ACLARA BIOSCIENCES INC, S-1/A, 2000-02-24

ACLARA BIOSCIENCES INC
S-1/A, 2000-02-24
LABORATORY ANALYTICAL INSTRUMENTS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 2000

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

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

AMENDMENT NO. 2

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. [ ]
------------------------

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 February 24, 2000

LOGO

- --------------------------------------------------------------------------------
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 $13.00 and $15.00 per share. We have applied to
list our common stock on the Nasdaq National Market under the symbol "ACLA."

PE Biosystems, one of our strategic partners and a significant stockholder, has
indicated an interest in purchasing up to $5,000,000 of shares in this offering.
Any sales to PE Biosystems will be made at the initial public offering price
concurrent with the public offering.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.

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

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

[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 a leading microfluidics, or lab-on-a-chip, company 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 use microfluidics, the movement of small volumes of fluids
through microscopic channels to perform various laboratory measurements on a
chip the size of a credit card. We believe we have obtained 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 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 at least a ten-fold improvement in 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 TARGET MARKETS

We are developing our technologies to address rapidly growing markets in
the life sciences industry, such as genomics and pharmaceutical drug screening.
We also believe our technologies have applications across other industries,
including chemical processing, environmental and food testing and clinical
diagnostics.

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

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<PAGE> 5

carryover contamination from one measurement to the next, and lower
manufacturing costs.

- Higher Throughput and Avoidance of Cross Contamination. 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;

- 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;

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

- 154,557 shares of common stock issuable upon exercise of Series D
warrants.

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

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 upon the closing of this
offering;

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<PAGE> 7

- a 3-for-2 stock split to be completed before the closing of this
offering;

- the filing of our amended and restated certificate of incorporation
immediately following the closing of this offering to increase our
authorized common stock and decrease our authorized preferred stock; and

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

4
<PAGE> 8

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 $ 130,269
Working capital............................................. 12,056 12,056 128,596
Total assets................................................ 20,574 20,574 137,114
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) 14,481 131,021
</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 $14.00 per share, after deducting underwriting discounts and
commissions and offering expenses.

5
<PAGE> 9

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.

6
<PAGE> 10

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. Our inability or the inability of our
collaborative partners to design commercially viable systems will harm our
ability to develop and commercialize products.

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 LabCard chips and systems do not gain market
acceptance, our losses would increase.

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<PAGE> 11

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, 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

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<PAGE> 12

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. We rely on patents to protect a large part of our intellectual
property and our competitive position. We own over 80 issued patents and pending
patent applications, both domestic and foreign. We cannot assure you that any of
the presently 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 claims in
patents that have been issued or that may be issued to us in the future will be
sufficiently broad to prevent third parties from producing competing products
similar in design to our products. In addition, laws of foreign countries may
not protect our intellectual property to the same extent as would laws in the
United States. Failure to obtain adequate patent protection for our proprietary
technology would impair our ability to be commercially competitive.

In addition to patent protection, we also rely on protection of trade
secrets, know-how and confidential and proprietary information. To maintain the
confidentiality of trade secrets 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 for
our trade secrets or other confidential information in the event of unauthorized
use or disclosure of such information or that adequate remedies would exist in
the event of unauthorized use or disclosure. The loss or 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 with
respect to our current or future products, 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 identify and 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. We cannot assure you that we would
prevail in any of these suits or that the damages or other remedies awarded, if
any, would not be substantive. An adverse determination in litigation or
interference proceedings to which we may become a party could

9
<PAGE> 13

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.

Further, because of the substantial amount of discovery required in
connection with this type of litigation, there is a risk that some of our
confidential information could be compromised by disclosure. During the course
of any such 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. 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."

10
<PAGE> 14

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 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.

11
<PAGE> 15

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 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

12
<PAGE> 16

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 exercise of
all outstanding vested and unvested options, warrants and convertible
securities. Accordingly, our current executive officers, directors and their
affiliates will 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 may 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.

13
<PAGE> 17

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 directors, in connection with our repurchases of the shares. This
attorney is threatening litigation seeking rescission of the repurchase
transaction unless we 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. 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. 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 $9.80 in net tangible book value per share of common
stock, based on an assumed public offering price of $14.00 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."

14
<PAGE> 18

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

15
<PAGE> 19

USE OF PROCEEDS

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 $14.00 per
share will be approximately $116.5 million, or $134.1 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.

16
<PAGE> 20

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 $14.00 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 43,059 159,590
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) 14,481 131,021
-------- -------- --------
Total capitalization.................................... $ 17,852 $ 17,852 $134,392
======== ======== ========
</TABLE>

This table does not include:

- 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;

- 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;

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

- 154,557 shares of common stock issuable upon exercise of Series D
warrants.

17
<PAGE> 21

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 $14.00 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 $131.0 million, or $4.20 per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $3.55 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $9.80 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............. $ 14.00
--------
Pro forma net tangible book value per share as of
December 31, 1999......................................... $0.65
Increase per share attributable to new investors.......... 3.55
-----
Pro forma net tangible book value per share after this
offering.................................................. 4.20
--------
Pro forma dilution per share to new investors............. $ 9.80
========
</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 $14.00 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 21% $ 1.53
New investors............... 9,000,000 29 126,000,000 79 $14.00
---------- --- ------------ --- ------
Total..................... 31,172,995 100% $159,921,085 100%
========== === ============ ===
</TABLE>

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 $3.97,
representing an immediate increase in net tangible book value of $3.32 per share
to existing stockholders and an immediate dilution in net tangible book value of
$10.03 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.

18
<PAGE> 22

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 customers 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> 24

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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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 leading microfluidics, or lab-on-a-chip, company 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 at least a ten-fold
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 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 market leaders in
various sectors of 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.

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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 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

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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 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 have targeted
our primary research and development efforts at the following three 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.

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

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

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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). 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. 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.

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.

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- 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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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 authorized number of directors may be changed only by resolution
of the board of directors, and the board of directors will be authorized to fill
vacant directorship. 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.

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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.

50
<PAGE> 54

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
1,525,604 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. Generally, 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> 55

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 3/29/09 $52,827 $133,874
Bertram I. Rowland, Ph.D.,
J.D. ...................... 157,500 10.3% $0.40 1/11/09 $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 -- $13,308,525 $ --
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.

52
<PAGE> 56

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
53
<PAGE> 57

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, subject to stockholder approval, which
we expect to obtain prior to the closing of the offering, 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
54
<PAGE> 58

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, subject to stockholder approval, which we expect to obtain
prior to the closing of the offering. 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.

55
<PAGE> 59

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.

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>

56
<PAGE> 60

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 92,457 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

57
<PAGE> 61

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

CONSULTING AGREEMENT

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.

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 (COMPOUNDED MATURITY
NAME AMOUNT OF SHARES SEMIANNUALLY) DATE
---- -------- --------- ------------- --------
<S> <C> <C> <C> <C>
Joseph M. Limber....................... $240,000 600,000 5.8% 3/02
$ 60,000 150,000 5.8% 3/03
$147,250 232,500 5.8% 12/03
Herbert H. Hooper...................... $ 60,000 150,000 5.8% 1/02
$ 3,250 37,500 4.6% 10/00
Wendy R. Hitchcock..................... $ 84,000 210,000 5.8% 3/03
$250,000 75,000 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. 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."

58
<PAGE> 62

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."

59
<PAGE> 63

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> 64

<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)......................... 1,818,866 29,082 7.7% 5.6%
235 Montgomery Street, Suite 920
San Francisco, CA 94104
Joseph M. Limber...................... 982,500 -- 4.1% 3.0%
Herbert H. Hooper..................... 575,142 18,750 2.6% 1.9%
Wendy R. Hitchcock.................... 292,500 -- 1.2% *
Bertram I. Rowland.................... 7,500 -- * *
Thomas R. Baruch(4)................... 1,818,866 29,082 7.7% 5.6%
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).................... 4,318,199 94,152 18.5% 13.4%
c/o Ampersand Ventures
55 William Street, Suite 240
Wellesley, MA 02481
All directors and officers as a group
(10 persons)........................ 12,743,973 141,984 54.0% 39.2%
</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.

(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, L.P.

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

(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. 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,

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<PAGE> 65

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., 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> 66

DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon completion of this offering and subject to stockholder approval, 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 and subject to stockholder approval, 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> 67

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

64
<PAGE> 68

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> 69

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>
29,427 After the date of this prospectus
289,563 90 days from the date of this prospectus
23,555,830 At various times after 180 days from the date of this
prospectus
</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 23,555,830 shares in the aggregate, have agreed that they will not
offer, sell or agree to sell,

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<PAGE> 70

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> 71

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 shares in this
offering. Any sales to PE Biosystems will be made at the initial public offering
price concurrent with the public offering 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> 72

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> 73

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> 74

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. Upon approval of the common stock for the
quotation on the Nasdaq National Market, such reports, proxy and information
statements and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.

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.

71
<PAGE> 75

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> 76

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

The foregoing report is in the form that will be signed upon the completion of
the stock split described in Note 12 to the financial statements.

San Jose, California
February 22, 2000

F-2
<PAGE> 77

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> 78

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> 79

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> 80

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> 81

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> 82
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> 83
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> 84
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> 85
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 $878,046, 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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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....................... (588,018) 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............. 710,603 644,564 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) 0.38
---------- --------- ---------- -----
Balances, December 31, 1998............. 1,001,171 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............. 428,995 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> 96
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> 97
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> 98
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 has been approved by the board of
directors but has not yet been approved by the Company's stockholders.

F-24
<PAGE> 99
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.

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> 100

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.......................... 6
Special Note Regarding Forward-
Looking Statements.................. 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Financial Data............... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 24
Management............................ 46
Certain Relationships and Related
Party Transactions.................. 56
Principal Stockholders................ 60
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 66
Underwriting.......................... 68
Legal Matters......................... 70
Experts............................... 70
Where You Can Find More Information... 71
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> 101

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........................................ $ 40,986
NASD filing fee............................................. 16,025
Nasdaq National Market listing fee.......................... 90,000
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............................................... 27,989
--------
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> 102

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) 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.

(2) 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.

(3) 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.

(4) 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.

(5) 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.

II-2
<PAGE> 103

(6) 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.

(7) 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.

(8) 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.

(9) 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> 104

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS.

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
**1.1 Form of Underwriting Agreement
*3.1 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 Form of Amended and Restated Certificate of Incorporation to
be filed after the closing of the offering made under this
registration statement
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
4.1 Specimen Common Stock certificate
*5.1 Form 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
Option
*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
*10.18 Consulting Agreement with Dr. Eric Lander dated as of
January 15, 2000
</TABLE>

II-4
<PAGE> 105

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
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.

** To be supplied by amendment.

+ Confidential treatment has been requested 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> 106

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 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 24th day of February, 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. 2 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 February 24, 2000
- ----------------------------------------------------- Officer and Director
Joseph M. Limber (Principal Executive
Officer)

/s/ WENDY R. HITCHCOCK Chief Financial Officer February 24, 2000
- ----------------------------------------------------- (Principal Financial and
Wendy R. Hitchcock Accounting Officer)

* Director February 24, 2000
- -----------------------------------------------------
Thomas R. Baruch

* Director February 24, 2000
- -----------------------------------------------------
Jean Deleage

* Director February 24, 2000
- -----------------------------------------------------
Michael W. Hunkapiller

* Director February 24, 2000
- -----------------------------------------------------
Eric S. Lander

* Director February 24, 2000
- -----------------------------------------------------
Andre F. Marion

* Director February 24, 2000
- -----------------------------------------------------
David J. Parker

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

II-6
<PAGE> 107

EXHIBIT INDEX

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
**1.1 Form of Underwriting Agreement
*3.1 Restated Certificate of Incorporation of ACLARA BioSciences,
Inc. as currently in effect
*3.2 Bylaws of ACLARA BioSciences, Inc., as currently in effect
3.3 Form of Amended and Restated Certificate of Incorporation to
be filed after the closing of the offering made under this
registration statement
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
4.1 Specimen Common Stock certificate
*5.1 Form 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
Option 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
*10.18 Consulting Agreement with Dr. Eric Lander dated as of
January 15, 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.

** To be supplied by amendment.

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

++ Replaces previously filed exhibit.

<PAGE> 1

EXHIBIT 3.3

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION

ACLARA BIOSCIENCES, INC.

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. This corporation was originally incorporated under the name "Soane
BioSciences, Inc.," and 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 April 28, 1999, on September 27, 1999, on
December 30, 1999 and on February 16, 2000.

3. This Amended and Restated Certificate of Incorporation has been duly
adopted by this corporation's Board of Directors and stockholders in accordance
with the applicable provisions of Section 242 and 245 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. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:

ARTICLE I

The name of this corporation is ACLARA BioSciences, Inc. (the
"Corporation").

ARTICLE II

The address of the Corporation's registered office in the State of Delaware
is 15 East North Street, Dover, County of Kent, Delaware 19901. The name of its
registered agent at such address is Incorporating Services, Ltd.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.

ARTICLE IV

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

<PAGE> 2

Corporation shall have authority to issue is 150,000,000, par value $0.001 per
share, and the total number of shares of Preferred Stock this Corporation shall
have authority to issue is 34,200,000, par value $0.001 per share. The first
series of Preferred Stock shall consist of 3,516,699 shares designated Series B
Redeemable Preferred Stock (the "Series B Preferred Stock"); the second series
of Preferred Stock shall consist of 1,615,385 shares designated Series C
Redeemable Preferred Stock (the "Series C Preferred Stock"); the third series of
Preferred Stock shall consist of 627,691 shares designated Series D Redeemable
Preferred Stock (the "Series D Preferred Stock"); the fourth series of Preferred
Stock shall consist of 2,500,001 shares designated Series E Redeemable Preferred
Stock (the "Series E Preferred Stock"); the fifth series of Preferred Stock
shall consist of 10,833,332 shares designated Series F Redeemable Preferred
Stock (the "Series F Preferred Stock"); the sixth series of Preferred Stock
shall consist of 10,833,332 shares designated Series F-1 Redeemable Preferred
Stock (the "Series F-1 Preferred Stock"); the seventh series of Preferred Stock
shall consist of 1,119,403 shares designated Series G Redeemable Preferred Stock
(the "Series G Preferred Stock"); and the eighth series of Preferred Stock shall
consist of 1,275,000 shares designated Series H Redeemable Preferred Stock (the
"Series H Preferred Stock") and together with the Series B, Series C, Series D,
Series E, Series F, Series F-1 and Series G Preferred Stock, (the "Preferred
Stock").

The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.

Upon the effective date of the filing of this Amended and Restated
Certificate of Incorporation, every share of this Corporation's outstanding
Common Stock and Preferred Stock, par value $0.001 per share, shall be converted
and reconstituted into 1.5 shares of Common Stock and Preferred Stock, par value
$0.001 per share, respectively (the "Stock Split"). No fractional shares shall
be issued as a result of the Stock Split, and the numbers of shares of Common
Stock and Preferred Stock to be issued as a result of the Stock Split shall be
rounded up to the nearest whole share. All share amounts and amounts per share
set forth in this Amended and Restated Certificate of Incorporation have been
appropriately adjusted to reflect the Stock Split. No further adjustment of any
dividend preference, liquidation preference or conversion rate pursuant to
paragraphs 1, 2 or 4, respectively, of this Article IV shall be made as a result
of the Stock Split.

The relative powers, preferences and rights, and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, granted to or imposed on the respective classes and series
of the shares of capital stock or the holders thereof are as follows:

1. DIVIDENDS.

1.1 Preferred Stock. The holders of the Series B, Series C, Series D,
Series E, Series F, Series F-1, Series G and Series H Preferred Stock shall be
entitled to receive, out of any funds legally available therefor, dividends in
an amount equal to $.032, $.069, $.09, $.144, $.144, $.144, $.215 and $.322 per
annum per share (each a "Preferential Dividend Amount"), respectively (subject
to equitable adjustment in the event of any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event affecting such shares (hereinafter referred to as "Appropriately
Adjusted"), and no more, payable in preference

<PAGE> 3

and priority to any payment of any cash dividend on Common Stock or any other
shares of capital stock of the Corporation, when and as declared by the Board of
Directors of the Corporation during any fiscal year. Commencing on May 8, 1996,
dividends on the Series B Preferred Stock shall accrue, commencing on October
31, 1997, dividends on the Series C Preferred Stock shall accrue, commencing on
April 17, 1998, dividends on the Series D Preferred Stock shall accrue,
commencing on March 24, 1999, dividends on the Series E Preferred Stock shall
accrue, commencing on January 12, 1999, dividends on the Series F Preferred
Stock shall accrue, commencing on January 12, 1999, dividends on the Series F-1
Preferred Stock shall accrue, commencing on April 28, 2000, dividends on the
Series G Preferred Stock shall accrue, and commending on December 30, 2000,
dividends on the Series H Preferred Stock shall accrue, and such dividends shall
be deemed to accrue from day to day whether or not earned or declared and shall
be cumulative so that if at any time after such dates such dividends on the
Series B, Series C, Series D, Series E, Series F, Series F-1, Series G and
Series H Preferred Stock shall not all have been paid, or declared and set apart
for payment, the deficiency shall be fully paid on or declared and set apart for
payment in accordance with the terms of this Section 1.1 before any dividend
shall be paid on or declared or set apart for any other shares of capital stock
of the Corporation and before any purchase or acquisition of any other shares of
capital stock of the Corporation is made by the Corporation, except the
repurchase of the shares of capital stock of the Corporation from employees or
consultants of this Corporation upon termination of employment or consulting
services. Any accumulation of dividends on the Series B, Series C, Series D,
Series E, Series F Series F-1, Series G and Series H Preferred Stock shall not
bear interest.

1.2 Partial Payments. If the Board of Directors shall declare a
dividend on the outstanding shares of Series B, Series C, Series D, Series E,
Series F, Series F-1, Series G or Series H Preferred Stock (collectively, the
"Prior Dividend Preferred Stock"), and, in such case, the amount available for
payment thereof during any fiscal year is insufficient to permit the payment of
the full Preferential Dividend Amount required to be paid to the holders of the
outstanding shares of Prior Dividend Preferred Stock, then the amount available
for such dividend payment shall be distributed ratably among the holders of the
outstanding shares of Prior Dividend Preferred Stock in proportion to the
amounts that would be payable if the full amount of such Preferential Dividend
Amount was then paid. The Corporation shall not declare, pay or set aside for
payment any dividend or other distribution on any Common Stock or any other
stock of the Corporation ranking junior to the Prior Dividend Preferred Stock as
to dividend rights and rights on liquidation, dissolution and winding up in any
fiscal year unless the Prior Dividend Preferred Stock for such fiscal year and
prior years shall have been paid in full.

1.3 Participating Dividends after Preferential Payments. After the
holders of Prior Dividend Preferred Stock receive their Preferential Dividend
Amount for any fiscal year and prior years, the holders of the Prior Dividend
Preferred Stock shall participate ratably with the Common Stock in any other
dividends during such fiscal year, as if all such holders had converted their
Preferred Stock into the number of shares of Common Stock into which such
outstanding shares of Preferred Stock are convertible pursuant to Article IV
below, as of the record date of the dividend.

1.4 Common Stock. Subject to the preferences and other rights of the
Preferred Stock set forth in Section 1.1, 1.2 and 1.3, the holders of Common
Stock shall be entitled to receive dividends when, as and if declared by the
Board of Directors out of funds

<PAGE> 4

legally available therefor, on a basis in accordance with the number of shares
of Common Stock held by each such holder.

2. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution,
or winding up of the Corporation, either voluntary or involuntary, distributions
to the stockholders of the Corporation shall be made in the following manner:

(a) The holders of shares of Series F and Series F-1 Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, but before any
payment shall be made to the holders of Series B, Series C, Series D, Series E,
Series G or Series H Preferred Stock or Common Stock by reason of their
ownership thereof, an amount equal to $1.80 per share (Appropriately Adjusted),
plus all accrued but unpaid dividends on such Series F or Series F-1 Preferred
Stock (as applicable), and no more (the "Liquidation Preference Amount" for such
Series F and Series F-1 Preferred Stock). If upon any such liquidation,
dissolution or winding up of the Corporation, the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series F and Series F-1 Preferred Stock the
Series F and Series F-1 Liquidation Preference Amount, respectively, the holders
of shares of Series F and Series F-1 Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the product of the Liquidation Preference Amount multiplied by the number of
shares of Series F and Series F-1 Preferred Stock held by them.

(b) After payment has been made to the holders of the Series F and
Series F-1 Preferred Stock of the Series F and Series F-1 Liquidation Preference
Amount, the holders of shares of Series B, Series C, Series D, Series E, Series
G and Series H Preferred Stock then outstanding shall be entitled on a pari
passu basis to be paid out of the assets of the Corporation available for
distribution to its stockholders, but before any payment shall be made to the
holders of Common Stock by reason of their ownership thereof, an amount equal to
$.3981, $.8667, $1.083, $1.80, $2.68 and $4.0267 per share, respectively
(Appropriately Adjusted), plus all accrued but unpaid dividends on such shares,
and no more (the "Liquidation Preference Amount" for each such series). If upon
any such liquidation, dissolution or winding up of the Corporation, the
remaining assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series B,
Series C, Series D, Series E, Series G and Series H Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series B,
Series C, Series D, Series E, Series G and Series H Preferred Stock shall share
ratably in any distribution of the remaining assets and funds of the Corporation
in proportion to the product of the appropriate Liquidation Preference Amount
multiplied by the number of shares of Series B, Series C, Series D, Series E,
Series G and Series H Preferred Stock held by them.

(c) After payment has been made to the holders of the Series B,
Series C, Series D, Series E, Series F, Series F-1, Series G and Series H
Preferred Stock of the full Liquidation Preference Amounts to which they shall
be entitled as aforesaid, the holders of the Series F and Series F-1 Preferred
Stock and Common Stock shall be entitled to share ratably in the remaining
assets of the Corporation available for distribution to its stockholders, based
on the number of shares of Common Stock held by them (or issuable upon
conversion of the Series F or Series F-1 Preferred Stock, as applicable) at the
time of such distribution.

<PAGE> 5

(d) The merger or consolidation of the Corporation into or with
another corporation (other than any merger or consolidation in which
stockholders of the Corporation immediately prior to such merger or
consolidation beneficially own a majority of the voting shares of the surviving
corporation immediately following such merger or consolidation), or the sale of
all or substantially all the assets of the Corporation (a "Liquidation Event"),
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Section 2, unless either:

(i) the holders of at least 66 2/3% of the then outstanding
shares of Series F and Series F-1 Preferred Stock, voting together as a single
class, elect to have such events not deemed to be a liquidation, dissolution or
winding up of the Corporation by giving written notice thereof to the
Corporation at least 15 days before the effective date of such event; or

(ii) the aggregate consideration that would be received by the
holders of the then outstanding shares of Common Stock and Series B, Series C,
Series D, Series E, Series F, Series F-1, Series G and Series H Preferred Stock
pursuant to such merger, consolidation or sale of assets, assuming the
conversion of all outstanding shares of Preferred Stock into Common Stock, would
be equal to at least $5.40 per share (Appropriately Adjusted) solely in cash
and/or marketable securities.

If notice is given pursuant to Subsection 2(d)(i) above, the provisions of
Subsection 4.1(i) below shall apply.

(e) Notice of Liquidation Event. The Corporation shall provide each
holder of Preferred Stock prior written notice of a Liquidation Event at least
30 days prior to the closing of such Liquidation Event.

3. VOTING RIGHTS.

(a) Each holder of outstanding shares of Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Preferred Stock held by such holder are
convertible (as adjusted from time to time pursuant to Section 4 hereof), at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law or otherwise provided in this Article IV, holders of Series
B, Series C, Series D, Series E, Series F, Series F-1, Series G and Series H
Preferred Stock shall vote together with the holders of Common Stock as a single
class. Each holder of outstanding shares of Common Stock shall be entitled to
one vote for each share held at all meetings of stockholders of the Corporation
(and written actions in lieu of meetings). There shall be no cumulative voting.
Fractional votes by the holders of Preferred Stock shall not, however, be
permitted, and any fractional voting rights shall (after aggregating all shares
into which shares of Preferred Stock held by each holder could be converted) be
rounded to the nearest whole number.

(b) The Board of Directors of the Corporation shall consist of seven
members to be elected as follows:

<PAGE> 6

(i) One member of the Board of Directors of the Corporation
shall be elected by the holders of record of the Series B Preferred Stock,
voting separately as a class.

(ii) One member of the Board of Directors shall be either the
President or the Chief Executive Officer of the Corporation.

(iii) Two members of the Board of Directors of the Corporation
shall be elected by the holders of record of the Series F and Series F-1
Preferred Stock, voting together as a separate class (each a "Series F
Designee").

(iv) Three members of the Board of Directors of the Corporation
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 F-1, Series G and Series H Preferred Stock, voting together as a single
class on an as-converted basis; provided, however, that such member shall also
be approved by the holders of record of a majority of the outstanding Series F
and Series F-1 Preferred Stock, voting together as a single class.

At any meeting held for the purpose of electing directors, the presence in
person or by proxy of the holders of the majority of the shares of each of the
Series B Preferred Stock and Series F and Series F-1 Preferred Stock then
outstanding shall constitute a quorum of the Series B Preferred Stock and Series
F and Series F-1 Preferred Stock, respectively, for the purpose of electing
directors by holders of such series of Preferred Stock. A vacancy in any
directorship elected by the holders of the Series B Preferred Stock or Series F
and Series F-1 Preferred Stock shall be filled only by vote or written consent
in lieu of a meeting of the holders of the series of Preferred Stock which
elected such director. A director elected by the holders of the Series B
Preferred Stock or Series F and Series F-1 Preferred Stock shall be removed only
by vote or written consent in lieu of a meeting of the holders of the series of
Preferred Stock which elected such director.

(c) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of a series of Preferred Stock so as to affect
adversely such series of Preferred Stock without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
such series of Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization or
issuance of any series of Preferred Stock with preference or priority over an
existing series of Preferred Stock as to the right to receive either dividends
or amounts distributable upon liquidation, dissolution or winding up of the
Corporation shall be deemed to affect adversely such series of Preferred Stock,
and the authorization or issuance of any series of Preferred Stock on a parity
with an existing series of Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall not be deemed to affect adversely such series of
Preferred Stock.

4. CONVERSION.

4.1 Optional Conversion. The holders of the Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):

<PAGE> 7

(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing Original Issue Price for such series of Preferred
Stock (as defined below) by the Conversion Price (as defined below) for such
series of Preferred Stock in effect at the time of conversion. The Original
Issue Price for the Series B Preferred Stock is $.3981, the Original Issue Price
for the Series C Preferred Stock is $.8667, the Original Issue Price for the
Series D Preferred Stock is $1.083, the Original Issue Price for the Series E
Preferred Stock is $1.80, the Original Issue Price for the Series F Preferred
Stock is $1.80, the Original Issue Price for the Series F-1 Preferred Stock is
$1.80, the Original Issue Price for the Series G Preferred Stock is $2.68 and
the Original Issue Price for the Series H Preferred Stock is $4.027. The
conversion price at which shares of Common Stock shall be deliverable upon
conversion of Preferred Stock without the payment of additional consideration by
the holder thereof (the "Conversion Price") shall initially be $.3981 for the
Series B Preferred Stock, $.8667 for the Series C Preferred Stock, $1.083 for
the Series D Preferred Stock, $1.80 for the Series E Preferred Stock, $1.80 for
the Series F Preferred Stock, $2.68 for the Series G Preferred Stock and $4.027
for the Series H Preferred Stock; provided, however, that the initial Conversion
Price of the Series H Preferred Stock shall be subject to adjustment in
accordance with Section 4.1(p). The initial Conversion Price for the Series F-1
Preferred Stock shall be determined in accordance with Section 4.1(o). Such
initial Conversion Prices, and the rate at which shares of Preferred Stock may
be converted into shares of Common Stock, shall be subject to adjustment as
provided below.

In the event of a notice of redemption of any shares of Series B, Series C,
Series D, Series E, Series F, Series F-1, Series G or Series H Preferred Stock
pursuant to Section 5 hereof, the Conversion Rights of the shares designated for
redemption shall terminate at the close of business on the fifth full day
preceding the date fixed for redemption, unless the redemption price is not paid
when due, in which case the Conversion Rights for such shares shall continue
until such price is paid in full. In the event of a Liquidation Event, the
Conversion Rights shall terminate at the close of business on the first full day
preceding the date fixed for the payment of any amounts distributable on the
occurrence of a Liquidation Event to the holders of Series B, Series C, Series
D, Series E, Series F, Series F-1, Series G or Series H Preferred Stock, unless
such distributions are not paid on the date fixed for such payment. The
Corporation shall give the holders of Preferred Stock 30 days' prior notice of
the date fixed for such payment and the amount of such distribution.

(b) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled upon
conversion of Preferred Stock into Common Stock, the corporation shall (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) pay cash equal to such fraction multiplied by the then fair
market value of one share of Common Stock.

<PAGE> 8

(i) Before any holder of Preferred Stock shall be entitled
to convert shares of Preferred Stock into shares of Common Stock and to receive
certificates therefor, such holder shall surrender the certificate or
certificates for such shares of Preferred Stock, at the office of the transfer
agent for the Preferred Stock (or at the principal office of the Corporation if
the Corporation serves as its own transfer agent), together with written notice
that such holder elects to convert all or any number of the shares of the
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
The certificate or certificates for the shares of Preferred Stock surrendered
for conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his or its attorney duly authorized in writing. The
date of receipt of notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date (or such later date as the transfer agent receives such
certificates or reasonable indemnification if such certificates have been lost,
stolen or destroyed), issue and deliver to such holder of Preferred Stock, or to
his or its nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled, together with cash in lieu
of any fraction of a share, and all accrued but unpaid dividends.

(ii) The Corporation shall at all times when the Preferred
Stock is outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the Preferred
Stock, such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding Preferred
Stock. Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value of the shares of Common Stock issuable
upon conversion of the Preferred Stock, the Corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Conversion Price.

(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any accrued and unpaid dividends on the
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion, which dividends shall be paid in accordance with clause (iv) below.

(iv) All shares of Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any accrued and
unpaid dividends thereon. Any shares of Preferred Stock so converted shall be
retired and canceled and shall not be reissued and the Corporation may from time
to time take such appropriate action as may be necessary to reduce the
authorized Preferred Stock accordingly.

<PAGE> 9

(d) Adjustment for Diluting Issues.

(i) Special Definitions. For purposes of this Subsection
4.1(d), the following definitions shall apply:

(A) Option shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options granted to employees, directors or consultants of
the Corporation pursuant to the Corporation's 1995 or 1997 Stock Option Plan, to
acquire up to a maximum of 5,014,004 shares of Common Stock (Appropriately
Adjusted), and excluding options or shares of Common Stock issued to employees,
directors or consultants of the Corporation pursuant to a plan or agreement
approved by the Board of Directors and each of the two Series F Designees, if
such Series F Designees have been appointed to the Board of Directors at such
time.

(B) Original Issue Date shall mean the date on which
the first share of Series H Preferred Stock was first issued.

(C) Convertible Securities shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.

(D) Additional Shares of Common Stock shall mean all
shares of Common Stock issued (or, pursuant to Subsection 4.1(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:

(I) upon conversion of shares of Preferred Stock
outstanding on the Original Issue Date:

(II) as a dividend or distribution on Preferred
Stock;

(III) by reason of a dividend or distribution
covered by Subsection 4.1(f) hereof, a stock split, or subdivision of shares of
Common Stock covered by Subsection 4.1(e) hereof, or by reason of a dividend,
stock split, subdivision or other distribution on shares of Common Stock
excluded from the definition of Additional Shares of Common Stock by the
foregoing clauses (I) and (II) or this clause (III); or

(IV) upon the exercise of options excluded from
the definition of "Option" in Subsection 4.1(d)(i)(A).

(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which shares of a series of Preferred
Stock is convertible shall be made by adjustment in the applicable Conversion
Price thereof: (a) unless the consideration per share (determined pursuant to
Subsection 4.1(d)(v)) for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the applicable Conversion Price for
such series of Preferred Stock in effect on the date of, and immediately prior
to, the issue of such Additional Shares, or (b) if prior to such issuance, the
Corporation receives written notice from the

<PAGE> 10

holders of at least 67% of the then outstanding shares of such series of
Preferred Stock agreeing that no such adjustment shall be made as the result of
the issuance of Additional Shares of Common Stock.

(iii) Issue of Options and Convertible Securities Deemed
Issue of Additional Shares of Common Stock.

If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4.1(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:

(A) No further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;

(B) Upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the applicable Conversion Price computed upon the
initial issue thereof and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:

(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such conversion or
exchange, if any, and

(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of such Options, whether or not exercised, plus
the consideration deemed to have been received by the Corporation upon the issue
of the Convertible Securities with respect to which such Options were actually
exercised;

<PAGE> 11

(C) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the antidilution provisions thereof, the Conversion Price then in effect shall
forth with be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security (prior to such change) been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security; and

(D) No readjustment pursuant to clause (B) and (C)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.

(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.

In the event the Corporation shall issue, at any time or from time to time
after the Original Issue Date, Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4.1(d)(iii), but excluding shares issued as a dividend or distribution as
provided in Subsection 4.1(f) or upon a stock split as provided in Subsection
4.1(e)), without consideration or for a consideration per share less than the
applicable Conversion Price for a series of Preferred Stock (other than the
Series F-1 Preferred Stock) in effect on the date of and immediately prior to
such issue, then and in such event, such Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by dividing (x) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue multiplied by
the then effective Conversion Price for such series of Preferred Stock and (2)
the aggregate consideration, if any, deemed received by the Corporation upon
such issue by (y) the total number of shares of Common Stock deemed to be
outstanding immediately after such issue; provided that for the purpose of this
Subsection 4.1(d)(iv), all shares of Common Stock issuable upon conversion of
shares of Preferred Stock outstanding immediately prior to such issue shall be
deemed to be outstanding, and immediately after any Additional Shares of Common
Stock are deemed issued pursuant to Subsection 4.1(d)(iii), such Additional
Shares of Common Stock shall be deemed to be outstanding.

Notwithstanding the foregoing, the applicable Conversion Price shall not be
so reduced at such time if the amount of such reduction would be an amount less
than $.01, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.01 or more.

(v) Determination of Consideration. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:

<PAGE> 12

(A) Cash and Property. Such consideration shall:

(I) insofar as it consists of cash, be computed
at the aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest or accrued dividends;

(II) insofar as it consists of property other
than cash, be computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and

(III) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.

(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4.1(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing

(I) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by

(II) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.

(e) Adjustment for Stock Splits and Combinations. If the
Corporation shall, at any time or from time to time after the Original Issue
Date, effect a subdivision of the outstanding Common Stock, the Conversion Price
for each series of Preferred Stock then in effect immediately before that
subdivision shall be proportionately decreased. If the Corporation shall, at any
time or from time to time while there are any shares of Preferred Stock
outstanding, combine the outstanding shares of Common Stock, the Conversion
Price for each series of Preferred Stock then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.

(f) Adjustment for Certain Dividends and Distributions. In the
event the Corporation at any time, or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend

<PAGE> 13

or other distribution payable in additional shares of Common Stock, then and in
each such event the Conversion Price for each series of Preferred Stock then in
effect shall be decreased as of the time of such issuance or, in the event such
a record date shall have been fixed, as of the close of business on such record
date, by multiplying the Conversion Price for each series of Preferred Stock
then in effect by a fraction:

(i) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and

(ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;

provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.

(g) Adjustments for Other Dividends and Distributions. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
that they would have received had the Preferred Stock been converted into Common
Stock on the date of such event and had thereafter, during the period from the
date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period giving application
to all adjustments called for during such period, under this Section 4 with
respect to the rights of the holders of the Preferred Stock.

(h) Adjustments for Reclassification, Exchange, or Substitution.
If the Common Stock issuable upon the conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation, or sale of assets provided
for below), then and in each such event the holder of each such share of
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stocks and other securities and property receivable
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Preferred Stock might
have been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.

<PAGE> 14

(i) Adjustment for Merger or Reorganization, etc. Subject to
Section 2 hereof, in case of any consolidation or merger of the Corporation with
or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation, each share of Preferred Stock
shall thereafter be convertible into the kind and amount of shares of stocks or
other securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Preferred Stock
would have been entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions set forth in this
Section 4 with respects to the rights and interest thereafter of the holders of
the Preferred Stock, to the end that the provisions set forth in this Section 4
(including provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Preferred Stock.

(j) No Impairment. The Corporation will not, by amendment of its
certificate of incorporation or bylaws or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.

(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for a series of Preferred
Stock pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of such series of Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Preferred Stock, furnish or cause
to be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Preferred Stock.

(l) Notice of Record Date. In the event:

(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;

(ii) that the Corporation splits, subdivides or combines
its outstanding shares of Common Stock;

(iii) of any reclassification of the Common Stock of the
Corporation (other than a stock split, subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or substantially all of the assets of
the Corporation; or

<PAGE> 15

(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;

then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Preferred Stock, and shall cause to be
mailed to the holders of the Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least ten days prior
to the record date specified in (A) below or thirty days before the date
specified in (B) below, a notice stating

(A) the record date of such dividend, distribution,
stock split, subdivision or combination, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, stock split, subdivision or combination are to be
determined, or

(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.

(m) Taxes. The Corporation will pay all taxes and other
governmental charges that may be imposed in respect of the issue or delivery of
shares of Common Stock upon conversion of the Preferred Stock by the record
holder thereof.

(n) Other Dilutive Events. If any other transaction or event
shall occur (excluding any transaction or event expressly referred to in this
Section 4.1) as to which the other provisions of this Section 4.1 are not
strictly applicable but the failure to make any adjustment to the applicable
Conversion Price or to any of the other terms of any series of Preferred Stock
would not fairly protect the conversion rights and other rights of the holders
of such series of Preferred Stock in accordance with the essential intent and
principles hereof, then, and as a condition to consummation of any such
transaction or event, and in each such case, the Corporation shall appoint a
firm of independent certified public accountants of recognized national standing
(which may be the regular auditors of the Corporation), which firm shall give
its opinion as to the adjustment, if any, on a basis consistent with the
essential intent and principles established in this Section 4.1, necessary to
preserve, without dilution, the conversion rights and other rights of the
holders of such series of Preferred Stock. The certificate of any such firm of
accountants shall be conclusive evidence of the correctness of any computation
made under this Section 4.1(n). The Corporation shall pay the fees and expenses
of such firm of accountants in connection with any such opinion. Upon receipt of
such opinion, the Corporation shall promptly deliver a copy thereof to each
holder of Preferred Stock and, unless the holders of at least 67% of the then
outstanding shares of such series of Preferred Stock agree otherwise, such
adjustment shall be thereupon effective.

(o) Conversion Price of Series F-1 Preferred Stock. From and
after such time as any shares of Series F-1 Preferred Stock are issued and
outstanding, the Conversion Price for the Series F-1 Preferred Stock shall be
the Conversion Price for the Series F Preferred Stock in

<PAGE> 16

effect immediately prior to such issuance and shall not thereafter be subject to
adjustment pursuant to Section 4.1(d) above.

(p) Special Adjustment to Initial Conversion Price of Series H
Preferred Stock. The initial Conversion Price for the Series H Preferred Stock
set forth in Section 4.1(a) hereof shall be subject to adjustment as follows:
(A) if the Corporation fails to file with the Securities and Exchange Commission
within 180 days of the date of the Original Issue Date of the Series H Preferred
Stock a registration statement covering shares of the Corporation's Common Stock
to be issued in a Qualifying IPO or (B) if the Corporation completes such
initial public offering at a price to the public of less than $4.027 per share,
then the initial Conversion Price of the Series H Preferred Stock shall be $3.22
per share.

4.2 Mandatory Conversion

(a) Each share of Preferred Stock shall be converted
automatically into shares of Common Stock, at the then applicable Conversion
Price for such series of Preferred Stock upon the occurrence of either of the
following:

(i) immediately prior to the closing of an underwritten
public offering of Common Stock of the Corporation pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock to the
public at a price of at least $5.94 per share (Appropriately Adjusted),
resulting in the receipt by the Corporation of gross proceeds from such sale of
not less than $15,000,000 (a "Qualifying IPO"), provided that all declared and
unpaid dividends have been paid; provided, however, that the holders of at least
51% of the outstanding shares of Series F and Series F-1 Preferred Stock, voting
together as a single class, may elect to waive or amend the foregoing
requirements with respect to the minimum offering price per share and aggregate
gross proceeds, or

(ii) immediately prior to the closing of a merger or
consolidation of the Corporation into or with another corporation (other than
any merger or consolidation in which stockholders of the Corporation immediately
prior to such merger or consolidation beneficially own a majority of the voting
shares of the surviving corporation immediately following such merger or
consolidation), or the sale of all or substantially all the assets of the
Corporation, in which the aggregate consideration that would be received by the
holders of the then outstanding shares of Common Stock and Series B, Series C,
Series D, Series E, Series F, Series F-1, Series G and Series H Preferred Stock
pursuant to such merger, consolidation or sale of assets, assuming the
conversion of all outstanding shares of Preferred Stock into Common Stock, would
be equal to at least $5.40 per share (Appropriately Adjusted) in cash and/or
marketable securities (a "Qualifying Reorganization").

(b) All holders of record of shares of Preferred Stock will be
given written notice prior to the closing of a Qualifying IPO or Qualifying
Reorganization that is expected to result in mandatory conversion of all of such
shares of Preferred Stock pursuant to this Section 4. Such notice will be sent
by first class or registered mail, postage prepaid, to each record holder of
Preferred Stock at such holder's address appearing on the stock register. In the
event of mandatory conversion of all of such shares of Preferred Stock pursuant
to this Section 4,

<PAGE> 17

conversion shall be deemed to have been effected immediately prior to the
closing of the Qualifying IPO or Qualifying Reorganization. As promptly as
practicable after the date of such mandatory conversion, each holder of shares
of Preferred Stock shall surrender his or its certificate or certificates for
all such shares to the Corporation at the place designated in such notice, and
shall thereafter receive certificates for the number of shares of Common Stock
to which such holder is entitled pursuant to this Section 4. On the date of such
mandatory conversion, all rights with respect to the Preferred Stock so
converted will terminate, except only the rights of the holders thereof, upon
surrender of their certificate or certificates therefor, to receive certificates
for the number of shares of Common Stock into which such Preferred Stock has
been converted. If so requested by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or instruments
of transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his or its attorney duly authorized in writing. All
certificates evidencing shares of Preferred Stock which are required to be
surrendered for conversion in accordance with the provisions hereof shall, from
and after the date such certificates are so required to be surrendered, be
deemed to have been retired and canceled and the shares of Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. As soon as practicable after the date of
such mandatory conversion and the surrender of the certificate or certificates
for Preferred Stock, the Corporation shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates for
the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection 4(b) in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion.

5. Redemption of Preferred Stock of Holder.

(a) Subject to the provisions of Section 5(b) below, on the 24th day
of March in each of years 2005 and 2006 (collectively, the "Redemption Dates"
and individually, a "Redemption Date"), each holder of Series B, Series C,
Series D, Series E, Series F, Series F-1, Series G and Series H Preferred Stock
shall have the right to require the Corporation to redeem up to 50% and 100% of
the shares of such Preferred Stock held by such holder on each of those dates,
respectively, or such lesser number of shares of such Preferred Stock as the
holder may determine. Any holder desiring to exercise the redemption right
granted herein (a "Requesting Holder") shall provide written notice to the
Corporation not less than 30 days before the applicable Redemption Date setting
forth the number of shares to be redeemed on such Redemption Date. Subject to
the provisions of Section 5(b) below, on the Redemption Date and upon a holder's
surrender, in accordance with this Section 5(a), of such holder's certificates
representing shares to be redeemed, the redemption price shall be paid by the
Corporation in cash in an amount equal to the Liquidation Preference Amount for
each of the Series B, Series C, Series D, Series E, Series F, Series F-1, Series
G and Series H Preferred Stock on the applicable Redemption Date (Appropriately
Adjusted), payable in accordance with Section 1 hereof on each share of
Preferred Stock to be redeemed (the "Redemption Price").

(b) Within five days following its receipt from a Requesting Holder
of a notice of intent to exercises redemption rights pursuant to Subsection (a)
hereof, the Corporation shall provide each holder of Preferred Stock, other than
the Requesting Holder, with a written notice (addressed to the holder at its
address as it appears on the stock transfer books of the Corporation)

<PAGE> 18

containing an offer to redeem shares of Preferred Stock as provided above, which
notice shall specify the applicable Redemption Price. Each holder of Preferred
Stock, other than the Requesting Holder, will have until 30 days prior to the
Redemption Date to provide the Corporation with written notice of such holder's
acceptance of the redemption offer, which notice shall specify the number of
shares to be redeemed. All notices or offers hereunder shall be sent by first
class or registered mail, postage prepaid, and shall be deemed to have been
provided when mailed.

(c) In the event that any holder of Preferred Stock, other than the
Requesting Holder, does not provide the Corporation with written notice of the
holder's acceptance of the redemption offer on or before the date 30 days prior
to the applicable Redemption Date, the Corporation shall have no obligation to
redeem any shares of Preferred Stock of such holder on the Redemption Date
specified in its notice to such holder.

(d) If, with respect to any Redemption Date, a holder of Preferred
Stock does not request, pursuant to Subsection (a) or Subsection (b) hereof, the
redemption of all of the shares of Preferred Stock which such holder may request
to be redeemed as provided above, such holder may request that such shares of
Preferred Stock be redeemed on any subsequent Redemption Date in addition to the
shares of Preferred Stock for which the holder would otherwise be permitted to
request the redemption by the Corporation; provided, that, no holder may require
the Corporation to redeem any shares of Preferred Stock after March 24, 2006.

(e) Notwithstanding the foregoing, the Corporation's obligation to
redeem shares of a series of Preferred Stock on the Redemption Date shall be
waived if the holders of at least 51% of the then outstanding shares of such
series of Preferred Stock shall request such waiver by written notice given to
the Corporation at least ten days prior to such Redemption Date. The Corporation
shall immediately notify all holders of such series of Preferred Stock of any
such waiver and shall not be required to redeem the shares of such series of
Preferred Stock on such Redemption Date. Any waiver with respect to the
Corporation's obligation to redeem shares of a series of Preferred Stock
pursuant to this subsection shall not affect the Corporation's obligation to
redeem shares of any other series of Preferred Stock pursuant to this Section 5.

(f) On or prior to the Redemption Date, unless waived pursuant to
Subsection (e) above, the Requesting Holder and each other holder of Preferred
Stock accepting the Corporation's redemption offer shall surrender his or its
certificate or certificates representing the shares to be redeemed, in the
manner and at the place designated in the Corporation's redemption offer. If
less than all shares represented by such certificate or certificates are
redeemed, the Corporation shall issue a new certificate for the unredeemed
shares. From and after the Redemption Date, unless there shall be a default in
payment of the Redemption Price, all rights of each holder with respect to
shares of Preferred Stock redeemed on the Redemption Date shall cease (except
the right to receive the Redemption Price without interest upon surrender of the
certificate or certificates therefor), and such shares shall not be deemed to be
outstanding for any purpose whatsoever. Such shares of Preferred Stock shall not
be reissued, and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Preferred Stock accordingly.
Nothing herein shall prevent or restrict the purchase by the Corporation, from
time to time, of the whole or any part of the Preferred Stock at such price or
prices as the Corporation may determine subject to the provisions of applicable
law.

<PAGE> 19

(g) For the purpose of determining whether funds are legally
available for redemption of shares of Preferred Stock as provided herein, the
Corporation shall value its assets as the highest amount permissible under
applicable law. Notwithstanding any other provision of this Section 5, if, on
the Redemption Date, funds of the Corporation legally available therefor shall
be insufficient to redeem all the shares of Preferred Stock required to be
redeemed as provided herein, funds to the extent legally available shall be used
for such purpose and the Corporation shall effect such redemption ratably
according to the number of shares of Preferred Stock held by each holder
accepting the Corporation's redemption offer, the number of shares held by the
Requesting Holder and their respective Redemption Prices. The redemption
requirements provided hereby shall be continuous, so that if on the Redemption
Date such requirements shall not be fully discharged, without further action by
any holder of Preferred Stock, funds legally available shall be applied therefor
until such requirements are fully discharged.

6. PROTECTIVE PROVISIONS.

(a) Except as set forth herein, so long as an aggregate of at least
750,000 shares of Series F and Series F-1 Preferred Stock remain outstanding,
the Corporation will not, without the prior written consent of the holders of at
least 67% of the total number of outstanding shares of Series F and Series F-1
Preferred Stock (voting together as a single class), take any action which:

(i) alters, changes, or amends the rights, preferences or
privileges of any series of Preferred Stock (other than the requirements for a
Qualifying IPO, which may be waived or amended with the consent of holders of at
least 51% of the then outstanding shares of Series F and Series F-1 Preferred
Stock, voting together as a single class);

(ii) increases the authorized number of shares of Series F or
Series F-1 Preferred Stock or the Preferred Stock;

(iii) creates any new class or series of shares having any right,
preference or privilege over or on a parity with the Series F or Series F-1
Preferred Stock;

(iv) involves a Liquidation Event (other than a Qualifying
Reorganization);

(v) involves any transaction which would result in a dividend
or other distribution upon any of the Corporation's equity securities;

(vi) causes the Corporation to repurchase or otherwise acquire
shares other than pursuant to (A) its 1995 or 1997 Stock Option Plan or other
restricted stock purchase agreements approved by the Board of Directors at the
original issue price, or (B) redemption of Preferred Stock pursuant to this
Certificate of Incorporation; or

(vii) increases or decreases the authorized number of directors
constituting the Corporation's board of directors.

<PAGE> 20

7. AMENDMENTS AND WAIVERS.

Any action, approval, request, consent, notice or waiver which is
required or permitted under this Article IV with respect to a series of
Preferred Stock shall become effective and binding upon all holders of such
series of Preferred Stock if the same is approved by the vote or written consent
of the holders of at least sixty-seven percent (67%) of such series of Preferred
Stock then issued and outstanding.

8. Special Mandatory Conversion.

(a) At any time following the Original Issue Date, if:

(i) any holder of shares of Series F Preferred Stock is
entitled to exercise the right of first offer (the "Right of First Offer") as
set forth in Section 1(k) of that certain Amended and Restated Investors' Rights
Agreement among the Corporation and the certain holders of its Preferred Stock
and other equity securities, as such agreement may from time to time be amended
(the "Agreement") with respect to an equity financing of the Corporation at a
price per share which is less than the Conversion Price then in effect for the
Series F Preferred Stock (an "Equity Financing"),

(ii) the Corporation has complied with its obligations under the
Agreement with respect to the Right of First Offer, and

(iii) such holder does not by exercise of such holder's Right of
First Offer acquire the amount of securities offered in such Equity Financing to
which such holder is entitled pursuant to Section 1(k) of the Agreement,

then all of such holder's shares of Series F Preferred Stock shall automatically
and without further action on the part of such holder be converted into an
equivalent number of shares of Series F-1 Preferred Stock effective immediately
prior to the closing of such Equity Financing; provided, however, that no such
conversion shall occur in connection with a particular Equity Financing if,
pursuant to the written request of the Corporation, the Right of First Offer
with respect to such Equity Financing is waived by the holders of the Series F
Preferred Stock in accordance with the terms of the Agreement; and provided,
further, that no such conversion shall occur in connection with a particular
Equity Financing with respect to a particular holder of Series F Preferred Stock
if, pursuant to the written request of the Corporation, (i) such holder agrees
in writing to waive such holder's Right of First Offer with respect to such
Equity Financing and (ii) each other holder of shares of Series F Preferred
Stock agrees in writing that such particular holder of shares of Series F
Preferred Stock may waive such particular holder's Right of First Offer with
respect to such Equity Financing. Upon conversion pursuant to this Section 8,
the shares of Series F Preferred Stock so converted shall be canceled and not
subject to reissuance.

(b) The holder of any shares of Series F Preferred Stock converted
pursuant to this Section 8 shall deliver to the Corporation during regular
business hours at the office of any transfer agent of the Corporation for such
Preferred Stock, or at such other place as may be designated by the Corporation,
the certificate or certificates representing the shares so converted, duly
endorsed or assigned in blank or to the Corporation. As promptly thereafter as
is practicable,

<PAGE> 21

the Corporation shall issue and deliver to such holder, at the place designated
by such holder, a certificate or certificates for the number of full shares of
the Series F-1 Preferred Stock to which such holder is entitled. The person in
whose name the certificate for such shares of Series F-1 Preferred Stock is to
be issued shall be deemed to have become a stockholder on the effective date of
the conversion of the Series F Preferred Stock, unless the transfer books of the
Corporation are closed on that date, in which case such person shall be deemed
to have become a stockholder of record on the next succeeding date on which the
transfer books are open.

(c) In the event that any shares of Series F-1 Preferred Stock are
issued, concurrently with such issuance, the Corporation shall use its best
efforts to take all such action as may be required, including amending its
Certificate of Incorporation, (i) to cancel all authorized shares of Series F-1
Preferred Stock that remain unissued after such issuance, (ii) to create and
reserve for issuance a new series of Preferred Stock equal in number to the
number of Shares of Series F-1 Preferred Stock so canceled and designated
"Series F-2 Preferred Stock," with the designations, powers, preferences and
rights and the qualifications, limitations and restrictions identical to those
then applicable to the Series F Preferred Stock, except that the conversion
price for such shares of Series F-2 Preferred Stock once initially issued shall
be the Conversion Price in effect immediately prior to such issuance and shall
not after such issuance be subject to adjustment under Section 4.1(d)(iv)
hereof, and (iii) to amend the provisions of this Section 8 to provide that any
subsequent special mandatory conversion pursuant hereto will be into shares of
Series F-2 Preferred Stock rather than Series F-1 Preferred Stock. The
corporation shall take the same actions with respect to the Series F-2 Preferred
Stock and each series of Preferred Stock subsequently authorized pursuant to
this Section 8 upon initial issuance of shares of the last such series to be so
authorized.

9. AUTHORIZED PREFERRED STOCK FOLLOWING INITIAL PUBLIC OFFERING

(a) Notwithstanding the foregoing Sections 1 through 8 of this
Article IV, upon the closing of the Corporation's initial public offering of its
Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
to the public (the "Initial Public Offering") this Corporation will be
authorized to issue 15,000,000 shares of Preferred Stock, par value $0.001 per
share, which may be issued from time to time in one or more series. Following
the closing of the Initial Public Offering, the Board of Directors will be
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> 22

ARTICLE V

In furtherance and not in limitation of the powers conferred by statute,
subject to any restrictions set forth herein, the Board of Directors of the
Corporation is expressly authorized to make, alter or repeal Bylaws of the
Corporation.

ARTICLE VI

Notwithstanding Section 3 of Article IV hereof, effective upon the closing
of the corporation's Initial Public Offering, 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. The Board of Directors shall be divided into
three classes, as nearly equal in number as possible. The initial classification
of directors shall be determined in accordance with a resolution or resolutions
adopted by the Board of Directors. The term of office of the first class to
expire at the first annual meeting of stockholders or any special meeting in
lieu thereof following the Initial Public Offering, the term of office of the
second class to expire at the second annual meeting of stockholders or any
special meeting in lieu thereof following the Initial Public Offering and the
term of office of the third class to expire at the third annual meeting of
stockholders or any special meeting in lieu thereof following the Initial Public
Offering. At each annual meeting of stockholders or special meeting in lieu
thereof following such initial classification, directors elected to succeed
those directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of the stockholders or special
meeting in lieu thereof after their election and until their successors are duly
elected and qualified. The foregoing provisions shall become effective only when
the Corporation becomes a listed corporation within the meaning of Section 301.5
of the California Corporations Code. Directors need not be stockholders unless
so required by the certificate of incorporation or these bylaws, wherein other
qualifications for directors may be prescribed.

Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director,
and not by the stockholders. In the event of any increase or decrease in the
authorized number of directors, (a) each director then serving as such shall
nevertheless continue as a director of the class of which he or she is a member
until the expiration of his or her current term or his or her prior death,
retirement, removal or resignation and (b) the newly created or eliminated
directorships resulting from such increase or decrease shall if reasonably
possible be apportioned by the board of directors among the three classes of
directors so as to ensure that no one class has more than one director more than
any other class. To the extent reasonably possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation and newly eliminated directorships shall be subtracted from those
classes whose terms of office are to expire at the earliest dates following such
allocation, unless otherwise provided for from time to time by resolution
adopted by a majority of the directors then in office, although less than a
quorum. In the event of a vacancy in the board of directors, the remaining
directors, except as otherwise

<PAGE> 23

provided by law, may exercise the powers of the full Board of Directors until
the vacancy is filled. Notwithstanding the foregoing, each director shall serve
until his or her successor is duly elected and qualified or until his or her
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

No person entitled to vote at an election for directors may cumulate votes
to which such person is entitled, unless, at the time of such election, the
Corporation is subject to Section 2115(b) of the CGCL and is not a "listed"
corporation or ceases to be a "listed" corporation under Section 301.5 of the
CGCL. During this time, every stockholder entitled to vote at an election for
directors may cumulate such stockholder's vote and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, shall be entitled to
so cumulate such stockholder's votes unless (i) the names of such candidate or
candidates have been placed in nomination prior to the voting and (ii) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any stockholder
has given proper notice to cumulate votes, all stockholders may cumulate their
votes for any candidates who have been properly placed in nomination. Under
cumulative voting, the candidates receiving the highest number of votes, up to
the number of directors to be elected, are elected.

This Article VI shall become effective only when the Corporation is a
"listed" corporation within the meaning of Section 301.5 of the California
Corporations Code.

ARTICLE VII

Elections of directors need not be by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins or
unless otherwise provided in the Bylaws of the Corporation.

ARTICLE VIII

Following the closing of the Initial Public Offering, 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.

ARTICLE IX

A. To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.

B. The Corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation, or serves

<PAGE> 24

or served at any other enterprise as a director, officer or employee at the
request of the Corporation or any predecessor to the Corporation.

C. Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of this Corporation's Certificate of Incorporation inconsistent
with this Article VII, shall eliminate or reduce the effect of this Article VII
in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article VII, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.

ARTICLE VIII

The Corporation is to have perpetual existence.

ARTICLE IX

Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors in
the Bylaws of the Corporation."

* * *

<PAGE> 25

The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.

Executed at Mountain View, California on February __, 2000.

----------------------------------------
Joseph M. Limber
President

----------------------------------------
Wendy R. Hitchcock
Secretary

<PAGE> 1
EXHIBIT 3.4

AMENDED AND RESTATED

BYLAWS

ACLARA BIOSCIENCES, INC.

<PAGE> 2

<TABLE>
<S> <C>
ARTICLE I. CORPORATE OFFICES.................................................................4

1.1 REGISTERED OFFICE....................................................................4
1.2 OTHER OFFICES........................................................................4

ARTICLE II. MEETINGS OF STOCKHOLDERS.........................................................4

2.1 PLACE OF MEETINGS....................................................................4
2.2 ANNUAL MEETING.......................................................................4
2.3 SPECIAL MEETING......................................................................4
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.....................................................4
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES...............................................5
2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS...............................................6
2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.........................................6
2.8 QUORUM...............................................................................7
2.9 ADJOURNED MEETING; NOTICE............................................................7
2.10 CONDUCT OF BUSINESS................................................................7
2.11 VOTING.............................................................................7
2.12 WAIVER OF NOTICE...................................................................7
2.13 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING............................8
2.14 RECORD DATE FOR STOCKHOLDER NOTICE. VOTING; GIVING CONSENTS........................8
2.15 PROXIES............................................................................9

ARTICLE III. DIRECTORS.......................................................................9

3.1 POWERS...............................................................................9
3.2 NUMBER OF DIRECTORS..................................................................9
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS..............................9
3.4 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............................................11
3.5 REGULAR MEETINGS....................................................................11
3.6 SPECIAL MEETINGS; NOTICE............................................................11
3.7 QUORUM..............................................................................11
3.8 WAIVER OF NOTICE....................................................................12
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING...................................12
3.10 FEES AND COMPENSATION OF DIRECTORS................................................12
3.11 REMOVAL OF DIRECTORS..............................................................12
3.12 APPROVAL OF LOANS TO OFFICERS.....................................................12

ARTICLE IV. COMMITTEES......................................................................13

4.1 COMMITTEES OF DIRECTORS.............................................................13
4.2 COMMITTEE MINUTES...................................................................13
4.3 MEETINGS AND ACTION OF COMMITTEES...................................................13

ARTICLE V. OFFICERS.........................................................................14

5.1 OFFICERS............................................................................14
5.2 APPOINTMENT OF OFFICERS.............................................................14
5.3 SUBORDINATE OFFICERS................................................................14
5.4 REMOVAL AND RESIGNATION OF OFFICERS.................................................14
5.5 VACANCIES IN OFFICES................................................................15
5.6 CHAIRMAN OF THE BOARD...............................................................15
5.7 PRESIDENT...........................................................................15
5.8 VICE PRESIDENT......................................................................15
5.9 SECRETARY...........................................................................15
5.10 CHIEF FINANCIAL OFFICER...........................................................16
5.11 ASSISTANT SECRETARY...............................................................16
5.12 ASSISTANT TREASURER...............................................................16
5.13 AUTHORITY AND DUTIES OF OFFICERS..................................................16
</TABLE>

2
<PAGE> 3

<TABLE>
<S> <C>
ARTICLE VI. INDEMNITY.......................................................................17

6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS...........................................17
6.2 INDEMNIFICATION OF OTHERS...........................................................17
6.3 PAYMENT OF EXPENSES IN ADVANCE......................................................17
6.4 INDEMNITY NOT EXCLUSIVE.............................................................17
6.5 INSURANCE...........................................................................18
6.6 CONFLICTS...........................................................................18

ARTICLE VII. RECORDS AND REPORTS............................................................18

7.1 MAINTENANCE AND INSPECTION OF RECORDS...............................................18
7.2 INSPECTION BY DIRECTORS.............................................................19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS....................................................19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS......................................19

ARTICLE VIII. GENERAL MATTERS...............................................................19

8.1 CHECKS..............................................................................19
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS....................................20
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES..............................................20
8.4 SPECIAL DESIGNATION ON CERTIFICATES.................................................20
8.5 LOST CERTIFICATES...................................................................21
8.6 CONSTRUCTION, DEFINITIONS...........................................................21
8.7 DIVIDENDS...........................................................................21
8.8 FISCAL YEAR.........................................................................21
8.9 SEAL................................................................................21
8.10 TRANSFER OF STOCK.................................................................21
8.11 STOCK TRANSFER AGREEMENTS.........................................................22
8.12 REGISTERED STOCKHOLDERS...........................................................22

ARTICLE IX. AMENDMENTS......................................................................22
</TABLE>

<PAGE> 4

AMENDED AND RESTATED BYLAWS

ACLARA BIOSCIENCES, INC.

ARTICLE I.

CORPORATE OFFICES

1.1 REGISTERED OFFICE

The registered office of the corporation shall be in the City of Dover,
County of Kent, State of Delaware. The name of the registered agent of the
corporation at such location is Incorporating Services, Ltd.

1.2 OTHER OFFICES

The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.

ARTICLE II.

MEETINGS OF STOCKHOLDERS

2.1 PLACE OF MEETINGS

Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.

2.2 ANNUAL MEETING

The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the second
Tuesday of May in each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected and any
other proper business may be transacted.

2.3 SPECIAL MEETING

A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the chief executive
officer, the president or vice president of the corporation.

2.4 NOTICE OF STOCKHOLDERS' MEETINGS

All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws not
less than ten (10) nor more

4
<PAGE> 5

than sixty (60) days before the date of the meeting to each stockholder entitled
to vote at such meeting. The notice shall specify the place, date, and hour of
the meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called.

2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES

Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders by or at the direction of the board of
directors or by any stockholder of the corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely notice in
writing to the secretary of the corporation.

To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the corporation (a) in the case
of an annual meeting, not less than sixty (60) days nor more than ninety (90)
days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
changed by more than thirty (30) days from such anniversary date, notice by the
stockholders to be timely must be so received not later than the close of
business on the tenth (10th) day following the earlier of the day on which such
notice of the date of the meeting was mailed or public disclosure was made and
(b) in the case of a special meeting at which directors are to be elected, not
later than the close of business on the tenth (10th) day following the earlier
of the day on which notice of the date of the meeting was mailed or public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the corporation which are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including, without limitation, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected, and (b) as to the stockholder giving the
notice, (i) the name and address, as they appear on the corporation's books, of
such stockholder, and (ii) the class and number of shares of the corporation
which are beneficially owned by such stockholder and also which are owned of
record by such stockholder.

At the request of the board of directors, any person nominated by the
board of directors for election as a director shall furnish to the secretary of
the corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this Section 2.5. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
bylaws, and, if he or she should so determine, he or she shall so declare to the
meeting and the defective nomination shall be disregarded. Notwithstanding the
foregoing provisions of this Bylaw, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Bylaw.

5
<PAGE> 6

2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS

At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the annual meeting. To be
properly brought before an annual meeting, business must be (a) pursuant to the
corporation's notice of meeting (or any supplement thereto), (b) by or at the
direction of the board of directors or (c) by any stockholder of the corporation
who is a stockholder of record at the time of giving of the notice provided for
in this Section 2.6, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Section 2.6.

Business to be brought before an annual meeting by a stockholder shall
not be considered properly brought if the stockholder has not given timely
notice thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty (60) nor more
than ninety (90) days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
meeting is changed by more than thirty (30) days from such anniversary date,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the earlier of the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. A stockholder's notice to the secretary shall set forth as
to each matter the stockholder proposes to bring before the meeting: (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, and the name and address of the beneficial owner, if any, on whose
behalf the proposal is made, (iii) the class and number of shares of the
corporation, which are owned by the stockholder of record and by the beneficial
owner, if any, on whose behalf the proposal is made, (iv) any material interest
of the stockholder of record and the beneficial owner, if any, on whose behalf
the proposal is made in such business, and (v) any other information that is
required by law to be provided by the stockholder in his or her capacity as a
proponent of a stockholder proposal.

Notwithstanding anything in these bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2.6. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the bylaws, and, if he or she
should so determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Bylaw, a stockholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Bylaw.

2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE

Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.

6
<PAGE> 7

2.8 QUORUM

The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally noticed.

2.9 ADJOURNED MEETING; NOTICE

When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.

2.10 CONDUCT OF BUSINESS

The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.

2.11 VOTING

The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.14 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgers and joint owners
of stock and to voting trusts and other voting agreements).

Except as provided in the last paragraph of this Section 2.11, or as may
be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.

2.12 WAIVER OF NOTICE

Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of,

7
<PAGE> 8

any regular or special meeting of the stockholders need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these bylaws.

2.13 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING; NO STOCKHOLDER
ACTION BY WRITTEN CONSENT WITHOUT A MEETING FOLLOWING INITIAL PUBLIC OFFERING

Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.

Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.

Notwithstanding anything to the contrary contained in the first two
paragraphs of this Section 2.13, effective upon the closing of the corporation's
initial public offering of its Common Stock, any action required to be taken at
any annual or special meeting of stockholders of the corporation, or any action
that may be taken at any annual or special meeting of such stockholders, must be
taken at an annual or special meeting of stockholders of the corporation, with
prior notice and with a vote, and may not be taken by a consent in writing.

2.14 RECORD DATE FOR STOCKHOLDER NOTICE. VOTING; GIVING CONSENTS

In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.

If the board of directors does not so fix a record date:

(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.

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(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.

(iii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.

2.15 PROXIES

Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.

ARTICLE III.

DIRECTORS

3.1 POWERS

Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by-or under the direction of the board of directors.

3.2 NUMBER OF DIRECTORS

The authorized number of directors shall be seven (7) until changed by a
proper amendment to this Section 3.2.

No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS

Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein

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other qualifications for directors may be prescribed. Each director, including a
director elected to fill a vacancy, shall hold office until his successor is
elected and qualified or until his earlier resignation or removal.

Elections of directors need not be by written ballot.

Notwithstanding anything to the contrary contained in the first two paragraphs
of this Section 2.13, effective upon the closing of the corporation's initial
public offering of its Common Stock (the "Initial Public Offering"), the board
of directors shall be divided into three classes, as nearly equal in number as
possible. The initial classification of directors shall be determined in
accordance with a resolution or resolutions adopted by the Board of Directors.
The term of office of the first class to expire at the first annual meeting of
stockholders or any special meeting in lieu thereof following the Initial Public
Offering, the term of office of the second class to expire at the second annual
meeting of stockholders or any special meeting in lieu thereof following the
Initial Public Offering and the term of office of the third class to expire at
the third annual meeting of stockholders or any special meeting in lieu thereof
following the Initial Public Offering. At each annual meeting of stockholders or
special meeting in lieu thereof following such initial classification, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of the
stockholders or special meeting in lieu thereof after their election and until
their successors are duly elected and qualified. The foregoing provisions shall
become effective only when the corporation becomes a listed corporation within
the meaning of Section 301.5 of the California Corporations Code. Directors need
not be stockholders unless so required by the certificate of incorporation or
these bylaws, wherein other qualifications for directors may be prescribed.
Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the board of directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director,
and not by the stockholders. In the event of any increase or decrease in the
authorized number of directors, (a) each director then serving as such shall
nevertheless continue as a director of the class of which he or she is a member
until the expiration of his or her current term or his or her prior death,
retirement, removal or resignation and (b) the newly created or eliminated
directorships resulting from such increase or decrease shall if reasonably
possible be apportioned by the board of directors among the three classes of
directors so as to ensure that no one class has more than one director more than
any other class. To the extent reasonably possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation and newly eliminated directorships shall be subtracted from those
classes whose terms of office are to expire at the earliest dates following such
allocation, unless otherwise provided for from time to time by resolution
adopted by a majority of the directors then in office, although less than a
quorum. In the event of a vacancy in the board of directors, the remaining
directors, except as otherwise provided by law, may exercise the powers of the
full board of directors until the vacancy is filled. Notwithstanding the
foregoing, each director shall serve until his or her successor is duly elected
and qualified or until his or her death, resignation or removal. No decrease in
the number of directors constituting the board of directors shall shorten the
term of any incumbent director.

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There shall be no right with respect to shares of stock of the
corporation to cumulate votes in the election of directors.

3.4 PLACE OF MEETINGS; MEETINGS BY TELEPHONE

The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.

Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.

3.5 REGULAR MEETINGS

Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.

3.6 SPECIAL MEETINGS; NOTICE

Special meetings of the board for any purpose or purposes may be called
at any time by the chairman of the board, the president, any vice president, the
secretary or any two (2) directors.

Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at lest four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.

3.7 QUORUM

At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.

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A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.

3.8 WAIVER OF NOTICE

3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING

Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee. Written consents representing actions taken by the board
or committee may be executed by telex, telecopy or other facsimile transmission,
and such facsimile shall be valid and binding to the same extent as if it were
an original.

3.10 FEES AND COMPENSATION OF DIRECTORS

Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors. No such compensation shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.

3.11 REMOVAL OF DIRECTORS

Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, only with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.

No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.

3.12 APPROVAL OF LOANS TO OFFICERS

The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the

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corporation. The loan, guaranty or other assistance may be with or without
interest and. may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.

ARTICLE IV.

COMMITTEES

4.1 COMMITTEES OF DIRECTORS

The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.

4.2 COMMITTEE MINUTES

Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.

4.3 MEETINGS AND ACTION OF COMMITTEES

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Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.4 (place of meetings and meetings by telephone), Section 3.5 (regular
meetings), Section 3.6 (special meetings and notice), Section 3.7 (quorum),
Section 3.8 (waiver of notice) and Section 3.9 (action without a meeting), with
such changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may also be called by
resolution of the board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.

ARTICLE V.

OFFICERS

5.1 OFFICERS

The officers of the corporation shall be a chief executive officer, a
president, one or more vice presidents, a secretary, and a chief financial
officer. The corporation may also have, at the discretion of the board of
directors, a chairman of the board, one or more assistant vice presidents,
assistant secretaries, assistant treasurers, and any such other officers as may
be appointed in accordance with the provisions of Section 5.3 of these bylaws.
Any number of offices may be held by the same person.

5.2 APPOINTMENT OF OFFICERS

The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.

5.3 SUBORDINATE OFFICERS

The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.

5.4 REMOVAL AND RESIGNATION OF OFFICERS

Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.

Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation

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shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the corporation under any contract to which
the officer is a party.

5.5 VACANCIES IN OFFICES

Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.

5.6 CHAIRMAN OF THE BOARD

The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the. chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.

5.7 PRESIDENT

Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.

5.8 VICE PRESIDENT

In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them .respectively by the board of directors, these
bylaws, the president or the chairman of the board.

5.9 SECRETARY

The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show. the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.

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The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.

The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.

5.10 CHIEF FINANCIAL OFFICER

The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.

The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or these bylaws.

5.11 ASSISTANT SECRETARY

The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.

5.12 ASSISTANT TREASURER

The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.

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5.13 AUTHORITY AND DUTIES OF OFFICERS

In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.

ARTICLE VI.

INDEMNITY

6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS

The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.

6.2 INDEMNIFICATION OF OTHERS

The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees),. judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.

6.3 PAYMENT OF EXPENSES IN ADVANCE

Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
board of directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article 6.

6.4 INDEMNITY NOT EXCLUSIVE

The indemnification provided by this Article 6 shall not be deemed
exclusive of any other rights which those seeking indemnification may be
entitled under any bylaw, agreement, vote of

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shareholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office, to the extent that additional rights to indemnification are authorized
in the certificate of incorporation.

6.5 INSURANCE

The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other. enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would. have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.

6.6 CONFLICTS

No indemnification or advance shall be made under this Article 6, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:

(i) That it would be inconsistent with a provision of the certificate of
incorporation, these bylaws, a resolution of the stockholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limited indemnification; or

(ii) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.

ARTICLE VII.

RECORDS AND REPORTS

7.1 MAINTENANCE AND INSPECTION OF RECORDS

The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares, held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.

Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.

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The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

7.2 INSPECTION BY DIRECTORS

Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.

7.3 ANNUAL STATEMENT TO STOCKHOLDERS

The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.

7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS

The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.

ARTICLE VIII.

GENERAL MATTERS

8.1 CHECKS

From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.

19
<PAGE> 20

8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS

The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.

8.3 STOCK CERTIFICATES; PARTLY PAID SHARES

The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.

The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.

8.4 SPECIAL DESIGNATION ON CERTIFICATES

If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative,

20
<PAGE> 21

participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.

8.5 LOST CERTIFICATES

Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.

8.6 CONSTRUCTION, DEFINITIONS

Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.

8.7 DIVIDENDS

The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.

The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.

8.8 FISCAL YEAR

The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.

8.9 SEAL

The seal of the corporation shall be such as from time to time may be
approved by the board of directors.

8.10 TRANSFER OF STOCK

Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or

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<PAGE> 22

authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction in its books.

8.11 STOCK TRANSFER AGREEMENTS

The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.

8.12 REGISTERED STOCKHOLDERS

The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable. or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.

ARTICLE IX.

AMENDMENTS

The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.

<PAGE> 1

EXHIBIT 4.1

ACLARA

BIOSCIENCES INC.

INCORPORATED UNDER THE LAWS CUSIP 00461P 10 6
OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS

THIS CERTIFIES THAT

[ACLARA LOGO]

IS THE RECORD HOLDER OF

FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
$0.001 PAR VALUE PER SHARE, OF

ACLARA BIOSCIENCES, INC.

TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR
BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER
AGENT AND REGISTRAR.

WITNESS THE FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.

DATED:

/s/ WENDY R. HITCHCOCK /s/ JOSEPH M. LIMBER
- ----------------------------------- -----------------------------------
CHIEF FINANCIAL OFFICER AND PRESIDENT & CEO
SECRETARY

ACLARA BIOSCIENCES, INC.

[SEAL]

APR 12, 1995

DELAWARE

<PAGE> 1
EXHIBIT 10.3

AMENDED AND RESTATED
ACLARA BIOSCIENCES, INC.
1997 STOCK PLAN

1. Purposes of the Plan. The purposes of this 1997 Stock Plan are:

- to attract and retain the best available personnel for positions
of substantial responsibility,

- to provide additional incentive to Employees, Consultants and
Directors, and

- to promote the success of the Company's business.

Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.

2. Definitions. As used herein, the following definitions shall apply:

(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.

(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.

(d) "Code" means the Internal Revenue Code of 1986, as amended.

(e) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.

(f) "Common Stock" means the Common Stock of the Company.

(g) "Company" means ACLARA BioSciences, Inc., a Delaware corporation.

(h) "Consultant" means any consultant or adviser if: (i) the
consultant or adviser renders bona fide services to the Company; (ii) the
services rendered by the consultant or adviser are not in connection with the
offer or sale of securities in a capital-raising transaction and do not directly
or indirectly promote or maintain a market for the Company's securities; and
(iii) the consultant or adviser is a natural person who has contracted directly
with the Company to render such services.

<PAGE> 2

(i) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
ninety (90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, on the 181st day of such
leave any incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.

(j) "Director" means a member of the Board.

(k) "Disability" means total disability as defined in Section
22(e)(3) of the Code.

(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.

(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

(n) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:

(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last market
trading day prior to the day of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the Nasdaq National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

<PAGE> 3

(o) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder and which is designated as an Incentive Stock
Option by the Administrator.

(p) "Independent Director" means a Director who is not an Employee of
the Company.

(q) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option and which is not designated as an Incentive
Stock Option by the Administrator.

(r) "Notice of Grant" means a written notice evidencing certain terms
and conditions of an individual Option or Stock Purchase Right grant. The Notice
of Grant is part of the Option Agreement in the case of an Option and is
accompanied by a Restricted Stock Purchase Agreement in the case of a Stock
Purchase Right.

(s) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(t) "Option" means a stock option granted pursuant to the Plan.

(u) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.

(v) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.

(w) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.

(x) "Optionee" means an Employee or Consultant who holds an
outstanding Option or Stock Purchase Right.

(y) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

(z) "Permanent Disability" means permanent disability as defined
under Section 10(c) below.

(aa) "Plan" means this Amended and Restated ACLARA BioSciences, Inc.
1997 Stock Plan.

(bb) "Public Trading Date" means the first date upon which Common
Stock of the Company is listed (or approved for listing) upon notice of issuance
on any securities exchange or designated (or approved for designation) upon
notice of issuance as a national market security on an interdealer quotation
system.

<PAGE> 4

(cc) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 13 below.

(dd) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to Common Stock purchased under a Stock Purchase Right. The Restricted
Stock Purchase Agreement is subject to the terms and conditions of the Plan and
the Notice of Grant.

(ee) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

(ff) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 16 of the Plan.

(gg) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 13 of the Plan, as evidenced by a Notice of Grant.

(hh) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan. Subject to the provisions of Section 16 of
the Plan, the maximum aggregate number of Shares which may be sold or optioned
and sold under the Plan is 3,340,522 Shares; provided, however, that, during
the term of the Plan, on each anniversary of the date of the Plan's adoption by
the Board (commencing with the first such anniversary), such maximum aggregate
number of Shares shall be increased by 750,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.

If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.

4. Administration of the Plan.

(a) Procedure.

(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.

<PAGE> 5

(ii) Administration With Respect to Directors and Officers
Subject to Section 16(b). With respect to Option or Stock Purchase Right grants
made to Employees who are also Officers or Directors subject to Section 16(b) of
the Exchange Act, the Plan shall be administered by (A) the Board, if the Board
may administer the Plan in compliance with the rules governing a plan intended
to qualify as a discretionary plan under Rule 16b-3, or (B) a committee
designated by the Board to administer the Plan, which committee shall be
constituted to comply with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the rules governing a plan intended to qualify as a discretionary
plan under Rule 16b-3.

(iii) Administration With Respect to Other Persons. With respect
to Option or Stock Purchase Right grants made to Employees or Consultants who
are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted to satisfy Applicable Laws. Once appointed, such
Committee shall serve in its designated capacity until otherwise directed by the
Board. The Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Applicable Laws.

(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;

(ii) to select the Consultant, Directors and Employees to whom
Options and Stock Purchase Rights may be granted hereunder;

(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof, are granted hereunder;

(iv) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;

(v) to approve forms of agreement for use under the Plan;

(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options or Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase

<PAGE> 6

Right or the shares of Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine;

(vii) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;

(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;

(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 18(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan:

(xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;

(xii) to institute an Option Exchange Program;

(xiii) to determine the terms and restrictions applicable to
Options and Stock Purchase Rights and any Restricted Stock; and

(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.

(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Employees, Directors and Consultants. Incentive Stock Options may
be granted only to Employees. If otherwise eligible, an Employee, Director or
Consultant who has been granted an Option or Stock Purchase Right may be granted
additional Options or Stock Purchase Rights.

6. Limitations.

(a) Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value:

(i) of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which

<PAGE> 7

(ii) become exercisable for the first time during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time of grant.

(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
employment or consulting relationship at any time, with or without cause.

(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 700,000 Shares;
provided, however, that the foregoing limitation shall not apply prior to the
Public Trading Date and, following the Public Trading Date, the foregoing
limitation shall not apply until the earliest of: (i) the first material
modification of the Plan (including any increase in the number of shares
reserved for issuance under the Plan in accordance with Section 3); (ii) the
issuance of all of the shares of Common Stock reserved for issuance under the
Plan; (iii) the expiration of the Plan; (iv) the first meeting of stockholders
at which Directors of the Company are to be elected that occurs after the close
of the third calendar year following the calendar year in which occurred the
first registration of an equity security of the Company under Section 12 of the
Exchange Act; or (v) such other date required by Section 162(m) of the Code and
the rules and regulations promulgated thereunder. The foregoing limitation shall
be adjusted proportionately in connection with any change in the Company's
capitalization as described in Section 16. For purposes of this Section 6(c), if
an Option is canceled in the same calendar year it was granted (other than in
connection with a transaction described in Section 16), the canceled Option will
be counted against the limit set forth in this Section 6(c). For this purpose,
if the exercise price of an Option is reduced, the transaction shall be treated
as a cancellation of the Option and the grant of a new Option.

(ii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 16.

(iii) If an Option or Stock Purchase Right is canceled in the
same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 16), the canceled Option or
Stock Purchase Right will be counted against the limit set forth in Section
6(c)(i). For this purpose, if the exercise price of an Option or Stock Purchase
Right is reduced, the transaction will be treated as a cancellation of the
Option or Stock Purchase Right and the grant of a new Option or Stock Purchase
Right.

7. Term of Plan. Subject to Section 22 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board or its
approval by the shareholders of the

<PAGE> 8

Company as described in Section 22 of the Plan. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 18 of the Plan.

8. Term of Option. The term of each Option shall be stated in the Notice
of Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Notice of Grant.

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.

(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.

(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator, but shall in no event
be less than the par value per Share.

(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.

(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

(i) cash;

(ii) check;

<PAGE> 9

(iii) money order;

(iv) promissory note;

(v) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;

(vi) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;

(vii) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

(viii) any combination of the foregoing methods of payment; or

(ix) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

10. Exercise of Option.

(a) Procedure for Exercise: Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed exercised when the Company receives:
(i) written notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 16 of the
Plan.

<PAGE> 10

Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

(b) Termination of Employment, Directorship or Consulting
Relationship. Upon termination of an Optionee's Continuous Status as an
Employee, Director or Consultant (but not in the event of a change of status
from Employee to Consultant (in which case an Employee's Incentive Stock Option
shall automatically convert to a Nonstatutory Stock Option on the ninety-first
(91st) day following such change of status) or from Consultant to Employee),
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is specified in the
Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant). In
the absence of a specified time in the Notice of Grant, the Option shall remain
exercisable for thirty (30) days following the Optionee's termination of
Continuous Status as an Employee, Director or Consultant. In the case of an
Incentive Stock Option, such period of time shall not exceed ninety (90) days
from the date of termination. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.

(c) Disability of Optionee. Notwithstanding the provisions of Section
10(b) above, in the event of termination of an Optionee's Consulting
relationship or Continuous Status as an Employee or Director as a result of his
Disability then the period during which each outstanding option held by the
Optionee is to remain exercisable shall be limited to the six (6)-month period
following the date of such cessation of service. However, should such Disability
be deemed to constitute Permanent Disability, then the period during which each
outstanding option held by the Optionee is to remain exercisable shall be
extended by an additional six (6) months so that the exercise period shall be
limited to the twelve (12)-month period following the date of the Optionee's
cessation of Service by reason of such Permanent Disability. For the purposes of
the Plan, Disability shall be determined by the Administrator on the basis of
such medical evidence as the Administrator deems warranted under the
circumstances. For purposes of the Plan, Disability shall be deemed to
constitute Permanent Disability in the event that such Disability is expected to
result in death or has lasted or can be expected to last for a continuous period
of not less than twelve (12) months.

(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months (or such other
period of time as is determined by the Administrator, with such determination in
the case of an Incentive Stock Option being made at the time of grant of the
Option) following the date of death (but in no event later than the expiration
of the term of such Option as set forth in the Notice of Grant), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent that the Optionee was entitled
to exercise the Option at the date of death. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert to
the Plan. If, after death, the Optionee's estate or a person who acquired the
right to exercise

<PAGE> 11

the Option by bequest or inheritance does not exercise the Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

(e) Rule 16b-3. Options granted to individuals subject to Section 16
of the Exchange Act ("Insiders") must comply with the applicable provisions of
Rule 16b-3 and shall contain such additional conditions or restrictions as may
be required thereunder to qualify for the maximum exemption from Section 16 of
the Exchange Act with respect to Plan transactions.

(f) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

11. Granting of Options to Independent Directors. During the term of the
Plan, a person who is an Independent Director as of the Public Trading Date (an
"IPO Independent Director") and has not previously received an Option grant
automatically shall be granted an Option to purchase 24,000 shares of Common
Stock on the date of such consummation (an "IPO Option"). IPO Independent
Directors and a person who becomes an Independent Director after the Public
Trading Date automatically shall be granted an Option to purchase 8000 shares of
Common Stock (subject to adjustment as provided in Section 16) on the date of
each annual meeting of stockholders after the Public Trading Date (a "Post-IPO
Option"). Members of the Board who are employees of the Company who subsequently
retire from the Company and remain on the Board will not receive an IPO Option
grant, but to the extent they are otherwise eligible, will receive, after
retirement from employment with the Company, Post-IPO Options. All the foregoing
Option grants authorized by this Section 11 are subject to stockholder approval
of the Plan.

12. Terms of Options Granted to Independent Directors. The per Share
price of each Option granted to an Independent Director shall equal 100% of the
Fair Market Value of a share of Common Stock on the date the Option is granted;
provided, however, that the per Share price of each Option granted to an
Independent Director on the date of the initial public offering of Common Stock
shall equal the initial public offering price per Share (as determined by the
Pricing Committee of the Board in its sole and absolute discretion. IPO Options
(as defined in Section 11) granted to Independent Directors shall become
exercisable in cumulative quarterly installments of 1/12 of the Shares subject
to such option on each of the quarterly anniversaries of the date of IPO Option
grant, commencing with the first such quarterly anniversary, such that each IPO
Option shall be one hundred percent (100%) vested on the third anniversary of
its date of grant. Post-IPO Options (as defined in Section 11) granted to
Independent Directors shall become vested in cumulative quarterly installments
of 1/4 of the Shares subject to such Option on each of the quarterly
anniversaries of the date of Post-IPO Option grant, commencing with the ninth
quarterly anniversary of such date of Post-IPO Option grant, such that each
Post-IPO Option shall be one hundred percent (100%) vested on the third
anniversary of the date of Post-IPO Option grant. Subject to Section 10, the
term of each Option granted to an Independent Director shall be ten (10) years
from the date the Option is granted. No portion of an Option which is
unexercisable at the time of an Independent Director's termination of membership
on the Board shall thereafter become exercisable.

<PAGE> 12

13. Stock Purchase Rights.

(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan.
After the Administrator determines that it will offer Stock Purchase Rights
under the Plan, it shall advise the offeree in writing, by means of a Notice of
Grant, of the terms, conditions and restrictions related to the offer, including
the number of Shares that the offeree shall be entitled to purchase, the price
to be paid, and the time within which the offeree must accept such offer, which
shall in no event exceed thirty (30) days from the date upon which the
Administrator made the determination to grant the Stock Purchase Right. The
offer shall be accepted by execution of a Restricted Stock Purchase Agreement in
the form determined by the Administrator.

(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's Continuous Status as an Employee, Director or Consultant with
the Company for any reason (including death or Disability). The purchase price
for Shares repurchased pursuant to the Restricted Stock purchase agreement shall
be the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company. The repurchase option shall
lapse at a rate determined by the Administrator.

(c) Rule 16b-3. Stock Purchase Rights granted to Insiders, and
Shares purchased by Insiders in connection with Stock Purchase Rights, shall be
subject to any restrictions applicable thereto in compliance with Rule 16b-3. An
Insider may only purchase Shares pursuant to the grant of a Stock Purchase
Right, and may only sell Shares purchased pursuant to the grant of a Stock
Purchase Right, during such time or times as are permitted by Rule 16b-3.

(d) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion including
but not limited to the per Share purchase price, which shall in no event be less
than the par value per Share. In addition, the provisions of Restricted Stock
Purchase Agreements need not be the same with respect to each purchaser.

(e) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 16
of the Plan.

14. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold

<PAGE> 13

from the Shares to be issued in connection with the Stock Purchase Right, if
any, that number of Shares having a Fair Market Value equal to the amount
required to be withheld. The Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").

All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:

(a) the election must be made on or prior to the applicable Tax Date;

(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Right as to which the election is made;

(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.

In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or Stock Purchase Right is
exercised but such Optionee shall be unconditionally obligated to tender back to
the Company the proper number of Shares on the Tax Date.

15. Non-Transferability of Options and Stock Purchase Rights. An Option
or Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.

16. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.

(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been effected
without receipt of consideration. Such adjustment shall be made by the Board,
whose

<PAGE> 14

determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Option or Stock Purchase
Right.

(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.

(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, 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 Subsidiary of the successor corporation. The Administrator may,
in lieu of such assumption or substitution, provide for the Optionee to have the
right to exercise the Option or Stock Purchase Right as to all or a portion of
the Optioned Stock, including Shares as to which it would not otherwise be
exercisable. If the Administrator makes an Option or Stock Purchase Right
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee that the Option or
Stock Purchase Right shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option or Stock Purchase Right will
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets was not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.

17. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.

18. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.

<PAGE> 15

(b) Stockholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.

(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.

19. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and Applicable Laws, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.

20. Liability of Company.

(a) Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
by an Option or Stock Purchase Right exceeds, as of the date of grant, the
number of Shares which may be issued under the Plan without additional
shareholder approval, such Option or Stock Purchase Right shall be void with
respect to such excess Optioned Stock, unless shareholder approval of an
amendment sufficiently increasing the number of Shares subject to the Plan is
timely obtained in accordance with Section 18(b) of the Plan.

21. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

22. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is

<PAGE> 16

adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under applicable federal and state law.

23. Governing Law. The validity and enforceability of this Plan shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to otherwise governing principles of conflicts of law.

<PAGE> 1
EXHIBIT 10.17

ACLARA - PACKARD

COLLABORATION AGREEMENT

THIS AGREEMENT ("Agreement") dated as of the 21st day of February, 2000,
between PACKARD BIOSCIENCE COMPANY, 800 Research Parkway, Meriden, CT 06540
(hereinafter "PACKARD") and ACLARA BIOSCIENCES, INC., 1288 Pear Avenue, Mountain
View, CA 94043 (hereinafter "ACLARA").

WHEREAS, PACKARD has certain skills, know-how and intellectual property
for products related to, reagents for homogeneous biochemical and cell-based
assays, automated fluid handling devices (including piezo electric dispensers),
plate tracking and stacking devices, detectors for measuring biological
reactions, software and the capability for the marketing, sales and support of
such products;

WHEREAS, ACLARA has certain skills, know-how and intellectual property
for products related to microfluidic analytic devices, dispensers and reagents
for use in such chips and the capability for the manufacture of such products;

WHEREAS, the parties to this Agreement desire to enter into a
collaboration for the development and distribution of systems employing
instruments, microfluidic analytic devices and reagents for use in drug
screening and life sciences research and allied purposes; and

WHEREAS, both parties recognize that each has rights to pre-existing
intellectual properties which may, directly or indirectly, contribute to the
commercialization of such systems and understand that in the process of
developing the systems contemplated by their collaboration, both parties will
reveal to each other relevant proprietary information that existed prior to the
effective date and during the term of the collaboration under appropriate
confidentiality and nondisclosure provisions;

NOW THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, the parties agree as follows:

1. DEFINITIONS

1.1. "Affiliates" means any corporation, firm, partnership or other entity,
whether de jure or de facto, which directly or indirectly owns, is
owned by or is under common ownership with a Party to this Agreement,
as the case may be, to the extent of at least fifty percent of the
equity (or such lesser percentage which is the maximum allowed to be
owned by a foreign corporation in a particular jurisdiction) having
the power to vote on or direct the affairs of the entity.

1.2. "Assay Reagents" means biochemical reagents and detection reagents
capable of performing Homogeneous Assays in Oasis LabCard chips.

[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

<PAGE> 2

1.3. "Confidential Information" will include confidential knowledge,
know-how, practices, processes, equipment or information which (1) is
obtained from the other Party or generated by a Party during the course
of a Program and (2) is related thereto and (3) except for generated
information, is identified or should reasonably be assumed by the
recipient at the time of disclosure to be confidential and, in the case
of disclosures in non-written form, is identified in writing within
thirty days as confidential. Notwithstanding the above, Confidential
Information will not include, and nothing will in any way restrict the
rights of either ACLARA or PACKARD to use, disclose or otherwise deal
with, any information which:

1.3.1. can be demonstrated to have been in the public domain as of the
Effective Date or comes into the public domain during the term
of this Agreement through no act of the recipient; or

1.3.2. can be demonstrated to have been independently known to the
recipient prior to the receipt thereof by documents in the
possession of recipient at the time of the disclosure; or

1.3.3. can be demonstrated to have been rightfully received by the
recipient from a third party who did not require the recipient
to hold it in confidence or limit its use and who did not
acquire it, directly or indirectly, from the other Party to this
Agreement under a continuing obligation of confidentiality; or

1.3.4. will be required for disclosure to any governmental regulatory
agencies pursuant to approval for use; or

1.3.5. is independently conceived, invented or acquired by researchers
of the recipient who have not been personally exposed to the
information provided to the recipient hereunder.

1.4. "Commercialization Phase" with respect to a System or Component thereof,
shall mean the period of time beginning with the date that PACKARD makes
such System or Component generally available for commercial sale to
third parties (other than for testing purposes) and ending with the
termination of the commercial life of such System or Component as
determined by the JSC.

1.5. "Component" shall mean any of Instruments, Assay Reagents or Oasis
LabCard chips intended for use in a System.

1.6. "Development Phase" with respect to a System or Component thereof, shall
mean the period of time beginning with the date that the JSC approves a
Workplan for

2
<PAGE> 3

the development of such System or Component thereof and ending with the
beginning of the Commercialization Phase therefor.

1.7. "Effective Date" is February 21, 2000.

1.8. "Field" shall mean any application of an Oasis LabCard chip in
performing Homogeneous Assays [ * ].

1.9. "Homogeneous Assay" shall mean any assay technology that does not use a
separation step [ * ].

1.10. "Instruments" shall mean (i) automated fluid handling devices, plate
tracking devices and stacking devices useful in the Field and that are
sold in conjunction with one or more detectors sold by PACKARD to be
used primarily in combination with Oasis LabCard chips, and any computer
programs associated therewith or other devices connected by PACKARD
thereto, (ii) detectors sold by PACKARD to be used primarily in
combination with Oasis LabCard chips and useful in the Field and any
computer programs associated therewith, and (iii) [ * ].

1.11. "Intellectual Property" shall mean all technical know-how in the Field
owned or controlled by either Party, whether patentable or not, patent
applications and patents, copyrights, and trade secrets relating to
Instruments, Oasis LabCard chips, and Assay Reagents.

1.12. "Intellectual Property Rights" shall mean all rights derived from
Intellectual Property worldwide arising under statutory or common law,
and whether or not perfected, including, without limitation, all (1)
patents, patent applications and patent rights; (2) rights associated
with works of authorship including copyrights, copyright applications,
copyright registrations, mask works, mask work applications, mask work
registrations; (3) rights relating to the protection of trade secrets
and confidential information; (4) any right analogous to those set forth
in this definition and any other proprietary rights relating to
intangible property, including trade dress; and (5) divisions,
continuations, renewals, reissues, continuing prosecution, and
extensions of the foregoing (as and to the extent applicable) now
existing, hereafter filed, issued or acquired.

1.13. "Joint Intellectual Property" shall mean Intellectual Property jointly
developed by PACKARD and ACLARA under a Program.

1.14. "JSC" shall mean the Joint Steering Committee, which will be composed of
equal numbers of members from both PACKARD and ACLARA, not to exceed a
total of eight, which members may be changed from time to time by the
Party whom they represent, and to be chaired by the Project Leaders for
the Parties.

3
<PAGE> 4

1.15. "LOCI" shall mean the technology owned or licensed by PACKARD relating
to luminescent oxygen channeling assays and described in U.S. Patent
application Serial No. 704,569, filed May 22, 1991 and U.S. Patent
application Serial No. 718,490 filed June 20, 1991.

1.16. "Oasis LabCard chips" shall mean any microfluidic analytical device that
has [ * ] small reaction vessels [ * ].

1.17. "Net Sales" shall mean (1) with respect to sales by a Party, or an
Affiliate of a Party, to non-affiliated third party purchasers, [ * ],
less: quantity discounts granted at the time of invoice, amounts
refunded for faulty or defective product, taxes (except income taxes),
tariffs, duties and similar governmental charges paid, (2) with respect
to sales by a Party made to any Affiliate or to any person, firm or
corporation enjoying a special course of dealing with a Party, the Net
Sales will be determined based on 95% of the first resale in a bona fide
arms-length transaction of the affected System or Component by such
Affiliate, person, firm or corporation to third parties, and (3) with
respect to Systems, or individual Components of Systems that are
actually used to process or measure samples in Oasis LabCard chips and
are used by a Party, or an Affiliate of a Party, to supply services or
information to a third party for commercial purposes, or are otherwise
disposed of, excluding demonstration or other marketing activities
performed for no or de minimis compensation, the Net Sales shall be
determined as if such System, Instrument or Assay Reagent had been sold
at the average Net Sales for such System or Component actually sold to
non-affiliated third parties during the past one hundred and twenty
(120) days. [ * ].

1.18. "Party" shall mean ACLARA or PACKARD, and when used in the plural, shall
mean both ACLARA and PACKARD.

1.19. "Program" with respect to each System, and each Component thereof
developed or to be developed under a Workplan, shall mean the
Development Phase and Commercialization Phase.

1.20. "Project Leader" shall mean someone who will dedicate at least fifty
percent (50%) of his/her time to the Programs. One Project Leader will
be designated from each Party. The Project Leaders will have primary
responsibility for the completion of each Workplan, which shall govern
the development and commercialization of the Systems. The Project
Leaders may be changed from time to time, at the sole discretion of each
Party, provided that, when feasible, reasonable advanced notice is given
to the other Party.

1.21. "Prototype" shall mean a development stage System meeting all or most of
the specifications set forth in the applicable Workplan, however, not in
a format useful for general sale and commercial distribution.

4
<PAGE> 5

1.22. "Residual Net Sales" shall mean, with respect to Oasis LabCard chips,
Net Sales minus the Transfer Price.

1.23. "System" shall mean a combination of Instruments, Assay Reagents and
Oasis LabCard chips that are developed in a Program or introduced by
either Party into a Program and useful in the Field.

1.24. "Third Party Instrumentation" shall mean (i) automated fluid handling
devices, plate tracking devices and stacking devices developed and sold
by a third party and capable of being used in combination with Oasis
LabCard chips for use in the Field, and (ii) detectors developed and
sold by a third party and capable of being used in combination with
Oasis LabCard chips for use in the Field

1.25. "Transfer Price" shall mean [ * ] of fully-loaded manufacturing costs
(including royalty or license payments owed to third-parties),
determined in accordance with GAAP.

1.26. "Workplan" shall mean a definitive plan to develop and commercialize
Systems and Components, and includes design specifications, timelines,
milestones, budgets, marketing strategy and estimated time to
commercialization. Each Workplan will set forth the activities to be
performed by each of the parties during the Development Phase and the
Commercialization Phase, indicating when a System will have completed
the Development Phase and will be moved to the Commercialization Phase.
Each Workplan will be agreed to and signed by both parties.

2. PROGRAMS, PURPOSES AND EXCLUSIVITY

2.1 Strategic Intent. The objective of the relationship between PACKARD and
ACLARA is to coordinate the development and marketing of one or more
Systems, as the Parties may agree, from time to time, as set forth in a
Workplan. Each System will be developed using a combination of PACKARD's
Instruments and Assay Reagents and ACLARA's Oasis LabCard chips. PACKARD
will use commercially reasonable efforts to adapt its existing
Instruments (including dispensers, detectors and software) and Assay
Reagents, including LOCI and other available Assay Reagents, for use
with Oasis LabCard chips. ACLARA will use commercially reasonable
efforts to adapt and develop Oasis LabCard chips for use in combination
with PACKARD's Instruments and PACKARD's Assay Reagents, including LOCI
and other available Assay Reagents. As part of the collaborative effort,
PACKARD and ACLARA will jointly evaluate Third Party Instrumentation for
use in the Field in combination with Oasis LabCard chips and PACKARD
Assay Reagents, including LOCI and other available Assay Reagents. As
part of such evaluation, the Parties will jointly make recommendations
to such third parties as to how the Third Party Instrumentation may be
modified to accommodate the Oasis LabCard chips and PACKARD Assay
Reagents. [ * ].

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<PAGE> 6

During the Development Phase of each Program, the parties will develop
one or more Prototypes and adapt or modify Assay Reagents, with the
objective of designing at least one commercializable version of a
System. During the Commercialization Phase, the parties will coordinate
the marketing, sale and support of each System in the Field.

2.2 Initial Programs. Within [ * ] of the Effective Date, each of the
Parties will designate, in writing, its representatives to the Joint
Steering Committee ("JSC") and, the parties shall jointly agree upon a
schedule of JSC meetings to be held over the next thirty days after the
date of designation of the JSC representatives. Within six weeks of the
Effective Date, the Parties will develop and agree upon a Workplan that
will define:

- customer validation, mutually targeted for [ * ]
- adaptation of LOCI and a maximum of other chemistries in the Field
- development timelines and milestones
- the makeup of the Instruments and Oasis LabCard
- marketing strategy and resource commitments.

Included in the Workplan will be a best estimate production schedule for
the delivery of Oasis LabCard chips and for the evaluation of the
Instruments, Assay Reagents and Oasis LabCard chips, which production
schedule shall be subject to modification by the JSC. Each Party shall
commit the necessary resources and diligently strive to achieve its
duties under the Workplan in order to facilitate the first commercial
sale of a System to a third party, [ * ]. Each Party will bear the cost
of its portion of the Development Phase.

2.3 Joint Steering Committee. The Development Phase and Commercialization
Phase for each Program will be governed by the JSC. The JSC shall
consist of at least one senior executive, one business director, and one
technical director from each Party. The JSC will meet at least once per
calendar quarter, alternating between locations selected by ACLARA and
PACKARD, respectively, to oversee activities under each Workplan and
other activities under this Agreement. In particular, the JSC will
monitor and support collaboration and/or supply relationships existing
between ACLARA and PACKARD, review, recommend modifications to, and
oversee the implementation of active Workplans, review the commercial
feasibility of Systems being developed under a Workplan, discuss new
commercial opportunities and develop the objectives and terms for
additional Programs between the Parties that may be pursued.

2.3.1 The JSC shall have the authority to make reasonable alterations or
amendments to Workplans, which will be considered final after reduction
to writing.

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<PAGE> 7

2.3.2 The JSC shall have the authority to recommend alterations or
amendments to this Agreement, which shall not become final until reduced
to writing and signed by the authorized representatives of each of the
Parties.

2.3.3 Except as otherwise expressly provided herein, decisions of the
JSC will be made by consensus.

2.3.4 Should disputes arise, the Parties agree to negotiate in good
faith to resolve the disputes. Disputes that cannot be resolved by the
JSC within a reasonable period shall be submitted to the presidents of
the Parties. If agreement is still not reached, prior to seeking any
other remedy, the Parties agree to submit disputes to mediation in
accordance with Section 11.6 hereof.

2.3.5 At least once each year following the Effective Date, the JSC will
meet specifically to review the terms of this Agreement, and negotiate,
in good faith, appropriate amendments that would be equitable for both
Parties in light of current circumstances.

2.4 General Exclusivity.

2.4.1 Except as otherwise provided in this Agreement, during the term of
any Development Phase, Components specifically designed for a System
shall not be sold to or further developed for third parties for use in
the Field other than in furtherance of this Agreement

2.4.2 Notwithstanding the foregoing, neither Party shall be prohibited
from developing any Component for its own internal research purposes.

2.5 Field Exclusivity.

2.5.1 During the term of this Agreement, PACKARD shall have the right to
sell, and have sold, all versions of Oasis LabCard chips [ * ] for use
with Systems in the Field or for use with Third Party Instrumentation in
the Field. So long as PACKARD continues to satisfy the Due Diligence
Requirements described below, the foregoing right to sell, and have
sold, all versions of Oasis LabCard chips [ * ] for use with Systems in
the Field or for use with Third Party Instrumentation in the Field shall
be exclusive to PACKARD. For purposes of this Section 2.5.1, PACKARD
shall be deemed to have satisfied the "Diligence Requirement" during any
period if (1) PACKARD is diligent in promoting, distributing and selling
Oasis LabCard chips, and (2) PACKARD is demonstrably committed to
selling Oasis LabCard chips for use with Third Party Instrumentation as
well as for use with Instruments manufactured by PACKARD. During the [ *
] period following the first commercial sale of a System to a third
party, diligence shall be determined based on actual sales, reasonable
penetration into the Homogenous Assay market for the Field, and the
number of and volume

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<PAGE> 8

employed by pharmaceutical and biotechnology companies for the Field.
Thereafter, for each subsequent twelve (12) month period, diligence will
be determined based on PACKARD's demonstrated ability to generate Net
Sales for Oasis LabCard chips equal to [ * ] of the Net Sales of Oasis
LabCard chips generated during the previous twelve (12) month period;
provided, however, the JSC will meet annually to discuss, in good faith,
whether the [ * ] target is reasonable in light of market conditions and
other circumstances and, prior to converting PACKARD's exclusive right
into a non-exclusive right in accordance with the foregoing, ACLARA
shall give PACKARD sixty (60) days prior written notice of its
intentions, and will give PACKARD reasonable opportunity to present
arguments as to why PACKARD's right should remain exclusive.

2.5.2 ACLARA shall be the sole supplier to PACKARD of Oasis LabCard
chips, and [ * ] shall have the right to copromote the Oasis LabCard
chips.

2.5.3 [ * ].

2.5.4 If during the exclusive period as provided in Paragraph 2.5.1,
ACLARA elects to develop an Oasis LabCard chip [ * ], ACLARA shall offer
to enter into an agreement with PACKARD for the development and
distribution of such Oasis LabCard chips and compatible Instruments [ *
].

3. DEVELOPMENT PHASE

3.1 Term of Development Phase. Unless terminated earlier in accordance with
Section 3.6 of this Agreement, the Development Phase for each Program shall
commence upon the execution and delivery of a Workplan by the JSC describing
the System and Components thereof to be developed and commercialized, and
shall end upon the date that PACKARD first makes such System generally
available for commercial sale to third parties (other than for testing
purposes).

3.2 Access. During the Development Phase of any Program, without the prior
written consent of the other Party, neither Party shall permit any third
party to have access to the subject System or any Components, except in
furtherance of this Agreement.

3.3 Party Responsibilities. Each of the parties will be given primary
responsibility as to Components of the Systems, as specifically set forth in
a Workplan. Generally,

3.3.1 PACKARD will be responsible for the development of Instruments,
assembly of Prototypes, and providing Prototypes and Assay Reagents to
ACLARA.

3.3.2 ACLARA will be responsible for development of Oasis LabCard chips
and providing Oasis LabCard chips to PACKARD. [ * ].

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<PAGE> 9

3.3.3 Detailed written information regarding modifications by either
Party to Systems being developed or to their individual Components will
be transmitted to the other Party no later than the next JSC meeting.

3.4 Manufacturing Rights.

3.4.1 During the Development Phase for each Program, ACLARA shall use
commercially reasonable efforts to manufacture (or have manufactured)
and supply all Oasis LabCard chips and [ * ] used in any Prototype in
accordance with the applicable Workplan. Any changes to the Oasis
LabCard chips used in the System will be communicated promptly to
PACKARD, but not later than the next JSC meeting. ACLARA shall use
commercially reasonable efforts to support PACKARD's development
efforts.

3.4.2 During the Development Phase for each Program, PACKARD shall use
commercially reasonable efforts to manufacture (or have manufactured)
and supply all Prototypes [ * ] and Assay Reagents used in any
Prototype. Information relating to any modifications to Prototypes by
either Party will be communicated promptly to the other Party, but not
later than the next JSC meeting.

3.4.3 The Parties recognize the importance of achieving the milestones
set forth in each Workplan and delivering Prototypes, and Assay
Reagents, as required under a Workplan. [ * ].

3.4.4 During the Development Phase for each Program, the Parties will
each have access to Prototypes and Assay Reagents. ACLARA will have the
right to have the most recent Prototypes developed by PACKARD at its
location. ACLARA will reimburse PACKARD for direct manufacturing and
transportation costs associated with producing such Prototypes,
including the cost of purchasing Components and assembly, as determined
in accordance with generally accepted accounting principles ("GAAP").
PACKARD will have the right to have reasonable quantities of Prototypes
developed by ACLARA (i.e. Oasis LabCard chips and [ * ]) at its location
to test, modify and use Prototypes. PACKARD will reimburse ACLARA for
direct manufacturing and transportation costs associated with producing
such Prototype Oasis LabCard chips and [ * ], as determined in
accordance with GAAP. Each Party will reimburse the other Party for the
direct manufacturing and transportation costs, including the cost of
purchasing Components, and royalty or license payments, of Assay
Reagents received from the other Party, as determined in accordance with
GAAP.

3.4.5 Both Parties will allow the other access to any Prototype or Oasis
LabCard chip, especially for the purpose of examining modifications
thereto. Both Parties will make reasonable efforts to explain the
purpose of any modification and the benefit so achieved. Significant
modifications should be documented and

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<PAGE> 10

communicated promptly in writing to the other Party, but not later than
the next meeting of the JSC.

3.5 Intellectual Property.

3.5.1 Each of the parties will operate during the Development Phase for
each Program under a royalty-free, non-assignable license from the other
Party under the other Party's Intellectual Property Rights to the extent
reasonably necessary to satisfy its obligations under this Agreement.
The following are the Intellectual Property Rights of the Parties during
the Development Phase.

3.5.1.1 For the duration of the Development Phase for each Program,
each Party is granted a license under the Intellectual Property
Rights of the other Party to use Systems and Components to the extent
reasonably necessary to satisfy its obligations under this Agreement.

3.5.1.2 All Joint Intellectual Property specifically relating to
Oasis LabCard chips or [ * ] shall be the property of ACLARA and in
the event that an employee or consultant of PACKARD is an inventor,
PACKARD will have such inventor assign his/her rights to ACLARA and
cooperate with ACLARA in ACLARA perfecting its rights to such
invention. PACKARD shall have access to such Intellectual Property
for purposes of developing and commercializing Systems hereunder.

3.5.1.3 All Joint Intellectual Property specifically relating to
Instruments [ * ], up to the interface with the Oasis LabCard, and
Assay Reagents owned or controlled by PACKARD shall be the property
of PACKARD and in the event that an employee or consultant of ACLARA
is an inventor, ACLARA will have such inventor assign his/her rights
to PACKARD and cooperate with PACKARD in PACKARD perfecting its
rights to such invention. ACLARA shall have access to such
Intellectual Property for purposes of developing Systems hereunder.

3.5.1.4 All Joint Intellectual Property for improvements at the
interface between the Instrument and the Oasis LabCard chip will be
jointly and equally owned, with each Party retaining the right to
exploit such improvements without the obligation to account to the
other.

3.5.2 The parties will use reasonable efforts to report inventions
described above to each other using invention disclosure forms. The
Party owning the Intellectual Property shall make reasonable efforts to
protect such Intellectual Property at its own expense, reasonably
enforce the Intellectual Property Rights obtained and during the
Development Phase report to the other Party the progress of such
efforts. Jointly owned Intellectual Property shall be subject to the
mutual agreement of the parties and at their mutual expense.

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<PAGE> 11

3.5.3 Nothing contained herein shall be inferred to grant a license to
one Party under the Intellectual Property Rights of the other Party,
except as explicitly set forth herein.

3.6 Termination of the Development Phase.

3.6.1 Breach. In the event of a material breach by either Party during
the Development Phase of any Program, the non-breaching Party shall give
the breaching Party written notice thereof (a "Notice of Breach"), which
notice must state the nature of the breach in reasonable detail and, in
the opinion of the non-breaching Party, the action that would cure the
breach. So long as a breach described in a Notice of Breach continues,
this Agreement may be terminated with respect to such Program by written
notice to the breaching Party delivered not earlier than [ * ] days
after receipt by the breaching Party of the Notice of Breach. In
addition, either Party shall have the right to terminate this Agreement
if the other Party has unreasonably failed to meet the design
specifications within the timelines as outlined in any Workplan, whether
or not such failure is a material breach and the JSC fails to reach a
mutually satisfactory solution after good faith negotiation within [ * ]
after written notice to the breaching party of such failure, in which
case, the terminating Party shall have the rights described in 3.6.3 or
3.6.4, as appropriate, as its sole recourse.

3.6.2 Termination for Convenience. During the Development Phase of any
Program, upon [ * ] prior written notice, either Party may elect, in its
sole discretion, to terminate its participation in such Program. A Party
may not terminate for convenience during an active Notice of Breach. In
the case of Termination for Convenience, the non-terminating Party shall
have the rights described in 3.6.3 or 3.6.4, as appropriate, as its sole
recourse; provided, however, if the JSC determines, in good faith, that
either Party is unable, after a good faith commercially reasonable
effort, to fulfill its obligations under this Agreement, the JSC may
elect to terminate this Agreement, without regard to Sections 3.6.3 or
3.6.4.

3.6.3 ACLARA Breach or Termination for Convenience. If termination of
the Development Phase of any Program results from a breach or
termination for convenience by ACLARA, then:

3.6.3.1 PACKARD may continue to use Oasis LabCard chips in its
possession;

3.6.3.2 With respect to Oasis LabCard chips [ * ] developed by
ACLARA, ACLARA shall, at its sole discretion, either i) supply said
Oasis LabCard chips [ * ] to PACKARD at a cost equal to the Transfer
Price for such Oasis LabCard chips [ * ], plus an amount equal to [ *
] of Residual Net Sales for

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<PAGE> 12

such Oasis LabCard chips [ * ] to end users (with an amount equal to
[ * ] of Residual Net Sales retained by PACKARD), payable in
accordance with Section 4.5.2 and 4.5.3, and otherwise on terms
substantially similar to the Supply Agreement attached as Exhibit A
hereto; or, ii) grant to PACKARD and its Affiliates a royalty-bearing
license (at a rate of [ * ] on Net Sales of Oasis LabCard chips,
payable quarterly) under ACLARA's Intellectual Property and
Intellectual Property Rights to make, have made, use, have used, sell
and have sold Oasis LabCard chips developed in the Development Phase
solely for incorporation into a System developed or proposed to be
developed under the affected Program and commercialization of the
System.

3.6.3.3 PACKARD shall have the exclusive right to make or have made
(subject to ACLARA's rights under 3.6.3.2), use, have used, sell and
have sold the affected System and Components designed specifically
for the System for use with Oasis LabCard chips in the Field.

3.6.4 PACKARD Breach or Termination for Convenience. If termination of
the Development Phase of any Program results from a material breach or
termination for convenience by PACKARD, then:

3.6.4.1 ACLARA may continue to use Prototypes in its possession;

3.6.4.2 With respect to Components of the System developed by PACKARD
to be used in a System in the Field, PACKARD shall at its sole
discretion, either i) supply said Components of the System at a cost
equal to the Transfer Price of said Components (payable net 30 days),
plus an amount equal to [ * ] of Residual Net Sales, as the
definition of Residual Net Sales would apply to Components (payable
quarterly) and otherwise on terms substantially similar to the Supply
Agreement attached as Exhibit A hereto; or ii), grant to ACLARA and
its Affiliates a royalty-bearing license, under PACKARD's
Intellectual Property and Intellectual Property Rights to make, have
made, use, have used, sell and have sold such Components developed in
the Development Phase solely for incorporation into a System
developed or proposed to be developed under the affected Program and
commercialization of the System. The royalty rate shall be [ * ] on
Net Sales of Components, plus direct royalties to third parties, if
any. The combination of all royalties in the preceding sentence shall
not exceed a total of [ * ] on Net Sales of Components.

3.6.4.3 ACLARA shall have the exclusive right to make or have made
(subject to PACKARD's rights under 3.6.4.2), use, have used, sell and
have sold the affected System and Components designed specifically
for the System for use with Oasis LabCard chips in the Field.

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<PAGE> 13

4. COMMERCIALIZATION PHASE

4.1 Term of Commercialization Phase. The Commercialization Phase for each
Program shall commence on the date that PACKARD first makes the applicable
System, or Components therein, contemplated by the Program generally
available for commercial sale to third parties (other than for test
purposes), and shall continue for the commercial life of any Component
included in the System as determined by the JSC.

4.2 Manufacturing and Sales.

4.2.1 With respect to the supply, sale and distribution of Oasis LabCard
chips for use in the Field, PACKARD and ACLARA shall have the rights
described in Section 2.5

4.2.2 PACKARD shall have the exclusive right to make, have made, use,
have used, sell and have sold Instruments [ * ] developed during the
Development Phase or introduced into a Program and Assay Reagents,
including any mutually agreeable improvements or modifications thereto,
and support the Systems and Components.

4.2.3. PACKARD agrees to buy and ACLARA agrees to supply all of
PACKARD's requirements for Oasis LabCard chips for use with Systems in
the Field or for use with Third Party Instrumentation in the Field in
accordance with the terms of the Supply Agreement attached hereto as
Exhibit A and incorporated herein by reference.

4.2.4 If ACLARA is unable to reasonably fulfill PACKARD's requirements
forOasis LabCard chips, or if PACKARD is unable to reasonably fulfill
its orders for Systems or the Components thereof, then the parties shall
negotiate a reasonable royalty-bearing license under Intellectual
Property Rights of the Party failing to fulfill its obligation to allow
the other Party to fulfill such obligations, such license not to be
unreasonably withheld.

4.3 Revenue sharing.

Revenue from the transfer of Systems and Components, shall be shared as
follows:

4.3.1 ACLARA will transfer Oasis LabCard chips to PACKARD for marketing
and distribution to end-users at a price equal to the Transfer Price for
Oasis LabCard chips, plus [ * ] of Residual Net Sales from Oasis LabCard
chip sales to end-users.

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<PAGE> 14

4.3.2 In the event that, after the Effective Date, the Parties agree in
writing to jointly develop Instruments dedicated for use with Oasis
LabCard chips, for such Instruments, ACLARA shall also receive a [ * ]
royalty on Net Sales of such Instruments, and the percentage of Residual
Net Sales from Oasis LabCard chip sales to end-users as set forth in
Section 4.4.1.1 will be reduced to [ * ]. If such Instrument, or
component thereof, is manufactured by ACLARA, ACLARA will also receive [
* ] of direct manufacturing costs for such Instruments or component, as
determined in accordance with generally accepted accounting principles.
In addition, if ACLARA's Intellectual Property covers such Instrument or
components, the royalty percentage for ACLARA shall increase from [ * ]
to [ * ] on Net Sales of such Instrument or components thereof.

4.4 Payments

4.4.1 Currency. All payments shall be made in United States dollars by
wire transfer to a bank account designated by ACLARA or PACKARD in full,
without deductions of taxes, charges, duties or any other offset. For
converting payments due on sales made in currencies other than United
States dollars into United States dollars, PACKARD or ACLARA will
convert such payments at the closing commercial sell rate of exchange
for United States dollars and each currency involved as quoted by
Citibank, N.A., or any successor thereto, in New York on the last
business day of the relevant period.

4.4.2 Transfer Price Payments. Following ACLARA's shipment of Oasis
LabCard chips to PACKARD, ACLARA shall submit to PACKARD an invoice
reflecting the Transfer Price for such Oasis LabCard chips. Within
thirty (30) days of receipt of a correct invoice, PACKARD will submit
payment for the Transfer Price of Oasis LabCard chips .

4.4.3 Estimated Residual Net Sales Payments.

4.4.3.1 For the first eighteen (18) months from the first commercial
sale of Oasis LabCard chips by PACKARD to third parties (or such
earlier date as PACKARD may elect at its sole discretion), estimated
payment for ACLARA's portion of Residual Net Sales shall be made
within thirty (30) days from the end of each month based upon an
estimate of Oasis LabCard chips shipped in the preceding month, as
calculated in Section 4.3.1. and 4.3.2, as applicable.

4.4.3.2 Thereafter, estimated payments for ACLARA's portion of
Residual Net Sales shall be made within thirty (30) days of the end
of each month, based on the average monthly sales booked during the
preceding six (6) months.

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<PAGE> 15

4.4.4 Actual Residual Net Sales Adjustment Within forty-five (45) days
following the end of each fiscal quarter, PACKARD will provide ACLARA
with a report of actual Net Sales of Oasis LabCard chips during such
quarter. This report shall also document any adjustment of revenue share
based on the difference between the estimated Net Sales and actual Net
Sales. Any adjusted revenue share due to ACLARA will be due and payable
concurrent with the report of actual Net Sales. Any adjusted revenue
share due PACKARD will be due and payable within thirty (30) days of the
receipt of said report.

4.4.5 Instrument Royalties Within forty-five (45) days following the end
of each fiscal quarter, PACKARD will provide ACLARA with a report of
actual Net Sales of Instruments for which a royalty payment is due. The
revenue share due to ACLARA will be calculated as set forth in Section
4.4.1 above and will be due and payable concurrent with the report of
actual Net Sales of Instruments.

4.5 Intellectual Property.

4.5.1 For the duration of the Commercialization Phase for each Program,
each Party is granted a license under the Intellectual Property Rights
of the other Party to use Systems and the individual Components
incorporated into such Systems to the extent reasonably necessary to
exercise its rights and satisfy its obligations under this Agreement.

4.5.2 For the duration of the Commercialization Phase for each Program,
PACKARD is granted a license under the Intellectual Property Rights of
ACLARA to the extent reasonably necessary to commercialize the Systems
as contemplated above and to manufacture capillary pin dispensers.
ACLARA shall provide PACKARD with such assistance as may be necessary
and available, including without limitation, supplying ACLARA's
technical know-how, solely to permit PACKARD to develop the capability
to manufacture and supply [ * ] and effectively commercialize the
Systems as contemplated by this Agreement.

5. PATENT LITIGATION.

5.1 In the event of the institution of any suit by a third party against
ACLARA or PACKARD alleging that the manufacture, use, sale, distribution or
marketing of Systems or any component thereof infringes a third party
patent, the party sued will promptly notify the other Party in writing.
PACKARD shall defend, indemnify and hold harmless ACLARA from and against
any and all liability, loss, damages and expenses (including reasonable
attorneys' fees) and assume the primary responsibility and expense of
defending and paying any judgment or settlement with respect to such claim,
except to the extent such claim relates to Oasis LabCard chips [ * ]. ACLARA
shall defend, indemnify and hold harmless PACKARD from and against any and
all liability, loss, damages and expenses (including attorneys' fees) and
assume the primary responsibility and expense of defending and paying any
judgment or

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<PAGE> 16

settlement with respect such claim to the extent that such claim relates to
Oasis LabCard chips [ * ]. The other Party will have the right but not the
obligation to defend or participate in the defense of such suit at its own
expense. ACLARA and PACKARD will assist one another and cooperate in any
such litigation at the other's reasonable request, without expense to the
requesting Party. The Party conducting such action will have full control
over its conduct, including settlement thereof provided such settlement will
not be made without the prior written consent of the other Party if it would
adversely affect the rights of the other Party, such consent not to be
unreasonably withheld or delayed. The provisions of this Section will
survive and remain in full force and effect after any termination,
expiration or cancellation of this Agreement and each Party's obligations
hereunder will apply whether or not such claims are rightfully brought.

5.2 In the event that ACLARA or PACKARD becomes aware of actual or
threatened infringement of a patent coming within Intellectual Property
Rights of one of the Parties covering a Component of a System being sold,
that Party will promptly notify the other Party in writing. Either owner of
a patent coming within such Intellectual Property Rights will have the first
right but not the obligation to bring, at its own expense, an infringement
action against any such third party. It is understood that a more effective
action will result if both Parties agree to financially support such action
and the Party bringing the action may solicit financial support from the
other Party, such as using funds being received for sales of Systems or
Components thereof for such support. If an owner of the patent does not
abate such infringement within one-hundred and eighty (180) days of becoming
aware of such infringement and such infringement is having a significant
effect on the revenues being derived from Systems or any component thereof,
then the other Party may bring such action in the name of the owner of the
patent, in which case the owner of the paten will cooperate fully in
assigning such rights under the patent as are necessary to enable the other
Party to commence such an action. The Party conducting such action will have
full control over its conduct, including settlement thereof provided such
settlement will not be made without the prior written consent of the other
Party if it would adversely affect the rights of the other Party, such
consent not to be unreasonably withheld or delayed. In any event, ACLARA and
PACKARD will assist one another and cooperate in any such litigation at the
other's reasonable request without expense to the requesting Party.

5.3 ACLARA and PACKARD shall have the right to recover their respective
actual out-of-pocket expenses, or equitable proportions thereof, associated
with any litigation or settlement thereof from any recovery made by any
Party. Any excess amount will be shared between PACKARD and ACLARA in an
amount related to their anticipated income from the sale of Systems and/or
Components that would have been made, but for the infringement.

5.4 The Parties shall keep one another reasonably informed of the status of
their respective activities regarding any such litigation or settlement
thereof.

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6. TRADEMARKS AND NON-PROPRIETARY NAMES.

6.1 PACKARD, at its expense, will be responsible for the selection,
registration and maintenance of all trademarks, which it employs in
connection with Systems, except for Oasis LabCard chips, and will own and
control such trademarks.

6.2 PACKARD, at its expense, will be responsible for the selection of
non-proprietary names for Systems and Components thereof, except for Oasis
LabCard chips, sold by PACKARD.

6.3 PACKARD shall provide recognition of the use of ACLARA's Oasis LabCard
chips for the System by providing such indication on the outside of
Instruments and in the packaging of Instruments, such indication to be
reasonably acceptable to PACKARD.

6.4 ACLARA, at its expense, will be responsible for the selection,
registration and maintenance of all trademarks that it employs in connection
with Oasis LabCard chips, which will be prominently displayed on Oasis
LabCard chips sold by PACKARD and will own and control such trademarks.
Nothing in this agreement will be construed as a grant of rights, by license
or otherwise, to PACKARD to use such trademarks for any purpose other than
co-promotion as provided in this Agreement.

7. DUTIES OF CONFIDENTIALITY.

7.1 Because ACLARA and PACKARD will be cooperating with each other in this
collaboration, and each may reveal Confidential Information to the other in
the course of a Program, the Parties agree to use the same degree of care as
each uses for information of like importance, but not less than a reasonable
degree of care (1) to hold in confidence any Confidential Information
disclosed by the other Party hereunder, and (2) not to disclose same to any
third party without the express written consent of the other, or, except for
purposes of advancing the developing, manufacturing or marketing of Systems
or individual Components thereof, or to carry out any litigation concerning
the same, provided that each such third party is informed of the
confidentiality of such information and that each said third party agrees to
be bound to at least the same degree of confidentiality as the Parties are
bound under this Agreement. This confidentiality requirement will remain in
force for a period of three years following termination of this Agreement.

7.2 Each of the Parties agrees to assume individual responsibility for the
actions and omissions of its respective employees, agents and assigns in
conjunction with this research, and to inform same of the responsibilities
for confidentiality and disclosure under this Agreement, and to obtain their
agreement to be bound in the same manner that the Party is bound.

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7.3 Nothing herein will be construed as preventing either Party from
disclosing any information to an Affiliate of PACKARD or ACLARA or to a
sub-licensee, distributor or joint venture or other associated company of
either Party for the purpose of developing or commercializing Systems,
provided such Affiliate, sub-licensee, distributor or joint venture or other
associated company has undertaken a similar obligation of confidentiality in
writing with respect to the Confidential Information.

7.4 All Confidential Information disclosed by one Party to the other will
remain the Intellectual Property Rights of the disclosing party. In the
event that a court or other legal or administrative tribunal, directly or
through an appointed master, trustee or receiver, assumes partial or
complete control over the assets of a Party to this Agreement based on the
insolvency or bankruptcy of such Party, the bankrupt or insolvent party will
promptly notify the court or other tribunal (1) that Confidential
Information received from the other Party under this Agreement remains the
property of the other Party and (2) of the confidentiality obligations under
this Agreement. In addition, the bankrupt or insolvent party will, to the
extent permitted by law, take all steps necessary or desirable to maintain
the confidentiality of the other Party's Confidential Information and to
ensure that the court, other tribunal or appointed master maintains such
information in confidence in accordance with the terms of this Agreement.

7.5 Neither PACKARD nor ACLARA will submit for written or oral publication
any manuscript, abstract or the like which includes data or other
information generated and provided by the other Party or otherwise developed
by either Party in the performance of activities in furtherance of this
Agreement without first obtaining the prior written consent of the other
Party, which will not be unreasonably withheld, except that the foregoing
will not apply to the customary literature which is prepared for marketing
and sales purposes.

7.6 Within seven (7) days following the Effective Date, the Parties will
agree on the form and language of a joint press release related to this
agreement.

7.7 For the avoidance of doubt, nothing in this Agreement will be construed
as preventing or in any way inhibiting either Party from complying with
statutory and regulatory requirements governing the development,
manufacture, use and sale or other distribution of products in any manner
which it reasonably deems appropriate, including, for example, by disclosing
to regulatory authorities Confidential Information or other information
received from a Party or third parties. The Parties will take reasonable
measures to assure that no unauthorized use or disclosure is made by others
to whom access to such information is granted.

8. REPRESENTATIONS, WARRANTIES AND COVENANTS

8.1 Each Party represents, warrants and covenants to the other Party that:

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8.1.1 it has the corporate power and authority and legal right to enter
into this Agreement and to perform its obligations hereunder;

8.1.2 the execution and delivery of this Agreement and the performance
of the transactions contemplated thereby have been duly authorized by
all necessary corporate action of such Party;

8.1.3 the execution and delivery of this Agreement and the performance
by such Party of any of its obligations under this Agreement do not and
will not (1) conflict with, or constitute a breach or violation of, any
other contractual obligation to which it is a Party, any judgment of any
court or governmental body applicable to such Party or its properties
or, to such Party's knowledge, any statute, decree, order, rule or
regulation of any court or governmental agency or body applicable to
such Party or its properties, and (2) with respect to the execution and
delivery of the Agreement, require any consent or approval of any
governmental authority or other person;

8.1.4 such Party will to the best of its knowledge without undertaking a
special investigation, disclose to the other Party any material adverse
proceedings, claims or actions that arise, relating to their technology
which would materially interfere with that Party's performance of its
obligations under this Agreement; and

8.1.5 such Party's employees, consultants, advisors, contractors, and
other person or persons associated with the performance of this
agreement have executed or will execute agreements whereby all right,
title and interest in any technology and inventions will be assigned to
their respective employers.

9. INDEMNIFICATION

9.1 PACKARD Indemnification of ACLARA. PACKARD will defend, indemnify and
hold harmless ACLARA, Affiliates of ACLARA, and their respective directors,
officers, shareholders in their capacity as shareholders, agents and
employees, from and against any and all liability, loss, damages and
expenses (including attorneys' fees) as the result of claims, demands, costs
or judgments which may be made or instituted against any of them, severally
or collectively, by a third party arising out of (1) the untruth,
inaccuracy, breach or nonfulfillment of any representation or warranty or
any covenant or agreement of PACKARD contained in or made pursuant to this
Agreement or (2) the manufacture, distribution, sale or other disposition by
or through PACKARD or its Affiliates of Systems or component thereof, except
Components manufactured by or through ACLARA or its Affiliates. PACKARD's
obligation to defend, indemnify and hold harmless will include claims,
demands, costs or judgments, whether for money damages or equitable relief
by reason of alleged personal injury to any person or alleged property
damage; provided, however, the indemnity will not extend to any claims
against an indemnified Party which results (i) from the negligence or
willful misconduct of such indemnified Party, or (ii)

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a claim of patent infringement. PACKARD will have the exclusive right to
control the defense of any action which is to be indemnified in whole by
PACKARD hereunder, including the right to select counsel acceptable to
ACLARA to defend ACLARA and to settle any claim; provided that, without the
written consent of ACLARA (which will not be unreasonably withheld or
delayed), PACKARD will not agree to settle any claim against ACLARA to the
extent such claim has a material adverse effect on ACLARA. The provisions of
this Section will survive and remain in full force and effect after any
termination, expiration or cancellation of this Agreement and PACKARD' s
obligations hereunder will apply whether or not such claims are rightfully
brought.

9.2 ACLARA Indemnification of PACKARD. ACLARA will defend, indemnify and
hold harmless PACKARD, Affiliates of PACKARD and their respective directors,
officers, shareholders in their capacity as shareholders, agents and
employees, from and against any and all liability, loss, damages and
expenses (including attorneys' fees) as the result of claims, demands, costs
or judgments which may be made or instituted against any of them, severally
or collectively, by a third party arising out of (l) the untruth,
inaccuracy, breach, or nonfulfillment of any representation or warranty or
any covenant or agreement of ACLARA contained in or made pursuant to this
Agreement or (2) the manufacture by or through ACLARA or its Affiliates of
any Oasis LabCard chips or any part thereof or other components of a System.
ACLARA's obligation to defend, indemnify and hold harmless will include
claims, demands, costs or judgments, whether for money damages or equitable
relief by reason of alleged personal injury to any person or alleged
property damage; provided, however, the indemnity will not extend to any
claims against an indemnified Party which results (i) from the negligence or
willful misconduct of such indemnified party, or (ii) a claim of patent
infringement, or (iii) where such claims result from a modification of
Systems or Components thereof by PACKARD which was not approved by ACLARA.
ACLARA will have the exclusive right to control the defense of any action
which is to be indemnified in whole by ACLARA hereunder, including the right
to select counsel acceptable to PACKARD to defend PACKARD and to settle any
claim; provided that, with the written consent of PACKARD (which will not be
unreasonably withheld or delayed), ACLARA will not agree to settle any claim
against PACKARD to the extent such claim has a material adverse effect on
PACKARD. The provisions of this Section will survive and remain in full
force and effect after any termination, expiration or cancellation of this
Agreement and ACLARA's obligations hereunder will apply whether or not such
claims are rightfully brought.

9.3 Notice; Choice of Attorney. A Party that intends to claim
indemnification under this Section 9 (the "Indemnitee") will promptly notify
the other Party (the "Indemnitor") of any loss, claim, damage, liability or
action in respect of which the Indemnitee intends to claim such
indemnification, and the Indemnitor, after it determines that
indemnification is required of it, will assume the defense thereof with
counsel mutually satisfactory to the Parties; provided, however, that an
Indemnitee

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will have the right to retain its own counsel, with the fees and expenses to
be paid by the Indemnitor if Indemnitor does not assume the defense; or, if
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests
between such Indemnitee and any other Party represented by such counsel in
such proceedings. The failure to deliver notice to the Indemnitor within a
reasonable time after the commencement of any such action, if prejudicial to
its ability to defend such action, will relieve such Indemnitor of any
liability to the Indemnitee under this Section 9, but the omission so to
deliver notice to the Indemnitor will not relieve it of any liability that
it may have to any Indemnitee otherwise than under this Section 9.

9.4 Consent Required. The indemnity agreement in this Section 9 will not
apply to amounts paid in settlement of any loss, claim, damage, liability or
action if such settlement is effected without the consent of the Indemnitor,
which consent will not be withheld unreasonably.

9.5 Cooperation. The Indemnitee under this Section 9, its employees and
agents, will cooperate fully with the Indemnitor and its legal
representatives in the investigations of any action, claim or liability
covered by this indemnification. In the event that each Party claims
indemnity from the other and one Party is finally held liable to indemnify
the other, the Indemnitor will additionally be liable to pay the reasonable
legal costs and attorneys' fees incurred by the Indemnitee in establishing
its claim for indemnity.

10. TERM AND TERMINATION

10.1 Term. This Agreement will commence on the Effective Date and will
remain in full force until [ * ].

10.2 Termination. This Agreement may be terminated by mutual written
agreement of ACLARA and PACKARD, effective as of the time specified in such
written agreement, or as otherwise provided hereunder.

10.3 Survival of Obligations. Upon any termination of this Agreement,
neither Party will be relieved of any obligations incurred prior to such
termination. Notwithstanding any termination of this Agreement, the
obligations of the Parties under Sections 3.5, 3.6, 4, 5, 7, 9, 10.3 as well
as under any licenses which are maintained in effect and any other
provisions which by their nature are intended to survive any such
termination, will survive and continue to be enforceable.

11. MISCELLANEOUS

11.1 Force Majeure. If the performance of any part of this Agreement by
either Party, or of any obligation under this Agreement, is prevented,
restricted, interfered with or delayed by reason of any cause beyond the
reasonable control of the Party

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liable to perform, unless conclusive evidence to the contrary is provided,
the Party so affected will, upon giving written notice to the other Party,
be excused from such performance to the extent of such prevention,
restriction, interference or delay, provided that the affected Party will
use its reasonable best efforts to avoid or remove such causes of
non-performance and will continue performance with the utmost dispatch
whenever such causes are removed. When such circumstances arise, the Parties
will discuss what, if any, modification of the terms of this Agreement may
be required in order to arrive at an equitable solution.

11.2 Governing Law. This Agreement will be deemed to have been made in the
State of New York and its form, execution, validity, construction and effect
will be determined in accordance with the laws of the State of New York.

11.3 Separability.

11.3.1 In the event any portion of this Agreement will be held illegal,
void or ineffective, the remaining portions hereof will be interpreted
to maintain the intent of the Parties.

11.3.2 If any of the terms or provisions of this Agreement are in
conflict with any applicable statute or rule of law, then such terms or
provisions will be deemed inoperative to the extent that they may
conflict therewith and will be deemed to be modified to conform with
such statute or rule of law.

11.4 Entire Agreement. This Agreement (including Exhibits attached hereto,
and Workplans adopted pursuant hereto), and the Supply Agreement constitute
the sole agreements between the Parties relating to the subject matter
hereof and supersede all previous writings and understandings. It is
understood that the Parties will enter into a Supply Agreement, on
conventional commercial terms to be agreed upon, incorporating relevant
portions of this Agreement. Confidential disclosures made pursuant to
previously executed Confidentiality Agreements between ACLARA and PACKARD
will remain subject to the terms of those Confidentiality Agreements. No
terms or provisions of this Agreement will be varied or modified by any
prior or subsequent statement, conduct or act of either of the Parties,
except that the Parties may amend this Agreement by written instruments
specifically referring to and executed in the same manner as this Agreement.

11.5 Assignment. This Agreement and the licenses herein granted will be
binding upon and inure to the benefit of the successors in interest of the
respective Parties. Neither this Agreement nor any interest hereunder will
be assignable by either Party without the written consent of the other
provided, however, that PACKARD or ACLARA may assign this Agreement or any
of its rights or obligations hereunder to any Affiliate or to any third
party with which it may merge or consolidate, or to which it may transfer
all or substantially all of its assets to which this Agreement relates,
without obtaining the consent of the other Party, subject to the other Party
assuming all liabilities and obligations under the Agreement.

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11.6 Dispute Resolution. If the Parties are unable to resolve by negotiation
within forty-five days of the disputing party's written request for dispute
resolution (or such other time period expressly set forth in this
Agreement), or if the parties failed to meet within twenty (20) days after
such notice, the parties shall endeavor to settle the dispute by mediation
administered by the American Arbitration Association ("AAA") pursuant to the
Commercial Mediation Rules of the AAA the time of submission prior to
resorting to any other remedy. Mediation shall be held in either Hartford,
Connecticut or Mountain View, California, at the election of the party
receiving the request for mediation. Notwithstanding the foregoing, to the
extent that any controversy or claim hereunder gives rise to a prayer for
injunctive relief, equitable action or specific performance, the aggrieved
party shall have the right to commence such an action in any court of
competent jurisdiction.

11.7 Counterparts; Facsimile Signatures. This Agreement may be executed in
any number of counterparts, and each such counterpart will be deemed an
original instrument, but all such counterparts together will constitute but
one agreement. The Parties agree that signatures delivered via facsimile,
followed by originals, shall be binding as if they were original signatures.

11.8 Notices. Any notice required or permitted under this Agreement will be
sent by air mail, postage pre-paid, to the following addresses of the
Parties:

If to ACLARA:
ACLARA BioSciences, Inc.
3906 Trust Way
Hayward, CA 94545-
Attn: President

If to PACKARD:

PACKARD Bioscience Company
800 Research Parkway
Meriden, CT 06450
Attn: Tod O. White

11.9 Effect of Bankruptcy. All rights and licenses granted under or pursuant
to this Agreement by one party to the other Party are, and will irrevocably
be deemed to be, "intellectual property" as defined in Section 101(35A) of
the Bankruptcy Code. In the event of the commencement of a case by or
against either Party under any Chapter of the Bankruptcy Code, this
Agreement will be deemed an executory contract and all rights and
obligations hereunder will be determined in accordance with Section 365(n)
thereof.

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IN WITNESS WHEREOF, the Parties , through their authorized officers,
have executed this Agreement as of the date first written above.

ACLARA BIOSCIENCES, INC. PACKARD INSTRUMENT COMPANY

By: /s/ JOSEPH M. LIMBER By: /s/ STAF VAN CAUTER
-------------------------- --------------------------------

Name: Joseph M. Limber Name: Staf van Cauter
------------------------------- ------------------------------

Title: President, CEO Title: Vice President Business
------------------------------ Development
-----------------------------

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AMENDMENT TO THE ACLARA-PACKARD COLLABORATION AGREEMENT

The following is an amendment to the ACLARA-PACKARD COLLABORATION AGREEMENT
dated February 21, 2000.

All references to [ * ] are to be deleted from the ACLARA-PACKARD
COLLABORATION AGREEMENT. The following is to be added to the ACLARA-PACKARD
COLLABORATION AGREEMENT as new Section 2.6

The JSC will determine the choice of [ * ] to be used in the System,
where [ * ] If the JSC determines that the [ * ] is to be the [ * ] of choice,
then ACLARA agrees to develop [ * ] for the System. Alternatively, ACLARA may
develop [ * ] subsequently. In either event during the exclusive period
provided for in section 2.5, ACLARA shall offer to license to PACKARD, on a
non-exclusive basis, the right to manufacture, use, sell and have sold such
[ * ] for use in combination with a System, subject to commercially reasonable
terms and conditions to be negotiated by the Parties in good faith.

ACLARA PACKARD

BY: /s/ JOSEPH M. LIMER BY: /s/ STAF VAN CAUTER
------------------------------- -------------------------------

TITLE: President, CEO TITLE: Vice President Business
Development
---------------------------- ----------------------------

DATE: Feb. 21, 2000 DATE: Feb. 21, 2000
----------------------------- -----------------------------

[ * ] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933,
AS AMENDED.

<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 22, 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
February 22, 2000