ACLARA BIOSCIENCES INC, S-1/A, 2000-03-17

ACLARA BIOSCIENCES INC
S-1/A, 2000-03-17
LABORATORY ANALYTICAL INSTRUMENTS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 2000

REGISTRATION NO. 333-95107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 4

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

ACLARA BIOSCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
DELAWARE 3826 94-3222727
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

1288 PEAR AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

JOSEPH M. LIMBER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ACLARA BIOSCIENCES, INC.
1288 PEAR AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 210-1200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
MICHAEL W. HALL, ESQ. JOHN T. SHERIDAN, ESQ.
LAURA I. BUSHNELL, ESQ. JAY D. HANSEN, ESQ.
CHRISTINA Y. LAI, ESQ. DEANNA M. BUTLER, ESQ.
LATHAM & WATKINS WILSON SONSINI GOODRICH & ROSATI P.C.
135 COMMONWEALTH DRIVE 650 PAGE MILL ROAD
MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94304
(650) 328-4600 (650) 493-9300
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE CHART

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) PRICE(2) REGISTRATION FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, ($0.001 par
value)......................... 10,350,000 $18.00 $186,300,000 $49,184
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes 1,350,000 shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.

(2) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the registration
fee.

(3) $40,986 of this fee has already been paid.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

Subject to Completion, Dated March 17, 2000

LOGO

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9,000,000 SHARES
COMMON STOCK

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

This is the initial public offering of ACLARA BioSciences, Inc., and we are
offering 9,000,000 shares of our common stock. We anticipate the initial public
offering price will be between $16.00 and $18.00 per share. We have applied to
list our common stock on the Nasdaq National Market under the symbol "ACLA."

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PUBLIC OFFERING DISCOUNTS AND PROCEEDS TO
PRICE COMMISSIONS ACLARA
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>

We have granted the underwriters the right to purchase up to 1,350,000
additional shares to cover any over-allotments.

Joint Book-Running Managers
DEUTSCHE BANC ALEX. BROWN WARBURG DILLON READ LLC

U.S. BANCORP PIPER JAFFRAY

THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE> 3
[INSIDE FRONT COVER]

[Photograph of ACLARA microfluidic
array chip, held in human hand]

APPLICATIONS

<TABLE>
<CAPTION>
Genomics Drug Discovery
-------- --------------
<S> <C>
- DNA Sequencing - Ultra/high throughput screening
- Gene Expression analysis - Assay development
- Genotyping/SNP analysis - Secondary screening

</TABLE>
Future
------
- Industrial process control and sensing systems
- Clinical diagnostics

____________________________________________________________________________

[INSIDE FOLDOUT PANEL #1]
DNA Sequencing

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[IMAGE] [IMAGE]

- ------------------------- -------------------------
ACLARA Image of DNA Sequencing
LabCard Chip Experimental Data Using
ACLARA LabCard Chips
(700 bases in 20 minutes)
</TABLE>
____________________________________________________________________________

[INSIDE FOLDOUT PANEL #2]

EXPRESSION PROFILING
USING
MICROFLUIDIC ARRAY CHIPS
ACROSS
LARGE SAMPLE SETS
<TABLE>
<S><C>
[IMAGE]
CONVENTIONAL
ONE SAMPLE -----> DNA MICROARRAY -----> MULTIPLE GENES/SNPs
FROM ONE SAMPLE

[IMAGE]
MANY SAMPLES -----> ACLARA -----> MULTIPLE GENES/SNPs
MICROFLUIDIC PER SAMPLE
ARRAY CHIP
</TABLE>

(Two schematics comparing ACLARA microfluidic array chip to
DNA microarray chip)

____________________________________________________________________________
<PAGE> 4

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding our company and our common stock being sold in this
offering and our financial statements and the notes to our financial statements
appearing elsewhere in this prospectus before making an investment decision. You
should also carefully consider the information discussed in "Risk Factors."

ACLARA BIOSCIENCES

We are developing multiple products to address both the genomics and
pharmaceutical drug screening markets based on our proprietary microfluidics
technology that allow researchers to rapidly perform large numbers of chemical
and biological measurements in a miniaturized, automated format. In
collaboration with our strategic partners, we are developing analytical
instruments that will utilize our LabCard chip products. We believe that these
LabCard systems will provide improved efficiency and enhanced accuracy for a
wide range of laboratory analyses, at a lower cost per measurement than current
analytical systems. We intend to commercially introduce our initial product, the
Oasis LabCard chip, in late 2000.

We have formed strategic partnerships to commercialize our products with PE
Biosystems and Packard BioScience, leading providers of analytical systems for
genomics and pharmaceutical drug screening. We are combining our proprietary
microfluidics technology with their broad platform of technologies, including
reagents, analysis methods, instrumentation and software. We also plan to use
the marketing, sales and distribution strengths of our current and future
partners to successfully commercialize our products.

OUR TECHNOLOGY AND PRODUCTS

Our microfluidic chip technology enables us to move various fluids and
materials, using electric fields, through networks of interconnected channels,
each the width of a human hair. We design these networks in a grid or array
format, enabling researchers to perform multiple measurements in parallel on our
LabCard chips. Our microfluidic approach enables the rapid and accurate
measurement, dispensing and mixing of reagent volumes many times smaller than
what researchers commonly use today. In this manner, we can precisely manipulate
a variety of fluids, including those that contain whole cells, cell fragments or
magnetizable particles, using computerized controls with no moving parts or
valves.

We are currently developing multiple products for the genomics and
pharmaceutical drug screening markets. We believe that our products will offer
researchers several key benefits:

- Greater Flexibility in Chip Design and Use. We produce most of our chips
using advanced plastic materials and proprietary manufacturing processes.
We believe that our single-use plastic chips offer substantial advantages
over glass chips, including the avoidance of carryover contamination from
one measurement to the next, and lower manufacturing costs.

1
<PAGE> 5

- Higher Throughput and Avoidance of Cross Contamination. Throughput is the
number of samples that can be processed in a given amount of time. We
have designed chips that contain arrays of microfluidic networks, where
each network enables analysis of a different sample. This approach
increases throughput and avoids cross contamination of different
reactions on the same chip.

- Greater Information Content. Our LabCard chips and proprietary reagents
allow researchers to obtain more information from each measurement than
is currently possible with standard methods.

- Increased Efficiency and Higher Data Quality. Our LabCard chips decrease
the amount of manual labor required and reduce the potential for
variability and error.

- Reduced Reagent Cost. Our chips perform measurements on very small
volumes of material, enabling significant reductions in the amounts of
sample and reagents required for a test.

OUR STRATEGY

Our objective is to be the leading provider of microfluidic chips to large,
fast-growing segments of the genomics and pharmaceutical drug screening markets
where the information sought is of high value to customers. Key elements of our
strategy include:

- Partnering With Industry Leaders for Instrument Development,
Manufacturing and Commercialization. We intend to use the
instrumentation, software, chemistry expertise and distribution strengths
of our partners, such as PE Biosystems, to accelerate the development and
commercialization of our products.

- Leveraging Our Intellectual Property With That of Our Partners. Our broad
patent portfolio includes over 80 patents and patent applications. We
also benefit from the intellectual property portfolio of our strategic
partners, enabling us to broadly address the genomics and pharmaceutical
drug screening markets.

- Generating Recurring, High Margin Revenue. We expect that most LabCard
systems sold will generate recurring revenue from sales of single-use
disposable LabCard chips. We are developing proprietary manufacturing
processes for the cost-effective production of these plastic LabCard
chips.

- Enhancing the Value of LabCard Systems With Proprietary Reagents. We
intend to integrate proprietary reagents developed by us and our
strategic partners to significantly enhance the flexibility and utility
of our LabCard systems.

2
<PAGE> 6

OUR HISTORY

THE OFFERING

Common stock offered by ACLARA..... 9,000,000 shares
Common stock to be outstanding
after this offering................ 31,172,995 shares
Use of proceeds.................... For research and development activities,
for financing possible acquisitions and
investments in technology as well as for
working capital and other general
corporate purposes.
Proposed Nasdaq National Market
symbol............................. ACLA

The number of shares of common stock to be outstanding after this offering
is based on 22,172,995 shares outstanding on December 31, 1999. This number
assumes the conversion into common stock of all of our preferred stock
outstanding on that date and excludes:

- 5,014,004 shares of common stock reserved for issuance under our stock
plans as of December 31, 1999, of which options to purchase 2,891,064
shares were outstanding as of December 31, 1999 at a weighted average
exercise price of $0.44 per share;

- 538,472 shares of common stock that may be issued upon exercise of
warrants outstanding as of December 31, 1999 at a weighted average
exercise price of $1.32 per share, including 154,557 shares of common
stock issuable upon exercise of Series D warrants;

- an additional 1,290,000 shares of common stock reserved for issuance
under our Amended and Restated 1997 Stock Plan, approved by the board in
February 2000;

- 450,000 shares of common stock reserved for issuance under our employee
stock purchase plan, approved by the board in February 2000, to be
effective upon the closing of this offering; and

- 1,547,271 shares of common stock issued upon the exercise of options
between January 1, 2000 and February 11, 2000.

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

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

- the conversion of each outstanding share of our convertible preferred
stock into one share of our common stock immediately prior to the closing
of this offering;

- a 3-for-2 stock split effected on March 14, 2000;

- the underwriters have not exercised their option to purchase additional
shares.

3
<PAGE> 7

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

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 5,
1995)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------
1995 1996 1997 1998 1999
------------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenue................................ $ 393 $ 1,324 $ 2,649 $ 1,353 $ 2,936
Operating expenses........................... 879 2,302 4,649 6,745 11,253
-------- ------- ------- ------- --------
Loss from operations......................... (486) (978) (2,000) (5,392) (8,317)
Interest income (expense), net............... 31 22 2 (130) 160
-------- ------- ------- ------- --------
Net loss..................................... $ (455) $ (956) $(1,998) $(5,522) $ (8,157)
======== ======= ======= ======= ========
Net loss attributable to common
stockholders............................... $ (468) $(1,157) $(2,299) $(6,011) $(18,446)
======== ======= ======= ======= ========
Net loss per common share, basic and
diluted.................................... $(234.00) $(21.83) $ (4.02) $ (5.03) $ (11.85)
======== ======= ======= ======= ========
Shares used in computing net loss per common
share, basic and diluted................... 2 53 572 1,195 1,556
======== ======= ======= ======= ========
Pro forma net loss per share, basic and
diluted (unaudited)........................ $ (0.64)
========
Shares used in computing pro forma net loss
per share, basic and diluted (unaudited)... 20,546
========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED AS ADJUSTED
-------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities......... $ 13,729 $ 13,729 $ 155,379
Working capital............................................. 12,056 12,056 153,706
Total assets................................................ 20,574 20,574 162,224
Capital lease obligations, less current portion............. 284 284 284
Loans payable, less current portion......................... 3,087 3,087 3,087
Mandatorily redeemable convertible preferred stock.......... 40,973 -- --
Total stockholders' equity (deficit)........................ (26,492) 14,481 156,131
</TABLE>

The as adjusted balance sheet data above reflects the conversion of each
outstanding share of convertible preferred stock into one share of common stock
upon the closing of this offering.

The pro forma as adjusted amounts above give effect to the sale of the
9,000,000 shares of common stock in this offering at an assumed initial offering
price of $17.00 per share, after deducting underwriting discounts and
commissions and offering expenses.

4
<PAGE> 8

RISK FACTORS

This offering involves a high degree of risk. You should consider carefully
the risks described below and the other information in this prospectus before
deciding to purchase shares of our common stock. Any of these risk factors could
materially and adversely affect our business, financial condition, results of
operations and future growth prospects. In that case, the trading price of our
common stock could decline, and you could lose all or part of your investment.
Additional risks and uncertainties that we do not currently know about or that
we currently deem immaterial may also impair our business, financial condition,
results of operations and future growth prospects. See "Special Note Regarding
Forward-Looking Statements."

RISKS RELATED TO OUR BUSINESS

WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, AND WE MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE.

Since we were founded in May 1995, we have engaged primarily in
organizational and research and development efforts. We have incurred operating
losses every year, and we may never achieve profitability. Net losses for the
years ended December 31, 1997, 1998 and 1999 were $2.0 million, $5.5 million,
and $8.2 million, respectively. As of December 31, 1999, we had an accumulated
deficit of $22.6 million. Our losses have resulted principally from costs
incurred in connection with our research and development activities and from
general and administration costs associated with our operations.

We have not commercially launched any LabCard products to date and do not
expect to do so until late 2000. Our ability to generate revenues from product
sales or to achieve profitability is dependent on our ability, alone or with our
collaborative partners, to successfully and timely design, develop, manufacture
and commercialize our microfluidic systems. Our revenue to date has been
generated principally from collaborative research and development agreements,
technology access fees, interest on cash and investment balances and government
grants. We expect that our costs will continue to exceed our revenues on an
annual basis for at least the next two years. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.

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

Our operating results have fluctuated in the past and are likely to do so
in the future. These fluctuations could cause our stock price to decline. Some
of the factors that could cause our operating results to fluctuate include:

- expiration or termination of research contracts with collaborators or
government research grants, which may not be renewed or replaced;

- the timing and willingness of collaborators to commercialize our
products;

- the timing, release and competitiveness of our products; and

- general and industry-specific economic conditions, which may affect our
customers' research and development expenditures and use of our products.

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 the short-term. In particular, research and
development and general and administrative expenses are not affected directly by
variations in revenue.

5
<PAGE> 9

Due to fluctuations in our revenue and operating expenses, we believe that
period-to-period comparisons of our results of operations are not a good
indication of our future performance. It is possible that in some future quarter
or quarters, our operating results will be below the expectations of securities
analysts or investors. In that case, our stock price could fluctuate
significantly or decline.

OUR PRODUCTS ARE IN THE EARLY STAGE OF DEVELOPMENT AND MAY NEVER BE FULLY
DEVELOPED IN A MANNER SUITABLE FOR COMMERCIAL SUCCESS.

We currently have no commercially available products and we have never
developed, manufactured, distributed or sold commercial systems using our
microfluidics technology. We are developing products that are in many cases part
of complex systems that also have not been fully developed, tested, manufactured
or commercially introduced. For example, we have only produced a working
prototype system that integrates our LabCard chips into a laboratory system that
utilizes automated liquid handling, microfluidic control, fluorescence detection
and software for system control and data analysis. We may not be able to perfect
the design of our products due to the complexity of the systems they are part of
and the demands of the scientific processes that they address. For instance, we
have not yet established the high degrees of accuracy, reliability and ease of
use required for commercial introduction of our products. Even though we have
designed products that function in a prototype system, we cannot assure you that
we will be able to adapt the design to allow for large-scale manufacturing and
commercialization. Although we have indicated projected launch periods for
certain of our products elsewhere in this prospectus, we cannot assure you that
we and our collaborative partners will complete development of the systems by
those launch dates, or at all. If we are unable to design commercially viable
systems either independently or with our collaborative partners, we may be
unable to remain in business, and you may lose all or part of your investment.

COMMERCIALIZATION OF OUR PRODUCTS DEPENDS UPON MARKET ACCEPTANCE OF OUR LABCARD
CHIPS AND SYSTEMS; AND IF THEY DO NOT ACHIEVE MARKET ACCEPTANCE, OUR ABILITY TO
GENERATE SALES WILL BE LIMITED AND OUR LOSSES WOULD INCREASE.

Demand for our LabCard products is substantially dependent upon widespread
market acceptance of systems utilizing our LabCard chips as tools for genomics,
pharmaceutical drug screening and other applications. Because most of our
LabCard chip products will be part of larger analytical systems marketed by our
collaborative partners, our ability to sell LabCard chips in these cases depends
on adoption by researchers of entirely new analytical equipment. We cannot
assure you that LabCard chips and related instrument systems using our
technology will achieve substantial acceptance in our target markets. Market
acceptance will depend on many factors, including:

- our ability and the ability of our collaborative partners to demonstrate
to potential customers the benefits and cost-effectiveness of our LabCard
chips and systems relative to products currently available in the market;

- the extent of our partners' efforts to market, sell and distribute the
LabCard chips and systems; and

- the willingness and ability of customers to adopt new technology
requiring capital investments.

Further, if our initial LabCard systems are not favorably received by the
market, it could undermine our ability to successfully introduce subsequent
LabCard systems as well. If our

6
<PAGE> 10

LabCard chips and systems do not gain market acceptance, our losses would
increase and we may be unable to remain in business. As a result, you could lose
all or part of your investment.

WE DEPEND ON COLLABORATIVE PARTNERS TO DEVELOP AND MARKET SYSTEMS THAT UTILIZE
OUR LABCARD CHIPS TO END USERS. IF OUR COLLABORATIVE PARTNERS DO NOT PERFORM AS
EXPECTED, WE MAY BE UNABLE TO DEVELOP AND MARKET OUR PRODUCTS.

Because our products are components of larger systems, our success depends
on our ability to establish relationships with collaborative partners to create
products to address market needs. For example, our collaborative relationship
with PE Biosystems provides for the joint development of systems for genomics
research and pharmaceutical drug screening. In this relationship, we provide
LabCard chips as one component of systems used by researchers for genomics
analysis and pharmaceutical drug screening applications. Our ability to expand
the applications for our technology rests on our ability to broaden our
relationship with existing partners and identify and enter into similar
relationships with new collaborative partners to address additional customer
needs. If we are unable to broaden our existing collaborative relationships or
enter into relationships with additional collaborative partners our business may
suffer.

Our ability to sell products will also depend on the ability of our
collaborative partners to develop instrument systems that can utilize our
LabCard chips. If the development efforts of our collaborative partners fail or
are significantly delayed, our losses would increase. We cannot assure you that
our collaborative partners will be able to develop products as planned.

We also intend to rely upon our current and future collaborative partners
to market, sell, distribute and promote our LabCard chips. We do not intend to
develop a large internal marketing and sales organization. Accordingly, we will
be substantially relying on our collaborative partners to fulfill these tasks.
If our collaborative partners do not perform these functions satisfactorily, our
ability to market, sell and distribute our products could be severely limited.

We generally do not have control over the resources or degree of effort
that any of our existing collaborative partners may devote to our
collaborations. If our collaborators breach or terminate their agreements with
us or otherwise fail to conduct their collaborative activities successfully and
in accordance with agreed upon schedules, our business would be harmed. In
addition, our collaborative partners could cease operations, eliminate relevant
product lines, or offer, design, manufacture or promote competing lines of
products. Any of those occurrences would increase our losses.

WE RELY HEAVILY ON PE BIOSYSTEMS TO DEVELOP, MANUFACTURE AND COMMERCIALIZE
SYSTEMS TO BE USED IN CONNECTION WITH OUR LABCARD CHIPS AND TO COMMERCIALIZE
MOST OF OUR LABCARD PRODUCTS, AND PE BIOSYSTEMS' FAILURE TO DO SO SUCCESSFULLY
COULD DELAY OR PREVENT THE COMMERCIALIZATION OF OUR PRODUCTS IN THE GENOMICS AND
PHARMACEUTICAL DRUG SCREENING MARKETS, AND RESULT IN INCREASED LOSSES.

As part of our business strategy, we are focusing on the development of our
LabCard chips and related chemistries for genomics and pharmaceutical drug
screening systems and in most cases are relying on PE Biosystems to manufacture
and commercialize the systems, including commercializing our LabCard chips. We
have collaboration agreements with PE Biosystems to jointly develop microfluidic
systems for genomics and pharmaceutical drug screening. In addition to
developing or co-developing the instrumentation, software and reagents, PE
Biosystems will have the exclusive right to market and sell those products
worldwide. We cannot assure you that PE Biosystems will perform its obligations
under the agreements, or that PE Biosystems will successfully commercialize any
products resulting from our joint efforts. Moreover,

7
<PAGE> 11

PE Biosystems has the discretion, under certain circumstances, to elect not to
proceed with the commercialization of products jointly developed under the
agreement. PE Biosystems' failure to perform under the agreement or to
successfully commercialize our LabCard products and systems could delay or
prevent the commercialization of our products and result in increased losses.

IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WE WOULD BE
UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGY, WHICH COULD IMPAIR
OUR ABILITY TO COMPETE IN THE MARKET, AND THE COST OF ENFORCING OUR PROPRIETARY
RIGHTS MAY BE EXPENSIVE AND RESULT IN INCREASED LOSSES.

Our success will depend in part on our ability to obtain and maintain
meaningful patent protection for our products, both in the United States and in
other countries, and our inability to do so could harm our competitive position.
We rely on our portfolio of over 80 issued and pending patent applications in
the United States and in other countries to protect a large part of our
intellectual property and our competitive position. We cannot assure you that
any of the currently pending or future patent applications will issue as
patents, or that any patents issued to us will not be challenged, invalidated,
held unenforceable or circumvented. Further, we cannot assure you that our
intellectual property rights will be sufficiently broad to prevent third parties
from producing competing products similar in design to our products.

In addition to patent protection, we also rely on protection of trade
secrets, know-how and confidential and proprietary information. We generally
enter into confidentiality agreements with our employees, consultants and our
collaborative partners upon commencement of a relationship with us. However, we
cannot assure you that these agreements will provide meaningful protection
against the unauthorized use or disclosure of our trade secrets or other
confidential information or that adequate remedies would exist if unauthorized
use or disclosure were to occur. The exposure of our trade secrets and other
proprietary information would impair our competitive advantages and could have a
material adverse effect on our operating results, financial condition and future
growth prospects. Further, we cannot assure you that others have not or will not
independently develop substantially equivalent know-how and technology.

Our commercial success also depends in part on avoiding the infringement of
other parties' patents or proprietary rights and the breach of any licenses that
may relate to our technologies and products. We are aware of several third-party
patents that may relate to our technology. We believe that we do not infringe
these patents but cannot assure you that we will not be found in the future to
infringe these or other patents or proprietary rights of third parties, either
with products we are currently developing or with new products that we may seek
to develop in the future. If third parties assert infringement claims against
us, we may be forced to enter into license arrangements with them. We cannot
assure you that we could enter into the required licenses on commercially
reasonably terms, if at all. The failure to obtain necessary licenses or to
implement alternative approaches may prevent us from commercializing products
under development and would impair our ability to be commercially competitive.
We may also become subject to interference proceedings conducted in the U.S.
Patent and Trademark Office to determine the priority of inventions.

The defense and prosecution, if necessary, of intellectual property suits,
USPTO interference proceedings and related legal and administrative proceedings
will result in substantial expense to us and significant diversion of effort by
our technical and management personnel. An adverse determination in litigation
or interference proceedings to which we may become a party could subject us to
significant liabilities to third parties, could put our patents at risk of being
invalidated or interpreted narrowly and could put our patent applications at
risk of not issuing.

8
<PAGE> 12

Further, there is a risk that some of our confidential information could be
compromised during the discovery process of any litigation. During the course of
any lawsuit, 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.

WE ARE INVOLVED WITH INTELLECTUAL PROPERTY LITIGATION WITH CALIPER TECHNOLOGIES
CORP. THAT WILL BE EXPENSIVE, MAY HURT OUR COMPETITIVE POSITION, MAY AFFECT OUR
ABILITY TO ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS AND MAY PREVENT US FROM
SELLING OUR PRODUCTS.

In March 1999, Caliper sued our former patent law firm, our current general
counsel, and us alleging misappropriation of Caliper's trade secrets. Caliper
claims an outside lawyer who was consulting with both Caliper and us, and who
joined us three years after the alleged events as our internal general counsel,
used Caliper's confidential information in preparing an application for one of
our key patents. The patent in question covers technology used in most of the
LabCard chips we are currently developing. Caliper has asked for unspecified
monetary damages and equitable relief. We believe that Caliper's suit lacks
factual and legal merit and are defending the case vigorously. However,
litigation is unpredictable, and we may not prevail. If we do not prevail, we
could owe Caliper a significant amount of monetary damages. The court could also
grant Caliper various forms of equitable relief including preventing us from
enforcing some of our intellectual property rights against Caliper. As a result,
an outcome adverse to us could cause our business to suffer materially.

We sued Caliper in April 1999 for infringement of U.S. Patent No.
5,750,015, or the '015 patent, which covers technology used in most of our
current LabCard chip designs. We believe our case has merit and are pursuing it
aggressively. The court could decide, however, that Caliper does not infringe
the '015 patent, or could find the '015 patent to be invalid or unenforceable.
In either case, we would not be able to prevent Caliper and other third parties
from using product designs that we view as protected by the '015 patent. These
outcomes would reduce the value of our intellectual property rights, weaken our
competitive position and significantly hurt our financial results.

In January 2000, Caliper sued us alleging infringement of four patents
(U.S. Patent Nos. 5,858,195, 6,001,229, 6,010,607 and 6,010,608) which they
claim to have licensed exclusively. On March 10, 2000, Caliper amended its
lawsuit to include a fifth patent recently issued, U.S. Patent No. 6,033,546. We
believe our products, which are still under development, do not infringe any
claims of these patents and intend to defend our position vigorously. But the
outcome of any litigation is uncertain, and we may not prevail. Should we be
found to infringe any of these patents, we may be liable for potential monetary
damages, and could be required to obtain a license from Caliper to commercialize
our products or redesign our products so they do not infringe any of these
patents. If we were unable to obtain a license or adopt a non-infringing product
design, we may not be able to proceed with development, manufacture and sale of
some of our products. In this case our business may not develop as planned, and
our results could materially suffer. For more information on our litigation with
Caliper, please see "Business -- Legal Proceedings."

WE HAVE LIMITED MANUFACTURING EXPERIENCE, AND IF WE ARE UNABLE TO FIND
THIRD-PARTY MANUFACTURERS TO MANUFACTURE OUR LABCARD CHIPS, WE MAY NOT BE ABLE
TO LAUNCH OUR PRODUCTS IN A TIMELY MANNER, OR AT ALL.

We have no experience manufacturing our products in the volumes that will
be necessary for us to achieve significant commercial sales. To date, we have
limited our manufacturing activities to the manufacturing of prototype LabCard
chips and systems for testing purposes

9
<PAGE> 13

and for internal use by our collaborative partners. The nature of our products
requires the use of sophisticated injection molding and other manufacturing
processes that are not widely available. For this reason only a limited number
of vendors currently have the expertise to manufacture our products. We have
relationships with outside suppliers who are currently manufacturing limited
quantities of our LabCard chips for research and development purposes. We will
need to enter into contractual relationships with manufacturers for commercial
scale production of LabCard chips and systems and we cannot assure you that we
will be able to do so on a timely basis, for sufficient quantities of chips or
on commercially reasonable terms. Accordingly, we cannot assure you that we can
establish or maintain reliable, high-volume manufacturing at commercially
reasonable costs. In addition, the loss of any of these suppliers may result in
a delay or interruption of our supply of LabCard chips. Any significant delay or
interruption would have a material adverse effect on our ability to supply
adequate quantities of our products and would result in lost revenues.

OUR FACILITIES ARE LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES, AND THE OCCURRENCE
OF AN EARTHQUAKE OR OTHER CATASTROPHIC DISASTER COULD CAUSE DAMAGE TO OUR
FACILITIES AND EQUIPMENT, WHICH COULD REQUIRE US TO CEASE OR CURTAIL OPERATIONS.

Our facilities are located in the San Francisco Bay Area near known
earthquake fault zones and are vulnerable to damage from earthquakes. If an
earthquake or other natural disaster were to occur, our ability to operate our
business at our facilities could be seriously impaired. In addition, the nature
of our research, development and pilot manufacturing activities and the
specialized nature of much of our equipment could make it time-consuming and
costly for us to recover from a disaster. The insurance we maintain may not be
adequate to cover our losses resulting from disasters or other business
interruptions.

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

Our performance is substantially dependent on the performance of our senior
management and key scientific and technical personnel. We carry key person life
insurance on only two of our senior management personnel. The loss of the
services of any member of our senior management, scientific or technical staff
may significantly delay or prevent the achievement of product development and
other business objectives and could have a material adverse effect on our
business, operating results and financial condition. Our future success will
also depend on our ability to identify, recruit and retain additional qualified
scientific, technical and managerial personnel. There is currently a shortage of
skilled executives and intense competition for such personnel in the areas of
our activities, and we cannot assure you that we will be able to continue to
attract and retain personnel with the advanced qualifications necessary for the
development of our business. The inability to attract and retain the necessary
scientific, technical and managerial personnel could have a material adverse
effect upon our research and development activities, sales revenue, operating
costs and future growth prospects.

WE EXPECT INTENSE COMPETITION IN OUR TARGETED MARKETS, WHICH COULD RENDER OUR
PRODUCTS OBSOLETE OR SUBSTANTIALLY LIMIT THE VOLUME OF PRODUCTS THAT WE SELL,
WHICH WOULD LIMIT OUR ABILITY TO BE COMPETITIVE AND ACHIEVE PROFITABILITY.

We compete with companies that design, manufacture and market analytical
instruments for genomics and pharmaceutical drug screening using technologies
such as gel electrophoresis, capillary electrophoresis, microwell plates and
robotic liquid handling systems. In addition, a number of companies are
developing new technologies for miniaturizing various laboratory procedures for
genomics and drug screening markets targeted by us using methods such as
hybridization chips and high density microwell plates. Furthermore, we are aware
of other companies that are developing microfluidics technology, including
Orchid BioSciences, Inc. and

10
<PAGE> 14

Caliper Technologies Corp. We anticipate that we will face increased competition
in the future as new companies enter the market with new technologies. Rapidly
changing technology, evolving industry standards, changes in customer needs,
emerging competition and new product introductions characterize the markets for
our products. One or more of our competitors may render our technology obsolete
or uneconomical by advances in existing technological approaches or the
development of different approaches. Many of these competitors have greater
financial and personnel resources and more experience in research and
development than we have. Furthermore, we cannot assure you that the
pharmaceutical and biotechnology companies which are our potential customers or
our strategic partners will not develop competing products.

WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN
ADEQUATE INSURANCE, WHICH WOULD INCREASE OUR LOSSES.

Once we have commercially launched our LabCard products, we will face
exposure to product liability claims. Any product liability claims arising in
the future, regardless of their merit or eventual outcome, could increase our
losses. We intend to secure product liability insurance coverage, but we cannot
assure you that we will be able to obtain such insurance on acceptable terms
with adequate coverage, or at reasonable costs. In addition, potential product
liability claims may exceed the amount of our insurance or may be excluded from
coverage under the terms of the policy.

WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS, WHICH COULD HURT
OUR ABILITY TO COMPETE OR ACHIEVE PROFITABILITY.

It might be necessary for us to raise additional capital over the next few
years to continue our research and development efforts and to commercialize our
products. We believe that the proceeds from this offering and projected revenue
from collaborations should be sufficient to fund our anticipated levels of
operations through at least the next 12 months. However, we cannot assure you
that our business or operations will not change in a manner that would consume
available resources more rapidly than anticipated. We also cannot assure you
that we will continue to receive funding under existing collaborative
arrangements or that existing or potential future collaborations or sales
revenue will be adequate to fund our operations. We may need additional funds
sooner than planned to meet operational needs and capital requirements for
product development and commercialization. We cannot assure you that additional
funds will be available when needed, or on terms acceptable to us or that
sufficient revenue will be generated from sales. If adequate funds are not
available, we may have to reduce substantially or eliminate expenditures for the
development and production of certain of our proposed products or obtain funds
through arrangements with collaboration partners that require us to relinquish
rights to certain of our technologies or products. Either of these alternatives
could have a material adverse effect on our business, operating results,
financial condition and future growth prospects.

RISKS RELATED TO THIS OFFERING

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

Following the completion of this offering, our executive officers,
directors and largest stockholders and their affiliates will beneficially own or
control approximately 54.6%, or 55.7% if PE Biosystems purchases $5,000,000 of
shares in the offering, of the outstanding shares of common stock after giving
effect to the conversion of all outstanding preferred stock and the

11
<PAGE> 15

exercise of all outstanding vested and unvested options, warrants and
convertible securities. Accordingly, our current executive officers, directors
and their affiliates, if acting together, would have the ability to control the
outcome of corporate actions requiring stockholder approval, including the
election of directors, any merger, consolidation or sale of all or substantially
all of our assets and any other significant corporate transactions. The
concentration of ownership could also delay or prevent a change of control of
our company at a premium price if these stockholders oppose it. Please see
"Management" and "Principal Stockholders" for details on our stock ownership.

THE MARKET PRICE OF OUR COMMON STOCK MAY BE HIGHLY VOLATILE, AND YOU MAY NOT BE
ABLE TO RESELL YOUR SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.

There has not been a public market for our common stock. We cannot assure
you that an active trading market for our common stock will develop following
this offering. You may not be able sell your shares quickly or at the market
price if trading in our stock is not active. The initial public offering price
for the shares will be determined by negotiations between us and the
representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market. Please see "Underwriting" for more
information regarding our arrangement with the underwriters and the factors
considered in setting the initial public offering price.

The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:

- announcements of developments in our litigation with Caliper;

- developments concerning proprietary rights, including patents, by us or
our competitors;

- conditions or trends in the biotechnology, and particularly, the genomics
or drug screening sectors;

- changes in the market valuations of other biotechnology and genomics
companies; and

- developments concerning our collaborations and in particular, our
collaboration with PE Biosystems.

In addition, the stock market in general, and the Nasdaq National Market
and the market for technology companies in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of those companies. Further, there has been
particular volatility in the market prices of securities of biotechnology and
life sciences companies. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our operating
performance. In the past, following periods of volatility in the market,
securities class-action litigation has often been instituted against these
companies. Any litigation instituted against us could result in substantial
costs and a diversion of management's attention and resources, which could
seriously harm our ability to achieve profitability.

WE HAVE BEEN THREATENED WITH LITIGATION SEEKING RESCISSION OF OUR REPURCHASE OF
SHARES FROM A FORMER STOCKHOLDER, WHICH, IF LITIGATION OCCURS AND IS DECIDED
ADVERSELY TO ACLARA, COULD RESULT IN SUBSTANTIAL DILUTION TO ALL STOCKHOLDERS.

In March 1999 we repurchased, at a price of $0.60 per share, 4,521,000
shares of our Series A preferred stock from 2C Optics, Inc., our former parent
company. We have received correspondence from an attorney representing a group
of minority stockholders of 2C Optics, including David Soane, one of our
co-founders, alleging violations of corporate and securities laws by us, and one
or more of our directors, in connection with our repurchases of the shares. This
attorney is threatening litigation seeking rescission of the repurchase
transaction unless we

12
<PAGE> 16

agree to sell to his clients, at $0.60 per share, that number of shares of our
stock equal to each clients' pro rata portion (based on such person's ownership
interest in 2C Optics) of the shares we repurchased from 2C Optics. An attorney
representing 2C Optics has informed us that they are also considering litigation
against us. 2C Optics has indicated they will make a decision in the near
future. We cannot assure you that 2C Optics will not decide to file a lawsuit
against us or seek equitable relief. If litigation ensues, and is decided
adversely to us, we could be forced to rescind the repurchase transaction, in
whole or in part, which could result in substantial dilution to current and
future ACLARA stockholders, or we could be forced to pay monetary damages or be
subjected to other equitable remedies, each of which could result in increased
losses and substantial costs and expenses, thereby affecting our profitability.
See "Business -- Legal Proceedings."

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

The offering price of the common stock will be substantially higher than
the net tangible book value per share of our existing capital stock. As a
result, if you purchase common stock in this offering you will incur immediate
and substantial dilution of $11.99 in net tangible book value per share of
common stock, based on an assumed public offering price of $17.00 per share. You
will also experience additional dilution upon the exercise of outstanding stock
options and warrants. Please see "Dilution" for a more detailed discussion of
the dilution new investors will incur in this offering. The large number of
shares eligible for sale following this offering may depress the market price of
our common stock.

THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.

The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market after this offering or the perception that such sales could occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and price that we deem appropriate. Please see "Shares Eligible
for Future Sale" for a description of sales that may occur in the future.

ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW LIMIT THE
ABILITY OF ANOTHER PARTY TO ACQUIRE US, WHICH COULD CAUSE OUR STOCK PRICE TO
DECLINE.

Certain provisions of our certificate of incorporation and our bylaws could
delay or prevent a third party from acquiring us, even if doing so might be
beneficial to our stockholders. 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 with us. These provisions could limit the
price that investors might be willing to pay in the future for our common stock.
Please see, "Description of Capital Stock -- Anti-takeover Effects of Certain
Provisions of Delaware Law and Charter Provisions."

13
<PAGE> 17

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.

14
<PAGE> 18

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 9,000,000 shares of
common stock we are offering at the initial public offering price of $17.00 per
share will be approximately $141.7 million, or $163.0 million if the
underwriters' over-allotment option is exercised in full, after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us. We anticipate using the proceeds from this offering for research and
development activities, for financing possible acquisitions and investments in
technology as well as for working capital and other general corporate purposes.

The amounts that we actually expend on these matters will vary
significantly, depending on a number of factors, including future revenue
growth, if any, and the amount of cash we generate from operations. As a result,
we will retain broad discretion in the allocation of the net proceeds of this
offering. We currently have no commitments or agreements and are not involved in
any negotiations with respect to any acquisitions of complementary products,
technologies or businesses. Pending use of the net proceeds of this offering, we
intend to invest the net proceeds in interest bearing, investment-grade
securities.

DIVIDEND POLICY

We have not declared or paid any cash dividends on our capital stock since
inception. We currently intend to retain future earnings, if any, to finance the
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.

15
<PAGE> 19

CAPITALIZATION

The table below presents the following information:

- our actual capitalization as of December 31, 1999;

- our pro forma capitalization as of that date after giving effect to the
conversion of all outstanding shares of convertible preferred stock into
common stock upon completion of this offering; and

- our pro forma capitalization as adjusted to reflect the receipt of the
net proceeds from our sale of 9,000,000 shares of common stock at an
assumed initial public offering price of $17.00 per share in this
offering, less underwriting discounts and commissions and estimated
offering expenses payable by us.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations, less current portion............. $ 284 $ 284 $ 284
Loans payable, less current portion......................... 3,087 3,087 3,087
-------- -------- --------
Total long term debt...................................... 3,371 3,371 3,371
-------- -------- --------
Mandatorily redeemable convertible preferred stock, $0.001
par value; 34,200,000 shares authorized, 20,469,749 share
issued and outstanding; no shares issued and outstanding
pro forma and pro forma as adjusted....................... 40,973 --
Stockholders' equity (deficit):
Common stock $0.001 par value; 60,000,000 shares
authorized, 1,703,246 shares issued and outstanding,
actual; 150,000,000 shares authorized pro forma and pro
forma as adjusted, 22,172,995 shares issued and
outstanding pro forma, 31,172,995 shares issued and
outstanding pro forma as adjusted....................... 2 22 31
Preferred stock, $0.001 par value, 15,000,000 shares
authorized; no shares issued and outstanding actual, pro
forma or pro forma as adjusted.......................... -- -- --
Additional paid-in capital.................................. 2,589 43,059 184,700
Deferred stock-based compensation........................... (6,508) (6,508) (6,508)
Notes receivable for common stock........................... (7) (7) (7)
Accumulated other comprehensive income...................... 4 4 4
Deficit accumulated during the development stage............ (22,572) (22,089) (22,089)
-------- -------- --------
Total stockholders' equity (deficit)...................... (26,492) 14,481 156,131
-------- -------- --------
Total capitalization.................................... $ 17,852 $ 17,852 $159,502
======== ======== ========
</TABLE>

This table does not include:

- an additional 1,290,000 shares of common stock reserved for issuance
under our Amended and Restated 1997 stock plan, approved by the board in
February 2000;

- 450,000 shares of common stock available for issuance under our employee
stock purchase plan approved by the board in February 2000 to be
effective upon the closing of this offering; and

- 1,547,271 shares of common stock issued upon the exercise of options
between January 1, 2000 and February 11, 2000.

16
<PAGE> 20

DILUTION

Our pro forma net tangible book value as of December 31, 1999 after giving
effect to the conversion of our preferred stock upon the closing of this
offering, was $14.5 million, or $0.65 per share of common stock. Pro forma net
tangible book value per share is equal to the amount of our total tangible
assets less total liabilities, divided by the pro forma number of shares of
common stock outstanding at that date. Assuming our sale of the shares offered
by this prospectus at an assumed initial public offering price of $17.00 per
share and after deducting underwriting discounts and the estimated offering
expenses payable, our pro forma net tangible book value at that date would have
been $156.1 million, or $5.01 per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $4.36 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $11.99 per share to new investors. The following table illustrates this
dilution on a per share basis:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 17.00
--------
Pro forma net tangible book value per share as of
December 31, 1999......................................... $0.65
Increase per share attributable to new investors.......... 4.36
-----
Pro forma net tangible book value per share after this
offering.................................................. 5.01
--------
Pro forma dilution per share to new investors............. $ 11.99
========
</TABLE>

The following table summarizes, on a pro forma basis as of December 31,
1999, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors purchasing shares in this offering. We have
assumed an initial public offering price of $17.00 per share, and we have not
deducted estimated underwriting discounts and commissions and estimated offering
expenses in our calculations.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL GROSS CONSIDERATION AVERAGE
--------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 22,172,995 71% $ 33,921,085 18% $ 1.53
New investors............... 9,000,000 29 153,000,000 82 $17.00
---------- --- ------------ --- ------
Total..................... 31,172,995 100% $186,921,085 100%
========== === ============ ===
</TABLE>

Assuming the exercise in full of all options and warrants outstanding and
exercisable as of December 31, 1999, the number of shares purchased by existing
stockholders would be 24,322,215, or 73% of the total of 33,322,215 shares
purchased, and the consideration paid for those shares would be $35,297,129, or
19% of the total gross consideration of $188,297,129. After this offering and
assuming the exercise in full of all options and warrants outstanding and
exercisable as of December 31, 1999 the average price per share of existing
stockholders would be reduced by $0.08 per share to $1.45 per share.

After this offering and assuming the exercise in full of all options and
warrants outstanding and exercisable as of December 31, 1999, our pro forma net
tangible book value per share as of December 31, 1999 would be $4.73,
representing an immediate increase in net tangible book value of $4.08 per share
to existing stockholders and an immediate dilution in net tangible book value of
$12.27 per share to new investors.

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 68% of the total number of shares of our common
stock outstanding; and

- the number of shares held by new investors will increase to 10,350,000
shares, or approximately 32% of the total number of our common stock
outstanding after this offering.

17
<PAGE> 21

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The statements of operations data for each of the years ended December 31,
1997, 1998 and 1999, and the balance sheet data as of December 31, 1998 and
1999, have been derived from our audited financial statements included elsewhere
in this prospectus which have been audited by PricewaterhouseCoopers LLP,
independent accountants. The statement of operations for the years ended
December 31, 1996 and 1997 and the balance sheet data as of December 31, 1996
and 1997 have been derived from our audited financial statements not included in
this prospectus. The statements of operations data for the period from inception
(May 5, 1995) through December 31, 1995 and the balance sheet dated 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
(MAY 5, 1995)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------------------
1995 1996 1997 1998 1999
------------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Grant and collaboration................... $ 393 $ 844 $ 2,231 $ 1,353 $ 2,936
License................................... -- 460 400 -- --
Product................................... -- 20 18 -- --
-------- ------- ------- ----------- -----------
Total revenue............................... 393 1,324 2,649 1,353 2,936
-------- ------- ------- ----------- -----------
Operating expenses:
Cost of sales............................. -- 90 92 -- --
Research and development.................. 729 1,662 3,743 5,423 8,987
General and administrative................ 150 391 635 1,322 2,266
Sales and marketing....................... -- 159 179 -- --
-------- ------- ------- ----------- -----------
Total operating expenses.................... 879 2,302 4,649 6,745 11,253
-------- ------- ------- ----------- -----------
Loss from operations........................ (486) (978) (2,000) (5,392) (8,317)
Interest income (expense), net.............. 31 22 2 (130) 160
-------- ------- ------- ----------- -----------
Net loss.................................... $ (455) $ (956) $(1,998) $ (5,522) $ (8,157)
======== ======= ======= =========== ===========
Dividend related to beneficial conversion
feature of preferred stock................ -- -- -- -- (5,000)
Net loss attributable to common
stockholders.............................. $ (468) $(1,157) $(2,299) $ (6,011) $ (18,446)
======== ======= ======= =========== ===========
Net loss per common share, basic and
diluted................................... $(234.00) $(21.83) $ (4.02) $ (5.03) $ (11.85)
======== ======= ======= =========== ===========
Shares used in computing net loss per common
share, basic and diluted.................. 2 53 572 1,195 1,556
======== ======= ======= =========== ===========
Pro forma net loss per share, basic and
diluted (unaudited)....................... $ (0.64)
===========
Shares used in computing pro forma net loss
per share, basic and diluted
(unaudited)............................... 20,546
===========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities..... $ 881 $ 1,547 $ 237 $ 1,746 $ 13,729
Working capital...................................... 836 925 (702) (1,402) 12,056
Total assets......................................... 1,114 2,416 1,630 3,361 20,574
Capital lease obligations, less current portion...... 58 241 426 407 284
Loans payable, less current portion.................. -- -- -- -- 3,087
Mandatorily redeemable convertible preferred stock... 1,425 3,008 3,839 8,819 40,973
Total stockholders' deficit.......................... (455) (1,410) (3,935) (9,537) (26,492)
</TABLE>

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

You should read the following discussion of the financial condition and
results of operations in conjunction with our financial statements and the notes
to those statements included elsewhere in this prospectus. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of many factors, including but
not limited to those set forth under "Risk Factors" and elsewhere in this
prospectus.

OVERVIEW

We were formed by a spin-off transaction from Soane Technologies, Inc.,
which was incorporated in 1991 and subsequently changed its name to 2C Optics,
Inc. We were incorporated in Delaware in 1995 under the name Soane BioSciences,
Inc. and changed our name to ACLARA BioSciences, Inc. in 1998. Since our
inception we have engaged primarily in organization and research and development
efforts related to the application of microfluidics technology to genomics and
pharmaceutical drug screening. To date, we have generated most of our revenues
from research collaborations and from government grants. Our total revenue was
$2.6 million in the year ended December 31, 1997, $1.4 million in the year ended
December 31, 1998 and $2.9 million in the year ended December 31, 1999. In each
of the last three years, three collaborators accounted for over 80% of our
revenues. Our collaborators include PE Biosystems, The R.W. Johnson
Pharmaceutical Research Institute, a subsidiary of Johnson & Johnson and
Cellomics, Inc. We have received government grants from the National Institutes
of Health, the National Institute of Standards and Technology Advanced
Technology Program, or NIST ATP, and the Defense Advanced Research Projects
Agency or DARPA.

We have invested substantial amounts in establishing our microfluidics
technologies. Since our inception we have spent over $20 million on our research
and development efforts. Over 80% of our 65 employees at February 11, 2000 were
engaged in research and development.

We have incurred significant losses since our inception. As of December 31,
1999, our accumulated deficit was $22.6 million and total stockholders' deficit
was $26.5 million. Operating expenses increased from $4.6 million in 1997, to
$6.7 million in 1998 and to $11.3 million in 1999. 1997 operating expenses
included cost of sales and marketing expenses associated with a gel product that
we discontinued in 1997. We expect to incur additional operating losses over at
least the next two years as we continue to expand our research and development
efforts and infrastructure.

Our sources of potential revenue for the next several years are likely to
be payments under existing and possible future collaborative arrangements,
government research grants and collaborations, product revenue from the sale of
LabCards, and royalties from our collaborators based on revenue received from
the sale of equipment and reagents utilizing our technology. We currently intend
to introduce our initial LabCard chip product in late 2000.

We recognize grant and collaboration revenue based on meeting certain
requirements, completing milestones as specified in the grants or contracts,
straight line over the period of certain contracts or as work is performed and
evidenced by time sheets and expense reports for certain grants. Revenue on
product sales is generally recognized upon shipment of product to the customer.
Revenue on license agreements is recognized on a straight line basis over the
life of services to be rendered under the license agreements.

We account for stock-based employee compensation arrangements in accordance
with provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25") and comply with the disclosure
provisions of Statement of

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<PAGE> 23

Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123").

Under APB No. 25, compensation expense is based on the difference, if any
on the date of the grant, between the fair value of our stock and the exercise
price. SFAS No. 123 defines a "fair value" based method of accounting for an
employee stock option or similar equity instrument. The pro forma disclosures of
the difference between compensation expense included in net loss and the related
cost measured by the fair value method are presented in the financial statements
included elsewhere in this Prospectus.

We account for equity instruments issued to non-employees in accordance
with the provisions of SFAS 123 and Emerging Issues Task Force Issue No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."

In connection with the grant of stock options to employees, we recorded
deferred stock compensation of approximately $6.1 million in fiscal year 1999
and $0 and $1.7 million in the fiscal years ended December 31, 1997 and 1998
respectively. These amounts were recorded as a component of stockholders' equity
and are being amortized as charges to operations over the vesting period of the
options using the straight line method. The vesting period of the options is
generally four years. We recorded amortization of deferred compensation of
approximately $979,000 for fiscal year 1999 and $0 and $286,000 for the fiscal
years ended December 31, 1997 and 1998 respectively to the appropriate operating
expense categories. The amortization expense relates to options awarded to
employees in all operating expense categories.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

Total Revenue. Our total revenue for 1997, 1998 and 1999 was $2.6 million,
$1.4 million and $2.9 million, respectively. The decrease from 1997 to 1998 was
due to a decline in revenue from Johnson & Johnson from $1.2 million in 1997 to
$600,000 in 1998, the elimination of license revenue from Hitachi Chemical for
use of our technology, and the discontinuance of our gel product. The increase
from 1998 to 1999 was due to additional revenue from the high throughput drug
screening development program, additional revenue from the DARPA contract, and
revenue from the NIST ATP grant. In 1999, all our revenue came from three
sources: our collaborative agreements with PE Biosystems and Johnson & Johnson,
our research and development contract with DARPA, and our grant from NIST ATP to
develop LabCard systems from nucleic acid sample processing.

Research and Development. Research and development expenses increased from
$3.7 million in 1997 to $5.4 million in 1998 and $9.0 million in 1999. The
increase was due to increased staffing and other project and personnel related
costs. Of the increase from 1997 to 1998, $122,000 related to stock-based
compensation expense. Of the increase from 1998 to 1999, $441,000 related to
stock-based compensation. We expect to continue to devote substantial resources
to research and development, and we expect that research and development
expenses will continue to increase on an absolute dollar basis.

General and Administrative. General and administrative expenses increased
from $635,000 in 1997 to $1.3 million in 1998 and $2.3 million in 1999. The
increases were due to increased staffing and personnel related costs incurred to
manage and support our growth. Of the increase from 1997 to 1998, $164,000
related to stock-based compensation expense. Of the increase from 1998 to 1999,
$253,000 related to stock-based compensation expense. We expect that our general
and administrative expenses will increase in absolute dollar amounts as we
expand our human resources and accounting staff, add infrastructure and incur
additional

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costs related to being a public company, including directors' and officers'
insurance, investor relations programs and increased professional fees.

Cost of Sales and Sales and Marketing Expenses. Our cost of sales and sales
and marketing expenses in 1997 were related to a gel product which was
discontinued in 1997.

Net Interest Income (Expense). Net interest income (expense) represents
income earned on our cash and cash equivalents and short term investments, and
interest paid on bridge loans and capital leases. Net interest income was $2,000
in 1997, net interest expense was $130,000 in 1998, and net interest income was
$160,000 in 1999. The change from 1997 to 1998 was due to the timing of interest
expense payments on bridge loans. The change from 1998 to 1999 was due to higher
average cash balances related to the closings of our preferred stock equity
financings.

Income Taxes. We incurred net operating losses in 1997, 1998 and 1999 and
consequently we did not pay any federal, state or foreign income taxes. As of
December 31, 1999, we had federal net operating loss carryforwards of
approximately $15.9 million and California net operating loss carryforwards of
approximately $10.1 million. We also had federal research and development tax
credit carryforwards of approximately $441,000 and California research and
development tax credit carryforwards of approximately $432,000. If not utilized,
the net operating losses and credit carryforwards will expire at various dates
beginning in 2000 through 2015. Utilization of the net operating losses and
credits may be subject to a substantial annual limitation due to the change of
ownership provisions of the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in the expiration of
net operating losses and credits before utilization. See Note 11 of Notes to
Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through private
placements of preferred stock totaling $32.2 million, short term loans from the
landlord of our Mountain View facility and under an equipment financing line of
credit totaling $4.4 million, capital leases totaling $1.5 million, research and
development funding from collaborators and government grants. As of December 31,
1999, we had $10.2 million in cash and cash equivalents, $3.5 million in short
term investments, and $1.3 million available under an equipment financing line
of credit.

The equipment financing line of credit allows us to borrow up to $5.0
million for leasehold improvements and the purchase of equipment. As of February
11, 2000, we have borrowed a total of $3.7 million under the agreement. The
loans bear interest of 13.4% to 13.6% and are repaid in 42 to 48 monthly
installments. If we were to default in the payment of principal or interest on
any indebtedness of $50,000 or the performance of any agreement related to such
loan, we would be in default on this loan agreement. The loan agreement with the
landlord of the Mountain View facility allowed us to borrow $663,000 for
leasehold improvements at an interest of 8.5%. The maturity date of the note is
July 1, 2009.

Financing activities provided cash of $672,000, $6.4 million and $23.2
million in 1997, 1998 and 1999, respectively. These amounts represents the net
proceeds we received from the sale of preferred stock and common stock. In
December 1999, we closed a preferred stock financing round that raised $5.0
million. 1,241,723 shares of preferred stock were purchased by Asea Brown
Boveri, Inc. (ABB) for $4.03 per share. We intend on entering into a research
and development collaboration with ABB in early 2000.

Our operating activities used cash of $1.9 million, $4.8 million and $6.2
million in 1997, 1998 and 1999, respectively. Uses of cash in operating
activities were related to our funding of net operating losses offset by receipt
of funding collaborators and government grants.

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<PAGE> 25

Additions of property and equipment were $554,000, $376,000 and $4.7
million in 1997, 1998 and 1999, respectively. We expect to continue to make
significant investments in the purchase of property and equipment to support our
expanding operations.

We believe that the net proceeds from this offering, together with our
current cash balances and funding received from collaborators and government
grants will be sufficient to satisfy our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. After that
time, we cannot be certain that additional funding, if required, will be
available in acceptable terms, or at all. We may raise additional funds through
public or private financing, collaborative relationships or other arrangements.
Further, any additional equity financing may be dilutive to stockholders, and
debt financing, if available, may involve restrictive covenants. Our failure to
raise capital when needed may harm our business and operating results. Our
capital commitments for the next 12 months, including lease payments, loan
payments, planned tenant improvements, and planned equipment purchases, are
estimated to be $6.1 million.

DISCLOSURE ABOUT MARKET RISK

Our exposure to market risk is currently confined to our cash and cash
equivalents which have maturities of less than three months, and our short-term
investments which have maturities of less than one year. We maintain an
investment portfolio of commercial paper and U.S. Corporate bonds. The
securities in our investment portfolio are not leveraged, are classified as
available-for-sale and are, due to their short-term nature, subject to minimal
interest rate risk. We currently do not hedge interest rate exposure. Because of
the short-term maturities of our investments, we do not believe that an increase
in market rates would have any significant negative impact on the realized value
of our investment portfolio but may negatively impact the interest expense
associated with our long-term debt.

YEAR 2000 ISSUES

We did not experience any significant problems associated with Year 2000
issues, and we are not aware that any of our vendors or suppliers experienced
any such problems.

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 will be effective for our fiscal
year 2001. This statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded on the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. SFAS 133 is not anticipated
to have a significant impact on our operating results or financial condition
when adopted, since we currently do not engage in derivatives or hedging
activities.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or
SAB 101, which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The Company's
revenue recognition policy is in compliance with provisions of SAB 101.

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BUSINESS

OVERVIEW

We are a developer of microfluidics, or lab-on-a-chip, technology with
access to the wide range of technology and intellectual property required to
broadly address the markets for genomics, or RNA and DNA analysis, and
pharmaceutical drug screening. We believe we have broad access to the genomics
market by combining our technology with the intellectual property and market
position of our strategic collaborators, in particular, PE Biosystems. We are
combining our proprietary microfluidics technology with our partners'
technologies, including analysis methods, instrumentation and software, and
reagents, or chemicals which are added to a sample to perform a measurement. We
also plan to use the marketing, sales and distribution strengths of our current
and future partners to successfully commercialize our products. We are also
developing products to address the pharmaceutical drug screening market and we
believe our technologies have applications across other industries, including
chemical processing, environmental and food testing and clinical diagnostics.

INDUSTRY BACKGROUND

Life science research has been undergoing a transition in recent years to
large-scale experimentation, where a single project can require hundreds or
thousands of measurements. Two fields that exemplify this trend are genomics and
pharmaceutical drug screening. Researchers engaged in these fast growing areas
need new and improved analytical systems that provide an increase in the amount
of data gathered as well as enhanced accuracy in the measurement of this data.
To gain market acceptance, new products and systems also need to offer these
benefits at attractive cost levels.

GENOMICS

Genomics is the analysis of nucleic acids, which are the fundamental
regulatory molecules of life. Nucleic acids take two forms, DNA and RNA. These
molecules contain and convey the instructions that govern all cellular
activities, including protein manufacture and cell reproduction. DNA and RNA
consist of linear strands of nucleotide bases, commonly known as A's, G's, T's
and C's, the specific sequences of which constitute the genetic information in
the cell. The unique genetic blueprint for all living organisms, from bacteria
to human beings, is encoded in the DNA. The entire DNA content of an organism is
known as its genome, which is organized into functional units called genes. For
a cell to read the genetic blueprint, the genetic information encoded in the DNA
must first be copied to a specific type of RNA called messenger RNA or mRNA. The
mRNA transmits this information throughout the cell and acts as the template for
protein production. Proteins carry out the cellular functions encoded in the RNA
copy of the DNA. Any defect or mutation in the sequence of nucleotide bases in
the DNA or RNA can disrupt cell or protein function and lead to disease.

Genomics has created opportunities to fundamentally alter the field of
human medicine through the discovery and development of novel drugs and an
improved ability to diagnose and manage disease. Interest in understanding the
relationships between genes and disease has generated a worldwide effort to
identify and sequence the genes of many organisms, including the approximately
three billion nucleotide pairs and the estimated 100,000 genes within the human
genome. Once researchers identify the genes and their nucleotide sequences, we
anticipate that an understanding of the specific function of each of these genes
and the role that different genes play in disease will require many years of
additional research. Genomics also has applications in fields outside of human
health care. For example, an improved understanding of plant and animal genomes
will help to improve yields and productivity in the agriculture and

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livestock industries. The analysis of nucleic acids is also becoming
increasingly important for industrial applications such as the testing of food,
water and air.

The methods of analysis in the field of genomics generally fall into one of
three major categories:

- DNA Sequencing. DNA sequencing is the process of determining the linear
order of nucleotide bases in a DNA fragment.

- Genotyping. Genotyping refers to the identification of common variations
in a sequence of DNA within a particular genome.

- Gene Expression Analysis. Gene expression analysis involves measuring the
expression of one or more genes in a specific cell or tissue.

Researchers today are utilizing all of these genomic analysis methods to
understand genes, their function and genetic variability.

DNA SEQUENCING

DNA sequencing is the process of determining the linear order of nucleotide
bases in a strand of DNA and is performed with a laboratory instrument called a
DNA sequencer. DNA sequencers use a technique known as electrophoresis, which
uses an electric current to separate DNA molecules by size. This technique is
also known as electrophoretic separation. In a DNA sequencer, the electric
current causes smaller DNA molecules to move rapidly and larger DNA molecules to
move more slowly. This enables the separation and ordering of complex mixtures
of DNA molecules according to size, and thus allows the identification of the
order of nucleotide bases.

Prior to beginning the DNA sequencing process, researchers must prepare the
DNA samples. Preparation of a DNA sample for analysis includes manual and
time-consuming laboratory processes such as centrifugation, filtration,
measuring, mixing and dispensing. We believe that sample preparation currently
represents a major component of the time, labor and cost in sequencing. In
addition, the manual nature of these steps renders sample preparation prone to
human error, which can compromise the quality of information obtained from the
sample. We believe that integration and automation of these complex steps in a
miniaturized format would significantly reduce the costs of sample preparation
and improve data quality.

After sample preparation, researchers analyze samples using one of the two
leading types of DNA sequencers: gel-based sequencers and capillary array
sequencers.

Gel-Based Sequencers. Until recently, all DNA sequencers used thin gels
layered between two glass plates for performing electrophoresis. The throughput
of a DNA sequencer is the number of DNA samples processed by the sequencer in a
given amount of time. Throughput is determined by the time required for the
electrophoretic separation and the number of DNA samples processed at one time.
With early-generation DNA sequencers, the electrophoresis separation required 12
hours or longer and was limited to only 24 samples at a time. Advanced
generations of gel-based sequencers have reduced this separation time to
approximately four hours and have allowed up to 96 samples to be processed at
one time. While the throughput has increased with successive generations of
gel-based sequencers, a significant amount of labor is still required to operate
a gel-based sequencer. The labor involved in gel-based sequencers includes the
time consuming tasks of preparing a new gel for each separation, loading each
DNA sample onto the gel and cleaning the system after each separation.

Capillary Array Sequencers. In recent years, a number of companies have
introduced a new generation of DNA sequencers, based on capillary
electrophoresis. With capillary

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electrophoresis, each DNA sample is separated within a capillary, which is a
small glass tube with the diameter of a human hair. In capillary array
sequencers, up to 100 capillaries are bundled together to process many DNA
samples simultaneously. Capillary array sequencers automate many of the
labor-intensive steps in gel electrophoresis and provide significant
improvements in operational efficiency. The time required for electrophoresis in
a capillary array sequencer, however, is similar to that of current gel-based
sequencers.

We believe that advances in the performance of DNA sequencers have helped
to rapidly expand the market for sequence information. In particular, the
throughput of DNA sequencers has increased significantly over the last decade.
This increase in throughput, along with improved automation, has substantially
reduced the cost per unit of information obtained from DNA sequencers. These
advances have enabled researchers to undertake large-scale sequencing projects
that otherwise may not have been pursued. These include numerous projects
underway to sequence entire genomes, including the human genome and various
microbial, plant and animal genomes.

Despite these advances in DNA sequencing technology, further improvements
are required. Sequencing all of the DNA in a complex genome is a massive
undertaking and, despite recent increases in throughput, requires up to hundreds
of sequencers running in parallel for months or even years. In addition, the
initial sequence of a genome typically contains errors which then require
additional sequencing to correct. To characterize the genetic diversity of an
organism, researchers will need to sequence the genomes of many individuals and
compare these sequences to identify differences. We also believe that
researchers will want to sequence the genomes of more organisms as the cost of
sequencing decreases. In summary, we believe that the demand for DNA sequencing
will continue to grow.

GENOTYPING

Genotyping is the process of analyzing locations within a genome where
variations in a gene sequence, or genetic polymorphisms, are known to exist.
Genetic polymorphisms play a role in an individual's susceptibility to disease
and response to drugs. One type of polymorphism is a single nucleotide base
variation, commonly referred to as a single nucleotide polymorphism, or SNP.
Other types of variations involve changes in the length of simple repeating
sequences and insertions or deletions of one or more bases at a particular
location.

SNPs are the most common type of genetic variation. There are an estimated
three to ten million SNPs in the human genome. While only a small fraction of
human SNPs have been identified to date, we expect this number to increase
dramatically during the next few years. For example, the SNP Consortium is a
group of drug companies and public entities who are working together to discover
300,000 SNPs and contribute their findings to public databases. Numerous other
individual companies have initiated programs to identify large numbers of human
SNPs.

As more and more SNPs are identified, a new market is emerging for high
throughput SNP genotyping. The simple identification of a SNP does not indicate
whether or how it may relate to human health. To relate SNPs to disease or drug
response, SNPs must be measured, or typed, in hundreds or thousands of people
and correlated with clinical data describing the physical or mental health of
those individuals. The emerging SNP genotyping market includes at least two
segments:

- Disease Association Studies. Disease association studies involve
measuring specific sets of SNPs in healthy and diseased individuals to
identify SNPs as markers for disease susceptibility and resistance. These
studies could help researchers identify individuals who are at risk for
such diseases as cardiovascular disease, hypertension, diabetes and
cancer, and accelerate the discovery of new pharmaceuticals for these
diseases. A single

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association study may involve typing up to 100,000 or more SNPs in
thousands of individuals, requiring hundreds of millions of measurements.

- Pharmacogenomics. Pharmacogenomics is the study of how individual genetic
makeup influences drug response. The benefits of this knowledge include
the potential for streamlining clinical trials by targeting a candidate
drug to a specific responsive genotype, reducing both the cost and time
of drug development. An additional benefit is the potential for tailoring
drug prescriptions by genetic profile to maximize efficacy and minimize
toxic side effects. Similar to disease association studies, a single
clinical trial may require typing up to 100,000 or more SNPs in thousands
of individuals.

Existing genotyping technologies do not provide the throughput, automation
or economy needed for high throughput SNP analysis. Currently, the two leading
techniques for SNP analysis are hybridization microarrays and enzyme detection
methods.

- Hybridization Microarrays. Hybridization microarrays are flat chips which
have different DNA fragments, or probes, located in known positions on
the chip surface. Microarrays allow many SNPs to be measured at the same
time on one DNA sample. This process of measuring multiple SNPs on one
sample is called multiplexing. Researchers can only analyze one DNA
sample on each microarray. Thus, microarrays offer a high degree of
multiplexing but provide low sample throughput.

- Enzyme Detection. Enzyme detection methods involve mixing a DNA sample
with a specific enzyme and a DNA fragment of known sequence called a
probe. There is one probe specific for each SNP to be typed, and a signal
generated during this reaction indicates the presence of a particular
SNP. Researchers can perform these measurements in parallel using the
current standard, microwell plates. Microwell plates are rectangular
plastic plates which are roughly the size of a human hand and contain a
number of small wells, each of which functions as a test tube. One
advantage of this approach is that researchers can analyze different DNA
samples in parallel on the same microwell plate. It is usually possible,
however, to measure only a single SNP in each well. Thus, the overall
throughput of enzyme methods is relatively low.

Neither microarrays nor enzyme methods are ideal for high throughput SNP
genotyping, where researchers need both high sample throughput and multiplexing
capability, or the ability to measure multiple SNPs for each sample. We believe
that new technologies are needed to meet the growing needs of this emerging
market segment.

GENE EXPRESSION ANALYSIS

Gene expression analysis involves measuring the extent to which specific
genes are expressed within a cell. A primary application of this process is
differential gene expression analysis, where researchers compare the genes
expressed in healthy and diseased samples to identify specific genes involved in
a particular disease process. Another common application involves measuring a
change in expression of certain genes when researchers add drug candidates to
cells. As researchers identify more genes from the genome sequencing projects,
we expect the market for expression analysis technologies to grow significantly.

The current leading technologies for gene expression analysis are the same
as those previously described for genotyping. Researchers can use hybridization
microarrays to monitor thousands of genes at the same time, but this approach is
only feasible for relatively small numbers of samples, because only one DNA
sample can be analyzed per individual microarray. Conversely, researchers can
apply enzyme detection methods to large sample sets, but with that approach may
measure only a single gene in each well of a microwell plate. We believe neither
of these approaches is suitable for measuring large numbers of genes over large

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numbers of DNA samples, as the testing of pharmaceutical drug candidates
requires. We believe that a technology that could provide this capability would
find rapid acceptance in the marketplace.

PHARMACEUTICAL DRUG SCREENING

The genomics revolution is providing pharmaceutical researchers with a
dramatic increase in the number of potential drug targets. A drug target is a
molecule, usually a protein, which plays a role in a disease process and which
researchers believe is a target for intervening in the disease process. In their
search for new drugs, pharmaceutical researchers test many chemical compounds to
determine whether they interact with drug targets. These researchers typically
have large collections of chemical compounds to test against potential drug
targets. In addition, in recent years pharmaceutical researchers have been
vastly expanding the size of compound collections they use to screen against new
drug targets. As a result, researchers require new laboratory technologies
capable of screening increasingly large compound collections against an
increasing number of drug targets in a cost-effective, automated and rapid
manner. The market segments related to pharmaceutical drug screening are:

- Assay Development. During the process of assay development, researchers
develop methods for measuring the interaction of chemical compounds with
specific drug targets.

- Primary Screening. Primary screening involves testing entire compound
collections against a drug target to identify "hits," or those compounds
which exhibit activity against a drug target.

- Secondary Screening. Secondary screening includes performing follow-up
testing to validate hits identified in primary screening and further
characterize their feasibility as a drug.

ASSAY DEVELOPMENT

To screen a compound collection against a new drug target, a researcher
must develop a test, or assay, for measuring whether particular chemical
compounds in the library interact with the drug target in a certain manner. The
type of assay selected depends on the drug target under investigation and the
type of information being sought. Researchers design some assays to measure
whether and how tightly a compound binds to a drug target, such as the binding
of a drug to a protein. Other assays are designed to measure whether and to what
degree a compound reduces the biological activity of a drug target, such as the
activity of an enzyme. In other cases, researchers test compound collections
against living cells and measure a particular cellular response, such as a
change in expression level of one or more genes.

Current assay development methods are time consuming, taking from weeks to
months, and are labor intensive, largely due to the need to measure a particular
molecule within a mixture of many different components. In addition, current
technologies for performing assays provide only a fraction of the information
needed for selecting potential drug candidates. For example, existing
technologies only allow researchers to measure a single gene at one time for the
purposes of monitoring gene expression. Existing detection methods also
typically require preparation of reagents in a highly purified form, which
requires additional time and labor.

PRIMARY SCREENING

Primary screening involves performing an identical test on each compound in
a large collection to identify hits. Based on the size of most compound
collections today, primary screening can involve hundreds of thousands of
individual measurements against a single drug

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target. The time, expense and labor required to conduct a primary screen
currently limits the number of screens that pharmaceutical researchers perform,
and thereby limits their opportunities for discovering new drugs.

A major element of cost in primary screening comes from the amount of
chemical and biochemical reagents, including the drug target, required to
perform large numbers of assays. The amount of reagents required is related to
the total number of measurements and the volume of each measurement. Because of
the high cost and the limited availability of many reagents, researchers have
attempted to reduce the total consumption of reagents by reducing the volume of
each measurement from hundreds of microliters down to three to five microliters.
A microliter is one millionth of a liter. The success of these efforts, however,
has been limited by the effects of evaporation on small sample volumes, the
sensitivity of existing detection methods and the difficulty of delivering small
volumes of reagents to microwell plates with speed and precision. For example, a
volume of one microliter can evaporate from an open well in a few minutes, and
even a small amount of evaporation reduces the reliability and precision of a
measurement. Furthermore, the detection capability of many assay methods becomes
less sensitive as the test volume is reduced. Researchers can improve
sensitivity by increasing the concentration of reagents. This conflicts,
however, with the objective of reducing reagent consumption. Due to these
difficulties in reducing assay volumes, we believe that researchers still
perform most assays in primary screening in volumes ranging from tens to
hundreds of microliters. We believe that a reduction in assay volumes would
allow researchers to investigate more drug targets and perform primary screens
using larger compound collections.

SECONDARY SCREENING

Secondary screening involves performing a variety of measurements on each
hit identified in a primary screen. While the number of compounds under
investigation is smaller than in primary screening, the number and diversity of
measurements performed on each compound is much larger. The purpose of these
measurements is to verify and further characterize the biological activity of
each hit. For example, researchers may test each hit against the drug target at
different concentrations to determine its potency. Also, each hit may be tested
against multiple enzymes to identify activity against any of these enzymes.
Current technologies typically measure only a single data point at a time, such
as the activity of one compound on a particular enzyme, limiting the efficiency
and economy of secondary screening, as well as the efficiency of overall
pharmaceutical research.

THE ACLARA SOLUTION

We are developing a family of products for genomics and pharmaceutical drug
screening based on our advanced, lab-on-a-chip technology. We believe that our
designs for microfluidic chips will enable researchers to perform chemical and
biological measurements rapidly in a miniaturized, automated format. Our
approach employs chips produced from plastic materials, in which electric
current is used to move liquids through interconnected channels on the chip
surface. Our microfluidics technology enables the accurate measurement,
dispensing and mixing of volumes many times smaller than what researchers
commonly use. In this manner, we can precisely manipulate a variety of fluids,
including those that contain whole cells, cell fragments or magnetizable
particles, using computerized controls with no moving parts or valves. As a
result, we believe researchers can perform large, complicated experiments faster
and with greater accuracy than with existing systems, and at a reduced cost.

We enhance the power of our microfluidic chips with proprietary reagents,
chemicals which are added to a sample to perform a measurement. We believe the
combination of our chips and proprietary reagents will provide more information
content per measurement, at a higher quality,

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than currently available technology. We expect that researchers will use our
chips and reagents in combination with instruments that we co-develop with our
partners. These instruments apply reagents and samples to the chips, control the
fluid flow within the chips, make optical measurements during an experiment and
utilize specialized software to collect data. For high throughput applications,
we are designing chips with multiple networks of microchannels in order to
analyze many samples in parallel. We intend to commercially introduce our
initial microfluidic product, the Oasis LabCard chip, in late 2000.

We believe that we are the only microfluidics company with access to the
wide range of technology and intellectual property needed to address multiple
segments of the genomics market, including DNA sequencing, genotyping and gene
expression analysis. Our technology integrates capillary electrophoresis, a high
performance analytical technique, with microfluidic technology in either plastic
or glass chips. We have developed chips that are capable of analyzing many
samples simultaneously, commonly referred to as parallel processing. We are
initially focusing on market opportunities where parallel processing is a major
advantage. These opportunities include high throughput DNA sequencing and high
throughput screening of pharmaceutical drug candidates. We believe that these
applications offer the potential for generating recurring revenues from
microfluidic LabCard chips and reagents.

KEY BENEFITS OF OUR PRODUCTS

- Greater Flexibility in Chip Design and Use. We produce most of our chips
using plastic materials and proprietary manufacturing processes. While we
are able to produce our chips in glass when desirable, we believe that
our plastic chips offer substantial technical, commercial and customer
advantages over glass chips in most applications. For example, we can
make our chips with a broader range of functionality, size, thickness and
format than we believe is possible with glass chips. This design
flexibility provides us with significant latitude in developing chips for
different applications and performance levels. In addition, we believe
that we will be able to manufacture our plastic chips at a significantly
lower cost than possible with glass chips. We expect to provide our chips
as single-use disposables in most applications. When a chip is used only
one time, there is no possibility of carryover of sample or reagents from
one measurement to the next. We believe that this avoidance of carryover
will be a significant advantage of our single-use chips over multi-use
glass chips in applications such as pharmaceutical drug screening.

- Higher Throughput and Avoidance of Cross-Contamination. We have designed
chips called microfluidic array chips, that contain multiple fluidic
networks arranged in a grid or array format. Each fluidic network
performs a measurement on a different sample simultaneously. This
capability, known as parallel processing, provides two major advantages.
The first advantage is higher sample throughput, which results from
performing measurements on many samples at the same time. We believe that
the higher throughput provided by our chips will be a significant benefit
in applications such as DNA sequencing and SNP detection. The second
advantage is that each measurement is performed in a separate fluidic
network, thereby avoiding the potential for cross-contamination of
different reactions on the same chip. We believe that avoiding cross-
contamination will be a key benefit of our chips in applications such as
pharmaceutical drug screening.

- Greater Information Content. In many applications, our LabCard chips and
proprietary reagents enable researchers to perform high content
measurements, allowing them to obtain more information from each
measurement than is currently possible with microwell plates. For
example, we can detect many different SNPs or genes in a single reaction,
whereas microwell plates typically allow the detection of only a single
SNP or gene in each reaction. Our microfluidic array chips integrate
these high content measurements

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with parallel processing, thereby providing an enhanced combination of
high throughput and multiplexing in applications such as gene expression
analysis and SNP detection.

- Faster Analysis. Our LabCard chips allow researchers to perform most
measurements faster than with conventional instrument systems. For
example, we can determine the sequence of a DNA strand in less than 20
minutes on our LabCard chips. A similar experiment often requires over
two hours on a capillary array DNA sequencer. In some applications, our
chips allow researchers to perform measurements 100 times faster than
with conventional systems. We can separate a mixture of DNA fragments in
a genotyping application in less than one minute, for example, compared
to two hours on a conventional instrument.

- Increased Efficiency and Higher Data Quality. Most laboratory analyses
involve a number of instruments and require the movement of fluids and
reaction components from one instrument to the next. The integrated
fluidic circuitry of our chips allows researchers to perform multiple
experimental operations in sequence on a chip. This fluidic
microcircuitry is made up of interconnected microchannels, through which
fluids and other materials are pumped using electric current, monitored
and controlled by computer. By reducing the number of human intervention
points, our LabCard chips reduce the potential for variability and error
and increase the data quality. For example, we are designing microfluidic
chips to miniaturize and integrate the multiple sample preparation steps
required prior to DNA sequencing.

- Reduced Reagent Cost. Because our chips perform measurements on very
small volumes of material, smaller amounts of sample and reagents are
consumed. For example, many of our products are designed to allow
measurements in as small as one-thousandth the volume typically used in a
microwell plate.

OUR STRATEGY

We believe that we are the only microfluidics company currently having
access to the wide range of technology and intellectual property required to
develop microfluidic systems for major segments of the genomics market. We have
obtained this access by combining our proprietary technology with that of our
strategic partners, in particular, PE Biosystems. Our objective is to be the
leading provider of microfluidic chips to large, fast-growing market segments.
Key elements of our strategy include:

- Targeting Our Products Toward High Throughput, High Value
Applications. We have targeted our products to applications that involve
large numbers of tests and where the information sought is of high value
to customers. These applications include DNA sequencing, genotyping, gene
expression analysis and pharmaceutical drug screening.

- Partnering With Industry Leaders For Instrument Development,
Manufacturing and Commercialization. We intend to leverage the
instrumentation, software and chemistry expertise of our partners, such
as PE Biosystems and Packard BioScience Company, to accelerate the
development of integrated, microfluidics-based systems. We also plan to
use the marketing, sales and distribution strengths of our partners to
successfully commercialize our products. We plan to focus on our core
capabilities, including the development and manufacture of plastic
LabCard chips and related assay technology. We believe that strategic
relationships with partners who have strong existing market positions and
development track records will speed product adoption, maintain high
barriers to entry and reduce our research and development risk and
capital outlay.

- Leveraging Our Intellectual Property With That of Our Partners. As of
December 31, 1999, we had 15 issued U.S. patents, 36 U.S. patent
applications and a total of 76 patents and

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patent applications owned or licensed. These patents and applications
cover patents and applications worldwide that relate to our core
microfluidics technology, genetic analysis and biochemical assay methods,
instrument system design, chip-to-system interface and plastic-based
LabCard chip technology. In addition, some of the primary applications
for lab-on-a-chip technology require access to intellectual property
owned by other companies. For example, PE Biosystems controls a
significant amount of intellectual property related to DNA sequencing and
other genomics applications. Our partnership with PE Biosystems enables
us to develop products for these applications that benefit from the
combined intellectual property of the two companies.

- Generating Recurring, High Margin Revenue. We intend to sell our chips
through our partners, often as part of a dedicated instrument system, and
to generate substantial recurring revenue from the sales of LabCard chips
and reagents. In most applications for our products, including
pharmaceutical drug screening, we are developing single-use disposable
LabCard chips. We have made significant investments in developing cost-
effective processes for the manufacture of plastic LabCard chips in order
to increase our potential margins. Finally, we also expect to receive
royalties on the sale of instruments by our partners.

- Enhancing the Value of LabCard Systems by Integrating Proprietary
Reagents. We intend to enhance the value and market position of our
LabCard products with proprietary reagents and analysis methods developed
by us and by our strategic partners. We believe that our novel reagents
and analysis methods enhance the benefits of lab-on-a-chip technology in
many applications. In addition, our researchers have demonstrated that we
can dehydrate reagents on the LabCard chips and subsequently reconstitute
them without loss of efficacy, potentially enabling the sale of chips
pre-loaded with reagents. We believe this total solution approach,
combining high value reagents with LabCard chips and co-developed
instrument systems, will provide additional benefits to customers and
result in greater revenue for us.

OUR TECHNOLOGY

We pioneered the technology for using electric currents to move liquids
through interconnected channels on chips. These liquids may contain various
materials, including chemical reagents, whole cells, cell fragments or
magnetizable particles that researchers manipulate using computerized control
with no moving parts or valves. We believe we are a leading developer of plastic
chips for lab-on-a-chip applications, and we have developed several processes
for producing these plastic chips. The primary elements of our technology
platform are described below.

MICROFLUIDICS

In a patent application filed in February 1990, one of our co-founders
disclosed the fundamental invention of moving fluids through interconnected
channels on chips using electric currents. This original microfluidics patent
application resulted in a series of issued and pending patent applications, all
of which are assigned to us.

We discovered that using electric currents to move fluids through small
channels provides improved precision, greater flexibility and more functionality
than other more common approaches, such as pressure. By applying electric
currents along channels, we generate two types of flow: electrophoresis and
electro-osmosis. Electrophoresis is the movement of charged molecules through
the bulk fluid in the channels. Electro-osmosis results in the movement of the
bulk fluid itself. Thus, electro-osmosis can act as an electronic pump for
moving all of the fluid

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in a channel. The direction and speed of the flow is determined by the nature of
the channel material, the bulk fluid and the magnitude and direction of the
electric field.

We have developed chip designs for performing numerous operations using our
proprietary technology for moving fluids through channels with electric
currents. These operations include, at microscopic dimensions, mixing different
fluids, measuring and dispensing small amounts of a particular fluid into a
channel and separating mixtures of different molecules, such as DNA molecules,
into separate fractions. We have also developed chip designs for integrating
many of these individual operations together in a microfluidic circuit.

We can manipulate extremely small volumes of liquid with high precision
using our microfluidic technology. For example, we can measure and dispense less
than a nanoliter, or one-billionth of a liter, with better than 99% precision.
We have performed biochemical assays, such as enzyme reactions, in nanoliter
volumes with no loss in performance or reproducibility compared to assays
performed in test tubes. We can separate mixtures of different molecules into
individual components up to 1,000 times faster than with conventional
electrophoresis systems, without any loss in performance.

MICROFLUIDIC ARRAYS

We have designed chips that contain multiple fluidic networks, where the
networks are arranged in a grid, or array, format. Each network in an array
performs a measurement on a different sample. In this way, we can perform
measurements on many samples at the same time. In addition, our arrays keep each
sample separated from the other samples, thereby avoiding cross-contamination.

We have developed a variety of microfluidic array designs. These designs
involve variations in the density of fluidic networks in the array, as well as
the functionality and specific layout of channels in each network. This
flexibility allows us to design LabCard products for different applications and
throughput requirements. For our initial products, we expect a single chip, or
microfluidic array, to contain 16 to 96 fluidic networks. We are designing chips
with higher densities of fluidic networks for later generation products. The
physical dimensions of our chips vary and are designed to optimize the
integration of a particular chip with its corresponding instrument. Many of our
chips are similar in size to microwell plates, which we believe will accelerate
their adoption in the marketplace since many existing laboratory processes are
standardized around microwell plates.

We expect our initial products to use two-dimensional arrays, in which all
of the fluidic networks are on one surface. We are also developing
three-dimensional microfluidic arrays, where multiple two-dimensional arrays are
layered together, with fluid connections between the layers. We expect that
these multilayered, three-dimensional arrays will enable us to further increase
the number and complexity of operations that we perform on a single chip.

ADVANCED MATERIALS AND CHIP FABRICATION TECHNOLOGY

We have developed a substantial base of proprietary technology and
expertise for making microfluidic chips in plastic materials. This proprietary
technology base includes the specific plastic materials used in our chips,
processes we use to make our chips, and processes we use to engineer the surface
properties of our chips. While we are able to produce our chips in glass when
desirable, in most situations we believe that our plastic chips provide
significant technical and commercial advantages over glass chips. For example,
we can make our plastic chips in a broader range of sizes and thicknesses than
possible with glass chips. We can also make our chips in long rolls of flexible
film, which is not possible with glass chips. We believe that the design
flexibility afforded by our plastic chips enables us to better address the needs
of

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different applications than would be possible with glass chips. In addition, we
believe that we will be able to commercially produce our plastic chips at a
significantly lower unit cost than would be possible with glass chips.

In many applications, our plastic chips will be provided as single-use
disposables. This single-use feature will avoid the potential for carryover,
which can occur when the same well or chamber is re-used from one assay to the
next. We believe that the ability of researchers to avoid carryover using our
single-use chips will be important in applications such as pharmaceutical drug
screening.

We have adapted manufacturing techniques from the CD-ROM industry and
further developed these methods for making plastic microfluidic chips. The first
step in making a plastic chip is generating a master mold. One side of this mold
has a surface that contains a pattern of interconnected ridges. The next step,
called replication, involves imprinting the pattern of interconnected ridges
into a plastic sheet, forming a corresponding pattern of interconnected
channels. A single mold can be used to replicate the same channel pattern into
plastic thousands of times, with no deviation from the original chip. A cover
sheet is then bonded, or laminated, on top of the base sheet containing the
channels. This method of production is highly precise and cost effective.

We are also developing a proprietary, continuous reel process for making
plastic chips, which we expect will further reduce costs as our production
volumes grow. In this process, the master surface containing the pattern of
ridges is a thin, flexible sheet of metal that is wrapped around a circular
drum. We then roll a continuous sheet of plastic across this drum to replicate
the channel patterns onto the moving plastic sheet. The continuous sheet can
then be cut into individual chips or used as a continuous roll.

CHEMISTRY AND APPLICATIONS

We believe that we are a leader in developing and demonstrating biological
experiments on plastic microfluidic chips. We have miniaturized and integrated a
wide variety of experiments on our plastic chips, including DNA sequencing, SNP
detection, gene expression analysis, enzyme activity measurements and
immunoassays. We believe that this experience provides us with a significant
competitive advantage that will enable us to rapidly implement new assays on our
plastic chips. We have discovered specific technological approaches for
enhancing the performance of assays on plastic chips, and we have applied for
patent protection on many of these approaches. We believe that our experience
and lead in implementing biological experiments on plastic chips provides us
with a significant competitive advantage.

In addition to using existing reagents with our chips, we have developed
several proprietary reagents and methods designed to expand the capability and
breadth of our LabCard systems. These include proprietary reagents for
monitoring the activity of various enzymes. These reagents enable us to perform
a wide variety of different enzyme assays on our LabCard systems for
pharmaceutical drug screening. We have also developed a series of reagents
called eTAGs, for identifying the presence and quantity of multiple sequences in
a sample simultaneously. We have also developed proprietary reagents for DNA
sample processing, which allow the simultaneous processing of multiple samples.

For some applications, we may pre-load reagents onto our chips prior to
shipment. We have developed technology for pre-loading, drying and sealing
measured amounts of reagents on our chips. We have demonstrated this capability
with biologically active reagents, such as enzymes, and have shown that
bioactivity is retained when the reagent is used in a final measurement. We
believe that this capability will enable us to provide ready-to-use LabCard
chips in these applications.

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LABCARD PRODUCTS

We believe we are the only microfluidics company that has access to the
wide range of technology and intellectual property to address multiple segments
of the genomics market, including DNA sequencing, genotyping and gene expression
analysis. We are developing a family of LabCard microfluidic products based on
our proprietary designs and assays and are collaborating with our strategic
partners to design instruments to run our LabCard chips. We expect that these
LabCard systems will enable large-scale genomics studies to be performed faster,
at lower cost and with less manual labor than current technologies. We are
currently working with PE Biosystems to jointly develop LabCard systems for DNA
sequencing, gene expression analysis and genotyping. PE Biosystems will be
responsible for marketing and distributing these LabCard systems.

We also are developing LabCard systems for use in pharmaceutical drug
screening. We are collaborating with PE Biosystems on the development of two
systems for pharmaceutical drug screening, the nMAS HTS and UHTS systems, which
will utilize our LabCard microfluidic array chips. PE Biosystems will be
responsible for commercializing these systems. We expect that these LabCard
systems will allow researchers to identify new drug candidates more rapidly and
at lower cost than with currently available products.

We intend to focus our development efforts on our chips and reagents, while
capitalizing on our partners' strengths for the development and manufacture of
instruments. In addition, our partners will market, sell and distribute the
LabCard systems, including the instruments, LabCard chips, reagents and
software. The following table identifies products we are currently developing
for the genomic analysis and pharmaceutical drug screening markets.

<TABLE>
<CAPTION>
PRODUCT APPLICATION MARKETING RIGHTS
------- ----------- ----------------
<S> <C> <C>
GeneMate SNP detection and gene expression PE Biosystems
Microsequencer DNA sequencing PE Biosystems
Sample Prep Automated preparation of samples for DNA sequencing PE Biosystems
Oasis Nanovolume, homogeneous assays Packard
BioScience
UHTS Pharmaceutical drug screening -- PE Biosystems
100,000 measurements per day
nMAS HTS Pharmaceutical drug screening -- PE Biosystems
20,000 measurements per day
</TABLE>

GENEMATE SYSTEM

We are co-developing with PE Biosystems a LabCard system known as the
GeneMate system, to be used for high throughput gene expression analysis and SNP
detection. The GeneMate system consists of an instrument, microfluidic array
chips and proprietary reagents, including reagents contributed by us and by PE
Biosystems. We expect to use our eTags reagents and the Invader chemistry which
PE Biosystems is obtaining through its pending acquisition of Third Wave
Technologies. We expect to use these proprietary reagents to conduct an enzyme
reaction on each sample, which will generate specific signal molecules for each
SNP or gene present in the sample. The signal molecules from each reaction will
be analyzed on the array chips. The GeneMate system will process multiple
samples in parallel on each microfluidic array chip.

We are designing the GeneMate system to analyze multiple genes or SNPs on
many samples in parallel. We believe there is a large unmet need for a system
that combines high sample throughput with the ability to detect multiple genes
or SNPs in each sample. Current technologies, based on enzyme methods or
hybridization microarrays, do not provide this

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multiplexing capability. Enzyme detection methods allow only a single SNP or
gene to be measured in each well of a microwell plate. Hybridization microarrays
allow many SNPs or genes to be measured at once, but only for a single sample.
We expect the GeneMate system to include the following key features and
benefits:

- high sample throughput;

- identification of multiple SNPs or genes per sample; and

- proprietary reagents.

We currently expect to begin commercialization of the GeneMate system in
2001.

MICROSEQUENCER SYSTEM

We are developing a LabCard system for DNA sequencing, called the
Microsequencer system, in collaboration with PE Biosystems. The Microsequencer
system will include an instrument, microfluidic chips, software and proprietary
reagents. PE Biosystems will develop the instrument and will be responsible for
worldwide marketing, sales and distribution of the Microsequencer system,
including our LabCard chips.

We are designing the Microsequencer system to provide major performance
advantages over current DNA sequencers, particularly in terms of speed and
throughput. For example, our prototype LabCard chips can enable the sequencing
of a DNA fragment in 20 minutes. This typically requires over two hours using a
conventional capillary array system. PE Biosystems introduced the first
automated DNA sequencer in 1987 and has introduced successive generation
sequencers approximately every three years. Typically, each next generation
system has provided approximately a five-fold increase in throughput compared to
its predecessor and has been met with rapid market acceptance. We believe that
the Microsequencer system will provide a throughput increase over current DNA
sequencers that is comparable to this historical standard. Large scale
sequencing projects require hundreds of DNA sequencers running in parallel for
months or even years. We expect that the enhanced throughput of our
Microsequencer system will significantly reduce the cost and shorten the time of
these projects and enable more large scale projects to be undertaken.

PE Biosystems will commercialize the Microsequencer system. Since
introducing the first automated DNA sequencer in 1987, PE Biosystems has
maintained a significant share of the market for DNA sequencing systems. In
addition to this market leadership, PE Biosystems owns or controls a broad
portfolio of intellectual property and technologies related to DNA sequencing
including reagents, labeling dyes, detection systems and data analysis software.
PE Biosystems will offer proprietary reagent kits and software as part of the
Microsequencer system. We currently expect to begin the commercialization of the
Microsequencer system in 2001.

DNA SAMPLE PREPARATION SYSTEM

We are co-developing with PE Biosystems a LabCard system designed to
integrate and automate multiple steps required for preparing DNA samples prior
to analysis on the Microsequencer system. Sample processing currently involves a
series of discrete operations which researchers perform on disparate instrument
systems, such as centrifuges and thermocyclers. In addition to requiring
multiple instruments, sample processing currently requires a relatively large
volume of sample and reagents, is labor intensive and is prone to

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human errors. We plan to integrate multiple steps in the sample preparation
process onto a single LabCard chip, offering the following benefits:

- up to 1,000-fold reduction in sample and reagent volumes;

- reduction in the number of user steps;

- collapsing the capability of multiple instruments into a single LabCard
system; and

- fewer errors and improved data quality.

OASIS LABCARD CHIPS

We are developing Oasis LabCard chips for small volume homogeneous assays
in both genomics and pharmaceutical drug screening applications. Our Oasis
LabCard chips will be similar in size and format to existing microwell plates.
However, we are designing the microfluidic channels in these Oasis chips to
enable researchers to conduct assays in volumes as small as one-thousandth the
volume allowed by current microwell plates. Oasis chips are the only products we
are developing that do not require the development and commercialization of a
specialized instrument. The large test volumes required by existing technologies
limit the economies of high throughput experimentation, and therefore the amount
of this experimentation which is performed today. We are designing Oasis chips
to enable researchers to miniaturize assays to a degree previously unattainable,
while leveraging their current generation of automation equipment and detection
instruments. We believe the key features and benefits of our Oasis chips will
be:

- miniaturization of assays to as small as one-thousandth the volume used
in current methods;

- compatibility with most existing homogeneous assay chemistries in use by
pharmaceutical and genomics researchers; and

- compatibility with existing robotic plate handling and detection
equipment.

We plan to commercialize our first Oasis LabCard chips in late 2000 through
our strategic collaboration with Packard BioScience.

PHARMACEUTICAL DRUG SCREENING -- NMAS HTS AND UHTS SYSTEMS

We are developing LabCard systems that address various stages of
pharmaceutical drug discovery, including assay development, primary screening
and secondary screening. We are currently developing two such systems in
collaboration with PE Biosystems. We are developing the nMAS HTS system to
provide throughput of approximately 20,000 assays per day, while we are
designing the UHTS system for the user who needs the higher throughput of
100,000 assays per day.

We expect that both the nMAS and UHTS systems will employ our single-use
plastic chips, thereby avoiding the potential for carryover from one assay to
the next. In addition, we are designing these chips using our microfluidic array
strategy, where each chip contains an array of fluidic networks and each
measurement is performed in a different fluidic network. Our microfluidic array
chip designs are intended to avoid the potential for cross-contamination from
different samples on the same chip.

Our nMAS and UHTS LabCard systems use capillary electrophoresis as the
detection method. Capillary electrophoresis integrated on microfluidic chips
represents a new and powerful detection method for screening chemical compounds
against drug targets, and

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provides numerous benefits over current detection methods. In current methods,
the detection system must identify a particular material within a mixture of
different materials. With capillary electrophoresis detection, we physically
separate the various components present in an assay mixture and then measure the
signal from these individual components. The separation step generally adds only
a few seconds to the detection time. We expect the benefits of integrated
capillary electrophoresis detection to include:

- ability to monitor the particular material in a reaction free from
interfering materials, resulting in increased assay reliability and
sensitivity;

- simplification of assay development and fewer requirements for custom
synthesis and purification of reagent; and

- ability to obtain information on other components in the assay mixture,
which is not generally possible with other detection methods, thereby
improving precision and information content.

Based on our experience, we expect that integrated capillary
electrophoresis detection may reduce the time required to develop assays for
many new targets by weeks or months. In addition, we expect that the reduced
need for preparing and purifying specialized reagents can eliminate significant
labor and cost from the assay development process. In primary screening, we
expect integrated capillary electrophoresis detection to enable increased
measurement precision and reliability. In secondary screening, we expect to
enable tests yielding greater information content than that provided by current
methods, thereby increasing the efficiency of this step in the drug screening
process.

Our LabCard systems for pharmaceutical drug screening will incorporate
reagents that are proprietary to PE Biosystems or to us. We expect these
reagents to allow the use of our LabCard systems for a wide variety of drug
targets. For example, we are developing reagents for many classes of protein
targets, including different enzymes and receptors. In addition, we are
developing assays for monitoring changes in gene expression within cells that
are induced by a chemical from a compound collection. We expect our reagents for
gene expression assays to allow monitoring of multiple genes in each assay, a
capability not readily allowed by current systems. We anticipate that the
reagents under development will provide our customers a broad menu of assays,
with greater or higher quality information than typically provided by currently
existing reagents and detection methods.

COLLABORATIONS

We have entered into collaboration agreements with PE Biosystems and
Packard BioScience, two of the market leaders in the life sciences industry. Our
objective with these agreements, as well as those we plan to execute with other
leading companies, is to increase demand for our product family and to speed the
commercialization of our various LabCard products. These collaborations will
allow us to focus on the development of our LabCard chips, reagents and analysis
methods. The collaborations also allow us to take advantage of the resources and
capabilities of our collaborative partners for the co-development, manufacture,
marketing, sales and distribution of instrument systems that will use our
LabCard chips. While we intend to retain manufacturing rights for our chips in
most cases, we plan to outsource the commercial manufacturing of our chips to
third party vendors. We believe this strategy may help to reduce the risks and
costs associated with commercializing our LabCard products while allowing us to
efficiently penetrate our target markets.

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STRATEGIC PARTNERSHIPS

We have and plan to continue to enter into strategic partnership agreements
with industry leaders in various fields or markets to jointly develop new
products and instrument systems. We typically seek strategic partners who have
expertise in instrument development as well as marketing, sales and distribution
capabilities.

PE Biosystems

We have entered into collaboration agreements with PE Biosystems for the
purpose of co-developing systems which use our LabCard products in the following
areas:

- genomics; and

- pharmaceutical drug screening.

GENOMICS. In April 1998, we entered into a collaboration agreement
with PE Biosystems to co-develop a DNA sequencer based on our microfluidics
technology. The Microsequencer system will incorporate our microfluidic
LabCard chips with instrumentation, software and reagents developed by PE
Biosystems. Under this agreement we granted PE Biosystems the exclusive
worldwide right to market, sell and distribute LabCard chips for jointly
developed systems. We will manufacture LabCard chips that PE Biosystems
will market, distribute and sell. We will receive a portion of the net
sales revenues for the LabCard chips sold. The agreement contemplates
future supplemental agreements providing additional terms for specific
genomic analysis products. The agreement is for an unspecified period and
may be terminated by our mutual written consent. In addition, either of us
may terminate the agreement if the other party does not fulfill its
obligations under the agreement or becomes insolvent.

We are in final stages of negotiations with PE Biosystems for a
supplemental agreement to develop the GeneMate system for gene expression
analysis and high throughput SNP detection. We expect that the general
terms of this relationship will be governed by the April 1998 agreement. We
anticipate that we will share profits on all LabCard chips sold by PE
Biosystems and also will receive royalty payments for GeneMate instruments
and reagents sold by PE Biosystems. The termination provisions for the
agreement are the same as set forth in the April 1998 agreement.

We are co-developing with PE Biosystems a LabCard system designed to
integrate and automate the steps required for preparing DNA samples prior
to analysis on the Microsequencer System. We have not yet finalized the
commercial terms for this joint product.

PHARMACEUTICAL DRUG SCREENING. In March 1999, we entered into a
collaboration agreement with PE Biosystems to jointly develop systems for
pharmaceutical drug screening employing our microfluidics technology.

We are developing two systems: the UHTS system, which we are designing
to perform 100,000 assays per day, and the nMAS HTS system, which we are
designing to perform at least 20,000 assays per day. We are targeting these
two systems to broadly address the needs of pharmaceutical companies in
their screening and evaluation of potential drugs, including assay
development, primary screening, secondary screening and lead optimization.
We are developing LabCard microfluidic array chips for the two systems, PE
Biosystems is developing the instrumentation, and the parties are jointly
responsible for developing reagents.

Under the agreement, PE Biosystems has the exclusive worldwide right
to market and distribute the LabCard products. We will be the exclusive
supplier of the microfluidic chips

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to PE Biosystems and will share with PE Biosystems the net revenue from the
LabCard products after recovery of manufacturing costs. We will also
receive a royalty on the sale of pharmaceutical drug screening instrument
systems designed to use the LabCards. The agreement contemplates that third
parties will support the development efforts through technology access
partnerships as described below. Unless terminated earlier, the agreement
remains in effect until the expiration of the last patent subject to the
agreement. As with our other collaboration agreement with PE Biosystems,
this agreement may be terminated upon mutual written consent or due to
breach or insolvency.

Packard BioScience Company

In February 2000, we entered into a collaboration agreement with Packard
BioScience Company for the commercialization of our Oasis LabCard chips. Under
the agreement, we will work together with Packard BioScience to optimize the
performance of our Oasis LabCard chips in combination with automation and
detection equipment and with reagents manufactured by Packard BioScience.
Packard BioScience has the exclusive rights to market and distribute the Oasis
LabCard chips. We will be the exclusive supplier of Oasis LabCard chips to
Packard BioScience and will share in the net revenue from Packard BioScience's
sales of Oasis LabCard chips and any instruments made specifically by Packard
BioScience to be used with Oasis LabCard chips. The agreement may be terminated
by either party, in its sole discretion and subject to penalties, upon 90 days
prior written notice. Unless terminated earlier, the agreement will remain in
effect until the expiration of the last patent subject to the agreement.

TECHNOLOGY ACCESS PARTNERSHIPS

We enter into technology access partnership programs with the objective of
receiving funding for research and development of new products in exchange for
early access to prototypes of those products. The first program, described
below, was designed for the development of the UHTS system. We are currently
negotiating with potential technology access partners for programs related to
the nMAS HTS system.

In February 1997, we entered into a technology access partnership agreement
with The R.W. Johnson Pharmaceutical Research Institute, or PRI, a subsidiary of
Johnson & Johnson, to develop a microfluidics system for high throughput drug
screening. We renegotiated the agreement with PRI to include PE Biosystems
effective as of October 1, 1998 as contemplated in our pharmaceutical drug
screening agreement with PE Biosystems. Under the partnership PRI provides
research funding that we share with PE Biosystems. We received $1.2 million
under the partnership in 1999. We are co-developing with PE Biosystems an
ultra-high throughput screening system using our LabCard products for PRI's use.
The agreement provides that PRI will receive exclusive early access to
prototypes of this UHTS system for a period of one year following delivery to
PRI. The partnership may be terminated by PRI if there is a breach by us or PE
Biosystems that is not cured within 30 days. In addition, PRI may terminate the
relationship if we fail to meet contractual milestones.

MARKETING, SALES AND DISTRIBUTION

In addition to our existing relationships with PE Biosystems and Packard
BioScience Company, we intend to identify and establish collaborative
development and commercialization relationships with strategic partners for
additional applications of our technology. We have no plans in the foreseeable
future to establish our own marketing, sales or distribution infrastructure. We
intend to seek premier partners that possess strong hardware and software
development expertise and manufacturing capabilities, as well as significant
intellectual property and commercial presence in their respective markets. We
believe this model will allow us to

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take advantage of our partners' experience and established customer
relationships, thereby enhancing the rapid market acceptance of our products,
while creating high barriers to entry for our competition and reducing the our
risks and working capital requirements.

RESEARCH AND DEVELOPMENT

We began developing our core technologies related to lab-on-a-chip products
in the early 1990s. We continue to advance our core technologies and to pursue
research and development related to new product opportunities. We are targeting
our primary research and development efforts at the following areas:

- LabCard Manufacturing Processes. We have solved many important
technological challenges relating to the manufacture of microfluidic
chips in plastic and have applied for patent protection on many of these
solutions. We continue to pursue advanced capabilities for manufacturing
LabCard microfluidic array chips in plastic, with the goals of lowering
manufacturing costs and adding new functionality to our LabCard products.
For example, we are developing a continuous reel process for LabCard chip
manufacturing. We are also developing multi-layered LabCard chips to
provide three-dimensional networks of channels, which would enable us to
perform more advanced fluidic protocols for a given size of LabCard
product.

- Nucleic Acid Sample Processing. In 1998, we were awarded a grant from the
Advanced Technology Program of the National Institutes of Standards and
Technology to develop LabCards systems for nucleic acid sample
processing. We are designing these LabCards systems to perform standard
processes, such as DNA amplification and purification, on many samples in
parallel and at small volume. We expect that our sample processing
LabCard systems will reduce the cost and increase the reliability of
sample preparation in nucleic acid analysis.

- Cell Microarrays. In October 1999, we entered into a collaboration with
Cellomics Inc., a company that develops novel products for cell analysis.
This collaboration is focused on the development of the CellChip
Cassette, a new format for cell analysis. Under this collaboration, we
are integrating our LabCard microfluidic array technology with Cellomics'
CellChip technology, in which living cells are placed at different spots,
called cell domains, on the surface of a flat chip. The goal of this
collaboration is to create an integrated CellChip Cassette in which the
fluid environment around each cell domain can be individually controlled.
This format would allow different experiments to be performed on each
cell domain in parallel. We believe that the initial commercial
opportunities for the CellChip Cassette will be in pharmaceutical drug
discovery, including primary and secondary screening.

- New Product Opportunities. We believe that the key factors and benefits
of our lab-on-a-chip technology, such as the ability to reduce reagent
consumption and integrate multiple analysis steps, can address important
needs in industries outside of life science research. We are evaluating
opportunities for applying our technology and products in such areas. For
example, because they enable the measuring of small amounts of
contaminants or pollutants, our technology and LabCard products have
potential applications in monitoring liquid and gaseous discharges in
chemical processing; detecting contaminants in water, soil or air for
environmental testing; and testing for contaminants in food processing.
The technology and LabCard products could also be used for performing
clinical diagnostics using smaller sample volumes than currently used in
clinical laboratories and potentially enabling better automation by
providing a number of the steps of the diagnostic assay, such as sample
preparation and separations, on a single chip.

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INTELLECTUAL PROPERTY

We seek patent protection on microfluidic chips, liquid transfer
components, reagents and methodologies for their use. As of December 31, 1999,
we had 15 issued U.S. patents, 36 U.S. patent applications and a total of 76
patents and patent applications that we own or have licensed. Our policy is to
file patent applications and to protect technology, inventions and improvements
to inventions that are commercially important to the development of our
business. These patents and applications relate to essential areas of our
technology, including among others, the following items:

- microfluidic devices, modifications for improved performance, and their
uses;

- manufacturing methods for producing the microfluidic devices;

- evaporation control technology;

- methodologies for sample preparation;

- fluid transfer devices for transferring microliter and sub-microliter
volumes;

- signal detection systems;

- methods for detecting single nucleotide polymorphisms, or SNPs; and

- electrophoretic gels.

Our issued patents have expiration dates from 2009 to 2017.

We also rely upon trade secrets, know-how, trademarks, copyright protection
and continuing technological 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 trade
secrets, trademarks and copyrights, to operate without infringing the
proprietary rights of others, to acquire licenses related to enabling technology
or products and to enforce our intellectual property portfolio.

Our practice is to require our employees, consultants, outside scientific
collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed by or made known to the individual during the course of
the individual's relationship with us is to be kept confidential and not
disclosed to third parties, subject to a right to publish certain information in
the scientific literature in certain circumstances and subject to other specific
exceptions. In the case of employees, the agreements provide that all inventions
conceived by the individual while employed by us will be our exclusive property.

MANUFACTURING

We have developed in-house processes for the rapid prototyping of our
LabCard chips. Collaborative efforts with our suppliers have allowed us to
develop scalable production processes for LabCard chip manufacturing. In order
to more rapidly develop production prototype LabCard chips and the processes to
manufacture them, we are in the process of building out internal pilot
manufacturing capability. While we intend to retain manufacturing rights for our
microfluidic array chips, we plan to transfer the process technology and
outsource commercial scale production to third party vendors. PE Biosystems has
agreed to provide the instrumentation, software and reagents for any products
commercialized under our agreements, including the Microsequencer system, the
GeneMate system and the pharmaceutical drug screening systems.

We will specify the raw materials to be used in the manufacture of our
LabCard products and currently expect that most of our LabCard products will be
manufactured from plastic materials. We do not currently depend on any single
supplier for the raw materials necessary

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<PAGE> 45

for the operation of our business, although we may become dependent on a single
supplier in the future.

COMPETITION

We believe that we are the leader in applying microfluidics technology to a
broad range of applications in genomics and pharmaceutical research. We are
aware that other companies, such as Orchid BioSciences and Caliper Technologies,
are developing and applying microfluidics technology to certain applications in
life science research. In addition, a number of established companies, such as
Amersham Pharmacia Biotech and Beckman-Coulter, provide technology and products
to the genomics and pharmaceutical research markets. We believe that the
principal competitive factors in our markets are product capability, product
reliability, customer service, supplier reputation and the sales and marketing
strength of the supplier.

The markets for life science research products are highly competitive. Many
of our potential competitors in these markets have substantially greater
financial, technical and personnel resources than we do. We cannot assure you
that they will not succeed in developing technologies and products that would
render our technologies and products or those of our collaborators obsolete and
noncompetitive.

EMPLOYEES

As of December 31, 1999, we had 60 employees, of which 48 are in research
and development including pilot manufacturing, and microfabrication, and 12 are
in administration and finance. Over half of our research and development staff
have Ph.D.s. None of our current employees are covered by collective bargaining
agreements, and we consider relations with our employees to be good.

FACILITIES

We lease approximately 44,000 square feet of office space in Mountain View,
California. Most of this space is currently devoted to research and development
activities and administration. We are subleasing part of this space for the next
six to 18 months, to cover costs while retaining room for expansion. Our lease
expires in July 2009.

LEGAL PROCEEDINGS

On May 12, 1998, the United States Patent and Trademark Office issued U.S.
Patent No. 5,750,015, entitled "Method and Device for Moving Molecules by the
Application of a Plurality of Electrical Fields." We are the assignee of record
of that patent, also called the '015 Patent. Caliper Technologies Corp.
manufactures, uses, offers to sell and/or sells microfluidic devices for genetic
analysis, drug screening and clinical diagnostics. On March 22, 1999, Caliper
filed an action in the Superior Court for the State of California, Santa Clara
County, alleging that the law firm of Flehr Hohbach Test Albritton & Herbert,
and Bertram Rowland (of counsel to Flehr Hohbach at the time, now our general
counsel), who were our patent counsel in 1994 and 1995, had used Caliper's trade
secrets in preparing our patent application that resulted in the '015 Patent.
Caliper's central allegation is that Rowland, while of counsel to Flehr Hohbach,
had performed work for Caliper shortly before the application was filed in early
1996. We believe that the allegations of Caliper's trade secret action lack
factual and legal merit and are defending the case vigorously.

In the normal course of business, we had reviewed statements by Caliper on
its website, at conferences and in various industry publications, and had come
to the opinion that Caliper infringed the '015 Patent through its LabChip
systems. These products were described and/or pictured in various publications,
including Caliper's website. We therefore filed an action against Caliper in the
Federal District Court for the Northern District of California for patent
infringement on April 23, 1999. Caliper has denied infringement of the '015
Patent and has counterclaimed

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seeking a declaratory judgment that the '015 Patent is invalid and
unenforceable. We believe that the '015 Patent is valid and enforceable and
intend to prosecute the infringement action vigorously.

On January 12, 2000, Caliper filed its own patent infringement action
against us in the United States District Court for the Northern District of
California. In this lawsuit, Caliper alleges that we infringe one or more claims
of four different U.S. patents (Nos. 6,010,607, 6,010,608, 5,858,195, and
6,001,229). On March 10, 2000, Caliper amended its lawsuit to include a fifth
patent recently issued, U.S. Patent No. 6,033,546. Each of the patents is
assigned to Lockheed Martin Energy Research Corporation in Oak Ridge, Tennessee,
but Caliper claims, in each case, to be the exclusive licensee. We believe that
we can successfully defend ourselves against this lawsuit, because we do not
believe we infringe any claim of any of the patents. If, however, Caliper should
prevail on any of its claims, it would likely be entitled to injunctive relief
and might also recover monetary damages. In that event, we would be required to
obtain a license from Caliper or to redesign our products, neither of which
options may be possible.

All three pieces of litigation are in very early stages, however. No court
has made a decision on any substantive issue that could indicate a likely
outcome of the litigation, and litigation results are, in any event,
unpredictable. If Caliper prevails on its trade secret or patent claims or on
some or all of its affirmative defenses of invalidity and unenforceability in
the federal action, it could impair our ability to enforce our intellectual
property rights, not just against Caliper but against other competitors or
others using the technology claimed in the '015 and related patents, which could
adversely affect our business. For a more detailed description of the
litigation, please see "Risk Factors."

In March 1999 we repurchased 4,521,000 shares of our Series A preferred
stock, at a purchase price of $0.60 per share, from 2C Optics, Inc., our former
parent corporation. We have recently received correspondence from an attorney
representing a group of minority stockholders of 2C Optics, including David
Soane, one of our co-founders. The correspondence alleges that we, and one or
more of our directors, including our chairman, Thomas Baruch, violated corporate
and securities laws in connection with our repurchase of these shares, and that
Mr. Baruch, who was a director of both ACLARA and 2C Optics at the time of the
repurchase, violated his fiduciary duties in connection with the transaction.
The correspondence further threatens litigation, based on these allegations,
seeking rescission of the repurchase transaction, unless we allow each of the
attorney's clients to purchase from us, at $0.60 per share, that number of our
shares equal to such client's pro rata interest in the repurchased shares, based
on such client's ownership of 2C Optics. We believe we have meritorious defenses
to these allegations and, should these persons commence litigation against us,
we will vigorously pursue these defenses. We have met with the attorney
representing the minority stockholders of 2C Optics with certain members of the
board of directors of 2C Optics and its attorney to explain that we believe the
claim is without merit. An attorney representing 2C Optics has informed us that
they are also considering litigation against us. 2C Optics has indicated that
they will make a decision in the near future. We cannot assure you that 2C
Optics will not decide to file a lawsuit against us or seek equitable relief. If
litigation is commenced and is decided against us, we may be required to rescind
the repurchase transaction, in whole or in part, which could result in
substantial dilution to our stockholders, or we could be forced to pay monetary
damages or be subjected to further equitable remedies, each of which could
result in increased losses and substantial costs and expenses, thereby affecting
our profitability.

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SCIENTIFIC ADVISORS

We have established a group of scientists to advise us on scientific,
technical and commercialization issues. These advisors comprise leading
scientists in the areas of microfluidics, micromachining, analytical science,
chemistry and biology. These advisors are:

- Steven Boxer, Ph.D. Professor of Chemistry and Chair of Biophysics
Program at Stanford University.

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

- Roger Howe, Ph.D. Professor of Electrical Engineering and Computer
Sciences at University of California Berkeley, and Co-Director of the
Berkeley Sensor and Actuator Center.

- Gregory Kovacs, Ph.D. Professor of Electrical Engineering at Stanford
University.

- Eric Kool, Ph.D. Professor of Chemistry at Stanford University.

- Edwin Ullman, Ph.D. Founder of Syva Company, now owned by Behring
Diagnostics, and retired Vice President of Research for Behring
Diagnostics.

- Mark Wrighton, Ph.D. Chancellor of Washington University in St. Louis.

- Edward Yeung, Ph.D. Professor of Chemistry, Iowa State University.

We provide our advisors with consulting fees in the form of cash and stock
options.

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following table sets forth certain information as of February 22, 2000,
about our executive officers and members of our board of directors, as well as
certain other key employees.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Joseph M. Limber.......................... 47 President, Chief Executive Officer and
Member of Board of Directors
Herbert H. Hooper, Ph.D................... 36 Executive Vice President, Chief Technology
Officer and Co-Founder
Wendy R. Hitchcock........................ 45 Vice President Finance/Administration and
Chief Financial Officer
Bertram I. Rowland, Ph.D., J.D............ 69 Vice President and General Counsel
Ian Gibbons, Ph.D......................... 53 Senior Director, Screening Applications
Development
Torleif O. Bjornson....................... 38 Senior Director, Engineering
Maureen T. Cronin, Ph.D................... 46 Director, Genomics Applications
Nancy E. Pecota........................... 39 Director, Finance/Accounting
Antonio J. Ricco, Ph.D.................... 41 Director, Microfabrication Technology
Sharat Singh, Ph.D........................ 40 Director, Advanced Technologies
Dennis J. Slomski......................... 38 Director, Manufacturing and Process
Development
Thomas R. Baruch, J.D..................... 60 Chairman of the Board of Directors
Jean Deleage, Ph.D........................ 59 Member of the Board of Directors
Michael W. Hunkapiller, Ph.D.............. 51 Member of the Board of Directors
Eric S. Lander, Ph.D...................... 43 Member of the Board of Directors
Andre F. Marion........................... 64 Member of the Board of Directors
David J. Parker........................... 39 Member of the Board of Directors
</TABLE>

Joseph M. Limber joined us in April 1998 as President and Chief Executive
Officer and as a director. Prior to joining us, Mr. Limber was President and
Chief Operating Officer at PRAECIS Pharmaceuticals, Inc. from 1996 to 1998.
Previous to that time, he held positions as Executive Vice President of SEQUUS
Pharmaceuticals, Inc. from 1995 to 1996 and Vice President of Marketing and
Sales from 1992 to 1995. Mr. Limber also held management positions in marketing
and sales with Syntex Corporation from 1987 to 1992 and with Ciba-Geigy
Corporation from 1975 to 1987. Mr. Limber holds a B.A. from Duquesne University.

Herbert H. Hooper, Ph.D., co-founded our company and has served as our
Chief Technology Officer since May 1995 and Executive Vice President since 1998.
From 1993 through 1995, Dr. Hooper directed the bioanalytical research and
development activities at Soane Technologies. Soane BioSciences, the predecessor
company to ACLARA, was formed as a spin-off from Soane Technologies in May 1995.
From 1990 through 1992, Dr. Hooper worked as a product and business development
manager at Air Products and Chemicals. Dr. Hooper holds a B.S. in Chemical
Engineering from North Carolina State University and a Ph.D. in Chemical
Engineering from the University of California, Berkeley.

Wendy R. Hitchcock joined us in March 1999 as Vice President
Finance/Administration and Chief Financial Officer. Ms. Hitchcock provided
strategic financing/corporate development consulting to biomedical technology
companies during 1998, including to KeraVision Inc. during its acquisition of
Transcend Therapeutics. She was Chief Financial Officer at SyStemix from

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1994 through its 1997 acquisition by Novartis. Prior to her tenure at SyStemix,
she was Chief Executive Officer of an investment management and venture company
in Palo Alto. Ms. Hitchcock has a B.A. from Brown University and an M.B.A. in
Finance from the University of California, Los Angeles.

Bertram I. Rowland, Ph.D., J.D., joined us in January 1999 as Vice
President, General Counsel after making numerous contributions to the formation
and growth of the biotechnology industry over the last 25 years. Prior to
joining us, Mr. Rowland was a patent attorney of counsel to the firm of Flehr,
Hohback, Test, Albritton & Herbert from 1991 to 1998 and President of Drug Abuse
Sciences, Inc. from 1996 to 1998. In 1974, Dr. Rowland wrote and prosecuted
biotechnology's seminal patent, the Cohen-Boyer patent, for cloning DNA. Dr.
Rowland has participated in the founding of over ten biotechnology and
diagnostic companies, including Biotrack, Calgene, Pharmacopeia and SyStemix,
and developed the patent strategies for numerous additional companies, including
Syva, Cell Genesys, Molecular Devices, Oculex, Sangstat and Syntro. He has
written and prosecuted to issuance several hundred patent applications. Mr.
Rowland has a B.S. from the University of California, Los Angeles, a Ph.D. from
the University of Washington and a J.D. from George Washington University.

Ian Gibbons, Ph.D., joined us in August 1998 as Senior Director, Screening
Applications Development. He has experience managing product development of
point-of-care products used in non-laboratory environments from his tenure as
Senior Development Director at First Medical. As the Director, Therapeutic Cell
Separation at AmCell from 1995 to 1997, he was responsible for the development
of CliniMACS an immunomagnetic cell selection system used to purify
hematopoietic stem cell grafts for support of high-dose chemotherapy patients.
Dr. Gibbons has a B.A. and a Ph.D. from the University of Cambridge in England.
He is the author of 44 scientific papers and 32 patents.

Torleif O. Bjornson joined us in July 1996 as Director, Engineering, and
was named Senior Director, Engineering in 2000. Prior to joining us, he led the
product development and engineering efforts at several start-up companies,
including Microtecnica from 1993 to 1996, Ribogene, Inc. from 1991 to 1993 and
Infinitek, a laboratory robotics-system company sold to Beckman Instruments,
Inc., from 1984 to 1991. Mr. Bjornson received a B.S. in Mechanical Engineering
and an M.S. in Engineering from Rensselaer Polytechnic Institute.

Maureen T. Cronin, Ph.D., joined us in December 1999, as Director, Genomics
Applications, to manage the development of molecular biology and genomic
applications. From 1998 to 1999 Dr. Cronin was Molecular Biology Research
Director at Protogene Laboratories. Before joining Protogene, Dr. Cronin was at
Affymetrix from 1991 through 1997, where she served as a senior research
scientist for DNA microarray technology and as a project manager for sequencing
and genotyping in pharmacogenetics programs. Dr. Cronin has a B.S. in Animal
Physiology from the University of California, Davis and a Ph.D. in Molecular
Pharmacology from the University of California, San Diego.

Nancy E. Pecota joined us in July 1999 as Director, Finance/Accounting.
Prior to joining us, from 1994 to 1999, Ms. Pecota was Corporate Controller for
dpiX, Inc. Ms. Pecota has also held financial management positions with Xerox
Corporation and Westinghouse Corporation. She received a B.S. from San Jose
State University.

Antonio J. Ricco, Ph.D., joined us in November 1998 as Director,
Microfabrication Technology. From 1984 to 1998 Dr. Ricco was a member of the
technical staff of Sandia National Laboratories. He has over one hundred
publications related to chemical microsensors. In addition, Dr. Ricco serves as
a fellow of the Electrochemical Society, a member of the Editorial Advisory
Board of Analytical Chemistry, and a member of the Board of Trustees of the
Transducers Research Foundation. Dr. Ricco holds a B.S. in Chemistry from the
University of California, Berkeley and a Ph.D. in Inorganic Chemistry from
M.I.T.

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<PAGE> 50

Sharat Singh, Ph.D., joined us in October 1997 as Director, Advanced
Technologies. He served as a Research Fellow at Dade Behring Diagnostics from
1993 to 1997. Dr. Singh holds a Ph.D. in Chemistry from the Indian Institute of
Science and completed postdoctoral research in the laboratory of Dr. Ronald
Breslow at Columbia University.

Dennis J. Slomski joined us in March 1999 as Director, Manufacturing and
Process Development. Before joining us, he was project engineer/manager, process
development for medical diagnostic consumables at the BAYER Corporation from
1986. He received a B.S. in Chemical Engineering and a B.S. in Electrical
Engineering from Marquette University.

Thomas R. Baruch, J.D., joined our board of directors as Chairman in April
1995. Since 1988, he has been General Partner of CMEA Ventures, a venture
capital firm. From 1990 to 1996, Mr. Baruch also served as a special partner of
New Enterprise Associates. Prior to forming CMEA in 1990, Mr. Baruch was a
founder of Microwave Technology, Inc., and served as its President and Chief
Executive Officer from 1983 to 1989. Previously, he held senior management and
venture investment positions at Exxon Corporation, including President of the
Materials Division of Exxon Enterprises, Inc. Mr. Baruch also serves as director
of Symyx Technologies, Inc., Netro Corp. and Physiometrix, Inc. Mr. Baruch holds
a B.S. from Rensselaer Polytechnic Institute and received a J.D. from Capital
University.

Jean Deleage, Ph.D., joined our board of directors in December 1998. Mr.
Deleage is one of the founders of Alta Partners, a venture capital firm, which
was formed in January 1996 and is a successor firm of Burr, Egan, Deleage & Co.
Mr. Deleage previously was a founder and President of Sofinnova, Inc. in Paris,
and in 1976 formed and became president of Sofinnova, San Francisco. Mr. Deleage
has been has been on the boards of directors of many private and public
companies. He is presently director of Flamel Technologies and several private
companies. Mr. Deleage received a Baccalaureate in France, a Masters Degree in
Electrical Engineering from Ecole Superieure d'Electricite, and a Ph.D. in
Economics from the Sorbonne. He has received the Ordre National du Merite and
the Legion of Honor from the French government.

Michael W. Hunkapiller, Ph.D., joined our board of directors in June 1999.
Dr. Hunkapiller became president of PE Biosystems, one of two operating groups
within PE Corporation, in 1998. He was elected Senior Vice President of PE
Biosystems in 1997 and also became President of its Applied Biosystems Division
at that time. He has served as Vice President of PE Corporation and General
Manager of PEBio Applied Biosystems since June 1995. Dr. Hunkapiller served in
various positions at Applied Biosystems, Inc. from 1983 to 1995. Dr. Hunkapiller
received a B.S. in Chemistry from Oklahoma Baptist University and a Ph.D. in
Chemical Biology from the California Institute of Technology.

Eric S. Lander, Ph.D., joined our board of directors in February 2000. From
1993 to the present, Dr. Lander has served as Director of the Whitehead/M.I.T.
Center for Genome Research and as a member of the Whitehead Institute for
Biomedical Research. From 1989 to the present, Dr. Lander has also held the
positions of Associate Professor and Professor in the Department of Biology at
M.I.T. In addition, Dr. Lander is a founder and director of Millennium
Pharmaceuticals, Inc., a publicly traded company. Dr. Lander received an A.B. in
Mathematics from Princeton University and a Ph.D. in Mathematics from Oxford
University, which he attended as a Rhodes Scholar.

Andre F. Marion joined our board of directors in February 2000. Mr. Marion
was the President of the Applied Biosystems Division of the Perkin-Elmer
Corporation, now known as PE Corp, until his retirement in February 1995. Prior
to holding that position Mr. Marion was the Chairman of the Board, Chief
Executive Officer and President of Applied Biosystems, Inc. until its merger
with Perkin-Elmer in February 1993. Mr. Marion was employed at Hewlett-Packard
from 1972 to 1981, when he co-founded Applied Biosystems, Inc. Mr. Marion
currently serves

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as a director of Molecular Devices Corp., Cygnus, Inc., Applied Imaging Corp.,
Alpha M.O.S., Integrated Biosystems, Inc. and Quantum Dot Corp. and is also an
advisor to several private companies. Mr. Marion holds an engineering degree
from the French Ecole National Superiors d'Ingenieurs Arts et Metiers in both
mechanical and electronic engineering.

David J. Parker joined our board of directors in April 1995 and is a
Partner of Ampersand Ventures. In 1997, he served as Chief Financial Officer and
Vice President of Corporate Development of Novel Experimental Technology, or
NOVEX, the leading provider of precast electrophoresis systems for protein and
DNA separations and now a subsidiary of Invitrogen Corporation. Prior to joining
Ampersand in 1994, Mr. Parker was a management consultant at Bain & Company from
1992 to 1994 and at Mercer Management Consulting from 1989 to 1992. Mr. Parker
received a B.A. degree from Dartmouth College and an M.B.A. from The Wharton
School at the University of Pennsylvania.

BOARD COMPOSITION

We currently have seven authorized directors. Effective upon the closing of
this offering, the terms of office of the directors will be divided into three
classes:

- Class I, whose term will expire at the annual meeting of stockholders to
be held in 2001;

- Class II, whose term will expire at the annual meeting of stockholders to
be held in 2002; and

- Class III, whose term will expire at the annual meeting of stockholders
to be held in 2003.

Class I directors are Messrs. Parker and Baruch. Class II directors are
Messrs. Deleage and Marion. Class III directors are Messrs. Hunkapiller and
Lander. At each annual meeting of stockholders after the initial classification
or special meeting in lieu thereof, 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 or special meeting held in
lieu thereof and until their successors are duly elected and qualified. In
addition, the board of directors will be authorized to change the authorized
number of directors and to fill vacant directorships. 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. Accordingly, even if a stockholder
brings a successful proxy contest, the stockholder could only elect a minority
of our board at our one annual meeting. Thus, the classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of our company.

BOARD COMMITTEES

In December 1999, our board of directors established an audit committee and
a compensation committee. The audit committee consists of Messrs. Baruch,
Deleage and Parker, all of whom are outside directors. The audit committee
recommends engagement of our independent auditors, approves the services
performed by such auditors and reviews and evaluates our accounting policies and
systems of internal accounting controls. The compensation committee consists of
Messrs. Baruch and Hunkapiller, both of whom are outside directors. The
compensation committee administers our Amended and Restated 1997 stock option
plan and makes recommendations to the board of directors in connection with
matters of compensation, including determining the compensation of our executive
officers.

48
<PAGE> 52

COMPENSATION COMMITTEE INTERLOCKS

Until our compensation committee was formed in December 1999, the full
board of directors made all decisions regarding executive compensation. No
member of our board of directors or of our compensation committee serves as a
member of the board of directors or compensation committee of an entity that has
one or more executive officers serving as members of our board of directors or
compensation committee.

DIRECTOR COMPENSATION

We reimburse our nonemployee directors for expenses incurred in connection
with attending board and committee meetings but do not compensate them for their
services as board or committee members. Our board has the discretion to grant
options to new nonemployee directors.

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except for any liability arising with
respect to

- any breach of their duty of loyalty to the corporation or its
stockholders;

- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; or

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

Our certificates of incorporation further provides that we are authorized
to indemnify our directors and executive officers and may indemnify our other
officers and employees and agents to the fullest extent permitted by Delaware
law. We believe that indemnification under our certificate of incorporation
covers negligence and gross negligence on the part of indemnified parties.

Prior to the closing of the offering, we intend to enter into agreements to
indemnify our directors and officers. These agreements, among other things,
require us to indemnify these directors and officers for certain expenses,
including attorneys' fees, judgments, fines and settlement amounts incurred by
any such person in any action or proceeding, including any action by or in the
right of our company, arising out of that person's services as a director or
officer of our company, any subsidiary of ours or any other company or
enterprise to which the person provides services at our request.

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<PAGE> 53

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our other most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 for services
rendered in all capacities to us during the year ended December 31, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
COMPENSATION FOR 1999 SHARES
---------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- ---------- --------- -------------
<S> <C> <C> <C>
Joseph M. Limber....................................... $240,000 $90,000 382,500
President and Chief Executive Officer
Herbert H. Hooper, Ph.D. .............................. $175,000 $43,750 112,500
Executive Vice President and Chief Technology Officer
Wendy R. Hitchcock..................................... $133,280 $32,813 210,000
Vice President, Finance/Administration and
Chief Financial Officer
Bertram I. Rowland, Ph.D., J.D. ....................... $ 96,440 $22,905 157,500
Vice President and General Counsel
</TABLE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding options granted to
each of the officers listed in the Summary Compensation Table during the year
ended December 31, 1999.

The information regarding stock options granted to named executive officers
as a percentage of total options granted to employees in the fiscal year, as
disclosed in the table is based upon options to purchase an aggregate of
1,554,126 shares of common stock that were granted to all employees and
consultants as a group, including the named executive officers, in the fiscal
year ended December 31, 1999. We grant options at an exercise price equal to the
fair market value of the underlying common stock on the date of grant, as
determined by our board of directors, and the options vest over four years from
the date of grant. In determining the fair market value of our common stock, our
board of directors considers valuations of comparable companies at which we have
issued preferred stock, valuation reports and analyses prepared by third
parties, the relative rights and preferences of our preferred stock as compared
to our common stock, and the lack of liquidity of securities. Once we become a
publicly-held company, the fair market value of our stock will equal trading
market price.

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<PAGE> 54

The 5% and 10% assumed annual rates of compounded stock appreciation are
mandated by the rules of the Securities and Exchange Commission based on the
deemed value of the common stock used by us for accounting purposes and do not
represent our estimate or projection of our future stock prices.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED IN FISCAL YEAR PER SHARE DATE 5% 10%
---- ------------ ---------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Limber............. 150,000 9.8% $0.40 3/19/09 $37,734 $ 95,625
232,500 15.2% $0.63 12/01/09 $92,117 $233,443
Herbert H. Hooper, Ph.D...... 112,500 7.4% $0.40 3/19/09 $28,300 $ 71,718
Wendy R. Hitchcock........... 210,000 13.8% $0.40 3/19/09 $52,827 $133,874
Bertram I. Rowland, Ph.D.,
J.D. ...................... 157,500 10.3% $0.40 1/21/09 $39,620 $100,406
</TABLE>

1999 OPTION VALUES

The following table sets forth information concerning option values for the
fiscal year ended December 31, 1999 with respect to each of the named executive
officers.

None of the named executive officers exercised any options in the year
ended December 31, 1999. The options granted to Messrs. Limber and Hooper and
Ms. Hitchcock are immediately exercisable; the unvested shares issued upon
exercise are subject to repurchase by us.

The value of unexercised in-the-money options was calculated by determining
the difference between $14.00, the assumed initial public offering price and the
exercise price of the option.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joseph M. Limber.................................. 982,500 -- $13,307,750 $ --
Herbert H. Hooper, Ph.D. ......................... 262,500 -- $ 3,570,000 $ --
Wendy R. Hitchcock................................ 210,000 -- $ 2,856,000 $ --
Bertram I. Rowland, Ph.D., J.D. .................. -- 157,500 $ -- $2,142,000
</TABLE>

CHANGE OF CONTROL AGREEMENTS

We have entered into change of control agreements with Joseph Limber,
Herbert Hooper and Wendy Hitchcock. Pursuant to each of these agreements, if the
employment relationship is terminated involuntarily other than for cause within
12 months following a change of control, the vesting of all unvested shares held
by that person as of the date of termination shall be accelerated such that 100%
of the unvested shares will become vested as of that date. This acceleration may
have the effect of inhibiting another company from acquiring us. The agreements
provide that a termination will be deemed for cause if the board determines in
good faith that the termination is caused by the gross negligence or willful
misconduct in the employee's job performance that results or is likely to result
in substantial and material damage to ACLARA, repeated unexplained or
unjustified absence from ACLARA, illegal conduct, fraudulent conduct with
respect to ACLARA or conviction of a felony or a crime involving moral turpitude
causing material harm to the standing and reputation of ACLARA.

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<PAGE> 55

STOCK OPTION PLANS

1995 STOCK OPTION PLAN

The 1995 Stock Option Plan was adopted by our board of directors and
approved by our stockholders in May 1995. We reserved 1,487,880 shares of common
stock for issuance under the plan. As of December 31, 1999, options to purchase
1,265,096 shares of common stock had been exercised and options to purchase
140,625 shares of common stock with a weighted average exercise price $0.04 per
share were outstanding. No additional options will be granted under the plan.

The plan provides for grants of incentive stock options, as defined in
Section 422 of the Internal Revenue Code of 1986, to our employees, as well as
nonstatutory stock options and stock purchase rights to our employees and
consultants. The plan authorizes separate administrative bodies with respect to
directors, officers who are not directors and employees who are neither
directors nor officers. Under the plan, the administrators have the power to
determine the terms of the options, including the exercise price of the options,
the number of shares subject to each option, the exercisability thereof, and the
form of consideration payable on such exercise. The plan, however, limits the
number of options and stock purchase rights that may be granted to any employee,
in one fiscal year, to no more than 600,000 shares of common stock.

The term of each option is determined by the specific option agreement. The
term of incentive stock options, may not, in any event, exceed ten years from
the date of the grant. Moreover, incentive stock options granted to any holder
of 10% or more of the combined voting power of all classes of stock may not have
a term exceeding five years from the date of the grant. The vesting schedule is
determined by the specific option agreement, but generally one-fourth of the
shares subject to the option vest on the one-year anniversary of the vesting
commencement date and one-forty-eighth of the shares subject to the option vest
at the end of every month thereafter.

For incentive stock options, the option exercise price may not be less than
100% of the fair market value of a share of common stock on the date of the
grant; provided, however, that incentive stock options granted to any holder of
10% or more of the combined voting power of all classes of stock must have an
exercise price of not less than 110% of the fair market value of a share of
common stock on the date of the grant. For nonstatutory stock options, the
option exercise price may not be less than the par value of the common stock.

Upon termination of an optionee's status as our employee or consultant, the
optionee may exercise his or her options within the period of time specified in
the option grant, to the extent that the options were vested at the time of
termination. If no time period was specified in the notice of grant, the option
shall remain exercisable for 30 days following the optionee's termination of
status as an employee or consultant, or for 90 days in the case of an incentive
stock option. Options granted under the plan must generally be exercised within
six or 12 months if the optionee's employment ends due to disability, and within
12 months of the optionee's death. Any shares not exercisable or exercised
within those time periods reverts to the plan.

Stock purchase rights may be issued alone, in addition to, or in tandem
with other awards granted under the plan. The rights will be evidenced by
execution of a restricted stock purchase agreement. Unless the administrator
determines otherwise, the restricted stock purchase agreement will grant us a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment or consulting relationship with us for any reason,
including death or disability. The purchase price for shares repurchased
pursuant to the restricted stock purchase agreement must be the original price
paid by the purchaser. The repurchase option shall lapse at a rate determined by
the administrator.

In the event of a sale of substantially all of our assets, or the merger of
our company with or into another corporation, each outstanding option and stock
purchase right may be assumed or an equivalent option or right may be
substituted by the successor corporation or a parent or
52
<PAGE> 56

subsidiary of the successor corporation. In the alternative, the administrator
also has the power, but not the obligation, to accelerate the vesting of each
outstanding option and other award.

AMENDED AND RESTATED 1997 STOCK PLAN

The Amended and Restated 1997 Stock Plan was initially adopted by our board
of directors in December 1996 and approved by our stockholders in March 1997. A
total of 3,526,124 shares of common stock was initially reserved for issuance
under the plan. As of December 31, 1999, options to purchase 363,150 shares of
common stock had been exercised, and options to purchase 2,750,439 shares of
common stock were outstanding under the plan. In February 2000, our board of
directors amended and restated the plan, which was approved by the stockholders
in March 2000, to reserve an additional 1,290,000 shares for issuance as well as
to provide that, during the term of the plan, on each anniversary of the date of
the plan's amendment and restatement by our board of directors, commencing with
the first such anniversary, and each anniversary thereafter, the shares of
common stock authorized for issuance under the plan shall be increased by
1,125,000.

The plan provides for grants of incentive stock options to employees,
consultants and members of our board of directors, and for grants of
nonstatutory stock options and stock purchase rights to our employees, including
officers and employee directors, and consultants, including non-employee
directors.

The plan is administered by our board of directors or a committee
designated by our board of directors. The plan is currently being administered
by the compensation committee of our board of directors. The administrator of
the plan may determine the terms of the options and stock purchase rights
granted, including the exercise price, the number of shares subject to each
option and/or stock purchase right and the exercisability of the option and/or
stock purchase right. The administrator of the plan also has the full power to
select the individuals to whom options and/or stock purchase rights will be
granted, to make any combination of grants to any participants and to determine
whether stock acquired pursuant to a stock purchase right is to be subject to
our repurchase.

Options granted to employees and consultants will vest at a rate fixed by
the administrator. Under the plan, each independent director who has not
previously been granted an option under the plan will receive an initial option
to purchase 36,000 shares of common stock at the time of the successful
completion of this offering. These options vest over three years at the rate of
1/12 on each quarterly anniversary of the vesting commencement date. At each
annual meeting of our stockholders, each outside director will receive an
additional option to purchase 12,000 shares of common stock. These options vest
over one year, starting at the beginning of the second year anniversary of the
vesting commencement date, at the rate of 1/4 on each quarterly anniversary of
the vesting commencement date.

Option exercise prices may not be less than 100% of the fair market value
of the common stock on the date of the grant. In the case of an incentive stock
option granted to a person who at the time of the grant owns stock representing
more than 10% of the total combined voting power of all of our classes of stock,
the option exercise price for each share covered by such option may not be less
than 110% of the fair market value of a share of common stock on the date of
grant of such option. Nonstatutory stock options may be granted at exercise
prices of not less than the par value of the common stock on the date the option
is granted.

Option terms are determined by the option agreements; however, no incentive
stock option may have a term longer than ten years. The maximum term for an
option granted to an optionee is five years, if at the time of the grant the
optionee owns more than 10% of the total combined voting power of all our
classes of stock. No option may be exercised by any person after its term
expires.

In the event of a sale of all or substantially all of our assets, or our
merger with or into another corporation, the administrator may provide for the
repurchase, replacement or
53
<PAGE> 57

termination of options or stock purchase rights. The administrator also has the
discretion to accelerate the vesting of options or stock purchase rights to make
them exercisable as to some or all of the underlying shares.

2000 EMPLOYEE STOCK PURCHASE PLAN

The 2000 Employee Stock Purchase Plan was adopted by the board of directors
in February 2000 and approved by the stockholders in March 2000. A total of
450,000 shares of common stock has been reserved for issuance under the purchase
plan. As of the date of this prospectus, no shares have been issued under the
purchase plan.

The purchase plan, which is intended to qualify under Section 423 of the
Code, contains consecutive six-month offering periods. The offering periods
generally start on November 1 and May 1 of each year, except for the first
offering period, which will commence on the effective date of this offering and
will end on October 31, 2000.

Employees are eligible to participate if they are customarily employed by
us or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, no employee may be granted a right to
purchase stock under the purchase plan to the extent that, immediately after the
grant of the right to purchase stock, the employee would own, or be treated as
owning, stock possessing 5% or more of the total combined voting power or value
of all classes of our capital stock or to the extent that his or her rights to
purchase stock under all of our employee stock purchase plans accrues at a rate
which exceed $25,000 worth of stock for each calendar year. The purchase plan
permits participants to purchase common stock through payroll deductions of up
to 15% of the participant's base compensation. Base compensation is defined as
the participant's gross base compensation, excluding overtime payments, sales
commissions, incentive compensation, bonuses, expense reimbursements, fringe
benefits and other special payments.

Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lesser of the fair market value
of the common stock at the beginning of the offering period or at the end of the
offering period. Participants may end their participation at any time other than
the final 10 days of an offering period, and they will be paid their payroll
deductions to date without interest. Participation ends automatically upon
termination of employment with us.

Rights to purchase stock granted under the purchase plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the purchase plan. The purchase
plan provides that, in the event of our merger with or into another corporation
or a sale of substantially all of our assets, each outstanding right to purchase
stock may be assumed or substituted for by the successor corporation.

Our board of directors has the authority to amend or terminate the purchase
plan. However, no such action by our board of directors may adversely affect any
outstanding rights to purchase stock under the purchase plan, except that our
board of directors may terminate an offering period on any exercise date if the
board of directors determines that the termination of the purchase plan is in
our best interests and the best interests of our stockholders. Notwithstanding
anything to the contrary, our board of directors may in its sole discretion
amend the purchase plan to the extent necessary and desirable to avoid
unfavorable financial accounting consequences by altering the purchase price for
any offering period, shortening any offering period or allocating remaining
shares among the participants.

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<PAGE> 58

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Since our inception, we have issued, in private placement transactions,
shares of preferred stock as follows:

- an aggregate of 4,521,470 shares of Series A preferred stock at $0.40 per
share in May 1995, which we repurchased in March 1999 at a price of $0.60
per share;

- an aggregate of 3,516,699 shares of Series B preferred stock at $0.40 per
share in May 1995;

- an aggregate of 1,615,385 shares of Series C preferred stock at $0.87 per
share in November 1996;

- an aggregate of 461,538 shares of Series D preferred stock at $1.08 per
share in April 1997;

- an aggregate of 2,500,001 shares of Series E preferred stock at $1.80 per
share in March 1998 and April 1998;

- an aggregate of 10,014,999 shares of Series F preferred stock at $1.80
per share in January, February and March 1999;

- an aggregate of 1,119,404 shares of Series G preferred stock at $2.68 per
share in April 1999; and

- an aggregate of 1,241,723 shares of Series H preferred stock at $4.03 per
share in December 1999.

In each of the foregoing transactions, the preferred stock was sold at fair
market value, in arm's-length transactions. Each outstanding share of preferred
stock will be converted into one share of common stock upon the closing of this
offering. The following table summarizes the shares of preferred stock purchased
by officers, directors and principal stockholders and their immediate family
members and related entities:

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F SERIES G SERIES H
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
INVESTOR STOCK STOCK STOCK STOCK STOCK STOCK STOCK STOCK
-------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2C Optics, Inc....... 4,521,470 -- -- -- -- -- -- --

Entities affiliated
with Alta
Partners........... -- -- -- -- -- 2,222,223 -- --

Entities affiliated
with Ampersand
Ventures........... -- 2,888,717 580,530 -- -- 754,800 -- --

Burrill & Company.... -- -- -- -- -- 1,666,667 -- --

Entities affiliated
with CMEA
Ventures........... -- 627,983 341,828 -- -- 819,974 -- --

Wendy R. Hitchcock... -- -- -- -- -- 7,500 -- --

Johnson & Johnson
Development
Corporation........ -- -- -- 461,538 1,111,112 589,481 -- --

PE Corporation....... -- -- -- -- 1,388,889 -- 1,119,404 --

Bertram I. Rowland,
Ph.D., J.D......... -- -- 28,847 -- -- -- -- --

Asea Brown Boveri,
Inc................ -- -- -- -- -- -- -- 1,241,723
</TABLE>

55
<PAGE> 59

Our director Mr. Deleage, is a founder of Alta Partners. Our director, Mr.
Parker, is a partner of Ampersand Ventures. Our Chairman of our board of
directors, Mr. Baruch, is a partner of CMEA Ventures and is a member of the
board of directors of 2C Optics, Inc. Our director, Dr. Hunkapiller, is an
executive officer of PE Corporation.

In March 1999 we repurchased all outstanding shares of Series A preferred
stock from 2C Optics at a price of $0.60 per share.

In private placement transactions completed in December 1997 and February
1998, we issued convertible promissory notes in the aggregate principal amount
of $337,000 and $500,000, respectively, as well as warrants to purchase 62,250
shares and 92,307 shares, respectively, of Series D preferred stock at an
exercise price of $1.08 per share. The Black-Scholes pricing model was used to
determine the fair value of the warrants issued. In September 1998, we issued
additional convertible promissory notes in the aggregate principal amount of
$1,650,000. The investors in these transactions included the following greater
than 5% stockholders and entities affiliated with our directors:

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT SERIES D
INVESTOR OF NOTES WARRANT SHARES
-------- ---------------- --------------
<S> <C> <C>
Entities affiliated with Ampersand Ventures................ $1,010,000 94,152
Entities affiliated with CMEA Ventures..................... 307,528 29,082
Johnson & Johnson Development Corporation.................. 1,027,377 5,055
</TABLE>

The entire principal amount of and accrued interest on the convertible
promissory notes was subsequently paid in full or converted in January 1999 into
shares of Series F preferred stock at a conversion price of $1.80 per share.

We have entered into the following agreements with our executive officers,
directors and holders of more than 5% of our voting securities:

AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT

We have entered into an agreement with the preferred stockholders described
above, pursuant to which these and other preferred stockholders will have
registration rights with respect to their shares of common stock following this
offering. Please see "Description of Capital Stock Registration Rights" for a
further description of the terms of this agreement.

ISSUANCE OF STOCK OPTIONS

In May and January 1998, respectively, we granted options to purchase
600,000 and 150,000 shares of common stock, each at an exercise price of $0.40
per share to Mr. Limber, our President and Chief Executive Officer and Dr.
Hooper, our Executive Vice President, Chief Technology Officer and Co-Founder,
respectively. In January 1999, we granted an option to purchase 157,500 shares
of common stock at an exercise price of $0.40 per share to Dr. Rowland, our Vice
President and General Counsel. In March 1999, we granted options to purchase
150,000, 112,500 and 210,000 shares of common stock, each at an exercise price
of $0.40 per share, to Mr. Limber, Dr. Hooper, and Ms. Hitchcock, our Vice
President Finance/ Administration and Chief Financial Officer, respectively. In
December 1999, we granted options to purchase 232,500 shares of common stock at
an exercise price of $0.63 per share to Mr. Limber.

In January 2000, we granted options to purchase 112,500, 75,000 and 75,000
shares of common stock, each at an exercise price of $3.33 per share, to Mr.
Limber, Dr. Hooper and Ms. Hitchcock. In January 2000, we also granted options
to purchase 36,000 shares of

56
<PAGE> 60

common stock to each of our new directors, Mr. Lander and Mr. Marion at an
exercise price of $3.33 per share.

CONSULTING AGREEMENTS

Pursuant to a consulting agreement we entered into with Mr. Lander in
January 2000, Mr. Lander has agreed to provide services to assist us in
developing strategies for applying microfluidics technology to applications in
chemical and biological analysis. In connection with this agreement, he was
granted an option to purchase 40,500 shares of common stock at an exercise price
of $3.33 per share. We also entered into a consulting agreement in January 2000
with Mr. Marion pursuant to which he has agreed to provide consulting services
from time to time at our request. This agreement may be terminated at any time
by either party with 30 days prior written notice.

JOHNSON & JOHNSON DEVELOPMENT CORPORATION

In February 1997, we entered into an agreement with PRI, an affiliate of
Johnson & Johnson Development Corporation. This agreement was amended and
restated in March 1998. In connection with this agreement, PRI paid us research
and development fees in the aggregate amount of $1,100,000 and $900,000 in our
1997 and 1998 fiscal years, respectively. Through its affiliate Johnson &
Johnson Development Corporation, PRI also purchased shares of our preferred
stock for an aggregate purchase price of $2.5 million. This total purchase price
represents two separate equity investments. In April 1997, PRI purchased 461,538
shares of our Series D preferred stock at a purchase price of $1.08 per share.
In March 1998, PRI made an additional purchase of 1,111,112 shares of our Series
E preferred stock at a purchase price of $1.80 per share. This agreement was
subsequently superseded in March 1999 by the joint agreement described below.
Please see, "Business Collaborations."

OFFICER LOANS

We have made loans to the following executive officers in order to fund the
exercise of a portion of the stock options held by each of them:

<TABLE>
<CAPTION>
INTEREST RATE LOAN
NUMBER DATE OF (COMPOUNDED MATURITY
NAME AMOUNT OF SHARES LOAN SEMIANNUALLY) DATE
---- -------- --------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
Joseph M. Limber............ $240,000 600,000 1/13/00 5.8% 3/02
$ 60,000 150,000 1/13/00 5.8% 3/03
$147,250 232,500 1/13/00 5.8% 12/03
Herbert H. Hooper........... $ 60,000 150,000 1/14/00 5.8% 1/02
$ 3,250 37,500 2/6/99 4.6% 10/00
Wendy R. Hitchcock.......... $ 39,000 97,500 1/12/00 5.8% 3/03
$ 45,000 112,500 1/15/00 5.8% 3/03
$250,000 75,000 1/12/00 5.8% 1/04
</TABLE>

We have the right to repurchase unvested shares if the executive's
employment terminates under some circumstances. Each loan was made under a
full-recourse promissory note secured by pledge of the purchased shares. The
notes are payable at maturity.

PE CORPORATION

In April 1998, we entered into an agreement with PE Biosystems, a
subsidiary of PE Corporation, to jointly develop genetic analysis systems that
use our microfluidics technology.

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<PAGE> 61

In conjunction with this agreement, PE Corporation purchased 1,388,889 shares of
Series E preferred stock at a purchase price of $1.80 per share for an aggregate
amount of $2.5 million. Please see, "Business -- Collaborations."

In March 1999, we entered into another agreement with PE Biosystems to
jointly develop systems for pharmaceutical drug screening that use our
microfluidics technology. In conjunction with this agreement, PE Corporation
purchased 1,119,404 shares of Series G preferred stock at a purchase price of
$2.68 per share for an aggregate amount of $3 million. Please see,
"Business -- Collaborations."

PE Biosystems, a subsidiary of PE Corporation and one of our strategic
partners, has indicated an interest in purchasing up to $5,000,000 of shares of
our common stock in this offering at the initial public offering price.

JOINT AGREEMENT WITH PRI AND PE BIOSYSTEMS

In March 1999, we entered into a joint agreement with PRI and PE Biosystems
to jointly develop and commercialize a high throughput screening system using
our LabCard technology. As mentioned above, this agreement superseded our March
1998 agreement with PRI. Under this agreement, PRI has agreed to fund our joint
development efforts with PE Biosystems. Under the terms of a side agreement with
PE Biosystems, we received $1.2 million from the 1999 PRI funding for our
development efforts under this program. Please see "Business -- Collaborations."

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<PAGE> 62

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of February 11, 2000 and as adjusted
to reflect the sale of the our common stock offered by this prospectus by

- each person, or group of affiliated persons, who is known by us to own
beneficially more than 5% of our common stock;

- each of our directors;

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

- all of our directors and 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 and warrants held by that person that are
currently exercisable or exercisable within 60 days of February 11, 2000 are
considered outstanding. These shares, however, are not considered outstanding
when computing the percentage ownership of each other person. The column
entitled "Number of Shares Beneficially Owned" excludes the number of shares of
common stock subject to options and warrants held by that person that are
currently exercisable or that will become exercisable within 60 days of February
11, 2000. The number of shares subject to options or warrants that each
beneficial owner has the right to acquire within 60 days of February 11, 2000
are listed separately under the column entitled "Number of Shares Underlying
Options and Warrants Beneficially Owned."

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 23,874,820 shares of common stock outstanding on
February 11, 2000, as well as outstanding warrants for Series D preferred stock,
and 32,874,820 shares of common stock outstanding after completion of this
offering assuming conversion of all preferred stock into common stock. 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 ACLARA BioSciences, Inc., 1288 Pear Avenue, Mountain View,
California 94043.

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<PAGE> 63

<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES OUTSTANDING
UNDERLYING OPTIONS --------------------
NAME AND ADDRESS NUMBER OF SHARES AND WARRANTS BEFORE AFTER
OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED OFFERING OFFERING
------------------- ------------------ ------------------ -------- --------
<S> <C> <C> <C> <C>
PE Corporation.......................... 2,508,293 -- 10.5% 7.6%
50 Danbury Road
Wilton, CT 06897
Entities affiliated with CMEA
Ventures(3)........................... 1,789,784 29,082 7.6% 5.5%
235 Montgomery Street, Suite 920
San Francisco, CA 94104
Joseph M. Limber........................ 982,500 -- 4.1% 3.0%
Herbert H. Hooper....................... 556,392 18,750 2.5% 1.8%
Wendy R. Hitchcock...................... 292,500 -- 1.2% *
Bertram I. Rowland...................... 7,500 -- * *
Thomas R. Baruch(4)..................... 1,789,784 29,082 7.6% 5.5%
c/o CMEA Ventures
235 Montgomery Street, Suite 920
San Francisco, CA 94104
Jean Deleage(5)......................... 2,222,223 -- 9.3% 6.8%
c/o Alta Partners
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Michael W. Hunkapiller(6)............... 2,508,293 -- 10.5% 7.6%
c/o PE Corporation
850 Lincoln Centre Drive
Foster City, CA 94404
Eric S. Lander.......................... -- -- * *
151 Bishop Alley Drive
Cambridge, MA 02139
Andre F. Marion......................... -- -- * *
556 Kingsley Avenue
Palo Alto, CA 94301
David J. Parker(7)...................... 4,224,047 94,152 18.1% 13.1%
c/o Ampersand Ventures
55 William Street, Suite 240
Wellesley, MA 02481
All directors and officers as a group
(10 persons).......................... 12,601,989 141,984 53.3% 38.7%
</TABLE>

- -------------------------
* Represents beneficial ownership of less than 1%

(1) Includes 2,202,743 shares held by Alta California Partners II, L.P. and
19,481 shares held by Alta Embarcadero Partners II, L.P. As a managing
partner of Alta Partners, Mr. Deleage, one of our directors, has the
authority to vote these shares.

(2) Includes 1,310,543 shares and warrants for 28,245 shares held by Laboratory
Partners I Limited Partnership, 562,875 shares and warrants for 12,240
shares held by Laboratory Partners Companion Fund Limited Partnership and
2,444,781 shares and warrants for 53,667 shares held by Ampersand Specialty
Materials and Chemicals II, Limited Partnership. The authority to vote these
shares is held by the general partner of each of those funds. Mr. Parker,
one of our directors is a limited partner of those funds, and as such, has
no authority to vote the shares.

(3) Includes 1,263,311 shares and warrants for 29,082 shares held by Chemicals &
Materials Enterprise Associates, L.P. and 555,555 shares held by CMEA Life
Sciences Fund, L.P. As a general partner of CMEA Ventures, Mr. Baruch, one
of our directors, has the authority to vote these shares.

(4) Includes 1,263,311 shares and warrants for 29,082 shares held by Chemicals &
Materials Enterprise Associates, L.P. and 555,555 shares held by CMEA Life
Sciences Fund, L.P.

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<PAGE> 64

Mr. Baruch, a general partner of CMEA Ventures, disclaims beneficial
ownership of the shares held by the funds affiliated with CMEA Ventures,
except to the extent of his pecuniary interests therein.

(5) Includes 2,202,743 shares held by Alta California Partners II, L.P. and
19,481 shares held by Alta Embarcadero Partners II, L.P. Mr. Deleage, a
managing partner of Alta Partners, disclaims beneficial ownership of the
shares held by funds affiliated with Alta Partners, except to the extent of
his pecuniary interests therein.

(6) Includes 2,508,293 shares held by PE Corporation. Mr. Hunkapiller, an
executive officer of PE

Corp., has the authority to vote the shares and disclaims beneficial
ownership of the shares held by PE Corp., except to the extent of his
pecuniary interests therein. The number does not include up to $5,000,000 of
shares which PE Biosystems, a subsidiary of PE Corp., may purchase in the
offering. Assuming PE Biosystems purchases 357,143 shares at an initial
public offering price of $14.00 per share, PE Corp. would own 8.7% after the
offering.

(7) Includes 1,310,543 shares and warrants for 28,245 shares held by Laboratory
Partners I Limited Partnership, 562,875 shares and warrants for 12,240
shares held by Laboratory Partners Companion Fund Limited Partnership and
2,444,781 shares and warrants for 53,667 shares held by Ampersand Specialty
Materials and Chemicals II, Limited Partnership. Mr. Parker, a limited
partner of Ampersand Ventures, disclaims beneficial ownership of the shares
held by Ampersand Ventures, except to the extent of his pecuniary interests
therein.

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<PAGE> 65

DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon completion of this offering, our authorized capital stock will consist
of 150,000,000 shares of common stock, par value $0.001 per share, and
15,000,000 shares of preferred stock, par value $0.001 per share. Immediately
after the offering, based on shares outstanding as of December 31, 1999, we
estimated there will be approximately 22,172,995 shares of common stock issued
and outstanding and no shares of preferred stock issued and outstanding.
Assuming that there are no additional option grants after December 31, 1999, a
total of 2,891,064 shares of our common stock will be issuable upon exercise of
stock options.

COMMON STOCK

The holders of common stock are entitled to one vote per share on all
matters to be voted upon by stockholders and are not entitled to cumulate their
votes in the election of directors. All shares of common stock rank equally as
to voting and all other matters. Subject to the prior rights of holders of
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available for payment. Dividends may be paid in
cash, property, or shares of common stock. The shares of common stock have no
preemptive or conversion rights, no redemption or sinking fund provisions and
are not liable for further call or assessment. Outstanding shares common stock
are, and all shares of common stock to be outstanding upon completion of this
offering will be, validly issued fully paid and non-assessable.

PREFERRED STOCK

Upon the closing of this offering, the board of directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 15,000,000 shares of preferred stock in one or more series.
The board of directors will also be authorized to fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption including sinking
fund provisions, redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of such series. The
issuance of preferred stock could have the effect of delaying, deferring or
preventing a change in control of our company. We have no present plans to issue
any shares of preferred stock.

WARRANTS

As of December 31, 1999 the following warrants for the purchase of our
equity securities were outstanding:

<TABLE>
<CAPTION>
TYPE OF SECURITY NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
---------------- ---------------- -------------- -----------------------------------------
<S> <C> <C> <C>
Common stock.............. 45,000 $ 0.67 Later of November 2005 or five years
following completion of this offering.
Common stock.............. 50,025 $ 1.33 Later of February 2007 or five years
following completion of this offering.
Common stock.............. 150,000 $ 1.33 Earlier of December 2003 or the
occurrence of a corporate reorganization.
Common stock.............. 138,890 $ 1.80 May 2006.
Series D preferred
stock................... 154,557 $ 1.08 Upon completion of this offering.
</TABLE>

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<PAGE> 66

Each warrant provides for adjustment of the exercise price and the number
of securities issuable upon exercise of the warrant in the event of a
reorganization of our capital structure of a stock split. In addition, the
exercise price and number of shares issuable upon exercise of the warrants for
the purchase of 45,000 and 50,025 shares of common stock will be adjusted if we
issue stock at prices below the exercise price of such warrants. Finally, we
have granted the holders of the warrants for the purchase of 45,000 and 50,025
shares of common stock rights to register the common stock issuable upon
exercise of the warrants.

REGISTRATION RIGHTS

After the completion of this offering, the holders of 20,624,304 shares of
common stock held by purchasers of our preferred stock and 95,025 shares of
common stock issuable upon conversion of outstanding warrants will be entitled
to rights to register these shares under the Securities Act of 1933. Under the
terms of the Amended and Restated Investor Rights Agreement dated December 30,
1999, whenever we propose to file a registration statement under the Securities
Act, the holders of registrable securities are entitled to notice of the
registration and have the right, subject to limitations that the underwriters
may impose on the number of shares included in the registration, to include
their registrable shares in the registration.

Additionally, beginning six months following the closing of our initial
public offering, the holders any series of registrable securities have the right
to require us to file a registration statement on Form S-1 or Form S-2 by us
with a written request for registration from the holders of at least 51% of the
outstanding shares of any given series, or, in the case of the Series B
preferred stock, the holders of at least 40% of the outstanding shares. Each
series of registrable shares can require us to register their shares if the
market value of those requesting registration is at least $200,000. Further, the
holders of each series can also request registration if they sell at least 80%
of that series of registrable shares. We may, however, defer the requested
registration of shares up to 120 days if our board of directors determines that
a registration at the requested time would be detrimental to our company or our
stockholders. We will pay expenses for the first demand registration and the
first two registrations on Form S-3 for each registrable series, and for the
first two incidental registrations for purchasers of Series F preferred stock.

The agreement provides that in connection with any public offering, each
stockholder agrees not to sell or otherwise dispose of any securities without
the prior written consent of us or the underwriters for a period up to 180 days.
The rights of the holders of registrable shares terminate when all registrable
shares have been registered under the Securities Act or sold in reliance on Rule
144 of the Securities Act.

ANTI-TAKEOVER EFFECTS OF CERTAIN 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 stockholders
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

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<PAGE> 67

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% of 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 the
following provisions that will become effective upon the closing of this
offering and that may have the effect of deterring hostile takeovers or delaying
or preventing changes in control or management:

- 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;

- that special meetings of the holders may be called only by the chairman
of the board of directors, the chief executive officer, or our board of
directors pursuant to a resolution adopted by a majority of the total
number of authorized directors;

- that our board of directors can issue up to 15,000,000 shares of
preferred stock, as described under "-- Preferred Stock" above;

- that there will be three classes of directors, approximately one-third of
whom would be elected each year, thus requiring any potential acquiror to
successfully complete two proxy contests in order to take control of the
board of directors; and

- that advance notice must be given regarding the nomination of candidates
for election as directors and the presentation of stockholder proposals.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.

NATIONAL MARKET LISTING

We have applied for listing of our common stock on the Nasdaq Stock
Market's National Market under the symbol "ACLA."

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<PAGE> 68

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 from time to time. For a
period of 180 days or more following this offering a large number of shares of
our common stock will not be freely tradable due to contractual and legal
restrictions 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 the closing of this offering and based on shares outstanding as of
February 11, 2000, we will have an aggregate of 32,874,820 shares of common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or warrants. Of the outstanding
shares, the shares sold in this offering will be freely tradable, except that
any shares held by our "affiliates", as that term is defined in Rule 144
promulgated under the Securities Act, may only be sold in compliance with the
limitations described below. The remaining 23,874,820 shares of common stock
held by existing stockholders will be deemed restricted securities as defined
under Rule 144. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which are summarized
below. In accordance with the lock-up agreements described below and subject to
the provisions of Rules 144, 144(k) and 701, additional shares will be available
for sale in the public market at the following times:

<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<C> <S>
42,061 After March , 2000
86,422 June , 2000
23,746,337 At various times after September , 2000
</TABLE>

In general, under Rule 144, as currently in effect, a person, or persons
whose shares are aggregated, including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period
commencing 90 days after the date of this prospectus, a number of shares that
does not exceed the greater of 1% of the then outstanding shares of common
stock, which will equal approximately 328,785 shares immediately after this
offering or the average weekly trading volume in the common stock during the
four calendar weeks preceding the date on which notice of such sale is filed,
subject to certain restrictions. In addition, a person who is not deemed to have
been an affiliate of ours at any time during the 90 days preceding a sale and
who has beneficially owned the shares proposed to be sold for at least two years
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of ours, the person's holding period for the purpose of effecting a
sale under Rule 144 commences on the date of transfer from the affiliate.

Any employee, officer, director, advisor or consultant to ACLARA who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after ACLARA becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934.

Lock-Up Agreements. Our directors, officers and stockholders who hold
approximately 23,746,337 shares in the aggregate, have agreed that they will not
offer, sell or agree to sell,

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<PAGE> 69

directly or indirectly, or otherwise dispose of any shares of common stock
without the prior written consent of Deutsche Bank Securities Inc. for a period
of 180 days from the date of this prospectus. Please see "Underwriting."

We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except we
may issue, and grant options to purchase, shares of common stock under the 1997
Stock Option Plan. In addition, we may issue shares of common stock in
connection with any acquisition of another company if the terms of such issuance
provide that such common stock shall not be resold prior to the expiration of
the 180-day period referenced in the preceding sentence.

Registration Rights. Following this offering, some of our stockholders will
have registration rights. Please see, "Description of Capital
Stock -- Registration Rights."

Stock Options. Subsequent to this offering, we intend to file a
registration statement under the Securities Act covering approximately 4,631,064
shares of common stock reserved for issuance under our stock option plans. The
registration statement is expected to be filed and become effective subsequent
to 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> 70

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Warburg Dillon Read LLC and U.S. Bancorp Piper Jaffray Inc., have
severally agreed to purchase from us the following respective number of shares
of common stock at a public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc................................
Warburg Dillon Read LLC.....................................
U.S. Bancorp Piper Jaffray Inc..............................
---------
Total..................................................... 9,000,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.

The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers.
After the initial public offering, representatives of the underwriters may
change the offering price and other selling terms.

PE Biosystems, one of our strategic partners and a significant stockholder,
has indicated an interest in purchasing up to $5,000,000 of our shares in this
offering. Any sales to PE Biosystems will be made at the initial public offering
price and will not be subject to underwriting discounts and commissions.

We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 1,350,000
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise this option only to cover over-
allotments made in connection with the sale of the common stock offered hereby.
To the extent that the underwriters exercise this option, each of the
underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above table bears
to the total number of shares of common stock offered hereby. We will be
obligated, pursuant to the option, to sell these additional shares of common
stock to the underwriters to the extent the option is exercised. If any
additional shares of common stock are purchased, the underwriters will offer the
additional shares on the same terms as those on which the 9,000,000 shares are
being offered.

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<PAGE> 71

The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is currently expected to be approximately 7% of the
initial public offering price. We have agreed to pay the underwriters the
following fees, assuming either no exercise or full exercise by the underwriters
of the underwriters' over-allotment option:

<TABLE>
<CAPTION>
TOTAL FEES
----------------------------------------------
WITHOUT EXERCISE OF WITH FULL EXERCISE OF
FEE PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by ACLARA............... $ $ $
</TABLE>

In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $990,000.

We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect of
any of these liabilities.

Each of our officers and directors, and substantially all of our
stockholders and holders of options and warrants to purchase our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the effective date of the registration statement
of which this prospectus is a part without the prior written consent of Deutsche
Bank Securities Inc. This consent may be given at any time without public
notice. We have entered into a similar agreement with the representatives of the
underwriters. There are no agreements between the representatives and any of our
stockholders or affiliates releasing them from these lock-up agreements prior to
the expiration of the 180-day period.

The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 524,000 shares or 5.8%, of our common stock being
sold in this offering for our vendors, employees, family members of employees,
customers and other third parties. The number of shares of our common stock
available for sale to the general public will be reduced to the extent these
reserved shares are purchased. Any reserved shares that are not purchased by
these persons will be offered by the underwriters to the general public on the
same basis as the other shares in this offering.

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<PAGE> 72

PRICING OF THIS OFFERING

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:

- prevailing market conditions;

- our results of operations in recent periods;

- the present stage of our development;

- the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and

- estimates of our business potential.

The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by Latham & Watkins, Menlo Park, California. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. As of the date of this prospectus, attorneys at Latham & Watkins
beneficially own an aggregate of 7,500 shares of our common stock.

EXPERTS

The financial statements for ACLARA BioSciences, Inc. as of December 31,
1998 and 1999 and for each of the three years in the period ended December 31,
1999 and for the period from May 5, 1995 (date of inception) to December 31,
1999, included in this Prospectus, have been so included in reliance on the
report of PricewaterhouseCoopers, LLP, independent accountants, given on their
authority as experts in auditing and accounting.

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<PAGE> 73

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 with respect to the common stock.
For further information regarding us and our common stock, please refer to the
registration statement and exhibits and schedules filed as part of the
registration statement. Each statement in this prospectus referring to a
contract, agreement or other document filed as an exhibit to the registration
statement is qualified in all respects by the filed exhibit.

You may read and copy all or any portion of the registration statement or
any other information that we file at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our
Securities and Exchange Commission filings, including the registration
statement, are also available to you on the Securities and Exchange Commission's
website (http://www.sec.gov).

Upon completion of this offering, we will become subject to the information
and reporting requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC.

We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and to
make available to our stockholders quarterly reports containing unaudited
financial data for the first three quarters of each year.

70
<PAGE> 74

ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Deficit......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 75

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of ACLARA BioSciences, Inc.

In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of ACLARA BioSciences, Inc. (a company
in the development stage) at December 31, 1998 and 1999 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 and for the cumulative period from May 5, 1995 (date of
inception) through December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

San Jose, California
February 11, 2000

F-2
<PAGE> 76

ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
--------------------------- DECEMBER 31,
1998 1999 1999
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,746,387 $ 10,249,689
Short-term investments.................................... -- 3,479,250
Accounts receivable....................................... 207,127 615,343
Prepaid expenses and other current assets................. 316,958 434,056
----------- ------------
Total current assets................................ 2,270,472 14,778,338
Property and equipment, net................................. 1,060,922 5,170,597
Restricted cash............................................. -- 625,000
Other assets, net........................................... 29,966 --
----------- ------------
Total assets........................................ $ 3,361,360 $ 20,573,935
=========== ============

LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 378,492 $ 412,412
Accrued payroll and related expenses...................... 57,878 114,103
Accrued expenses.......................................... 304,837 1,089,594
Notes payable to related parties.......................... 2,418,592 --
Current portion of capital lease obligations.............. 312,919 286,399
Current portion of loans payable.......................... -- 819,773
Deferred revenue.......................................... 200,000 --
----------- ------------
Total current liabilities........................... 3,672,718 2,722,281
Capital lease obligations, less current portion............. 407,187 283,612
Loans payable, less current portion......................... -- 3,086,916
----------- ------------
Total liabilities................................... 4,079,905 6,092,809
----------- ------------
Commitments and Contingencies (Notes 4 and 12)
Mandatorily redeemable convertible preferred stock
(Liquidation value: $10,634,324 at December 31, 1998 and
$36,234,442 at December 31, 1999)....................... 8,818,543 40,973,050 $ --
----------- ------------ ------------
Stockholders' deficit:
Common stock, $0.001 par value:
Authorized: 60,000,000 shares;
Issued and outstanding: 1,593,693 shares at December 31,
1998; 1,703,246 shares at December 31, 1999 and
22,172,995 shares pro forma........................... 1,593 1,703 22,173
Additional paid-in capital.................................. 1,305,684 2,589,162 43,058,331
Deferred stock-based compensation........................... (1,385,473) (6,508,432) (6,508,432)
Notes receivable for common stock........................... (44,366) (6,850) (6,850)
Accumulated other comprehensive income...................... -- 4,413 4,413
Deficit accumulated during the development stage............ (9,414,526) (22,571,920) (22,088,509)
----------- ------------ ------------
Total stockholders' deficit......................... (9,537,088) (26,491,924) $ 14,481,126
----------- ------------ ============
Total liabilities, mandatorily redeemable
convertible stock and stockholders' deficit....... $ 3,361,360 $ 20,573,935
=========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 77

ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
MAY 5, 1995
YEAR ENDED DECEMBER 31, (INCEPTION) TO
------------------------------------------ DECEMBER 31,
1997 1998 1999 1999
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
REVENUE:
Grant and collaboration...................... $ 2,230,948 $ 1,353,116 $ 2,935,588 $ 7,756,444
License...................................... 400,000 -- -- 860,000
Product...................................... 18,100 -- -- 38,380
----------- ----------- ------------ ------------
Total revenue......................... 2,649,048 1,353,116 2,935,588 8,654,824
----------- ----------- ------------ ------------
OPERATING EXPENSES:
Cost of sales................................ 92,404 -- -- 182,715
Research and development..................... 3,742,488 5,423,656 8,986,774 20,544,474
General and
administrative............................. 635,406 1,321,953 2,266,289 4,764,360
Sales and marketing.......................... 179,002 -- -- 337,583
----------- ----------- ------------ ------------
Total operating expenses.............. 4,649,300 6,745,609 11,253,063 25,829,132
----------- ----------- ------------ ------------
Loss from operations........................... (2,000,252) (5,392,493) (8,317,475) (17,174,308)
Interest income................................ 51,462 86,805 530,543 739,834
Interest expense............................... (49,068) (216,534) (370,462) (654,035)
----------- ----------- ------------ ------------
Net loss....................................... (1,997,858) (5,522,222) (8,157,394) (17,088,509)
Dividend related to beneficial conversion
feature of preferred stock................... -- -- (5,000,000) (5,000,000)
Accretion to redemption value and accrued
dividends on mandatorily redeemable
convertible preferred stock.................. (300,942) (488,466) (5,288,284) (6,292,459)
----------- ----------- ------------ ------------
Net loss attributable to common stockholders... $(2,298,800) $(6,010,688) $(18,445,678) $(28,380,968)
=========== =========== ============ ============
Net loss per common share, basic and diluted... $ (4.02) $ (5.03) $ (11.85)
=========== =========== ============
Shares used in computing net loss per share,
basic and diluted............................ 572,168 1,195,343 1,556,324
=========== =========== ============
Pro forma net loss per share, basic and diluted
(unaudited).................................. $ (0.64)
============
Shares used in computing pro forma net loss per
share, basic and diluted (unaudited)......... 20,546,390
============
</TABLE>

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

F-4
<PAGE> 78

ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM MAY 5, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
NOTES DEFICIT
RECEIVABLE ACCUMULATED
COMMON STOCK ADDITIONAL DEFERRED FOR OTHER DURING THE
------------------ PAID-IN STOCK-BASED COMMON COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT CAPITAL COMPENSATION STOCK INCOME STAGE
--------- ------ ----------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock and Series A
mandatorily redeemable convertible
preferred stock issued in May 1995
to parent company for tangible and
intangible assets and
liabilities........................ 2 $ -- $ -- $ -- $ -- $ -- $ --

Accretion of redeemable convertible
preferred stock.................... -- -- -- -- -- -- (14,493)

Net loss............................ -- -- -- -- -- -- (454,683)
--------- ------ ----------- ----------- -------- ------ ------------
Balances, December 31, 1995......... 2 -- -- -- -- -- (469,176)

Stock option exercise............... 586,901 587 22,889 -- (22,696) -- --

Accretion of redeemable convertible
preferred stock.................... -- -- (22,889) -- -- -- (177,385)

Net loss............................ -- -- -- -- -- -- (956,352)
--------- ------ ----------- ----------- -------- ------ ------------
Balances, December 31, 1996......... 586,903 587 -- -- (22,696) -- (1,602,913)

Stock option exercise............... 751,434 751 38,612 -- (21,731) -- --

Common stock issued in February 1997
at $0.13 per share in exchange for
equipment.......................... 9,300 9 797 -- -- -- --

Accretion of redeemable convertible
preferred stock.................... -- -- (39,409) -- -- -- (291,533)

Net loss............................ -- -- -- -- -- -- (1,997,858)
--------- ------ ----------- ----------- -------- ------ ------------
Balances, December 31, 1997......... 1,347,637 1,347 -- -- (44,427) -- (3,892,304)

Warrants issued in February 1998.... -- -- 84,534 -- -- -- --

Stock option exercise............... 246,057 246 38,057 -- (22,635) -- --

Repayment of notes receivable from
stockholders....................... -- -- -- -- 22,696 -- --

Deferred stock-based compensation... -- -- 1,671,559 (1,671,559) -- -- --

Amortization of deferred stock-
based compensation................. -- -- -- 286,086 -- -- --

Accretion of redeemable convertible
preferred stock.................... -- -- (488,466) -- -- -- --

Net loss............................ -- -- -- -- -- -- (5,522,222)
--------- ------ ----------- ----------- -------- ------ ------------
Balances, December 31, 1998......... 1,593,694 1,593 1,305,684 (1,385,473) (44,366) -- (9,414,526)

Warrants issued in May 1999......... -- -- 445,694 -- -- -- --

Repurchase of common stock.......... (2) -- -- -- -- -- --

Repurchase of Series A mandatorily
redeemable convertible preferred
stock and accretion of Series A in
March 1999......................... -- -- (2,529,395) -- -- -- --

Stock option exercise............... 109,554 110 23,777 -- -- -- --

Repayment of note receivable from
stockholders....................... -- -- -- -- 37,516 -- --

Deferred stock-based compensation... -- -- 6,102,291 (6,102,291) -- -- --

Amortization of deferred stock-
based compensation................. -- -- -- 979,332 -- -- --

Accretion of redeemable convertible
preferred stock.................... -- -- (2,758,889) -- -- -- --

Beneficial conversion feature
related to issuance of preferred
stock.............................. -- -- -- -- -- -- (5,000,000)

Unrealized gain on investments...... -- -- -- -- -- 4,413 --

Net loss............................ -- -- -- -- -- -- (8,157,394)
--------- ------ ----------- ----------- -------- ------ ------------
Balances, December 31, 1999......... 1,703,246 $1,703 $ 2,589,162 $(6,508,432) $ (6,850) $4,413 $(22,571,920)
========= ====== =========== =========== ======== ====== ============

TOTAL
------------
<S> <C>
Common stock and Series A
mandatorily redeemable convertible
preferred stock issued in May 1995
to parent company for tangible and
intangible assets and
liabilities........................ $ --
Accretion of redeemable convertible
preferred stock.................... (14,493)
Net loss............................ (454,683)
------------
Balances, December 31, 1995......... (469,176)
Stock option exercise............... 780
Accretion of redeemable convertible
preferred stock.................... (200,274)
Net loss............................ (956,352)
------------
Balances, December 31, 1996......... (1,625,022)
Stock option exercise............... 17,632
Common stock issued in February 1997
at $0.13 per share in exchange for
equipment.......................... 806
Accretion of redeemable convertible
preferred stock.................... (330,942)
Net loss............................ (1,997,858)
------------
Balances, December 31, 1997......... (3,935,384)
Warrants issued in February 1998.... 84,534
Stock option exercise............... 15,668
Repayment of notes receivable from
stockholders....................... 22,696
Deferred stock-based compensation... --
Amortization of deferred stock-
based compensation................. 286,086
Accretion of redeemable convertible
preferred stock.................... (488,466)
Net loss............................ (5,522,222)
------------
Balances, December 31, 1998......... (9,537,088)
Warrants issued in May 1999......... 445,694
Repurchase of common stock.......... --
Repurchase of Series A mandatorily
redeemable convertible preferred
stock and accretion of Series A in
March 1999......................... (2,529,395)
Stock option exercise............... 23,887
Repayment of note receivable from
stockholders....................... 37,516
Deferred stock-based compensation... --
Amortization of deferred stock-
based compensation................. 979,332
Accretion of redeemable convertible
preferred stock.................... (2,758,889)
Beneficial conversion feature
related to issuance of preferred
stock.............................. (5,000,000)
Unrealized gain on investments...... 4,413
Net loss............................ (8,157,394)
------------
Balances, December 31, 1999......... $(26,491,924)
============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 79

ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
MAY 5, 1995
YEARS ENDED DECEMBER 31, (INCEPTION) TO
--------------------------------------- DECEMBER 31,
1997 1998 1999 1999
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,997,858) $(5,522,222) $(8,157,394) $(17,088,509)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 222,126 331,587 583,859 1,242,564
Amortization of note and long-term debt discount........ -- 15,939 142,877 158,816
Amortization of deferred compensation................... -- 286,086 979,332 1,265,418
Preferred stock issued for interest expense............. -- -- 127,890 127,890
Changes in assets and liabilities:
Accounts receivable................................... (217,577) 119,624 (408,216) (615,343)
Prepaid expenses and other current assets............. 27,456 (283,193) (117,098) (434,056)
Accounts payable...................................... 95,001 (58,148) 33,920 412,412
Accrued payroll and related expenses.................. 33,232 (6,635) 56,225 114,103
Accrued expenses and other liabilities................ (95,166) 289,205 795,330 1,089,594
Deferred revenue...................................... 14,286 (14,286) (200,000) --
----------- ----------- ----------- ------------
Net cash used in operating activities............... (1,918,500) (4,842,043) (6,163,275) (13,727,111)
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (62,302) (21,481) (4,424,384) (4,803,254)
Restricted cash........................................... -- -- (625,000) (625,000)
Purchase of short-term investments........................ -- -- (7,124,837) (7,124,837)
Maturities of short-term investments...................... -- -- 3,650,000 3,650,000
Change in other assets.................................... (100) (14,434) 29,966 3,310
----------- ----------- ----------- ------------
Net cash used in investing activities............... (62,402) (35,915) (8,494,255) (8,899,781)
----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations........ (183,109) (292,044) (356,935) (933,154)
Proceeds from issuance of notes payable to related
parties................................................. 337,187 2,150,000 -- 2,487,187
Proceeds from issuance of loans payable................... -- -- 4,364,587 4,364,587
Repayment of loans payable................................ -- -- (159,369) (159,369)
Proceeds from issuance of preferred stock, net of issuance
costs................................................... 500,000 4,490,665 22,083,128 29,831,133
Repayment of notes payable to related parties............. -- -- (119,099) (119,099)
Repurchase of Series A preferred stock and one share of
common stock............................................ -- -- (2,712,883) (2,712,883)
Proceeds from notes receivable from stockholders.......... -- 22,696 37,516 60,212
Proceeds from issuance of common stock.................... 17,632 15,668 23,887 57,967
----------- ----------- ----------- ------------
Net cash provided by financing activities........... 671,710 6,386,985 23,160,832 32,876,581
----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents........ (1,309,192) 1,509,027 8,503,302 10,249,689
Cash and cash equivalents, beginning of period.............. 1,546,552 237,360 1,746,387 --
----------- ----------- ----------- ------------
Cash and cash equivalents, end of period.................... $ 237,360 $ 1,746,387 $10,249,689 $ 10,249,689
=========== =========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest................ $ 49,068 $ 79,867 $ 226,112 $ 371,488
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Additions to property and equipment acquired under
capital lease obligations............................. $ 491,512 $ 354,643 $ 206,840 $ 1,506,704
Issuance of notes receivable in exchange for common
stock................................................. $ 21,731 $ 22,635 $ -- $ 67,602
Net assets obtained in exchange for Series A preferred
stock................................................. $ -- $ -- $ -- $ 36,363
Equipment obtained in exchange for common stock......... $ 806 $ -- $ -- $ 806
Issuance of warrants in connection with notes payable... $ -- $ 84,534 $ 445,694 $ 530,228
Deferred compensation................................... $ -- $ 1,671,559 $ 6,102,291 $ 7,773,850
Accretion of mandatorily redeemable preferred stock and
accrued dividends..................................... $ 330,942 $ 488,466 $ 5,288,284 $ 6,322,459
Conversion of notes payable into preferred stock........ $ -- $ -- $ 2,495,978 $ 2,495,978
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 80

ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS

1. FORMATION AND BUSINESS OF THE COMPANY

ACLARA BioSciences, Inc. (the "Company"), formerly Soane BioSciences, Inc.,
a Delaware corporation, was incorporated on May 5, 1995 for the purpose of
providing miniaturized microfluidic tools for biochemical analysis and
synthesis. The Company's technology has applicability in many markets including
drug discovery, genomics, life science research and diagnostics. The Company's
revenue is currently generated primarily through various grants and contracts
with both governmental and private organizations. The Company is in the
development stage and since inception has devoted substantially all of its
efforts to research and development, raising capital, and recruiting personnel.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

UNAUDITED PRO FORMA INFORMATION

If the Company's initial public offering as described in Note 12 is
consummated, all of the preferred stock outstanding will automatically be
converted into common stock. The pro forma mandatorily redeemable convertible
preferred stock and stockholders' deficit at December 31, 1999 has been adjusted
for the assumed conversion of mandatorily redeemable convertible preferred stock
based on the shares of mandatorily redeemable convertible preferred stock
outstanding at December 31, 1999.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
leases with similar terms, the carrying value of capital lease obligations
approximate fair value.

CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Cash and cash equivalents are invested in deposits with a major local
financial institution. The Company has not experienced any losses on its
deposits of cash and cash equivalents. Management believes that this financial
institution is financially sound and, accordingly, minimal

F-7
<PAGE> 81
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

credit risk exists. The Company's receivables relate to grants and contracts,
and accordingly, there is no collateral required for these receivables.

At December 31, 1998, one government agency accounted for 95% of accounts
receivable, respectively. At December 31, 1999, one collaborator and two
government agencies accounted for 51%, 24% and 19% of accounts receivable,
respectively.

In 1997, three customers individually accounted for 45%, 24% and 12%,
respectively, of the Company's total revenue. In 1998, three customers
(collaborative partners) individually accounted for 44% and 22% and 16%,
respectively, of the Company's total revenue. In 1999, three customers
(collaborative partners) individually accounted for 39%, 36% and 25%,
respectively, of the Company's total revenue.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, three years for computer equipment and
software and five years for machinery, equipment and furniture. Amortization of
leasehold improvements and property and equipment acquired under capital lease
obligations is computed using a straight-line basis over the shorter of the
remaining lease term or the estimated useful life of the related assets,
typically five years.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. ("SFAS") 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". SFAS No. 121 requires recognition of impairment of long-lived assets in the
event the net book value of such assets exceeds the future undiscounted cash
flows attributable to such assets.

INCOME TAXES

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.

RESEARCH AND DEVELOPMENT COSTS

Research and development expenditures are charged to operations as
incurred.

REVENUE RECOGNITION

The Company recognizes grant and collaboration revenue based on meeting
certain requirements, completing milestones as specified in the grants or
collaborations, straight line over the period of certain collaborations or as
work is performed and evidenced by time sheets and expense reports for certain
grants. Revenue on product sales is generally recognized upon shipment of
product to the customer. Revenue on license agreements are recognized on a

F-8
<PAGE> 82
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

straight line basis over the life of services to be rendered under the license
agreements (see Note 5).

CERTAIN RISKS AND UNCERTAINTIES

The Company's products and services are concentrated in rapidly changing,
highly competitive markets which are characterized by rapid technological
advances, changes in customer requirements and evolving regulatory requirements
and industry standards. Any failure by the Company to anticipate or to respond
adequately to technological developments in its industry, changes in customer
requirements or changes in regulatory requirements or industry standards, or any
significant delays in the development or introduction of products or services,
could have a material adverse effect on the Company's business and operating
results.

SEGMENTS

The Company follows Statement of Financial Accounting Standards No. 131, or
SFAS 131, "Disclosures about Segments of an Enterprise and Related Information."
The Company operates in one segment, using one measurement of profitability to
manage its business. All long-lived assets are maintained in the United States.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statements of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123").

Under APB No. 25, compensation expense is based on the difference, if any
on the date of the grant, between the fair value of the Company's stock and the
exercise price. SFAS No. 123 defines a "fair value" based method of accounting
for and employee stock option or similar equity instrument. The pro forma
disclosures of the difference between compensation expense included in net loss
and the related cost measured by the fair value method are presented in Note 8.

The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and Emerging Issues Task Force Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
No. 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of relationship that exists. The
Company, to

F-9
<PAGE> 83
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

date, has not engaged in derivative or hedging activities. The Company will
adopt SFAS No. 133, as required, in fiscal year 2000.

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 form the diluted earnings per
share computations as they have an antidilutive effect due to the Company'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.

A reconciliation of shares used in the calculations is as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Basic and diluted:
Net loss.......................................... $(1,997,858) $(5,522,222) $ (8,157,394)
=========== =========== ============
Dividend related to beneficial conversion feature of
preferred stock................................... -- -- (5,000,000)
Accretion of mandatorily redeemable preferred
stock............................................. (300,942) (488,466) (5,288,284)
----------- ----------- ------------
Net loss attributable to common stockholders........ $(2,298,800) $(6,010,688) $(18,445,678)
=========== =========== ============
Weighted-average shares of common stock
outstanding....................................... 835,839 1,413,211 1,644,946
Less: weighted-average shares subject to
repurchase........................................ (263,671) (217,868) (88,622)
----------- ----------- ------------
Weighted-average shares used in basic and diluted
net loss per share................................ 572,168 1,195,343 1,556,324
=========== =========== ============
Pro forma basic and diluted :
Net loss.......................................... $(13,157,394)
------------
Shares used above
Adjustment to reflect weighted-average effect of
assumed conversion of preferred stock
(unaudited)....................................... 18,990,066
============
Weighted-average shares used in pro forma basic and
diluted net loss per share (unaudited)............ 20,546,390
============
</TABLE>

F-10
<PAGE> 84
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Options and warrants...................................... 951,839 2,232,521 3,429,536
Convertible preferred stock............................... 10,115,091 12,615,093 20,469,749
</TABLE>

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
---------- -----------
<S> <C> <C>
Machinery and equipment.............................. $1,168,050 $ 1,676,756
Furniture and fixtures............................... 83,174 265,503
Computer equipment and software...................... 330,803 620,317
Leasehold improvements............................... 133,287 3,846,272
---------- -----------
1,715,314 6,408,848
Less: accumulated depreciation and amortization...... (654,392) (1,238,251)
---------- -----------
$1,060,922 $ 5,170,597
========== ===========
</TABLE>

As of December 31, 1998 and 1999, property and equipment includes amounts
for machinery and equipment, furniture and fixtures, and computer equipment
acquired under capital leases of $1,299,864 and $1,506,704 with related
accumulated amortization of approximately $479,000 and $728,000, respectively.

4. COMMITMENTS AND CONTINGENCIES

OPERATING LEASE

In March 1999, the Company entered into a ten year operating lease for
office space. Rent expense for the years ended December 31, 1997, 1998, 1999 and
for the cumulative period from May 3, 1995 (date of inception) to December 31,
1999, was $172,905, $173,038, $616,715 and $1,051,084, respectively. In July
1999 the Company entered into three sublease agreements for periods commencing
August 1999 and ending between one to two years later.

F-11
<PAGE> 85
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The future annual minimum lease payments and sublease income under the
lease as at December 31, 1999 are as follows:

<TABLE>
<CAPTION>
OPERATING OPERATING
LEASE SUBLEASE
YEAR ENDING DECEMBER 31, COMMITMENTS INCOME
------------------------ ----------- ---------
<S> <C> <C>
2000.......................................... $ 1,052,622 $(718,100)
2001.......................................... 1,089,462 (255,091)
2002.......................................... 1,127,598 --
2003.......................................... 1,167,066 --
2004 and thereafter........................... 7,182,096 --
----------- ---------
Total minimum lease payments........ $11,618,844 $(973,191)
=========== =========
</TABLE>

LEGAL MATTERS

On March 22, 1999, Caliper Technologies corporation ("Caliper") filed suit
in Superior Court of California, naming as defendants Bertram Rowland
("Rowland"), Flehr, Hohbeck, Test, Albritton & Herbert ("Flehr") and the
Company. The suit alleges that Rowland and Flehr, as former counsel to Caliper,
learned trade secrets of Caliper which were then improperly used by Rowland and
Flehr as counsel to the Company, and by the Company, in a patent application by
the Company that resulted in an issued patent, and for other unspecified
purposes. The suit seeks actual and exemplary damages and equitable relief.

On April 26, 1999, the Company filed a patent infringement action against
Caliper in the U.S. District Court in Northern California alleging infringement
of the Company's patent (the "015 patent") which concerns methods and devices
for moving molecules by the application of electrical fields.

See Note 12 for further infringement action since year end.

At this time management of the Company are unable to predict the final
outcome of these matters and the ultimate effect, if any, on the Company's
financial condition, cash flows and results of operations.

5. RESEARCH AND DEVELOPMENT COLLABORATIONS AND LICENSE AGREEMENTS

The Company has entered into several research and development
collaborations. Research payments are received based on completion of milestones
specified in the contracts or grants.

In January 1, 1995, the Company entered into a $120,740 research and
development subcontract with Molecular Dynamics, Inc. for a nine month period to
develop a polymer suitable for microfluidic analysis of DNA. Under this
subcontract, the Company granted to Molecular Dynamics the exclusive option for
a supply arrangement and a worldwide license to use, prepare for packaging,
package, market, sell and distribute the product developed under the
subcontract. The Company agreed for a period ending December 31, 1999, not to
grant such rights to any third party so long that Molecular Dynamics has the
rights to exercise its option or has exercised it.

F-12
<PAGE> 86
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

In August 1996, the Company and Hitachi entered into a License Agreement
under which the Company granted Hitachi certain intellectual property rights in
return for an $800,000 license fee and an agreement to fund up to $480,000 of
research and development at the Company.

In February 1997, the Company entered into an agreement with the R.W.
Johnson Pharmaceutical Research Institute, a Division of Ortho Pharmaceutical
Corporation or "PRI" and the Johnson and Johnson Development Corporation or
"J&J". Under this agreement, the Company developed and delivered to PRI a
prototype microfluidic system intended to demonstrate the feasibility of the
Company's technology for pharmaceutical drug screening.

In March 1998, the Company entered into an amended and restated agreement
with PRI and J&J to develop a prototype microfluidic system having a higher
throughput than the prototype developed under the initial agreement. Under these
agreements, PRI provided the Company with $1,100,000 and $900,000 in 1997 and
1998, respectively. In addition, J&J made an aggregate $2,500,000 equity
investment in the Company (see Note 10 -- Related Party Transactions).

In April 1998, the Company and PE Biosystems entered into a collaboration
agreement under which the Company will jointly develop and, sell to PE
Biosystems units of microfluidic electrophoresis devices under a transfer price
to be determined by a joint committee. In the event that the Company is unable
or unwilling to supply microfluidic devices, the Company will receive a royalty
on net sales by PE Biosystems of the microfluidic electrophoresis devices.
During 1998 and for the year ended December 31, 1999, the Company has not
received any revenue, related to this agreement, from PE Biosystems.

In March 1999, the Company entered into an agreement with PRI and PE
Biosystems, with an effective date of October 1998, which superseded the
Company's previous agreements with PRI. Under this agreement, the Company and PE
Biosystems agreed to develop and provide to PRI advanced prototype microfluidic
systems for pharmaceutical drug screenings. The Company received $1,200,000 in
1999 under this agreement. PE Biosystems and the Company must use reasonable
effort to adhere to certain milestones. Under a side agreement between the
Company and PE Biosystems, any royalty received from PRI for manufacturing or
selling of microfluidic electrophoresis devices will be split between PE
Biosystems and the Company. PRI has the right to terminate this agreement on not
less than 45 days prior written notice to PE Biosystems and the Company if any
milestone is not achieved prior to the end of the 90 day period following the
originally scheduled date for the achievement of a milestone.

In March 1999, the Company and PE Biosystems, entered into a product
development collaboration in the field of high throughput screening. The
agreement covers a collaboration on technological feasibility studies and on
future commercialization of products jointly developed, including manufacturing,
marketing, sales and support programs for such collaboration product. The
collaboration product will be exclusively marketed, sold and supported by PE
Biosystems, who will be responsible for all expenses for marketing, sales and
support of such product. As part of this collaboration, the Company will sell to
PE Biosystems microfluidic electrophoresis devices. Upon expiration of an
exclusive period, the Company will have three months to evaluate any written
development proposal from PE Biosystems; in the event that the Company elects
not to pursue a new development agreement, fails to notify PE Biosystems of its
election to develop and supply such microfluidic electrophoresis devices within
the three month period, the development or manufacture of such devices may be
performed by PE Biosystems pursuant

F-13
<PAGE> 87
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

to a non-exclusive license. If, after a first commercial sale of a microfluidic
device, the net sales do not meet or exceed a specified minimum value, the
Company's obligation to exclusively supply that particular device will
immediately terminate, but PE Biosystems' obligation to exclusively purchase
such device will remain in effect. During the year ended December 31, 1999, the
Company has not recognized any revenue under this agreement.

In October 1999, the Company and Cellomics, Inc. ("Cellomics") entered into
a three year collaboration for an exclusive alliance to develop, manufacture and
market a chip-based screening system for cell analysis. Under this
collaboration, Cellomics agreed to provide funding to support the Company's
research for the first year of the program. During the development and
commercialization phase, the money obtained from third parties shall be divided
between Cellomics and the Company to ensure that each party's expenditure of its
own money on a jointly approved plan is minimized. No later than the end of the
second year of collaboration, the Company will receive from Cellomics the
reasonable cost of manufacturing the microfluidic plates jointly developed and a
reasonable profit margin for items manufactured and supplied by the Company. The
division of any remaining income will be determined by the financial
contribution of each party, net of reimbursed portions, the novelty of their
contributions, the value of the intellectual property that protects components
of the screening systems, the competitive advantages provided by the
contributions of the two parties, their respective responsibilities in
manufacturing, marketing and supporting other on-going expenditures and other
risks. The exact mechanism for the division of any remaining income will be
defined as the collaboration proceeds toward commercialization. For the year
ended December 31, 1999, the Company has not recognized any revenue under this
collaboration.

6. CAPITAL LEASES AND LOANS PAYABLE

In November 1995 and January 1997, the Company entered into capital lease
agreements which provide for up to $1,450,000 of equipment financing through
November 2001 and bear interest between 6.64% - 11.32% per year. Eligible
equipment includes various computer equipment, office furniture and equipment,
and machinery and equipment. Upon the termination of the lease agreements, the
Company is required to renew them or purchase the leased equipment at the then
existing fair market value but not less than 10% or more than 25% of the
original purchase price.

At December 31, 1999, future minimum lease payments under capital leases
are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000........................................................ $ 342,193
2001........................................................ 256,282
2002........................................................ 59,271
---------
Total future minimum payments............................... 657,746
---------
Less: amount representing interest.......................... (87,735)
---------
Present value of minimum lease payments..................... 570,011
Less: current portion....................................... (286,399)
---------
Non-current portion......................................... $ 283,612
=========
</TABLE>

F-14
<PAGE> 88
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

In March 1999, the Company entered into a loan agreement with its landlord
to borrow $663,150 for leasehold improvement at an interest rate of 8.5%. The
Company received the proceeds of this loan in December 1999. If the Company were
to default on the payment of the lease for its facilities, the Company would
default on its loan agreement with its landlord.

In May 1999, the Company entered into a loan agreement with a financial
institution to obtain borrowings of up to $5,000,000 in the aggregate, of which
no more than $3,000,000 can be used for leasehold improvement and $2,000,000 can
be used for the purchase of equipment. In the year ended December 31, 1999, the
Company received $721,546 to purchase equipment and $2,959,246 for leasehold
improvement. The loans bear interest of 13.4% to 13.6% and are repaid in 42 to
48 monthly installments. If the Company were to default in the payment of
principal or interest on any indebtedness of $50,000 or the performance of any
agreement related to such loan the Company would default on this loan agreement.
In conjunction with this loan agreement, the Company issued a warrant to
purchase 138,890 shares of common stock at an exercise price of $1.80 per share.
The warrant has a ten year term ending in May 2009. The value of the warrant was
calculated using the Black-Scholes pricing model and has been charged to
additional paid in capital and will be amortized to interest expense over the
life of the loan.

In December 1999, the Company borrowed $663,150 from its landlord under a
ten year promissory note. The note bears interest of 8.5%, with interest to be
calculated on the basis of a 30 day month.

<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Notes payable in monthly installments at interest rates
ranging from 8.5% - 15% maturing from December, 2002 to
December, 2009............................................ $4,278,101
Less: Current portion....................................... 819,773
Less: discount due to warrants.............................. 371,412
----------
$3,086,916
==========
</TABLE>

Maturities of long term debt were as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
2000........................................................ $ 819,773
2001........................................................ 1,151,508
2002........................................................ 1,342,484
2003........................................................ 503,287
2004 and thereafter......................................... 461,049
----------
$4,278,101
==========
</TABLE>

7. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

Under the Company's Certificate of Incorporation, as amended, the Company's
convertible redeemable preferred stock is issuable in series. The Company's
Board of Directors is authorized to determine the rights, preferences and terms
of each series.

F-15
<PAGE> 89
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

At December 31, 1998, the amounts, terms and liquidation value of Series A,
Series B, Series C, Series D and Series E mandatorily redeemable convertible
preferred stock were as follows:

<TABLE>
<CAPTION>
SHARES PREFERENTIAL
CARRYING SHARES ISSUED AND LIQUIDATION
AMOUNT AUTHORIZED OUTSTANDING VALUE
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
A............................. $ 280,004 4,521,470 4,521,470 $ 2,377,193
B............................. 1,691,818 3,516,699 3,516,699 1,698,139
C............................. 1,572,803 1,615,385 1,615,385 1,530,718
D............................. 552,092 627,691 461,538 528,274
E............................. 4,721,826 2,500,001 2,500,001 4,500,000
Undesignated.................. -- 166,154 -- --
---------- ---------- ---------- -----------
Balances, December 31, 1998... $8,818,543 12,947,400 12,615,093 $10,634,324
========== ========== ========== ===========
</TABLE>

At December 31, 1999, the amounts, terms and liquidation value of Series A,
Series B, Series C, Series D, Series E, Series F, Series F-1, Series G and
Series H mandatorily redeemable convertible preferred stock are as follows:

<TABLE>
<CAPTION>
SHARES PREFERENTIAL
CARRYING SHARES ISSUED AND LIQUIDATION
AMOUNT AUTHORIZED OUTSTANDING VALUE
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
A............................ $ -- -- -- $ --
B............................ 1,750,438 3,516,699 3,516,699 1,810,553
C............................ 1,607,018 1,615,385 1,615,385 1,642,667
D............................ 590,634 627,691 461,538 608,222
E............................ 4,744,984 2,500,001 2,500,001 4,777,001
F............................ 19,279,975 10,833,332 10,014,999 19,395,998
F-1.......................... -- 10,833,332 -- --
G............................ 3,000,001 1,119,403 1,119,404 3,000,001
H............................ 5,000,000 1,275,000 1,241,723 5,000,000
Beneficial conversion feature
on Series H financing...... 5,000,000 -- -- --
Undesignated................. -- 1,879,157 -- --
----------- ---------- ---------- -----------
Balances, December 31,
1999....................... $40,973,050 34,200,000 20,469,749 $36,234,442
=========== ========== ========== ===========
</TABLE>

DIVIDENDS

The holders of shares of Series B, Series C, Series D, Series E, Series F,
Series G and Series H preferred stock are entitled to receive dividends, out of
any assets legally available prior and in preference to any declaration or
payment of dividends on common stock or any other shares of capital stock at the
rate of $0.032, $0.069, $0.09, $0.144, $0.144, $0.215 and $0.322 per share per
annum, respectively, when and as declared by the Board of Directors. As of
December 31, 1999, no dividends have been declared. Commencing on May 8, 1996,
October 31, 1997, April 17, 1998, March 24, 1999, January 12, 1999, April 28,
2000 and December 30, 2000, dividends on Series B, Series C, Series D, Series E,
Series F, Series G and Series H preferred stock, respectively, shall accrue from
day to day whether or not earned or
F-16
<PAGE> 90
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

declared and are cumulative. At December 31, 1998 and 1999, preferred dividends
accrued and unpaid were $879,811 and $2,434,327 respectively.

In December 1999, the Company issued 1,241,723 of Series H mandatorily
redeemable convertible preferred stock at $4.03 per share for proceeds of
$5,000,000. The issuance resulted in a beneficial conversion feature of
$5,000,000, calculated in accordance with Emerging Issues Task Force No. 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features. The
beneficial conversion feature is reflected as a preferred dividend in the
Statement of Operations for 1999.

LIQUIDATION

In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series F mandatorily redeemable
convertible preferred stock shall be entitled to receive, prior and in
preference to any distribution of any assets of the Company to the holders of
Series B, Series C, Series D, Series E Series G or Series H mandatorily
redeemable convertible preferred stock and common stock, an amount per share
equal to the sum of $1.80 plus all accrued and unpaid dividends. The holders of
Series B, Series C, Series D, Series E, Series G and Series H preferred stock
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Company to the holders of common stock, an amount per share equal
to the sum of $0.40, $0.87, $1.08, $1.80, $2.68 and $4.03 plus all accrued and
unpaid dividends on such shares, respectively.

After payment has been made to the holders of the Series B, Series C,
Series D, Series E, Series F, Series G and Series H mandatorily redeemable
convertible preferred stock, the holders of the Series F and common stock shall
be entitled to share ratably in the remaining assets of the Company available
for distribution to its stockholders.

CONVERSION

Each share of Series B, Series C, Series D, Series E, Series F, Series G
and Series H mandatorily redeemable convertible preferred stock is convertible,
at the option of the holder, into such number of fully paid and nonassessable
shares of common stock as determined by dividing the applicable original issue
price by the conversion price applicable to such share in effect at the date of
conversion. Each share of preferred stock shall automatically be converted into
shares of common stock immediately upon the closing of a firm commitment
underwritten public offering in which the aggregate proceeds raised equal or
exceed $15,000,000 and the per share offering price is not less than $5.94 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization). At December 31, 1999, each share of preferred stock can be
converted to one share of common stock, subject to adjustments under specific
circumstances. The Company has reserved a total of 20,469,749 shares of common
stock for issuance upon the conversion of the outstanding mandatorily redeemable
convertible preferred stock.

REDEMPTION

On March 24, 2005 and 2006, each holder of Series B, Series C, Series D,
Series E, Series F, Series G and Series H mandatorily redeemable convertible
preferred stock will have the right to require the Company to redeem up to 50%
and 100% respectively of such shares of

F-17
<PAGE> 91
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

preferred stock held by such holder on each of those dates. The redemption price
to be paid by the Company upon such redemption's is $0.40 per share of Series B
preferred stock, $0.87 per share for Series C preferred stock, $1.08 per share
for Series D preferred stock, $1.80 per share of Series E and Series F preferred
stock, $2.68 per share of Series G preferred stock and $4.03 per share of Series
H preferred stock, plus all accrued but unpaid dividends. The carrying value of
redeemable convertible preferred stock is increased by periodic accretions using
the interest method so that the carrying amount will equal the redemption amount
at the redemption date.

At December 31, 1999, future minimum accretion to redemption values of
mandatorily redeemable convertible preferred stock, which includes preferred
dividends, are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
<S> <C>
2000........................................................ $ 2,279,419
2001........................................................ 2,453,128
2002........................................................ 2,610,841
2003........................................................ 2,746,359
2004 and thereafter......................................... 4,887,700
-----------
$14,977,447
===========
</TABLE>

VOTING RIGHTS

The holder of each share of Series B, Series C, Series D, Series E, Series
F, Series G and Series H preferred stock is entitled to one vote for each share
of common stock into which such share of the preferred stock is convertible. The
Board of Directors of the Company consists of five members. One member of the
Board of Directors shall be elected by the holders of record of the Series B
preferred stock voting separately as a class. Two members of the Board of
Directors shall be elected by the holders of record of the Series F preferred
stock, voting separately as a class. One member of the Board of Directors shall
be elected by the holders of record of a majority of the outstanding shares of
common stock and Series B, Series C, Series D, Series E, Series F, Series G and
Series H preferred stock voting together as a single class on an if-converted
basis. Lastly, one member of the Board of Directors shall be either the
President or the Chief Executive Officer of the Company.

REPURCHASE OF SERIES A MANDATORILY REDEEMABLE PREFERRED STOCK

The Company has a right of first refusal to repurchase any outstanding
shares of common stock or Series A mandatorily redeemable convertible preferred
stock held by certain stockholders of the Company in the event the holder of
such shares receives and accepts an offer from a third party to purchase the
stockholder's Series A mandatorily redeemable convertible stock. In March 1999,
the Company repurchased 4,521,470 shares of Series A mandatorily redeemable
convertible preferred stock and two shares of common stock from an investor in
the Company at $0.60 per share for $2,712,883.

F-18
<PAGE> 92
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. STOCKHOLDERS' EQUITY

COMMON STOCK

The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 60,000,000 shares of $0.001 par value common stock. A portion
of the shares sold are subject to a right of repurchase by the Company over the
vesting period, which is generally over a four year period. At December 31,
1997, 1998 and 1999, 309,879, 125,856 and 51,387 shares of common stock were
subject to repurchase, respectively.

WARRANTS

During 1995, in conjunction with a capital lease agreement, the Company
issued warrants to purchase 45,000 shares of its common stock at a price of
$0.67 per share. The warrants will expire upon the later of November 15, 2005 or
five years subsequent to the closing of an initial public offering of the
Company's common stock.

In December 1996, the Company issued warrants to purchase 150,000 shares of
common stock at a price of $1.33 per share to the lessor of the Company's new
facility. The warrants will expire upon the earliest of December 6, 2003, the
closing of an acquisition of the Company, or five years subsequent to the
closing of an initial public offering of the Company's common stock.

In February 1997, in conjunction with an additional $1,000,000 capital
lease agreement, the Company issued warrants to purchase 50,025 shares of common
stock at $1.33 per share. The warrants will expire upon the later of February
15, 2007 or five years subsequent to the closing of an initial public offering
of the Company's common stock.

In December 1997 and February 1998, in conjunction with the issuance of
$337,187 and $500,000 of promissory notes to related parties, the Company issued
warrants to purchase 62,250 and 92,307 shares of Series D preferred stock at
$1.08 per share, respectively. The warrants will expire at the earliest of 10
years from the date of issuance, the sale or acquisition of the Company or the
effective date of the Company's registration statement.

In May 1999, in conjunction with the loan agreement described in Note 6,
the Company issued warrants to purchase 138,890 shares of common stock at an
exercise price of $1.80 per share. The warrant has a ten year term ending in May
2009.

The value of the warrants was calculated using the Black-Scholes pricing
model and have been charged to additional paid in capital and amortized to
interest expense or rent expense as appropriate over the life of the notes.
Valuation of warrants granted in 1995, 1996 and 1997 was immaterial. The
valuation of warrants granted in 1998 was $84,534 and in the period ended
December 31, 1999 was $445,694.

STOCK OPTION PLANS

As of December 31, 1999, the Board of Directors has reserved 5,014,004
shares of common stock under its 1995 and 1997 Stock Plans (the "Plans") for
issuance to employees, directors and consultants of the Company.

F-19
<PAGE> 93
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Employees can exercise options through the use of a note payable to the
Company. These notes are recourse and have no specific terms attached. The
shares purchased are held in escrow by the Company until the note has been fully
repaid. Interest is charged on the note at federal rates. At December 31, 1999
the balance of notes receivable outstanding was $6,850.

Under the Plans, options granted under the Plans may be incentive stock
options or nonstatutory stock options. Stock purchase rights may also be granted
under the Plans. The Board of Directors determines the period over which options
become exercisable, but they generally vest at a rate of 25% after completing
one year of service and an additional 1/48 of such shares becoming exercisable
each month thereafter and options expire ten years from their vesting start
dates. The exercise price of incentive stock options shall be no less than 100%
of the fair market value per share of the Company's common stock on the grant
date as determined by the Company's Board of Directors. The exercise price of
nonstatutory stock options shall be no less than par value of the Company's
common stock. The term of the options is no longer than five years for incentive
options for which the grantee owns greater than 10% of the voting power of all
classes of stock and no longer than ten years for all other options.

F-20
<PAGE> 94
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Activity under the Plans is as follows:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER AGGREGATE EXERCISE
FOR GRANT OF SHARES PRICE PRICE
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Options reserved at Plan inception...... 1,418,501 -- $ --
Options granted....................... (1,252,418) 1,252,418 50,097 $0.04
---------- --------- ---------- -----
Balances, December 31, 1995............. 166,083 1,252,418 50,097 0.04
Additional shares reserved............ 525,000 -- --
Options granted....................... (349,275) 349,275 15,476 0.04
Options exercised..................... -- (586,901) (23,476) 0.04
Options canceled...................... 75,000 (75,000) (3,000) 0.04
---------- --------- ---------- -----
Balances, December 31, 1996............. 416,808 939,792 39,097 0.04
Additional shares reserved............ 750,000 -- --
Options granted....................... (588,019) 588,019 101,126 0.17
Options exercised..................... -- (751,434) (39,363) 0.05
Options canceled...................... 131,813 (131,813) (9,238) 0.07
---------- --------- ---------- -----
Balances, December 31, 1997............. 710,602 644,564 91,622 0.14
Additional shares reserved............ 1,500,000 -- --
Options granted....................... (1,358,127) 1,358,127 606,971 0.45
Options exercised..................... -- (246,057) (38,303) 0.16
Options canceled...................... 148,695 (148,695) (47,019) 0.32
---------- --------- ---------- -----
Balances, December 31, 1998............. 1,001,170 1,607,939 613,271 0.38
Additional shares reserved............ 820,503 -- --
Options granted....................... (1,554,126) 1,554,126 746,105 0.48
Options exercised..................... -- (109,554) (23,887) 0.22
Options cancelled..................... 161,447 (161,447) (53,469) 0.33
---------- --------- ---------- -----
Balances, December 31, 1999............. 428,994 2,891,064 $1,282,020 $0.44
========== ========= ========== =====
</TABLE>

Prior to 1999 there were no significant option grants to consultants.
During 1999 there was a grant of 100,000 options to a consultant at an exercise
price of $0.63. All of these options were still outstanding at December 31,
1999. The charge to income in 1999 for this grant was $48,533 and deferred
compensation as at December 31, 1999 was $1,747,201. The options vest over three
years.

The fair value of each option grant to employees is estimated on the date
of grant using the minimum value method with the following weighted average
assumptions:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield..................................... -- -- --
Risk-free interest rate..................................... 6.2% 5.5% 5.3%
Expected life (in years).................................... 5.0 5.0 5.0
</TABLE>

F-21
<PAGE> 95
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The expected life is based on the assumption that stock options on average
are exercised one year after they are fully vested. The risk free interest rate
was calculated in accordance with the grant date and expected life calculated.

The weighted average estimated fair value of employee stock options granted
during 1997, 1998, and 1999 were $0.05, $1.31 and $4.69, respectively.

The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation cost for the Plans
been determined based on the fair value at the date of the awards consistent
with the provisions of SFAS No. 123, the impact on the Company's net loss would
be as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss attributable to common stockholders:
As reported....................................... $(2,298,800) $(6,010,688) $(18,445,678)
Pro forma......................................... (2,304,949) (6,278,709) (19,199,370)
=========== =========== ============
Basic and diluted net loss per common share:
As reported....................................... $ (4.02) $ (5.03) $ (11.85)
=========== =========== ============
Pro forma......................................... $ (4.02) $ (5.25) $ (12.34)
=========== =========== ============
</TABLE>

The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:

<TABLE>
<CAPTION>
OPTIONS CURRENTLY
OPTIONS OUTSTANDING EXERCISABLE
--------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.04....................... 140,624 6.25 $0.04 124,235 $0.04
$0.09....................... 38,250 6.80 $0.09 32,625 $0.09
$0.11....................... 80,501 7.57 $0.11 49,763 $0.11
$0.40....................... 1,877,063 8.66 $0.40 1,158,873 $0.40
$0.63....................... 754,626 9.30 $0.63 245,252 $0.63
--------- ---- ---------
2,891,064 8.65 1,610,748
========= ==== =========
</TABLE>

As of December 31, 1997 and 1998, options to purchase 163,638 and 1,260,636
shares of common stock were exercisable under the Plans, respectively.

DEFERRED STOCK COMPENSATION

During 1998 and 1999, the Company issued stock options to certain employees
under the 1995 and 1997 Plan with exercise prices below the deemed fair value of
the Company's common stock at the date of grant. In accordance with the
requirements of APB 25, the Company has recorded deferred stock compensation for
the difference between the exercise price of the stock options and the deemed
fair value of the Company's common stock at the date of grant. This deferred
stock compensation is amortized to expense over the period during which the
options or common stock subject to repurchase vest, generally four years, using
the straight line method. As of December 31, 1998, the Company has recorded
deferred stock compensation related to these options in the total amount of
$1,671,559, of which $286,086 has been amortized to expense

F-22
<PAGE> 96
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

during 1998. As of December 31, 1999 the Company has recorded deferred stock
compensation of $6,102,291 of which $979,332 has been amortized to expense
during the period.

9. EMPLOYEE BENEFIT PLAN

The Company established a 401(k) Plan (the "Plan") to provide tax deferred
salary deductions for all eligible employees. Participants may make voluntary
contributions to the Plan up to 20% of their compensation, limited by certain
Internal Revenue Service restrictions. The Company's matching contribution is
discretionary as determined by the Board of Directors. The Company has not
contributed to the Plan since its inception.

10. RELATED PARTY TRANSACTIONS

In May 1995 the Company issued Series A preferred stock to 2C Optics. The
Chairman of the Company is a member of the board of directors of 2C Optics. The
Series A preferred stock was repurchased by the Company in March 1999 at a price
of $0.60 per share.

During December 1997 and February 1998, the Company issued a total of
$837,187 of promissory notes to executives and stockholders. The notes bear
interest at 9% per year. Principal and accrued interest are due and payable upon
demand by the holder at the earlier of February 15, 1998 or the closing of the
sale of preferred stock to institutional investors with aggregate proceeds of at
least $500,000. The notes and accrued interest are convertible into shares of
the Company's preferred stock in the event of a venture capital financing.

During September 1998, the Company issued $1,650,000 of promissory notes to
executives and stockholders. The notes bear interest at 9% per year. Principal
and accrued interest are due and payable upon demand by the holder at the
earlier of January 31, 1999 or the closing of the sale of preferred stock with
aggregate proceeds of at least $5,000,000. The notes and accrued interest are
convertible into shares of the Company's preferred stock in the event of a
venture capital financing.

All of the above promissory notes and accrued interest were converted into
$2,495,978 of preferred stock in March 1999 or paid as cash of $119,099. Per the
original notes agreements the holder had the right to convert the unpaid
principal balance and accrued interest into shares of the Company's Preferred
Stock issued in a venture capital financing at the same purchase price and upon
the same terms as such shares add to other investors in such venture capital
financing. The unpaid notes and accrued interest were converted into Series F
preferred stock at the purchase price or $1.80 per share.

In February 1997, the Company entered into a research collaboration
(extended in March 1998) with the R.W. Johnson Pharmaceutical Research
Institute, which owns shares of Series D, Series E and Series F mandatorily
redeemable convertible preferred stock.

During 1999, the Company entered into a research collaboration with PE
Biosystems, whose parent PE Corporation owns shares of Series E and Series G
mandatorily redeemable convertible preferred stock, and the R.W. Johnson
Pharmaceutical Research Institute.

Revenue from the above collaborations totalled $1,200,000, $600,000 and
$1,660,000 for the years ended December 31, 1997, 1998 and 1999, respectively.

In addition in April 1998 the Company entered into a collaboration with PE
Biosystems whose parent Corporation is a Series F investor. This agreement is
described in Note 5. No revenue has been received or recognized on this
collaboration.

F-23
<PAGE> 97
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES

The net deferred tax assets comprise:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.................... $ 3,294,000 $ 6,000,000
Tax credit carryforwards............................ 542,000 873,000
Other............................................... (14,000) 8,000
----------- -----------
3,822,000 6,881,000
Less: valuation allowance........................... (3,822,000) (6,881,000)
----------- -----------
Net deferred tax assets............................. $ -- --
=========== ===========
</TABLE>

Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its net deferred tax assets.

At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $15,910,000 and $10,119,000, respectively, and
federal and state tax credits of approximately $441,000 and $432,000,
respectively, available to offset future regular and alternative minimum taxable
income. The Company's net operating loss carryforwards and tax credits expire
between 2000 and 2015 if not utilized.

The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. If the Company should have an ownership change, as
defined by the tax law, utilization of the carryforwards could be restricted.

12. SUBSEQUENT EVENTS (UNAUDITED)

LEGAL MATTERS

On January 18, 2000, Caliper filed a complaint against the Company in the
U.S. District Court of the Northern District of California. The complaint
alleges infringement of four U.S. patents.

Management of the Company is currently unable to predict the final outcome
of this matter and the ultimate effect, if any, on the Company's financial
condition, cashflows and results of operations.

REGISTRATION

In January 2000, the Company's board of directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell its common stock to the public. Upon completion of
the Company's initial public offering, all of the outstanding preferred stock
will be converted into shares of common stock.

STOCK SPLIT

On February 17, 2000, the board of directors approved a 3-for-2 forward
split of its preferred and common stock. All preferred stock data, common stock
data and common stock option plan information in this report has been restated
retroactively to reflect the split. The split was approved by the Company's
stockholders in March 2000.

F-24
<PAGE> 98
ACLARA BIOSCIENCES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE STOCK PURCHASE PLAN

On February 11, 2000, the board of directors adopted the employee stock
purchase plan under which 450,000 shares have been reserved and approved for
issuance. The 2000 employee stock purchase plan contains successive six-month
offering periods and the price of stock purchased under the plan is 85% of the
lower of the fair value of the common stock either at the beginning of the
period or at the end of the period.

UNASSERTED CLAIM

The Company has received correspondence from an attorney representing a
group of minority stockholders of 2C Optics (the Company's former parent
company), including David Soane, one of the Company's co-founders, alleging
violations of corporate and securities law by the Company and one or more of its
directors with regards to the repurchase by the Company of the Series A
preferred stock in March 1999.

The attorney is threatening litigation to force the Company to sell his
clients shares of the Company's stock, at $0.60 per share (the price at which
they were repurchased), equal to each clients' pro rated portion of the shares
repurchased. No suit has yet been filed. Management of the Company is unable to
predict at this time the final outcome of this matter and the ultimate effect,
if any, on the Company's financial condition, cashflows and results of
operations.

PACKARD BIOSCIENCE COMPANY

In February 2000 the Company entered into a collaboration agreement with
Packard BioScience Company for the commercialization of the Company's Oasis
LabCard chips. Under the agreement, the Company will work together with Packard
BioScience to optimize the performance of Oasis LabCard chips in combination
with automation and detection equipment and with reagents manufactured by
Packard BioScience. Packard BioScience has exclusive rights to market and
distribute the Oasis LabCard chips. The Company will be the exclusive supplier
of Oasis LabCard chips to Packard BioScience, and will share in the net revenue
from Packard BioScience's sales of Oasis LabCard chips and any instruments made
specifically by Packard BioScience to be used with Oasis LabCard chips. The
agreement may be terminated by either party, in its sole discretion and subject
to penalties, upon 90 days prior written notice. Unless terminated earlier, the
agreement will remain in effect until the expiration of the last patent subject
to the agreement.

CERTIFICATE OF INCORPORATION

On February 11, 2000 the board of directors approved the filing of an
amended and restated certificate of incorporation upon completion of the
Company's initial public offering. The amendment will increase the Company's
authorized common stock to 150,000,000 and decrease authorized preferred stock
to 15,000,000.

F-25
<PAGE> 99

YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THE
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY THESE SHARES IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR
SOLICITATION IS UNLAWFUL.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Special Note Regarding Forward-
Looking Statements.................. 14
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 23
Management............................ 45
Certain Relationships and Related
Party Transactions.................. 55
Principal Stockholders................ 59
Description of Capital Stock.......... 62
Shares Eligible for Future Sale....... 65
Underwriting.......................... 67
Legal Matters......................... 69
Experts............................... 69
Where You Can Find More Information... 70
Index to Financial Statements......... F-1
</TABLE>

DEALER PROSPECTUS DELIVERY OBLIGATIONS:

UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE IN THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. DEALERS
ARE ALSO OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------------------

LOGO

9,000,000 SHARES

COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
WARBURG DILLON READ LLC
U.S. BANCORP PIPER JAFFRAY
PROSPECTUS

, 2000
<PAGE> 100

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the Registrant in connection
with the sale of the Common Stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fees and the Nasdaq National
Market listing fee.

<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee........................................ $ 49,184
NASD filing fee............................................. 18,725
Nasdaq National Market listing fee.......................... 95,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 250,000
Printing and engraving...................................... 150,000
Blue sky fees and expenses (including legal fees)........... 5,000
Transfer agent fees......................................... 10,000
Miscellaneous............................................... 12,091
--------
Total..................................................... $990,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our Restated Certificate of Incorporation in effect as of the date hereof,
and our Restated Certificate of Incorporation to be in effect upon the closing
of this offering (collectively, the "Certificate") provide that, except to the
extent prohibited by the Delaware General Corporation Law, as amended (the
"DGCL"), the Registrant's directors shall not be personally liable to the
Registrant or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Registrant. Under the DGCL, the directors have a
fiduciary duty to the Registrant which is not eliminated by this provision of
the Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the DGCL
for breach of the director's duty of loyalty to the Registrant, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
the DGCL. This provision also does not affect the directors' responsibilities
under any other laws, such as the Federal securities laws or state or Federal
environmental laws. The Registrant has applied for liability insurance for its
officers and directors.

Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the

II-1
<PAGE> 101

corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest extent
permitted by Section 102(b)(7) of the DGCL and provides that the Registrant may
fully indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that such person is or was a director or officer of the Registrant, or is or was
serving at the request of the Registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The registrant has sold and issued the following securities since January
1, 1997:

(1) From January 1, 1997 through December 31, 1999, we granted stock
options to purchase 3,404,691 shares of our common stock at exercise
prices ranging from $0.09 to $0.63 per share to our employees and
consultants under our 1997 Stock Plan. Of these stock options, 345,852
shares have been cancelled or have lapsed without being exercised,
316,650 shares have been exercised, no shares have been repurchased and
2,742,189 shares remain outstanding.

(2) In February 1997, we issued a warrant to purchase 50,025 shares of our
common stock at an exercise price of $1.33 per share to Phoenix Leasing
Incorporated.

(3) On April 17, 1997 we issued and sold an aggregate of 461,538 Series D
Redeemable Preferred Stock to Johnson and Johnson Development
Corporation for an aggregate purchase price of $500,000.

(4) From December 1997 to February 1998, we entered into a Note and Warrant
Purchase Agreement with Mark A. Medearis, Charles Crocker, Matthew J.
Franklin, Johnson and Johnson Development Corporation, Laboratory
Partners I, L.P., Laboratory Partners Companion Fund, L.P., Ampersand
Specialty Materials and Chemicals II, L.P., Chemicals and Materials
Enterprise Associates, L.P., S&A Biotech Investments, LLC, and David
Soane. Pursuant to this agreement, we issued warrants to purchase
154,500 shares of our Series D Redeemable Preferred Stock and issued
and sold Subordinated Promissory Notes in the aggregate principal
amount of $837,187 to the entities listed above.

(5) From March through April 1998, we issued an aggregate of 2,500,001
shares of Series E Redeemable Preferred Stock to Johnson and Johnson
Development Corporation and PE Corporation for an aggregate purchase
price of $4,500,000.

II-2
<PAGE> 102

(6) On September 3, 1998, we issued and sold Convertible Subordinated
Promissory Notes in the aggregate principal amount of $1,650,000 to
Johnson & Johnson Development Corporation, Lab Partners I, L.P., Lab
Partners Companion Fund, L.P., Ampersand Specialty Materials and
Chemicals II, L.P., Chemicals and Materials Enterprise Associates,
L.P.

(7) From January through March 1999, we issued and sold an aggregate of
10,014,999 shares of Series F Preferred Stock in a private placement
to Alta California Partners II, L.P., Alta Embarcadero Partners II,
L.P., TECHAMP International, L.P., Singapore Bio-Innovations Pte.
Ltd., Johnson & Johnson Development Corporation, Laboratory Partners
I, L.P., Laboratory Partners Companion Fund, L.P., Ampersand Specialty
Materials and Chemicals II, L.P., Chemicals and Materials Enterprise
Associates, L.P., CMEA Life Sciences Fund, L.P., Matthew J. Franklin,
Mark Medearis, GIMV, N.V., H. Gill Sawhney, Lion Investments Ltd.,
Westpool Investment Trust, plc., Weber Family Trust dated 1/6/89,
Burrill AgBio Capital Fund, L.P., Wendy R. Hitchcock, and Michael W.
Hall for an aggregate purchase price of $18,027,000. $2.5 million of
this price was paid for by the conversion of outstanding Convertible
Subordinated Promissory Notes we previously issued on December 15,
1997, February 6, 1998, and September 3, 1998 to Johnson and Johnson
Development Corporation, Laboratory Partners I, L.P., Laboratory
Partners Companion Fund, L.P., Ampersand Specialty Materials and
Chemicals II, Limited Partnership, Chemicals and Materials Enterprise
Associates, L.P., Matthew Franklin, and Mark A. Medearis. At this
time, we also paid the entire principal amount and interest accrued on
Subordinated Promissory Notes previously issued to David Soane,
Charles Crocker, and S&A Biotech Investments, LLC.

(8) On April 29, 1999, we issued and sold an aggregate of 1,119,404 shares
of Series G Redeemable Preferred Stock to PE Corporation for an
aggregate purchase price of $3,000,000.

(9) On May 28, 1999, we issued a warrant to purchase 138,890 shares of our
common stock at an exercise price of $1.80 per share to TBCC Funding
Trust in connection with a Master Loan and Security Agreement between
Transamerica Business Credit Corporation and us.

(10) On December 30, 1999, we issued and sold an aggregate of 1,241,723
shares of Series H Redeemable Preferred Stock to Asea Brown Boveri
Inc. for an aggregate purchase price of $5,000,000.

The sale of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or, with respect to issuances to employees
and consultants, Rule 701 promulgated under Section 3(b) of the Securities Act
as transactions by an issuer not involving a public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided under such Rule 701. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment purposes only and not with a view to or for sale in connection with
any distribution thereof and appropriate legends were affixed to the instruments
representing such securities issued in such transactions. All recipients either
received adequate information about ACLARA BioSciences, Inc. or had adequate
access, through their relationships with ACLARA BioSciences, to such
information.

II-3
<PAGE> 103

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS.

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement
*3.1 Amended and Restated Certificate of Incorporation of ACLARA
BioSciences, Inc. in effect as of January 20, 2000
*3.2 Bylaws of ACLARA BioSciences, Inc., as currently in effect
*3.3 Amended and Restated Certificate of Incorporation filed
March 14, 2000
*3.4 Form of Amended and Restated Bylaws of ACLARA BioSciences,
Inc., to be in effect after the closing of the offering made
under this registration statement
*3.5 Certificate of Amendment of the Amended and Restated
Certificate of Incorporation, filed February 16, 2000
3.6 Form of Certificate of Amendment of the Amended and Restated
Certificate of Incorporation, to be filed immediately prior
to the closing of the offering made under this registration
statement
*4.1 Specimen Common Stock certificate
++5.1 Opinion of Latham & Watkins
*10.1 Form of Indemnification Agreement between ACLARA and each of
our directors and officers
*10.2 1995 Stock Option Plan
*10.3 Amended and Restated ACLARA BioSciences, Inc. 1997 Stock
Plan
*10.4 Amended and Restated Investors' Rights Agreement, dated as
of December 30, 1999
*10.5 Change of Control Agreement by and between Joseph M. Limber
and ACLARA BioSciences, Inc., effective as of January 19,
2000
*10.6 Change of Control Agreement by and between Herbert H. Hooper
and ACLARA BioSciences, Inc., effective as of January 19,
2000
*10.7 Change of Control Agreement by and between Wendy R.
Hitchcock and ACLARA BioSciences, Inc., effective as of
January 19, 2000
*10.8 Lease Agreement between ACLARA BioSciences, Inc. and The
Pear Avenue Group, dated March 1, 1999
*10.9 Master Equipment Lease between Phoenix Leasing and Soane
BioSciences, Inc., dated as of November 15, 1995
*10.10+ Agreement for an Exclusive Alliance to Develop, Manufacture
and Market a Chip-Based Screening System for Cell Analysis
between Cellomics, Inc. and ACLARA BioSciences, Inc, dated
as of October 26, 1999
*10.11+ Collaboration Agreement between ACLARA BioSciences, Inc. and
The Perkin-Elmer Corporation, dated as of March 19, 1999
*10.12+ Side Agreement between ACLARA BioSciences, Inc. and The
Perkin-Elmer Corporation, dated as of March 19, 1999
*10.13+ Custom Instrument Development and Commercialization
Agreement between the The R.W. Johnson Pharmaceutical
Research Initiative, The Perkin-Elmer Corporation and ACLARA
BioSciences, Inc., signed in March 1999
*10.14+ Collaboration Agreement between Soane BioSciences, Inc. and
The Perkin-Elmer Corporation, dated as of April 25, 1998
*10.15 Master Loan and Security Agreement by and between ACLARA
BioSciences, Inc. and Transamerica Business Credit
Corporation, dated as of May 27, 1999
*10.16 ACLARA BioSciences, Inc. Employee Stock Purchase Plan
*10.17+ Agreement between Packard BioScience Company and ACLARA
BioSciences, dated as of February 21, 2000
</TABLE>

II-4
<PAGE> 104

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
*10.18 Consulting Agreement with Dr. Eric Lander dated as of
January 15, 2000
*10.19 Consulting Agreement with Mr. Andre Marion dated as of
January 19, 2000
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Latham & Watkins (included in Exhibit 5.1)
*23.3 Consent of Director-Elect
*24.1 Powers of Attorney
*27.1 Financial Data Schedule
</TABLE>

- -------------------------
* Previously filed.

+ Confidential treatment has been granted for portions of this agreement.

++ Replaces previously filed exhibit.

(b) FINANCIAL STATEMENT SCHEDULES.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933, shall be deemed to be part
of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 105

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Mountain View, State of California, on this 17th day of March, 2000.

ACLARA BioSciences, Inc.

By: /s/ JOSEPH M. LIMBER
------------------------------------
Name: Joseph M. Limber
Title: President and Chief
Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 4 to the Registration Statement has been signed by the
following persons in the capacities indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ JOSEPH M. LIMBER President, Chief Executive March 17, 2000
- ----------------------------------------------------- Officer and Director
Joseph M. Limber (Principal Executive Officer)

/s/ WENDY R. HITCHCOCK Chief Financial Officer March 17, 2000
- ----------------------------------------------------- (Principal Financial and
Wendy R. Hitchcock Accounting Officer)

* Director March 17, 2000
- -----------------------------------------------------
Thomas R. Baruch

* Director March 17, 2000
- -----------------------------------------------------
Jean Deleage

* Director March 17, 2000
- -----------------------------------------------------
Michael W. Hunkapiller

* Director March 17, 2000
- -----------------------------------------------------
Eric S. Lander

* Director March 17, 2000
- -----------------------------------------------------
Andre F. Marion

* Director March 17, 2000
- -----------------------------------------------------
David J. Parker

*By: /s/ WENDY R. HITCHCOCK
-----------------------------------------------
Wendy R. Hitchcock
Attorney-in-Fact
</TABLE>

II-6
<PAGE> 106

EXHIBIT INDEX

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement
*3.1 Amended and Restated Certificate of Incorporation of ACLARA
BioSciences, Inc. in effect as of January 20, 2000
*3.2 Bylaws of ACLARA BioSciences, Inc., as currently in effect
*3.3 Amended and Restated Certificate of Incorporation, filed
March 14, 2000
*3.4 Form of Amended and Restated Bylaws of ACLARA BioSciences,
Inc., to be in effect after the closing of the offering made
under this registration statement
*3.5 Certificate of Amendment of the Amended and Restated
Certificate of Incorporation, filed February 16, 2000
3.6 Form of Certificate of Amendment of the Amended and Restated
Certificate of Incorporation, to be filed immediately prior
to the closing of the offering made under this registration
statement
*4.1 Specimen Common Stock certificate
++5.1 Opinion of Latham & Watkins
*10.1 Form of Indemnification Agreement between ACLARA and each of
our directors and officers
*10.2 1995 Stock Option Plan
*10.3 Amended and Restated ACLARA BioSciences, Inc. 1997 Stock
Plan
*10.4 Amended and Restated Investors' Rights Agreement, dated as
of December 30, 1999
*10.5 Change of Control Agreement by and between Joseph M. Limber
and ACLARA BioSciences, Inc., effective as of January 19,
2000
*10.6 Change of Control Agreement by and between Herbert H. Hooper
and ACLARA BioSciences, Inc., effective as of January 19,
2000
*10.7 Change of Control Agreement by and between Wendy R.
Hitchcock and ACLARA BioSciences, Inc., effective as of
January 19, 2000
*10.8 Lease Agreement between ACLARA BioSciences, Inc. and The
Pear Avenue Group, dated March 1, 1999
*10.9 Master Equipment Lease between Phoenix Leasing and Soane
BioSciences, Inc., dated as of November 15, 1995
*10.10+ Agreement for an Exclusive Alliance to Develop, Manufacture
and Market a Chip-Based Screening System for Cell Analysis
between Cellomics, Inc. and ACLARA BioSciences, Inc, dated
as of October 26, 1999
*10.11+ Collaboration Agreement between ACLARA BioSciences, Inc. and
The Perkin-Elmer Corporation, dated as of March 19, 1999
*10.12+ Side Agreement between ACLARA BioSciences, Inc. and The
Perkin-Elmer Corporation, dated as of March 19, 1999
*10.13+ Custom Instrument Development and Commercialization
Agreement between the The R.W. Johnson Pharmaceutical
Research Initiative, The Perkin-Elmer Corporation and ACLARA
BioSciences, Inc., signed in March 1999
*10.14+ Collaboration Agreement between Soane BioSciences, Inc. and
The Perkin-Elmer Corporation, dated as of April 25, 1998
*10.15 Master Loan and Security Agreement by and between ACLARA
BioSciences, Inc. and Transamerica Business Credit
Corporation, dated as of May 27, 1999
*10.16 ACLARA BioSciences, Inc. Employee Stock Purchase Plan
</TABLE>

<PAGE> 107

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
*10.17+ Agreement between Packard BioScience Company and ACLARA
BioSciences, dated as of February 21, 2000
*10.18 Consulting Agreement with Dr. Eric Lander dated as of
January 15, 2000
*10.19 Consulting Agreement with Mr. Andre Marion dated as of
January 19, 2000
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Latham & Watkins (included in Exhibit 5.1)
*23.3 Consent of Director-Elect
*24.1 Powers of Attorney
*27.1 Financial Data Schedule
</TABLE>

- -------------------------
* Previously filed.

+ Confidential treatment has been granted for portions of this agreement.

++ Replaces previously filed exhibit.

<PAGE> 1
EXHIBIT 1.1

10,350,000 Shares

ACLARA BIOSCIENCES, INC.

Common Stock

($0.001 Par Value)

EQUITY UNDERWRITING AGREEMENT

March __, 2000

Deutsche Bank Securities Inc.
Warburg Dillon Read LLC
U.S. Bancorp Piper Jaffray Inc.
As Representatives of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202

Ladies and Gentlemen:

ACLARA BioSciences, Inc., formerly Soane BioSciences, Inc., a Delaware
corporation (the "Company"), proposes to sell to the several underwriters (the
"Underwriters") named in Schedule I hereto for whom you are acting as
representatives (the "Representatives") an aggregate of 9,000,000 shares of the
Company's Common Stock, $0.001 par value (the "Firm Shares"). The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto. The Company also proposes
to sell at the Underwriters' option an aggregate of up to 1,350,000 additional
shares of the Company's Common Stock (the "Option Shares") as set forth below.

As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."

<PAGE> 2

Deutsche Bank Securities Inc. ("DBSI") has agreed to reserve up to
524,000 of the Shares to be purchased by it under this Agreement for sale to the
Company's directors, officers, employees and business associates and other
parties related to the Company (collectively, "Participants"), as set forth in
the Prospectus under the heading "Underwriters" (the "Directed Share Program").
The Shares to be sold by DBSI and its affiliates pursuant to the Directed Share
Program are referred to hereinafter as the "Directed Shares." Any Directed
Shares not orally confirmed for purchase by any Participants by the end of the
business day on which this Agreement is executed will be offered to the public
by the Underwriters as set forth in the Prospectus.

In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:

1. Representations and Warranties of the Company.

The Company represents and warrants to each of the Underwriters as
follows:

(a) A registration statement on Form S-1 (File No. 333-95107) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."

(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company has no direct
or indirect subsidiaries. The Company is duly qualified to transact business in
all jurisdictions in which the conduct of its business requires such
qualification and where the failure to be so qualified would have a material
adverse effect on the business or financial condition of the Company.

(c) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
Shares to be issued and

2
<PAGE> 3

sold by the Company have been duly authorized and when issued and paid for as
contemplated herein will be validly issued, fully paid and non-assessable; and
no preemptive rights of stockholders exist with respect to any of the Shares or
the issue and sale thereof. Neither the filing of the Registration Statement nor
the offering or sale of the Shares as contemplated by this Agreement gives rise
to any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock.

(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. All of the Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Shares conforms to the corporate law of the jurisdiction of the Company's
incorporation.

(e) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.

(f) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the results of
operations and cash flows of the Company and the consolidated Subsidiaries, at
the indicated dates and for the indicated periods. Such financial statements and
related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Registration Statement presents fairly the
information shown therein and such data has been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
company.

(g) PricewaterhouseCoopers LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.

3
<PAGE> 4

(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise which if determined adversely to the Company
might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.

(i) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) hereinabove described, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or which
are not material in amount. The Company occupies its leased properties under
valid and binding leases conforming in all material respects to the description
thereof set forth in the Registration Statement.

(j) The Company has filed all Federal, State, local and foreign tax
returns which have been required to be filed and has paid all taxes indicated by
said returns and all assessments received by it to the extent that such taxes
have become due. All tax liabilities have been adequately provided for in the
financial statements of the Company, and the Company does not know of any actual
or proposed additional material tax assessments.

(k) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), or
prospects of the Company, whether or not occurring in the ordinary course of
business, and there has not been any material transaction entered into other
than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be amended or
supplemented. The Company has no material contingent obligations which are not
disclosed in the Registration Statement or in the Company's financial statements
which are included in the Registration Statement.

(l) The Company is not nor with the giving of notice or lapse of time
or both, will be, in violation of or in default under its Charter or By-Laws or
under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which default is of material significance in respect of the condition,
financial or otherwise of the Company or the business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company. The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated and the fulfillment of the terms hereof
will not violate the Charter or By-Laws of the Company. The execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict with or
result in a breach of

4
<PAGE> 5

any of the terms or provisions of, or constitute a default under any indenture,
mortgage, deed of trust or other agreement or instrument to which the Company is
a party or any order, rule or regulation applicable to the Company of any court
or of any regulatory body or administrative agency or other governmental body
having jurisdiction, except where such conflict, breach, violation or default
would not have a material adverse effect on the business or financial condition
of the Company.

(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.

(n) The Company holds all material licenses, certificates and permits
from governmental authorities which are necessary to the conduct of their
businesses except where the failure to have such licenses, certificates or
permits would not have a material adverse effect on the business or financial
condition of the Company.

(o) Intellectual Property Matters.

(i) Except as described in the section entitled "Business - Legal
Proceedings" of the Registration Statement, there are no actions, suits,
proceedings, claims or other legal actions or governmental proceedings of which
the Company has received notice, relating to (a) any patents, trade secrets,
trademarks, service marks, trade names and copyrights ("Intellectual Property
Rights") owned or licensed to the Company pending against the Company or any
licensee of the Company, or relating to (b) any third party Intellectual
Property Rights pending against the Company.

(ii) Except as described in the section "Business - Legal
Proceedings" of the Registration Statement, there are no claims asserted in
writing against the Company that the Company infringes the Intellectual Property
Rights of a third party or that a third party has a right to use Intellectual
Property Rights claimed by the Company.

(iii) The Company is the sole owner, of all the patents, utility
patent applications, and PCT applications listed in Exhibit 1 to this opinion.
The provisional applications set forth in Exhibit 1 to the opinion are also
owned by the Company. The Company is either the assignee of record or is
actively seeking to record assignments for the patents and utility applications
listed in Exhibit 1.

5
<PAGE> 6

(iv) The Company is not aware of any material defect in the
preparation, filing and prosecution of any of the patents, utility patent
applications and the PCT applications listed in Exhibit 1 which would render
them invalid or unenforceable;

(v) Except for ACBI.011.01US, the Company is not aware of any
error or dispute with regard to the inventorship of any of the patents, utility
patent applications and PCT applications listed in Exhibit 1;

(vi) The Company is actively prosecuting the pending U.S. utility
and PCT patent applications listed in Exhibit 1;

(vii) The Company has an ownership interest or exclusive field of
use license as indicated for the third-party patents and patent applications
listed in Exhibit 2; and

(viii) Based solely upon a review of third-party patents known to
the Company, including those set forth in Exhibit 3, the Company does not
believe that any valid and enforceable United States or foreign patent would be
infringed by the current activities or products of the Company. Further, the
Company believes it can design their proposed technology to avoid infringement
of such patents.

(p) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock to facilitate the sale or resale of the Shares.

(q) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940, (as amended, the "1940 Act")
and the rules and regulations of the Commission thereunder.

(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(s) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of its business and the
value of its properties.

(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended,

6
<PAGE> 7

including the regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company would have any
material liability; the Company has not incurred and does not expect to incur
material liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan" for
which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and to
the Company's knowledge nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.

(u) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.

(v) No consent, approval, authorization or order of, or qualification
with, any governmental body or agency, other than those obtained, is required in
connection with the offering of the Directed Shares in any jurisdiction where
the Directed Shares are being offered.

(w) The Company has not offered, or caused DBSI or its affiliates to
offer, Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company, or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.

2. Purchase, Sale and Delivery of the Firm Shares.

(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I hereof,
provided however, that the purchase price per share will be $______ for the
number of Firm Shares, if any, sold by the Underwriters to PE Biosystems in
the offering as indicated on Schedule 1, in each case subject to adjustments in
accordance with Section 9 hereof.

(b) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds by Federal (same day) against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made through the facilities of
the Depository Trust Company, New York, New York at 10:00 a.m., New York time,
on the third business day after the date of this Agreement or at such other time
and date not later than five business days thereafter as you and the Company
shall agree upon, such time and date being herein referred to as the "Closing
Date." (As used herein, "business day" means a day on which the New York Stock
Exchange is open for trading and on which banks in New York are open for
business and are not permitted by law or executive order to be closed.)

7
<PAGE> 8

(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be purchased by
each Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to 9,000,000, adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several Underwriters,
may cancel such option at any time prior to its expiration by giving written
notice of such cancellation to the Company. To the extent, if any, that the
option is exercised, payment for the Option Shares shall be made on the Option
Closing Date in Federal (same day funds) through the facilities of the
Depository Trust Company in New York, New York drawn to the order of the
Company.

3. Offering by the Underwriters.

It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.

It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.

4. Covenants of the Company.

The Company covenants and agrees with the several Underwriters that:

8
<PAGE> 9

(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.

(b) The Company will advise the Representatives promptly (i) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (ii) of receipt of any comments from the Commission, (iii) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.

(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.

(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.

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<PAGE> 10

(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.

(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.

(g) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.

(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of DBSI except for (i) issuance of
common stock upon exercise of currently outstanding options; (ii) granting of
options pursuant to the Company's stock option plan; and (iii) issuance of
common stock pursuant to the Company's Employee Stock Purchase Plan.

(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq Stock Market.

(j) The Company has caused each officer and director and certain
shareholders of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in

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<PAGE> 11

form and substance satisfactory to the Underwriters, pursuant to which each such
person shall agree not to offer, sell, sell short or otherwise dispose of any
shares of Common Stock of the Company or other capital stock of the Company, or
any other securities convertible, exchangeable or exercisable for Common Shares
or derivative of Common Shares owned by such person or request the registration
for the offer or sale of any of the foregoing (or as to which such person has
the right to direct the disposition of) for a period of 180 days after the date
of this Agreement, directly or indirectly, except with the prior written consent
of DBSI ("Lockup Agreements"). DBSI hereby irrevocably consents to the
disposition during the foregoing 180-day period by Participants in the Directed
Share Program of any of the Directed Shares acquired by the Participants.

(k) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.

(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company to register as an investment company under the 1940 Act.

(m) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.

(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.

(o) To comply with all applicable securities and other applicable
laws, rules and regulations in each jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.

5. Costs and Expenses.

The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Invitation Letter, the Listing Application, the
Blue Sky Survey and any supplements or amendments thereto; the filing fees of
the Commission; the filing fees and expenses (including legal fees and
disbursements) incident to securing any required review by the NASD of the terms
of the sale of the Shares; the Listing Fee of the Nasdaq Stock Market; and the
expenses, including the fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the

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<PAGE> 12

Shares under state securities or Blue Sky laws. The Company agrees to pay all
costs and expenses of the Underwriters, including the fees and disbursements of
counsel for the Underwriters, incident to the offer and sale of the Directed
Shares other than the fees and expenses of counsel to the Underwriters and
Underwriters' discounts, concessions and commissions associated therewith. The
Company shall not, however, be required to pay for any of the Underwriters
expenses (other than those related to qualification under NASD regulation and
state securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
11 hereof, or by reason of any failure, refusal or inability on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement or
to comply with any of the terms hereof on its part to be performed, unless such
failure to satisfy said condition or to comply with said terms be due to the
default or omission of any Underwriter, then the Company shall reimburse the
several Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.

6. Conditions of Obligations of the Underwriters.

The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
contained herein, and to the performance by the Company of its covenants and
obligations hereunder and to the following additional conditions:

(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.

(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Latham & Watkins,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:

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<PAGE> 13

(i) The Company has been duly incorporated and is validly
existing in good standing under the laws of the State of Delaware, with
corporate power and corporate authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and to such counsel's
knowledge based solely on a certificate from an officer of the Company, has no
significant subsidiaries (as such term is defined in Rule 1-02(w) of Regulation
S-X). Based solely on certificates from public officials, such counsel confirms
that the Company is qualified to do business in the State of California.

(ii) The authorized capital stock of the Company consists solely
of 150,000,000 shares of Common Stock, $0.001 par value per share, and
15,000,000 shares of Preferred Stock, $0.001 par value per share. The authorized
shares of the Company's Common Stock have been duly authorized.

(iii) Assuming the effect of a 3-for-2 stock split, pursuant to
the filing on March 14, 2000 of its amended and restated certificate of
incorporation, to such counsel's knowledge, the Company had outstanding
1,703,246 shares of Common Stock and 20,469,749 shares of Preferred Stock as set
forth under the caption "Capitalization" in the Prospectus as of the date set
forth therein. Such shares have been duly authorized and are validly issued,
fully paid and non-assessable.

(iv) Except as described in the Prospectus, to the knowledge of
such counsel and based solely on a certificate from an officer of the Company,
there are no contracts or agreements between the Company and any person
granting such person the right to require the Company to include any shares of
capital stock of the Company with the Shares being registered under the
Registration Statement other than pursuant to that certain Amended and Restated
Investor Rights Agreement dated as of December 30, 1999 (which rights have been
waived or were not exercised).

(v) The shares of Common Stock to be issued and sold by the
Company pursuant to the Underwriting Agreement, including the Option Shares, if
any, have been duly authorized and, when issued to and paid for by the
Underwriters in accordance with the terms of the Underwriting Agreement, will be
validly issued, fully paid and non-assessable and free of preemptive or, to our
knowledge, similar rights that entitle or will entitle any person to acquire any
Shares from the Company upon issuance thereof by the Company.

(vi) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.

(vii) The issuance and sale of the shares of Common Stock to be
sold to you by the Company pursuant to the Underwriting Agreement and the
performance by the

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<PAGE> 14

Company of its obligations under the Underwriting Agreement and the consummation
of the transactions contemplated thereby on the Closing Date or Option Closing
Date, as applicable, will not result in the violation by the Company of its
Certificate of Incorporation or Bylaws or the violation by the Company of any
federal or California statute, rule or regulation known to such counsel to be
applicable to the Company (other than federal or state securities laws as to
which no opinion is expressed in this paragraph) or in the breach of or a
default under any agreement or instrument specifically identified as being
material to the Company in a certificate delivered to such counsel, a copy of
which shall be delivered to you. No consent, approval, authorization or order
of, or filing with, any federal or California court or governmental agency or
body is required for the consummation of the issuance and sale of the shares of
Common Stock to be sold to you by the Company pursuant to the Underwriting
Agreement on the date hereof, except such as have been obtained under the Act,
such as may be required by the NASD or under applicable state securities laws in
connection with the purchase and distribution of such shares of Common Stock by
the Underwriters.

(viii) The Registration Statement and the Prospectus comply as to
form in all material respects with the requirements for registration statements
on Form S-1 under the Act and the rules and regulations of the Commission
thereunder; it being understood, however, that such counsel expresses no opinion
with respect to the financial statements, schedules and other financial and
statistical data included in or omitted from the Registration Statement or the
Prospectus. In passing upon the compliance as to the form of Registration
Statement and the Prospectus, such counsel may assume that the statements made
therein are correct and complete.

(ix) The statements set forth in the Prospectus under the
headings "Description of Capital Stock" and "Shares Eligible for Future Sale",
insofar as such statements constitute a summary of the legal matters or
documents referred to therein, are accurate in all material respects.

(x) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened required to be described in the
Prospectus that are not described as required, or contracts or documents of a
character required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement that are not described
and filed as required.

(xi) Based solely upon oral advice of the Staff of the
Commission, the Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order proceedings with respect thereto have
been instituted or are pending or threatened under the Act.

(xii) The Company is not, and after giving effect to the issuance
and sale of shares of Common stock pursuant to the Underwriting Agreement will
not be, an "investment company" or entity "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

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<PAGE> 15

(xiii) Such counsel has reviewed the statements in paragraph 5 of
the section entitled "Business - Legal Proceedings" and "Risk Factor - We have
been threatened with litigation seeking rescission of our repurchase of shares
from a former stockholder, which, if litigation occurs and is decided adversely
to ACLARA, could result in substantial dilution to all stockholders" in the
Prospectus, and any supplements thereto, and nothing has come to the attention
of such counsel which leads them to believe that said sections or any supplement
thereto, and as of the Closing Date or the Option Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to state a
material fact, necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading.

In addition to the matters set forth above, such opinion shall also
include a statement to the effect that Latham & Watkins has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and
representatives of the Underwriters, at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and, although
such counsel is not passing upon, and does not assume any responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus and has not made any independent check
or verification thereof, during the course of such participation no facts came
to its attention that caused such counsel to believe that the Registration
Statement, at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus, as of its date or as of the date hereof, contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; it being understood that such counsel expresses no belief
with respect to the financial statements, schedules and other financial and
statistical data included in, or omitted from, the Registration Statement or the
Prospectus.

(c) The Representatives shall have received from Bertram I. Rowland,
Ph.D., Vice President and General Counsel of the Company, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, to the effect that,
to his knowledge:

(i) except as described in the section entitled "Business - Legal
Proceedings" of the Registration Statement, there are no actions, suits,
proceedings, claims or other legal actions or governmental proceedings of which
the Company has received notice, relating to (a) any patents, trade secrets,
trademarks, service marks, trade names and copyrights ("Intellectual Property
Rights") owned or licensed to the Company pending against the Company or any
licensee of the Company, or (b) any third party Intellectual Property Rights
pending against the Company; or

(ii) except as described in the section "Business - Legal
Proceedings" of the Registration Statement, there are no claims asserted in
writing against the Company that

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<PAGE> 16

Company infringes the Intellectual Property Rights of a third party or that a
third party has a right to use Intellectual Property Rights claimed by the
Company.

(iii) upon his inspection, the Company is the sole owner, of all
the patents, utility patent applications, and PCT applications listed in Exhibit
1. The provisional applications set forth in Exhibit 1 are also owned by the
Company. The Company is either the assignee of record or is actively seeking to
record assignments for the patents and utility applications listed in Exhibit 1.

(iv) he is not aware of any material defect in the preparation,
filing and prosecution of any of the patents, utility patent applications and
the PCT applications listed in Exhibit 1 which would render them invalid or
unenforceable;

(v) except for ACBI.011.01US, he is not aware of any error or
dispute with regard to the inventorship of any of the patents, utility patent
applications and PCT applications listed in Exhibit 1;

(vi) he is actively prosecuting the pending U.S. utility and PCT
patent applications listed in Exhibit 1 in accordance with the Company's
instructions;

(vii) the Company has an ownership interest or exclusive field of
use license as indicated for the third-party patents and patent applications
listed in Exhibit 2; and

(viii) based solely upon a review of third-party patents known to
him, including those set forth in Exhibit 3, he does not believe that any valid
and enforceable United States or foreign patent would be infringed by the
current activities or products of the Company. Further, he believes that the
Company can design their proposed technology to avoid infringement of such
patents.

His opinion will also state that in connection with this opinion letter,
he has reviewed the Registration Statement, and that based upon this review, he
believes that the sections describing the Company's Intellectual Property Rights
and the risk factors concerning the Company's intellectual property do not
contain any untrue statement of a material fact or fail to state a material fact
required to be stated therein which is necessary to make the information
provided therein not misleading. Further, he will also state that he believes
that the information contained in the Registration Statement regarding the
Company's Intellectual Property Rights does not contain any untrue statement of
a material fact or fail to state a material fact required to be stated therein,
in the light of the circumstances in which they are being made, which is
necessary to make the information provided therein not misleading.

(d) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Morrison & Foerster
LLP, counsel for the Company, dated the Closing Date or the Option Closing Date,
as the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that they have

16
<PAGE> 17

reviewed the sections entitled "Business - Legal Proceedings" and "Risk Factor -
We are involved with intellectual property litigation with Caliper Technologies
Corp. that will be expensive, may hurt our competitive position, may affect our
ability to enforce our intellectual property rights and may prevent us from
selling our products" in the Prospectus, and any supplements thereto, and that
nothing has come to the attention of such counsel which leads them to believe
that said sections or any supplement thereto, on the date it was filed pursuant
to the Rules and Regulations and as of the Closing Date or the Option Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact, necessary in order to make the statements, in
the light of the circumstances under which they are made, not misleading.
Morrison & Foerster's opinion may exclude statements in paragraph 5 of the
section entitled "Business - Legal Proceedings."

(e) The Representatives shall have received from Wilson Sonsini
Goodrich & Rosati, Professional Corporation ("Wilson Sonsini"), counsel for the
Underwriters, an opinion dated the Closing Date or the Option Closing Date, as
the case may be, substantially to the effect specified in subparagraphs (viii)
and (xi) of Paragraph (b) of this Section 6, and that the Company is a duly
organized and validly existing corporation under the laws of the State of
Delaware. In rendering such opinion Wilson Sonsini may rely as to all matters
governed other than by the laws of the State of California or Federal laws on
the opinion of counsel referred to in Paragraph (b) of this Section 6. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact, necessary in
order to make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein). With
respect to such statement, Wilson Sonsini may state that their belief is based
upon the procedures set forth therein, but is without independent check and
verification.

(f) The Representatives shall have received at or prior to the
Closing Date from Wilson Sonsini a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the State securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.

(g) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of PricewaterhouseCoopers, LLP confirming
that they are independent public accountants within the

17
<PAGE> 18

meaning of the Act and the applicable published Rules and Regulations thereunder
and stating that in their opinion the financial statements and schedules
examined by them and included in the Registration Statement comply in form in
all material respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations; and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.

(h) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:

(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for such purpose have been taken or are, to his
or her knowledge, contemplated by the Commission;

(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;

(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;

(iv) He or she has carefully examined the Registration Statement
and the Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and

(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business.

(i) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and

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<PAGE> 19

conditions contained herein and related matters as the Representatives may
reasonably have requested.

(j) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the Nasdaq Stock Market.

(k) The Lockup Agreements described in Section 4(j) are in full force
and effect.

The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Wilson Sonsini,
counsel for the Underwriters.

If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.

In such event, the Company and the Underwriters shall not be under
any obligation to each other (except to the extent provided in Sections 5 and 8
hereof).

7. Conditions of the Obligations of the Company.

The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.

8. Indemnification.

(a) The Company agrees:

(i) to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
any such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading any act or failure to act, or (iii) any
alleged act or failure to act by any Underwriter in connection with, or relating
in any manner to, the Shares or

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<PAGE> 20

the offering contemplated hereby, and which is included as part of or referred
to in any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided, that the Company shall
not be liable under this clause (iii) to the extent that it is determined in a
final judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof or resulting from the failure by the Underwriters to provide
an amended Registration Statement, Preliminary Prospectus, or Prospectus to
prospective purchasers of the Shares.

(ii) to reimburse each Underwriter and each such controlling
person upon demand for any legal or other out-of-pocket expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not such Underwriter or controlling person is
a party to any action or proceeding. In the event that it is finally judicially
determined that the Underwriters were not entitled to receive payments for legal
and other expenses pursuant to this subparagraph, the Underwriters will promptly
return all sums that had been advanced pursuant hereto.

(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer, or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the

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<PAGE> 21

preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.

(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of presentation) the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and employ
counsel acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.

21
<PAGE> 22

(d) The Company agrees to indemnify and hold harmless DBSI and each
person, if any, who controls or is controlled by DBSI within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, from
and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) (i) caused
by any untrue statement or alleged untrue statement of a material fact contained
in any material prepared by or with the consent of the Company for distribution
to Participants in connection with the Directed Share Program, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; (ii)
caused by the failure of any Participant to pay for and accept delivery of
Directed Shares that the Participant has agreed to purchase; or (iii) arising
out of or based upon any alleged act or failure to act by DBSI related to,
arising out of, or in connection with the Directed Share Program other than
losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith, willful
misconduct, gross negligence or material misstatement or omission of any
material fact on the part of DBSI; provided, however, that the Company will not
be liable in any such case to the extent that any loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by or through the Representatives specifically for use in the
preparation thereof.

(e) To the extent the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (d) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the

22
<PAGE> 23

other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.

The Company, and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(e) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(e). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.

(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.

(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.

9. Default by Underwriters.

If on the Closing Date or the Option Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the

23
<PAGE> 24

Company), you, as Representatives of the Underwriters, shall use your reasonable
efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as may be
agreed upon and upon the terms set forth herein, the Firm Shares or Option
Shares, as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If during such 36 hours you, as such Representatives, shall
not have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company except to the extent provided
in Section 8 hereof. In the event of a default by any Underwriter or
Underwriters, as set forth in this Section 9, the Closing Date or Option Closing
Date, as the case may be, may be postponed for such period, not exceeding seven
days, as you, as Representatives, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.

10. Notices.

All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows:

if to the Underwriters, to:

Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202.
Attention: Dan McIntyre

with a copy to:

Deutsche Bank Securities Inc.
31 West 52nd Street
New York, New York 10019

24
<PAGE> 25

Attention: General Counsel

if to the Company, to:

Aclara Biosciences, Inc.
1288 Pear Avenue
Mountain View, California 94043
Attention: Bertram I. Rowland, Ph.D.

with a copy to:

Latham & Watkins
135 Commonwealth Drive
Menlo Park, CA 94025
Attention: Mike Hall, Esq.

11. Termination.

(a) This Agreement may be terminated by you by notice to the Company
at any time prior to the Closing Date if any of the following has occurred: (i)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading, or placement on any watch list for
possible downgrading, in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Exchange Act); (vii) the suspension of trading of the
Company's common stock by the Nasdaq Stock Market, the Commission, or any other
governmental authority or, (viii) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States; or

25
<PAGE> 26

(b) as provided in Sections 6 and 9 of this Agreement.

12. Successors.

This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.

13. Information Provided by Underwriters.

The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.

14. Miscellaneous.

The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.

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

This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Maryland.

If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.

Very truly yours,

ACLARA BIOSCIENCES, INC.

By: ____________________________________
Joseph M. Limber
Chief Executive Officer

26
<PAGE> 27

The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.

DEUTSCHE BANK SECURITIES INC.
WARBURG DILLON READ LLC
U.S. BANCORP PIPER JAFFRAY

As Representatives of the several
Underwriters listed on Schedule I

By: Deutsche Bank Securities Inc.

By: _________________________________
Authorized Officer

27
<PAGE> 28

SCHEDULE I

SCHEDULE OF UNDERWRITERS

<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
<S> <C>
Deutsche Bank Securities Inc.

Warburg Dillon Read LLC

U.S. Bancorp Piper Jaffray

Total _________
</TABLE>

<PAGE> 1

EXHIBIT 3.6

CERTIFICATE OF AMENDMENT OF

THE AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF

ACLARA BIOSCIENCES, INC.,
A DELAWARE CORPORATION

The undersigned, Joseph M. Limber, hereby certifies that:

1. He is the duly elected and acting President of ACLARA BioSciences,
Inc., a Delaware corporation.

2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on April 12, 1995 and was amended
on May 4, 1995, on November 30, 1995, on October 30, 1996, on April 15, 1997, on
December 15, 1997, on March 24, 1998, on July 1, 1998, on January 11, 1999, on
March 19, 1999, on September 24, 1999, on December 30, 1999, on February 16,
2000 and March 14, 2000.

3. This Certificate of Amendment has been duly adopted by this
corporation's Board of Directors and stockholders in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware, and the corporation's stockholders have given their written consent
in accordance with Section 228 of the General Corporation Law of the State of
Delaware.

4. Article IV of the Certificate of Incorporation shall be amended and
restated to read in its entirely as follows:

"(a) This Corporation is authorized to issue two classes of shares to
be designated respectively Common Stock and Preferred Stock. The total number of
shares of Common Stock this Corporation shall have authority to issue is
100,000,000, par value $0.001 per share, and the total number of shares of
Preferred Stock this Corporation shall have authority to issue is 10,000,000,
par value $0.001 per share.

(b) The Preferred Stock may be issued in one or more series, each
series to be appropriately designated by a distinguishing letter or title, prior
to the issue of any shares thereof. The Board of Directors is hereby authorized,
by filing a certificate (a "Preferred Stock Designation") pursuant to the
Delaware General Corporation Law, to fix or alter from time to time the
designation, powers, preferences and rights (voting or otherwise) granted upon,
and the qualifications, limitations or restrictions of, any wholly unissued
series of Preferred Stock, and to establish from time to time the number of
shares constituting any such series or any of them; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series."

<PAGE> 2

5. The first sentence of Article VI of the Certificate of Incorporation
shall be amended and restated to read in its entirety as follows:

"The Board of Directors shall have that number of directors set out in the
Bylaws of the Corporation as adopted or as set from time to time by a duly
adopted amendment thereto by the Directors or stockholders of the Corporation."

6. Article VIII of the Certificate of Incorporation shall be amended and
restated to read in its entirety as follows:

"No action shall be taken by the stockholders except at an annual or
special meeting of stockholders. The stockholders may not take action by written
consent."

7. All other provisions of the Amended and Restated Certificate shall
remain in full force and effect.

IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Amendment to be duly executed at Mountain View, California, this ___ day of
_____, 2000.

ACLARA BIOSCIENCES, INC.,
A DELAWARE CORPORATION

By:
----------------------------
Joseph M. Limber
President

<PAGE> 1
EXHIBIT 5.1

[LETTERHEAD OF LATHAM & WATKINS]

March 17, 2000

ACLARA BioSciences, Inc.
1288 Pear Avenue
Mountain View, California 94043

Ladies and Gentlemen:

This opinion is rendered in connection with the filing by ACLARA
BioSciences, Inc., a Delaware corporation (the "Company"), of its Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
with respect to the offer and sale by the Company (the "Offering") of up to
10,350,000 shares of the Company's common stock, par value $.001 per share (the
"Common Stock"), and any subsequent registration statement the Company may
hereafter file with the Commission pursuant to Rule 462(b) under the Act to
register additional shares of the Company's common stock, par value $.001 per
share, in connection with the Offering (such additional shares, together with
the Common Stock, the "Shares"). We have acted as special counsel to the Company
in connection with the preparation of the Registration Statement.

In our capacity as such counsel, we are familiar with the
proceedings taken and proposed to be taken by the Company in connection with the
authorization, issuance, and sale of the Shares, and for the purposes of this
opinion, have assumed such proceedings will be timely and properly completed in
the manner presently proposed. In addition, we have made such legal and factual
examinations and inquiries, including an examination of originals (or copies
certified or otherwise identified to our satisfaction as being true
reproductions of originals) or such documents, corporate records and other
instruments, and have obtained from officers of the Company and agents thereof
such certificates and other representations and assurances, as we have deemed
necessary or appropriate for the purposes of this opinion.

<PAGE> 2
LATHAM & WATKINS
March 17, 2000
Page 2

In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
legal capacity of natural persons executing such documents and the authenticity
and conformity to original documents of all documents submitted to us as copies.

We are opining herein as to the effect on the subject transaction
only of the General Corporation Law of the State of Delaware, including
statutory and reported decisional law thereunder, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or, in the case of Delaware, any other laws, or as to any
matters of municipal law or the laws of any local agencies within any state.

Subject to the foregoing and the other qualifications set forth
herein, it is our opinion that, as of the date hereof, based on the foregoing
and the proceedings to be taken by the Company as referred to above, we are of
the opinion that the Shares have been duly authorized, and upon issuance,
delivery and payment therefor in the manner described in the Registration
Statement, such Shares will be validly issued, fully paid and nonassessable.

We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters" of the prospectus included therein, and to the
incorporation by reference of this opinion and consent into a registration
statement filed with the Commission pursuant to Rule 462(b) under the Act
relating to the Offering.

Very truly yours,

/s/ Latham & Watkins

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 11, 2000 relating to the financial statements of
ACLARA BioSciences, Inc., which appears in such Registration Statement. We also
consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Registration Statement.

/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------

San Jose, California

March 17, 2000