THIRD WAVE TECHNOLOGIES INC /WI, S-1/A, 2000-09-12

THIRD WAVE TECHNOLOGIES INC /WI
S-1/A, 2000-09-12
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 2000

REGISTRATION NO. 333-42694
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THIRD WAVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C> <C>
WISCONSIN 2836 39-1791034
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

THIRD WAVE TECHNOLOGIES, INC.
502 SOUTH ROSA ROAD
MADISON, WI 53719-1256
(608) 273-8933
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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LANCE FORS, PH.D.
CHIEF EXECUTIVE OFFICER
THIRD WAVE TECHNOLOGIES, INC.
502 SOUTH ROSA ROAD
MADISON, WI 53719-1256
(608) 273-8933
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
CHRISTOPHER D. MITCHELL, ESQ. JOSEPH E. MULLANEY III, ESQ.
ROSEANN M. ROTANDARO, ESQ. MINTZ, LEVIN, COHN, FERRIS, GLOVSKY
ROGER D. EDWARDS, ESQ. AND POPEO, P.C.
GITANJALI MOHINDRA, ESQ. ONE FINANCIAL CENTER
WILSON SONSINI GOODRICH & ROSATI BOSTON, MASSACHUSETTS 02111
PROFESSIONAL CORPORATION PH. (617) 542-6000
650 PAGE MILL ROAD FAX (617) 542-2241
PALO ALTO, CA 94304
PH. (650) 493-9300
FAX (650) 493-6811
</TABLE>

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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,
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, 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 the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(2) REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
Common stock, $0.001 par value........... 9,775,000 $13.00 $127,075,000 $33,548
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</TABLE>

(1) Includes 1,275,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act 126,400 of 1933.

(3) $26,400 Previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<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 WE ARE NOT SOLICITING OFFERS TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

Subject to Completion, dated September , 2000

PROSPECTUS

8,500,000 Shares

[THIRD WAVE TECHNOLOGIES LOGO]

Common Stock
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This is our initial public offering of shares of our common stock. We are
offering 8,500,000 shares of our common stock. No public market currently exists
for our common stock.

We currently anticipate the initial public offering price to be between $11.00
and $13.00 per share. We have applied to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "TWTI."

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

<TABLE>
<CAPTION>
Per Share Total
--------- ----------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Third Wave...................................... $ $
</TABLE>

We have granted the underwriters a 30-day option to purchase up to 1,275,000
additional shares of common stock to cover over-allotments, if any.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on
or about , 2000.

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LEHMAN BROTHERS

CIBC WORLD MARKETS

ROBERT W. BAIRD & CO.
FIDELITY CAPITAL MARKETS

a division of National Financial
Services LLC

, 2000
<PAGE> 3
Inside Front Cover Artwork:

Photo of DNA Synthesis room at Third Wave Technologies, Inc. Sun Prairie,
Wisconsin facility.
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................... 3
The Offering.......................... 5
Summary Financial Information......... 6
Risk Factors.......................... 7
Forward-Looking Statements............ 19
Trademarks............................ 19
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Financial Data............... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 31
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management............................ 47
Certain Relationships and Related
Transactions........................ 55
Principal Stockholders................ 57
Description of Capital Stock.......... 59
Shares Eligible for Future Sale....... 62
United States Tax Consequences to Non-
U.S. Holders........................ 64
Underwriting.......................... 67
Legal Matters......................... 71
Experts............................... 71
Where You Can Find Additional
Information......................... 71
Index to Financial Statements......... F-1
</TABLE>

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

Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to unsold allotments or subscriptions.

2
<PAGE> 5

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information you should consider before
investing in our common stock. You should read this entire prospectus carefully,
especially the risks of investing in our common stock discussed under "Risk
Factors."

OUR COMPANY

We are a leading provider of test kits, components and related products for
analyzing genetic variations. Our patented genetic analysis platform, the
Invader operating system, offers several advantages over conventional genetic
analysis technologies. Our technologies produce highly accurate results, are
easy to use and eliminate the need for making multiple copies of the genetic
sample, saving the user time and money while significantly reducing the risks
associated with sample contamination. Additionally, our technologies are
compatible with existing automation processes and detection platforms and are
available in convenient, ready-to-use formats. These advantages make our
technologies ideally suited for large-scale genetic analysis for both clinical
and research applications, including drug discovery and development and patient
diagnosis and treatment. Our proprietary products and technologies position us
to exploit the growing market opportunity for genetic analysis products.

OUR MARKET OPPORTUNITY

Following the recent completion of the sequencing of the human genome, the
current phase of genomics is increasingly focused on the identification and
analysis of the estimated 3 to 10 million genetic variations in the human
genome. There are many types of genetic variations, including the most common
variations caused by a single modification in the genetic code, known as a
single nucleotide polymorphism or SNP. While many genetic variations may have no
medical significance, others are the origin of differences between individuals,
including disease predisposition and drug therapy response. To identify these
medically relevant variations, millions of variations must be analyzed in large
numbers of individuals using billions of tests. Once the medical relevance of a
particular variation has been determined, tests for that variation may then be
performed on hundreds of millions of individuals.

The analysis of millions of genetic variations is playing an increasingly
integral role in drug discovery and development and patient diagnosis and
treatment, including:

- identifying, validating and optimizing drug targets and potential drug
compounds;

- identifying target patient populations;

- diagnosing medical conditions and infectious diseases;

- determining appropriate course and length of therapeutic treatments;

- assessing early emergence and minimal residual levels of disease; and

- screening donor blood and tissues.

These applications are driving demand for products and technologies that
can accurately and cost-effectively analyze millions of genetic variations
creating a significant and expanding market opportunity for our Invader
operating system.

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<PAGE> 6

OUR STRATEGY

Our strategy for capitalizing on the growing market opportunity for genetic
analysis products and for commercializing our products and technologies is to:

- Optimize Technology and Production Efficiencies. We intend to further
enhance our technology platform and manufacturing capabilities to reduce
costs and rapidly commercialize our products by expanding our current
development and manufacturing capabilities and implementing cost-
reductions.

OUR PRODUCTS AND CUSTOMERS

We are currently manufacturing and shipping products to existing customers
in both the research and clinical markets. For the research market, we have
developed several thousand products, or assays. We are also developing hundreds
of thousands of additional assays which will be available individually or in
combinations, including panels for disease-specific, chromosome-specific and
genome-wide variation analysis. For the clinical market, we are currently
marketing three products for determining genetic predisposition for blood
clotting and we plan to introduce additional products for many other clinical
applications including detection of infectious diseases and diagnosis of
inherited diseases. We are currently servicing the clinical market with our
internal sales force, which targets the 400 leading clinical reference
laboratories in the United States.

We have collaborations and customer relationships with several important
pharmaceutical companies and research institutions, including Novartis,
SmithKline Beecham Biologicals, Warner-Lambert, Stanford University and the
Sanger Centre.

CORPORATE INFORMATION

We were incorporated in Wisconsin in 1993 and will reincorporate in
Delaware prior to the completion of this offering. Our principal executive
offices are located at 502 South Rosa Road, Madison, Wisconsin 53719-1256. Our
telephone number is (608) 273-8933. Our Internet site is located at www.twt.com.
You should not rely on statements on our Internet site, as they are not part of
this prospectus.

4
<PAGE> 7

THE OFFERING

Common stock offered.................... 8,500,000 shares

Common stock to be outstanding after
this offering........................... 42,504,600 shares

Use of proceeds......................... General corporate purposes,
including working capital, research
and development activities and
potential acquisitions.

Proposed Nasdaq National Market
Symbol.................................. TWTI

Common stock to be outstanding after this offering is based on 34,004,600
shares of common stock outstanding at July 31, 2000, including shares of common
stock issuable upon the conversion of shares of series F preferred stock that we
sold in July 2000. It does not include:

- 1,957,200 shares subject to stock options outstanding at July 31, 2000;
and

- 294,000 shares available for future grant or issuance under our stock
option plans at July 31, 2000.

Except as otherwise indicated, all of the information in this prospectus:

- reflects the automatic conversion of our outstanding shares of preferred
stock into 16,464,000 shares of common stock upon the completion of this
offering;

- reflects a 1,400-for-1 stock split of our outstanding common stock that
will be effected prior to the completion of this offering; and

- assumes no exercise of the underwriters' over-allotment option.

5
<PAGE> 8

SUMMARY FINANCIAL INFORMATION

See note 1 of notes to our financial statements included elsewhere in this
prospectus for an explanation of the method used to determine the number of
shares used in computing per share data below.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
------ ------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................. $1,129 $ 2,154 $ 1,119 $ 4,382 $ 2,574 $ 1,675 $ 1,374
Operating expenses........ 1,826 4,035 6,235 9,961 12,368 5,095 18,075
------ ------- ------- ------- ------- ------- --------
Loss from operations...... (697) (1,881) (5,116) (5,579) (9,794) (3,420) (16,701)
Net loss.................. $ (699) $(1,522) $(4,899) $(5,432) $(9,228) $(3,356) $(16,594)
====== ======= ======= ======= ======= ======= ========
Basic and diluted net loss
per share............... $(0.09) $ (0.12) $ (0.34) $ (0.36) $ (0.56) $ (0.21) $ (0.95)
Shares used in computing
basic and diluted net
loss per share.......... 7,619 12,190 14,223 14,900 16,547 16,156 17,462
Pro forma basic and
diluted net loss per
share................... $(0.08) $ (0.10) $ (0.29) $ (0.30) $ (0.40) $ (0.17) $ (0.60)
Shares used in computing
pro forma basic and
diluted net loss per
share................... 9,114 14,718 16,909 17,902 23,250 19,936 27,590
</TABLE>

The "pro forma" column below reflects the conversion of all preferred stock
outstanding at June 30, 2000 as well as the sale of 6,351,800 shares of
preferred stock in July 2000, which resulted in net proceeds to us of
approximately $45.5 million, and the conversion of all outstanding shares of
preferred stock into common stock upon the completion of this offering. In the
"pro forma as adjusted" column below, we have adjusted the pro forma balance
sheet data to give effect to receipt of the net proceeds from the sale in this
offering of 8,500,000 shares of common stock at an assumed initial public
offering price of $12 per share, after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us.

<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 7,132 $52,601 $145,961
Working capital............................................. (52) 45,417 138,777
Total assets................................................ 17,249 62,718 156,078
Long-term obligations, net of current portion............... 6,489 6,489 6,489
Accumulated deficit......................................... (38,682) (38,682) (38,682)
Total stockholders' equity.................................. 1,311 46,780 140,140
</TABLE>

6
<PAGE> 9

RISK FACTORS

Before you invest in our common stock, you should be aware of various
risks, including those described below. You should carefully consider these risk
factors, together with all of the other information included in this prospectus,
before you decide to purchase shares of our common stock.

RISKS RELATED TO OUR BUSINESS

WE ARE AT AN EARLY STAGE OF DEVELOPMENT, WITH A LIMITED HISTORY OF
OPERATIONS AND MAY NEVER BECOME PROFITABLE.

We were incorporated in 1993 and have a limited operating history. To date,
our operations have been primarily focused on the development of our products
and technologies. We have had only limited commercial sales. Accordingly, our
historical results of operations provide only a limited basis for assessing our
future prospects. In addition, the market for the products and technologies we
develop, manufacture and market, which are derived from genomics technologies,
is new, rapidly evolving and uncertain. We face risks related to our ability to:

- develop, market and maintain competitive technologies and products;

- retain current collaborators and customers and attract new collaborators
and customers for our products;

- implement and successfully execute our business strategy and sales and
marketing initiatives in order to increase our brand recognition for our
products;

- attract, retain and motivate qualified management, technical and
scientific personnel;

- obtain additional capital on acceptable terms to support the expense of
developing and commercializing our products and technologies;

- transition successfully from a company focused on research and product
development to a company focused on and capable of supporting commercial
scale manufacturing, marketing, sales and distribution activities.

If we fail to adequately manage any of these or other risks, we may never
become profitable and our financial condition would suffer. In this event, our
stock price would likely decline.

WE HAD AN ACCUMULATED DEFICIT OF $38.7 MILLION AT JUNE 30, 2000 AND EXPECT
TO CONTINUE TO INCUR SUBSTANTIAL OPERATING LOSSES FOR THE FORESEEABLE FUTURE.

We have had substantial operating losses since our inception, and we expect
our operating losses to continue over the foreseeable future. We experienced net
losses of $9.2 million in 1999 and $16.6 million in the first six months of
2000. In order to further develop our products and technologies for the
detection of genetic variations, including development of new products for the
clinical market, we will need to incur significant expenses in connection with
our internal research and development and commercialization programs. As a
result, we expect to incur operating losses for the foreseeable future. In
addition, there is no assurance that we will ever become profitable or that we
will sustain profitability if we do become profitable. Should we experience
protracted or unforeseen operating losses, our capital requirements would
increase and our stock price would likely decline.

FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY NEGATIVELY
IMPACT OUR STOCK PRICE.

Our revenues and results of operations have fluctuated significantly in the
past and we expect significant fluctuations to continue in the future due to a
variety of factors, many of which are outside of our control. These factors
include:

- the volume and timing of orders for our products;

- changes in the mix of our products offered;

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<PAGE> 10

- the timing of payments we receive under collaborative agreements, as well
as our ability to recognize these payments as revenues;

- the number, timing and significance of new products and technologies
introduced by our competitors;

- our ability to develop, obtain regulatory clearance, market and introduce
new and enhanced products on a timely basis;

- changes in the cost, quality and availability of equipment, reagents and
components required to manufacture or use our products;

- availability of commercial and government funding to researchers who use
our products and services; and

- availability of third-party reimbursement to users of our clinical
products.

Research and development costs associated with our products and
technologies, as well as facilities costs, personnel costs, marketing programs
and overhead account for a substantial portion of our operating expenses. We
cannot adjust these expenses quickly in the short term. If our revenues decline
or do not grow as anticipated, we may not be able to reduce our operating
expenses accordingly. Failure to achieve anticipated levels of revenues could
significantly harm our operating results for one or more fiscal periods. Due to
the possibility of fluctuations in our revenues and expenses, we believe that
quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. In addition, our operating results in a
future fiscal quarter may not meet the expectations of stock market analysts and
investors. In that case, our stock price would likely decline and investors
would experience a decline in the value of their investment.

WE ARE DEPENDENT ON THE ACCEPTANCE OF OUR PRODUCTS AND TECHNOLOGIES BY
CURRENT AND PROSPECTIVE CUSTOMERS, AND IF WE CANNOT ACHIEVE MARKET ACCEPTANCE
FROM POTENTIAL CUSTOMERS, WE WILL BE UNABLE TO BUILD A SUSTAINABLE OR PROFITABLE
BUSINESS.

Our ability to build a sustainable business is dependent on the acceptance
of our products and technologies as reliable and cost-effective tools for the
detection and quantification of genetic variations. In order for us to achieve
our business objectives, we must convince prospective customers that our
products and technologies are more reliable and cost-effective than other means
of detection and quantification of genetic variations. If customers do not
perceive our products and technologies to be a cost-effective, timely and
reliable method of detection or quantification of genetic variations, they may
limit their purchases. If our customers have difficulty achieving sufficient
results using our products, or fail to purchase sufficient quantities of our
products, we may never achieve profitability. If our products fail to gain broad
market acceptance, our revenues will be seriously harmed and it is unlikely that
we will ever achieve profitability. In this event, our stock price would likely
decline.

OUR TECHNOLOGIES AND INITIAL COMMERCIAL PRODUCTS MAY NOT BE COMMERCIALLY
VIABLE OR SUCCESSFUL, WHICH WOULD ADVERSELY AFFECT OUR REVENUES.

We are currently developing and commercializing only a limited number of
products based on our technologies. We plan to develop additional products,
including products for clinical applications. We cannot assure that we will be
able to complete development of our products that are currently under
development or that we will be able to develop additional new products. In
addition, although data available to date is favorable, we do not have
sufficient experience with broad use of our products in high volume clinical and
research settings to be able to assure you that our customers will be able to
use our products and technologies to successfully detect and quantify genetic
variations. In addition, some of the genetic variations for which we develop our
products may not be useful in assisting therapeutic or diagnostic product
development. In this event, our sales or products for these genetic variations
would diminish significantly or cease, and we would not be able to recoup our
investment in developing these products. Accordingly, if we fail to successfully
further develop our products and technologies, and if our technologies and
products are not useful in the development of commercially successful
therapeutic or diagnostic products, we may not achieve a competitive position in
the market.

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WE HAVE LIMITED MANUFACTURING EXPERIENCE, AND MAY LIKELY NEED TO EXPAND OR
ESTABLISH NEW MANUFACTURING FACILITIES AS WE COMMERCIALIZE OUR PRODUCTS.

We have limited experience manufacturing our products, and have never
manufactured our products in the volumes that will be necessary for us to
achieve significant commercial sales. In addition, although we have three
manufacturing facilities in the Madison, Wisconsin area, one of these is
currently dedicated to a single major project. Accordingly, to achieve the
production levels necessary for successful commercialization, we will need to
complete our current facilities expansion and successfully expand manufacturing
operations at our facilities. In addition, we may need to establish new
manufacturing facilities. Facilities expansion and development can be delayed by
unforseen circumstances, including inability to obtain needed manufacturing
equipment on a timely basis, difficulties with facility construction and
completion of improvements and difficulties associated with moving from
small-scale, pilot production to higher volumes. If we are unable to complete
our planned facility expansion on schedule or fail to meet our facilities needs,
we may not be able to provide our customers with the quantity of products they
require, which would damage customer relations and result in reduced revenues.
Additionally, some of our products must be manufactured in accordance with FDA's
quality system regulations, known as QSRs. We have limited experience in
manufacturing our products in compliance with QSRs.

WE HAVE LIMITED SALES AND MARKETING EXPERIENCE, AND AS A RESULT, MAY BE
UNABLE TO COMPETE SUCCESSFULLY WITH OUR COMPETITORS IN COMMERCIALIZING OUR
POTENTIAL PRODUCTS.

We currently have a small sales force, consisting of six individuals
focused on the clinical market, and will need to increase the size of our sales
force as we further commercialize our products. In particular, as we introduce
new clinical products, we will need to increase our clinical applications sales
force. We are not currently able to estimate the number of new sales personnel
we will require. However, this number could be significant and we may not be
able to recruit, hire and train a sufficient number of sales personnel in a
short time frame. We also intend to market our products through collaborations
and distribution agreements with biopharmaceutical and life science companies.
We cannot assure you that we will be able to establish a successful sales force
or to establish collaboration or distribution arrangements to market our
products. If we are unable to implement an effective marketing and sales
strategy, we will be unable to grow our revenues and execute our business plan.
This would harm our financial condition and our stock price would likely
decline.

WE WILL REQUIRE ADDITIONAL FUNDING FOR OUR FUTURE OPERATING PLANS. THESE
FUNDS MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS, IF AT ALL.

We anticipate that our existing capital resources together with cash from
product sales and the net proceeds from this offering will be sufficient to fund
our operating and capital requirements for at least the next 12 months.
Thereafter, we will likely need to raise significant additional capital. We
expect our capital and operating expenses to be significant for the foreseeable
future. We have expended significant resources in developing our manufacturing
facilities and expect to continue to expend significant resources to develop
these facilities, increase our research and development and commercialization
activities and acquire additional manufacturing facilities. The amount of
additional capital which we will need to raise will depend on many factors,
including:

- our progress with our research and development programs;

- our level of success in selling our products and technologies;

- our ability to establish and maintain successful collaborations; and

- the costs we incur in enforcing and defending our patent claims and other
intellectual property rights.

In addition, we may require additional financing in less than 12 months if
we:

- decide to expand faster than planned;

- develop new or enhanced products ahead of schedule;
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<PAGE> 12

- need to respond to competitive pressures; or

- decide to acquire complementary products, businesses or technologies.

If we raise additional funds through the sale of equity, convertible debt
or other equity-linked securities, your percentage ownership in the company will
be reduced. In addition, these transactions may dilute the value of our
outstanding stock. We may issue securities that have rights, preferences and
privileges senior to our common stock. If we raise additional funds through
collaborations or licensing arrangements, we may relinquish rights to certain of
our technologies or products, or grant licenses to third parties on terms that
are unfavorable to us. If future financing is not available to us or is not
available on terms acceptable to us, we may not be able to fund our future needs
which would have a material adverse effect on our results of operations and
financial condition.

COMMERCIALIZATION OF OUR TECHNOLOGIES DEPENDS ON STRATEGIC PARTNERSHIPS AND
COLLABORATIONS WITH OTHER COMPANIES, AND IF OUR CURRENT OR FUTURE PARTNERSHIPS
AND COLLABORATIONS ARE NOT SUCCESSFUL, WE MAY EXPERIENCE DIFFICULTY
COMMERCIALIZING OUR TECHNOLOGIES AND PRODUCTS.

In order to augment our internal sales and marketing efforts and to reach
additional product and geographic markets, we have entered into strategic
partnerships and collaborations for marketing of our products. We intend to
enter into additional arrangements in the future. These agreements provide us,
in some instances, with access to products and technologies that are
complementary to ours and funding for development of our products. We may also
be dependent on collaborators for regulatory approvals and clearances, and
manufacturing in particular geographic and product markets. If our strategic
partnerships and collaborations are not successful, we may not be able to
develop or successfully commercialize the products that are the subject of the
collaborations on a timely basis, if at all. In addition, if we do not enter
into additional partnership agreements, or if these agreements are not
successful, our ability to develop and commercialize new products will be
impacted negatively which will harm our future operating results.

We have no control over the resources that any partner or collaborator may
devote to our products. Any of our present or future partners or collaborators
may not perform their obligations as expected. These partners or collaborators
may breach or terminate their agreements with us or otherwise fail to meet their
obligations or perform their collaborative activities successfully and in a
timely manner. Further, any of our partners or collaborators may elect not to
develop products arising out of our partnerships or collaborations or devote
sufficient resources to the development, manufacture or commercialization of
these products. If any of these events occur, we may not be able to develop our
products and technologies and our ability to generate revenues will decrease.

OUR STRATEGY FOR DEVELOPING AND COMMERCIALIZING PRODUCTS DEPENDS IN PART ON
OUR ABILITY TO FORM RESEARCH COLLABORATIONS AND LICENSING ARRANGEMENTS. IF WE
ARE NOT ABLE TO ENTER INTO THESE COLLABORATIONS AND ARRANGEMENTS ON ACCEPTABLE
TERMS OUR RESULTS WILL SUFFER.

Our strategy involves the formation of research collaborations with
academic institutions and pharmaceutical companies involved in developing
genetic variation analysis for use in disease association studies and
personalized treatment approaches to medicine. We currently have six such
collaborations in place. Under these arrangements, we intend to offer our
products and technologies at a reduced cost in exchange for rights to
commercialize discoveries made using our technologies. As a result, we may be
dependent on our research collaborators as a source of new products and
technologies. If these research collaborations are not successful, and do not
provide us with new products and technologies, our results of operations would
suffer and our future prospects and revenue growth would be impaired.

In addition, we have historically maintained relationships with consultants
and scientific advisors at academic and other institutions who have conducted
research on our behalf critical to the development of our products and
technologies. The majority of these individuals have commitments to other
entities and have limited time available for us. Some of these entities may also
compete with us. We will need to establish additional relationships with
consultants and scientific advisors related to our business. We will have
little, if any, control over the activities of any new consultants and
scientific advisors and can expect
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only limited amounts of their time to be dedicated to our activities. Our
ability to identify and develop new products and technologies may depend in part
on continued collaborations with researchers at academic and other institutions.
We cannot be certain that any of our existing relationships with scientific
advisors will be successful. Further, we may not be able to negotiate acceptable
collaborations in the future with additional consultants or scientific advisors
at academic and other institutions.

WE WILL BE DEPENDENT UPON OUR AGREEMENT WITH APPLIED BIOSYSTEMS GROUP FOR A
SIGNIFICANT PORTION OF OUR REVENUES FOR THE REMAINDER OF 2000 AND 2001, AND A
REDUCTION OF SALES UNDER OR EARLY TERMINATION OF THIS AGREEMENT WOULD SERIOUSLY
HARM OUR REVENUES AND OPERATING RESULTS AND WOULD LIKELY CAUSE OUR STOCK PRICE
TO DECLINE.

In August 2000, we entered into an agreement with the Applied Biosystems
unit of PE Corporation for the development and supply of a panel of 150,000
assays and for high resolution genome analysis including SNP detection. These
assays are being developed for a genomic analysis project being sponsored by
various agencies of the government of Japan. We will depend upon sales to
Applied Biosystems under this agreement for a significant portion of our
revenues for the remainder of 2000, 2001 and possibly future fiscal periods. In
addition, we have incurred significant expenditures to date to equip a facility
for the development of the assays we are developing under this agreement.

Either party may terminate the agreement upon specified notice after May 1,
2002. In addition, either party may terminate the agreement earlier if the use
of the assays in the Japanese government's SNP initiative is discontinued or
significantly reduced. In the event that this agreement is terminated early, or
in the event that the assay development program is not successfully completed or
the assays are not used in the Japanese government's SNP initiative at the
levels we anticipate, our revenues would be seriously harmed. We would also have
a major investment in facilities and equipment that we might be unable to
redeploy for new projects. These events would therefore seriously harm our
business, financial condition and operating results and would likely cause our
stock price to decline.

THE EARLY TERMINATION OF ANY OF OUR LICENSES OR OUR RESEARCH OR STRATEGIC
COLLABORATIONS COULD SERIOUSLY HARM OUR BUSINESS AND FINANCIAL CONDITION.

Certain of our strategic and research collaboration agreements may be
terminated with little or no notice. In particular, our agreement with Applied
Biosystems may be terminated upon specified notice at any time after May 1,
2002. This agreement will likely account for a significant portion of our
revenues for the remainder of 2000, 2001 and possibly future fiscal periods.
Accordingly, early termination of this agreement would seriously harm our
revenues, and in turn our business and financial condition. In addition, we
intend to seek additional strategic and research collaborations and licenses
with third parties, who may negotiate provisions with us that allow them to
terminate their agreements with us prior to the expiration of the negotiated
term. It is likely that, as a result of the prevalence of such provisions in
collaboration agreements involving biotechnology companies, we will enter into
agreements that give either or both parties the right to terminate prior to
expiration of the stated term of the agreement.

If any third party strategic or research collaborator or licensee were to
unexpectedly terminate its agreement with us or otherwise fail to perform its
obligations under our collaboration or to complete them in a timely manner, we
could lose significant revenues. This situation would be particularly serious if
it related to our agreement with Applied Biosystems. In particular, early
termination of any of our strategic collaborations or partnerships could harm
our financial condition and operating results because we rely on these
agreements for product sales, development funding and access to new product
applications. In addition, unexpected termination of collaborations could also
result in our loss of important intellectual property or other rights which we
had intended to obtain under these agreements. If any of these events were to
occur, our business and our financial condition could be seriously harmed.

WE ARE IN A HIGHLY COMPETITIVE INDUSTRY AND MARKETPLACE. COMPETITIVE
DEVELOPMENTS, INCLUDING NEW TECHNOLOGIES THAT RENDER OURS LESS COMPETITIVE OR
OBSOLETE, COULD SERIOUSLY HARM OUR BUSINESS.

The biotechnology and life sciences industries generally and the genetic
analysis market specifically are highly competitive, and we expect the intensity
of competition to increase. We compete with
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organizations in the United States and abroad that develop and manufacture
products and provide services for the analysis of genetic information for
research and/or clinical applications. These organizations include:

- biotechnology, pharmaceutical, chemical and other companies;

- academic and scientific institutions;

- governmental agencies; and

- public and private research organizations.

Many of our competitors have greater financial, technical, research,
marketing, sales, distribution, service and other resources than we do.
Moreover, our competitors may offer broader product lines and have greater name
recognition than we do, and may offer discounts as a competitive tactic. In
addition, several development stage companies are currently making or developing
technologies, products or services that compete with or are being designed to
compete with our technologies and products. Our competitors may develop or
market technologies, products or services that are more effective or
commercially attractive than our current or future products, or that may render
our technologies or products less competitive or obsolete. Competitors may make
rapid technological developments which may result in our technologies and
products becoming obsolete before we recover the expenses incurred to develop
them or before they generate significant revenue or market acceptance.
Accordingly, if competitors introduce superior technologies or products and we
cannot make enhancements to our technologies and products necessary for them to
remain competitive, our competitive position, and in turn our business, revenues
and financial condition, will be seriously harmed. This, in turn, would likely
cause our stock price to decline.

IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY METHODS AND TECHNOLOGIES, WE
MAY NOT BE ABLE TO COMMERCIALIZE PRODUCTS.

Our commercial success will depend, in large part, on our ability to obtain
patent protection on many aspects of our business, including the products,
methods and services we develop. Patents issued to us may not provide us with
substantial protection or be commercially beneficial to us. The issuance of a
patent is not conclusive as to its validity or its enforceability.

In addition, our patent applications may not result in issued patents. If
our patent applications do not result in issued patents, our competitors may
obtain rights to commercialize our discoveries which would harm our competitive
position.

We also may apply for patent protection on novel genetic variations in
known genes and their uses, as well as novel uses for previously identified
genetic variations discovered by third parties. In the latter cases, we may need
a license from the holder of the patent with respect to such genetic variations
in order to make, use or sell any related products. We may not be able to
acquire such licenses on terms acceptable to us, if at all.

Certain parties are attempting to rapidly identify and characterize genes
and genetic variations through the use of sequencing and other technologies. To
the extent any patents are issued to other parties on such partial or
full-length genes or genetic variations or uses for such genes or genetic
variations, the risk increases that the sale of products developed by us or our
collaborators may give rise to claims of patent infringement against us. Others
may have filed and, in the future, are likely to file patent applications
covering many genetic variations and their uses. Any such patent application may
have priority over our patent applications and could further require us to
obtain rights to previously issued patents covering genetic variations. We
cannot assure you that any license that we may require under any such patent
will be made available to us on commercially acceptable terms, if at all.

We may be sued for infringing on the intellectual property rights of
others. We could also become involved in interference proceedings in the United
States Patent and Trademark Office to determine the relative priority of our
patents or patent applications and those of the other parties involved in the
interference proceeding. Intellectual property proceedings are costly, and could
affect our results of

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operations. These proceedings can also divert the attention of managerial and
technical personnel. If we do not prevail in any intellectual property
proceeding, in addition to any damages we might have to pay, we could be
required to stop the infringing activity, or obtain a license to or design
around the intellectual property in question. In interference proceedings, our
patent rights could be invalidated and the scope of our patents could be
limited. If we are unable to obtain licenses to intellectual property rights
that we need to conduct our business, or are unable to design around any third
party patent, we may be unable to sell some of our products, which will result
in reduced revenue.

In August 2000, we filed a legal action against ID Biomedical Corporation,
a manufacturer of vaccines based in Canada. The suit seeks a declaration that
several patents held by ID Biomedical are invalid and that our products and
processes do not infringe the ID Biomedical patents. Although we believe that we
have a reasonable basis for our claims, we cannot assure you that this
proceeding will be concluded in our favor. In addition, ID Biomedical may
respond by claiming that we have infringed their patents. If we do not prevail
in this proceeding, we may be required to pay damages. In addition, we could
also be enjoined from use of certain process or from selling some of our
products. In this event, we will either have to obtain a license to the ID
Biomedical patents or modify some of our products and processes to design around
the patents. Any such license could be costly or unavailable on commercially
reasonable terms. Designing around the patents could be time consuming, and we
may have to remove some of our products from the market while the redesign is
being completed. Accordingly, if the ID Biomedical proceeding is determined
adversely to us, this adverse determination could harm our business.

In addition, in order to protect or enforce our patent rights or to protect
our ability to operate our business, we may need to initiate other patent
litigation against third parties. These lawsuits could be expensive, take
significant time, and could divert management's attention from other business
concerns. These lawsuits could result in the invalidation or limitation in the
scope of our patents or forfeiture of the rights associated with our patents. We
cannot assure you that we will prevail in any such proceedings or that a court
will not find damages or award other remedies in favor of our opposing party in
any of these suits. During the course of the ID Biomedical proceeding and any
other suits, there may be public announcements of the results of hearings,
motions and other interim proceedings or developments in the litigation.
Securities analysts or investors may perceive these announcements to be
negative, which could cause the market price of our stock to decline.

OTHER RIGHTS AND MEASURES THAT WE RELY UPON TO PROTECT OUR INTELLECTUAL
PROPERTY MAY NOT BE ADEQUATE TO PROTECT OUR PRODUCTS AND COULD REDUCE OUR
ABILITY TO COMPETE IN THE MARKET.

In addition to patents, we rely on a combination of trade secrets,
copyright and trademark laws, nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual property rights.
While we require employees, collaborators, consultants and other third parties
to enter into confidentiality and/or non-disclosure agreements where
appropriate, any of the following could still occur:

- the agreements may be breached;

- we may have inadequate remedies for any breach;

- proprietary information could be disclosed to our competitors; or

- others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets
or disclose such technologies.

If for any of the above reasons our intellectual property is disclosed,
invalidated or misappropriated, it would harm our ability to protect our rights
and our competitive position.

IF WE FAIL TO RETAIN OUR KEY PERSONNEL AND HIRE, TRAIN AND RETAIN QUALIFIED
EMPLOYEES, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY, WHICH COULD RESULT IN
REDUCED REVENUES.

Our future success will depend on the continued services and on the
performance of our senior management, in particular the services of Lance Fors,
Ph.D., our President and Chief Executive Officer.

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If a competitor hired Dr. Fors away from us, or if for any reason he could
not continue to work for us, we would have difficulty hiring officers with
equivalent skills in general and financial management. We do not currently carry
"key person" life insurance, so the loss of the services of Dr. Fors could
seriously impair our ability to operate in our industry.

In addition, our researchers, scientists and technicians have significant
experience in research and development related to the analysis of genetic
variations. If we were to lose these employees to our competitors, we could
spend a significant amount of time and resources to replace them, which could
impair our research and development efforts. Further, in order to scale-up our
manufacturing capability and to further our research and development efforts, we
will need to hire, train, and retain additional manufacturing, research,
scientific and technical personnel. Currently, the unemployment rate in the
Madison, Wisconsin area is less than 2% and this low level of unemployment may
make it difficult for us to hire and retain qualified manufacturing and other
personnel. If we are unable hire, train and retain the personnel we need, we may
experience delays in the research, development and commercialization of our
technologies and products. This would result in reduced revenues and would harm
our results of operations.

WE PLAN TO CONTINUE TO INTRODUCE PRODUCTS FOR THE CLINICAL MARKET, AND WE
MAY NEED TO OBTAIN FDA CLEARANCES AND APPROVALS AND COMPLY WITH FDA QUALITY
SYSTEM REGULATIONS AND OTHER REGULATIONS RELATING TO THE MANUFACTURING,
MARKETING AND SALE OF CLINICAL PRODUCTS.

We anticipate that the manufacturing, labeling, distribution and marketing
of a number of our clinical diagnostic products will be subject to extensive
regulation in the United States and in certain other countries.

In the United States, the Food and Drug Administration, or the FDA,
regulates, as medical devices, most diagnostic tests and in vitro reagents that
are marketed as finished test kits. Some clinical laboratories, however,
purchase clinical products which are marketed under FDA regulations as analyte
specific reagents, or ASRs, and develop and prepare their own finished
diagnostic tests called "home brews." FDA also considers ASRs to be medical
devices. The FDA restricts the sale of these products to clinical laboratories
certified under the Clinical Laboratory Improvement Amendments of 1988, known as
CLIA, to perform high complexity testing. We intend to market some diagnostic
products as finished test kits and others as individual reagents. Consequently,
these clinical products will be regulated as medical devices.

Unless otherwise exempt, medical devices require FDA approval or clearance
prior to marketing in the United States. Although we believe our currently
marketed products, as well as those ASRs we intend to market in the future, are
exempt from 510(k) premarket notification and premarket approval requirements
the process of obtaining approvals and clearances necessary to market our
proposed clinical products can be time-consuming, expensive and uncertain. We
have not applied for FDA or any other regulatory approvals or clearances with
respect to any of our clinical diagnostic products. There can be no assurance
that we will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of our clinical products,
that regulatory approval or clearance of any of our clinical products will be
granted by the FDA or foreign regulatory authorities on a timely basis, if at
all, or that our clinical products will be successfully commercialized.

If approval or clearance is obtained we will be subject to continuing FDA
obligations. When manufacturing medical devices, including ASRs, we will be
required to adhere to Quality System regulations, which will require us to
manufacture our products and maintain records in a prescribed manner. We have
never been subject to an FDA Quality System inspection, and we cannot assure you
that we can pass an FDA audit or maintain compliance in the future. Further, the
FDA may place substantial restrictions on the indications for which our products
may be marketed or to whom they may be marketed. Additionally, there can be no
assurance that FDA will not require us to conduct clinical

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studies as a condition of approval or clearance. Failure to comply with
applicable FDA requirements can result in, among other things:

- administrative or judicially imposed sanctions;

- injunctions, civil penalties, recall or seizure of our products;

- total or partial suspension of production;

- failure of the government to grant premarket clearance or premarket
approval for our products;

- withdrawal of marketing clearances or approvals; and

- criminal prosecution.

Any of our customers using our products for clinical use in the United
States may be regulated under CLIA. CLIA is intended to ensure the quality and
reliability of clinical laboratories in the United States by mandating specific
standards in the areas of personnel qualification, administration, participation
in proficiency testing, patient test management, quality control, quality
assurance and inspections. The regulations promulgated under CLIA establish
three levels of clinical tests and the standards applicable to a clinical
laboratory depend on the level of the tests it performs. CLIA requirements may
prevent some clinical laboratories from using our products. Therefore, CLIA
regulations and future administrative interpretations of CLIA could harm our
business by limiting the potential market for our products.

DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS.

We have experienced a period of rapid and substantial growth that has
placed and, if such growth continues, will continue to place a strain on our
administrative and operational infrastructure. If we are unable to manage this
growth effectively, our business, results of operations or financial condition
may be materially adversely affected. We increased the number of our employees
from 49 at December 31, 1996, to approximately 180 at June 30, 2000. We have at
times experienced difficulties in filling orders on schedule as well as
production delays and have encountered problems with our reporting and
management systems as the number of our employees has grown and our levels of
business activity have increased. To date, none of these problems have
materially harmed our business. We cannot assure you, however, that our business
would not be harmed if these problems continue. Our ability to manage our
operations and growth effectively requires us to continue to improve our
operational, financial and management controls, reporting systems and procedures
and hiring programs. We may not be able to successfully implement improvements
to our management information and control systems in an efficient or timely
manner and may discover deficiencies in existing systems and controls. If we are
unable to improve our controls and systems to meet the needs of an expanding
enterprise, we could experience production delays and problems with our
reporting systems, and these problems could harm our business.

FUTURE ACQUISITIONS OR INVESTMENTS COULD DISRUPT OUR ONGOING OPERATIONS,
INCREASE OUR EXPENSES, ADVERSELY AFFECT OUR REVENUES AND HAVE ADVERSE FINANCIAL
AND ACCOUNTING CONSEQUENCES.

Although we have no commitments or agreements with respect to any
acquisitions at present, we anticipate that a portion of our future growth may
be accomplished by acquiring or investing in existing businesses or
technologies. Factors that will affect the success of any acquisition we might
make include our ability to integrate acquired personnel, operations, products
and technologies into our organization effectively, to motivate key personnel
and to retain customers of acquired businesses. We may not be able to identify
suitable acquisition opportunities, obtain any necessary financing for such
acquisitions on acceptable terms or successfully integrate acquired personnel
and operations. These difficulties could disrupt our ongoing business, distract
our management and employees, increase our expenses and materially and adversely
affect our revenues.

In addition, recent proposed changes in the Financial Accounting Standards
Board rules for business combination accounting may affect the desirability of
making acquisitions or of being acquired. For example, if we acquire another
company and these proposed changes become effective, we likely would have to
record goodwill or other intangible assets that would reduce our earnings. This
would adversely

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impact our future operating results and either reduce our profitability or
increase our losses. Further, accounting rules changes that reduce the
availability of immediate write-offs of the value of in-process research and
development in connection with an acquisition could result in the capitalization
and amortization of these amounts, which would similarly negatively impact our
results of operations in future periods by decreasing our profitability or
increasing our losses. Accordingly, these accounting rule changes could reduce
the likelihood that we would pursue an otherwise attractive acquisition
opportunity or that another company would acquire us.

OUR FAILURE TO COMPLY WITH ANY APPLICABLE ENVIRONMENTAL, HEALTH, SAFETY AND
RELATED GOVERNMENT REGULATIONS MAY AFFECT OUR ABILITY TO DEVELOP, PRODUCE, OR
MARKET OUR POTENTIAL PRODUCTS AND MAY ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.

Our research, development and manufacturing activities involve the use,
transportation, storage and disposal of hazardous materials and are subject to
related environmental and health and safety statutes and regulations. As we
expand our operations, our increased use of hazardous substances will lead to
additional and more stringent requirements. This may cause us to incur
substantial costs to maintain compliance with applicable statutes and
regulations. We believe we comply in all material respects with the standards
prescribed by federal, state and local laws and regulations, and we are not
aware of any claims against us related to violations of environmental, health or
safety regulations. However, any failure to comply with laws and regulations and
any costs associated with unexpected and unintended releases of hazardous
substances by us into the environment, or at disposal sites used by us, could
expose us to substantial liability in the form of fines, penalties, remediation
costs or other damages and could require us to shut down our operations. Any of
these events would seriously harm our business and operating results.

WE MAY BE HELD LIABLE FOR ANY INACCURACIES ASSOCIATED WITH GENETIC ANALYSIS
TESTS PERFORMED USING OUR PRODUCTS, WHICH MAY REQUIRE US TO DEFEND OURSELVES IN
COSTLY LITIGATION.

We may be subject to claims resulting from incorrect results of analysis of
genetic variations or other screening tests performed using our products.
Litigation of these claims can be costly. We could expend significant funds
during any litigation proceeding brought against us. Further, if a court were to
require us to pay damages to a plaintiff, the amount of such damages could
significantly harm our financial condition.

IF OUR VENDORS FAIL TO SUPPLY US WITH COMPONENTS FOR WHICH AVAILABILITY IS
LIMITED, WE MAY EXPERIENCE DELAYS IN OUR PRODUCT DEVELOPMENT AND
COMMERCIALIZATION.

Certain key components of our manufacturing equipment and products are
currently available only from a single source or a limited number of sources. We
currently rely on outside vendors to manufacture certain components of our
products and certain reagents we provide in our products. Some or all of these
key components may not continue to be available in commercial quantities at
acceptable costs. It could be time consuming and expensive for us to seek
alternative sources of supply. Consequently, if any events cause delays or
interruptions in the supply of our components, we may not be able to supply our
customers with our products on a timely basis which would adversely affect our
results of operations.

RISKS RELATED TO THE BIOTECHNOLOGY INDUSTRY

PUBLIC OPINION REGARDING ETHICAL ISSUES SURROUNDING THE USE OF GENETIC
INFORMATION MAY ADVERSELY AFFECT DEMAND FOR OUR PRODUCTS.

Public opinion regarding ethical issues related to the confidentiality and
appropriate use of genetic testing results may influence governmental
authorities to call for limits on, or regulation of the use of, genetic testing.
In addition, such authorities could prohibit testing for genetic predisposition
to certain conditions, particularly for those that have no known cure.
Furthermore, adverse publicity or public opinion relating to genetic research
and testing, even in the absence of any governmental regulation, could harm our
business. Any of these scenarios could reduce the potential markets for our
products, which could materially and adversely affect our revenues.

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GOVERNMENT REGULATION OF GENETIC RESEARCH OR TESTING MAY ADVERSELY AFFECT
THE DEMAND FOR OUR PRODUCTS AND IMPAIR OUR BUSINESS AND OPERATIONS.

Federal, state and local governments may adopt regulations relating to the
conduct of genetic research and genetic testing. These regulations could limit
or restrict genetic research activities as well as genetic testing for research
or clinical purposes. In addition, if state and local regulations are adopted,
these regulations may be inconsistent with, or in conflict with, regulations
adopted by other state or local governments. Regulations relating to genetic
research activities could adversely affect our ability to conduct our research
and development activities. Regulations restricting genetic testing could
adversely affect our ability to market and sell our products. Accordingly, any
regulations of this nature could harm our business.

HEALTH CARE COST CONTAINMENT INITIATIVES COULD LIMIT THE ADOPTION OF
GENETIC TESTING AS A CLINICAL TOOL, WHICH WOULD HARM OUR REVENUES AND PROSPECTS.

In recent years, health care payors as well as federal and state
governments have focused on containing or reducing health care costs. We cannot
predict the effect that any of these initiatives may have on our business, and
it is possible that they will adversely affect our business. In particular,
gene-based therapeutics, if successfully developed and commercialized, are
likely to be costly as compared to currently available drug therapies. Health
care cost containment initiatives focused either on gene-based therapeutics or
on genetic testing could cause the growth in the clinical market for genetic
testing to be curtailed or slowed. In addition, health care cost containment
initiatives could also cause pharmaceutical companies to reduce research and
development spending. In either case, our business and our operating results
would be harmed. In addition, genetic testing in clinical settings is often
billed to third-party payors, including private insurers and governmental
organizations. If our current and future clinical products are not considered
cost-effective by these payors, reimbursement may not be available to users of
our products. In this event, potential customers would be much less likely to
use our products, and our business and operating results would be seriously
harmed.

RISKS ASSOCIATED WITH THIS OFFERING

FUTURE ISSUANCE OF OUR PREFERRED STOCK MAY DILUTE THE RIGHTS OF OUR COMMON
STOCKHOLDERS.

After completion of this offering, our Board of Directors will have the
authority to issue up to 10,000,000 shares of preferred stock and to determine
the price, privileges and other terms of these shares without any further
approval of our stockholders. The rights of the holders of common stock may be
adversely affected by the rights of our holders of our preferred stock that may
be issued in the future.

WE HAVE VARIOUS MECHANISMS IN PLACE THAT YOU AS A STOCKHOLDER MAY NOT
CONSIDER FAVORABLE AND WHICH MAY DISCOURAGE UNSOLICITED TAKEOVER ATTEMPTS.

Following this offering, certain provisions of our certificate of
incorporation and bylaws, as well as Section 203 of the Delaware General
Corporation Law, may discourage, delay or prevent an unsolicited change in
control of our company, even if the change of control would be beneficial to
stockholders. These provisions include:

- authorizing our Board of Directors to issue preferred stock and to
determine the price, privileges and other terms of these shares without
any further approval of our stockholders, which could increase the number
of outstanding shares or thwart an unsolicited takeover attempt;

- establishing a classified Board of Directors with staggered, three-year
terms, which may lengthen the time required to gain control of our Board
of Directors;

- prohibiting cumulative voting in the election of directors, which will
allow a majority of stockholders to control the election of all
directors;

- requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
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- limiting who may call special meetings of stockholders;

- prohibiting stockholder action by written consent, which requires all
actions to be taken at a meeting of stockholders; and

- establishing advance notice requirements for nominations of candidates
for election to the Board of Directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.

In addition, our stock incentive plan may discourage, delay or prevent a
change in control of our company.

A change of control could be beneficial to stockholders in a situation in
which the acquisition price being paid by the party seeking to acquire us
represented a substantial premium over the prevailing market price of our common
stock. If our board of directors were not in favor of such a transaction, the
provisions of our certificate of incorporation and bylaws described above could
be used by our board of directors to reduce the likelihood that such acquisition
would be completed.

YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT IF THE MARKET PRICE OF OUR
COMMON STOCK FALLS BELOW THE INITIAL PUBLIC OFFERING PRICE.

The initial public offering price will be determined through negotiations
between us and the representatives of the underwriters based on factors that may
not be indicative of future market performance. The initial public offering
price may bear no relationship to the price at which the common stock will trade
upon completion of this offering. An active public market for our common stock
may not develop or be sustained after this offering, and the market price could
fall below the initial public offering price. As a result, you could lose all or
part of your investment.

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could harm our business and financial condition, as well as
the market price of our common stock.

OUR DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS WILL HAVE
SUBSTANTIAL CONTROL OVER OUR AFFAIRS.

Our directors, executive officers and principal stockholders will
beneficially own, in the aggregate, approximately 54% of our common stock
following this offering. These stockholders, acting together, will have the
ability to exert substantial influence over all matters requiring approval by
our stockholders. These matters include the election and removal of directors
and any merger, consolidation or sale of all or substantially all of our assets.
In addition, they may dictate the management of our business and affairs. This
concentration of ownership could have the effect of delaying, deferring or
preventing a change in control, or impeding a merger or consolidation, takeover
or other business combination of which you might otherwise approve.

WE WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS OF THIS OFFERING
AND MAY FAIL TO USE THEM EFFECTIVELY.

We have no exact plan with respect to the use of a significant portion of
the net proceeds of this offering and have not committed these proceeds to any
particular purpose apart from expenses of the business and general working
capital. Accordingly, our management will have broad discretion in applying the
net proceeds of this offering and may use the proceeds in ways with which you
and our other stockholders may disagree. We may not be able to invest these
funds effectively which would adversely affect our financial condition.

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<PAGE> 21

YOU WILL SUFFER SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE OF THE
COMMON STOCK YOU PURCHASE IN THIS OFFERING.

The initial public offering price of our common stock will be substantially
higher than the pro forma net tangible book value per share of our common stock.
Based on an assumed initial public offering price of $12 per share, if you
purchase shares of common stock in this offering, you will suffer immediate and
substantial dilution of $8.70 per share in the pro forma net tangible book value
of the common stock at June 30, 2000. To the extent outstanding options are
exercised, you will suffer further dilution.

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

After this offering we will have approximately 42,504,600 shares of common
stock outstanding. All of the shares being offered in this offering will
generally be freely tradable. Sales of a substantial number of these shares of
our common stock in the public market following this offering could cause the
market price of our common stock to decline. The number of shares of common
stock available for sale in the public market is limited by restrictions under
federal securities law and under lock-up agreements that our stockholders have
entered into with the underwriters and with us. Those lock-up agreements
restrict our stockholders from selling, pledging or otherwise disposing of their
shares for a period of 180 days after the date of this prospectus without the
prior written consent of Lehman Brothers. However, Lehman Brothers may, in its
sole discretion at any time and from time to time, release all or any portion of
the common stock from the restrictions of the lock-up agreements. Upon
expiration of these lock-up agreements, 27,606,600 shares of our common stock
will be eligible for immediate sale in the public markets.

FORWARD-LOOKING STATEMENTS

You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This prospectus may only be used where it is
legal to sell these securities. The information in this prospectus may only be
accurate on the date of this prospectus.

This prospectus contains forward-looking statements within the meaning of
the federal securities laws that relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "intend," "potential" or "continue" or the
negative of such terms or other comparable terminology. In addition, these
forward-looking statements include, but are not limited to, statements regarding
the following: our intellectual property portfolio and our business strategies
and plans. These statements are only predictions. 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. Factors that could cause our future results and performance to
differ from what is contemplated by the forward looking statements include those
set set forth under "Risk Factors."

In this prospectus, we refer to information regarding our potential markets
and other industry data. We believe that all such information has been obtained
from reliable sources which are customarily relied upon by companies in our
industry. However, we have not independently verified any such information.

TRADEMARKS

In the United States, France and the United Kingdom our registered
trademarks are Cleavase,(R) CFLP,(R) PowerScan(R) and Invader.(R) Cleavase, CFLP
and Invader are registered in Germany. CFLP and Invader are also registered in
Japan. Trademark registration for InvaderCreator(TM) is pending in the United
States, France, Germany, the United Kingdom and Japan.

19
<PAGE> 22

USE OF PROCEEDS

We expect to receive net proceeds of approximately $93.4 million from the
sale of the 8,500,000 shares of common stock (approximately $107.6 million if
the underwriters exercise their over-allotment option in full), at an assumed
initial public offering price of $12.00 per share, after deducting underwriting
discounts and commissions and the estimated offering expenses payable by us.

We expect to use between $10.0 and $20.0 million of the net proceeds of
this offering for capital expenditures, including facilities expansion and
purchases of equipment. We expect to use the remainder of the net proceeds from
this offering for general corporate purposes, including working capital and
research and development activities. Pending use of the net proceeds of this
offering, we intend to invest the net proceeds in interest-bearing,
investment-grade securities.

A portion of the net proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. From time to time, in the ordinary course of business, we may
evaluate potential acquisitions of these businesses, products or technologies.
We have no current plans, agreements or commitments, and are not currently
engaged in any negotiations regarding any such transaction.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, to support the development
of our business and do not anticipate paying any cash dividends in the
foreseeable future. Covenants in our capital lease facilities prohibit the
payment of cash dividends.

20
<PAGE> 23

CAPITALIZATION

The following table sets forth:

- our actual capitalization at June 30, 2000;

- our pro forma capitalization after giving effect to the conversion of all
outstanding shares of our preferred stock, including 6,351,800 shares of
series F preferred stock issued in July 2000 for net proceeds of
approximately $45.5 million, into 6,351,800 shares of common stock
effective automatically upon the completion of this offering; and

- the pro forma as adjusted capitalization after giving effect to the sale
of 8,500,000 shares of common stock in this offering at an assumed
initial public offering price of $12 per share and the receipt of the net
proceeds after deducting underwriting discounts and commissions and the
estimated offering expenses payable by us.

You should read this table in conjunction with "Selected Financial Data"
and our financial statements and related notes included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
JUNE 30, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, including current portion............ $ 9,236 $ 9,236 $ 9,236
Stockholders' equity:
Preferred stock, $.001 par value; shares
authorized; none issued or outstanding actual, pro forma
and pro forma as adjusted...............................
Preferred stock, $0.001 par value, shares
authorized, issuable in series:.........................
Series A convertible, 1,320,200 shares designated,
1,320,200 shares issued and outstanding, actual; 0
shares designated issued and outstanding, pro forma
and pro forma as adjusted............................. 1 -- --
Series B convertible, 700,000 shares designated, 700,000
shares issued and outstanding, actual; 0 shares
designated issued and outstanding, pro forma and pro
forma as adjusted..................................... 1 -- --
Series C convertible, 653,800 shares designated, 653,800
shares issued and outstanding, actual; 0 shares
designated issued and outstanding, pro forma and pro
forma as adjusted..................................... 1 -- --
Series D convertible, 1,383,200 shares designated,
1,383,200 shares issued and outstanding, actual; 0
shares designated issued and outstanding, pro forma
and pro forma as adjusted............................. 1 -- --
Series E convertible, 6,055,000 shares designated,
6,055,000 shares issued and outstanding, actual; 0
shares designated issued and outstanding, pro forma
and pro forma as adjusted............................. 6 -- --
Series F convertible, 6,351,800 shares designated, 0
shares issued and outstanding, actual; 0 shares
designated issued and outstanding, pro forma and pro
forma as adjusted..................................... -- -- --
Common stock, $0.001 par value, 100,000,000 shares
authorized, 17,535,000 shares issued and outstanding,
actual; 33,999,200 shares outstanding pro forma;
100,000,000 shares authorized and 42,504,600 shares
outstanding, pro forma as adjusted...................... 17 34 43
Additional paid-in capital................................ 40,311 85,773 179,124
Deferred stock compensation............................... (345) (345) (345)
Accumulated deficit....................................... (38,682) (38,682) (38,682)
-------- -------- --------
Total stockholders' equity........................... 1,311 46,780 140,140
-------- -------- --------
Total capitalization............................... $ 10,547 $ 56,016 $149,376
======== ======== ========
</TABLE>

This table excludes the following shares:

- 1,913,800 shares subject to stock options outstanding at June 30, 2000;
and

- 343,000 shares reserved for issuance under our stock option plans at June
30, 2000.

For additional information regarding these shares, see note 3 of notes to
financial statements included elsewhere in this prospectus.

21
<PAGE> 24

DILUTION

If you invest in our common stock, your interest will be diluted to the
extent of the difference between the initial public offering price per share of
our common stock and the pro forma as adjusted net tangible book value per share
of our common stock after this offering. We calculate net tangible book value
per share by dividing the net tangible book value, which equals total assets,
less intangible assets and total liabilities, by the number of outstanding
shares of common stock.

At June 30, 2000, our pro forma net tangible book value, after giving
effect to the sale of shares of series F preferred stock in July 2000 and the
automatic conversion of all outstanding shares of preferred stock into common
stock upon the completion of this offering, was approximately $46.8 million, or
approximately $1.38 per share of common stock. After giving effect to the sale
of 8,500,000 shares of our common stock in this offering at an assumed initial
public offering price of $12 per share, less underwriting discounts and
commissions and the estimated offering expenses payable by us, our pro forma net
tangible book value at June 30, 2000 would have been approximately $140.1
million, or $3.30 per share. This represents an immediate increase in pro forma
net tangible book value of $1.92 per share to existing stockholders and an
immediate dilution in pro forma tangible book value of $8.70 per share to
purchasers of common stock in this offering. The following table illustrates
this dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 12
Pro forma net tangible book value per share at June 30,
2000................................................... $1.38
Increase per share attributable to this offering.......... 1.92
-----
Pro forma net tangible book value per share after this
offering.................................................. 3.30
-----
Dilution per share to new investors......................... $8.70
=====
</TABLE>

The following table shows on a pro forma as adjusted basis at June 30,
2000, for the number of shares of common stock issued by us, the total
consideration paid to us and the average price paid per share by existing
stockholders and by new investors purchasing common stock in this offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 33,999,200 80.0% $ 87,377,944 46.1% $ 2.57
New investors............. 8,500,000 20.0 102,000,000 53.9 12.00
---------- ----- ------------ ------
Total................... 42,499,200 100.0% $189,377,944 100.0%
========== ===== ============ ======
</TABLE>

The foregoing discussion and table are based on actual shares outstanding
at June 30, 2000 after giving effect to the sale of shares of series F preferred
stock in July 2000. The foregoing discussion assumes no exercise of any stock
option outstanding at June 30, 2000. As of June 30, 2000, there were 1,913,800
options outstanding to purchase 1,913,800 shares of common stock at a weighted
average exercise price of $1.99 per share. To the extent any of these options
are exercised, there will be further dilution to new investors.

22
<PAGE> 25

SELECTED FINANCIAL DATA

The statement of operations data set forth below for the years ended
December 31, 1997, 1998 and 1999, and the six months ended June 30, 2000, and
the balance sheet data at December 31, 1998, December 31, 1999 and June 30, 2000
are derived from our financial statements which have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this prospectus.
The statement of operations data for the year ended December 31, 1996 and the
balance sheet data at December 31, 1997 are derived from our audited financial
statements that are not included in this prospectus. The statement of operations
data for the year ended December 31, 1995 and the balance sheet data at December
31, 1995 and 1996 are derived from our unaudited financial statements also not
included in this prospectus. The financial data for the six months ended June
30, 1999 are derived from unaudited financial statements included elsewhere in
this prospectus. We have prepared this unaudited information on the same basis
as the audited financial statements and have included all adjustments,
consisting of only normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for such
periods. When you read this selected financial data, it is important that you
also read our financial statements and related notes included elsewhere in this
prospectus, as well as the section of this prospectus related to "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Historical results are not necessarily indicative of future results. See note 1
to our financial statements included elsewhere in this prospectus for an
explanation of the method used to determine the number of shares used in
computing pro forma net loss per share.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------ ------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $1,129 $ 2,154 $ 1,119 $ 4,382 $ 2,574 $ 1,675 $ 1,374
------ ------- ------- ------- ------- ------- --------
Operating expenses:
Cost of goods sold.......... 1 341 670 1,348 2,705 980 3,631
Research and development.... 1,113 1,714 2,425 3,544 3,702 1,733 1,979
Selling and marketing....... -- 622 1,301 1,712 2,394 1,105 1,659
General and
administrative............ 712 1,358 1,839 3,357 3,451 1,277 2,197
Merger and other costs...... -- -- -- -- 116 -- 8,609
------ ------- ------- ------- ------- ------- --------
Total operating
expenses........... 1,826 4,035 6,235 9,961 12,368 5,095 18,075
------ ------- ------- ------- ------- ------- --------
Loss from operations.......... (697) (1,881) (5,116) (5,579) (9,794) (3,420) (16,701)
Other income (expense), net... (2) 359 217 147 566 64 107
------ ------- ------- ------- ------- ------- --------
Net loss...................... $ (699) $(1,522) $(4,899) $(5,432) $(9,228) $(3,356) $(16,594)
====== ======= ======= ======= ======= ======= ========
Basic and diluted net loss per
share....................... $(0.09) $ (0.12) $ (0.34) $ (0.36) $ (0.56) $ (0.21) $ (0.95)
Shares used in computing basic
and diluted net loss per
share....................... 7,619 12,190 14,223 14,900 16,547 16,156 17,462
Pro forma basic and diluted
net loss per share.......... $(0.08) $ (0.10) $ (0.29) $ (0.30) $ (0.40) $ (0.17) $ (0.60)
Shares used in computing pro
forma basic and diluted net
loss per share.............. 9,114 14,718 16,909 17,902 23,250 19,936 27,590
</TABLE>

23
<PAGE> 26

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
----------- ----------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................. $ 1,792 $ 7,586 $ 4,075 $ 5,614 $ 12,919 $ 7,132
Working capital........................... 1,956 8,608 2,584 4,099 13,774 (52)
Total assets.............................. 2,263 9,271 5,901 8,283 20,289 17,249
Long-term obligations, net of current
portion................................. 48 301 147 96 420 6,489
Accumulated deficit....................... (1,007) (2,530) (7,429) (12,860) (22,089) (38,682)
Total stockholders' equity................ 1,701 8,285 3,311 5,776 17,199 1,311
</TABLE>

24
<PAGE> 27

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

The following should be read with our consolidated financial statements and
the notes to those statements and other financial information appearing
elsewhere in this prospectus. The discussion in this prospectus contains
forward-looking statements that involve risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions. The cautionary
statements made in this prospectus should be read as applying to all related
forward-looking statements wherever they appear in this prospectus. Our actual
results could differ materially from those discussed here. Factors that could
cause or contribute to these differences include those discussed in "Risk
Factors," as well as those discussed elsewhere in this prospectus.

OVERVIEW

We are a leading provider of test kits, components and related products for
analyzing genetic variations. Since we began operating in February 1993, we have
devoted substantially all of our resources for the development of technologies
to create assays and components for assays to analyze genetic variations.

We have incurred significant losses since our inception. At June 30, 2000,
our accumulated deficit was $38.7 million. Our losses have resulted principally
from costs incurred in: cost of goods sold, research and development, selling
and marketing expenses, general and administrative expenses and costs related to
manufacturing expansion. We expect to continue to incur substantial research and
development, general and administrative, selling and marketing, and
manufacturing expansion costs. Accordingly, in order to achieve profitability we
will need to generate significantly higher revenues.

Future operating results will depend upon many factors, including market
acceptance of our products, introduction of new products by our competitors,
timing of commercial availability of new clinical assays and timing and extent
of our research and development efforts. For a more complete discussion of
factors that could cause future operating results to vary, see "Risk Factors."
Our operating results could fluctuate significantly and any failure to meet
financial expectations may disappoint securities analysts or investors and
result in a decline of our stock price.

Currently, our revenues are principally derived from product sales.
Products sold fall into one of three general categories: genotyping, gene
expression and clinical diagnostic products. We recognize revenues from product
sales at the time title passes to the customer. To a lesser extent, we have
derived revenues from research grants. Revenues from grants, a critical source
of funding in our formative years, have declined in importance as a percent of
total revenues as we focus on obtaining increased revenues from product sales.
These grants are not reflected on our balance sheet, but rather are recognized
as revenue when research is performed. Historically, development revenues,
primarily from our agreements with International Reagents Corporation, known as
IRC, and Endogen Corporation, had been a significant source of revenues. These
agreements have been terminated, and we do not expect development revenues to be
a significant source of revenues in the future.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2000 and 1999

Revenues. Revenues decreased to $1.4 million for the six months ended June
30, 2000 from $1.7 million for the six months ended June 30, 1999. Product sales
increased to $1.2 million in the six months ended June 30, 2000 from $0.2
million in the six months ended June 30, 1999 as a result of the recent
introduction of our clinical products, as well as recently added contracts to
provide products to customers in the research market. Revenues from research
grants declined to $0.1 million in the six months ended June 30, 2000 from $0.6
million in the six months ended June 30, 1999 primarily as a result of the
decreased emphasis we have placed on obtaining new research grants. Development
revenues declined to

25
<PAGE> 28

less than $0.1 million in the six months ended June 30, 2000 from $0.9 million
in the six months ended June 30, 1999 due to the termination of the IRC and
Endogen agreements.

Revenue from product sales is recognized when the title passes to the
customer, provided that the Company has completed all performance obligations
and the customer has accepted the products. Deferred revenue of $1.0 million at
June 30, 2000 relates to advances received from customers for products that are
to be created as well as products that have been delivered to customers where
appropriate revenue recognition criteria had not yet been met. Such amounts will
be recognized once appropriate revenue recognition criteria have been met which
is expected to be within the next year.

Cost of Goods Sold. Cost of goods sold consists primarily of salaries and
related expenses for management and personnel associated with our manufacturing
and quality control departments. Cost of goods sold increased to $3.6 million in
the six months ended June 30, 2000 from $1.0 million in the six months ended
June 30, 1999 primarily as a result of manufacturing expansion and increased
product sales. We anticipate that costs of goods sold will increase for the
foreseeable future consistent with anticipated increases in product sales.
However, we anticipate that our cost of goods sold as a percentage of net sales
will decline as sales increase and as we realize increased economies of scale by
increasing volume and improving manufacturing efficiencies.

Research and Development Expenses. Research and development expenses
consist primarily of salaries and related personnel costs, material costs for
assays and product development, fees paid to consultants, depreciation and
facilities costs and other expenses related to the design, development, testing
and enhancement of our products. We expense our research and development costs
as they are incurred. Research and development expenses increased to $2.0
million in the six months ended June 30, 2000 from $1.7 million in the six
months ended June 30, 1999. We expect research and development expenses to
increase significantly over the foreseeable future as our research and
development efforts are expanded.

Selling and Marketing Expenses. Selling and marketing expenses consist
primarily of salaries and related personnel costs for our sales and marketing
management and field sales force, office support and related costs and travel
and entertainment. At June 30, 2000, we had five sales representatives each
located in a particular geographic region of the United States. Sales and
marketing expenses increased to $1.7 million during the six months ended June
30, 2000 from $1.1 million in the six months ended June 30, 1999. The increase
was primarily attributable to increased sales personnel and increased costs
associated with establishing the clinical business.

General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related expenses for executive, finance and
other administrative personnel, legal and professional fees, office support and
depreciation. General and administrative expenses increased to $2.2 million for
the six months ended June 30, 2000 from $1.3 million in the six months ended
June 30, 1999. We expect general and administrative expenses will increase over
the foreseeable future to support our growing business activities and due to the
increased costs associated with operating a public company.

Merger and Other Costs. In January 2000, we entered into an agreement to
merge with PE Corporation. In May 2000, we and PE Corporation mutually agreed to
terminate the merger agreement. During the six months ended June 30, 2000, we
incurred expenses of $8.6 million related to this proposed merger. These
expenses are primarily due to an $8.0 million expense we incurred for
cancellation of our agreement with Endogen. The cancellation of our agreement
with Endogen was a requirement of the merger agreement with PE Biosystems.

Net Other Income. Net other income consists of income from our cash and
investments offset by expenses related to our financing obligations. Net other
income was $0.1 million in the six months ended June 30, 2000 and $0.1 million
in the six months ended June 30, 1999.

Provision for Income Taxes. We incurred net operating losses in both the
six months ended June 30, 2000 and the six months ended June 30, 1999, and
consequently we did not record any provision for Federal, state or foreign
income taxes.

26
<PAGE> 29

Years Ended December 31, 1999 and 1998

Revenues. Revenues decreased to $2.6 million in 1999 from $4.4 million in
1998. Product sales increased to $0.5 million in 1999 from $0.3 million in 1998
due to the introduction of several new products. Revenues from research grants
declined to $1.0 million in 1999 from $1.8 million in 1998 due to our decreased
emphasis on obtaining new research grants. Development revenues declined to $1.1
million in 1999 from $2.3 million in 1998 due to the completion of recognition
of revenue under both the IRC and Endogen agreements.

Cost of Goods Sold. Cost of goods sold increased to $2.7 million in 1999
from $1.3 million in 1998, primarily as a result of increased product sales.

Research and Development Expenses. Research and development expenses
increased to $3.7 million in 1999 from $3.5 million in 1998. This increase was a
result of increased personnel to support our research and development
initiatives.

Selling and Marketing Expenses. Selling and marketing expenses increased to
$2.4 million in 1999 from $1.7 million in 1998. The increase was primarily
attributable to increased sales personnel.

General and Administrative Expenses. General and administrative expenses
increased to $3.5 million in 1999 from $3.4 million in 1998.

Net Other Income. Net other income increased to $0.6 million in 1999 from
$0.1 million in 1998. The increase resulted from greater interest income as a
result of higher cash balances from our $19.5 million equity financing in July
1999.

Provision for Income Taxes. We incurred net operating losses in 1999 and
1998, and consequently we did not record any Federal, state or foreign income
tax provision.

Years ended December 31, 1998 and 1997

Revenues. Revenues increased to $4.4 million in 1998 compared to $1.1
million in 1997. Product sales increased to $0.3 million in 1998 from negligible
amounts in 1997 primarily due to the introduction of several new products. Grant
revenues increased to $1.8 million in 1998 from $0.9 million in 1997 primarily
due to the addition of a Federal government grant. Development revenues
increased to $2.3 million in 1998 from $0.2 million in 1997 primarily as a
result of the strategic alliances with Endogen and IRC.

Cost of Goods Sold. Cost of goods sold increased to $1.3 million in 1998
from $0.7 million in 1997 as we increased our efforts to produce previously
developed assays in higher volumes.

Research and Development Expenses. Research and development expenses
increased to $3.5 million in 1998 from $2.4 million in 1997. The increase was
due primarily to increased personnel, related personnel costs, facilities and
supplies associated with an increase in research and development activities.

Selling and Marketing Expenses. Selling and marketing expenses increased to
$1.7 million in 1998 from $1.3 million in 1997 as we increased selling and
marketing activities by hiring additional personnel.

General and Administrative Expenses. General and administrative expenses
increased to $3.4 million in 1998 from $1.8 million in 1997 as we hired
additional personnel to support our growing business activities.

Net Other Income. Net other income decreased to $0.1 million in 1998 from
$0.2 million in 1997 due to declines in our cash balances.

Provision for Income Taxes. We incurred net operating losses in 1998 and
1997, and consequently we did not record any Federal, state or foreign income
tax provision.

27
<PAGE> 30

NET OPERATING LOSS CARRYFORWARDS

At June 30, 2000, a valuation allowance equal to 100% of net deferred tax
assets had been recognized since future realization is not assured. At June 30,
2000, we had Federal and state net operating loss carryforwards of approximately
$37.6 million. The net operating loss carryforwards will expire at various dates
beginning in 2008, if not utilized. Utilization of the net operating losses and
credits may be subject to an annual limitation due to the change in the
ownership provisions of Federal tax laws and similar state provisions included
as a result of this offering.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through private
placements of equity securities, research grants from Federal and state
government agencies, payments from strategic collaborators, equipment loans,
capital leases and sales of products. At June 30, 2000, we had cash and cash
equivalents and short term investments of $7.1 million. In July 2000, we
received net proceeds of approximately $45.5 million from the sale of shares of
series F preferred stock.

Net cash used in operating activities was $5.6 million in the six months
ended June 30, 2000, and $8.9 million and $4.6 million in 1999 and 1998,
respectively. Net cash used in operating activities primarily funded net losses,
excluding non-cash charges.

Net cash used in investing activities in the six months ended June 30, 2000
was $7.4 million which consisted primarily of $5.1 million of equipment
purchases for our newly constructed, 37,000 square foot manufacturing facility
in Sun Prairie, Wisconsin. Net cash used in investing activities in 1999 and
1998 consisted primarily of equipment purchases of $2.8 million and $1.3
million, respectively.

Net cash provided by financing activities in the six months ended June 30,
2000 was $4.9 million. Net cash provided by financing activities in 1999 and
1998 was $18.9 million and $7.4 million, respectively. Financing activities are
comprised mostly of equity issuances and debt financing. Preferred stock and
common stock sold provided us with $18.6 million and $7.4 million in 1999 and
1998, respectively. During 1999 and the six months ended June 30, 2000, certain
equipment purchases have been financed under our $3.3 million equipment finance
arrangement. At June 30, 2000, we had used the entire amount of this facility.

Our cash and investment policy emphasizes liquidity and preservation of
principal over other portfolio considerations. We select investments that
maximize interest income to the extent possible given these two constraints. We
satisfy liquidity requirements by investing excess cash in securities with
different maturities not to exceed one year in order to match projected cash
needs and limit concentration of credit risk by diversifying our investments
among a variety of high credit-quality issuers.

We believe that our existing capital resources together with cash generated
from product sales and the net proceeds of this offering will be sufficient to
fund our operating and capital requirements for 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 not require substantial additional
funding before we can achieve profitable operations. Our capital requirements
depend on numerous factors, including the following:

- our progress with our research and development programs;

- our level of success in selling our products and technologies;

- our ability to establish and maintain successful collaborations;

- the costs we incur in enforcing and defending our patent claims and other
intellectual property rights; and

- the timing of purchases of additional capital equipment.

We anticipate spending approximately $10.0 million of the net proceeds of
this offering on the construction of a 65,000 square foot addition to our
principal facilities in Madison, Wisconsin. This facility will include 20,000
square feet of manufacturing space. We expect that this facility will be
completed in

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the summer of 2001 and that these expenditures will be incurred between now and
the time the facility is completed.

We have no remaining funding commitments under our agreements with Third
Wave Agbio, Inc. For additional information regarding Third Wave Agbio, Inc.,
please see "Certain Relationships and Related Transactions."

Future capital requirements will also depend on the extent to which we
acquire or invest in businesses, products and technologies. Until we can
generate sufficient levels of cash from our operations, we expect to finance
future cash needs through the sale of equity securities, strategic
collaborations and debt financing as well as interest income earned on cash
balances. We cannot assure you that additional financing or collaboration and
licensing arrangements will be available when needed or that, if available, this
financing will be obtained on terms favorable to us or our stockholders.
Insufficient funds may require us to delay, scale back or eliminate some or all
of our research and development programs, to lose rights under existing licenses
or to relinquish rights to product candidates at an earlier stage of development
or to retain these rights on less favorable terms than we would otherwise
choose. In addition, unavailability of financing may adversely affect our
ability to operate as a going concern. If we raise additional funds by issuing
equity securities, your percentage ownership in our company will be reduced.

DISCLOSURE ABOUT MARKET RISK

Our exposure to market risk is currently confined to our cash and cash
equivalents which have maturities of less than one year. The securities in our
investment portfolio are not leveraged and due to their short-term nature, are
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 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 disruptions in our operations or other
significant problems associated with Year 2000 issues, and are not aware that
any of our vendors or suppliers experienced any such problems.

INFLATION

We do not believe that inflation has had a material impact on our business
or operating results during the periods presented.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities," or SFAS 133. 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 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 revenues in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenues and provides
guidance for disclosures related to revenue recognition policies. Our revenues
recognition policies are consistent with the provisions of SAB 101 and our
financial statements reflect this policy for all periods presented.

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In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25", which clarifies guidance
for certain issues that arose in the application of APB Opinion No. 25,
"Accounting for Stock Issued to Employees". FASB Interpretation No. 44, which
was effective July 1, 2000, is not expected to have any impact on our results of
operations.

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BUSINESS

We are a leading provider of test kits, components and related products for
analyzing genetic variations. Our patented genetic analysis platform, the
Invader operating system, offers several advantages over conventional genetic
analysis technologies that we believe will make the Invader operating system the
technology of choice to address the rapidly growing demand for products that
analyze genetic variations. Genetic variations are the origin of most
differences between individuals, including disease predisposition and drug
therapy response. The analysis of these millions of variations in up to hundreds
of millions of individuals will require billions of tests. Our technologies
produce highly accurate results, are easy to use and eliminate the need for
copying the genetic sample using a complex copying technique known as polymerase
chain reaction, or PCR. Additionally, our technologies are compatible with
existing automation processes and detection platforms and are available in
convenient, ready-to-use formats. These advantages make our technologies ideally
suited for large-scale genetic analysis for both clinical and research
applications, including drug discovery and development and patient diagnosis and
treatment.

INDUSTRY BACKGROUND

Genetic information provides a basis for understanding biological and
medical functions in organisms. In June 2000, public and private efforts,
including the Human Genome Project and other initiatives, jointly announced the
completion of the sequencing of the billions of DNA bases of the human genome.
The current phase of genomics is increasingly focused on the identification and
analysis of genetic variations within the genome from person to person resulting
from differences, or polymorphisms, in these DNA sequences. The most common
genetic variations are differences in a single DNA base, or nucleotide, and are
called single nucleotide polymorphisms, or SNPs.

IMPORTANCE OF GENETIC VARIABILITY

Approximately 99.9% of each individual's genome is identical with that of
every other individual's genome. However, variation in the genome can modify how
a gene functions. These variations can lead to a spectrum of observable
differences, such as eye and hair color. Genetic variations are a major
underlying component of many diseases, including cancer, inflammation,
hypertension and cardiovascular disease, with many diseases being affected by
multiple variations. Genetic variations are also responsible for many of the
differences in the ways individuals respond to drug therapies. As a result,
analysis of SNPs and other genetic variations is expected to play an
increasingly important role in the discovery and development of new drugs, as
well as a variety of diagnostic, therapeutic and other medical and life science
applications. Industry sources estimate that there are millions of genetic
variations in the human genome, creating demand for products and technologies
that can quickly and accurately detect and analyze these variations.

GENOTYPING AND SNP ANALYSIS

Genotyping is the process of determining genetic variations, including
SNPs, present in an individual. Although some SNPs are known to be a major cause
of inherited diseases and individual differences in drug responsiveness, the
vast majority of SNPs that are inherited have not yet been analyzed. To identify
medically relevant genetic variations, potentially millions of variations must
be analyzed in large numbers of individuals using billions of analysis tests.
Once the medical relevance of particular variations or groups of variations is
determined, tests for that variation may then be performed on hundreds of
millions of individuals.

GENES AND GENE EXPRESSION ANALYSIS

Genes are segments of DNA within the genome that direct the production of
proteins. Cells use these proteins to carry out their functions. It is now
recognized that essentially all stages of disease are caused by changes in the
expression levels of genes. Scientists have therefore begun to study the
expression of genes in disease states. Gene expression analysis involves the
detection and quantification of messenger RNA, or mRNA, produced by a gene in
order to determine gene activity. Although all genes are present

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in all cells, each cell generally expresses only those genes it needs for the
specific functions it performs. By measuring the amounts of the mRNAs in
affected cells, medical professionals can understand how drugs and disease
progression affect cells and, consequently, a patient's health. Gene expression
analysis is being widely adopted as an integral step in drug discovery and
development, as well as in determining appropriate drug therapies and monitoring
their efficacies.

GENETIC ANALYSIS MARKET OPPORTUNITIES

The current worldwide market for genetic analysis products, which consists
of reagents, assays and other consumables used in performing genetic analysis
tests, is estimated at $990 million. This market is expected to grow to $4.5
billion by 2010, representing over 20% annual growth.

The research market includes both genotyping, including SNP analysis, and
gene expression analysis applications. Industry sources estimate that the
current size of the research market is $320 million and is expected to grow to
$2.2 billion by 2010. The research market includes:

- confirmation of new sites of genetic variation in DNA;

- validation of the medical importance of genetic variations; and

- utilization of genetic variation and gene expression analysis in drug
discovery and development, determination of disease predisposition and
clinical test development.

The clinical market also includes both genotyping and gene expression
analysis applications. Industry sources estimate that the current size of the
clinical market is $675 million and is expected to grow to $2.3 billion by 2010.
The clinical market includes:

- formulation of customized treatments based on genetic profile;

- monitoring of the efficacy of drug therapies;

- diagnosis of infectious and inherited diseases;

- early assessment of emerging disease;

- analysis of viral and bacterial drug resistance; and

- matching of recipients and donors in organ and tissue transplants.

CONVENTIONAL GENETIC ANALYSIS TOOLS AND LIMITATIONS

The initial technique for analysis of genetic variations was hybridization,
first developed in the 1970s. Hybridization relies on the principle that a
unique piece of DNA will bind, or hybridize, most strongly to its exact
complement. In hybridization, short, synthetic segments of DNA, also known as
probes, are used to locate and bind to their counterparts within a mixture of
sample DNA or RNA. Hybridization is often performed using instrumentation that
incorporates a detection medium which provides a signal to indicate that the
probe has hybridized to the sample DNA or RNA. However, hybridization used alone
has several limitations. In particular, the process in which the probe binds to
its counterpart requires ideal testing conditions to avoid inaccurate results.
Even minute changes in testing conditions, including temperature and other
reaction conditions, can dramatically affect the outcome of the hybridization
reaction and therefore the reliability of test results.

Beginning in the 1980s, various techniques were invented with the objective
of improving the reliability of hybridization. However, these methods do not
provide a signal that is sufficient to be generally detectable. Therefore, in
order to use these methods, it is necessary to first copy, or amplify, the
segment of DNA or RNA to be analyzed using a complex technique known as
polymerase chain reaction, or PCR.

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Accordingly, these conventional methods, whether involving hybridization alone
or in combination with additional steps, have significant limitations,
including:

- Inability to Directly Analyze Genomic Samples. Conventional methods are
not precise enough to directly analyze a particular genetic variation
contained within the 3 billion data points in the human genome. As a
result, these methods require that, for each genetic variation of
interest, a small portion of the genome be amplified using PCR. This
amplification process adds time and material and labor costs, makes
automation and quantitative analysis difficult and is susceptible to
errors resulting from sample contamination.

- Highly Complex Product Development Process. Conventional methods require
strict testing parameters. Therefore, with conventional technologies, the
process of developing a test, or product, for analyzing a specific
genetic variation is highly complex and cannot easily be automated. This
problem is exacerbated by the dependence of conventional methods on PCR,
which requires specific design and optimization of the PCR process for
each new test being developed. These problems severely limit the ability
to use conventional techniques to develop the large numbers of products
that will be required for comprehensive analysis of human genetic
variations.

- Low Degree of Accuracy. A high degree of accuracy is essential to detect
and quantify genetic variations, which may involve the analysis of
thousands of genetic variations per individual. Conventional methods can
result in 1 or more in 10 tests being inaccurate. These inaccuracies are
magnified in tests for multiple variations. For example, in a test panel
involving 6 genetic variations, the overall panel accuracy for a
technology having a 95% accuracy per result would be only 74%.

- Difficulty of Use. Many of the conventional analysis methods involve
multiple technical steps requiring human intervention, which make the
analysis difficult to perform and impossible to fully automate. In
addition, while many pharmaceutical companies and research organizations
have already purchased expensive detection instrumentation, many
conventional methods cannot be used on multiple instrument platforms,
requiring customers to purchase additional equipment.

- High Cost Per Test Result. Due to the complexity of the product
development process, the difficulty of use and inability to directly
analyze genomic samples, conventional methods can cost up to $2.00 per
test result for research applications. These cost levels can be
prohibitive for pharmaceutical companies and research organizations
contemplating large-scale studies involving up to millions of genetic
variations in millions of patient samples.

- Limited Clinical Viability. Because of the low degree of accuracy and
difficulties associated with product development and use, conventional
methods have not been shown to be broadly applicable to clinical
settings.

Capturing the expanding market opportunity for genetic analysis will
require technologies and products that are capable of addressing and overcoming
these significant limitations and providing a cost-effective, highly reliable
means of genetic testing and analysis.

THE THIRD WAVE SOLUTION

Our proprietary Invader operating system offers a highly sensitive
technology that can detect and quantify genetic variations directly from
unamplified genomic DNA, RNA and infectious agents. Advantages of our
proprietary technology include:

- Direct Analysis of Genomic Samples. Our technology is sufficiently
precise to analyze genomic samples directly, avoiding the cost, time and
risk of sample contamination associated with PCR. In addition,
elimination of PCR amplification and the need for a customized PCR
process for each DNA segment of interest makes our approach well suited
to automation and large-scale genetic analysis.

- Rapid, Automated Product Development Process. We have developed a
proprietary software program for the development of our products and have
automated the processes for both

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manufacture and quality control of these products. Using this software
and automation, we can develop and manufacture products that are ready
for shipment to customers in less than one week from receipt of a
customer's order. With conventional techniques, this process could
require up to several months. Once we have incorporated a product into
our catalog of developed products, even less production time is required.
Our planned manufacturing and facilities expansion will enable us to
design and manufacture products for several hundred thousand new and
unique target sequences per year.

- Highly Accurate. Our technology has been demonstrated in published,
independent studies to be between 99.6% and 100% accurate in correctly
identifying genomic variations in routine use. In a test panel involving
6 genetic variations, the overall panel accuracy for our Invader
operating system would be between 97.6% and 100%.

- Ease of Use and Platform Independence. The ability to automate assay
performance allows us to eliminate many of the steps that require human
intervention, reproducing the possibility of errors and making the
Invader operating system easier to use than conventional methods.
Generally, the user simply adds the appropriate DNA or RNA sample,
incubates the assay and reads the results. In addition, because our
technologies can be used on nearly all major instrumentation systems in
place today, our customers do not need to purchase new instrumentation to
adopt our technologies. This flexibility enables us to provide our
products to customers who use different instrument platforms with a
configuration tailored to their needs.

- Lower Cost Per Test Result. Due to our automated product development,
increased ease of use and ability to directly analyze genomic samples, we
have been able to reduce the cost per result significantly, in many cases
to less than $1.00 per test result for research applications. We believe
that these cost reductions will make large scale genomic studies more
feasible as a research and development tool for pharmaceutical companies
and research organizations. In addition, we believe that our cost
advantages will be attractive to health care payors, accelerating the
adoption of genetic analysis in clinical settings.

- Increased Clinical Viability. The accuracy, ease of use and low cost per
test makes the Invader operating system well suited for use in clinical
settings, where genetic testing is being used to guide and monitor an
individual patient's disease diagnosis, treatment and drug therapy. In
addition, our automated product development process enables us to
efficiently develop new clinical products and to market for clinical
applications products that were originally developed for research use.

THIRD WAVE STRATEGY

Our strategy for capitalizing on the growing market opportunity in genetic
analysis products and commercializing our products and technologies is to:

- Establish Our Invader Operating System as the Industry Standard for
Genetic Variation Analysis. We intend to become the leading provider of
genetic analysis products and technologies by being the first to market
with the broadest menu of highly accurate, easy-to-use products for a
large number of applications. We are currently developing a panel of
2,000 SNP assays for chromosome 22, the first human chromosome for which
sequencing was complete, a panel of 10,000 coding SNP assays for medium
resolution genome analysis and a panel of 150,000 coding SNP assays for
high resolution genome analysis. We believe that these products address a
majority of the current market for genetic analysis and testing products.
We intend to continue to enhance our leadership position through our
relationships with leading companies and research organizations, which
enables us to develop custom products for these companies and then offer
these products to all our customers.

- Optimize Technology and Production Efficiencies. We intend to further
enhance our technology platform and manufacturing capabilities to reduce
costs and rapidly commercialize our products. We are in the process of
expanding our development and manufacturing capabilities, which will
enable us to develop new products for the analysis of over several
hundred thousand new and

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unique target sequences per year. We are also developing technology
enhancements, including reductions in both sample size and the quantity
of reagents required for each test, that will reduce the costs of genetic
variation analysis using our products. We will pursue ongoing cost
reductions to broaden the market for our products.

- Establish Additional Collaborative Relationships to Obtain Rights to
Commercialize Discoveries. We intend to establish additional
collaborative relationships with leading research organizations and
pharmaceutical companies which will provide us with rights to
commercialize the discoveries made using our technologies. These
relationships will be focused on the discovery of the associations of
specific genetic variations with major disease states, including cancer,
hypertension, inflammation and cardiovascular disease. Our strategy is to
offer our research collaborators early access and lower-cost use of the
Invader operating system in exchange for the rights to commercialize the
discoveries they make using our technology. These rights typically enable
us to offer new genetic products for research and, in most cases,
clinical applications.

- Enter into Additional Commercial Alliances to Market Our Products and
Access New Technologies. We intend to enter into strategic commercial
alliances which will allow us to leverage our collaborators' marketing,
sales and new applications development strengths and gain access to
complementary and emerging technologies. Additionally, we plan to enter
into strategic alliances with a number of companies that can provide
proprietary and synergistic technologies to enhance our product
offerings. These alliances can open up new markets and marketing channels
and provide us with rights to use new and emerging detection and other
technologies, such as microfluidics and microarrays, with the Invader
operating system.

- Capitalize on Existing and Emerging Opportunities in Clinical Markets. We
intend to rapidly gain market share in the clinical market by developing
and commercializing products to address emerging needs in the clinical
market and expanding our user base for existing and new products through
aggressive marketing and sales. We believe that the clinical market is
larger than the research market and offers several opportunities for new
applications for our technologies. We have introduced three products for
determining genetic predisposition for blood clotting and plan to
introduce additional clinical products for many other applications
including detection of infectious diseases and diagnosis of inherited
diseases. We currently sell to the clinical market with our internal
sales force, which targets approximately 400 leading clinical reference
laboratories in the United States. From the introduction of our first
clinical product in the fourth quarter of 1999 through June 30, 2000,
over 10% of these clinical reference laboratories had adopted our Invader
operating system platform. Our futures sales strategy for the clinical
market will include a combination of building our sales force, strategic
development and co-marketing arrangements.

INVADER OPERATING SYSTEM

INVADER TECHNOLOGY

Our patented Invader operating system can be differentiated from
conventional genetic analysis methods in at least two significant ways. First,
our operating system uses a patented enzyme which only recognizes and cuts the
specific structure formed during the Invader process, known as a Cleavase
enzyme. The benefits of using this structure-recognition enzyme versus
conventional technologies, which rely solely on the ability to discriminate a
genetic sequence, are enhanced assay specificity, development and use. Second,
our operating system relies on linear amplification of the signal generated by
the Invader process rather than exponential amplification of the target sample
resulting from PCR. Linear amplification, which means that a single target
generates a given number of signals over a given period of time, allows for easy
quantification of target concentration and reduces the effects of sample
contamination that may result from exponential target amplification, where a
single target generates two additional targets and each generated target
generates an additional two targets and so forth.

In its most common configuration, our Invader products detect and/or
quantify a target of interest through two steps. In the first step, two short
synthetic segments of DNA, or probes, bind, or hybridize, to

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the target of interest. One probe is called the Invader probe and the other is
called the Primary probe. The Primary probe includes a short portion, known as a
flap, which does not hybridize to the target. The hybridization of the Invader
and Primary probes at a specific location on the target forms the structure
recognized by the Cleavase enzyme, which then cuts the unbound flap off of the
Primary probe. When the target of interest is not present, the structure is not
formed and cutting does not occur. The target of interest, when present, induces
the cutting of several thousand flaps per hour in a linear fashion.

In the second step, each flap generated in the first step hybridizes, or
binds, to a third probe, called a Signal probe, forming the structure recognized
by the Cleavase enzyme. The enzyme then cleaves off a portion of the Signal
probe causing, in the most common format, the reaction to emit a detectable
fluorescent signal. Consequently, each flap generated in the first step induces
the generation of several thousands of detectable signals per hour. In this way,
an Invader assay produces tens of millions of detectable signals per target when
the target is present, which can be read easily on most existing detection
systems. The result is that the Invader technology produces millions of
target-specific signals without copying the target sample itself.

Our Invader operating system is much more precise than conventional
technologies and can produce accurate results over a broad range of temperatures
and solution conditions. In addition, unlike conventional approaches, the
Invader operating system operates at a single reaction temperature, making it
easier to use by reducing the level of sophistication and training required for
users of the system.

INVADER PRODUCTS

Our Invader products can be configured in a wide variety of formats and
combinations depending on the user's desired applications, detection systems and
other requirements. These formats may include a combination of Invader probes,
Primary probes, Signal probes, Cleavase enzyme, buffers and other components.
All our products for a particular user are designed to use the same reaction
conditions, permitting easy automation of both assay design and test
performance. Since no aspect of the process requires individual optimization for
the user, any combination of reactions may run on a single assay plate, and all
plates are handled in an identical fashion.

The Research Market

- Genotyping Product Catalog and Panels. We have developed several
thousand assays, each designed to analyze a unique genotype. We have
automated the SNP genotyping product development and manufacturing
process and have expanded our manufacturing capacities. As a result, we
believe that we will be able to produce hundreds of thousands of new
products for analyzing additional genotypes over the next several years.
These products will be available individually or in any combination from
our catalog of products for genotyping, including as panels for
disease-specific, chromosome-specific or genome-wide genotype analysis.
We are currently developing a panel of 2,000 SNP assays for chromosome
22, a panel of 10,000 coding SNP assays for medium resolution genome
analysis and a panel of 150,000 coding SNP assays for high resolution
genome analysis.

- Gene Expression Product Catalog and Panels. We have developed
approximately one hundred assays for quantifying the expression of genes
involved in immune response and drug metabolism. We intend to develop
thousands of additional products over the next several years to address
the demand for the accurate quantification of existing and newly
discovered genes involved in the immune response, drug development and
metabolism and response or non-response to drug therapy. These products
will be available individually or in any combination from our catalog of
products for quantitative gene expression, including as groups of tests,
or panels, for particular applications.

Clinical Market

- Genotyping Product Catalog and Panels. We have developed three clinical
products which are currently being marketed under FDA regulations as
analyte specific reagents, or ASRs. These

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products can be used either individually or together as a panel to
determine genetic predisposition to blood clots. We are currently
developing a number of additional ASR products for clinical genotyping
applications.

- Quantification Product Catalog and Panels. We are currently developing
clinical products for detecting and quantifying viruses, including
hepatitis B virus and cytomegalovirus, and bacteria, including drug
resistant and drug sensitive staphylococcus aureas. We are currently
planning to initiate product development for the detection and
quantification of a number of other clinically important viruses,
bacteria and gene expression targets.

INVADER PRODUCT APPLICATIONS

We anticipate that pharmaceutical companies and medical professionals will
utilize our products in many aspects of drug discovery and development and
patient diagnosis and treatment processes including those described below.

Pharmaceutical Product Applications

- Target Identification and Validation. Pharmaceutical companies can use
our products to determine associations between a particular medical
condition or disease and one or more genetic variation profiles to
identify genes that are related to the condition. These candidate genes
can then serve as potential targets for new drug development. Once a
potential target has been identified, pharmaceutical companies can use
our products to confirm the action of these targets.

- Lead Compound Identification, Validation and Optimization. Pharmaceutical
companies can use our products to identify potential drug compounds. For
example, they can identify compounds which act not only on the proteins
encoded by the target gene, but also on the proteins encoded by the
variants of the gene. In this manner, a pharmaceutical company can
identify potential drug compounds that act on multiple versions of a
target protein. Our products can also be used to validate potential drug
candidates by performing biological assays on these compounds against
variants of a given protein. Companies can also optimize and improve
potential drug candidates by seeking to establish broader efficacy over
larger populations through studies on known variants of targets.

- Preclinical and Clinical Testing. Pharmaceutical companies can use our
products to test model systems, such as mice, and to correlate
therapeutic and metabolic responses to known genetic variation profiles
in the target or in related enzymes to better predict drug efficacy and
safety. Additionally, pharmaceutical companies can use our products to
select patients for clinical trials based on the presence or absence of
genetic variation profiles known to be associated with drug response.

- Market Extension/Drug Revival. Pharmaceutical companies can use our
products in marketing programs to expand or extend markets of an existing
drug to new patient groups. This may lead to label extensions, additional
patent protection and longer commercial lives for existing drugs based on
patient genetic profiles. Similarly, pharmaceutical companies can use our
products to bring back to market drugs which were previously removed due
to adverse drug response or lack of therapeutic activity.

Clinical Product Applications

- Clinical Diagnosis. Medical professionals can use our products to
diagnose a number of infectious and inherited diseases.

- Therapy or Treatment Selection. Medical professionals can use our
products to customize treatment regimens specifically to a particular
patient. This could significantly reduce erroneous or ineffective
prescriptions and increase the likelihood that patients receive the
proper dosage of

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appropriate drugs. Our products can also be used to tailor drug therapy
programs for managed care systems and other healthcare providers.

- Therapeutic Monitoring. Medical professionals can use our products to
monitor response to a particular therapeutic regimen, allowing earlier
modulation of treatment, if necessary. This type of therapeutic
monitoring could improve medical outcomes by reducing the time required
to identify the most appropriate types and levels of treatment.

- Detection and Drug Resistance Profiling of Viruses and Bacteria. Medical
professionals can use our products to assess patient samples for the
existence and amount of infection. They can also assess whether the
infection may be susceptible to particular treatment, which can provide
information that is useful in successfully treating the infection.

MANUFACTURING

We currently manufacture our products at our three facilities, located in
the Madison, Wisconsin area. One of the Madison facilities and the Sun Prairie
facility are dedicated to manufacturing products for the research market and the
other Madison facility is used to manufacture products for the clinical market.
Manufacturing is automated from receipt of a proposed target sequence to
shipment of the corresponding product. Additionally, we have developed and
implemented a modular manufacturing process at all three of our manufacturing
facilities, which allows easy expansion. Each manufacturing module consists of
the following coordinated stations and computer support:

- proprietary software program for automated product design;

- bar code product tracking system;

- automated probe synthesis and processing system;

- automated probe purification station;

- automated probe quantification and dilution and fill station; and

- on-line robotic product quality control system.

We have designed the manufacturing processes and area at each facility to
optimize material flow and personnel movement with all the manufacturing and
quality control operations. We have fully integrated our manufacturing modules
with our materials, requirements, and planning system to manage and control our
material and product orders and inventories.

We believe that our current and planned manufacturing facilities will be
adequate to meet our near-term production requirements. We also believe that we
will be able to obtain additional facilities as needed on commercially
reasonable terms.

Our products are produced in environmentally controlled clean rooms and are
isolated from the rest of the facility consistent with national and
international registration standards. We have registered the facilities used for
manufacturing our clinical products with the United States Food and Drug
Administration, or FDA, as a Device Manufacturer and we believe we are in
compliance with FDA's quality system requirements, or QSRs.

MARKETING AND SALES

We currently market and sell our products through a combination of direct
sales personnel, which are focused primarily on the clinical market, and through
collaborative relationships. Our clinical sales force is currently comprised of
six individuals, and we plan to increase this sales force as market demand
requires. The clinical sales force targets high volume clinical and reference
laboratories that meet the criteria for highly-complex laboratories under the
Clinical Laboratory Improvement Amendments of 1988. Currently, there are
approximately 400 major laboratories in the United States that account for a
substantial majority of the genetic tests performed annually.

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Our products for the research market are sold primarily through
collaborative relationships with pharmaceutical companies and research
institutions. Our business development group targets leading pharmaceutical
companies and research and academic institutions with the objective of entering
into agreements for the supply of genetic testing products. We also appear at
industry trade shows and advertise in trade publications in connection with our
marketing efforts.

Currently, substantially all of our sales have been to customers in the
United States. We believe that a substantial international market may exist for
our products and intend to pursue international market opportunities through a
combination of distribution arrangements and collaborative relationships. We may
also establish a direct international sales organization in selected major
markets.

COLLABORATIVE RELATIONSHIPS

Our business involves research collaborations with instrument companies,
pharmaceutical companies and academic institutions. Many of these entities have
proven and renowned capabilities in gene-based product discovery and
commercialization. We have entered into a number of collaboration agreements and
licenses and are presently in late stage discussions with a select number of
other groups to establish additional partnerships.

We seek and identify major regional or national genomics centers for
large-scale mutation and gene expression analysis for these partnerships. These
efforts accelerate the growth of research and clinical markets for genotyping
and gene expression. We preferentially commercialize a subset of new markers
used in the clinical assessment and treatment of the most common diseases
through collaborative projects. The following is a summary of our principal
collaborative relationships.

Applied Biosystems Group, a division of PE Corporation. In August 2000, we
entered into a development and supply agreement with the Applied Biosystems
Group. Under this agreement, we are developing a panel of 150,000 assays for
high resolution genetic analysis including SNP detection. These assays are being
developed for use in a SNP initiative sponsored by various agencies of the
Japanese government. Under the agreement, we will develop and manufacture
certain components for the assays and Applied Biosystems will provide us with
various raw materials. Applied Biosystems will also develop an automated
detection instrument for use in performing genomic analysis with the assays. In
connection with the development program, Applied Biosystems has also agreed to
lend us various items of equipment.

We will supply Applied Biosystems with certain assay components, which
Applied Biosystems will resell to the Japanese government. We and Applied
Biosystems have agreed that profits under the agreement will be split on a
50%/50% basis, and the agreement provides for a quarterly reconciliation to
achieve this split.

Under the agreement, intellectual property developed by either party will
be owned by that party and intellectual property which is jointly developed will
be owned jointly by both parties. In addition, we and Applied Biosystems have
each granted the other party a non-exclusive licenses to intellectual property
developed under the agreement. As a result, we expect that we will generally be
able to offer assays developed under the agreement to other parties.

The agreement may be terminated by either party upon specified notice,
which may not be given prior to May 31, 2002. In addition, either party may
terminate the agreement prior to that date in the event that the use of assays
developed under the agreement in the Japan SNP initiative is discontinued or
severely curtailed. Either party may also terminate the agreement in the event
of material breach of the agreement by the other party.

NOVARTIS AG

In June 2000, we entered into a collaborative development agreement with
Novartis Pharmaceuticals Corporation to develop a high-density panel of 10,000
SNP assays spaced across the human genome. We will transfer 10,000 Invader
assays comprising 3,840,000 genotype determinations to Novartis solely for its
internal research and development applications worldwide.
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Upon execution of the agreement, Novartis paid a sum creditable against
half of the amounts due upon transfer of the assays. Novartis will also pay a
sum for each genotyping determination. In addition, Novartis granted us a
non-exclusive, fully paid-up worldwide license to improvements to the Invader
assays made in the course of its performance under this agreement, as well as a
right of first refusal to obtain an exclusive worldwide license to all patent
applications claiming discoveries and inventions, made by Novartis in the course
of using the assays, for diagnostic applications. Each party has a right to
terminate the agreement upon specified notice in the event that a breach of the
agreement occurs without cure. If a termination occurs and we are the breaching
party, we must refund payment for assays that have not been transferred.

The term of the agreement is fourteen months, which term may be extended by
mutual agreement. The agreement may be terminated by either party upon 60 days'
prior written notice, but will terminate automatically, 60 days after written
notice of a material breach by a party has been delivered to such breaching
party.

SMITHKLINE BEECHAM BIOLOGICALS

In June 2000, we entered into a New Assay Development and Option Agreement
with SmithKline Beecham Biologicals. Under the agreement, we will develop assays
for genotyping and gene expression analysis for use in SmithKline's internal
research and development of therapeutic vaccine applications.

We divided the SmithKline program into three phases. In the first two
phases, we will develop 7,000 assays for mRNA transcripts; in the third, we will
develop 3,000 assays for DNA sequences. SmithKline will pay a development fee
upon the initiation of each phase of the program. SmithKline will also pay for
assays provided under this agreement, an initial support fee for up to 40 hours
of our technical support during the initial phase, and additional payments for
our technical support if needed during subsequent phases of the program.

Upon completion of the program, SmithKline will evaluate the assays and
will have a 90-day option to enter into a subsequent Development and Marketing
Agreement with us to develop and distribute diagnostic assays based on our
Invader operating system for use with SmithKline's therapeutic vaccines.

The agreement will expire upon the later of expiration of a 90-day
standstill period beginning upon final delivery of the assays to SmithKline or
the end of the 90-day option period, during which the parties will negotiate a
collaborative development agreement, beginning upon notice from SmithKline,
given before the end of the standstill period, that it desires to enter such an
agreement. SmithKline may terminate the agreement at any time and we may
terminate the agreement if SmithKline fails to cure a breach 30 days after we
have provided written notification of such breach.

WARNER-LAMBERT

In August 1999, we entered into a Research Agreement with Warner-Lambert.
Under this agreement we agreed to develop and supply assays for SNP analysis and
mRNA assays for gene expression profiling for Warner-Lambert's research and
development efforts. A total of 181 assays will be developed with a total of
184,000 determinations.

Upon execution of the agreement, Warner-Lambert paid for all of the assays.
We will own all improvements to the Invader assay technology made during the
course of the program, and Warner-Lambert will own all other inventions. In
addition, Warner-Lambert has granted us an exclusive, worldwide, royalty-free
and irrevocable license under the inventions developed in the course of the
development program to use and commercialize diagnostic applications.

The term of the agreement is 180 days from the date of execution. The
development program may be terminated by Warner Lambert upon 15 days' prior
written notice to us.

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STANFORD UNIVERSITY

In September 1999, we entered into a research collaboration agreement with
Stanford University that granted the Stanford Human Genome Center rights and
licenses to use our proprietary technologies for internal research purposes.
Stanford will use these technologies in research and development projects for
the large-scale production of pharmacogenomic assays. The agreement also
provides that we will develop and supply up to 30 assays for the research
projects.

We will jointly own any intellectual property jointly developed with
Stanford under this program. Stanford irrevocably granted us a worldwide,
non-exclusive license to exploit any improvements to the SNP Invader assays. We
also obtained from Stanford an irrevocable, exclusive license to exploit any
discovery, invention, data or materials developed by Stanford from the SNP
Invader assays, for research and diagnostic applications. We will pay Stanford a
royalty on net sales of diagnostic products resulting from this collaboration
sold by us or our sublicensees. We will share revenues from commercial sales of
therapeutic products resulting from this collaboration.

The term of the agreement is 5 years, which term may be extended by mutual
agreement. The agreement may be terminated by Stanford, upon 60 days' prior
written notice to us, but will terminate automatically, 60 days after written
notice of a material breach by a party has been delivered to such breaching
party.

GENOME RESEARCH LIMITED (SANGER CENTRE)

In September 1999, we entered into a collaboration agreement with the
Sanger Centre to utilize our products in the construction of the first SNP map
of a human chromosome and a corresponding SNP test panel. The collaboration
focuses on SNPs located on human chromosome 22, which were identified as part of
the Sanger Centre's chromosome 22 DNA sequence. Under this agreement, we are
obligated to develop and supply assays for approximately 2,000 unique SNPs
positioned along chromosome 22. Initially, the Sanger Centre will use this SNP
test panel to type unamplified genomic DNA from a select group of several
hundred individuals. For each of the 2,000 assays, we will transfer 350 tests to
the Sanger Centre for its Chromosome 22 linkage study, for a total of 700,000
genotypes. As part of a second phase of the program, the Sanger Centre is
entitled to require an additional 3,500,000 genotyping tests.

We have access to all data developed over the course of this linkage study
and the Sanger Centre has assigned to us all rights to any improvements
developed under the agreement. The Sanger Centre pays us for each genotyping
test that we supply.

The agreement will terminate automatically, 30 days after written notice of
a material breach by a party has been delivered to such breaching party.

INTELLECTUAL PROPERTY

We have implemented an aggressive patent strategy designed to provide us
with freedom to operate and facilitate commercialization of our current and
future products. We currently own 16 issued patents and exclusively license 2
issued patents in the United States, and own 1 issued patent in Australia. We
have received notices of allowance for 2 additional United States patent
applications and 1 Canadian application. We have 11 additional United States
patent applications pending. Reflecting our international business strategy, we
have foreign filings in most major industrialized nations corresponding to each
major technology area represented in our United States patent and application
claims.

The issued, allowed and pending patents distinguish us from competitors by
claiming proprietary methods and compositions for analysis of DNA and RNA,
either genomic or amplified, using structure-specific cleavage processes and
compositions. Issued and pending claims are included for assay methods and
compositions, as well as for use of the technology in various read-out formats
such as fluorescence resonance energy transfer, mass spectrometry or in
conjunction with solid supports such as micro latex beads or chips. These
methods also allow multiplexing or analysis of more than one sample in a single

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reaction, allowing the system to be easily amenable to a wide range of automated
and non-automated detection methods.

Generally, United States patents have a term of 17 years from the date of
issue for patents issued from applications filed with the United States Patent
Office prior to June 8, 1995, and 20 years from the application filing date or
earlier claimed priority date in the case of patents issued from applications
filed on or after June 8, 1995. For applications filed after May 29, 2000, the
term is 20 years from the date of filing. A minimum term of 17 years is assured,
provided that there are no applicant-caused delays during prosecution. Patents
in most other countries have a term of 20 years from the date of filing the
patent application. Our issued United States patents will expire between 2012
and 2016. Our success depends to a significant degree on our ability to develop
proprietary products and technologies. We intend to continue to file patent
applications as we develop new products, technologies and patentable
enhancements. Prosecution practices have been implemented to avoid any applicant
delays that could compromise the guaranteed 17-year minimum term. There can be
no guarantee that such procedures will prevent the loss of a potential patent
term. This is particularly true in the short-term as the patent rules
implementing the most recent patent term changes are largely new and untested.

Complex legal and factual determinations and evolving laws make patent
protection uncertain. As a result, we cannot be certain that patents will be
issued from any of our pending patent applications or from applications licensed
to us or that any issued patents will have sufficient breadth to offer
meaningful protection. In addition, our issued patents or patents licensed to us
may be successfully challenged, invalidated, circumvented or unenforceable so
that our patent rights would not create an effective competitive barrier.
Moreover, the laws of some foreign countries may not protect our proprietary
rights to the same extent as do United States patent laws.

In addition to patent protection, we rely on copyright and trade secret
protection of our intellectual property. We attempt to protect our trade secrets
by entering into confidentiality agreements with third parties, employees and
consultants. Our employees and consultants are required to sign agreements to
assign to us their interests in discoveries, inventions, patents and copyrights
arising from their work for us. They are also required to maintain the
confidentiality of our intellectual property, and refrain from unfair
competition with us during their employment and for a period of time after their
employment with us, which includes solicitation of our employees and customers.
We cannot be certain that these agreements will not be breached or invalidated.
In addition, we cannot assure you that third parties will not independently
discover or invent competing technologies or reverse engineer our trade secrets
or other technologies.

In August 2000, we filed a legal action against ID Biomedical Corporation.
The suit seeks a declaration that several patents held by ID Biomedical are
invalid and that our products and processes do not infringe the ID Biomedical
patents. Although we believe that we have a reasonable basis for our claims, we
cannot assure you that this proceeding will be concluded in our favor. In
addition, ID Biomedical may respond by claiming that we have infringed their
patents. If we do not prevail in this proceeding, we may be required to pay
damages. In addition, we could also be enjoined from use of certain process or
from selling some of our products. In this event, we will either have to obtain
a license to the ID Biomedical patents or modify some of our products and
processes to design around the patents. Any such license could be costly or
unavailable on commercially reasonable terms. Designing around the patents could
be time consuming, and we may have to remove some of our products from the
market while the redesign is being completed. Accordingly, if the ID Biomedical
proceeding is determined adversely to us, this adverse determination could harm
our business, financial condition and results of operations.

In addition to the ID Biomedical proceeding, we may become involved in
lawsuits in which third parties file claims asserting that our technologies or
products infringe on their intellectual property. We cannot predict whether
third parties will assert such claims against us or against the licensors of
technologies licensed to us, or whether those claims will harm our business. We
may be forced to defend against such claims, whether they are with or without
any merit or whether they are resolved in favor of or

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against us or our licensors, and may face costly litigation and diversion of
management's attention and resources. As a result of such disputes, we may have
to develop costly non-infringing technologies, or enter into licensing
agreements. These agreements, if necessary, may be unavailable on terms
acceptable to us, or at all, which could seriously harm our business and
financial condition.

COMPETITION

The markets for our technologies and products are very competitive, and we
expect the intensity of competition to increase. Currently, we compete primarily
with other companies that are pursuing technologies and products that provide
alternatives to our technologies and products. Many of our competitors have
greater financial, operational, sales and marketing resources, and more
experience in research and development than we have. Moreover, competitors may
have greater name recognition than we do, and may offer discounts as a
competitive tactic. These competitors and other companies may have developed or
could in the future develop new technologies that compete with our products or
render our products obsolete.

In the research market, we compete with several companies offering
alternative technologies which differ from the Invader operating system. These
companies include, among others: Affymetrix, Inc., Amersham Pharmacia Biotech
Ltd., Hyseq Inc., Genometrix, Luminex Corporation, Nanogen, Inc., Orchid
Biosciences, Inc., PE Corporation, Protogene Laboratories Inc., LJL Biosystems,
Rapigene, Inc., Sequenom, Inc. and Visible Genetics, Inc.

In the clinical market, we also potentially compete with several companies
offering alternative technologies which differ from the Invader operating
system. These companies include, among others: Abbott Corporation, Bayer
Corporation, Becton Dickinson and Company, BioRad Corporation, Chiron, Dade
Behring, Inc. Digene, Hoffman-La Roche Ltd., Gen-Probe, Luminex Corporation,
Orchid Biosciences, Inc. and Sequenom, Inc.

GOVERNMENT REGULATION

We do not anticipate that our products which will be labeled for research
use only, or RUO, or those products used in drug discovery or genomics will be
subject to significant government regulation. The manufacture, labeling,
distribution and marketing of our products labeled as analyte specific reagents,
or ASRs, or labeled for clinical use will be regulated as medical devices by the
FDA and in certain other countries. Although we believe our products currently
marketed pursuant to FDA regulations as ASRs, as well as those products we
intend to market in the future as ASRs, are exempt from the 510(k) premarket
notification and premarket approval requirements, the process of obtaining
approvals and clearances necessary to market our proposed clinical products can
be time consuming, expensive and uncertain. We have not applied for FDA or other
regulatory approvals or clearances with respect to any of our clinical products.

The Food, Drug and Cosmetic Act requires that medical devices introduced to
the United States market, unless exempted by regulation, be the subject of
either a premarket notification clearance, known as a 510(k), or a premarket
approval, known as a PMA. Some of our clinical products may require a PMA,
others may require a 510(k). Other products, like ASRs, may be exempt from
regulatory clearance or approval.

With respect to devices reviewed through the 510(k) process, we may not
market a device until an order is issued by the FDA finding our product to be
substantially equivalent to a legally marketed device known as a predicate
device. A 510(k) submission may involve the presentation of a substantial volume
of data, including clinical data, and may require a substantial review. The FDA
may agree that the product is substantially equivalent to a predicate device and
allow the product to be marketed in the United States. The FDA, however, may
determine that the device is not substantially equivalent and require a PMA, or
require further information, such as additional test data, including data from
clinical studies, before it is able to make a determination regarding
substantial equivalence. By requesting additional information, the FDA can
further delay market introduction of our products.
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If the FDA indicates that a PMA is required for any of our clinical
products, the application will require extensive clinical studies, manufacturing
information and likely review by a panel of experts outside the FDA. Clinical
studies to support either a 510(k) submission or a PMA application would need to
be conducted in accordance with FDA requirements. Failure to comply with FDA
requirements could result in the FDA's refusal to accept the data or the
imposition of regulatory sanctions. There can be no assurance that we will be
able to meet the FDA's requirements or receive any necessary approval or
clearance.

Once granted, a 510(k) clearance or PMA approval may place substantial
restrictions on how our device is marketed or to whom it may be sold. Even in
the case of devices like ASRs, many of which are exempt from 510(k) clearance or
PMA approval requirements, the FDA may impose restrictions on marketing. Our ASR
products may only be sold to clinical laboratories certified under Clinical
Laboratory Improvement Amendments of 1988, or CLIA, to perform high complexity
testing. In addition to requiring approval or clearance for new products, the
FDA may require approval or clearance prior to marketing products that are
modifications of existing products. We cannot assure you that any necessary
510(k) clearance or PMA approval will be granted on a timely basis, or at all.
Delays in receipt of or failure to receive any necessary 510(k) clearance or PMA
approval, or the imposition of stringent restrictions on the labeling and sales
of our products could have a material adverse effect on us. As a medical device
manufacturer, we are also required to register and list our products with the
FDA. In addition, we are required to comply with the FDA's quality systems
regulations, or QSRs which require that our devices be manufactured and records
be maintained in a prescribed manner with respect to manufacturing, testing and
control activities. Further, we are required to comply with FDA requirements for
labeling and promotion. For example, the FDA prohibits cleared or approved
devices from being promoted for uncleared or unapproved uses. In addition, the
medical device reporting regulation requires that we provide information to the
FDA whenever there is evidence to reasonably suggest that one of our devices may
have caused or contributed to a death or serious injury, or that there has
occurred a malfunction that would be likely to cause or contribute to a death or
serious injury if the malfunction were to recur.

Our manufacturing facilities are subject to periodic and unannounced
inspections by the FDA and state agencies for compliance with quality system
regulations. Additionally, the FDA will conduct a preapproval inspection for all
PMA devices and in some cases for 510(k) devices. Although we believe we are in
compliance with the FDA's quality system regulations for ASRs, we have never
been inspected by the FDA and cannot assure you that we will be able to maintain
compliance in the future. If the FDA believes that we are not in compliance with
applicable laws or regulations, it can issue a warning letter, detain or seize
our products, issue a recall notice, enjoin future violations and assess civil
and criminal penalties against us. In addition, approvals or clearances could be
withdrawn in appropriate circumstances. Failure to comply with regulatory
requirements or any adverse regulatory action could have a material adverse
effect on us.

Any customers using our products for clinical use in the United States may
be regulated under CLIA. CLIA is intended to ensure the quality and reliability
of clinical laboratories in the United States by mandating specific standards in
the areas of personnel qualifications, administration, participation in
proficiency testing, patient test management, quality control, quality assurance
and inspections. The regulations promulgated under CLIA establish three levels
of diagnostic tests, namely, waived, moderately complex and highly complex, and
the standards applicable to a clinical laboratory depend on the level of the
tests it performs. We cannot assure you that the CLIA regulations and future
administrative interpretations of CLIA will not have a material adverse impact
on us by limiting the potential market for our products.

Medical device laws and regulations are also in effect in many of the
countries in which we may do business outside the United States. These range
from comprehensive device approval requirements for some or all of our medical
device products, to requests for product data or certifications. The number and
scope of these requirements are increasing. Medical device laws and regulations
are also in effect in some states in which we do business. There can be no
assurance that we will obtain regulatory approvals in such countries or that we
will not incur significant costs in obtaining or maintaining foreign regulatory
approvals.
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In addition, export of certain of our products which have not yet been cleared
or approved for domestic commercial distribution may be subject to FDA export
restrictions.

We are also subject to numerous environmental and safety laws and
regulations, including those governing the use and disposal of hazardous
materials. Any violation of, and the cost of compliance with, these regulations
could have a material adverse effect on our business.

SCIENTIFIC ADVISORY BOARD

We have established a scientific advisory board made up of leading scholars
in the fields of genetic analysis, enzymology, mass spectrometry, microfluidics,
microarrays, proteomics and molecular medicine. Members of our scientific
advisory board consult us on matters relating to the development of our products
described elsewhere in this prospectus. Members of our scientific advisory board
are reimbursed for the reasonable expenses of such consultations or attending
meetings of the scientific advisory board. All of the members hold shares of our
common stock or have received options to purchase shares of our common stock.
The members of the scientific advisory board are as follows:

Lloyd M. Smith, Ph.D., Kellett Professor of Chemistry at the University of
Wisconsin-Madison.

James E. Dahlberg, Ph.D., Frederick Sanger Professor of Biomolecular
Chemistry, University of Wisconsin-Madison.

John Todd, Ph.D., Professor of Medical Genetics, Cambridge Institute for
Medical Research, Cambridge University, Cambridge, UK.

Kenneth Welsh, Ph.D., Director of the Imperial College/Royal Brompton &
Harefield National Health Service Genomics Center and Chairman of the Quality
Control Scheme for Histocompatibility and Immunogenetics for the United Kingdom.

Olke Uhlenbeck, Ph.D., Professor of Chemistry & Biochemistry, University of
Colorado.

Edwin Ullman, Ph.D., former Vice President and Director of Research at
Behring Diagnostics.

EMPLOYEES

As of July 1, 2000, we employed 177 persons, of whom 25 hold doctorate
degrees and 112 hold other advanced degrees. Approximately 39 employees are
engaged in research and development, 22 in business development, sales and
marketing, 98 in operations and manufacturing and 18 in intellectual property,
finance and other administrative functions. Our success will depend in large
part on our ability to attract and retain qualified employees. We face
competition in this regard from other companies, research and academic
institutions, government entities and other organizations. We believe that we
maintain good relations with our employees.

FACILITIES

We currently lease two facilities in Madison, Wisconsin, totaling
approximately 33,500 square feet, for our headquarters and base for marketing,
product support operations, research and development, and manufacturing. We have
an additional 65,000 square feet under construction, expected to be completed in
summer 2001. Our current facilities have 18,500 square feet of manufacturing
space and 20,000 square feet in the addition. The leases on these facilities
continue until November 2002, and we have an option to extend the leases. In
addition, we have leased a manufacturing facility in Sun Prairie, Wisconsin,
with 37,000 square feet dedicated manufacturing space. We have custom-designed
and substantially remodeled the Sun Prairie facility to house what is now the
world's largest oligonucleotide synthesis and SNP assay manufacturing center.
The lease on this facility expires in May 2003, and we have an option to extend
that lease until May 2006. Under the terms of the existing leases, we presently
pay rent of approximately $70,000 per month. However, upon completion of the
addition, our monthly rent for all facilities will increase to approximately
$124,000 per month. We believe that our current and planned facilities will be

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adequate to meet our near-term space requirements. We also believe that suitable
additional space will be available to us, when needed, on commercially
reasonable terms.

LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings, other than
our declaratory judgment action against ID Biomedical which is described above.

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MANAGEMENT

OUR EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors and their ages and positions at June
30, 2000 are:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lance Fors, Ph.D..................... 42 President and Chief Executive Officer, Director
Rocky Ganske......................... 42 Chief Operating Officer
Bruce Neri, Ph.D..................... 53 Senior Vice President of Research and Development
Ian Edvalson......................... 33 Senior Vice President of Business and Corporate
Development, Secretary
Shaun Lonergan....................... 42 Vice President of Corporate Development
Zoltan Komjathy...................... 53 Vice President of Sales and Marketing
Lloyd M. Smith, Ph.D.(1)............. 45 Director
John Neis(1)(2)...................... 45 Director
Preston Tsao(1)(2)................... 54 Director
David A. Thompson.................... 59 Director
Kenneth R. McGuire................... 58 Director
G. Steven Burrill(2)................. 55 Director
Tom Daniel(1)........................ 35 Director
</TABLE>

---------------
(1) Member of the Compensation Committee

(2) Member of the Audit Committee

Lance Fors, Ph.D. has served as our President, Chief Executive Officer and
one of our directors since our inception in 1993. He was also a co-founder of
Third Wave. Dr. Fors received his Ph.D. in molecular biology from the California
Institute of Technology in 1990, and was a post-doctoral fellow, both under the
direction of Dr. Leroy Hood. Dr. Fors has over twenty years of research and
development experience and is the inventor on one patent with an additional four
pending in the area of DNA and RNA sequence analysis.

Rocky E. Ganske has been our Chief Operating Officer since July 2000. Prior
to that he served as our Vice President of Operations since October 1996. From
1987 until joining us, Mr. Ganske held various management positions in quality
engineering, quality assurance and regulatory compliance with Becton Dickinson
and Company. Mr. Ganske received his Associates Applied Science Degree in
Electronics Technologies in 1978 from the Utah Technical College.

Bruce Neri, Ph.D. joined us in July 1996 as Vice President of Research and
Development and was promoted to Senior Vice President of Research and
Development in July 1997. From 1991 until joining us, Dr. Neri was Vice
President of DNA probe development at Becton, Dickinson and Company. Prior to
1991, Dr. Neri directed Research and Development at Gene-Trak Systems, Angenics,
Inc., Instrumentation Laboratories and Abbott Laboratories. Dr. Neri is the
inventor on six United States patents, with an additional six pending in the
area of human in-vitro diagnostic products. Dr. Neri holds a B.A. in chemistry
from Cornell College and a Ph.D. in analytical chemistry from the University of
Arizona.

Ian B. Edvalson joined us as Vice President of Corporate Strategy and
General Counsel in April 1999 and was promoted to Senior Vice President of
Business and Corporate Development in July 2000. He also has been our Secretary
since April 1999. From 1994 until joining us, Mr. Edvalson was a senior
biotechnology licensing attorney at Wilson Sonsini Goodrich & Rosati. Mr.
Edvalson holds a B.S. in microbiology, a B.A. in Korean and a J.D. from the
University of Chicago.

Shaun C. Lonergan has been our Vice President of Corporate Development
since January 1998. From 1995 until joining us, Mr. Lonergan was Senior Director
of Corporate Development and Marketing at PerSeptive Biosystems, Inc. From 1988
until 1995, he held various management roles in product

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development and business development at Boehringer Mannheim, Inc. Mr. Lonergan
received a B.S. and an M.S. in microbiology from the University of Rhode Island.

Zoltan L. Komjathy has been our Vice President of Sales and Marketing since
February 2000. From 1982 until joining us, Mr. Komjathy held various senior
management level sales and marketing positions with Becton, Dickinson and
Company. Mr. Komjathy holds an M.B.A. in marketing from Fairleigh Dickinson
University and a B.S. in chemistry from Fairfield University.

Lloyd M. Smith, Ph.D. has served as one of our directors since our
formation and also serves on our scientific advisory board. Dr. Smith is Kellett
Professor of Chemistry at the University of Wisconsin-Madison. Dr. Smith was the
primary inventor of automated DNA sequence analysis. Dr. Smith regularly
consults and advises us in our research and development efforts. He serves on
the scientific advisory boards of Curagen Corporation and HTS BioSystems, Inc.

John Neis has served as one of our directors since August 1994. Mr. Neis is
Senior Partner of Venture Investors Management LLC, a firm that is the manager
and general partner of a Madison, a Wisconsin-based venture capital management
fund. He also serves on the Advisory Board of the Weinert Applied Ventures
Program at the University of Wisconsin. Mr. Neis received a B.S. in finance from
the University of Utah and an M.S. in business from the University of Wisconsin,
and is a Chartered Financial Analyst.

Preston Tsao has served as one of our directors since November 1995. Since
January 1995, Mr. Tsao has been Managing Director of Corporate Finance at
Sunrise Securities Corp., an investment bank specializing in the life science
and communications industries. From 1993 to 1994, Mr. Tsao was Managing Director
of D. Blech & Company, Inc., a venture capital firm and investment bank
specializing in the biotechnology industry. Mr. Tsao received a B.A. from
Princeton University and a J.D. from Columbia University. Mr. Tsao currently
serves on the Board of Directors of Access Pharmaceuticals, Inc.

David A. Thompson has served as one of our directors since August 1997. Mr.
Thompson retired from Abbott Laboratories in 1995 where he worked for over 30
years. He held several corporate officer positions with Abbott Laboratories
including: Senior Vice President & President Diagnostic Division 1983-1995, Vice
President Human Resources 1982-1983, Vice President Corporate Materials
Management 1981-1982 and Vice President Operations 1974-1981. Mr. Thompson
currently serves on the Board of Directors of LifeCell, a bioengineering
company; Tripath, a diagnostic image company; Hycor BioMedical, Inc., a
diagnostic company; Nabi, a biopharmaceutical company and St. Jude Medical Inc.,
a medical device company.

Kenneth R. McGuire has served as one of our directors since October 1998.
In 1985, Mr. McGuire founded the Burbank Group of Companies, manufacturers of
commercial aircraft noise suppression equipment. He has served as Chief
Executive Officer of the member companies of the Burbank Group since their
respective inceptions. McGuire also serves on the Board of Directors of LXR
Biotechnology. Mr. McGuire holds a B.S. from the United States Naval Academy and
a J.D. from Columbia University.

G. Steven Burrill has served as one of our directors since October 1998.
Mr. Burrill is Chief Executive Officer of Burrill & Company, a life science
focused private merchant bank which he founded in 1994. Prior to founding
Burrill & Company, Mr. Burrill was a partner of Ernst & Young from 1977 through
1993. Mr. Burrill is a director of Transgene, Inc., DepoMed, Inc. and Paradigm
Genetics, Inc. Mr. Burrill holds a B.B.A. from the University of Wisconsin,
Madison.

Tom Daniel has served as one of our directors since October 1999. He is a
partner with Schroder Ventures, a venture capital investment firm, where he has
focused on life science investments in the United States and Europe since 1998.
From 1995 to 1998, Mr. Daniel was an associate with Domain Associates, a venture
capital firm focused on the life sciences. Mr. Daniel holds an M.B.A. from
Harvard University and an M.A. from Oxford University.

48
<PAGE> 51

BOARD OF DIRECTORS

We currently have eight directors. Upon completion of this offering, our
Board of Directors will be divided into three classes with staggered three-year
terms. As a result, only one class of directors will be elected at each annual
meeting of our stockholders, with the other classes continuing for the remainder
of their respective three-year terms.

Our class I directors, whose terms will expire at the 2001 annual meeting
of stockholders, are , , and
. Our class II directors, whose terms will expire at the 2002
annual meeting of stockholders, are , ,
and . Our class III directors, whose terms will
expire at the 2003 annual meeting of stockholders, are ,
, and .

Board Committees

Our Board of Directors currently has an audit committee and a compensation
committee. The audit committee consists of John Neis, G. Steven Burrill and
Preston Tsao. The audit committee makes recommendations to the Board of
Directors regarding the selection of independent auditors, reviews the scope of
audit and other services by our independent auditors, reviews the accounting
principles and auditing practices and procedures to be used for our financial
statements and reviews the results of those audits.

Our compensation committee consists of Lloyd Smith, Tom Daniel, John Neis
and Preston Tsao. The compensation committee makes recommendations to the Board
of Directors regarding our stock plans and the compensation of officers.

Director Compensation

Our non-employee directors are reimbursed for expenses incurred in
connection with attending Board and committee meetings but are not compensated
for their services as Board or committee members. We have in the past granted
non-employee directors options to purchase our common stock pursuant to the
terms of our stock plans, and our Board continues to have the discretion to
grant options to new non-employee directors. Our outside directors will each
annually receive automatic, nondiscretionary grants of options to purchase
shares of our common stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the compensation committee is currently, or has ever
been at any time since our formation, one of our officers or employees. No
member of the compensation committee serves as a member of the Board of
Directors or compensation committee of any entity that has one or more officers
serving as a member of our Board of Directors or compensation committee.

49
<PAGE> 52

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid by us during 1999 to
our Chief Executive Officer and our other executive officers who received salary
compensation of more than $100,000 during 1999:

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
SECURITIES
UNDERLYING
OFFICER NAME PRINCIPAL POSITION(S) SALARY BONUS OPTIONS OTHER
------------ ---------------------- --------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
Dr. Lance Fors........ President and Chief $255,000 $80,000 99,400 N/A
Executive Officer,
Director
Rocky Ganske.......... Chief Operating $131,000 $24,000 35,000 N/A
Officer
Dr. Bruce Neri........ Senior Vice President $154,500 $28,800 11,200 N/A
of Research and
Development
Ian Edvalson(1)....... Senior Vice President $106,250 $20,000 112,000 N/A
of Business and
Corporate
Development,
Secretary
Shaun Lonergan........ Vice President of $130,442 $18,000 16,800 $30,104(2)
Corporate
Development
</TABLE>

---------------
(1) Mr. Edvalson joined us in April 1999.
(2) Consists of relocation expenses paid by us.

STOCK OPTIONS

Option Grants in Most Recent Fiscal Year

The following table sets forth information relating to stock options
granted during 1999 to our Chief Executive Officer and our other executive
officers who received salary compensation of more than $100,000.

In accordance with the rules of the Securities and Exchange Commission,
also shown below is the potential realizable value over the term of the option
(the period from the grant date to the expiration date) based on assumed rates
of stock appreciation of 5% and 10%, compounded annually. These amounts are
mandated by the Securities and Exchange Commission and do not represent our
estimate of future stock price. Actual gains, if any, on stock option exercises
will depend on the future performance of our common stock. We have assumed that
the fair market value of shares of common stock was the same as the assumed
initial public offering price of $12 per share. Solely for purposes of
determining the value of the options at December 31, 1999 and the potential
realizable value over their terms.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR OPTION
SECURITIES OPTIONS GRANTED TERM
UNDERLYING TO EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------
NAME OPTIONS GRANTED 1999 PER SHARE DATE 5% 10%
---- --------------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Lance Fors.......... 99,400 21.0% $2.89 10/05/09 $445,644 $677,358
Rocky Ganske............ 35,000 7.4% $2.89 10/05/09 $156,917 $238,506
Dr. Bruce Neri.......... 11,200 2.4% $2.89 10/05/09 $ 50,213 $ 76,322
Ian Edvalson............ 112,000 23.7% $2.89 10/05/09 $502,134 $763,221
Shaun Lonergan.......... 16,800 3.6% $2.89 10/05/09 $ 75,320 $114,483
</TABLE>

50
<PAGE> 53

Fiscal Year-End Option Values

The following table sets forth information for our Chief Executive Officer
and our other executive officers who received salary compensation of more than
$100,000 in 1999, relating to option exercises in 1999 and the number and value
of securities underlying exercisable and unexercisable options held at December
31, 1999:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dr. Lance Fors............................ 100,450 74,550 $1,068,568 $679,151
Rocky Ganske.............................. 63,350 30,450 $ 679,575 $277,400
Dr. Bruce Neri............................ 142,800 8,400 $1,585,508 $ 76,524
Ian Edvalson.............................. 28,000 84,000 $ 255,080 $765,240
Shaun Lonergan............................ 31,500 24,500 $ 307,293 $229,971
</TABLE>

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

(1) Value of unexercised in-the-money options are based on the assumed initial
public offering of $12 per share. Amounts reflected are based on the value
of $12 per share, minus the per share exercise price, multiplied by the
number of shares underlying the option.

No executive officer exercised stock options during 1999.

STOCK OPTION PLANS

2000 Stock Plan

Our 2000 Stock Plan was adopted by our Board of Directors in July 2000 and
our shareholders in September 2000. This plan provides for the grant of
incentive stock options to our employees and nonstatutory stock options and
stock purchase rights to our employees, directors and consultants. An aggregate
of 5,000,000 shares of common stock have been reserved for issuance under this
plan. No options have been granted under this plan.

The number of shares reserved for issuance under the 2000 Stock Plan will
increase by the following:

- shares which were reserved but unissued under our prior stock plans (see
below);

- any shares returned to the prior stock plans as a result of termination
of options issued under the prior stock plans; and

- beginning in fiscal year 2001, an annual increase equal to the lesser of
3,000,000 shares, 4.5% of the outstanding shares on the date of the
annual increase, or a lesser amount determined by our Board of Directors.

The compensation committee of our Board of Directors administers the stock
plan and determines the terms of options granted, including the exercise price,
the number of shares subject to individual option awards and the vesting period
of options. The exercise price of incentive stock options cannot be lower than
100% of the fair market value of the common stock on the date of grant and, in
the case of incentive stock options granted to holders of more than 10% of our
voting power, not less than 110% of the fair market value. The term of an
incentive stock option cannot exceed 10 years, and the term of an incentive
stock option granted to a holder of more than 10% of our voting power cannot
exceed five years.

Our stock option plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, the successor
corporation will assume or substitute for each option or stock purchase rights.
If the outstanding options or stock purchase rights are not assumed or
substituted for, all outstanding options and stock purchase rights will
terminate at the closing of such merger or sale of assets. Our Board of
Directors may not, without the adversely affected optionee's prior written
consent, amend, modify or terminate the stock plan if the amendment,
modification or termination would impair

51
<PAGE> 54

the rights of optionees. Our stock plan will terminate in July 2010 unless
terminated earlier by the Board of Directors.

Prior Stock Plans

Our prior stock plans consist of the following plans:

- the 1995 Incentive Stock Option Plan that authorizes the grant of options
to purchase shares of our common stock to employees;

- the 1997 Incentive Stock Option Plan that authorizes the grant of options
to purchase shares of our common stock to employees;

- the 1997 Nonqualified Stock Option Plan that authorizes the grant of
options to purchase shares of our common stock to employees, directors
and advisors;

- the 1998 Incentive Stock Option Plan that authorizes the grant of options
to purchase shares of our common stock to employees;

- the 1999 Incentive Stock Option Plan that authorizes the grant of options
to purchase shares of our common stock to employees; and

- the 1999 Nonqualified Stock Option Plan that authorizes the grant of
options to purchase shares of our common stock to employees, directors
and advisors.

We refer to these plans as our prior plans. As of June 30, 2000, of the
2,937,200 shares of common stock reserved for issuance under the prior plans,
680,400 shares have been issued upon the exercise of options, 1,913,800 shares
are subject to outstanding options and the remaining 343,000 shares are
available for future grant.

2000 EMPLOYEE STOCK PURCHASE PLAN

Our Board of Directors adopted our 2000 Employee Stock Purchase Plan in
July 2000. This plan provides our employees with an opportunity to purchase our
common stock through accumulated payroll deductions.

A total of 1,000,000 shares of common stock have been reserved for issuance
under the purchase plan. In addition, the purchase plan provides for annual
increases in the number of shares available for issuance under the purchase plan
on the first day of each fiscal year, beginning with fiscal 2001, equal to the
lesser of 1% of the outstanding shares of common stock on the first day of the
fiscal year, 500,000 shares or such lesser amount as may be determined by the
board.

The Board of Directors or a committee appointed by the Board administers
the purchase plan. The board or its committee has full and exclusive authority
to interpret the terms of the purchase plan and determine eligibility.

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, an employee may not be granted an
option to purchase stock under the purchase plan if such an employee:

- immediately after a grant owns stock possessing five percent or more of
the total combined voting power or value of all classes of our capital
stock, or

- whose rights to purchase stock under all employee stock purchase plans
accrue at a rate which exceeds $25,000 worth of stock for each calendar
year.

The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended, contains consecutive, overlapping
24-month offering periods. Each offering period includes four six-month purchase
periods. The offering periods generally start on the first trading day on or
after May 1 and November 1 of each year, except for the first such offering
period which will commence

52
<PAGE> 55

on the first trading day on or after the effective date of this offering and
will end on the last trading day on or before April 30, 2002.

The purchase plan permits participants to purchase common stock through
payroll deductions of up to 10% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings
and commissions but excludes payments for overtime, shift premium payments,
incentive compensation, incentive payments, bonuses and other compensation. The
maximum number of shares a participant may purchase during a single offering
period is shares.

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 lower of the fair market value
of the common stock at the beginning or end of the offering period. If the fair
market value at the end of a purchase period is less than the fair market value
at the beginning of the offering period, participants will withdraw from the
current offering period following the exercise and will automatically re-enroll
in a new offering period. Participants may end their participation at any time
during an offering period, and they will be paid their payroll deductions to
date. Participation ends automatically upon termination of employment with us.

A participant may not transfer rights granted under the purchase plan other
than by will, the laws of descent and distribution or as otherwise provided
under the purchase plan.

The purchase plan provides that, if we merge with or into another
corporation or a sale of substantially all of our assets, a successor
corporation may assume or substitute for each outstanding purchase right. If the
successor corporation refuses to assume or substitute for the outstanding
purchase rights, the offering period then in progress will be shortened, and a
new exercise date will be set.

The purchase plan will terminate in July 2010. However, the board of
directors has the authority to amend or terminate the purchase plan, except
that, subject to some exceptions described in the purchase plan, no such action
may adversely affect any outstanding rights to purchase stock under the purchase
plan.

401(k) PLAN

We have adopted a plan that is intended to qualify under Section 401(k) of
the Internal Revenue Code of 1986, as amended, so that contributions to this
plan by employees, and investment earnings on these contributions, are not
taxable to employees until withdrawn. Pursuant to this plan, employees may elect
to reduce their current compensation by up to the lesser of 15% of their annual
compensation or the statutorily prescribed annual limit ($10,500 for the year
2000) and to have the amount of such reduction contributed to this plan. We do
not currently make additional matching contributions on behalf of plan
participants.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION

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 liability for the following:

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

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

- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

- transactions from which the director derived an improper personal
benefit.

This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

53
<PAGE> 56

Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit indemnification.

We have entered into agreements to indemnify our directors, executive
officers and controller, in addition to indemnification provided for in our
bylaws. These agreements, among other things, provide for indemnification of our
directors and executive 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 our rights, arising out
of such person's services as a director or executive officer to us, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.

54
<PAGE> 57

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since January 1, 1997 we have not been a party to any transaction or series
of similar transactions in which the amount involved exceeded or will exceed
$60,000 and in which any director, executive officer or holder of more than 5%
of our common stock had or will have an interest, other than as described under
"Management" and the transactions described below.

In July and October 1998, we sold shares of our series D preferred stock
and our common stock to investors, including holders of more than 5% of our
common stock and directors, officers and entities affiliated with them, at a
price of $2.89 per share. In July 1999, we sold shares of our series E preferred
stock to investors, including holders of more than 5% of our common stock and
directors, officers and related parties, at a price of $2.89 per share. In July
2000, we sold shares of our series F preferred stock to investors, including
holders of more than 5% of our common stock and directors, officers and related
parties, at a price of $7.52 per share.

The number of shares of common stock and each series of preferred stock
purchased by our holders of more than 5% of our common stock and directors,
officers and related parties in these transactions are set forth in the table
below:

<TABLE>
<CAPTION>
CLASS/SERIES OF STOCK
----------------------------------------------
STOCKHOLDER COMMON STOCK SERIES D SERIES E SERIES F
----------- ------------ -------- --------- --------
<S> <C> <C> <C> <C>
HOLDERS OF MORE THAN 5%:
ENTITIES AFFILIATED WITH JOHN NEIS(1)
Venture Investors of Wisconsin................. -- -- -- --
Venture Investors Early Stage Fund II LP....... -- 345,800 173,600 --
Venture Investors Early Stage Fund III LP...... -- -- -- 198,800
ENTITIES AFFILIATED WITH KENNETH MCGUIRE......... 2,199,400 -- -- --
ENTITIES AFFILIATED WITH TOM DANIEL(2)
Schroder Ventures International Life Sciences
Fund II LPI................................. -- -- 1,638,000 243,600
Schroder Ventures International Life Sciences
Fund II LPII................................ -- -- 438,200 103,600
Schroder Ventures International Life Sciences
Fund II LP III.............................. -- -- -- 28,000
Schroder Ventures Co-Investment Scheme......... -- -- -- 7,000
Schroder Ventures Strategic Partners LP........ -- -- -- 4,200
Schroder Ventures Investments Limited.......... -- -- -- 29,400
OTHER 5% HOLDERS
The Wellcome Trust Limited, as trustee of The
Wellcome Trust.............................. -- -- 1,730,400 368,200
</TABLE>

The shares of series A, series B, series C, series D, series E and series F
preferred stock will automatically convert into shares of common stock upon the
completion of this offering. The holders of shares of common stock issued on
conversion of preferred stock are entitled to registration rights. Kenneth
McGuire is also entitled to registration rights with respect to his shares of
common stock.

In October 1998, we and a venture capital fund managed by G. Steven
Burrill, one of our directors, formed a new company known as Third Wave Agbio,
Inc. or Agbio. In this transaction, we received 1,000 shares of common stock of
Agbio, representing 50% of the outstanding shares of Agbio. At the time of
formation of Agbio, we granted Agbio an exclusive worldwide license in the field
of agriculture under our patents and proprietary rights. In December 1999, we
entered into an Operation, Development and Supply Agreement with Agbio under
which we are developing agricultural applications of our Invader operating
55
<PAGE> 58

system for Agbio for the field of agriculture. Agbio will have exclusive rights
to commercialize products developed under this agreement for the field of
agriculture. Under this agreement, we also provide administrative and management
services to Agbio. During 1998 and 1999, we billed Agbio $108,000 and $552,000,
respectively, for research and development activities and administrative and
managerial services which we believe to be the fair market value of these
services.

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<PAGE> 59

PRINCIPAL STOCKHOLDERS

The following table shows information known to us with respect to the
beneficial ownership of our common stock on July 31, 2000 and as adjusted to
reflect the sale of the shares of common stock offered under this prospectus, by

- each person (or group of affiliated persons) who owns beneficially 5% or
more of our common stock;

- each of our directors;

- each of our executive officers listed in the "summary compensation" table
above; and

- all of our directors and executive officers as a group.

Except as indicated in the footnotes to this table and subject to community
property laws where applicable, the persons named in the table have sole voting
and investment power with respect to all shares of our common stock shown as
beneficially owned by them. Beneficial ownership and percentage ownership are
determined in accordance with the rules of the Securities and Exchange
Commission. The table below includes the number of shares underlying options and
warrants which are exercisable within 60 days from the date of this offering. In
addition, the table below assumes the conversion of all shares of our preferred
stock into shares of our common stock on the completion of this offering, and is
therefore based on 34,004,600 shares of our common stock outstanding at July 31
and 42,504,600 shares outstanding immediately after this offering. Addresses for
those individuals for which an address is not otherwise indicated is: c/o Third
Wave Technologies, Inc., 502 South Rosa Road, Madison, Wisconsin 53719.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------------
PERCENT BEFORE PERCENT AFTER
BENEFICIAL OWNER TOTAL NUMBER OFFERING OFFERING
---------------- ------------ -------------- --------------
<S> <C> <C> <C>
5% STOCKHOLDERS:
Entities affiliated with John Neis(1)............... 2,983,400 8.77% 7.02%
Entities affiliated with Tom Daniel(2).............. 2,492,000 7.33 5.86
The Wellcome Trust Limited, as trustee of the
Wellcome Trust(3)................................. 2,098,600 6.17 4.94
James Dahlberg, Ph.D.(4)............................ 2,303,000 6.77 5.42
EXECUTIVE OFFICERS AND DIRECTORS:
Lance Fors, Ph.D.(5)................................ 2,456,300 6.77 5.42
Ian Edvalson(6)..................................... 56,000 -- --
Lloyd M Smith Ph.D.(7).............................. 2,303,000 6.77 5.42
John Neis........................................... 2,983,400 8.77 7.02
Preston Tsao(8)..................................... 117,600 0.35 0.28
David A. Thompson(9)................................ 46,200 -- --
Kenneth R. McGuire.................................. 7,016,800 20.63 16.51
G. Steven Burrill(10)............................... 1,170,400 3.44 2.75
Tom Daniel(2)....................................... 2,492,000 7.33 5.86
Rocky Ganske(11).................................... 74,200 -- --
Bruce Neri Ph.D.(12)................................ 163,800 0.05 0.04
Shaun Lonergan(13).................................. 46,200 0.02 0.02
Zoltan Komjathy(14)................................. 8,750 -- --
All directors and executive officers as a group (13
persons).......................................... 18,934,650 54.15% 43.32%
</TABLE>

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

(1) Consists of 2,265,200 shares held by Venture Investors of Wisconsin, Inc.
and 519,400 shares held by Venture Investors Early Stage II Limited
Partnership and 198,800 shares held by Venture Investors Early Stage Fund
III Limited Partnership. The address of Venture Investors of Wisconsin, Inc.
is 505 South Rosa Road, Madison, Wisconsin 53719.

(Footnotes follow on next page)

57
<PAGE> 60

(2) Consists of 1,881,600 shares owned by Schroder Ventures International Life
Sciences Fund II LPI, 541,800 shares held by Schroder Ventures
International Life Sciences Fund II LPII, 28,000 shares held by Schroder
Ventures International Life Sciences Fund II LPIII, 7,000 shares held by
Schroder Ventures Co-Investment Scheme, 4,200 shares held by Schroder
Ventures Strategic Partners LP, and 29,400 shares held by Schroder Ventures
Investments Limited. Mr. Daniel is general partner. The address of entities
affiliated with Tom Daniel is 20 Southhampton Street, London UK WC2E 7QG.

(3) The individual trustees of the Wellcome Trust Limited, who have ultimate
voting and investment power over the shares of common stock owned by
Wellcome Trust, are: .

(4) Includes 252,000 shares of common stock held in a voting trust for the
benefit of Dr. Dahlberg's family members. Dr. Dahlberg is the sole trustee
of the voting trust. Also includes 168,000 shares of common stock in
irrevocable trusts for his daughters, Caroline Lund Dahlberg and Maria Lund
Dahlberg. Dr. Dahlberg is a special trustee of both irrevocable trusts for
the sole purpose of voting the shares.

(5) Includes 2,303,000 shares of common stock held in a voting trust for the
benefit of Dr. Fors' family members. Dr. Fors and his wife, Charlotte H.
Selover, are co-trustees of this voting trust. Includes options to purchase
125,300 shares, exercisable within 60 days from the date of this offering.
Also, includes options to purchase 28,000 shares by Dr. Fors's wife,
Charlotte H. Selover.

(6) Represents options to purchase 56,000 shares, exercisable within 60 days
from the date of this offering.

(7) Includes 285,600 shares of common stock held in a voting trust for the
benefit of Dr. Smith's family members. Dr. Smith is the sole trustee of the
said voting trust.

(8) Mr. Tsao's address is 135 East 57th, New York, NY 10022.

(9) Mr. Thompson's address is 40 South Wynstone Drive, North Barrington, IL
60010. Represents options to purchase 46,200 shares, exercisable within 60
days from the date of this offering.

(10) Consists of 1,170,400 shares held by the Burrill Agbio Capital Fund, LP.
Mr. Burrill is general partner of Burrill Agbio Capital Fund, LP and
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in these shares.

(11) Represents options to purchase 74,200 shares, exercisable within 60 days
from the date of this offering.

(12) Represents options to purchase 145,600 shares, exercisable within 60 days
from the date of this offering.

(13) Represents options to purchase 37,800 shares, exercisable within 60 days
from the date of this offering.

(14) Represents options to purchase 8,750 shares, exercisable within 60 days
from the date of this offering.

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<PAGE> 61

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, par value $0.001 per share and 10,000,000
shares of preferred stock, par value $0.001 per share.

The following is a summary of some of the provisions of the common stock
and preferred stock provisions of our amended and restated certificate of
incorporation.

COMMON STOCK

From time to time, our Board of Directors may establish the rights and
preferences of the preferred stock. At July 31, 17,540,600 shares of common
stock were issued and outstanding and held by approximately 80 stockholders, and
options to purchase 1,957,200 shares of common stock were issued and outstanding
and held by approximately 160 option holders.

Each holder of common stock is entitled to one vote for each share of
common stock on each matter submitted to a vote of stockholders, including the
election of directors except as otherwise required by law. Holders of common
stock are not entitled to cumulative voting. Shares of common stock are not
convertible into any other of our securities.

All holders of common stock are entitled to receive dividends or other
distributions, if any, as may be declared from time to time by the Board of
Directors at its discretion out of funds legally available therefor, subject to
the prior rights of any preferred stock then outstanding, and to share equally,
share for share, in such dividends or other distributions as if all shares of
common stock were a single class. Dividends or other distributions declared or
paid in shares of common stock are payable to all of the holders of common stock
ratably according to the number of shares held by them, in shares of common
stock. See "Dividend Policy."

In the event of our liquidation, dissolution or winding up, the holders of
our common stock are entitled to share in our assets remaining after the payment
of liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights.

There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and nonassessable.
The rights, preferences and privileges of the holders of common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock that we may designate in the future.

PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the Board of Directors determines the
specific rights of the holders of this preferred stock. However, the effects
might include, among other things:

- restricting dividends on the common stock;

- diluting the voting power of the common stock;

- impairing the liquidation rights of the common stock; or

- delaying or preventing a change in control of us without further action
by our stockholders.

Upon the completion of this offering, no shares of preferred stock will be
outstanding and we have no present plans to issue any shares of preferred stock.

59
<PAGE> 62

REGISTRATION RIGHTS

Pursuant to a registration and information rights agreement entered into
between us and holders of 16,464,000 shares of common stock issuable upon
conversion of our series A, series B, series C, series D, series E and series F
preferred stock, we are obligated, under limited circumstances and subject to
specified conditions and limitations, to use our best efforts to register these
shares.

We must use our best efforts to register shares:

- if we receive written notice from holders of at least a majority of these
registrable shares requesting that we effect a registration with respect
to at least 20% of the registrable shares then held by the holders
requesting registration (or a lesser percentage where the reasonably
anticipated price to the public of the sale of the registrable shares
will exceed $10,000,000);

- if we decide to register our own securities (except in connection with
this offering); or

- if we receive written notice from any holder or holders of the
registrable shares requesting that we effect a registration on Form S-3
(a shortened form of registration statement) with respect to shares of
the registrable shares, the reasonably anticipated price to the public of
which exceeds $1,000,000 and we are then eligible to use Form S-3 (which,
at the earliest will occur twelve calendar months after the completion of
this offering).

However, in addition to certain other conditions and limitations, if
requested to register any of these shares, we can delay registration not more
than once in any 12-month period and for not more than 90 days.

These registration rights terminate with respect to each registrable share
upon the first to occur of when the holder can transfer his or her registrable
shares pursuant to Rule 144 or five years after the completion of this offering.
In addition, the holders of these registration rights have entered into lock-up
agreements and have waived their registration rights until 180 days following
this offering.

ANTITAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CHARTER AND BYLAWS

Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:

- acquisition of our company by means of a tender offer;

- acquisition of our company by means of a proxy contest or otherwise; or

- removal of our incumbent officers and directors.

These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
us to negotiate first with our board. We believe that the benefits of increased
protection of our board's potential ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure us outweighs the
disadvantages of discouraging these proposals because negotiation of any
proposals of this type could result in an improvement of their terms.

Election and Removal of Directors. Our Board of Directors is divided into
three classes. The directors in each class will serve for a three-year term,
with our stockholders electing one class each year. See "Management -- Board of
Directors." This system of electing and removing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of us, because it generally makes it more difficult for
stockholders to replace a majority of the directors.

Stockholder Meetings. Under our bylaws, only the Board of Directors, the
chairman of the board or the President may call special meetings of
stockholders.

Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures for stockholder
proposals and for the nomination of candidates for

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<PAGE> 63

election as directors, other than nominations made by or at the direction of the
Board of Directors or a committee of the Board.

Delaware Antitakeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an antitakeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a business combination
with an interested stockholder for a period of three years following the date
the person became an interested stockholder, unless the business combination or
the transaction in which the person became an interested stockholder is approved
in the manner specified in Section 203. Generally, a business combination
includes a merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an interested
stockholder is a person who, together with affiliates and associates, owns or
within three years prior to the determination of interested stockholder status
did own 15% or more of a corporation's voting stock. The existence of this
provision may have an antitakeover effect by discouraging takeover attempts not
approved in advance by our Board of Directors, that might result in a premium
over the market price for the shares of common stock held by stockholders.

Elimination of Stockholder Action by Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.

No Cumulative Voting. Our certificate of incorporation and bylaws do not
provide for cumulative voting in the election of directors.

Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the Board of Directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of us. These and other provisions may have the effect
of deferring hostile takeovers or delaying changes in control or in our
management.

Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is EquiServe
Shareholder Services, 150 Royall Street, Canton, MA 02021.

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<PAGE> 64

SHARES ELIGIBLE FOR FUTURE SALE

If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could decline.
These sales also might make it more difficult for us to sell equity or equity-
related securities in the future and at a time and price that we deem
appropriate.

Based upon the number of shares outstanding at July 31, 2000, upon
completion of this offering, we will have outstanding an aggregate of 42,504,600
shares of our common stock. Of these shares, all of the 8,500,000 shares sold in
this offering will be freely tradeable without restriction or further
registration under the Securities Act, unless these shares are purchased by
"affiliates" as that term is defined in Rule 144 under the Securities Act. This
leaves up to 34,004,600 shares eligible for sale in the public market as
follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
---------------- ----
<C> <S>
21,000 After the date of this prospectus.
Commencing on the 91st day after the date of this
-- prospectus, subject, in some cases, to volume limitations.
At various times commencing on the 181st day after the date
33,983,600 of this prospectus.
</TABLE>

LOCK-UP AGREEMENTS

All of our officers and directors and substantially all the holders of our
common stock have signed lock-up agreements under which they agreed not to
transfer or dispose of, directly or indirectly, any shares of our common stock
or any securities convertible into or exercisable or exchangeable for shares of
our common stock, for a period of 180 days after the date of this prospectus.
Transfers or dispositions can be made sooner with the prior written consent of
Lehman Brothers Inc.

RULE 144

In general, under Rule 144 as currently in effect, a person, other than an
affiliate, who has beneficially owned shares of our common stock for at least
one year would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

- 1% of the number of shares of our common stock then outstanding, which
will equal approximately 425,000 shares immediately after the completion
of this offering; or

- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing with
the Securities and Exchange Commission of a notice on Form 144 with
respect to that sale.

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

RULE 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our
affiliates 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,
generally including the holding period of any prior owner other than an
affiliate, is entitled to sell those shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, Rule 144(k) shares may be sold
immediately upon the completion of this offering. However, our transfer agent
may require an opinion of counsel that a proposed sale of shares comes within
the terms of Rule 144 under the Securities Act prior to effecting a transfer of
the shares. Upon completion of this offering, holders of shares will
be eligible to freely sell their shares under Rule 144(k).

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<PAGE> 65

RULE 701

In general, subject to the volume limitations under Rule 701 of the
Securities Act as currently in effect, any of our employees, consultants or
advisors who purchased shares of our common stock from us in connection with a
compensatory stock or option plan or other written agreement are eligible to
resell those shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with some of the restrictions,
including the holding period, contained in Rule 144.

STOCK OPTIONS

We intend to file a registration statement on Form S-8 under the Securities
Act shortly after the completion of this offering covering 7,937,200 shares of
our common stock reserved for issuance under our stock option plan and
approximately shares of our common stock issuable upon exercise of
options granted outside of our stock option plan. As of July 31, 2000, options
to purchase 1,957,200 shares of our common stock were issued and outstanding of
which 1,300,600 shares are currently exercisable. Shares of our common stock
registered under the S-8 registration statement will, subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates, be
available for sale immediately in the open market, subject to the expiration of
any applicable lock-up agreements.

REGISTRATION RIGHTS

After this offering, the holders of 16,464,000 shares of our common stock,
or their transferees, will be entitled to have their shares included for sale in
subsequent registered offerings of our common stock. Furthermore, the holders of
up to the following number of shares of common stock will be able to require us
to conduct a registered public offering of their shares at the times indicated
below:

- shares of common stock at any time following the date that is
one year after the closing of this offering;

- shares of common stock at any time after ;
and

- shares of common stock at any time after .

If these holders exercise their registration rights, their shares of our common
stock would become freely tradeable without restriction under the Securities
Act. These sales could have a adverse effect on the market price of our common
stock.

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<PAGE> 66

UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following discussion summarizes the material United States federal
income and estate tax consequences generally applicable to the ownership and
disposition of our common stock by a non-U.S. holder of common stock. A non-U.S.
holder is a holder of common stock that is not, for United States federal income
tax purposes, any of the following:

- a citizen or resident of the United States.

- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any of its political subdivisions;

- an estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or

- a trust (a) whose administration is subject to the primary supervision of
a U.S. court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust, or (b) which
was in existence on August 20, 1996 and has properly elected to continue
to be received as a United States person.

This discussion is based on provisions of the United States Internal
Revenue Code of 1986, as amended, or the "Code," Treasury regulations under the
Code, published rulings, administrative pronouncements and judicial decisions,
all of which are subject to change or different interpretation on a possibly
retroactive basis. In addition, special rules may apply to certain non-U.S.
holders, such as "controlled foreign corporations," "passive foreign investment
companies," "foreign personal holding companies" or certain U.S. expatriates.
This discussion does not address the treatment of any non-U.S. holders under the
laws of any state, local or foreign taxing jurisdiction. This discussion is
limited to non-U.S. holders who hold our common stock as a capital asset. EACH
PROSPECTIVE HOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE
UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES OF ACQUIRING, HOLDING
AND DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.

DIVIDENDS

Dividends paid to a non-U.S. holder of common stock generally will be
subject to United States federal withholding tax at a 30% rate or a lower rate
as may be specified by an applicable income tax treaty. Provided that the
non-U.S. holder complies with applicable certification and disclosure
requirements, there will be no withholding tax with respect to dividends that
are effectively connected with the non-U.S. holder's conduct of a trade or
business within the United States (and if an income tax treaty applies, are
attributable to a United States permanent establishment of the non-U.S. holder).
Instead, the "effectively connected" dividends will be subject to net U.S.
federal income tax in the same manner as dividends paid to United States
citizens, resident aliens and domestic United States corporations. Any
effectively connected dividends received by a corporate non-U.S. holder may
also, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or a lower rate as may be specified by an applicable income
tax treaty, on the repatriation from the United States of its "effectively
connected earnings and profits," subject to adjustments.

Under currently effective United States Treasury regulations, dividends
paid prior to January 1, 2000 to an address in a foreign country are presumed to
be paid to a resident of that country, unless the payor has knowledge to the
contrary, for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. Under recently finalized
United States Treasury regulations that will generally be effective for
distributions after December 31, 2000, or the "Final Withholding Regulations,"
however, a non-U.S. holder of common stock who wishes to claim the benefit of an
applicable treaty rate would be required to satisfy applicable certification
requirements. In addition, under the Final Withholding Regulations, in the case
of common stock held by a foreign partnership, (1) the certification
requirements would generally be applied to the partners of the partnership and
(2) the partnership would be required to provide certain information, including
a United States taxpayer

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identification number. The Final Withholding Regulations provide look-through
rules for tiered partnerships.

A non-U.S. holder of common stock that is eligible for a reduced rate of
United States withholding tax under a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the United States Internal Revenue Service.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to United States federal
income tax for gain recognized on a sale or other disposition of common stock
unless one of the following conditions is satisfied:

- the gain is effectively connected with a trade or business conducted by
the non-U.S. holder in the United States (and, if an income tax treaty
applies, is attributable to a permanent establishment maintained in the
United States by the non-U.S. holder). The non-U.S. holder will, unless
an applicable treaty provides otherwise, be taxed on its net gain derived
from the sale or other disposition under regular graduated U.S. federal
income tax rates. Effectively connected gains realized by a corporate
non-U.S. holder may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or a lower rate as may be
specified by an applicable income tax treaty;

- in the case of a non-U.S. holder who is an individual and holds the
common stock as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year of the sale or other
disposition and certain other conditions exist;

- we are or have been a "United States real property holding corporation"
for U.S. federal income tax purposes within the shorter of the five-year
period preceding the disposition or the non-U.S. holder's holding period.
We believe we are not currently, and do not anticipate becoming, a
"United States real property holding corporation" for U.S. federal income
tax purposes. Further, even if we were to become a "United States real
property holding corporation" for U.S. federal income tax purposes, any
gain recognized by a non-U.S. holder still would not be subject to U.S.
tax if the shares were considered to be "regularly traded on an
established securities market," and the non-U.S. holder did not hold,
directly or indirectly at any time during the shorter of the periods
described above, more than 5% of the common stock; or

- the non-U.S. holder is subject to tax under certain provisions of the
Code applicable to U.S. expatriates.

FEDERAL ESTATE TAX CONSEQUENCES

Common stock held by an individual non-U.S. holder at the time of death
will be included in the holder's gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax, unless an applicable
estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING

We must report annually to the United States Internal Revenue Service and
to each non-U.S. holder the amount of dividends paid to, and the tax withheld
with respect to, any holder, regardless of whether any tax was actually
withheld. This information may also be made available to the tax authorities in
the non-U.S. holder's country of residence.

Under current law, United States information reporting requirements, other
than reporting of dividend payments for purposes of the withholding tax noted
above, and backup withholding tax generally will not apply to dividends paid to
non-U.S. holders that are either subject to the 30% withholding discussed above
or that are not subject to withholding because an applicable tax treaty reduces
or eliminates the withholding. Otherwise, backup withholding of United States
federal income tax at a rate of 31% may

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apply to dividends paid with respect to common stock to holders that are not
"exempt recipients" and that fail to provide certain information including the
holder's United States taxpayer identification number.

Under current law, generally, unless the payor of dividends has actual
knowledge that the payee is a United States person, the payor may treat dividend
payments to a payee with a foreign address as exempt from information reporting
and backup withholding. However, under the Final Withholding Regulations,
dividend payments made after December 31, 2000 generally will be subject to
information reporting and backup withholding unless applicable certification
requirements are satisfied. See the discussion above with respect to the rules
applicable to foreign partnerships under the Final Withholding Regulations.

In general, United States information reporting and backup withholding
requirements also will not apply to the payment of disposition proceeds where
the transaction is effected through an office outside the United States of a
non-United States broker. However, United States information reporting, but not
backup withholding, requirements will apply to a payment made outside the United
States of the proceeds of a sale of common stock through an office outside the
United States of a broker that is (i) a United States person, (ii) a foreign
person that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, (iii) a "controlled foreign
corporation" for United States federal income tax purposes, or, (iv) in the case
of payments made after December 31, 2000, a foreign partnership with certain
connections to the United States, unless the broker has documentary evidence in
its records that the holder or beneficial owner is a non-United States person
and that certain conditions are met, or the holder or beneficial owner otherwise
establishes an exemption. Payment of the proceeds of the sale of common stock to
or through a United States office of a broker is currently subject to both
United States backup withholding and information reporting unless the holder
certifies its non-United States status under penalties of perjury or otherwise
establishes an exemption.

Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against a
non-U.S. holder's federal income tax liability, if any, provided that the
required information is furnished to the IRS.

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UNDERWRITING

Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each of the underwriters
named below for whom Lehman Brothers Inc., CIBC World Markets Corp., Robert W.
Baird & Co. Incorporated and Fidelity Capital Markets, a division of National
Financial Services LLC, are acting as representatives, has agreed to purchase
from us, on a firm commitment basis, subject only to the conditions contained in
the underwriting agreement, the respective number of shares of common stock
shown opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc.........................................
CIBC World Markets Corp.....................................
Robert W. Baird & Co. Incorporated..........................
Fidelity Capital Markets, a division of National Financial
Services LLC..............................................

-------

Total.......................................................
=======
</TABLE>

The undersigned agreement provides that the underwriters' obligations to
purchase our common stock depend on the satisfaction of the conditions contained
in the underwriting agreement, and that if any shares of common stock are
purchased by the underwriters under the underwriting agreement, then all the
shares of common stock which the underwriters have agreed to purchase under the
underwriting agreement must be purchased. The conditions contained in the
underwriting agreement include that:

- the representations and warranties made by us to the underwriters are
true;

- there is no material change in the financial markets; and

- we deliver customary closing documents to the underwriters.

COMMISSIONS AND EXPENSES

The representatives had advised us that the underwriters propose to offer
the common stock directly to the public at the public offering price presented
on the cover page of this prospectus, and to selected dealers, who may include
the underwriters, at the public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the selected dealers
may reallow, a concession not in excess of $ per share to brokers and
dealers. After the offering, the underwriters may change the offering price and
other selling terms.

The following table summarizes the underwriting discounts and commissions
we will pay. The underwriting discounts and commissions are equal to the public
offer price per share, less the amount paid to us per share. The underwriting
discounts and commissions will equal 7% of the public offering price.

<TABLE>
<CAPTION>
TOTAL WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions to be paid by
us..................................................... $ $ $
</TABLE>

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<PAGE> 70

We estimate that the total expenses of the offering, including
registration, filing and listing fees, printing fees and legal and accounting
expenses, but excluding underwriting discounts and commissions, will be
approximately $1.50 million.

OVER-ALLOTMENT OPTION

We have granted to the underwriters an option to purchase up to an
aggregate of 1,275,000 shares of common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. To the extent the underwriters exercise this
option, each underwriter will be committed, so long as the conditions of the
underwriting agreement are satisfied, to purchase a number of additional shares
proportionate to that underwriter's initial commitment as indicated in the
preceding table.

LOCK-UP AGREEMENTS

We have agreed that, without the prior written consent of Lehman Brothers
Inc., we will not, directly or indirectly, offer, sell or dispose of any common
stock or any securities which may be converted into or exchanged for any common
stock for a period of 180 days from the date of this prospectus. We and all of
our executive officers and directors, and shareholders have agreed under lock-up
agreements that, without the prior written consent of Lehman Brothers Inc., they
will not, directly or indirectly, offer, sell or otherwise dispose of any common
stock or any securities which may be converted into or exchanged or exercised
for any common stock for a period of 180 days from the date of this prospectus.

OFFERING PRICE DETERMINATION

Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of our
common stock, the representatives will consider

- prevailing market conditions;

- our historical performance and capital structure;

- estimates of our business potential and earnings prospectus;

- an overall assessment of our management; and

- the consideration of these factors in relation to market valuation of
companies in related businesses.

INDEMNIFICATION

We have agreed to indemnify the underwriters against liabilities relating
to the offering, including liabilities under the Securities Act and liabilities
arising from breaches of the representations and warranties contained in the
underwriting agreement, and to contribute to payments that the underwriters may
be required to make for these liabilities.

STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

The underwriters may purchase and sell shares of common stock in the open
market. These transactions may include short sales, stabilizing transactions and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from the
issuer in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment

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<PAGE> 71

option. "Naked" short sales are any sales in excess of such option. The
underwriters must close out any naked short position by purchasing shares in the
open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the common stock in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
various bids for or purchases of common stock made by the underwriters in the
open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

Similar to other purchase transactions, the underwriters' purchases to
cover the syndicate short sales may have the effect of raising or maintaining
the market price of the common stock or preventing or retarding a decline in the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that might otherwise exist in the open market.

Neither we nor any of the underwriters make any representation or
prediction concerning the direction or magnitude of any effect that the
transactions described above may have on the price of our common stock. In
addition, neither we nor any of the underwriters make any representation that
the representatives will engage in these transactions or that any such
transaction, once commenced, will not be discontinued without notice.

OTHER MATTERS

CIBC World Markets, one of the representatives of the underwriters, acted
as placement agent in connection with our sale of series F preferred stock in
July 2000, for which they were paid $2.22 million. CIBC also purchased $1.0
million of shares of series F preferred stock.

Mr. Frederick Frank, vice chairman of Lehman Brothers, one of the
representatives, owns 74,200 shares of our common stock which he acquired in
1998.

FIDELITY CAPITAL MARKETS

Fidelity Capital Markets, a division of National Financial Services LLC, is
acting as an underwriter of this offering and will be facilitating electronic
distribution through the Internet.

STAMP TAXES

Purchasers of the shares of our common stock offered by this prospectus may
be required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition of the offering price listed on the cover
of this prospectus.

OFFER AND SALES IN CANADA

Any offers in Canada will be made only under an exception from the
requirements to file a prospectus in each relevant province of Canada where a
sale is made.

DIRECTED SHARE PROGRAM

At our request, the underwriters have reserved up to 425,000 shares, or 5%
of our common stock offered by this prospectus, for sale under a directed share
program to our officers, directors, employees and to our business associates.
All of the persons purchasing the reserved shares must commit to purchase no
later than the close of business on the day following the date of this
prospectus. The number of shares available for sale to the general public will
be reduced to the extent these persons purchase the reserved shares. Shares
committed to be purchased by directed share participants which are not so
purchased will be reallocated for sale to the general public in the offering.
All sales of shares pursuant to the directed

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<PAGE> 72

share program will be made at the initial public offering price set forth on the
cover page of this prospectus. All of the persons purchasing the reserved
shares, except for our employees who are not officers or directors, must sign
lock-up agreements under which they agree not to directly or indirectly transfer
or dispose of any shares of our common stock or any securities convertible into
or exercisable or exchangeable for shares of our common stock, for a period of
45 days after the date of this prospectus.

The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed 5% of the total number of shares of our
common stock offered by them.

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LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts, is acting as counsel for the underwriters in connection with
selected legal matters relating to the shares of common stock offered by this
prospectus. Members of Wilson Sonsini Goodrich & Rosati and investment funds
associated with such firm beneficially own shares of our common stock.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998, December 31, 1999, and June 30, 2000 and for
each of the three years in the period ended December 31, 1999, and for the six
months ended June 30, 2000, as set forth in their report. We have included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given upon the authority of
such firm as experts in accounting and auditing.

Certain legal matters with respect to information contained in this
Prospectus under the captions "Risk Factors -- If we are unable to protect our
proprietary methods and technologies, we may not be able commercialize
products," and "Business -- Intellectual Property" will be passed upon for us by
Medlen & Carroll, Madison, Wisconsin, patent counsel to the Company.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement, of which this prospectus constitutes a part, on Form S-1, with
respect to the common stock being sold in this offering. This prospectus
constitutes a part of that registration statement. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement, because some parts have
been omitted in accordance with rules and regulations of the Securities and
Exchange Commission. For further information about us and the common stock being
sold in this offering, please refer to the registration statement and the
exhibits and schedules filed as a part of the registration statement.

A copy of the registration statement, including exhibits and schedules
thereto, may be inspected without charge and obtained at prescribed rates at the
public reference section of the Securities and Exchange Commission at its
principal offices, located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and may be inspected without charge at the regional offices of the Securities
and Exchange Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may also obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. The registration statement, including the exhibits and schedules
thereto, is also available at the Securities and Exchange Commission's site on
the World Wide Web at http://www.sec.gov.

We intend to furnish our stockholders annual reports containing financial
statements audited by our independent auditors and make available quarterly
reports containing unaudited financial information.

71
<PAGE> 74

THIRD WAVE TECHNOLOGIES, INC.

INDEX TO FINANCIAL STATEMENTS

CONTENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Financial Statements
Balance Sheets as of December 31, 1998 and 1999 and as of
June 30, 2000............................................. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999 and for the six months ended June 30,
1999 (Unaudited) and 2000................................. F-4
Statements of Shareholders' Equity for the years ended
December 31, 1997, 1998 and 1999 and for the six months
ended June 30, 1999 (Unaudited) and 2000.................. F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999 and for the six months ended June 30,
1999 (Unaudited) and 2000................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 75

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Third Wave Technologies, Inc.

We have audited the accompanying balance sheets of Third Wave Technologies,
Inc., (the Company) as of December 31, 1998 and 1999 and June 30, 2000, and the
related statements of operations, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1999 and for the six months
ended June 30, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31,
1998 and 1999 and June 30, 2000, 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 six months ended June 30, 2000, in conformity with accounting principles
generally accepted in the United States.

/s/ Ernst & Young LLP

Milwaukee, Wisconsin
August 16, 2000

F-2
<PAGE> 76

THIRD WAVE TECHNOLOGIES, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 914,329 $ 10,128,679 $ 2,003,570
Short-term investments........................... 4,700,000 2,790,000 5,128,412
Receivables
Trade, net of allowance for doubtful accounts
of $1,100, $55,560 and $19,000 at December
31, 1998, December 31, 1999 and June 30,
2000, respectively.......................... 252,158 915,472 992,792
Accounts receivable from related party........ 112,532 49,754 70,133
Note receivable from shareholder.............. -- 1,997,736 --
Inventories...................................... 131,687 199,620 696,427
Prepaid expenses and other....................... 112,004 162,967 306,001
------------ ------------ ------------
Total current assets..................... 6,222,710 16,244,228 9,197,335
Equipment:
Machinery and equipment.......................... 3,049,882 5,750,725 10,844,884
Less accumulated depreciation.................... 989,884 1,706,136 2,793,048
------------ ------------ ------------
2,059,998 4,044,589 8,051,836
------------ ------------ ------------
Total assets............................. $ 8,282,708 $ 20,288,817 $ 17,249,171
============ ============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 881,995 $ 967,650 $ 4,311,934
Accrued expenses and other liabilities........... 399,251 875,736 1,189,437
Deferred revenue................................. 661,978 485,022 1,000,899
Long-term debt due within one year............... 108,304 141,706 2,747,068
Capital lease obligations due within one year.... 71,943 -- --
------------ ------------ ------------
Total current liabilities................ 2,123,471 2,470,114 9,249,338
Deferred revenue................................... 87,803 -- --
Long-term debt..................................... 95,756 420,174 6,488,561
Other.............................................. 200,000 200,000 200,000
Shareholders' equity:
Convertible preferred stock, $.001 par value,
10,803,800 shares authorized:
Series A, 1,320,200 shares issued and
outstanding................................. 1,320 1,320 1,320
Series B, 700,000 shares issued and
outstanding................................. 700 700 700
Series C, 653,800 shares issued and
outstanding................................. 654 654 654
Series D, 1,383,200 shares issued and
outstanding................................. 1,383 1,383 1,383
Series E, 6,055,000 shares issued and
outstanding................................. -- 6,055 6,055
Common stock, $.001 par value, 35,000,000 shares
authorized, 15,878,800, 17,168,200 and
17,535,000 shares issued and outstanding,
respectively.................................. 15,879 17,168 17,535
Additional paid-in capital....................... 18,616,184 39,260,148 40,311,539
Deferred stock compensation...................... -- -- (345,493)
Accumulated deficit.............................. (12,860,442) (22,088,899) (38,682,421)
------------ ------------ ------------
Total shareholders' equity............... 5,775,678 17,198,529 1,311,272
------------ ------------ ------------
Total liabilities and shareholders'
equity................................. $ 8,282,708 $ 20,288,817 $ 17,249,171
============ ============ ============
</TABLE>

See accompanying notes.

F-3
<PAGE> 77

THIRD WAVE TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

See accompanying notes.

F-4
<PAGE> 78

THIRD WAVE TECHNOLOGIES, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
AND SIX MONTHS ENDED JUNE 30, 2000

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------- --------------------------
ADDITIONAL ADDITIONAL DEFERRED
PAID-IN PAID-IN STOCK ACCUMULATED
PAR VALUE CAPITAL PAR VALUE CAPITAL COMPENSATION DEFICIT TOTAL
--------- ----------- --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................. $ 2,674 $ 1,457,641 $14,034 $ 9,262,760 $ -- $ (2,529,514) $ 8,207,595
Common stock
issued -- 224,000
shares............. -- -- 224 2,334 -- -- 2,558
Net loss............. -- -- -- -- -- (4,899,409) (4,899,409)
------- ----------- ------- ----------- --------- ------------ ------------
Balance at December 31,
1997................. 2,674 1,457,641 14,258 9,265,094 -- (7,428,923) 3,310,744
Common stock
issued -- 1,621,200
shares............. -- -- 1,621 3,998,274 -- -- 3,999,895
Preferred stock
issued -- 1,383,200
shares............. 1,383 3,895,175 -- -- -- -- 3,896,558
Net loss............. -- -- -- -- -- (5,431,519) (5,431,519)
------- ----------- ------- ----------- --------- ------------ ------------
Balance at December 31,
1998................. 4,057 5,352,816 15,879 13,263,368 -- (12,860,442) 5,775,678
Common stock
issued -- 1,289,400
shares............. -- -- 1,289 3,312,127 -- -- 3,313,416
Preferred stock
issued -- 6,055,000
shares............. 6,055 17,331,837 -- -- -- -- 17,337,892
Net loss............. -- -- -- -- -- (9,228,457) (9,228,457)
------- ----------- ------- ----------- --------- ------------ ------------
Balance at December 31,
1999................. 10,112 22,684,653 17,168 16,575,495 -- (22,088,899) 17,198,529
Common stock
issued -- 366,800
shares............. -- -- 367 218,826 -- -- 219,193
Deferred
compensation....... -- -- -- 832,565 (832,565) -- --
Amortization of
deferred stock
compensation....... -- -- -- -- 487,072 -- 487,072
Net loss............. -- -- -- -- -- (16,593,522) (16,593,522)
------- ----------- ------- ----------- --------- ------------ ------------
Balance at June 30,
2000................. $10,112 $22,684,653 $17,535 $17,626,886 $(345,493) $(38,682,421) $ 1,311,272
======= =========== ======= =========== ========= ============ ============
</TABLE>

See accompanying notes.

F-5
<PAGE> 79

THIRD WAVE TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................... $(4,899,409) $(5,431,519) $(9,228,457) $(3,356,282) $(16,593,522)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 204,576 605,720 732,130 285,354 1,086,912
Noncash stock compensation....................... -- -- -- -- 487,072
Noncash charge for termination of collaborative
agreement...................................... -- -- -- -- 6,000,000
Gain on sale of equipment........................ -- -- (13,362) -- --
Expense paid for in stock in lieu of cash........ -- 497,244 -- -- --
Change in operating assets and liabilities:
Receivables.................................... 356,531 (22,265) (600,536) (11,914) (97,699)
Inventories.................................... (3,010) (100,745) (67,933) 24,795 (496,807)
Prepaid expenses and other assets.............. (32,236) (31,697) (50,963) (114,596) (143,034)
Accounts payable............................... 73,533 766,089 85,655 (355,102) 3,344,284
Accrued expenses and other liabilities......... 33,627 276,705 476,485 190,971 313,701
Deferred revenue............................... 1,527,817 (1,109,849) (264,759) (685,308) 515,877
----------- ----------- ----------- ----------- ------------
Net cash used in operating activities.............. (2,738,571) (4,550,317) (8,931,740) (4,022,082) (5,583,216)
INVESTING ACTIVITIES
Purchases of equipment............................. (698,870) (1,292,669) (2,788,782) (558,439) (5,094,159)
Proceeds on sale of equipment...................... -- -- 85,423 -- --
Purchases of short-term investments................ (500,000) (4,200,000) (7,069,181) (454,181) (11,488,412)
Sales of short-term investments.................... -- -- 8,979,181 4,366,000 9,150,000
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) investing
activities....................................... (1,198,870) (5,492,669) (793,359) 3,353,380 (7,432,571)
FINANCING ACTIVITIES
Proceeds from long-term debt....................... -- 112,171 626,454 626,454 2,742,443
Payments on long-term debt......................... -- (46,444) (178,634) (108,453) (68,694)
Proceeds from notes receivable..................... -- -- -- -- 1,997,736
Proceeds from issuance of common stock, net........ 2,558 3,502,651 1,225,680 19,941 219,193
Proceeds from issuance of preferred stock, net..... -- 3,896,558 17,337,892 -- --
Payments on capital lease obligations.............. (77,129) (82,226) (71,943) (43,148) --
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities....................................... (74,571) 7,382,710 18,939,449 494,794 4,890,678
----------- ----------- ----------- ----------- ------------
Increase (decrease) in cash and cash equivalents... (4,012,012) (2,660,276) 9,214,350 (173,908) (8,125,109)
Cash and cash equivalents at beginning of period... 7,586,617 3,574,605 914,329 914,329 10,128,679
----------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end of period......... $ 3,574,605 $ 914,329 $10,128,679 $ 740,421 $ 2,003,570
=========== =========== =========== =========== ============
Supplemental disclosures of cash flow information
--
Cash paid for interest........................... $ 23,767 $ 28,812 $ 45,366 $ 11,766 $ 48,688
=========== =========== =========== =========== ============
</TABLE>

Supplemental schedule of noncash investing and financing activities:

During the year ended December 31, 1999, the Company:

-- issued 494 shares of common stock in exchange for notes receivable of
$1,997,736 (see Note 6) and

-- converted $90,000 of notes payable into 50 shares of common stock.

During the year ended December 31, 1998, the Company:

-- issued 86 shares of common stock in exchange for the receipt of certain
technology licenses recorded at $347,784;

-- issued 53 shares of common stock in exchange for consulting services
recorded at $149,460 and

-- converted $35,000 of notes payable into 63 shares of common stock.

See accompanying notes.

F-6
<PAGE> 80

THIRD WAVE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2000

1. SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Third Wave Technologies, Inc. (the Company) is a leading provider of
products for analyzing genetic variations. The Company's patented genetic
analysis platform, the Invader operating system, offers several advantages over
conventional genetic analysis technologies. The Company's technologies produce
highly accurate results, are easy to use and eliminate the need for copying the
genetic sample using polymerase chain reaction, or PCR, saving the user time and
money while eliminating the risk of sample contamination. Additionally the
Company's technologies are automatable, compatible with existing detection
platforms and available in convenient assay formats. These advantages make the
Company's technologies ideally suited for large-scale genetic analysis in both
clinical and research applications including, drug discovery and development and
patient diagnosis and treatment.

A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows:

Interim Financial Data

The unaudited statements of operations and cash flows for the six-month
period ending June 30, 1999, have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion management, all adjustments
(consisting only of adjustments of a normal and recurring nature) considered
necessary for a fair presentation of the results of operations have been
included.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers highly liquid money market investments and short-term
investments with maturities of 90 days or less from the date of purchase to be
cash equivalents.

Short-term investments consist of certificates of deposit and commercial
paper. The cost of these securities, which are considered "available-for-sale"
for financial reporting purposes, approximates fair value.

Inventories

Inventories, consisting mostly of raw materials, are carried at the lower
of cost or market using the first-in, first-out (FIFO) method.

Equipment

Equipment is stated at cost. Depreciation of purchased equipment and
amortization of equipment under capital leases are computed by the straight-line
method over the estimated useful lives of the assets which are generally three
to ten years.

Patents

Patent-related costs are expensed in the period incurred and are included
in general and administrative expenses in the statements of operations. These
costs were $228,256, $210,511 and $287,014 for the years ended December 31,
1997, 1998 and 1999, respectively. During the six months ended June 30, 2000,
these costs were $110,735.

F-7
<PAGE> 81

THIRD WAVE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

Grant and development revenues consist primarily of research grants from
agencies of the Federal government and revenue from companies with which the
Company has established strategic alliances, the revenue from which is
recognized as research is performed. Payments received which are related to
future performance are deferred and taken into revenue as earned. Grant payments
designated to purchase specific assets to be used in the performance of a
contract are recognized as revenue over the shorter of the useful life of the
asset acquired or the contract.

Research and Development

All costs for research and development activities are expensed in the
period incurred.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities. No current or deferred income
taxes have been provided because of the net operating losses incurred by the
Company since its inception.

Stock-Based Compensation

The Company accounts for stock-based compensation for awards to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and has adopted the
disclosure only alternative of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (FAS 123).

Stock compensation expense for options granted to nonemployees has been
determined in accordance with FAS 123 and EITF 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services," and represents the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever may be more reliably measured. For options that vest over future
periods, the fair value of options granted to nonemployees is periodically
remeasured as the underlying options vest.

Fair Value of Financial Instruments

Generally accepted accounting principles require that fair values be
disclosed for most of the Company's financial instruments. The carrying amounts
of the Company's financial instruments, which include cash and cash equivalents,
short-term investments, accounts receivable, note receivable from shareholder,
capital lease obligations and current liabilities are considered to be
representative of their respective fair values.

F-8
<PAGE> 82

THIRD WAVE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

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

Net Loss Per Share

In accordance with generally accepted accounting principles, basic and
diluted net loss per share has been computed using the weighted-average number
of shares of common stock outstanding during the respective periods. The effect
of options and convertible securities is anti-dilutive for all periods
presented. Pro forma basic and diluted net loss per common share, as presented
in the statements of operations, has been computed for all periods presented
giving effect to conversion of the preferred stock (from the original date of
issuance) into shares of common stock automatically in the event of a public
offering of common shares of the Company providing greater than $30,000,000 in
proceeds.

The following table presents the calculation of basic, diluted and pro
forma basic and diluted net loss per share.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net loss............... $(4,899,409) $(5,431,519) $(9,228,457) $(3,356,282) $(16,593,522)
=========== =========== =========== =========== ============
Weighted-average shares
of common stock
outstanding -- basic
and diluted.......... 14,222,600 14,900,200 16,546,600 16,156,000 17,462,200
----------- ----------- ----------- ----------- ------------
Basic and diluted net
loss per share....... $ (0.34) $ (0.36) $ (0.56) $ (0.21) $ (0.95)
=========== =========== =========== =========== ============
Pro forma:
Shares used above.... 14,222,600 14,900,200 16,546,600 16,156,000 17,462,200
Pro forma adjustment
to reflect
weighted effect of
conversion of
convertible
preferred stock... 2,686,600 3,001,600 6,703,200 3,780,000 10,127,600
----------- ----------- ----------- ----------- ------------
Shares used in
computing pro
forma basic and
diluted net loss
per share......... 16,909,200 17,901,800 23,249,800 19,936,000 27,589,800
----------- ----------- ----------- ----------- ------------
Pro forma basic and
diluted net loss
per share......... $ (0.29) $ (0.30) $ (0.40) $ (0.17) $ (0.60)
=========== =========== =========== =========== ============
Options that could
potentially dilute
basic earnings per
share in the future
that are not included
in the computation of
diluted loss per share
as their impact is
antidilutive (treasury
stock method).......... 796,600 828,800 877,800 995,400 1,488,200
</TABLE>

F-9
<PAGE> 83

THIRD WAVE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133, which will be effective for the Company in years beginning after June 15,
2000, requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company does not expect the potential effect of adopting the
provisions of SFAS No. 133 to have a significant impact on its financial
position, results of operations and cash flows.

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

2. NOTES PAYABLE AND LONG-TERM DEBT

On June 3, 1999, the Company entered into a Master Loan and Security
Agreement to borrow up to $3,300,000 for the purchase of equipment, which
borrowings will be secured by the equipment purchased. Borrowings under the
Agreement were $529,000 at December 31, 1999 and $3,151,000 at June 30, 2000.
The loan is repayable in 42 monthly installments which commence upon the
delivery of equipment. The rate of interest is set at the time of equipment
purchase and is tied to the three-year U.S. Treasury rate, and the most recent
rate was set at 14.01%.

On January 21, 2000, the Company terminated a product development and
marketing agreement, agreeing to pay $2,000,000 in cash and $6,000,000 in a note
due in three equal annual installments beginning January 2001. The note bears
interest at 6%.

Long-term debt at June 30, 2000 has a weighted-average interest rate of
8.76%. The loans are collateralized by the equipment being financed. Maturities
of long-term debt for each of the years succeeding June 30, 2000, are as
follows:

<TABLE>
<S> <C>
Six months ending December 31, 2000...................... $ 368,042
Year ending December 31, 2001............................ 2,784,879
Year ending December 31, 2002............................ 2,900,103
Year ending December 31, 2003............................ 2,893,860
Year ending December 31, 2004............................ 288,745
----------
$9,235,629
==========
</TABLE>

F-10
<PAGE> 84

THIRD WAVE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. SHAREHOLDERS' EQUITY

General

In September, 2000, the Company's Board of Directors approved a 1400 to 1
stock split of the Company's common and preferred stock, to be affected upon the
completion of an initial public offering. All share and per share amounts in the
financial statements have been retroactively adjusted to reflect such split.

Preferred Stock

Each share of Series A, B, C, D and E preferred stock is convertible to one
share of common stock at the option of the holder, subject to certain
antidilutive adjustments. The preferred shareholders are entitled to preference
payments in the event of liquidation or dissolution of the Company at the
greater of $0.23 (Series A), $0.86 (Series B and C) and $2.89 (Series D and E)
per share plus accrued and unpaid dividends, if any, or such amount as would
have been payable had each share been converted to common stock, as defined.
Series A, B, C and D preferred stock provides for dividends equal to any
dividends that are declared on common stock. Series E preferred stock has 10%
cumulative cash dividends which compound annually and are payable upon
liquidation, dissolution or redemption.

Preferred shareholders are entitled to vote on all matters submitted to the
shareholders of the Company and are entitled to the number of votes equal to the
largest number of whole shares of common stock into which such holder's shares
of Series A, B, C, D and E preferred stock can be converted.

Common Stock Issued for Services

In 1998, the Company issued 74,200 shares of common stock to a consultant
pursuant to an agreement with the consultant to provide general business
services to the Company. The common stock was valued at $2.01 per share, which
was considered to approximate fair value of common stock at the time of the
issuance. Also in 1998, the Company issued 120,400 shares of common stock in
connection with a license agreement (see Note 7 for further information on the
license agreement). The common stock was valued at $2.89 per share, which was
considered to approximate fair value at the time of the issuance. Total, expense
of $497,244 was recorded for these transactions.

Stock Option Plans

The Company has four Incentive Stock Option Plans for its employees and a
Nonqualified Stock Option Plan (the Plans) under which an aggregate of 2,937,200
options may be granted. The option price per share will be no less than fair
market value at the date the options are granted. Options under the Plans have a
maximum life of ten years. The options vest 25% on the date of grant and 25% on
each of the succeeding three anniversary dates.

F-11
<PAGE> 85

THIRD WAVE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. SHAREHOLDERS' EQUITY (CONTINUED)

The Company's options are as follows:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Outstanding at December 31, 1996............. 1,523,200 $0.68
Granted.................................... 512,400 2.01
Exercised.................................. (2,800) 0.86
Forfeited.................................. (196,000) 0.62
--------- -----
Outstanding at December 31, 1997............. 1,836,800 1.06
Granted.................................... 327,600 2.35
Exercised.................................. (119,000) 0.68
Forfeited.................................. (158,200) 1.71
--------- -----
Outstanding at December 31, 1998............. 1,887,200 1.25
Granted.................................... 527,800 3.23
Exercised.................................. (182,000) 1.42
Forfeited.................................. (72,800) 1.99
--------- -----
Outstanding at December 31, 1999............. 2,160,200 1.69
Granted.................................... 161,000 2.89
Exercised.................................. (366,800) 0.60
Forfeited.................................. (40,600) 2.29
--------- -----
Outstanding at June 30, 2000................. 1,913,800 $1.99
========= =====
Exercisable at June 30, 2000................. 1,300,600 $1.54
========= =====
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF SHARES
REMAINING EXERCISABLE AT
NUMBER OF SHARES CONTRACTUAL LIFE JUNE 30, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
Options granted at $0.23............. 158,200 5.0 158,200
Options granted at $0.86............. 534,800 5.8 534,800
Options granted at $2.01............. 445,200 7.4 340,200
Options granted at $2.89............. 743,400 9.1 259,000
Options granted at $8.50............. 32,200 9.4 8,400
--------- ---------
1,913,800 1,300,600
========= =========
</TABLE>

From January 1, 2000 to June 30, 2000, options to purchase 161,000 shares
of common stock were granted to employees with exercise prices of $2.89 per
share. The Company recorded deferred compensation of $832,565 as a result of
these option grants which are being amortized to expense using the graded
vesting method.

To determine the effect of FASB Statement No. 123, the fair value of the
options granted was estimated using the minimum value option pricing model
assuming a dividend yield of 0%, a weighted average expected option life of five
years and a weighted-average risk-free interest rate of 5.62%, 5.16% and 5.00%
for the years ended December 31, 1997, 1998 and 1999, respectively. A
weighted-average risk-free interest rate of 5.5% was used for the six-months
ended June 30, 2000. The weighted-average fair value of options granted in 1997,
1998 and 1999 was $0.50, $0.54 and $0.66, respectively. The weighted-average
fair value of options granted in the six months ended June 30, 2000, was $1.81.

F-12
<PAGE> 86

THIRD WAVE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. SHAREHOLDERS' EQUITY (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the
options are amortized to expense over the options vesting period. The Company's
pro forma information is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
--------------------------------------- ENDED
1997 1998 1999 JUNE 30, 2000
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Pro forma net loss............... $(4,993,190) $(5,574,026) $(9,396,326) $(16,727,376)
Pro forma loss per share -- basic
and diluted.................... $ (0.35) $ (0.37) $ (0.57) $ (0.96)
</TABLE>

4. INCOME TAXES

The types of temporary differences between tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax asset (liability) and their approximate tax effects are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1998 1999 2000
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Patent expense........................... $ 297,000 $ 397,000 $ 442,000
Deferred revenue......................... 294,000 188,000 400,000
Other.................................... 29,000..... 51,000 70,000
Net operating loss carryforward.......... 4,654,000 8,302,000 15,057,000
----------- ----------- ------------
5,274,000 8,938,000 15,969,000
Deferred tax liability --
Depreciation expense..................... (54,000) (37,000) (37,000)
----------- ----------- ------------
Net deferred tax asset..................... 5,220,000 8,901,000 15,932,000
Valuation allowance........................ (5,220,000) (8,901,000) (15,932,000)
----------- ----------- ------------
$ -- $ -- $ --
=========== =========== ============
</TABLE>

At June 30, 2000, the Company had net operating loss carryforwards of
approximately $37,643,000 for Federal and State tax purposes which expire
beginning in 2008. In the event of a change in ownership greater than 50% in a
three year period, utilization of the net operating losses may be subject to an
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions.

5. LEASE OBLIGATIONS

The Company leases its Corporate facilities under a five-year lease
effective December 1997. The Company has the option to extend the lease for
three additional five-year periods. The lease agreement requires the Company to
provide the landlord an irrevocable standby letter of credit. The standby letter
of credit has a balance of $248,000 at June 30, 2000, and is reduced by $8,000
per month.

The Company leases its operating facility under a three year lease
effective May 2000. The Company has the option to extend the lease for two
additional three year periods.

Rent expense was approximately $160,000, $447,000 and $517,000 for the
years ended December 31, 1997, 1998 and 1999, respectively. Rent expense was
approximately $328,000 in the six months ended June 30, 2000

F-13
<PAGE> 87

THIRD WAVE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. LEASE OBLIGATIONS (CONTINUED)

Future minimum lease payments, by year and in the aggregate, under both
capital and operating leases are as follows:

<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
Six months ending June 30, 2000....................... $ 429,933
Year ending December 31, 2001......................... 817,386
Year ending December 31, 2002......................... 765,790
Year ending December 31, 2003......................... 118,111
----------
Total minimum lease payments................ $2,131,220
==========
</TABLE>

6. NOTE RECEIVABLE FROM SHAREHOLDER

In March and July 1999, the Company issued 345,800 and 691,600 shares of
common stock to a shareholder in exchange for promissory notes of $998,668 and
$1,997,736, respectively, bearing interest at 1% per month. The March note was
paid in December 1999 and the July note was paid in January 2000.

7. LICENSE AGREEMENTS

The Company entered into an exclusive license agreement (research license)
in March 1994 to make, use and sell products utilizing the licensed patents in
the research market. Under the research license, the Company is required to pay
a royalty at a rate not to exceed a certain percentage of the selling price on
licensed component sales. There have been no sales of licensed components
through June 30, 2000. The research license will continue until the licensed
patents expire or until the agreement is terminated by either party, whichever
is earlier, as defined in the agreement. The Company also entered into an equity
agreement with the licensor in March 1994 whereby it issued 134,400 shares of
common stock in exchange for the research license and diagnostic market option,
which is an exclusive license agreement to make, use and sell products utilizing
the licensed patents in the diagnostic market. In October 1998, the Company
issued 120,400 shares to the licensor to exercise the diagnostic market option.
The shares issued in 1994 and 1998 were valued at amounts considered to
approximate fair value of common stock at the time of each issuance.

Under this agreement, the Company granted the licensor a put option to sell
a specified number of shares back to the Company any time after March 1, 1998.
The total number of shares that can be put to the Company cannot exceed the
number of shares necessary to achieve a purchase price of $200,000. At June 30,
2000, the price per share to be paid if the put option is exercised is $2.89.
Accordingly, the Company has classified $200,000 of additional paid in capital
as an other long-term liability in the accompanying balance sheet.

8. COLLABORATIVE AGREEMENTS

In August 1997, the Company entered into a product development and
marketing agreement with Endogen Corporation (Endogen), a leading manufacturer
and distributor of reagents supplied to the research market. The Company will
develop gene expression monitoring tests for human cytokines and chemokines
utilizing the Company's Invader product platform. Cytokines and chemokines are
proteins secreted by cells in the immune system to transfer information between
cells and have broad implications in disease detection, monitoring and
intervention. Endogen received from the Company an exclusive license to develop
and market unregulated nonhuman cytokine and chemokine tests to the life science
research and pharmacogenomics markets. The Company retained all rights to
regulated product applications which are developed as a result of the agreement.
Initial products were shipped to Endogen in

F-14
<PAGE> 88

THIRD WAVE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. COLLABORATIVE AGREEMENTS (CONTINUED)

1999. In addition to the retained rights to regulated product applications, the
Company obtained a commitment to receive funding of 50 percent of expenditures
incurred in the development of the gene expression monitoring tests, to a
maximum of $1,050,000, paid over a 36-month period which commenced December 1,
1997, based upon a predetermined schedule of employment and workload sharing.
The Company recorded revenue of $342,645 and $350,000 in 1998 and 1999,
respectively, and deferred revenue recognition of $19,022 until 2000 on cash
received under this contract. The Company terminated the product development and
marketing agreement on January 21, 2000, agreeing to pay $8,000,000 to Endogen,
$2,000,000 in cash and $6,000,000 payable under a three-year note bearing
interest at 6%. The $8,000,000 was charged to other operating expense in the six
months ended June 30, 2000. Additionally, the Company's warrant to purchase
125,000 shares of common stock of Endogen was canceled.

In November 1997, the Company entered into a development agreement with
International Reagents Corporation (IRC), a leading Japanese clinical
diagnostics company, whereby the Company is to develop assay products based upon
its broad platform of proprietary technologies having applications in genetic-
based identification and diagnostics, including CFLP and Invader assay
platforms. In exchange for the development effort, the Company granted an
exclusive (subject to the Company's right to grant to a single additional
multinational company the right to distribute such assay products in the
Japanese diagnostic market) right to market, promote, sell and distribute such
assay products for use within the diagnostic and therapeutic-monitoring
applications, labeled specifically for use in regulated markets in Japan.
Pursuant to the terms of the agreement, if all milestones are met and an option
to extend the assay products development is exercised, the Company will receive
$8,000,000 in support of the assay product development. The Company recorded
revenue of $1,781,625 and $642,956 in 1998 and 1999, respectively, and deferred
revenue recognition of $642,956 until 1999 on cash received in November 1998.
The agreement was terminated in 1999 with no cost to either party.

On October 16, 1998, the Company closed a transaction at which time it
received 1,000 shares of common stock, par value one cent ($0.01) per share
representing 50 percent of the total voting stock of Third Wave Agbio, Inc.
(Agbio), a development stage company, in exchange for the Company's contribution
to Agbio of an exclusive worldwide license in the field of agriculture to all of
the Company's technology. The Company's investment in Agbio, recorded initially
at zero because the contributed technology was in the development phase, is
accounted for using the equity method and is recorded at zero at December 31,
1999 and June 30, 2000. The Company's share of the aggregate losses of Agbio is
$447,079 at June 30, 2000. The Company has no loans or other commitments to
provide funds to Agbio. Accordingly, the Company will not record it equity in
any earnings or losses for its investment in Agbio until such time that Agbio
has cumulative net income.

During 1998, 1999 and the six months ended June 30, 2000, the Company
billed Agbio approximately $108,000, $552,000 and $288,000 for various
contracted research and development and administrative services provided in
accordance with the Company's Operational Development and Supply Agreement with
Agbio. Amounts billed to Agbio are recorded as an offset to research and
development and administrative expenses.

9. 401(K) PLAN

The Company has a 401(k) savings plan (the Plan) which covers substantially
all employees. At June 30, 2000, the Plan does not allow for Company
contributions.

F-15
<PAGE> 89

THIRD WAVE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. TERMINATION OF MERGER

In January 2000, the Company entered into an agreement to merge with PE
Corporation (PE). In May 2000, the Company and PE agreed to terminate the merger
agreement. Merger related costs charged to expense were $116,501 in 1999 and
$608,689 in the six months ended June 30, 2000.

11. SUBSEQUENT EVENTS

Convertible Preferred Stock

In July 2000, the Company completed an offering of 6,351,800 shares of
Series F preferred stock for net proceeds of approximately $45.5 million. The
preferred shareholders are entitled to preference payments in the event of
liquidation or dissolution of the Company at the greater of $7.52 (Series F) per
share plus accrued and unpaid dividends, if any, or such amount as would have
been payable had each share been converted to common stock, as defined. Series F
preferred stock has 10% cumulative cash dividends which compound annually and
are payable upon liquidation, dissolution or redemption.

Collaboration Agreements signed after the balance sheet date

In August 2000, the Company entered into a collaboration agreement with PE
for the development and manufacture of certain genotyping assays for the
Japanese 'Millennium' Project to examine 150,000 unique single nucleotide
polymorphisms (SNPs) in 1,000 individuals and thereafter to examine those same
150,000 SNPs in an additional 4,000 individuals. PE is to make payments, priced
in accordance with the agreement, within 10 days of the Company's delivery of
the products. No payments have been received under this agreement through August
16, 2000. The Company and PE have established an equal profit sharing plan that
requires a reconciliation of revenues and costs between PE and the Company
within 30 days of each 3 month period, as defined in the agreement. The Company
will record an amount payable to or due from PE for each reconciliation period.

F-16
<PAGE> 90

LOGO

8,500,000 Shares

[THIRD WAVE TECHNOLOGIES LOGO]
Common Stock
----------------------------
PROSPECTUS
, 2000
----------------------------
LEHMAN BROTHERS

CIBC WORLD MARKETS

ROBERT W. BAIRD & CO.
FIDELITY CAPITAL MARKETS
a division of National Financial Services LLC
<PAGE> 91

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all fees and expenses payable by TWT in
connection with the registration of the common stock hereunder. All of the
amounts shown are estimates except for the SEC registration fee, the NASD filing
fee and the Nasdaq National Market listing fee.

<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC Registration Fee........................................ $ 33,548
NASD Filing Fee............................................. 13,208
Nasdaq National Market Listing Fee.......................... 50,000
Printing and Engraving Expenses............................. 350,000
Legal Fees and Expenses..................................... 500,000
Accounting Fees and Expenses................................ 300,000
Transfer Agent and Registrar Fees and Expenses.............. 5,000
Blue Sky Fees and Expenses.................................. 12,500
Miscellaneous Expenses...................................... 235,744
----------
Total....................................................... $1,500,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our certificate of incorporation and our bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General Corporation
Law. We have also entered into agreements with our directors and executive
officers that require TWT, among other things, to indemnify them against certain
liabilities that may arise by reason of their status or service as directors and
executive officers to the fullest extent permitted by Delaware law. We have also
purchased directors and officers liability insurance, which provides coverage
against certain liabilities including liabilities under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

(a) Within the last five years, and through June 30, 2000, we have issued
and sold the following unregistered securities:

(1) Since our inception, we have issued and sold an aggregate of
17,535,000 shares of common stock to the founding officers and directors of
TWT and to certain other individuals at purchase prices ranging from $0.01
to $2.89 per share.

(2) Since our inception, we have granted options to purchase 3,091,200
shares of common stock to employees, directors and consultants under our
stock option plans at exercise prices ranging from $0.23 to $8.50 per
share. Of the 3,091,200 shares granted, 1,913,800 remain outstanding,
680,400 shares of common stock have been purchased pursuant to exercises of
stock options and 497,000 shares have been canceled and returned to the
stock plans.

(3) In July 1994, we sold 1,320,200 shares of Series A preferred stock
at a price of $0.23 per share to one investor.

(4) Between June 1995 and May 1996, we sold an aggregate of 700,000
shares of Series B preferred stock at a price of $0.86 per share to one
investor.

II-1
<PAGE> 92

(5) In January 1996, we sold an aggregate of 653,800 shares of Series
C preferred stock at a price of $0.86 per share to two investors.

(6) In October 1998, we sold an aggregate of 1,383,200 shares of
Series D preferred stock at a price of $2.89 per share to two investors.

(7) In July 1999, we sold an aggregate of 6,055,000 shares of Series E
preferred stock at a price of $2.89 per share to six investors.

(8) In July 2000 we sold an aggregate of 6,351,800 shares of Series F
preferred stock at a price of $7.52 per share to 31 investors.

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

(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

II-2
<PAGE> 93

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- ------------------------------------------------------------
<C> <S>
10.13(**)+ New Assay Development and Option Agreement, dated as of June
20, 2000, between Third Wave and SmithKline Beecham
Biologicals SA
10.14(**)+ Memorandum of Understanding, dated as of September 17, 1999,
by Third Wave and approved and accepted by Genome Research
Limited at September 21, 1999
10.15(**) Reserved
10.16(**)+ Research Agreement, dated as of August 20, 1999, between
Third Wave and Warner Lambert Company
10.17+ Operation, Development and Supply Agreement, dated December
17, 1999 between Third Wave and Third Wave Agbio, Inc.
10.18+ Lease Agreement, dated as of April 1, 1997, between Third
Wave and University Research Park Facilities Corp.,
regarding 25,000 square feet on Rosa Road , Madison
Wisconsin
10.19+ Lease, dated as of April 10, 2000, between Third Wave and
Prairie Warehousing LLP, as Landlord, regarding 36,000
square feet at 220 Business Park Drive, Sun Prairie
Wisconsin
10.20 Development and Supply Agreement dated August , 2000
between the Registrant and the Applied Biosystems Unit of PE
Corporation
10.21 Equipment Loan Agreement dated August , 2000 between the
Registrant and the Applied Biosystems Unit of PE Corporation
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in
Exhibit 5.1)
23.3* Consent of Medlen & Carroll, patent counsel to the
Registrant
24.1+ Power of Attorney (see page II-5)
27.1+ Financial Data Schedule
</TABLE>

---------------
* To be filed by amendment.

** Confidential treatment has been requested for portions of this exhibit.

+ Previously filed.

(B) FINANCIAL STATEMENT SCHEDULES

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

ITEM 17. UNDERTAKINGS

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

We hereby undertake that:

(a) We will provide to the underwriters at the closing as specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.

(b) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and

II-3
<PAGE> 94

contained in the form of prospectus that we filed pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared
effective.

(c) For the purpose of determining any liability under the Securities
Act, 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 the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 95

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Madison, State of Wisconsin, on the 11th day of September, 2000.

THIRD WAVE TECHNOLOGIES, INC.

By: /s/ LANCE FORS
------------------------------------
Lance Fors*
Chief Executive Officer and
President

Pursuant to the requirements of the Securities Act of 1933, as amended this
amendment to Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ *LANCE FORS Chief Executive Officer, September 11, 2000
--------------------------------------------------- President and Chairman Of
Lance Fors the Board (Principal
Executive Officer and Acting
Principal Financial Officer)

/s/ *ALEX KASPER Controller (Principal September 11, 2000
--------------------------------------------------- Accounting Officer)
Alex Kasper

/s/ *LLOYD M. SMITH Director September 11, 2000
---------------------------------------------------
Lloyd M. Smith

/s/ *KENNETH R. MCGUIRE Director September 11, 2000
---------------------------------------------------
Kenneth R. McGuire

/s/ *JOHN NEIS Director September 11, 2000
---------------------------------------------------
John Neis

/s/ *G. STEVEN BURRILL Director September 11, 2000
---------------------------------------------------
G. Steven Burrill

/s/ *PRESTON TSAO Director September 11, 2000
---------------------------------------------------
Preston Tsao

/s/ *DAVID A. THOMPSON Director September 11, 2000
---------------------------------------------------
David A. Thompson

/s/ *TOM DANIEL Director September 11, 2000
---------------------------------------------------
Tom Daniel

*By:/s/ IAN EDVALSON
---------------------------------------------------
Ian Edvalson,
Attorney-in-fact
</TABLE>

II-5
<PAGE> 96

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1(a)+ Amended and Restated Articles of Incorporation, as currently
in effect
3.1(b)+ Certificate of Incorporation to be filed prior to completion
of the offering
3.2(a)* Amended and Restated Bylaws of TWT as currently in effect
3.2(b)+ Bylaws of TWT as in effect prior to completion of the
offering
4.1* Specimen common stock Certificate
4.2+ Investors' Rights Agreement, dated July 24, 2000
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1+ Incentive Stock Option Plan
10.2+ 1997 Incentive Stock Option Plan
10.3+ 1997 Nonqualified Stock Option Plan
10.4+ 1998 Incentive Stock Option Plan
10.5+ 1999 Incentive Stock Option Plan
10.6+ 1999 Nonqualified Stock Option Plan
10.7+ 2000 Stock Plan and forms of agreements thereunder
10.8+ 2000 Employee Stock Purchase Plan and forms of agreements
thereunder
10.9+ Form of Director and Executive Officer Indemnification
Agreement
10.10+ Master Loan and Security Agreement, dated as of June 22,
1999, between Third Wave, as borrower, and Transamerica
Business Credit Corporation, as lender, as amended September
1999
10.11(**)+ Research Collaboration Agreement, dated as of September 30,
1999, between Third Wave and The Board of Trustees of Leland
Stanford Junior University
10.12(**)+ Collaborative Development Agreement, dated as of June 21,
2000, between Third Wave and Novartis Pharmaceuticals
Corporation and affiliates
10.13(**)+ New Assay Development and Option Agreement, dated as of June
20, 2000, between Third Wave and SmithKline Beecham
Biologicals SA
10.14(**)+ Memorandum of Understanding, dated as of September 17, 1999,
by Third Wave and approved and accepted by Genome Research
Limited at September 21, 1999
10.15(**) Reserved
10.16(**)+ Research Agreement, dated as of August 20, 1999, between
Third Wave and Warner Lambert Company
10.17+ Operation, Development and Supply Agreement, dated December
17, 1999 between Third Wave and Third Wave Agbio, Inc.
10.18+ Lease Agreement, dated as of April 1, 1997, between Third
Wave and University Research Park Facilities Corp.,
regarding 25,000 square feet on Rosa Road , Madison
Wisconsin
10.19+ Lease, dated as of April 10, 2000, between Third Wave and
Prairie Warehousing LLP, as Landlord, regarding 36,000
square feet at 220 Business Park Drive, Sun Prairie
Wisconsin
10.20 Development and Supply Agreement dated August , 2000
between the Registrant and the Applied Biosystems Unit of PE
Corporation
10.21 Equipment Loan Agreement dated August , 2000 between the
Registrant and the Applied Biosystems Unit of PE Corporation
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in
Exhibit 5.1)
</TABLE>

<PAGE> 97

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- ------------------------------------------------------------
<C> <S>
23.3* Consent of Medlen & Carroll, patent counsel to the
Registrant
24.1+ Power of Attorney (see page II-5)
27.1+ Financial Data Schedule
</TABLE>

---------------
* To be filed by amendment.

** Confidential treatment has been requested for portions of this exhibit.

+ Previously filed.