Added Screening Collaboration Program

Caliper's value added screening collaboration program offers high
throughput screening services using Caliper's LabChip systems. Caliper's first
value added screening collaboration agreement was established with Neurocrine
Biosciences in December 1998. Caliper receives screening fees on a per data
point basis, preclinical milestones and royalties on Neurocrine products
emerging from the collaboration. This agreement has a three-year term, but may
be terminated by either party under certain circumstances after the first year.

Caliper recognized approximately $132,000, $2.1 million, and $7.9 million
under the above agreements in 1996, 1997, and 1998, respectively, and $4.3
million and $8.2 million for the nine months ended
F-12
<PAGE> 84
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

2. CONTRACTS AND GRANTS (CONTINUED)
September 30, 1998 and 1999, respectively. Revenue earned from reimbursement of
development and support activities approximated actual costs incurred.

In September 1998, Caliper received a grant from the Advanced Technology
Program of the National Institute of Standards and Technology ("NIST") to
develop a Reference Laboratory DNA Diagnostics System based on Caliper's
"lab-on-a-chip" technology of approximately $2 million over three years. The
grant period began in January 1999.

3. ACQUISITION OF CHEMCORE CORPORATION

In February 1996, Caliper completed the acquisition of ChemCore Corporation
("ChemCore"), an early stage research and development entity. Caliper assumed
all of the liabilities of ChemCore and acquired all of the outstanding common
stock and Series A preferred stock of ChemCore in exchange for 678,786 shares of
Caliper's common stock and 829,142 shares of Series A preferred stock at an
exchange ratio of 0.552762 to 1.

The acquisition was accounted for using the purchase method. Under the
purchase method, the results of operations of acquired companies are included
prospectively from the date of acquisition, and the aggregate acquisition cost
is allocated to the acquiree's assets, liabilities, and intangibles, if any,
based upon the fair values on the date of acquisition. On the date of the
acquisition, ChemCore had no significant assets, liabilities of approximately
$484,000, an exclusive license under a sponsored research and development
agreement, and certain patents, most of which were pending. Caliper allocated
the aggregate purchase cost of $978,000 to in-process research and development.
The technology acquired had no alternative future uses.

4. CASH EQUIVALENTS AND MARKETABLE SECURITIES

The following is a summary of cash equivalents and marketable securities at
December 31, 1997 and 1998:

<TABLE>
<CAPTION>
AMORTIZED COST AND
ESTIMATED FAIR VALUE
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Money market fund........................................ $ 312 $ 1,381
Bonds of the U.S. Government and its agencies............ 12,861 12,217
Commercial paper......................................... 12,355 17,454
Time deposits............................................ 1,021 --
------- -------
$26,549 $31,052
======= =======
Reported as:
Cash equivalents....................................... $ 312 $ 5,158
Marketable securities.................................. 26,237 25,894
------- -------
$26,549 $31,052
======= =======
</TABLE>

As of December 31, 1997 and 1998, the difference between the fair value and
the amortized cost of available-for-sale securities was immaterial. As of
December 31, 1997 and 1998, the average portfolio duration was less than one
year.

F-13
<PAGE> 85
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

4. CASH EQUIVALENTS AND MARKETABLE SECURITIES (CONTINUED)
There were no material gross realized gains or losses from sales of
securities or material unrealized gains and losses on investments at December
31, 1997 and 1998.

5. NOTES RECEIVABLE

At December 31, 1998, Caliper held a note receivable of $200,000 from an
officer of Caliper. This note, which bears interest at 6.61% per year from
January 2002, is collateralized by certain personal assets of the officer and
has certain amortization schedules for periodic payments with the final payment
to be made at the end of 2006.

At September 30, 1999, in addition to the $200,000 note receivable, Caliper
held an unsecured promissory note of $425,000 in connection with a loan to a
second officer of Caliper. The note bears interest at 5.96% per year and is
repayable upon the earlier of July 29, 2005 or the voluntary termination of his
employment with Caliper.

6. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ -------
(IN THOUSANDS)
<S> <C> <C>
Machinery, equipment, and furniture....................... $2,207 $ 3,775
Leasehold improvements.................................... 286 385
------ -------
2,493 4,160
Accumulated depreciation and amortization................. (443) (1,364)
------ -------
Property and equipment, net............................... $2,050 $ 2,796
====== =======
</TABLE>

Property and equipment at December 31, 1997 and 1998 includes assets
acquired under capital leases of approximately $2.2 million and $3.8 million.
Accumulated amortization related to leased assets was approximately $441,000 and
$1.4 million at December 31, 1997 and 1998.

7. EQUIPMENT FINANCING AND RENTAL COMMITMENTS

As of December 31, 1998, Caliper had $3.8 million of property and equipment
financed through long-term obligations, and approximately $1.8 million unused
and available under an equipment financing credit line. The draw down period
under the equipment financing credit line expired on June 30, 1999. The
obligations under the equipment financings are secured by the equipment
financed, bear interest at a weighted-average fixed rate of approximately 9.5%,
and are due in monthly installments through December 2003. Under the terms of
one equipment financing agreement, ownership of the financed equipment may be
purchased by Caliper at fair value at the end of the financing term. Other
equipment financing agreements require a balloon payment at the end of each loan
term.

F-14
<PAGE> 86
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

7. EQUIPMENT FINANCING AND RENTAL COMMITMENTS (CONTINUED)
As of December 31, 1998, future minimum lease payments under operating and
capital leases and principal payments on equipment loans are as follows:

<TABLE>
<CAPTION>
CAPITAL LEASES
AND
OPERATING EQUIPMENT
LEASES LOANS
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Years ending December 31:
1999...................................................... $ 1,664 $1,004
2000...................................................... 1,669 925
2001...................................................... 1,674 672
2002...................................................... 1,722 280
2003...................................................... 1,765 216
Thereafter................................................ 9,116 --
------- ------
Total minimum lease and principal payments........ $17,610 3,097
=======
Amount representing interest................................ (208)
------
Present value of future payments............................ 2,889
Current portion of equipment financing...................... (881)
------
Noncurrent portion of equipment financing................... $2,008
======
</TABLE>

Rent expense relating to operating leases was approximately $97,000 in
1996, $525,000 in 1997, $695,000 in 1998 and $1.2 million for the nine months
ended September 30, 1999.

In December 1998, Caliper entered into a 10-year facility operating lease
agreement. Caliper also entered into a sublease agreement through November 1999
for a total amount of $198,000. The appropriate amount has been offset against
the operating lease commitment for 1999, as shown above.

In connection with the facility lease, Caliper has a $1 million standby
letter-of-credit arrangement with a bank expiring on October 20, 2008. Caliper
has pledged a certificate of deposit of $1 million as collateral to this letter
of credit.

In January 1999, Caliper entered into a $2.5 million financing agreement
with Transamerica Business Credit Corporation ("Transamerica") for the purchase
of property and equipment which bears interest commensurate to the weekly
average of the four-year U.S. Treasury Securities. The drawdown period under the
equipment financing credit line expires on June 30, 2000. During the nine months
ended September 30, 1999, Caliper drew down the remaining $1.8 million balance
of the equipment financing credit line which existed as of December 31, 1998 at
a weighted-average interest rate of 11.8% and financed an additional $752,000 of
property and equipment purchases under the financing agreement with Transamerica
at a weighted-average interest rate of 12.1%. These obligations will be repaid
in monthly installments through June 2004. As of September 30, 1999, Caliper has
approximately $1.7 million unused and available balance with Transamerica.

F-15
<PAGE> 87
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

Convertible preferred stock is issuable in series, with rights and
preferences designated by series. The shares designated and outstanding are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------------------- --------------------------------------
REDEMPTION/ REDEMPTION/
ISSUED AND LIQUIDATION ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING VALUE AUTHORIZED OUTSTANDING VALUE
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Convertible preferred
stock:
Series A............. 1,293,500 829,142 $ 1,008,900 1,293,462 829,142 $ 1,008,900
Undesignated
preferred
stock............ 398,167 -- -- 127,499 -- --
---------- ---------- ----------- ---------- ---------- -----------
1,691,667 829,142 1,008,900 1,420,961 829,142 1,008,900
---------- ---------- ----------- ---------- ---------- -----------
Redeemable
convertible
preferred stock:
Series B........... 8,600,000 5,448,454 7,157,964 8,550,706 5,448,454 7,515,862
Series C........... 3,333,333 2,136,752 10,600,864 3,333,333 2,136,752 11,130,907
Series D........... 5,375,000 3,189,103 20,524,486 5,195,000 3,330,129 22,460,607
Series E........... -- -- -- 2,500,000 788,357 7,608,461
---------- ---------- ----------- ---------- ---------- -----------
17,308,333 10,774,309 38,283,314 19,579,039 11,703,692 48,715,837
---------- ---------- ----------- ---------- ---------- -----------
Total.......... 19,000,000 11,603,451 $39,292,214 21,000,000 12,532,834 $49,724,737
========== ========== =========== ========== ========== ===========

<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------
REDEMPTION/
ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING VALUE
---------- ----------- -----------
<S> <C> <C> <C>
Convertible preferred
stock:
Series A............. 1,293,462 829,142 $ 1,008,900
Undesignated
preferred
stock............ 127,499 -- --
---------- ---------- -----------
1,420,961 829,142 1,008,900
---------- ---------- -----------
Redeemable
convertible
preferred stock:
Series B........... 8,550,706 5,448,454 7,796,935
Series C........... 3,333,333 2,136,752 11,547,172
Series D........... 5,195,000 3,330,129 23,300,572
Series E........... 2,500,000 788,357 7,892,996
---------- ---------- -----------
19,579,039 11,703,692 50,537,675
---------- ---------- -----------
Total.......... 21,000,000 12,532,834 $51,546,575
========== ========== ===========
</TABLE>

The holders of Series A, B, C, D, and E preferred stock are entitled to
receive noncumulative dividends at a rate of 5% of the original issue price, if
declared, prior to and in preference to the payment of dividends to holders of
common stock. At December 31, 1998, no such dividends had been declared.

Each share of Series A, B, C, D, and E preferred stock is convertible into
common stock at the option of the holder on a one-for-one basis, subject to
adjustments for antidilution purposes. Series A, B, C, D, and E preferred shares
are automatically converted into common stock at the earlier of (i) the closing
of Caliper's initial underwritten public offering which is at a price to the
public of at least $7.80 per share and which results in aggregate proceeds to
Caliper of $10 million, or (ii) a vote or written consent of a majority of the
shares of preferred stock then outstanding, voting together as a single class.
All preferred shares have voting rights equal to common stock on an
as-if-converted basis.

The holders of Series B preferred stock, voting as a separate class, are
entitled to elect four members of the board of directors. The holders of Series
A, B, C, D, and E preferred stock and common stock, voting together as a class,
are entitled to elect the remaining members to the board of directors.

At any time subsequent to February 19, 2001, Caliper shall, upon written
request from the holders of a majority of the then outstanding shares of Series
B, C, D, and E preferred stock, redeem in whole or in part the Series B, C, D,
and E preferred stock by paying in cash a sum equal to (i) the original issue
price per share, plus all declared but unpaid dividends on such shares, and (ii)
an amount equal to 5% of the original issue price per annum, compounded
annually, from the date such shares were originally issued through the
redemption date. The carrying amount of Series B, C, D, and E preferred stock
has been increased by periodic accretions so as to equal the redemption amount
at the redemption date.

Series B, C, D and E preferred stockholders are entitled to receive, upon
liquidation, a distribution of $1.22, $4.68, $6.24 and $9.36 per share,
respectively (subject to adjustment for a recapitalization) plus all

F-16
<PAGE> 88
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
declared but unpaid dividends, in preference to series A preferred stockholders
and common stockholders. Following the distribution of liquidation preferences
to series B, C, D and E preferred stockholders, series A preferred stockholders
are entitled to receive a distribution of $1.22 per share in preference to the
common stockholders. Thereafter, the remaining assets and funds, if any, shall
be distributed ratably on a per share basis among all preferred and common
stockholders.

WARRANTS

In January 1996, in connection with an equipment financing agreement,
Caliper issued a warrant that entitles the holder to purchase 3,276 shares of
common stock at an exercise price of $1.22 per share. This warrant is
exercisable through the earlier of the effective date of a merger of Caliper or
January 3, 2002.

In May 1996, in connection with a capital lease agreement, Caliper granted
a warrant that entitles the holder to purchase 32,767 shares of Series B
preferred stock at an exercise price of $1.22 per share. This warrant is
exercisable through the earlier of three years after the effective date of
Caliper's initial public offering or May 10, 2002.

In October 1996, in connection with certain agreements, Caliper issued two
warrants that entitle the holders to purchase a total of 38,460 shares of common
stock at an exercise price of $1.22 per share. These warrants are exercisable
through October 11, 2006.

No amounts have been recorded by Caliper for the above warrant issuances,
as the amounts were determined to be immaterial at the time of issuance.

In August 1995, Caliper executed an agreement which calls for the issue of
two warrants to purchase a total of 38,460 shares of common stock at an exercise
price of $1.22 per share. These warrants will be issued if a certain patent
milestone is met and would expire in January 2006.

COMMON STOCK SUBJECT TO REPURCHASE

Common stock issued to founders of Caliper vest generally over five years
at 20% one year from the date of grant and on a monthly, pro rata basis
thereafter. From inception through December 31, 1998, the founders of Caliper
have purchased 1,708,234 shares of common stock, of which 340,539 shares are
unvested and remain subject to repurchase at the original issuance price in the
event of termination of employment or services to Caliper. Caliper has not
repurchased any shares in accordance with these rights.

STOCK OPTION PLANS

On August 31, 1996, Caliper's board of directors and stockholders adopted
the 1996 Stock Incentive Plan (the "Plan"). This Plan supersedes the 1996 Equity
Incentive Plan and provides for the issuance of common stock and the granting of
options to purchase common stock to employees, officers, directors, and
consultants of Caliper. Caliper grants shares of common stock for issuance under
the Plan at no less than the fair value of the stock (no less than 85% of fair
value for nonqualified options). Options granted under the Plan generally vest
over 5 years at a rate of 20% one year from the grant date and 1/60 monthly
thereafter. Options canceled under the 1996 Equity Incentive Plan are not
available for future grants.

F-17
<PAGE> 89
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
A summary of activity under the Plan is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING WEIGHTED-
------------------------- AVERAGE
OPTIONS NUMBER OF EXERCISE EXERCISE
AVAILABLE OPTIONS PRICE PRICE
---------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at inception (July 26, 1995)........... -- -- -- --
Authorized................................... 705,128 -- -- --
Granted...................................... (449,402) 449,402 $ 0.06-$0.47 $0.25
Exercised.................................... -- (24,999) $ 0.06-$0.47 $0.33
Canceled..................................... -- (6,410) $0.11 $0.11
---------- ---------
Balance at December 31, 1996................... 255,726 417,993 $ 0.06-$0.47 $0.25
Authorized................................... 961,538 -- -- --
Granted...................................... (890,051) 890,051 $ 0.47-$0.62 $0.51
Exercised.................................... -- (155,798) $ 0.06-$0.62 $0.38
Canceled..................................... 962 (962) $0.47 $0.47
---------- ---------
Balance at December 31, 1997................... 328,175 1,151,284 $ 0.06-$0.62 $0.43
Authorized................................... 1,282,038 -- -- --
Granted...................................... (423,253) 423,253 $ 0.62-$0.97 $0.86
Exercised.................................... -- (181,881) $ 0.06-$0.62 $0.45
Canceled..................................... 318,088 (326,649) $ 0.06-$0.62 $0.45
---------- ---------
Balance at December 31, 1998................... 1,505,048 1,066,007 $ 0.06-$0.97 $0.59
Granted (unaudited).......................... (988,406) 988,406 $0.97 $0.97
Exercised (unaudited)........................ -- (367,054) $ 0.06-$0.97 $0.59
Canceled (unaudited)......................... 17,468 (17,468) $ 0.62-$0.97 $0.66
---------- ---------
Balance at September 30, 1999 (unaudited)...... 534,110 1,669,891 $ 0.06-$0.97 $0.82
========== =========
</TABLE>

Included in options granted for the nine months ended September 30, 1999 is
an option grant to purchase 641,025 shares of common stock issued to an
executive officer pursuant to the terms of his employment contract.

Caliper granted nonqualified options of 234,856, 458,010, 79,484, and
140,842 for the years ended December 31, 1996, 1997, 1998 and the nine months
ended September 30, 1999, respectively.

As part of the ChemCore merger in February 1996, Caliper exchanged, at the
ratio of 0.552762 to 1, outstanding options to purchase 240,499 shares of
ChemCore common stock at an exercise price of $0.20 for options to purchase
132,936 shares of Caliper's common stock at an exercise price $0.36 per share.
These options were initially granted at the fair value of ChemCore's common
stock and generally vest over five years at a rate of 20% per year.

F-18
<PAGE> 90
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
A summary of activity of options assumed as part of the ChemCore merger is
as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Balance at December 31, 1996 and 1997....................... 132,936 $0.36
Exercised................................................... (9,950) $0.36
--------
Balance at December 31, 1998................................ 122,986 $0.36
Exercised (unaudited)....................................... (122,986) $0.36
--------
Balance at September 30, 1999 (unaudited)................... --
========
</TABLE>

At December 31, 1998 and September 30, 1999, options to purchase 235,348
and 173,841 shares of common stock were exercisable at a weighted-average
exercise price of $0.41 and $0.64 per share.

At December 31, 1998 and September 30, 1999, the remaining contractual life
of outstanding options ranged from 5.00 to 9.13 years and 6.42 to 9.84 years,
respectively, with a weighted-average contractual life of 8.14 and 8.83 years,
respectively. The weighted-average fair value of options granted during 1996,
1997, 1998, and for the nine months ended September 30, 1999 was $0.06, $0.13,
$0.22, and $0.25 respectively.

STOCK BASED COMPENSATION

Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if Caliper had accounted for its
employee stock options under the fair-value method of that Statement. The fair
value of these options was estimated at the date of grant using the
Black-Scholes method and the following assumptions for 1996, 1997, and 1998, and
the nine months ended September 30, 1999: volatility of 0.01, risk-free interest
rate of 6%, an expected life of five years, and no dividends.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options using the
straight-line method. Caliper's pro forma information follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------- SEPTEMBER 30,
1996 1997 1998 1999
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Net loss attributable to common stockholders:
As reported........................................... $(4,972) $(7,751) $(5,149) $ (9,948)
Pro forma............................................. $(4,977) $(7,776) $(5,185) $(10,006)

Basic and diluted net loss per share:
As reported........................................... $ (3.90) $ (4.38) $ (2.39) $ (3.71)
Pro forma............................................. $ (3.91) $ (4.40) $ (2.40) $ (3.73)
</TABLE>

The effects of applying SFAS 123 for pro forma disclosures are not likely
to be representative of the effects on reported net loss for future years.

Caliper has recorded deferred stock compensation of approximately $500,000
for the year ended December 31, 1998 and $7.4 million for the nine months ended
September 30, 1999, representing the difference between the exercise price of
the options granted and the deemed fair value of the common

F-19
<PAGE> 91
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
stock. These amounts are being amortized by charges to operations over the
vesting periods of the individual stock options using the graded vesting method.
Such amortization expense amounted to approximately $2.0 million for the nine
months ended September 30, 1999.

RESERVED STOCK

As of December 31, 1998, Caliper had reserved shares of common stock for
future issuance as follows:

<TABLE>
<S> <C>
Stock options............................................ 2,694,041
Warrants................................................. 41,736
Preferred stock.......................................... 12,565,601
Stock agreement.......................................... 7,692
----------
15,309,070
==========
</TABLE>

In addition, Caliper has reserved 32,767 shares of Series B convertible
redeemable preferred stock for issuance upon exercise of warrants.

9. INCOME TAXES

Caliper has no provision for U.S. federal or state income taxes for any
period as it has incurred operating losses.

As of December 31, 1998, Caliper had federal and California net operating
loss carryforwards of approximately $10.3 million and $1.4 million. Caliper also
had federal research and development tax credit carryforwards of approximately
$700,000. The net operating loss and credit carryforwards will expire at various
dates beginning on 2002 through 2018, if not utilized.

Utilization of the net operating losses and credits may be subject to a
substantial limitation due to the change in ownership provisions of the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before utilization.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Caliper's deferred tax assets and liabilities for federal and state income taxes
are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards......................... $ 2,600 $ 3,600
Research credit carryforwards............................ 500 1,000
Capitalized research and development..................... 1,700 1,600
Other, net............................................... 500 100
------- -------
Net deferred tax assets.................................. 5,300 6,300
Valuation allowance...................................... (5,300) (6,300)
------- -------
Total.......................................... $ -- $ --
======= =======
</TABLE>

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CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

9. INCOME TAXES (CONTINUED)
Because of Caliper's lack of earnings history, the deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by
$2.1 million, $3.2 million, and $1 million, respectively during the years ended
December 31, 1996, 1997, and 1998.

10. LITIGATION

On March 22, 1999, Caliper filed a lawsuit in California Superior Court for
the County of Santa Clara against Aclara Biosciences, Inc., and Caliper's former
patent counsel Bertram Rowland and the law firm of Flehr, Hohbach, Test,
Albritton and Herbert LLP, alleging that all three defendants misappropriated
certain of Caliper's trade secrets relating to our business plans, patents and
intellectual property strategy. The suit also alleges that Mr. Rowland and Flehr
Hohbach committed a breach of the duties they owed to Caliper as its former
attorneys. The suit seeks damages and equitable remedies to prevent Aclara, Mr.
Rowland and Flehr Hohbach from benefiting from the alleged misappropriation and
breach of duties. While Caliper believes that its complaint is meritorious,
there can be no assurance that Caliper will prevail in its action against any or
all of the defendants, or that if Caliper prevails, any damages or equitable
remedies awarded, if any, will be commercially valuable. Furthermore, Caliper
has incurred and is likely to continue to incur substantial costs and expend
substantial personnel time in pursuing its claims against Aclara, Mr. Rowland
and Flehr Hohbach.

On April 23, 1999, Aclara Biosciences filed a lawsuit in United States
District Court for the Northern District of California alleging that Caliper is
making, using, selling or offering for sale microfluidic devices that infringe
United States Patent Number 5,750,015 in willful disregard of Aclara's patent
rights. This patent concerns methods and devices for moving molecules by the
application of electrical fields. The Aclara action seeks damages for past and
future reduced sales or lost profits based upon the making, using, selling and
offering for sale of Caliper's products and processes, and seeks to enjoin
Caliper's continued activities relating to these products. This action subjects
Caliper to potential liability for damages and could require Caliper to cease
making, using or selling the affected products, or to obtain a license in order
to continue to manufacture, use or sell the affected products. While Caliper
believes that it has meritorious defenses in this action, there can be no
assurance that Caliper will prevail or that any license required would be made
available on commercially acceptable terms, if at all. Furthermore, Caliper has
incurred and is likely to continue to incur substantial costs and expend
substantial personnel time in defending against the claims filed by Aclara.
Caliper's failure to successfully defend itself against the Aclara action could
have a material adverse effect on Caliper's business, financial condition and
operating results.

11. SUBSEQUENT EVENTS (UNAUDITED)

In October 1999, the board of directors adopted, subject to stockholder
approval, the 1999 Equity Incentive Plan ("1999 Equity Plan"). The 1999 Equity
Plan amended and restated the 1996 Stock Incentive Plan and increased the shares
reserved for issuance to 4 million. In addition, the 1999 Equity Plan provides
for an automatic increase in the shares reserved for issuance by the greater of
5% of outstanding shares on a fully-diluted basis or the number of shares that
have been made subject to awards granted under the 1999 Equity Plan during the
prior 12-month period. The automatic share reserve increase may not exceed
12,820,000 shares in aggregate over the 10-year period.

From October 1999 to December 13, 1999, options to purchase 740,048 shares
were granted pursuant to the 1999 Equity Plan with a weighted average exercise
price of $5.44 per share. The Company estimates that additional deferred
compensation of approximately $5.3 million will be recorded as a result of these
option grants and amortized to compensation expense in accordance with Caliper's
policy.

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<PAGE> 93
CALIPER TECHNOLOGIES CORP.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)

11. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
In October 1999, the board of directors adopted, subject to stockholder
approval, the 1999 Non-Employee Directors' Stock Option Plan ("1999 Directors'
Plan") which provides for the automatic grant of options to non-employee
directors. A total of 200,000 shares of common stock has been reserved for
issuance under this plan. The number of shares reserved for issuance will
automatically increase by the greater of 0.3% of outstanding shares on a
fully-diluted basis or the number of shares subject to options granted under the
1999 Directors' Plan during the prior 12-month period.

In October 1999, the board of directors adopted, subject to stockholder
approval, the 1999 Employee Stock Purchase Plan ("1999 Purchase Plan"). A total
of 300,000 shares of common stock has been reserved for issuance under the 1999
Purchase Plan. The number of shares reserved automatically increases by the
greater of 0.5% of outstanding shares on a fully-diluted basis or the number of
shares issued under the 1999 Purchase Plan during the prior 12-month period. The
automatic share reserve increase may not exceed 3 million shares in aggregate
over the 10-year period. The 1999 Purchase Plan permits eligible employees to
acquire shares of Caliper's common stock through payroll deductions of up to 10%
of their base compensation. No employee may participate in the 1999 Purchase
Plan if immediately after the grant the employee has voting power over 5% or
more of the outstanding capital stock. Under the 1999 Purchase Plan, the board
may specify offerings of up to 27 months. Unless the board determines otherwise,
common stock may be purchased at the lower of 85% of the fair market value of
Caliper's common stock on the first day of the offering or 85% of the fair
market value of Caliper's common stock on the purchase date. The initial
offering period will begin on the effective date of the initial public offering.

In October 1999, Caliper's board of directors authorized management to file
a registration statement with the Securities and Exchange Commission to permit
Caliper to sell its common stock to the public. Upon completion of Caliper's
initial public offering, all of the outstanding preferred stock will be
converted into shares of common stock.

In October 1999, Caliper's board of directors approved a 1-for-1.56 reverse
stock split. The reverse stock split became effective on December 7, 1999. The
accompanying financial statements have been adjusted retroactively to reflect
the reverse split of all outstanding common and convertible preferred stock.

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<PAGE> 94

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