EXACT CORP, S-1, 2000-10-27

EXACT CORP
S-1, 2000-10-27

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 2000

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------

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

EXACT CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8731 02-0478229
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

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

EXACT CORPORATION
63 GREAT ROAD
MAYNARD, MASSACHUSETTS 01754
(978) 897-2800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------

STANLEY N. LAPIDUS
CHAIRMAN
EXACT CORPORATION
63 GREAT ROAD
MAYNARD, MASSACHUSETTS 01754
(978) 897-2800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------

COPIES TO:

<TABLE>
<S> <C>
WILLIAM J. SCHNOOR, JR., ESQ. ROHAN S. WEERASINGHE, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP SHEARMAN & STERLING
125 High Street 599 Lexington Avenue
Boston, Massachusetts 02110 New York, NY 10022
Tel: (617) 248-7000 Tel: (212) 848-4000
Fax: (617) 248-7100 Fax: (212) 848-7179
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
------------------------------

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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,
check the following box. /X/
------------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value.................. $69,000,000 $18,216
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
------------------------------

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

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--------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be used
in connection with a United States and Canadian offering of the registrant's
common shares and one to be used in connection with a concurrent international
offering of common shares. The U.S. prospectus and the international prospectus
will be identical in all respects except that they will have different front and
back cover pages and a different "Underwriting" section. The form of the U.S.
prospectus is included herein and is followed by the alternate front cover page
to be used in the international prospectus. The form of the front cover page of
the international prospectus is labeled "Alternate Front Cover Page for
International Prospectus", and the form of the back cover page for the
international prospectus is labelled "Alternate Back Cover Page for
International Prospectus." The form of the Underwriting section for the
international prospectus is labelled "Alternate 'Underwriting' Section for
International Prospectus." Final forms of each prospectus will be filed with the
Securities and Exchange Commission under Rule 424(b) of the General Rules and
Regulations under the Securities Act of 1933.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 27, 2000

P_R_O_S_P_E_C_T_U_S

[LOGO]

COMMON STOCK

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

This is EXACT's initial public offering of common stock. EXACT is selling
all of the shares of common stock. The U.S. underwriters are offering
shares in the U.S. and Canada and the international managers are offering
shares outside the U.S. and Canada.

We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. After pricing of the
offering, we expect that the common stock will trade on The Nasdaq National
Market under the symbol "EXAX."

INVESTING IN OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $

Underwriting discount....................................... $ $

Proceeds, before expenses, to EXACT......................... $ $
</TABLE>

The U.S. underwriters may also purchase up to an additional shares
from EXACT at the public offering price, less the underwriting discount, within
30 days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an additional shares
from EXACT.

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.

The shares will be ready for delivery on or about , 2000.

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

MERRILL LYNCH & CO.

CIBC WORLD MARKETS

THOMAS WEISEL PARTNERS LLC

-----------

The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 4
Use of Proceeds............................................. 11
Dividend Policy............................................. 11
Capitalization.............................................. 12
Dilution.................................................... 14
Selected Historical Financial Data.......................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 21
Management.................................................. 36
Related Party Transactions.................................. 43
Principal Stockholders...................................... 45
Description of Capital Stock................................ 47
Shares Eligible for Future Sale............................. 51
Material United States Federal Tax Considerations for
Non-United States Holders................................. 53
Underwriting................................................ 57
Legal Matters............................................... 61
Experts..................................................... 61
Where You Can Find Additional Information................... 61
Index to Financial Statements............................... F-1
</TABLE>

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

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus or other date stated in this prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date.

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

We were incorporated in the State of Delaware on February 10, 1995 as
Lapidus Medical Systems, Inc. We changed our corporate name to EXACT
Laboratories, Inc. on December 11, 1996 and changed our name to EXACT
Corporation on September 12, 2000. Our executive offices are located at
63 Great Road, Maynard, Massachusetts 01754. Our telephone number is
(978) 897-2800. Our web address is http://www.exactlabs.com and is not a part of
this prospectus.

i
<PAGE>
SUMMARY

THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE
RISKS OF INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS" AND OUR
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES.

EXACT CORPORATION

We have developed proprietary technologies in applied genomics that we
believe will revolutionize the early detection of colorectal cancer and several
other types of common cancers. We believe that medical practitioners will order
tests based on our technologies as part of a regular screening program for the
early detection of such cancers and pre-cancerous lesions. We also believe that
the widespread and periodic application of these tests will reduce mortality,
morbidity and the costs associated with these cancers.

We have selected colorectal cancer as the first application of our
technology platform because the target market is large and not well served.
Colorectal cancer is the most deadly cancer among non-smokers, curable if
detected early and well understood from a genomics point of view. Detection of
colorectal cancer in its early stages increases the number of patients who
survive and reduces the cost of care. As a result, the American Cancer Society
and National Cancer Institute recommend that the roughly 74 million Americans
age 50 and above undergo regular colorectal cancer screening tests.

Despite the availability of colorectal cancer screening and diagnostic tests
for more than 20 years, the rate of early detection of colorectal cancer remains
low. Fecal occult blood testing, flexible sigmoidoscopy and colonoscopy are the
three principal methods that have been used to detect colorectal cancer. Each of
these methods is either inadequate in detecting the presence of disease, not
scalable or so invasive as to seriously deter its use as a screening method. We
therefore believe that no screening method is commercially available today that
allows for the effective early detection of colorectal cancer in a manner that
is acceptable to patients, medical practitioners and payors.

We believe that our technologies will enable early genomics-based detection
of colorectal cancer and several other types of common cancer so that more
people can be treated effectively. We believe that our technologies isolate
human DNA shed from the colon into stool and then detect the minute amount of
abnormal DNA associated with colorectal cancer. As of October 20, 2000, we had
eight issued U.S. patents and 23 pending U.S. patent applications for our
technologies and processes.

In conjunction with the Mayo Clinic, we have conducted three blinded
clinical studies since the fall of 1998. In these studies, screening tests using
our technologies demonstrated an ability to detect the presence of colorectal
cancer that is superior to that of current early detection screening methods.
Based on these results, in August 2000 we initiated our first multi-center
blinded clinical study, which includes both high-risk and average-risk patients.
Upon completion of this study, we intend to initiate a multi-center blinded
clinical trial, expected to include approximately 5,300 patients. The goal of
this trial is to compare the accuracy of our colorectal cancer screening tests
to that of existing technologies for an average-risk population.

Our goal is to become the leading company applying genomics to the early
detection of cancer.
The key components of our business strategy are to:

- commercialize our colorectal cancer screening technologies;

- extend our genomics technologies to other cancers; and

- continue to make scientific and technological advances in applied
genomics.

If successful, we believe our strategies will lead to regular screening of
large portions of the population for colorectal cancer and several other types
of cancer, which would result in a significant recurring revenue stream for us.

1
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common stock offered by EXACT:
U.S. offering................................. shares
International offering........................ shares
Total..................................... shares

Shares outstanding after the offering........... shares

Use of proceeds................................. We will use the net proceeds from this offering
for clinical studies and trials, research and
development activities, working capital and
other general corporate purposes. See "Use of
Proceeds."

Risk factors.................................... See "Risk Factors" and other information
included in this prospectus for a discussion of
factors you should carefully consider before
deciding to invest in shares of the common
stock.

Proposed Nasdaq National Market symbol.......... EXAX
</TABLE>

The share data in the table above is based on shares outstanding as of
June 30, 2000 and excludes:

- 399,556 shares of common stock issuable upon exercise of options
outstanding with a weighted average exercise price of $2.30 per share; and

- 196,174 shares of common stock reserved for future issuance upon exercise
of additional grants which may be made under our 1995 stock plan.
Subsequent to June 30, 2000, we reserved, for future issuance upon
exercise of grants which may be made, an additional 250,000 shares of
common stock under our 1995 stock plan, 1,000,000 shares of common stock
under our 2000 option plan and 300,000 shares of common stock under our
2000 purchase plan. No options have been granted under our 2000 option
plan or 2000 purchase plan.

Except as otherwise indicated, all information in this prospectus assumes
that the underwriters will not exercise their over-allotment option and the
conversion of each outstanding share of convertible preferred stock into
shares of common stock upon the completion of this offering.

2
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA

You should read the following summary financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1997 1998 1999 1999 2000
-------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Research and development expenses......... $ 1,222 $ 2,849 $ 3,689 $ 1,814 $ 2,299
Loss from operations...................... (2,037) (4,021) (5,263) (2,567) (4,391)
Net loss.................................. (1,883) (3,578) (4,964) (2,389) (3,900)
Net loss per share:
Basic and diluted....................... $(29.43) $(16.73) $ (14.57) $ (8.27) $ (10.83)
Pro forma basic and diluted............. (1.53) (0.83)
Weighted average common shares
outstanding:
Basic and diluted(1).................... 63,983 213,870 340,763 289,020 360,075
Pro forma basic and diluted............. 3,246,559 4,683,405
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $32,157 $
Total assets.............................................. 33,638
Total stockholders' equity................................ 33,110
</TABLE>

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

(1) Computed as described in Note 1 to the financial statements included
elsewhere in this prospectus.

(2) Presented on an as adjusted basis to give effect to the automatic conversion
of each outstanding share of convertible preferred stock into shares of
common stock upon the closing of this offering and the sale of
shares of common stock at an assumed initial public offering price of $
per share, the mid-point of the expected range, after deducting the
estimated underwriting discount and commissions and offering expenses
payable by us.

3
<PAGE>
RISK FACTORS

AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, TOGETHER WITH ALL OF THE OTHER
INFORMATION IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.

WE CANNOT ASSURE YOU THAT WE WILL EVER REALIZE REVENUE FROM OUR PRODUCTS OR
SERVICES, ACHIEVE OR SUSTAIN PROFITABILITY OR THAT OUR OPERATING LOSSES WILL NOT
INCREASE IN THE FUTURE.

We are a development stage company and have incurred losses since we were
formed. From our date of inception on February 10, 1995 through June 30, 2000,
we have accumulated a total deficit of approximately $15.1 million. Since our
colorectal cancer screening tests are still in development, we do not expect to
have any revenue from the sale of our products and services for the foreseeable
future. Even after we begin selling our products and services, we expect that
our losses will continue and increase. We cannot assure you that we will ever
commercialize any of our products or services, or that the revenue from any of
our products or services will be sufficient to make us profitable.

IF OUR CLINICAL STUDIES DO NOT PROVE THE SUPERIORITY OF OUR TECHNOLOGIES, WE MAY
NEVER SELL OUR PRODUCTS AND SERVICES.

The results of our clinical studies may not show that tests using our
technologies are superior to existing screening methods. In that event, we will
have to devote significant financial and other resources to further research and
development, and commercialization of tests using our technologies will be
delayed or may never occur. Our earlier clinical studies were small and included
samples from high-risk patients. The results from these earlier studies may not
be representative of the results we obtain from any future studies, including
our next two clinical studies, which will include substantially more samples and
a larger percentage of average-risk patients.

IF MEDICARE AND OTHER THIRD-PARTY PAYORS, INCLUDING MANAGED CARE ORGANIZATIONS,
DO NOT PROVIDE ADEQUATE REIMBURSEMENT FOR OUR PRODUCTS AND SERVICES, MOST
CLINICAL REFERENCE LABORATORIES WILL NOT USE OUR PRODUCTS OR LICENSE OUR
TECHNOLOGIES TO PERFORM CANCER SCREENING TESTS.

Most clinical reference laboratories will not perform colorectal cancer
screening tests using our products and licensing our technologies unless they
are adequately reimbursed by third-party payors such as Medicare and managed
care organizations. There is significant uncertainty concerning third-party
reimbursement for the use of any test incorporating new technology.
Reimbursement by a third-party payor may depend on a number of factors,
including a payor's determination that tests using our products and technologies
are sensitive for colorectal cancer, not experimental or investigational,
medically necessary, appropriate for the specific patient and cost-effective. To
date, we have not secured any reimbursement approval for tests using our
products and technologies from any third-party payor, nor do we expect any such
approvals in the near future.

Reimbursement by Medicare will require approval by the Secretary of Health
and Human Services, or HHS. The Federal Budget Act of 1997 provides for
reimbursement of new technologies such as ours, but only with action of the
Secretary of HHS. We cannot guarantee that the Secretary of HHS will act to
approve tests based on our technologies on a timely basis or at all. In
addition, the assignment of a current procedural terminology, or CPT, code
facilitates Medicare reimbursement. The process to obtain a CPT code is lengthy
and we cannot guarantee that we will receive a CPT code on a timely basis, or at
all.

Since reimbursement approval is required from each payor individually,
seeking such approvals is a time-consuming and costly process. Failure to obtain
adequate reimbursement by Medicare and managed care organizations could have a
material adverse effect on our business, financial conditions and results of
operations.

4
<PAGE>
WE WILL NOT BE ABLE TO COMMERCIALIZE OUR TECHNOLOGIES IF WE ARE NOT ABLE TO
LOWER COSTS THROUGH AUTOMATING AND SIMPLIFYING KEY OPERATIONAL PROCESSES.

Currently, colorectal cancer screening tests using our technologies are very
expensive because they are labor-intensive and use highly complex and expensive
reagents. In order to price our products and services competitively, we will
need to reduce substantially the costs of tests using our technologies through
significant automation of key operational processes and other cost savings
procedures. If we fail to sufficiently reduce costs, tests using our
technologies either may not be commercially viable or may generate little, if
any, profitability.

OUR INABILITY TO ESTABLISH STRONG BUSINESS RELATIONSHIPS WITH LEADING CLINICAL
REFERENCE LABORATORIES TO PERFORM COLORECTAL CANCER SCREENING TESTS USING OUR
TECHNOLOGIES WILL LIMIT OUR REVENUE GROWTH.

A key step in our strategy is to sell reagents and license our proprietary
technologies to leading clinical reference laboratories that will perform
colorectal cancer screening tests. We currently have no business relationships
with these laboratories and have limited experience in establishing these
business relationships. If we are unable to establish these business
relationships, the number of tests that can be processed each year will be
limited to our in-house capacity, thereby limiting our revenue growth.

WE MAY BE UNABLE TO RECRUIT A SUFFICIENT NUMBER OF PATIENTS FOR OUR PLANNED
AVERAGE-RISK CLINICAL TRIAL.

We intend to conduct a clinical trial of approximately 5,300 average-risk
patients. If we are unable to enroll the required number of average risk
patients, we will be unable to validate the superiority of our technologies,
which would make it difficult to sell our products and services. Despite the
availability of colorectal cancer screening methods today, most Americans who
are recommended for colorectal cancer screening do not get screened.
Participants in our clinical trial will only have an average risk of developing
colorectal cancer, yet will have to undergo a colonoscopy. This procedure
requires sedation and causes patient discomfort. We cannot guarantee that we
will be able to recruit patients on a timely basis, if at all.

OUR FAILURE TO CONVINCE MEDICAL PRACTITIONERS TO ORDER TESTS USING OUR
TECHNOLOGIES WILL LIMIT OUR REVENUE AND PROFITABILITY.

If we fail to convince medical practitioners to order tests using our
technologies, we will not be able to sell our products or license our
technologies in sufficient volume for us to become profitable. We will need to
make leading gastroenterologists aware of the benefits of tests using our
technologies through published papers, presentations at scientific conferences
and favorable results from our clinical studies. Our failure to be successful in
these efforts would make it difficult for us to convince medical practitioners
to order colorectal cancer screening tests using our technologies for their
patients.

OUR REVENUE AND PROFITABILITY WILL BE LIMITED IF ONLY AN INSIGNIFICANT NUMBER OF
PEOPLE DECIDE TO BE SCREENED FOR COLORECTAL CANCER.

Even if our technologies are superior to alternative colorectal cancer
screening technologies, adequate third-party reimbursement is obtained and
medical practitioners order tests using our technologies, an insignificant
number of people may decide to be screened for colorectal cancer. Despite the
availability of current colorectal cancer screening methods as well as the
recommendation of the American Cancer Society and the National Cancer Institute
that all Americans age 50 and above be screened for colorectal cancer, most of
these individuals decide not to complete a colorectal cancer screening test. If
only an insignificant portion of the population decides to complete colorectal
cancer screening tests, our revenue and profitability will be limited.

5
<PAGE>
IF WE LOSE THE SUPPORT OF OUR KEY SCIENTIFIC COLLABORATORS, IT MAY BE DIFFICULT
TO ESTABLISH TESTS USING OUR TECHNOLOGIES AS A STANDARD OF CARE FOR COLORECTAL
CANCER SCREENING AND THEREFORE LIMIT OUR REVENUE GROWTH AND PROFITABILITY.

We have established relationships with leading scientists and research
institutions that we believe are key to establishing tests using our
technologies as a standard of care for colorectal cancer screening. If any of
our collaborators determine that colorectal cancer screening tests using our
technologies are not superior to available colorectal cancer screening tests or
that alternative technologies would be more effective in the early detection of
colorectal cancer, we would encounter difficulty establishing tests using our
technologies as a standard of care for colorectal cancer screening, which would
limit our revenue growth and profitability.

OUR INABILITY TO APPLY OUR PROPRIETARY TECHNOLOGIES SUCCESSFULLY TO DETECT OTHER
COMMON CANCERS MAY LIMIT OUR REVENUE GROWTH AND PROFITABILITY.

To date, we have focused substantially all of our research and development
efforts on colorectal cancer. We intend to devote significant personnel and
financial resources in the future to extending our technology platform to the
development of screening tests for other selected common cancers and pre-
cancerous lesions. To do so, we may need to overcome technological challenges to
develop reliable screening tests for these cancers. We may never realize any
benefits from these research and development activities.

IF THE U.S. FOOD AND DRUG ADMINISTRATION, OR FDA, DECIDES THAT OUR IN-HOUSE
LABORATORY TESTS OR THE SALE OF OUR ANALYTE SPECIFIC REAGENTS AND LICENSES TO
OUR INTELLECTUAL PROPERTY USED IN COLORECTAL CANCER SCREENING TESTS OR OUR STOOL
COLLECTOR REQUIRE APPROVAL OR CLEARANCE PRIOR TO MARKETING, A LENGTHY AND
TIME-CONSUMING REGULATORY PROCESS MAY DELAY OR PREVENT THE COMMERCIAL RELEASE OF
OUR PRODUCTS AND SERVICES.

The FDA does not actively regulate laboratory tests that have been developed
and used by the laboratory conducting the test. Although the FDA does regulate
the analyte specific reagents used in such tests, its regulations provide that
most such reagents are exempt from the FDA's premarket review requirements. If
the FDA were to decide to regulate in-house developed laboratory tests, decide
to require premarket approval or clearance of our analyte specific reagents,
conclude that our reagents do not meet the requirements for analyte specific
reagents, or conclude that licensing our intellectual property constitutes
non-compliant labeling, the commercialization of our products and services could
be delayed, halted, or prevented, and we could be subject to penalties and
enforcement actions. Any such FDA action would have a material adverse effect on
our business, financial condition, and results of operations. Similarly, if the
FDA were to determine that our stool collector requires premarket approval or
clearance, it could have a material adverse effect on our business, financial
condition, and results of operations.

IF WE FAIL TO COMPLY WITH REGULATIONS RELATING TO CLINICAL LABORATORIES, WE MAY
BE PROHIBITED FROM PROCESSING OUR OWN TESTS IN-HOUSE, BE REQUIRED TO INCUR
SIGNIFICANT EXPENSE TO CORRECT NON-COMPLIANCE, OR BE SUBJECT TO OTHER
REQUIREMENTS OR PENALTIES.

We are subject to U.S. and state laws and regulations regarding the
operation of clinical laboratories. For example, the federal Clinical Laboratory
Improvement Act, or CLIA, imposes certification requirements for clinical
laboratories, and establishes standards for quality assurance and quality
control, among other things. Clinical laboratories are subject to inspection by
regulators, and the possible sanctions for failing to comply with applicable
requirements include prohibiting a laboratory from running tests, requiring a
laboratory to implement a corrective plan, and imposing civil money or criminal
penalties. Accordingly, if we fail to meet CLIA requirements, it could cause us
to

6
<PAGE>
incur significant expense, or otherwise have a material adverse effect on our
business, financial condition, or results of operations.

OTHER COMPANIES MAY DEVELOP AND MARKET METHODS FOR DETECTING COLORECTAL CANCER,
WHICH MAY MAKE OUR TECHNOLOGIES LESS COMPETITIVE, OR EVEN OBSOLETE.

The market for colorectal cancer screening, which includes approximately 74
million Americans age 50 and above, has attracted competitors, some of which
have significantly greater resources than we have. These companies may focus
their research and development efforts on any one or more alternative screening
methods or may develop a superior genomics-based screening test. If so, we may
be unable to compete effectively against them either because their test is
superior or because they may have more expertise, experience and business
relationships.

THE LOSS OF KEY MEMBERS OF OUR SENIOR MANAGEMENT TEAM COULD ADVERSELY AFFECT OUR
BUSINESS.

Our success depends largely on the skills, experience and performance of key
members of our senior management team, including Stanley N. Lapidus, our
Chairman, Don M. Hardison, our President, John A. McCarthy, Jr., our Vice
President and Chief Financial Officer, and Anthony P. Shuber, our Vice President
of Molecular Biology. Messrs. Lapidus and Shuber have been critical to the
development of our technologies and business. Mr. Hardison, who joined us in
May 2000, and Mr. McCarthy, who joined us in October 2000, are key additions to
our management team and will be critical to directing and managing our growth
and development in the future. If we were to lose one or more of these key
employees, our ability to compete successfully, the development of our
technologies or the implementation of our business strategy could be materially
adversely affected.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY EFFECTIVELY, WE MAY BE
UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGIES, WHICH WOULD IMPAIR
OUR COMPETITIVE ADVANTAGE.

We rely on patent protection as well as a combination of trademark,
copyright and trade secret protection, and other contractual restrictions to
protect our proprietary technologies, all of which provide limited protection
and may not adequately protect our rights or permit us to gain or keep any
competitive advantage. If we fail to protect our intellectual property, we will
be unable to prevent third parties from using our technologies and they will be
able to compete more effectively against us.

We cannot assure you that any of our currently pending or future patent
applications will result in issued patents, or that any patents issued to us
will not be challenged, invalidated or held unenforceable. A third-party
institution has asserted co-inventorship rights with respect to one of our
issued patents relating to our loss of heterozygosity detection method. A second
third-party institution has asserted co-inventorship rights with respect to one
of our pending patent applications relating to our DNA integrity assay detection
method. We cannot guarantee you that we will be successful in defending these or
other challenges made in connection with our patents and patent applications.
These third-party assertions, if successful, would result in co-ownership of
such patents with a third party that may allow the third party to fully exploit
these technologies or might result in the unenforceability of the challenged
patent.

In addition to our patents, we rely on contractual restrictions to protect
our proprietary technology. We require our employees and third parties to sign
confidentiality agreements and employees to also sign agreements assigning to us
all intellectual property arising from their work for us. Nevertheless, we
cannot guarantee that these measures will be effective in protecting our
intellectual property rights.

We cannot guarantee you that the patents issued to us will be broad enough
to provide any meaningful protection nor can we assure you that one of our
competitors may not develop more effective technologies, designs or methods to
test for colorectal cancer or any other common cancer

7
<PAGE>
without infringing our intellectual property rights or that one of our
competitors might not design around our proprietary technologies.

WE MAY INCUR SUBSTANTIAL COSTS TO PROTECT AND ENFORCE OUR PATENTS.

In order to protect or enforce our patent rights, we may initiate actions
against third parties. Any actions regarding patents could be costly and
time-consuming, and divert our management and key personnel from our business.
Additionally, they could put our patents at risk of being invalidated or
interpreted narrowly.

WE MAY BE SUBJECT TO SUBSTANTIAL COSTS AND LIABILITY OR BE PREVENTED FROM
SELLING OUR SCREENING TESTS FOR CANCER AS A RESULT OF LITIGATION OR OTHER
PROCEEDINGS RELATING TO PATENT RIGHTS.

Third parties may assert infringement or other intellectual property claims
against our licensors or us. Because patent applications in the United States
are maintained in secrecy until a patent issues, others may have filed patent
applications for technology covered by our pending applications. There may be
third-party patents, patent applications and other intellectual property
relevant to our potential products that may block or compete with our products
or processes. Even if third-party claims are without merit, defending a lawsuit
may result in substantial expense to us and may divert the attention of
management and key personnel. In addition, we cannot assure you that we would
prevail in any of these suits or that the damages or other remedies if any,
awarded against us would not be substantial. Claims of intellectual property
infringement may require us to enter into royalty or license agreements with
third parties that may not be available on acceptable terms, if at all. We may
also become subject to injunctions against the further development and use of
our technology, which would have a material adverse effect on our business,
financial condition and results of operations.

Also, patents and applications owned by us may become the subject of
interference proceedings in the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to us,
as well as a possible adverse decision as to the priority of invention of the
patent or patent application involved. An adverse decision in an interference
proceeding may result in the loss or rights under a patent or patent application
subject to such a proceeding.

OUR BUSINESS WOULD SUFFER IF CERTAIN LICENSES WERE TERMINATED.

We license certain technologies from Roche Molecular Systems, Inc. and
Genzyme Corporation that are key to our technologies. The Roche license, which
relates to a gene amplification process used in almost all genetic testing, is a
non-exclusive license for the term of the licensed patents. In order to maintain
this license, we must pay royalties and submit certain reports. The Genzyme
license is a non-exclusive license to use the APC and P53 genes and
methodologies relating thereto in connection with our products and services for
the term of the licensed patents. In order to maintain this license, we must pay
milestone payments and royalties, achieve a certain level of sales and use
reasonable efforts to make products and services based on these patents
available to the public. If either Roche or Genzyme were to terminate the
licenses, we would incur significant delays and expense to change a portion of
our testing methods and we cannot guarantee that we would be able to change our
testing methods without affecting the sensitivity of our tests.

CHANGES IN HEALTHCARE POLICY COULD SUBJECT US TO ADDITIONAL REGULATORY
REQUIREMENTS THAT MAY DELAY THE COMMERCIALIZATION OF OUR TESTS AND INCREASE OUR
COSTS.

Healthcare policy has been a subject of discussion in the executive and
legislative branches of the federal and many state governments. Changes, if
implemented, could substantially delay the use of our tests, increase costs, and
divert management's attention. We cannot predict what changes, if any, will be

8
<PAGE>
proposed or adopted or the effect that such proposals or adoption may have on
our business, financial condition and results of operations.

OUR INABILITY TO RAISE ADDITIONAL CAPITAL ON ACCEPTABLE TERMS IN THE FUTURE MAY
LIMIT OUR GROWTH.

We may need to raise additional funds to execute our business strategy. Our
inability to raise capital would seriously harm our business and development
efforts. In addition, we may choose to raise additional capital due to market
conditions or strategic considerations even if we believe we have sufficient
funds for our current or future operations. To the extent that additional
capital is raised through the sale of equity or convertible debt securities, the
issuance of these securities could result in dilution to our stockholders.

We currently have no credit facility or committed sources of capital. If our
capital resources are insufficient to meet future requirements, we will have to
raise additional funds to continue the development and commercialization of our
technologies. These funds may not be available on favorable terms, or at all. If
adequate funds are not available on attractive terms, we may be required to
restrict our operations significantly or obtain funds by entering into
agreements on unattractive terms.

OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS OWN A SIGNIFICANT
PERCENTAGE OF OUR COMPANY AND COULD EXERT SIGNIFICANT INFLUENCE OVER MATTERS
REQUIRING STOCKHOLDER APPROVAL.

After this offering, our executive officers, directors and principal
stockholders and their affiliates will together control % of our outstanding
common stock, without giving effect to the exercise of outstanding options under
our stock plans and to the exercise of the underwriters' over-allotment options.
As a result these stockholders, if they act together, will have significant
influence over matters requiring stockholder approval, such as the election of
directors and approval of significant corporate transactions. This concentration
of ownership may have the effect of delaying, preventing or deterring a change
in control, could deprive you of the opportunity to receive a premium for your
common stock as part of a sale and could adversely affect the market price of
our common stock.

CERTAIN PROVISIONS OF OUR CHARTER, BY-LAWS AND DELAWARE LAW MAY MAKE A TAKEOVER
DIFFICULT.

Our corporate documents and Delaware law contain provisions that might
enable our management to resist a takeover. These provisions include a staggered
board of directors, limitations on persons authorized to call a special meeting
of stockholders and advance notice procedures required for stockholders to make
nominations of candidates for election as directors or to bring matters before
an annual meeting of stockholders. These provisions might discourage, delay or
prevent a change of control or in our management. These provisions could also
discourage proxy contests and make it more difficult for you and other
stockholders to elect directors and cause us to take other corporate actions.
The existence of these provisions could limit the price that investors might be
willing to pay in the future for shares of common stock and could deprive you of
an opportunity to receive a premium for your common stock as part of a sale.

OUR STOCK PRICE MAY BE VOLATILE.

The market price of our stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:

- technological innovations or new products and services by us or our
competitors;

- clinical trial results relating to our tests or those of our competitors;

- reimbursement decisions by Medicare and other managed care organizations;

- FDA regulation of our products and services;

9
<PAGE>
- the establishment of partnerships with clinical reference laboratories;

- health care legislation;

- intellectual property disputes;

- additions or departures of key personnel; and

- sales of our common stock.

In addition, the Nasdaq National Market and the market for applied genomics
companies in particular, have experienced significant price and volume
fluctuations that have often been unrelated or disproportionate to the
performance of those companies.

THE MARKET PRICE OF OUR COMMON STOCK MAY DROP SIGNIFICANTLY WHEN THE
RESTRICTIONS ON SALE BY OUR EXISTING STOCKHOLDERS LAPSE.

Following this offering, we will have approximately shares of common
stock outstanding. Sales of substantial amounts of our common stock after this
offering, or the possibility of such sales, could adversely affect the market
price of our common stock. All of the shares of common stock to be sold in this
offering will be freely tradable without restriction or further registration
under the federal securities laws. The remaining , or %, of our
outstanding common stock will be subject to restrictions on resale under U.S.
securities laws. Holders of % of these shares have agreed not to sell these
shares for at least 180 days following the date of this prospectus.

We intend to file a registration statement on Form S-8 to register
approximately million shares of our common stock that are reserved for
issuance or sale under our existing stock plans. Once registered, these shares
will be freely tradable without restriction or further registration under the
federal securities laws unless purchased by one of our affiliates.

INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE
OF THEIR INVESTMENT.

If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution because the price you pay will be
substantially greater than the net tangible value per share of the shares you
acquire. This is due, in large part, to the fact that our current investors paid
substantially less than the public offering price when they purchased our stock.
In addition, the issuance of additional shares of our common stock or of
securities convertible into our common stock or the exercise of outstanding
options on our common stock could result in the substantial dilution of the
percentage ownership of holders of our common stock at the time of any such
issuance and substantial dilution of our earnings per share.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus or to conform such
statements to actual results, unless required by law.

10
<PAGE>
USE OF PROCEEDS

We estimate the aggregate net proceeds of the offering to be approximately
$ , after deducting the estimated underwriting discount and offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that such net proceeds will be approximately $ . See
"Underwriting."

We intend to use the net proceeds for clinical studies and trials, research
and development activities, working capital and other general corporate
purposes. We have not yet finalized the amount of net proceeds we will use
specifically for each of the foregoing purposes. Accordingly, our management
will have significant flexibility in applying the net proceeds of the offering.
Pending such uses, we will invest the proceeds of the offering in short-term,
interest-bearing, investment-grade securities, certificates of deposit or direct
or guaranteed obligations of the United States.

DIVIDEND POLICY

We have never declared or paid dividends on our capital stock, and we do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain any future earnings to fund the development of our business.

11
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2000:

- on an actual basis;

- on a pro forma basis to give effect to the automatic conversion of each
outstanding share of convertible preferred stock into shares of common
stock; and

- on an as adjusted basis to adjust the pro forma information to give effect
to the sale of shares of common stock at an assumed initial public
offering price of $ per share, the mid-point of the expected range,
after deducting the estimated underwriting discount and commissions and
offering expenses payable by us.

This table should be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements, notes thereto and other financial information included elsewhere in
this prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 32,157 $ 32,157 $
======== ======== ========
Stockholders' equity:
Series A--1,000,000 shares authorized, 902,414 shares
issued and outstanding actual; none authorized, issued
or outstanding pro forma or as adjusted................. $ 9 $ -- $
Series B--1,250,000 shares authorized, 996,196 shares
issued and outstanding actual; none authorized, issued
or outstanding pro forma or as adjusted................. 10 --
Series C--1,015,000 shares authorized, 1,007,186 shares
issued or outstanding; none authorized, issued or
outstanding pro forma or as adjusted.................... 10 --
Series D--1,435,373 shares authorized, 1,417,534 shares
issued and outstanding actual; none authorized, issued
or outstanding pro forma or as adjusted................. 14 --
Common stock, 7,500,000 shares authorized, 950,809 shares
issued and outstanding actual; 7,500,000 shares
authorized, 5,274,139 shares issued and outstanding pro
forma; shares authorized, shares issued and
outstanding as adjusted................................... 9 52
Subscriptions receivable.................................... (693) (693)
Deferred compensation....................................... (3,896) (3,896)
Additional paid in capital.................................. 52,762 52,762
Deficit accumulated during the development stage............ (15,115) (15,115)
-------- -------- --------
Total stockholders' equity................................ 33,110 33,110
-------- -------- --------
Total capitalization...................................... $ 33,110 $ 33,110 $
======== ======== ========
</TABLE>

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

The share data in the table above is based on shares outstanding as of June 30,
2000 and excludes:

- 399,556 shares of common stock issuable upon exercise of options
outstanding with a weighted average exercise price of $2.30 per share; and

12
<PAGE>
- an aggregate of 196,174 shares available for future issuance upon exercise
of additional grants which may be made under our 1995 stock plan.
Subsequent to June 30, 2000, we reserved, for future issuance upon
exercise of grants which may be made, an additional 250,000 shares of
common stock under our 1995 stock plan, 1,000,000 shares of common stock
under our 2000 option plan and 300,000 shares of common stock for our 2000
purchase plan. No options have been granted under our 2000 option plan or
the 2000 purchase plan.

13
<PAGE>
DILUTION

Our pro forma net tangible book value at June 30, 2000 was approximately
$32.3 million, or approximately $6.12 per share, after giving effect to the
conversion of all outstanding shares of convertible preferred stock into common
stock upon the closing of the offering. Pro forma net tangible book value per
share represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding before giving effect
to the sale of the shares of our common stock in the offering. See
"Capitalization." After giving effect to the sale of the shares of common
stock in the offering, assuming a public offering price of $ per share, less
the estimated underwriting discount and commissions and other expenses of the
offering, our pro forma net tangible book value as of June 30, 2000 would have
been $ per share. This represents an immediate increase in net tangible book
value per share of $ to existing stockholders and immediate dilution in net
tangible book value of $ per share to new investors purchasing our common
stock in the offering at the public offering price. The following table
illustrates the per share dilution without over-allotment options:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at June 30,
2000.................................................... $6.12
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after the
offering..................................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>

Dilution per share to new investors is determined by subtracting pro forma
net tangible book value per share after the offering from the public offering
price per share paid by a new investor. If any shares are issued in connection
with outstanding options or the underwriters' over-allotment options, you will
experience further dilution.

The following table summarizes the number of shares of common stock
purchased from us, the total consideration paid and the average price per share
paid by the existing stockholders and by new investors in the offering, before
deduction of the estimated underwriting discount and commissions and other
expenses of the offering.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 5,274,139 % $48,359,772 % $9.17
New investors..................
--------- --- ----------- ---
Totals..................... 100% $ 100%
========= === =========== ===
</TABLE>

The share data in the table above is based on shares outstanding as of
June 30, 2000 and excludes:

- 399,556 shares of common stock issuable upon exercise of options
outstanding with a weighted average exercise price of $2.30 per share; and

- 196,174 shares of common stock reserved for future issuance upon exercise
of additional grants which may be made under our 1995 stock plan.
Subsequent to June 30, 2000, we reserved, for future issuance upon
exercise of grants which may be made, an additional 250,000 shares of
common stock for issuance under our 1995 stock plan, 1,000,000 shares of
common stock under our 2000 option plan and 300,000 shares of common stock
for our 2000 purchase plan. No options have been granted pursuant to our
2000 option plan or 2000 purchase plan.

14
<PAGE>
If the underwriters' over-allotment option is exercised in full, the
following will occur:

- the percentage of shares of common stock held by existing stockholders
will decrease to approximately % of the total number of shares of our
common stock outstanding after the offering; and

- the number of shares held by new investors will be increased to or
approximately % of the total number of shares of our common stock
outstanding after the offering.

15
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA

The selected historical financial data set forth below as of December 31,
1998 and 1999 and for the years ended December 31, 1997, 1998 and 1999, are
derived from our financial statements, which have been audited by Arthur
Andersen LLP, independent public accountants, and which are included elsewhere
in this prospectus. The selected historical financial data as of December 31,
1996 and for the year ended December 31, 1996 are derived from our financial
statements, which have been audited by Arthur Andersen LLP, independent public
accountants and which are not included elsewhere in this prospectus. The
selected historical financial data as of December 31, 1995 and for the year
ended December 31, 1995 are derived from our unaudited financial statements
which are not included elsewhere in this prospectus. The selected historical
financial data as of June 30, 2000 and for the six-months ended June 30, 1999
and 2000 are derived from our unaudited financial statements which are included
elsewhere in this prospectus. The unaudited financial statements include, in our
opinion, all adjustments, consisting only of normal, recurring adjustments,
necessary for a fair presentation of our financial position and the results of
our operations for those periods.

The selected historical financial data should be read in conjunction with,
and are qualified by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations," our financial statements and
notes thereto and the report of independent public accountants included
elsewhere in this prospectus. Operating results for the six months ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 2000.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- --------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Research and development.......... $ -- $ 366 $ 1,222 $ 2,849 $ 3,689 $ 1,814 $ 2,299
General and administrative........ 144 312 814 1,170 1,560 751 1,306
Stock-based compensation.......... -- -- 1 2 14 2 786
------- ------- ------- ------- --------- ------- ----------
Loss from operations.............. (144) (678) (2,037) (4,021) (5,263) (2,567) (4,391)
Interest income................... 6 26 154 443 299 178 492
------- ------- ------- ------- --------- ------- ----------
Net loss.......................... $ (138) $ (652) $(1,883) $(3,578) $ (4,964) $(2,389) $ (3,900)
======= ======= ======= ======= ========= ======= ==========
Net loss per common share:
Basic and diluted(1)............ $ (4.65) $(18.63) $(29.43) $(16.73) $ (14.57) $ (8.27) $ (10.83)
======= ======= ======= ======= ========= ======= ==========
Pro forma, basic and diluted.... $ (1.53) $ (0.83)
========= ==========
Weighted Average Common Shares
outstanding:....................
Basic and diluted............... 29,738 35,000 63,983 213,870 340,763 289,020 360,075
======= ======= ======= ======= ========= ======= ==========
Pro forma basic and diluted..... 3,246,559 4,683,405
========= ==========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------- AS OF
1995 1996 1997 1998 1999 JUNE 30, 2000
-------- -------- -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 53 $ 3,896 $ 1,792 $ 8,826 $ 3,553 $32,157
Total assets.................... 62 4,119 2,417 9,708 4,754 33,638
Stockholders' equity............ 40 4,010 2,305 9,298 4,410 33,110
</TABLE>

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

(1) Computed as described in Note 1 to the financial statements included
elsewhere in this prospectus.

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

We apply proprietary genomics technologies to the early detection of common
cancers. We have selected colorectal cancer screening as the first application
of our technology platform. Since our inception on February 10, 1995, our
principal activities have included:

- researching and developing our technologies for colorectal cancer
screening;

- conducting clinical studies to validate our colorectal cancer screening
tests;

- negotiating licenses for intellectual property of others incorporated into
our technologies;

- developing relationships with opinion leaders in the scientific and
medical communities;

- conducting market studies and analyzing potential approaches for
commercializing our technologies;

- hiring research and clinical personnel;

- hiring management and other support personnel; and

- raising capital.

Initially, we intend to offer colorectal cancer screening services ourselves
to establish the market. We then intend to license our proprietary technologies
and sell reagents to leading clinical reference laboratories to enable them to
develop tests. We may also package our technologies and seek approval for
diagnostic test kits with which any clinical laboratory could conduct our tests.

We have generated no operating revenues since our inception and do not
expect operating revenues for the foreseeable future. As of June 30, 2000, we
had an accumulated deficit of approximately $15.1 million. Our losses have
resulted principally from costs incurred in conjunction with our research and
development initiatives.

Research and development expenses include costs related to scientific and
laboratory personnel, clinical studies and reagents and supplies used in the
development of our technologies. We expect that the cost of our research and
development activities will increase substantially as we continue activities
relating to the development of our colorectal cancer screening tests and the
extension of our technologies to several other forms of common cancers and
pre-cancerous lesions. We are currently conducting a clinical study which
includes a population of both high-risk and average-risk patients and thereafter
intend to conduct a clinical trial that will include approximately 5,300
average-risk patients at an estimated forty locations, the costs of which will
be borne by us.

General and administrative expenses consist primarily of non-research
personnel salaries, office expenses and professional fees. We expect general and
administrative expenses to increase significantly as we hire additional
personnel and build our infrastructure to support future growth.

Stock-based compensation expense includes expenses incurred as a result of
granting stock options to employees and others with exercise prices per share
which, for financial reporting purposes, were subsequently determined to be
below the fair values per share of our common stock at the dates of grant. The
stock compensation is being amortized over the vesting period of the applicable
options, which is generally 60 months.

17
<PAGE>
RESULTS OF OPERATIONS

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $2.3 million for the six months ended June 30, 2000 from $1.8
million for the six months ended June 30, 1999. This increase was primarily the
result of costs incurred in connection with two multi-center clinical studies,
an increase in research and development personnel and leasing additional
laboratory space.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1.3 million for the six months ended June 30, 2000 from $751,000
for the six months ended June 30, 1999. This increase was primarily the result
of costs incurred in connection with the initiation of our marketing program, an
increase in general and administrative personnel, including the hiring of our
president, leasing additional administrative space and an increase in legal fees
related to our patent portfolio.

STOCK-BASED COMPENSATION. Stock-based compensation expense increased to
$786,000 for the six months ended June 30, 2000 from $2,000 for the six months
ended June 30, 1999.

INTEREST INCOME. Interest income increased to $492,000 for the six months
ended June 30, 2000 from $178,000 for the six months ended June 30, 1999. This
increase was primarily due to an increase in our cash and cash equivalents
balances resulting from the issuance of $31.7 million of preferred stock in
April 2000.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $3.7 million for the year ended December 31, 1999 from $2.8 million
for the year ended December 31, 1998, and increased in 1998 from $1.2 million
for the year ended December 31, 1997. Each of these expense increases was
attributable primarily to an increase in research and development personnel and
the leasing of additional laboratory space. In addition, we began conducting
clinical studies in 1998 and the cost of our ongoing clinical studies increased
during 1999.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1.6 million for the year ended December 31, 1999 from $1.2 million
for the year ended December 31, 1998, and increased in 1998 from $814,000 for
the year ended December 31, 1997. Each of these expense increases was
attributable primarily to an increase in general and administrative personnel
and an increase in legal and consulting fees.

STOCK-BASED COMPENSATION. Stock-based compensation expense increased to
$14,000 for the year ended December 31, 1999 from $2,000 for the year ended
December 31, 1998, and increased in 1998 from $1,000 for the year ended
December 31, 1997.

INTEREST INCOME. Interest income decreased to $299,000 for the year ended
December 31, 1999 from $443,000 for the year ended December 31, 1998, and
increased in 1998 from $154,000 for the year ended December 31, 1997. The
decrease in 1999 was primarily due to a decrease in our cash and cash
equivalents balances as a result of losses from operations. The increase during
1998 was primarily due to an increase in our cash and cash equivalents balances
resulting from the issuance of preferred stock in March 1998.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations since inception primarily through private
sales of preferred stock. As of June 30, 2000, we had received net proceeds of
$47.2 million from the issuance of preferred stock. As of June 30, 2000, we had
approximately $32.2 million in cash and cash equivalents.

18
<PAGE>
Net cash used in operating activities was $2.8 million for the six months
ended June 30, 2000, $4.6 million in 1999, $3.0 million in 1998 and $1.8 million
in 1997. These increases are primarily due to the increase in our research and
development activities.

Net cash used in investing activities was $414,000 for the six months ended
June 30, 2000, $722,000 in 1999, $496,000 in 1998 and $499,000 in 1997. For each
of these periods, cash used in investing activities reflected increased
investment in our intellectual property portfolio and the expansion of our
laboratory and office space.

Net cash provided by financing activities was $31.8 million for the six
months ended June 30, 2000, $57,000 in 1999, $10.6 million in 1998 and $171,000
in 1997. Cash provided during these periods resulted from the sale of our
preferred stock during the six months ended June 30, 2000 and the year ended
1998.

We expect that the proceeds from this offering, together with our current
working capital, will fund our operations over the foreseeable future. Our
future capital requirements include, but are not limited to, launching our
marketing efforts, supporting our clinical trial efforts, and continuing our
research and development programs. Our future capital requirements will depend
on many factors, including the following:

- the success of our clinical studies;

- the scope of and progress made in our research and development activities;
and

- the successful commercialization of colorectal cancer screening tests
based on our technologies.

NET OPERATING LOSS CARRYFORWARDS

As of December 31, 1999, we had net operating loss carryforwards of $10.7
million and research and development tax credit carryforwards of $389,000. The
net operating loss and tax credit carryforwards will expire at various dates
through 2019, if not utilized. The Internal Revenue Code and applicable state
law impose substantial restrictions on a corporation's utilization of net
operating loss and tax credit carryforwards if an ownership change is deemed to
have occurred.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board, or the FASB, issued
Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement established
accounting and reporting standards for derivative instruments and hedging
activities. SFAS 133, as amended by SFAS 137, will be effective for our
financial reporting beginning in the first quarter of 2001. SFAS 133 will
require that we recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. The accounting for
gains and losses from changes in the fair value of a particular derivative will
depend on the intended use of that derivative. We believe the adoption of this
statement will not have a significant impact on our financial position, results
of operations or cash flows.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, REVENUE
RECOGNITION. This bulletin establishes guidelines for revenue recognition and is
in effect for periods beginning October 1, 2000. We do not expect that the
adoption of this guidance will have a material impact on our financial condition
or results of operations.

In March 2000, the FASB issued Interpretation No. 44, ACCOUNTING FOR CERTAIN
TRANSACTIONS INVOLVING STOCK COMPENSATION--AND INTERPRETATION OF APB OPINION
NO. 25. The interpretation clarifies the application of APB Opinion No. 25 to
accounting for stock issued to employees. The interpretation is effective
July 1, 2000, but covers events occurring during the period between
December 15, 1998 and July 1, 2000. If events covered by the interpretation
occur during this period, the effects of applying the

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interpretation to the events would be recognized on a prospective basis from
July 1, 2000. As a result, the interpretation will not require that any
adjustments be made to our consolidated financial statements for periods before
July 1, 2000 and no expense would be recognized for any additional compensation
cost measured that is attributable to periods before July 1, 2000. We believe
the adoption of this interpretation will not have a significant impact on our
financial position, results of operations or cash flows.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We have no derivative financial instruments in our cash and cash
equivalents. We invest our cash and cash equivalents in securities of the U.S.
governments and its agencies and in investment-grade, highly liquid investments
consisting of commercial paper, bank certificates of deposit and corporate
bonds. We anticipate investing our net proceeds from this offering in
investment-grade and highly liquid investments pending their use as described in
this prospectus.

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<PAGE>
BUSINESS

OVERVIEW

We have selected colorectal cancer as the first application of our
technology platform because it is the most deadly cancer among non-smokers,
curable if detected early and well understood from a genomics point of view.
There are an estimated 74 million Americans age 50 and above for whom the
American Cancer Society and National Cancer Institute recommend regular
colorectal cancer screening. Moreover, current detection methods for colorectal
cancer have proven to be inadequate screening tools.

We have developed proprietary technologies that isolate the human DNA shed
from the colon into stool. We then identify mutations in DNA shed from abnormal
cells associated with colorectal cancer and pre-cancerous lesions. We have
conducted blinded clinical studies at the Mayo Clinic that we believe indicate
the superiority of our colorectal cancer screening tests to current early
detection screening methods. We are currently conducting an additional blinded
clinical study for colorectal cancer screening tests using our technologies and
are seeking to develop commercial products and services based on these
technologies.

Our goal is to become the leading company applying genomics to the early
detection of cancer. The key components of our business strategy are as follows:

- commercialize our colorectal cancer screening technologies;

- extend our genomics technologies to other cancers; and

- continue to make scientific and technological advances in applied
genomics.

If successful, we believe our strategies will lead to regular screening of large
portions of the population for colorectal cancer and several other types of
cancer, which would result in a significant recurring revenue stream for us.

GENOMICS AND COLORECTAL CANCER

Genomics, broadly defined, is the study of the genome and its importance in
human physiology and disease. Initial efforts in genomics centered on
identifying the definitive sequence of every gene in the human genome.
Scientists are now focusing on applied genomics--understanding the function of
individual genes and the role of genetic variation in disease and disease
management.

Cancer develops when the DNA in a single normal cell mutates or changes to
encourage uncontrolled cell growth. In a ground-breaking paper published in the
NEW ENGLAND JOURNAL OF MEDICINE in 1988, Dr. Bert Vogelstein, one of our
scientific collaborators, and his colleagues described a multi-step model of
colorectal cancer development. In 1990, Dr. Eric Fearon, a former member of our
scientific advisory board, and Dr. Vogelstein published a diagram depicting the
development of

21
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colorectal cancer. An updated version of this diagram showing many of the
genomic events involved in the development of colorectal cancer is shown below:

The graphic on this page consists of the words "Chromosome" and "Mutation"
on the left side of the chart with the word "Chromosome" listed above
"Mutation". Equally spaced and in line with the word "Chromosome" from left to
right are the phrases "5q loss", "18q loss", "17p loss" and "8p loss". Equally
spaced in line with the word "Mutation" from left to right are "Apc" directly
underneath "5q loss", with the word "Beta-Catenin" directly underneath "Apc",
"K-ras" directly underneath "18q loss", "Bat-26" directly underneath "17p loss",
with "p53" directly underneath "Bat-26". Below these words are 5 equally spaced
boxes connected by arrows from left to right. The following phrases are in the
indicated box: "Normal Epithelium" in the first box, "Early Adenoma" in the
second box, "Late Adenoma" in the third box, "Early Cancer" in the fourth box
and "Late Cancer" in the fifth box. There is also an arrow connecting the
corresponding chromosome and mutations to the space between the boxes.

The diagram illustrates that cancer develops in steps, and that it arises
from alterations in multiple genes in an individual cell, frequently with
chromosome loss. The diagram shows that these alterations lead to pathologic
changes in the colon from normal epithelium--the tissue that lines the surface
of the colon--through early and late adenomas, which are a form of pre-cancerous
growth, to early cancer and late cancer. These alterations, shown in the above
diagram, usually accumulate over many years, and are typically due to:

- mutations in individual genes, such as the APC, K-RAS and P53 genes;

- larger scale effects in which large parts of a chromosome or even entire
chromosome arms, such as 5q, 18q, 17p and 8p, are deleted; or

- deletions in DNA regions such as BAT-26.

The multi-step process provides genomic targets for the early detection of
cancer. The detection of genetic alterations associated with cancer allows for
the direct, early detection of cancer before the onset of symptoms.

COLORECTAL CANCER

OVERVIEW

Colorectal cancer is the most deadly cancer in the U.S. among non-smokers
and the second most deadly cancer overall. Only lung cancer kills more people
each year. The American Cancer Society estimates that in the U.S. there will be
approximately 136,000 new cases and approximately 57,000 deaths in the year 2000
from colorectal cancer. Almost 50% of the patients with a new diagnosis of
colorectal cancer will die within five years.

Medical practitioners commonly classify colorectal cancer into four stages
at the time of diagnosis as shown in the following table:

The chart is a rectangle with six vertical columns and three horizontal
rows. The vertical columns, from left to right, are titled as follows: Column
one is titled "Stage"; Column two is titled "Classification"; Column three is
titled "Extent of Disease"; Column four is titled "% of Patients Diagnosed at
This Stage"; Column five is titled "5-Year Survival Rates (approximate)"; and
Column six is titled "Typical Treatment". The first row has the words: "Early"
in the first column; the second column, which is subdivided into two rows, has
the phrases "Dukes' A" in the top subdivison and "Dukes' B" in the bottom
subdivision; the third column, which is subdivided into two rows, has the
phrases "Confined to the surface lining of the colon" in the top subdivision and
"Below the surface; no lymph node involvement" in the bottom subdivision; the
fourth column has the percentage "37%" in the first row; the fifth column, which
is subdivided into two rows, has the percentages "95%" in the top subdivision
and "85%" in the bottom subdivision; the sixth column has the word "Surgery".
The second row has the word "Late" in the first column; the second column, which
is subdivided into two rows, has the words "Dukes' C" in the top subdivision and
"Dukes' D" in the bottom subdivision; the third column, which is also subdivided
into two rows, has the phrases "Lymph node involvement" in the top subdivision
and "Metastatic disease" in the bottom subdivision; the fourth column has the
percentage "63%"; the fifth column, which is subdivided into two rows, has the
percentages "50%-60%" in the top subdivision and "10%" in the bottom
subdivision; and the sixth column has the phrase "Surgery and chemotherapy".

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Detection of pre-cancerous adenomas and cancer in its earliest stages
increases the number of patients who survive and reduces the cost of treatment
and care. As a result, the American Cancer Society and National Cancer Institute
recommend that the 74 million Americans age 50 and above undergo regular
colorectal cancer screening tests.

PROBLEMS WITH CURRENT DETECTION METHODS FOR SCREENING

Fecal occult blood testing, flexible sigmoidoscopy and colonoscopy are the
three principal methods that have been used to detect colorectal cancer. Despite
the availability of these and other screening and diagnostic tests for more than
20 years, the rate of early detection of colorectal cancer remains low, with
only limited effect on mortality. In 1999, Medicare reimbursement records showed
that only 14% of Americans over age 65 were screened for colorectal cancer. We
believe that no screening strategy is commercially available today that allows
for the highly sensitive, early detection of colorectal cancer in a manner that
is acceptable to patients, medical practitioners and payors.

Medical practitioners characterize cancer-screening tests using three
principal parameters: sensitivity, specificity and compliance. Sensitivity
measures a test's ability to detect the presence of disease when the patient has
disease. Specificity measures a test's ability to correctly identify individuals
who are disease-free. A failure of specificity, commonly referred to as a false
positive, is the failure of a test to correctly identify an individual who is
disease-free. Compliance rates measure the percentage of patients for whom
screening is recommended that are screened at the recommended interval.

FECAL OCCULT BLOOD TESTING (FOBT). FOBT does not detect cancer directly but
rather detects the presence of blood in stool. Typically, a patient must
retrieve two small portions of stool from the toilet on each of three successive
days and smear each portion onto a small chemically impregnated card. The
patient must modify his or her diet to eliminate red meat and certain fruits and
vegetables and also eliminate the use of certain medications such as aspirin for
three days prior to the stool sample collection, as well as during the three
days of stool sample collection. If the FOBT results are positive, medical
practitioners refer the patient for colonoscopy for a definitive diagnosis.

Although FOBT is non-invasive, it has the following limitations:

- LOW SENSITIVITY. FOBT detects on average only 25%-30% of patients with
cancer in any stage and only approximately 12% of patients with
pre-cancerous adenomas greater than one centimeter.

- LOW RATE OF EARLY-STAGE DETECTION. FOBT is less effective in detecting
Dukes' A and B cancers, for which survival rates are higher and treatment
costs are less expensive, than in detecting Dukes' C and D cancers.

- LOW SPECIFICITY. Because blood can be present in the stool for many
reasons other than colorectal cancer, such as hemorrhoids or red meat in
the diet, FOBT has a reported false positive rate of approximately 7%,
based on Medicare claims data. We estimate that six to ten million FOBT
tests are completed each year. This means approximately 420,000-700,000
patients per year are unnecessarily referred for follow-up colonoscopies.

- LOW COMPLIANCE. Of the 74 million Americans age 50 and above who should be
annually screened, only 20 million receive FOBT cards annually and we
estimate only six to ten million of those complete the FOBT test. This
means less than 15% of those Americans who should be screened each year
complete an FOBT test. We believe this low compliance is a result of low
sensitivity at detecting early stages of cancer, the dietary restrictions
and unappealing nature of the process.

FLEXIBLE SIGMOIDOSCOPY. Flexible sigmoidoscopy is a procedure performed
without sedation, and after an often unpleasant bowel preparation, in which a
physician inserts a fiber-optic endoscope one to

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two feet into the colon to explore the lower third of the colon. If flexible
sigmoidoscopy results are positive, medical practitioners refer patients for
colonoscopy for further diagnosis.

Although flexible sigmoidoscopy is more sensitive and more specific than
FOBT, it has the following limitations:

- INVASIVE PROCEDURE. Before a flexible sigmoidoscopy procedure, a patient
must undergo a bowel preparation procedure to remove stool from the lower
third of the colon to make a visual examination possible. Since medical
practitioners perform flexible sigmoidoscopy without sedation, patients
feel varying degrees of pain and embarrassment.

- LOW SENSITIVITY. Flexible sigmoidoscopy at best can directly visualize no
more than half of all colorectal cancers and adenomas. The other half of
cancers are located in the upper two thirds of the colon, beyond the range
of the endoscope. A patient's inability to tolerate the procedure and
incomplete bowel preparation further limit sensitivity.

The above current screening methodologies are summarized below:

<TABLE>
<CAPTION>
SENSITIVITY SPECIFICITY
METHOD PROCEDURE DESCRIPTION (APPROXIMATE) (APPROXIMATE)
---------------------- ------------------------------- ------------- -------------
<S> <C> <C> <C>
FOBT - Detects presence of blood in 25%-30% 93%
stool
- Non-invasive
- Three days of retrieving
stool

FLEXIBLE SIGMOIDOSCOPY - Physician inserts endoscope 48% 95%
one
to two feet into colon
- Performed without sedation
- Unpleasant bowel preparation
</TABLE>

COLONOSCOPY. Colonoscopy is a procedure that allows a physician to
visualize the entire length of the colon and, during the same procedure, remove
some cancerous and pre-cancerous lesions. A colonoscope is identical to a
flexible sigmoidoscope except that its insertion depth is approximately six feet
instead of one to two feet. Medical practitioners perform colonoscopy with the
patient under sedation after undergoing a thorough bowel preparation prior to
the procedure.

Although medical practitioners view colonoscopy as the definitive method for
diagnosis, we believe it is not a practical method for mass screening. The short
supply of skilled clinicians, the cost of the procedure and patient discomfort,
as well as a small risk of complications and death have limited the use of
colonoscopy as a screening test. If opinion leaders were to recommend
colonoscopy for screening of average-risk individuals, we estimate that it would
take more than a decade to perform a first round of screening on every one of
the recommended 74 million Americans age 50 and above.

OUR SOLUTION

Many non-invasive cancer screening methods are not effective early detection
methods. For example, PSA for prostate cancer screening, mammography and FOBT
find only indirect evidence of cancer and suffer from lack of sensitivity or
specificity. As a result, mortality, morbidity and the cost of treatment of many
cancers remain high. We have made significant scientific advances that we
believe will allow for the direct early detection of several types of common
cancers. Our business opportunity is to use our technologies to lower mortality,
morbidity and the costs associated with these cancers.

The first application of our technologies is colorectal cancer screening. We
believe medical practitioners will order tests using our technologies every one
to three years to screen for the presence of colorectal cancer. Using our
proprietary genomic technologies, a laboratory will isolate the human

24
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DNA shed into the stool from the colon. The laboratory will then use our
technologies to identify mutations in the genome shed from abnormal cells
associated with adenomas and colorectal cancer. When individuals test positive
in these tests, medical practitioners will refer them for colonoscopy for
follow-up. Through regular screening, we believe that tests using our
technologies will enable the detection of colorectal cancer and adenomas earlier
so that patients can be treated effectively.

We believe colorectal cancer screening tests using our technologies will
become a widely-accepted and regularly-used screening tool as a result of the
following features and benefits:

- EARLIER DETECTION. Early detection saves lives. We believe colorectal
cancer screening tests using our technologies will detect Dukes' A and B
cancers, as well as some pre-cancerous lesions. We believe that this will
represent a marked improvement over current colorectal cancer screening
methods.

- HIGHER SENSITIVITY. Since the fall of 1998, we have conducted a series of
blinded clinical studies at the Mayo Clinic using our colorectal cancer
screening tests. In these clinical studies, the sensitivity of our tests
for colorectal cancer substantially exceeded the sensitivity reported for
FOBT and flexible sigmoidoscopy.

- HIGHER COMPLIANCE. We designed our technologies to detect colorectal
cancer from a single whole stool sample obtained non-invasively. Patients
are not required to touch their stool, modify their diet or undergo bowel
preparation. Moreover, we believe that, based on the results of our
clinical studies and trials, opinion leaders will educate primary care
physicians, about the potential for improving detection of colorectal
cancer with our technologies. We also believe that this will lead many
primary care physicians to make regular testing based on our technologies
a part of their physical examinations of patients aged 50 and above who,
upon learning of the benefits, will be likely to submit to such testing.

- COST-EFFECTIVE PREVENTION AND TREATMENT. We believe that colorectal cancer
screening tests using our technologies will detect early stage lesions
more effectively than current screening methods. As a result of this early
detection, medical practitioners can treat early stage colorectal cancer
and pre-cancerous lesions in a less expensive and more effective manner
than late stage cancer.

- SCALABILITY. Screening 74 million Americans age 50 and above requires a
scalable process. Procedures such as flexible sigmoidoscopy and
colonoscopy suffer problems of scalability because of the short supply of
skilled clinicians. We believe tests using our technologies will enable
mass screening on a regular basis.

OUR STRATEGY

Our goal is to become the leading company applying genomics to the early
detection of cancer. The key components of our strategy are as follows:

- COMMERCIALIZE OUR COLORECTAL CANCER SCREENING TECHNOLOGIES. We selected
colorectal cancer as the first application of our technologies because the
target market is large and not well served. We intend to commercialize our
products and services through a staged market entry. Initially, we intend
to offer colorectal cancer screening services ourselves to establish the
market. We then intend to license our proprietary technologies and sell
reagents to leading clinical reference laboratories to enable them to
develop tests. We may also package our technologies and seek approval for
diagnostic test kits with which any clinical laboratory could conduct our
tests.

- EXTEND OUR GENOMICS TECHNOLOGIES TO OTHER CANCERS. We believe that our
current technologies will be applicable to the early detection of several
other types of common cancers. We believe that certain of our technologies
allow for the early detection of cancers without knowledge of the precise
genomic basis of the cancer. As a result, we may be able to develop tests
for cancers before the genomic basis of such cancers is discovered. In our
clinical trials, we have achieved

25
<PAGE>
promising results in detecting certain aerodigestive cancers. We intend to
test for these and other types of common cancers in future clinical trials
and will commercialize tests using our technologies to detect cancers that
we believe have the most potential.

- CONTINUE TO MAKE SCIENTIFIC AND TECHNOLOGICAL ADVANCES IN APPLIED
GENOMICS. Our proprietary sample preparation and detection methods have
enabled us to produce significant improvements in the early detection of
cancer from a minute amount of altered DNA. Because we believe our
detection methods are novel, we are developing and testing multiple
detection methods to minimize our technical and business risk. We intend
to continue to develop additional proprietary sample preparation and
detection methods for the early detection of common cancers.

If successful, we believe our strategies will lead to regular screening of large
portions of the population for colorectal cancer and several other types of
cancer, which would result in a significant recurring revenue stream for us.

OUR TESTING PROCESS

Diagnostic tests typically require sample collection and preparation
procedures as well as detection methods. We have overcome significant technical
challenges in the development of a three-step sample collection and preparation
process and four detection methods that apply genomics to the early detection of
colorectal cancer. We have eight issued U.S. patents and 23 pending U.S. patent
applications relating to our testing process.

This chart has three boxes and one oval connected by arrows from left to
right with the following words in each box or oval: "Specimen Collection and
Transportation", "Representative Sampling", "DNA Extraction, Purification and
Amplification" and "Cancer Detection Methods".

SPECIMEN COLLECTION AND TRANSPORTATION. We have based our tests on
collecting a single whole stool in a self-contained device. Patients will bring
the samples to their physicians who will forward them to the laboratory
performing the colorectal cancer screening test.

REPRESENTATIVE SAMPLING. In the past, DNA testing using stool samples
lacked sensitivity. We believe that this was due to the non-uniform distribution
of abnormal DNA in stool. We have invented proprietary methods to assure that
the portion of stool that is processed at the laboratory is representative of
the entire stool. We believe these methods lead to increased sensitivity.

DNA EXTRACTION, PURIFICATION AND AMPLIFICATION. The isolation and
amplification of human DNA found in stool is technically challenging because
over 99% of DNA is not human DNA, but is DNA from bacteria normally found in the
colon. In addition, there are substances in stool that make the isolation and
amplification of human DNA a difficult task. Our proprietary technologies
simplify the isolation and amplification of human DNA found in stool.

CANCER DETECTION METHODS. We have designed four proprietary methods for
detecting and identifying genomic markers associated with colorectal cancer that
can be performed on instruments commonly available in clinical laboratories
conducting molecular testing.

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<PAGE>
OUR PROPRIETARY CANCER DETECTION METHODS

Our technology platform consists of the proprietary cancer detection methods
set forth in the table below. Each of these methods enables the early detection
of cancer in a minute amount of altered DNA obtained from a sample that is
composed of DNA largely from normal cells.

<TABLE>
<CAPTION>
NAME ROLE IN DETECTION OUR SCIENTIFIC ADVANCE
------------------ ---------------------------------- ----------------------------------
<S> <C> <C>
MULTIPLE MUTATION - Each element of MuMu detects a - Sensitive and specific detection
DETECTION (MUMU) single mutation of a of single DNA mutations
cancer-related gene

DELETION - Detects short deletions and - Distinguishes between deletions
TECHNOLOGY insertions in the BAT-26 region and insertions resulting from
of a specific gene the testing itself, and those
associated with mismatch-repair
cancers

DNA INTEGRITY - Detects longer human DNA - Proprietary marker associated
ASSAY (DIA) fragments associated with with cancer that does not require
abnormality knowledge of which genes cause
cancer

ENUMERATED LOSS OF - Enumerates ratio of paternal DNA - Statistical method that applies
HETEROZYGOSITY as compared to maternal DNA at a a commonly used analytical
(E-LOH) given genomic site to identify technique to indicate a missing
chromosomal loss that is gene and does not require
characteristic of many cancers knowledge of which genes cause
cancer
</TABLE>

MULTIPLE MUTATION. Multiple Mutation, or MuMu, identifies DNA mutations at
specific sites. We have selected 15 sites that are commonly mutated in the
colorectal cancer-related genes APC, P53 and K-RAS. We have designed our
proprietary MuMu method to allow simultaneous probing of different DNA sequences
and to allow analysis even though only a small amount of DNA in the sample is
derived from abnormal cells while the vast majority is derived from normal human
cells or bacteria.

DELETION TECHNOLOGY. Deletion Technology detects short deletions and
insertions in segments of DNA that are indications of defects in cellular
mechanisms for DNA repair. Approximately 15% of colorectal cancers, referred to
as mismatch-repair cancers, result from inactivation of the proteins that
normally repair errors in DNA after DNA replication. We have developed a
proprietary method for identifying this condition by detecting the presence of
short deletions and insertions in a DNA segment known as BAT-26. This altered
gene segment appears in virtually all colorectal cancers resulting from defects
in the mismatch repair mechanism.

DNA INTEGRITY ASSAY. DNA recovered from the stool of many cancer patients
contains a small but detectable population of DNA that is longer than DNA
recovered from individuals who are normal and have never had cancer or an
adenoma. Use of this proprietary detection method does not require knowledge of
which genes cause cancer. In addition to its utility for our colorectal cancer
tests, we believe that this discovery may lead us to the development of a marker
for other cancers, including lung, pancreas, gall bladder and bile duct cancers.

ENUMERATED LOSS OF HETEROZYGOSITY. In normal cells, the quantity of DNA
inherited from each parent is generally equal. This is not true for cells from
many different types of cancers, including virtually all non-mismatch repair
colorectal cancers. This condition, which is an imbalance of maternal

27
<PAGE>
and paternal chromosomal fragments, is called loss of heterozygosity, or LOH.
Prior to our development efforts, we believe that scientists were unable to
detect LOH in stool samples. We have developed proprietary methods for detecting
LOH in a highly heterogeneous DNA sample such as stool by enumerating the ratio
of fragments of DNA that are inherited from each parent at defined locations in
the genome. We call this detection method e-LOH. Use of this detection method
does not require knowledge of which genes cause cancer. We believe that our
novel e-LOH detection method may be broadly applicable to early cancer detection
from many body sites.

SALES AND MARKETING

We are building our organization and programs to support our
commercialization strategy--applying our proprietary technologies to the early
detection of colorectal cancer initially and then extending our technologies to
several other types of cancers. We believe that opinion leaders in genomics,
gastroenterology and primary care are key to establishing tests using our
technologies as a standard of care for colorectal cancer screening. We have
worked closely with leading researchers and academic institutions, including the
Mayo Clinic and Johns Hopkins University, since our inception to evaluate our
technologies and our colorectal cancer screening tests, and to gain support for
our clinical studies. We participate in conferences and scientific meetings. Our
first full-length peer-reviewed article has been accepted for publication in
GASTROENTEROLOGY. We also believe our continuing efforts will make our products
and services attractive to third-party payors, medical practitioners and
patients.

In addition, we intend to build upon public awareness about colorectal
cancer. Several stories of high profile individuals with colorectal cancer have
increased public awareness about colorectal cancer and the need for effective
early detection. We believe that this publicity has a heightened effect on the
public given an increasing perception that people wish to take more control over
decisions relating to their medical care.

We intend to commercialize our products and services through a staged market
entry. Initially, we intend to offer colorectal cancer screening services
ourselves to establish the market. We then intend to license our proprietary
technologies and sell reagents to leading clinical reference laboratories to
enable them to develop their own tests. We may also package our technologies and
seek approval for diagnostic test kits with which any clinical laboratory could
conduct tests using our technologies.

In support of our staged market entry strategy, we plan to execute a
multi-channel sales approach. Initially, we intend to create our own dedicated
business development team whose efforts will focus on securing adequate
reimbursement for our products and services. This team will also educate senior
staff of the Health Care Financing Administration, or HCFA, large managed care
organizations, or MCOs, insurance companies, large employers and large physician
groups about the cost effectiveness of using our products and services. In
parallel with this effort, we intend to enter into business relationships with
leading clinical reference laboratories that will market their own tests
utilizing our technologies through their dedicated sales forces. In addition, we
may enter into business relationships with distributors of other medical
products to distribute our products and services.

We believe that our business relationships with leading clinical reference
laboratories will support the strategies of these laboratories to expand their
molecular diagnostic businesses. In addition, we believe that tests utilizing
our technologies will be attractive to the clinical reference laboratories
because such tests:

- enable laboratories to perform higher volumes of testing with their
existing infrastructure;

- enable the laboratories to differentiate themselves technologically; and

- offer potentially higher gross margins than most existing tests.

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<PAGE>
CLINICAL STUDIES

COLORECTAL CANCER

In conjunction with the Mayo Clinic, we have conducted three blinded
clinical studies since the fall of 1998. These clinical studies included stool
samples from 219 patients, 58 of whom had cancer. Each patient participating in
our clinical studies received a colonoscopy to determine whether cancer was
present. The first two clinical studies were conducted using frozen, partial
stool samples. The sensitivity for each of these two clinical studies was 91%
and 67%, respectively. When excluding the data from patients who began bowel
preparation before their stool samples were collected, which we believe may have
lowered sensitivity, sensitivity was 91% and 72%, respectively. In the spring of
2000, we conducted a third clinical study at the Mayo Clinic in which we
collected fresh, whole stool. The sensitivity for this clinical study was 78%.
These sensitivity rates are superior to the 25%-30% sensitivity of FOBT and the
approximately 48% sensitivity of flexible sigmoidoscopy for colorectal cancers
located throughout the colon. Specificity ranged from 95% to 100% across all
three clinical studies. These specificity rates are comparable or superior to
rates reported for FOBT and flexible sigmoidoscopy.

The results of these three blinded clinical studies are set forth in the
table below:

<TABLE>
<CAPTION>
NUMBER OF
STUDY COMPLETION DATE PATIENTS SAMPLE TYPE SENSITIVITY SPECIFICITY
------------------------- --------------- ---------- -------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Mayo Clinic I Pilot Study November 1999 61 Frozen partial stool 91% 95-100%

Mayo Clinic II Study April 2000 129 Frozen partial stool 67-72% 95%

Mayo Clinic III Study June 2000 29 Fresh whole stool 78% 100%
</TABLE>

Based on these results, in August 2000 we initiated our first multi-center
clinical study expected to include patients who are at high risk of having
colorectal cancer, as well as average-risk patients. This clinical study is
designed to provide additional sensitivity data for freshly collected whole
stools. As of October 6, 2000, we have enrolled 160 patients for this clinical
trial. We believe that this clinical study will be completed in the third
quarter of 2001.

Upon completion of the clinical study that began in August 2000, we intend
to initiate a blinded multi-center clinical trial that will include an estimated
5,300 patients age 50 and older with average-risk profiles from approximately 40
academic and community-based practices. The goal of this clinical trial will be
to compare the sensitivity and specificity of our tests for colorectal cancer to
that of existing technologies on average-risk individuals. We intend to conduct
this clinical trial in accordance with the applicable guidelines of the Food and
Drug Administration, or FDA, so that the results may be used in any application
that we may make to the FDA.

ADENOMAS

While most adenomas do not progress to cancer in a patient's lifetime, those
that do are more likely to have villous features characterized by an irregular
surface and associated with more rapid growth. In the Mayo Clinic II study,
there were 24 patients with adenomas greater than one centimeter. The
sensitivity of our screening tests in detecting these adenomas with villous
features was 56%. The sensitivity results for villous adenomas are much better
than those obtained with FOBT and are comparable to those obtained by flexible
sigmoidoscopy. We believe that by detecting adenomas more likely to progress to
cancer during a patient's lifetime through a non-invasive screening procedure we
will provide additional medical value for our technologies. We intend to test
for adenomas in our planned 5,300-patient clinical trial.

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<PAGE>
HOLIDINGS OF OUR COMMON STOCK

The Mayo Foundation for Medical Education and Research, an affiliate of the
Mayo Clinic, holds 37,500 shares of our common stock, 80,952 shares of our
Series C convertible preferred stock and 5,494 shares of our Series D
convertible preferred stock. The Series C convertible preferred stock and
Series D convertible preferred stock will automatically convert into
shares of our common stock upon the completion of this offering. Dr. Ahlquist, a
member of our scientific advisory board, was a principal investigator on the
Mayo studies. Dr. Ahlquist holds none of our capital stock and has been paid no
consulting fees by us.

REIMBURSEMENT

We intend to obtain reimbursement for tests using our technologies from
Medicare, major national and regional MCOs and insurance carriers. We currently
do not have reimbursement approval from any organization. Medicare and other
third-party payors will independently evaluate our technologies by reviewing the
published literature with respect to the results obtained from our clinical
studies. We intend to assist them in evaluating our technologies by providing
scientific and clinical data to support our claims regarding the superiority of
our technologies. In addition, we intend to present analysis showing the
benefits of early disease detection and the resulting cost-effectiveness of our
technologies. We also intend to apply for a current procedural terminology code
which facilitates Medicare reimbursement.

The Federal Balanced Budget Act of 1997 required Medicare to reimburse for
colorectal cancer screening for average-risk patients beginning on January 1,
1998 and mandated Medicare coverage for FOBT and flexible sigmoidoscopy. Based
on evidence provided by the Black Caucus and the Black Caucus Health Brain
Trust, Congress amended the Budget Act of 1997 to include coverage for double
contrast barium enema, a radiographic imaging test used to detect colorectal
cancer in areas beyond the reach of flexible sigmoidoscopy. We believe these
actions provide evidence of the public interest in new colorectal cancer
screening methods and the federal government's willingness to fund these
methods.

Most importantly, the Budget Act of 1997 allows new technologies to be
included as colorectal cancer screening tests by action of the Secretary of
Health and Human Services without the need for additional Congressional action.
In the spring of 1999, we met with senior staff members of HCFA to apprise them
of our progress and to determine the steps we would need to take prior to a
reimbursement determination. Following that meeting, we successfully petitioned
HCFA staff to cover all medical expenses of a patient participating in our
clinical studies who tests positive for colorectal cancer, which we believe is a
departure from HCFA's policy of not reimbursing for these costs.

In addition, we have met with several members of Congressional staffs and
national organizations with an interest in colorectal cancer. In October 1999,
we testified before the Subcommittee on Health of the House Ways and Means
Committee in support of the Eliminate Colorectal Cancer Act of 1999, sponsored
by Senators Edward Kennedy and Jesse Helms. The Eliminate Cancer Act of 1999
requires private insurers to cover colorectal cancer screening tests deemed
appropriate by the third-party payors and patients. In addition, we have worked
with the Black Caucus and the Black Caucus Health Brain Trust.

We are also meeting with senior executives, medical directors and chiefs of
service in gastroenterology and primary care at MCOs, insurance companies, large
employers and large physician groups. The person in each of these positions will
play a key role in the reimbursement determination for tests using our
technologies.

We believe that colorectal cancer screening tests based on our technologies
will save more lives more cost-effectively than any other colorectal cancer
screening method available today.

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Reimbursement for FOBT tests ranges from $5 to $30, but FOBT is most effective
in detecting later stage cancers where survival rates are low and treatment
costs are high. Reimbursement for flexible sigmoidoscopy ranges from $180 to
$500, but flexible sigmoidoscopy at best can directly detect no more than half
of all colorectal cancers and adenomas. We believe that reimbursement for
colonoscopy for cancer screening will be approved in the near future. The cost
of this procedure ranges from $700 to $2,000, and while colonoscopy is
sensitive, the use of colonoscopy as a screening test has been limited.

RESEARCH AND DEVELOPMENT

Our research and development efforts aim to develop multiple genomics
methods for the early detection of cancer and pre-cancerous lesions. We believe
that the evaluation of these methods in a clinical setting will determine the
best approaches for commercialization. Finally, we believe it is necessary to
develop methods to automate and simplify the collection, preparation and
analysis of samples to produce cost-effective commercial tests.

PROCESS DEVELOPMENT. We have undertaken a multi-year effort to automate our
testing process and reduce the cost of processing stool samples. Our objectives
include eliminating many of the manual steps, reducing the use of expensive
reagents and increasing screening throughput. This effort is important so that
we will be able to offer our products and services at commercially reasonable
prices in our own laboratory and then enter into business relationships with
leading clinical reference laboratories.

EXTENSIONS TO OTHER CANCERS. Our proprietary DIA detection method uses a
marker that may be broadly applicable to the detection of cancers other than
colorectal cancer. In the course of our blinded clinical studies at the Mayo
Clinic, we tested 50 stool samples from patients diagnosed with aero-digestive
cancers at sites other than the colon, such as cancer in the lung, pancreas,
esophagus, stomach and duodenum, gall bladder and bile ducts. The results are
shown in the table below.

<TABLE>
<CAPTION>
NUMBER DETECTED/
LOCATION OF CANCER NUMBER WITH CANCER PERCENT DETECTED
---------------------------------------------- ------------------- ----------------
<S> <C> <C>
Lung, non-adenocarcinoma 7/8 88%
Lung, adenocarcinoma 3/13 23%
Pancreas 10/11 91%
Esophagus 3/7 43%
Stomach/Duodenum 1/5 20%
Gall Bladder/Bile Ducts 6/6 100%
</TABLE>

Combined, these cancers kill more people than colorectal cancer. We intend
to collect additional data on these aero-digestive cancers in our planned
5,300-patient clinical trial. If the results are promising, we will develop
methods and technologies to detect these cancers.

ADENOMAS. While our research focus has been the detection of cancer, we
intend to conduct research on improved methods for adenoma detection as well,
particularly those adenomas with villous features. We have invented a new method
for scanning regions of DNA at which mutations associated with adenoma
development are often found.

NEW TECHNOLOGY PLATFORM. As part of this effort, we are also conducting
research on a new technology that may enable us to develop new instrumentation
and methods for life sciences research. If successful, we believe this
technology may be used in both clinical and research laboratories for detecting
abnormalities in DNA, identifying single nucleotide polymorphisms in populations
of individuals and for high throughput screening in the pharmaceutical industry.

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RESOURCES AND EXPENSES. As of September 30, 2000, we had 23 employees
engaged in research and development. For the year ended December 31, 1999,
research and development expenses were approximately $3.7 million. For the six
months ended June 30, 2000, research and development expenses were approximately
$2.3 million.

GOVERNMENT REGULATION

We are subject to extensive regulation by the FDA under the Federal Food,
Drug and Cosmetic Act and regulations thereunder, including regulations
governing the development, marketing, labeling, promotion, manufacturing and
export of our products. Failure to comply with these requirements can lead to
stringent sanctions, including withdrawal of products from the market, recalls,
refusal to authorize government contracts, product seizures, civil money
penalties, injunctions and criminal prosecution.

We intend to offer colorectal cancer screening services performed in our own
laboratories. We then intend to license our intellectual property and sell our
reagents that target specific areas in the genome to leading clinical reference
laboratories to enable them to perform their own colorectal cancer screening
services, using their own test methods, equipment and additional reagents. We
may also package our technologies in the form of diagnostic test kits with which
clinical laboratories could conduct colorectal cancer screening tests.

Generally, medical devices, a category that includes our products, require
FDA approval or clearance before they may be marketed. The FDA has not, however,
actively regulated laboratory tests that have been developed and used by the
laboratory conducting the tests. The FDA does regulate the sale of analyte
specific reagents used in such tests, or ASRs, such as our reagents that target
specific areas of the genome. ASRs generally do not require FDA approval or
clearance if they are used in in-house laboratories or are sold to clinical
laboratories licensed by the government to perform high complexity testing and
are labeled in accordance with FDA requirements, including a statement that
their analytical and performance characteristics have not been established. A
similar statement would also be required on all advertising and promotional
materials relating to ASRs such as ours. Laboratories also are subject to
restrictions on the labeling and marketing of tests that have been developed
using ASRs. The ASR regulatory category is relatively new and its boundaries are
not well defined, and there has been some discussion within the government of
changing the ASR regulation, although it is not certain whether any such changes
would affect our tests. We believe that our in-house testing and the ASRs that
we intend to sell to leading clinical reference laboratories licensed by the
federal government to develop their own tests do not require FDA approval or
clearance. We cannot be sure, however, that the FDA will not assert that our
tests or one or more of our reagents require premarket approval or clearance. In
addition, we cannot be sure that the FDA would not treat the licensing of our
intellectual property as labeling that would subject the reagent to premarket
approval or clearance and other FDA regulation. In addition, we cannot be sure
that the FDA will not change its position in ways that could negatively affect
our operations.

Any diagnostic test kits that we may sell would require FDA approval or
clearance before they could be marketed. There are two review procedures by
which a product may receive such approval or clearance. Some products may
qualify for clearance under a premarket notification, or 510(k) procedure, in
which the manufacturer provides to the FDA a premarket notification that it
intends to begin marketing the product, and demonstrates to the FDA's
satisfaction that the product is substantially equivalent to a legally marketed
product, which means that the product has the same intended use as, is as safe
and effective as, and does not raise different questions of safety and
effectiveness than a legally marketed device. A 510(k) submission for an in
vitro diagnostic device generally must include manufacturing and performance
data, and in some cases, it must include data from human clinical studies.
Marketing may commence when FDA issues a clearance letter.

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<PAGE>
If a medical device does not qualify for the 510(k) procedure, the FDA must
approve a premarket approval application, or PMA, before marketing can begin.
PMA applications must demonstrate, among other matters, that the medical device
is safe and effective. A PMA application is typically a complex submission,
usually including the results of preclinical and extensive clinical studies.
Before FDA will approve a PMA, the manufacturer must pass an inspection of its
compliance with the requirements of the FDA's quality system regulations.

We believe that most, if not all, of our products sold in diagnostic test
kit form will require PMA approval. The PMA process is lengthy and costly, and
we cannot be sure that the FDA will approve PMAs for our products in a timely
fashion, or at all. FDA requests for additional studies during the review period
are not uncommon, and can significantly delay approvals. Even if we were able to
gain approval of a product for one indication, changes to the product, its
indication, or its labeling would be likely to require additional approvals.

To use our tests either in diagnostic test kits or as ASRs in colorectal
cancer screening, physicians who order tests using our technologies will need to
provide patients a specimen container to collect stool. Specimen transport and
storage containers are also medical devices regulated by the FDA although they
generally have been exempted by regulation from the FDA's premarket clearance or
approval requirement. We believe that our specimen container falls within the
exemption, but we cannot be sure that the FDA will not assert that our container
is not exempt and seek to impose a premarket clearance or approval requirement.

Regardless of whether a medical device requires FDA approval or clearance, a
number of other FDA requirements apply to its manufacturer and to those who
distribute it. Device manufacturers must be registered and their products listed
with the FDA, and certain adverse events and product malfunctions must be
reported to the FDA. The FDA also regulates the product labeling, promotion, and
in some cases, advertising, of medical devices. Manufacturers must comply with
the FDA's quality system regulation which establishes extensive requirements for
quality control and manufacturing procedures. Thus, manufacturers and
distributors must continue to spend time, money and effort to maintain
compliance, and failure to comply can lead to enforcement action. The FDA
periodically inspects facilities to ascertain compliance with these and other
requirements.

We are also subject to U.S. and state laws and regulations regarding the
operation of clinical laboratories. The federal Clinical Laboratory Improvement
Act, or CLIA, and laws of certain other states, impose certification
requirements for clinical laboratories, and establish standards for quality
assurance and quality control, among other things. Clinical laboratories are
subject to inspection by regulators, and the possible sanctions for failing to
comply with applicable requirements. Sanctions available under CLIA include
prohibiting a laboratory from running tests, requiring a laboratory to implement
a corrective plan, and imposing civil money penalties. If we fail to meet CLIA
or state law requirements, it could cause us to incur significant expense.

INTELLECTUAL PROPERTY

In order to protect our proprietary technologies, we rely on combinations of
patent, trademark, copyright, and trade secret protection, as well as
confidentiality agreements with employees, consultants, and third parties.

We have pursued an aggressive patent strategy designed to maximize our
patent position with respect to third parties. Generally, we have filed patents
and patent applications that cover the methods we have designed to detect
colorectal cancer as well as other cancers, including lung, pancreas, gall
bladder and bile duct cancers. We have also filed patent applications covering
the preparation of stool samples and the extraction of DNA from heterogeneous
stool samples. As part of our strategy, we seek patent coverage in the United
States and in foreign countries on aspects of our technologies that we believe
will be significant and that provide barriers to entry for our competition. As
of October 20,

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<PAGE>
2000, we had eight issued patents in the United States, three issued foreign
patents, twenty-three pending patent applications in the United States, five of
which have been allowed, and thirty-eight pending foreign applications. Our
success depends to a significant degree upon our ability to develop proprietary
products and technologies and to obtain patent coverage for such products and
technologies. We intend to continue to file patent applications covering any
newly-developed products or technologies.

Each of our patents has a term of 20 years from their respective priority
filing dates. Consequently, our first patents are set to expire in 2016. We have
filed terminal disclaimers in certain later-filed patents, which means that such
later-filed patents will expire earlier than the twentieth anniversary of their
priority filing dates, from 2016 through 2017.

Two third-party institutions have asserted co-inventorship rights in our
patents and patent applications. One third-party institution has asserted
co-inventorship rights with respect to one of our issued patents relating to use
of our e-LOH detection method on pooled samples from groups of patients. Our
current cancer screening detection methods do not include pooled samples. A
second third-party institution has asserted co-inventorship rights in a pending
patent application owned by us relating to our DIA detection method using stool
in the detection of cancer other than colorectal cancer, and filed a later-dated
patent application covering substantially the same claims we made in our patent
application relating to our DIA detection method. To date, no legal proceedings
have been initiated by either third party.

If any third party, including the third parties discussed above, asserting
co-inventorship rights is successful in challenging our inventorship
determination, we may be required to add that third party inventor to the
applicable patents, resulting in co-ownership of such patents with the third
party. Co-ownership of a patent would allow the co-inventor to exercise all
rights of ownership, including the right to use the rights protected by the
applicable patent and, if we do not have a previously filed patent, to transfer
and license the rights protected by the applicable patent. In addition, a
challenge of our inventorship determination under any patent or patent
application by any third party, if successful, may result in the
unenforceability of the challenged patent or patents.

We license on a non-exclusive basis technology for performing a step in our
testing methods from Roche Molecular Systems, Inc. This license relates to a
gene amplification process used in almost all genetic testing, and the patent
that we utilize expires in mid-2004. In exchange for the license, we have agreed
to pay Roche a royalty based on net revenues we receive from tests using our
technologies.

We license on a non-exclusive basis technology for performing a step in our
testing methods from Genzyme Corporation, the exclusive licensee of patents
owned by Johns Hopkins University and of which Dr. Vogelstein is an inventor.
This license relates to the use of the APC and P53 genes and methodologies
related thereto in connection with our products and services and lasts for the
life of the patent term of the last-licensed Genzyme patent. In exchange for the
license, we have agreed to pay Genzyme a royalty based on net revenues we
receive from performing our tests and the sale of our reagents and diagnostic
test kits, as well as certain milestone payments and maintenance fees. In
addition, we must use reasonable efforts to make products and services based on
these patents available to the public.

COMPETITION

To our knowledge, none of the large genomics or diagnostics companies is
developing tests to conduct stool-based DNA testing; however, companies may be
working on such tests that have not yet been announced. In addition, other
companies may succeed in developing or improving technologies and marketing
products and services that are more effective or commercially attractive than
ours. Some of these companies may be larger than we are and can commit
significantly greater financial and other

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<PAGE>
resources to all aspects of their business, including research and development,
marketing, sales and distribution.

We face potential competition from alternative procedures-based detection
technologies such as sigmoidoscopy, colonoscopy and virtual colonoscopy as well
as traditional screening tests such as FOBT. Virtual colonoscopy involves a new
and experimental approach that requires patients to undergo bowel preparation
similar to a colonoscopy after which they are scanned by a spiral CT scanner.
Three-dimensional images are constructed to allow a radiologist to virtually
travel through the colon.

In addition, serum-based testing is an alternative cancer-screening approach
that is based on detection of proteins or nucleic acids that are produced by
colon cancers and may be found circulating in blood. We believe serum-based
testing is not able to detect disease at the earliest stages of cancer at levels
of sensitivity and specificity comparable to that of stool-based testing.

We believe the principal competitive factors in the cancer screening market
include:

- improved sensitivity;

- non-invasiveness;

- acceptance by the medical community and primary care medical
practitioners;

- adequate reimbursement from Medicare and other third-party payors;

- cost-effectiveness; and

- patent protection.

EMPLOYEES

As of September 30, 2000, we had 35 employees, six of whom have Ph.Ds.
Twenty-three persons are engaged in research and development, three persons in
sales and marketing and nine persons in general and administration. None of our
employees is represented by a labor union. We consider our relationships with
our employees to be good.

FACILITIES

We lease approximately 17,185 square feet of space in our headquarters
located in Maynard, Massachusetts. The lease expires on June 30, 2003. We have
an option to extend the lease for an additional three-year term and have a right
of first refusal on approximately 11,000 square feet of space as it becomes
available in the building. We believe that this facility is adequate to meet our
current and foreseeable requirements and that suitable additional or substitute
space will be available on commercially reasonable terms if needed.

LEGAL PROCEEDINGS

From time to time we are a party to various legal proceedings arising in the
ordinary course of our business. We are not currently a party to any legal
proceedings.

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MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

The following table sets forth specific information regarding our executive
officers, key employees and directors as of September 30, 2000:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Stanley N. Lapidus............................. 51 Chairman and Director
Don M. Hardison................................ 49 President and Director
John A. McCarthy, Jr.(1)....................... 41 Vice President and Chief Financial Officer
Anthony P. Shuber.............................. 42 Vice President of Molecular Biology
Barry M. Berger, MD............................ 48 Vice President of Laboratory Medicine
Robert B. Rochelle............................. 38 Vice President of Marketing
Noubar B. Afeyan, Ph.D......................... 38 Director
Richard W. Barker, Ph.D.(2).................... 52 Director
Sally W. Crawford(3)........................... 47 Director
Wycliffe K. Grousbeck(2)....................... 39 Director
William W. Helman.............................. 42 Director
Edwin M. Kania, Jr.(2)(3)...................... 43 Director
Lance Willsey, MD(3)........................... 39 Director
</TABLE>

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

(1) Mr. McCarthy joined us as Vice President and Chief Financial Officer on
October 2, 2000.

(2) Member of Compensation Committee.

(3) Member of Audit Committee.

STANLEY N. LAPIDUS, our founder, has served as a director since our
inception in February 1995, as President since our inception to May 2000 and as
Chairman since May 2000. In 1987, Mr. Lapidus founded Cytyc Corporation and
served as its President through 1994. In addition, Mr. Lapidus has been a
Research Assistant Professor in the pathology department of Tufts University
Medical School in Boston since Fall of 1994. Mr. Lapidus is an advisor of the
Harvard MIT Division of Health Services and Technology and has served on the
advisory board of Cooper Union School of Engineering since 1999. Mr. Lapidus has
also served on the advisory board of the Harvard School of Public Health's
Center for Cancer Prevention since 1995. Mr. Lapidus holds 15 issued U.S.
patents and 14 pending U.S. patent applications. Mr. Lapidus holds a BS degree
in electrical engineering from Cooper Union.

DON M. HARDISON has served as President and Director since May 2000. From
August 1998 to April 2000, Mr. Hardison was Managing Partner for Siebel Systems,
Inc. From January 1996 to February 1998, Mr. Hardison was Vice President of
Sales and Marketing for Quest Diagnostics Inc. From April 1978 to
December 1995, Mr. Hardison held various positions at SmithKline Beecham
Corporation, most recently as Vice President of Sales and Marketing for
SmithKline Beecham Clinical Laboratories. Mr. Hardison has an AB in political
science from the University of North Carolina, Chapel Hill.

JOHN A. MCCARTHY, JR. has served as Vice President and Chief Financial
Officer since October 2000. From October 1999 to October 2000, Mr. McCarthy was
President, Chief Operating Officer and Director for InfoMedtrics, Inc., a
developer of integrated data warehouse and decision support systems for large
self-insured employers and managed care organizations. From January 1998 to
August 1999, Mr. McCarthy was general partner of Crescent Gate, L.P., a private
equity fund that he co-founded. From August 1994 to January 1998, Mr. McCarthy
was employed by Concentra Managed Care, Inc., a nationwide provider of managed
care services to the workers' compensation, auto and disability marketplaces,
most recently as President of the Managed Care Services Division. From June 1992
through July 1994, Mr. McCarthy served as Senior Vice President and Chief
Financial Officer of

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MedChem Products, Inc., a specialty medical device and biomaterial company.
Mr. McCarthy holds a BS degree in finance from Lehigh University and an MBA from
Harvard Business School.

ANTHONY P. SHUBER has served as Vice President of Molecular Biology since
January 1998 and as Director of Molecular Biology from June 1996 to
January 1998. From October 1993 to June 1996, Mr. Shuber was Senior Scientist
and Manager of the Technical Development Laboratory for Genzyme Corporation.
Mr. Shuber holds a BS and MS degree in biology from Marquette University.

BARRY M. BERGER, MD has served as Vice President of Laboratory Medicine
since January 1999. Dr. Berger also serves on the faculty of Harvard Medical
School. From January 1988 to January 1999, Dr. Berger was Director of Pathology
and Laboratory Medicine for Harvard Pilgrim Healthcare, a healthcare delivery
and insurance managed care organization. Dr. Berger is a board certified
pathologist. Dr. Berger holds a BS in biology and chemistry from the University
of Miami and an MD degree from the University of Pennsylvania School of
Medicine.

ROBERT B. ROCHELLE has served as Vice President of Marketing since February
2000. Mr. Rochelle worked at the Pharmaceutical Products Division at Abbott
Laboratories as Director of Managed Care Marketing from December 1998 to January
2000, as Senior Product Manager from October 1997 to December 1998, as the
Senior Product Manager of the Antimicrobial Business Unit from April 1996 to
October 1997 and as the Manager of Business Development from May 1995 to
April 1996. Mr. Rochelle holds a BS degree in biology and psychology from
Trinity College and an MBA from the Tuck School of Business of Dartmouth
College.

NOUBAR B. AFEYAN, PH.D. has served as a director since September 1997.
Dr. Afeyan is the President and CEO of NewcoGen Group Inc., a new ventures firm
he founded in August 1999. NewcoGen Group Inc. is comprised of NewcoGen, a
venture firm focusing on information technology and life science fields, as well
as AGTC Funds, a new venture capital fund for the genomics industry. From
January 1998 to August 1999, Dr. Afeyan served as Senior Vice President and
Chief Business Officer of Applera Corporation (formerly PE Corporation), and
remains affiliated with Applera Corporation in an advisory capacity. In
November 1987, Dr. Afeyan founded PerSeptive Biosystems, Inc. and served as its
Chairman and Chief Executive Officer until it was acquired by PE Corporation in
January 1998. Dr. Afeyan is also a director of Antigenics Inc. Dr. Afeyan holds
a degree in chemical engineering from McGill University and a Ph.D. in
biochemical engineering from Massachusetts Institute of Technology.

RICHARD W. BARKER, PH.D. has served as a director since November 1999. Since
January 2000, Dr. Barker has served as President and Chief Executive Officer of
iKnowMed, Inc., a clinical knowledge network. From June 1996 to December 1999,
Dr. Barker worked at Chiron Diagnostics Corporation, a medical diagnostics
technology company, as Senior Vice President of Corporate Development from
November 1998 to December 1999 and as President and Chief Executive Officer from
June 1996 to November 1998. From May 1994 to May 1996, Dr. Barker served as
Worldwide General Manager for Healthcare Solutions, IBM, a healthcare and
information solution company. Dr. Barker is also a director of Sunquest
Information Systems, Inc. Dr. Barker holds a Ph.D. in biophysics from Oxford
University.

SALLY W. CRAWFORD has served as a director since August 1999. Ms. Crawford
has been an independent healthcare consultant since January 1997. From
April 1985 to January 1997, Ms. Crawford served as Chief Operating Officer for
Healthsource, Inc., a managed care organization which she co-founded.
Ms. Crawford is also a director of Chittenden Corp. and Cytyc Corporation.
Ms. Crawford holds a BA in English from Smith College and a MS in communications
from Boston University.

WYCLIFFE K. GROUSBECK has served as a director since December 1996.
Mr. Grousbeck has been a general partner of Highland Capital Partners, a venture
capital fund, since August 1996 and was an associate of Highland Capital
Partners from July 1995 to August 1996. Mr. Grousbeck is also a director

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<PAGE>
of LivePerson, Inc. Mr. Grousbeck holds an AB in history from Princeton
University, a JD from the University of Michigan and an MBA from Stanford
Graduate School of Business.

WILLIAM W. HELMAN has served as a director since May 1996. Mr. Helman has
served as general partner of Greylock X Limited Partnership since 2000 and
Greylock IX Limited Partnership since 1997, both venture capital funds.
Mr. Helman has been a general partner of Greylock Equity GP Limited Partnership,
a venture capital fund, since 1994. Mr. Helman is also a director of Jupiter
Media Metrix, Inc. Mr. Helman holds a BA from Dartmouth College and an MBA from
Harvard Business School.

EDWIN M. KANIA, JR. has served as a director since September 1995.
Mr. Kania has been managing general partner of OneLiberty Ventures, a venture
capital firm which he co-founded, since January, 1995. Mr. Kania also serves as
a Special Partner for AGTC Funds, a specialty genomics venture capital fund.
Mr. Kania is also a director of Aspect Medical Systems. Mr. Kania holds a degree
in physics from Dartmouth College and an MBA from Harvard Business School.

LANCE WILLSEY, MD has served as a director since May 2000. Dr. Willsey has
been a founding partner of DCF Capital since July 1998. From July 1997 to
July 1998, Dr. Willsey served on the Staff Department of Urologic Oncology at
Dana Farber Cancer Institute at Harvard University School of Medicine. From
July 1996 to July 1997, Dr. Willsey served on the Staff Department of Urology at
Massachusetts General Hospital at Harvard University School of Medicine, where
he was a urology resident from July 1992 to July 1996. Dr. Willsey is also a
director of Exelixis, Inc. Dr. Willsey holds a BS in physiology from Michigan
State University and an MS in biology and an MD from Wayne State University.

Upon the completion of the offering, Messrs. Afeyan, Hardison and Helman
will become Class I directors, Messrs. Barker, Grousbeck and Willsey will become
Class II directors and Ms. Crawford and Messrs. Kania and Lapidus will become
Class III directors.

COMMITTEES OF THE BOARD OF DIRECTORS

Our compensation committee consists of Dr. Barker, Mr. Grousbeck and
Mr. Kania. The compensation committee reviews and evaluates the compensation and
benefits of all of our officers, reviews general policy matters relating to
compensation and benefits of our employees and makes recommendations concerning
these matters to the board of directors. Our compensation committee will also
administer our 1995 stock plan, 2000 option plan and 2000 purchase plan.

Our audit committee consists of Ms. Crawford, Mr. Kania and Dr. Willsey. The
audit committee reviews with our independent auditors the scope and timing of
the auditors' services, the auditors' report on our financial statements
following completion of our auditors' audit, and our internal accounting and
financial control policies and procedures. In addition, the audit committee will
make annual recommendations to the board of directors for the appointment of
independent auditors for the ensuing year.

DIRECTOR COMPENSATION

Our directors are reimbursed for out-of-pocket expenses incurred in
attending meetings of the board of directors. In addition, directors are also
eligible to participate in the 1995 stock plan and the 2000 option plan. In
accordance with a policy approved by our board of directors, our current
directors will be granted an option to purchase 10,000 shares of common stock
under the 2000 option plan on the date the shares issued in connection with this
prospectus are sold to the underwriters. All of these options will be fully
vested. In addition, new directors will be granted options to purchase 10,000
shares of common stock under the 2000 option plan on the date they are elected
to the board of directors. Each director will be granted an additional option to
purchase 5,000 shares of common stock at the first meeting of the board of
directors following each annual stockholders meeting. Options granted to

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<PAGE>
new directors and options granted at the first meeting of the board of directors
following an annual stockholders meeting will be exercisable immediately,
subject to our right to repurchase 100% of the shares. Our right to repurchase
terminates monthly over each of the following twelve months with respect to
8.33% of the shares.

SCIENTIFIC ADVISORY BOARD

We have assembled a distinguished group of scientific advisors covering all
aspects of our scientific, medical and technical activities. Our advisory board
provides advice and guidance to our board of directors on strategic matters
including research and development and clinical studies. Our advisory board
serves only in an advisory capacity and has no managerial responsibility or
authority. The members of our advisory board are listed below.

<TABLE>
<CAPTION>
NAME POSITION AND AFFILIATION
---- ------------------------
<S> <C>
David A. Ahlquist, MD.... Professor of Medicine at Mayo Medical School and Director of
the Colorectal Neoplasia Clinic of Mayo, GI Division

Kenneth Kinzler, Ph.D.... Professor of Oncology at Johns Hopkins University School of
Medicine

Bert Vogelstein, MD...... Professor of Oncology and Pathology at Johns Hopkins
University School of Medicine and Investigator at Howard
Hughes Medical Institute

C. Richard Boland, MD.... Professor of Medicine and Chief, Division of
Gastroenterology at the University of California, San Diego

George Q. Daly, MD....... Whitehead Fellow and Primary Investigator for the Whitehead
Institute for Biomedical Research

David A. Lieberman, MD... Chief, Division of Gastroenterology at Oregon Health
Sciences University and Section Chief, Gastroenterology at
Portland VA Medical Center

David F. Ransohoff, MD... Professor of Medicine and Clinical Professor of Epidemiology
at the University of North Carolina at Chapel Hill

James Winkelman, MD...... Vice President of Clinical Laboratories at Brigham & Women's
Hospital and Professor of Pathology at Harvard Medical
School
</TABLE>

Under our 1995 stock plan, we have granted options to purchase common stock
to each member of our advisory board other than Dr. Ahlquist. These options vest
over 2 to 5 years. In addition, we have consulting agreements with each of
Drs. Boland, Daly, Kinzler, Lieberman, Ransohoff, Vogelstein and Winkelman
whereby we have agreed to pay consulting fees or reimburse out-of-pocket
expenses for their service on our advisory board. Dr. Ransohoff is a principal
investigator in the multi-center blinded clinical study that we initiated in
August 2000.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Our board of directors reviewed salaries and incentive compensation for our
employees and consultants during 1999. Stanley N. Lapidus, our Chairman,
participated in deliberations of our board of directors concerning executive
compensation in 1999. None of our executive officers has served as a director or
member of the compensation committee, or other committee serving an equivalent
function, of any other entity, whose executive officers served as a director or
member of our compensation committee. In March 2000, Mr. Lapidus executed a
promissory note in favor of us in the aggregate principal amount of $104,000.
The note provides for 9% interest and is payable on the earlier of March 2010,
two years following the closing of our initial public offering or upon the
termination of Mr. Lapidus' employment. Mr. Lapidus used the proceeds of the
note to exercise options to purchase

39
<PAGE>
100,000 shares of our common stock. In connection with the issuance of the note
and the exercised options, Mr. Lapidus executed a pledge agreement granting us a
security interest in these shares. In addition, he executed a restricted stock
purchase agreement with respect to 75,000 of the shares, under which our right
to repurchase terminates monthly over each of the next forty-five months with
respect to 1,667 of the shares originally granted under the option. In addition,
our right to repurchase shares granted under an option to Mr. Lapidus will
terminate upon:

- the sale of all or substantially all of our assets, a merger or
consolidation resulting in a change of control, or a sale, or a series of
sales, of our capital stock resulting in a change of control;

- the termination of Mr. Lapidus' employment without cause or for cause
other than gross negligence or criminal misconduct, each in connection
with the performance of his duties;

- a substantial diminution in job responsibility or reduction in
compensation; or

- a change in location of Mr. Lapidus' employment more than 60 miles from
our current location.

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid to our Chairman and
each of our two most highly-compensated named executive officers whose total
compensation exceeded $100,000 during the year ended December 31, 1999.

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION YEAR SALARY
--------------------------- -------- --------
<S> <C> <C>
Stanley N. Lapidus ........................................ 1999 $210,000
Chairman & Director

Barry M. Berger, MD ....................................... 1999 210,000
Vice President of Laboratory Medicine

Anthony P. Shuber ......................................... 1999 160,000
Vice President of Molecular Biology
</TABLE>

OPTION GRANTS

No stock options were granted during the year ended December 31, 1999 to
Mr. Lapidus, Dr. Berger or Mr. Shuber.

YEAR-END OPTION TABLE

The following table sets forth information regarding exercisable and
unexercisable stock options held as of December 31, 1999 by each of the named
executive officers. There was no public trading market for the common stock as
of December 31, 1999. Accordingly, as permitted by the rules of the Securities
and Exchange Commission, the value of unexercised in-the-money options has been
calculated by determining the difference between the exercise price per share
payable upon exercise of such options and an assumed initial public offering
price of $ .

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley N. Lapidus.......... -- -- -- -- -- --
Barry M. Berger, MD......... -- -- -- -- -- --
Anthony P. Shuber........... -- -- -- 25,000 $ $
</TABLE>

40
<PAGE>
OUR STOCK PLANS

1995 STOCK OPTION PLAN. Our 1995 stock plan was adopted by our board of
directors and approved by the stockholders on February 24, 1995. A total of
1,450,000 shares of common stock has been authorized and reserved for issuance
under the 1995 stock plan. As of June 30, 2000, there were outstanding options
to purchase a total of 399,556 shares of common stock at a weighted average
exercise price of $2.30. As of June 30, 2000, 604,270 shares of common stock had
been issued in connection with the exercise of options. Under the terms of the
1995 stock plan, we are authorized to grant incentive stock options as defined
under the Internal Revenue Code and non-qualified options to our officers,
directors, consultants and other employees.

The 1995 stock plan is administered by our compensation committee. The board
of directors selects the individuals to whom options will be granted and
determines the option exercise price and other terms of each award, subject to
the provisions of the 1995 stock plan. Options generally provide that 20% of the
shares exercisable under each option will vest one year following either the
date of grant or the optionee's date of employment and thereafter vest in equal
monthly installments over the next 48 months. However, some options granted
under our 1995 stock plan are immediately exercisable subject to our right to
repurchase 100% of the shares until one year following the date of grant, at
which time our right to repurchase terminates, generally with respect to 20% of
the shares originally granted. Thereafter, our right to repurchase terminates
monthly in equal installments over each of the next 48 months. In addition,
options held by certain employees, including our key employees, provide that our
right to repurchase shares granted will terminate upon the sale of all or
substantially all of our assets, a merger or consolidation resulting in a change
of control, or a sale or series of sales of our capital stock resulting in a
change of control and:

- termination of employment without cause or for any reason other than
negligence or criminal misconduct, each in connection with the performance
of duties;

- substantial diminution in job responsibility; or

- a change in location of employment more than 60 miles from our current
location.

An option is not transferable by the recipient except by will or by the laws
of descent and distribution, or, in the case of non-qualified stock options,
only to the extent set forth in the agreement relating to the non-qualified
stock option or pursuant to a valid domestic relations order. The 1995 stock
plan will terminate upon the effective date of the registration statement of
which this prospectus is a part. Options granted prior to the date of
termination will remain outstanding and may be exercised in accordance with
their terms, unless sooner terminated by vote of our board of directors.

2000 STOCK OPTION AND INCENTIVE PLAN. Our 2000 stock option and incentive
plan was adopted by our board of directors and approved by the stockholders on
October 17, 2000. A total of 1,000,000 shares of common stock has been
authorized and reserved for issuance under the 2000 option plan. The 2000 option
plan provides that the number of shares authorized for issuance will
automatically increase each January 1 (beginning in 2002) by the greater of 5%
of the outstanding number of shares of common stock on the immediately preceding
December 31 and the aggregate number of shares made subject to equity-based
awards during the one year prior to such January 1, or such lesser number as may
be approved by the board of directors. The maximum number of shares that may be
authorized for issuance under the 2000 option plan is 20,000,000. Under the
terms of the 2000 option plan, we are authorized to grant incentive stock
options as defined under the Internal Revenue Code, non-qualified options, stock
awards or opportunities to make direct purchases of common stock to our or our
subsidiary's employees, officers, directors, consultants and advisors.

The 2000 option plan is administered by our compensation committee. Our
compensation committee determines the individuals to whom equity-based awards
will be granted and the option

41
<PAGE>
exercise price and other terms of each award, subject to the provisions of the
2000 option plan. The 2000 option plan provides that upon an acquisition, all
equity-based awards will accelerate by a period of one year. In addition, upon
the termination of an employee without cause or for good reason prior to the
first anniversary of the completion of an acquisition, all equity-based awards
then outstanding under the 2000 option plan held by that employee will
immediately become exercisable.

An option is not transferable by the recipient except by will or by the laws
of descent and distribution order. The term of the 2000 option plan is ten
years, unless sooner terminated by vote of the board of directors. To date, no
options have been granted under the 2000 option plan.

2000 EMPLOYEE STOCK PURCHASE PLAN. The 2000 purchase plan was adopted by
the board of directors and received stockholder approval on October 17, 2000. A
total of 300,000 shares of common stock have been authorized and reserved for
issuance under the 2000 purchase plan. The 2000 purchase plan provides that the
number of shares authorized for issuance will automatically increase on each
February 1 (beginning in 2002) by the greater of .75% of the outstanding number
of shares of common stock on the immediately preceding December 31 and that
number of shares made subject to options under the 2000 option plan during the
one year prior to such February 1, or such lesser number as may be approved by
the board of directors. The maximum number of shares that may be authorized for
issuance under the 2000 purchase plan is 1,000,000.

The 2000 purchase plan will be administered by our compensation committee.
Generally, all employees who have completed three months of employment and whose
customary employment is more than twenty hours per week and for more than five
months in any calendar year are eligible to participate in the purchase plan.
The right to purchase common stock under the 2000 purchase plan will be made
available through a series of offerings. On the first day of an offering period,
we will grant to each eligible employee who has elected in writing to
participate in the 2000 purchase plan an option to purchase 1,000 shares of
common stock. The employee will be required to authorize an amount, between 1%
and 10% of the employee's compensation, to be deducted from the employee's pay
during the offering period. On the last day of the offering period, the employee
will be deemed to have exercised the option, at the option exercise price, to
the extent of accumulated payroll deductions. Under the terms of the 2000
purchase plan, the option exercise price is an amount equal to 85% of the fair
market value of one share of common stock on either the first or last day of the
offering period, whichever is lower. No employee may be granted an option that
would permit the employee's rights to purchase common stock to accrue in excess
of $25,000 in any calendar year. The first offering period under the 2000
purchase plan will commence on the date the shares issued in connection with
this prospectus are sold to the underwriters and continues through July 31,
2001. Thereafter, the offering periods will begin on each February 1 and
August 1. Options granted under the 2000 purchase plan terminate upon an
employee's voluntary withdrawal from the plan at any time or upon termination of
employment. No options have been granted to date under the 2000 purchase plan.

401(k) PLAN. We maintain a 401(k) plan qualified under Section 401(k) of
the Internal Revenue Code. Under the 401(k) plan, a participant may contribute a
maximum of 15% of his or her pre-tax salary through payroll deductions up to the
statutorily prescribed annual limit. The percentage of more highly compensated
participants may be required to be lower. In addition, at the discretion of our
board of directors, we may make discretionary profit-sharing contributions into
the 401(k) plan for all eligible employees. We have not made any contributions
to the 401(k) plan to date.

42
<PAGE>
RELATED PARTY TRANSACTIONS

From December 31, 1996 through September 30, 2000, we issued shares of
preferred stock in private placement transactions as follows:

- an aggregate of 31,645 of Series B convertible preferred stock at $3.95
per share in February 1997;

- an aggregate of 1,007,186 of Series C convertible preferred stock at
$10.50 per share in March 1998; and

- an aggregate of 1,417,534 shares of Series D convertible preferred stock
at $22.50 per share in April 2000.

The following table summarizes the shares of preferred stock purchased since
December 31, 1996 and held as of September 30, 2000 by our executive officers,
directors, holders of more than 5% of our outstanding stock and their
affiliates.

<TABLE>
<CAPTION>
SERIES C SERIES D
NAME PREFERRED PREFERRED
---- --------- ---------
<S> <C> <C>
Stanley N. Lapidus.......................................... 12,657 --
Affiliates of the OneLiberty Ventures Entities(1)........... 190,476 77,776
Greylock Equity Limited Partnership(2)...................... 190,476 57,777
Affiliates of the Highland Capital Entities(3).............. 266,666 57,778
Affiliates of DCF Capital(4)................................ -- 222,221
</TABLE>

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

(1) Mr. Edwin M. Kania, Jr., a director, is a general partner of OneLiberty
Partners III, L.P., the general partner of OneLiberty Fund III, L.P.
Mr. Kania is also managing member of OneLiberty Partners IV, L.L.C., the
general partner of OneLiberty Fund IV, L.P. and a general partner of
OneLiberty Advisors Fund IV, L.P.

(2) Mr. Wycliffe K. Grousbeck, a director, is a general partner of Highland
Management Partners III Limited Partnership, the general partner of Highland
Capital Partners III Limited Partnership. Mr. Grousbeck is also a member of
HEF III L.L.C., the general partner of Highland Entrepreneurs' Fund III
Limited Partnership.

(3) Mr. William W. Helman, a director, is a general partner of Greylock Equity
GP, Limited Partnership, the general partner of Greylock Equity Limited
Partnership.

(4) Dr. Lance Willsey, a director, is a limited partner of DCF Partners L.P.
Dr. Willsey is also a limited partner of DCF Life Sciences Fund Limited and
a non-managing member of DCF Capital Advisors Inc., the investment advisor
of DCF Life Sciences Fund.

As set forth in our certificate of incorporation, each share of Series A
convertible preferred stock, Series B convertible preferred stock, Series C
convertible preferred stock and Series D convertible preferred stock will
automatically convert into shares of common stock upon the closing of this
offering.

In connection with the preferred stock financings, we granted registration
rights to preferred stockholders. See "Description of Capital
Stock--Registration Rights."

OTHER RELATED PARTY TRANSACTIONS

In March 2000, Stanley N. Lapidus executed a promissory note in favor of us
in the aggregate principal amount of $104,000. The note provides for 9% interest
and is payable on the earlier of

43
<PAGE>
March 2010, two years following the closing of our initial public offering or
upon the termination of Mr. Lapidus' employment. Mr. Lapidus used the proceeds
of the note to exercise options to purchase 100,000 shares of our common stock.
In connection with the issuance of the note and the exercise of options,
Mr. Lapidus executed a pledge agreement granting us a security interest in these
shares. In addition, he executed a restricted stock purchase agreement with
respect to 75,000 of the shares, under which our right to repurchase terminates
monthly over each the next forty-five months with respect to 1,667 of the shares
originally granted under the option. In addition, our right to repurchase shares
granted under an option will terminate upon:

- the sale of all or substantially all of our assets, a merger or
consolidation resulting in a change of control or a sale, or series of
sales, of our capital stock resulting in a change of control;

- the termination of Mr. Lapidus' employment without cause or for cause
other than gross negligence or criminal misconduct, each in connection
with the performance of his duties;

- a substantial diminution in job responsibility or compensation; or

- a change in location of Mr. Lapidus' employment more than 60 miles from
our current location.

In June 2000, Don M. Hardison, our President, executed a promissory note in
favor of us in the aggregate principal amount of $299,999. The note provides for
9.5% interest and is payable on June 2010. Mr. Hardison used the proceeds of the
note to exercise options to purchase 71,111 shares of our common stock. In
connection with the issuance of these shares, Mr. Hardison executed a restricted
stock purchase agreement under which we have the right to repurchase the common
stock 100% of the shares until one year following the date of the option grant,
at which time our right to repurchase terminates with respect to 20% of the
shares originally granted. Thereafter, our right to repurchase terminates
monthly over each the next forty-eight months with respect to 1.666% of the
shares originally granted under the option. In addition, our right to repurchase
shares granted under an option to Mr. Hardison will terminate upon the sale of
all or substantially all of our assets or a merger or consolidation resulting in
a change of control and

- termination of Mr. Hardison's employment without cause or for any reason
other than negligence or criminal misconduct, each in connection with the
performance of his duties;

- a substantial diminution in job responsibility or reduction in
compensation; or

- a change in location of Mr. Hardison's employment more than 60 miles from
our current location.

We believe that all of the transactions set forth above were made on terms
fair to us as to the time they were authorized, approved or ratified. We have
adopted a policy whereby all future transactions between us and our officers,
directors and affiliates will be on terms fair to us as to the time they are
authorized, approved or ratified and will be approved by a majority of
disinterested members of our board of directors.

44
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of our common stock as of September 30, 2000, and as adjusted to
reflect the sale of common stock in the offering assuming no exercise of the
underwriters' over-allotment option, by:

- each person or group of affiliated persons known by us to be the
beneficial owner of more than 5% of our common stock;

- each person who is an executive officer or key employee;

- each of our directors; and

- all executive officers and directors as a group.

Unless otherwise noted below, the address of each person listed on the table
is c/o EXACT Corporation, 63 Great Road, Maynard, Massachusetts 01754.

<TABLE>
<CAPTION>
PERCENT OF COMMON
STOCK OUTSTANDING
-------------------
SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER HELD OFFERING OFFERING
------------------------------------ --------- -------- --------
<S> <C> <C> <C>
The OneLiberty Fund Entities(1)
150 CambridgePark Drive
Cambridge, MA 02140 ...................................... 950,554 18.0%
Greylock Equity Limited Partnership
One Federal Street
Boston, MA 02110 ......................................... 806,592 15.3%
The Highland Capital Partners Entities(2)
2 International Place
Boston, MA 02110 ......................................... 602,924 11.4%
Edwin M. Kania, Jr.(3) ..................................... 950,554 18.0%
William W. Helman(4) ....................................... 806,592 15.3%
Wycliffe K. Grousbeck(5) ................................... 602,924 11.4%
Stanley N. Lapidus(6) ...................................... 536,333 10.2%
Lance Willsey(7)
One Newbrook Circle
Brookline, MA 02167 ...................................... 222,221 4.2%
Anthony P. Shuber(8) ....................................... 110,000 2.1%
Barry M. Berger ............................................ 76,000 1.4%
Noubar B. Afeyan(9)
c/o NewcoGen Group, Inc.
150 CambridgePark Drive
Cambridge, MA 02140 ...................................... 74,052 1.4%
Don M. Hardison ............................................ 56,111 1.1%
Robert B. Rochelle ......................................... 50,000 *
Richard W. Barker
2239 Fifth Street
Berkeley, CA 94710 ....................................... 16,600 *
Sally W. Crawford
140 High Street
Exeter, NH 03833 ......................................... 15,000 *
John A. McCarthy, Jr.(10) ................................. -- *
All executive officers and directors as a group
(10 persons)(11) ......................................... 3,390,387 63.5%
</TABLE>

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

* Indicates ownership of less than 1%

FOOTNOTES ON FOLLOWING PAGE

45
<PAGE>
(1) Includes 777,540 shares beneficially owned by OneLiberty Fund III, L.P, of
which One Liberty Partners III, L.P. is the general partner. Also includes
169,126 shares beneficially owned by OneLiberty Fund IV, L.P., of which One
Liberty IV, L.L.C. is the general partner, and 3,888 shares beneficially
owned by OneLiberty Advisors Fund IV, L.P.

(2) Includes 578,808 shares beneficially owned by Highland Capital Partners III
Limited Partnership, of which Highland Management Partners III Limited
Partnership is the general partner. Also includes 24,116 shares
beneficially owned by Highland Entrepreneurs' Fund III Limited Partners, of
which HEF III L.L.C. is the general partner.

(3) Includes shares owned by the OneLiberty Fund entities as set forth in
note 1. Mr. Kania is a general partner of OneLiberty Partners III, L.P. and
a general partner of OneLiberty Advisors Fund IV, L.P. Mr. Kania disclaims
any beneficial ownership of the shares.

(4) Includes 806,572 beneficially owned by Greylock Equity Limited Partnership,
of which Greylock Equity GP, Limited Partnership is the general partner.
Mr. Helman is a general partner of Greylock Equity GP, Limited Partnership.
Mr. Helman disclaims any beneficial ownership of the shares.

(5) Includes shares owned by the Highland Capital Partner entities as set forth
in note 2. Mr. Grousbeck is a general partner of Highland Management
Partners III Limited Partnership and a member of HEF III L.L.C.
Mr. Grousbeck disclaims any beneficial ownership of the shares.

(6) Includes 25,000 shares held by David D. Lapidus and 25,000 shares held by
Joel B. Lapidus.

(7) Includes 144,444 shares beneficially owned by DCF Partners L.P., of which
DCF Advisors, L.L.C. is the general partner. Dr. Willsey is a limited
partner of DCF Partners L.P. and a non-managing member of DCF Advisors,
L.L.C. Also includes 77,777 shares beneficially owned by DCF Life Sciences
Fund, of which DCF Capital Advisors Inc. is the investment advisor. Dr.
Willsey is a limited partner of DCF Life Sciences Fund Limited and a
non-managing member of DCF Capital Advisors Inc. Dr. Willsey disclaims any
beneficial ownership of the shares.

(8) Includes 10,000 shares issuable to Mr. Shuber in connection with options
that are currently exercisable.

(9) Includes 52,500 shares issuable to Dr. Afeyan in connection with options
that are currently exercisable.

(10) Mr. McCarthy joined us as Vice President and Chief Financial Officer on
October 2, 2000.

(11) Includes shares pursuant to notes 3-9.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. For the purposes of calculating the number
of shares and the percentage beneficially owned by a person or entity, shares of
common stock issuable by us to that person or entity pursuant to options which
may be exercised within 60 days after September 30, 2000 are deemed to be
beneficially owned and outstanding. Except as otherwise indicated, each
stockholder named in the table has sole voting and investment power with respect
to the shares set forth opposite that stockholder's name.

46
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The following description of our capital stock and provisions of our amended
and restated certificate of incorporation and amended and restated by-laws are
summaries and are qualified by reference to the certificate of incorporation and
the by-laws that will become effective upon the effective date of the
registration statement registering shares included in this offering. Copies of
these documents have been filed with the Securities and Exchange Commission as
exhibits to our registration statement, of which this prospectus forms a part.
The descriptions of the common stock and preferred stock reflect changes to our
capital structure that will occur upon the closing of this offering.

Upon the completion of this offering, our authorized capital stock will
consist of 100,000,000 shares of common stock, par value $.01 per share, and
5,000,000 shares of preferred stock, par value $.01 per share.

COMMON STOCK

As of September 30, 2000, there were shares of common stock
outstanding held of record by 149 stockholders, after giving effect to the
conversion of all of the outstanding shares of preferred stock upon the closing
of this offering.

Holders of common stock are entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Directors are elected by a plurality of the votes of
the shares present in person or by proxy at the meeting and entitled to vote.
Holders of common stock are entitled to receive ratably any dividends as may be
declared by the board of directors out of funds legally available for
distribution, after provision has been made for any preferential dividend rights
of outstanding preferred stock, if any. Upon our liquidation, dissolution or
winding up, the holders of common stock are entitled to receive ratably the net
assets available after the payment of all of our debts and other liabilities,
and after the satisfaction of the rights of any outstanding preferred stock, if
any. Holders of the common stock have no preemptive, subscription, redemption or
conversion rights, nor are they entitled to the benefit of any sinking fund. The
outstanding shares of common stock are, and the shares offered by us in this
offering will be, when issued and paid for, validly issued, fully paid and
non-assessable. The rights, powers, preferences and privileges of holders of
common stock are subordinate to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock which we may designate
and issue in the future. Upon the closing of this offering, there will be no
shares of preferred stock outstanding.

PREFERRED STOCK

Upon the closing of the offering, our board of directors will be authorized,
without further vote or action by the stockholders, to issue from time to time
up to an aggregate of 5,000,000 shares of preferred stock in one or more series.
Each series of preferred stock shall have such number of shares, designations,
preferences, voting powers, qualifications and special or relative rights or
privileges as shall be determined by our board of directors, which may include,
among others, dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences, conversion rights and preemptive rights.

The issuance of preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power or other rights of the holders of common
stock, and could make it more difficult for a third party to acquire, or could
discourage a third party from attempting to acquire, a majority of our
outstanding voting stock. We have not issued and have no present plans to issue
any shares of preferred stock.

47
<PAGE>
REGISTRATION RIGHTS

Holders of shares of common stock are entitled to require us to
register the sale of their shares under the Securities Act. Under the terms of
an agreement between us and the holders of the registrable securities, if we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders exercising
registration rights, these holders are entitled to notice of and to include
their shares of common stock in the registration statement. The underwriters may
limit the number of shares included in such offering held by these holders,
provided that such shares shall not be less than one-third of such offering. All
registration rights have been waived in connection with this offering.

Additionally, these holders of our common stock are entitled to specified
demand registration rights at any time following 180 days after the effective
date of the registration statement registering the shares included in this
offering, as follows:

- The holders of at least 30% of the then outstanding registrable securities
may require, on three occasions beginning six months after the effective
date of any registration statement, including this registration statement,
that we use our best efforts to register the registrable securities for
public resale, provided that the proposed aggregate selling or offering
price is at least $10,000,000.

- The holders of the then outstanding registrable securities may require us,
on up to four occasions, to register all or a portion of their registrable
securities on a registration statement on Form S-3 when use of such form
becomes available to us, provided that the proposed aggregate selling or
offering price is at least $5,000,000.

We are generally required to bear the expenses of such registration, except
underwriting discounts and commissions.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BY-LAWS

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 of Delaware law
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of our board of directors or unless the business combination is
approved in a prescribed manner. A "business combination" is defined as a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder. Subject to various exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the past three years did own, 15% or more of a corporation's voting
stock. This statute could prohibit or delay the accomplishment of mergers or
other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.

In addition, some provisions of our amended and restated certificate of
incorporation and amended and restated by-laws may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might deem to be in his or her best interest. The
existence of these provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock. These provisions
include:

STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. Our certificate
provides that stockholders may not take action by written consent, but only at a
duly called annual or special meeting of stockholders. The certificate further
provides that special meetings of our stockholders may be called only by the
Chairman of the board of directors or a majority of the board of directors, and
in no event may the

48
<PAGE>
stockholders call a special meeting. Thus, without approval by the Chairman of
the board of directors or a majority of the board of directors, stockholders may
take no action between meetings.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Our by-laws provide that a stockholder seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice of
this intention in writing. To be timely, a stockholder's notice must be
delivered to our secretary at our principal executive offices not less than 120
days prior to the first anniversary of the date of our notice of annual meeting
provided with respect to the previous year's annual meeting of stockholders.
However, if no annual meeting of stockholders was held in the previous year or
the date of the annual meeting of stockholders has been changed to be more than
30 calendar days from the time of the previous year's proxy statement, then a
proposal shall be received no later than the close of business on the tenth day
following the date on which notice of the date of the meeting was mailed or a
public announcement was made, whichever occurs first. The amended and restated
by-laws also include a similar requirement for making nominations at special
meetings and specify requirements as to the form and content of a stockholder's
notice. These provisions may preclude stockholders from bringing matters before
an annual meeting of stockholders or from making nominations for directors at an
annual or special meeting of stockholders.

AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to any limitations imposed by the Nasdaq National
Market. These additional shares may be utilized for a variety of corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved common stock and preferred stock could make more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.

SUPER-MAJORITY VOTING. Delaware law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or by-laws, unless a
corporation's certificate or by-laws requires a greater percentage. We have
provisions in our certificate which require 75% of the voting power of all of
the then outstanding shares of our capital stock to amend or repeal certain
provisions in our certificate which include, but are not limited to, provisions
which would reduce or eliminate the number of authorized common or preferred
shares and all indemnification provisions. We also have provisions in our
certificate which require 80% of the voting power of all of the then outstanding
shares of our capital stock to adopt, amend or repeal any provision of our
by-laws.

STAGGERED BOARD. Our certificate and by-laws provide for the division of
our board of directors into three classes, as nearly equal in size as possible,
with staggered three-year terms. In addition, our certificate and by-laws
provide that directors may be removed without cause only by the affirmative vote
of the holders of 75% of the shares of capital stock entitled to vote for the
election of director at an election of directors. Any one or more or all of the
directors may be removed with cause only by the holders of at least a majority
of the shares then entitled to vote at an election of directors. Under our
certificate and by-laws, any vacancy on the board of directors, for the election
of directors, including a vacancy resulting from an enlargement of the board,
may only be filled by vote of a majority of the directors then in office. The
classification of the board of directors and the limitations on the removal of
directors and filling of vacancies would have the effect of making it more
difficult for a third party to acquire control of us, or of discouraging a third
party from acquiring control of us.

LIMITATION OF LIABILITY

Our certificate provides that no director shall be personally liable to us
or to our stockholders for monetary damages for breach of fiduciary duty as a
director, except that the limitation shall not

49
<PAGE>
eliminate or limit liability to the extent that the elimination or limitation of
such liability is not permitted by the Delaware General Corporation Law as the
same exists or may hereafter be amended.

Our certificate of incorporation further provides for the indemnification of
our directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary. A principal effect of these
provisions is to limit or eliminate the potential liability of our directors for
monetary damages arising from breaches of their duty of care, subject to certain
exceptions. These provisions may also shield directors from liability under
federal and state securities laws.

TRANSFER AGENT AND REGISTRAR

Upon the closing of this offering, the transfer agent and registrar for the
common stock will be American Stock Transfer & Trust Company.

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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to the offering, there has been no market for our common stock. Future
sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and impair our ability to raise equity
capital in the future.

Upon completion of the offering, we will have outstanding shares of
common stock. Of these shares, the shares sold in the offering, plus any
shares issued upon exercise of the underwriters' over-allotment option, will be
freely tradable without restriction under the Securities Act, unless purchased
by our affiliates as that term is defined in Rule 144 under the Securities Act.
In general, affiliates include officers, directors and 10% stockholders.

The remaining shares outstanding are "restricted securities" within
the meaning of Rule 144. Restricted securities may be sold in the public market
only if they are registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which are summarized below. Sales of the restricted securities in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.

Our directors, officers and security holders have entered into lock-up
agreements in connection with these offering generally providing that they will
not offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock owned by them for a period of 180 days after the date of
this prospectus without the prior written consent of Merrill Lynch & Co.
Notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements will not be
salable until such agreements expire or are waived by Merrill Lynch & Co. Taking
into account the lock-up agreements, and assuming Merrill Lynch Co. does not
release stockholders from these agreements, the following shares will be
eligible for sale in the public market at the following times:

- Beginning on the date of this prospectus, shares sold in the
offering will be immediately available for sale in the public market.

- Beginning 180 days after the date of this prospectus, shares will
be eligible for sale, of which will be subject to volume, manner of
sale and other limitations under Rule 144.

- The remaining shares will be eligible for sale pursuant to Rule
144 upon the expiration of various one-year holding periods during the six
months following 180 days after the effective date.

In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities 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:

- one percent of the number of shares of common stock then outstanding which
will equal approximately shares immediately after the offering;
or

- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.

Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at
anytime during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares

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<PAGE>
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.

Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144 but without compliance
with specific restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirement and that non-affiliates may sell such shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.

In addition, we intend to file a registration statement under the Securities
Act on the effective date of the registration statement of which this prospectus
is a part to register shares to be issued pursuant to our employee benefit
plans. As a result, any options or rights exercised under the 1995 stock plan,
the 2000 option plan, the 2000 purchase plan, or any other benefit plan after
the effectiveness of the registration statement will also be freely tradable in
the public market, subject to the terms of the lock-up agreements. However,
shares held by affiliates will still be subject to the volume limitation, manner
of sale, notice and public information requirements of Rule 144 unless otherwise
resalable under Rule 701. As of June 30, 2000 there were outstanding options for
the purchase of 399,556 shares of common stock, of which options to purchase
138,265 shares were exercisable.

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<PAGE>
MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS

The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of our common stock
by a non-U.S. holder. As used in this discussion, the term non-U.S. holder means
a beneficial owner of our common stock that is not, for U.S. federal income tax
purposes:

- an individual who is a citizen or resident of the United States;

- a corporation, an entity taxable as a corporation, or a partnership
created or organized in or under the laws of the United States or of any
political subdivision of the United States, other than a partnership
treated as foreign under U.S. Treasury regulations;

- an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or

- a trust, in general, if a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have authority to control all substantial decisions of the trust.

An individual may be treated as a resident of the United States in any
calendar year for U.S. federal income tax purposes, instead of as a nonresident,
by, among other things, being present in the United States on at least 31 days
in that calendar year and for an aggregate of at least 183 days during a
three-year period ending on December 31 of the current calendar year. For
purposes of this calculation, you should count all of the days present in the
current year, one-third of the days present in the immediately preceding year
and one-sixth of the days present in the second preceding year. Residents are
taxed for U.S. federal income purposes as if they were U.S. citizens.

This discussion does not consider:

- U.S. state and local or non-U.S. tax consequences;

- specific facts and circumstances that may be relevant to a particular
non-U.S. holder's tax position, including, if the non-U.S. holder is a
partnership or trust, the fact that the U.S. tax consequences of holding
and disposing of our common stock may be affected by certain
determinations made at the partner or beneficiary level;

- the tax consequences to the stockholders, partners or beneficiaries of a
non-U.S. holder;

- special tax rules that may apply to particular non-U.S. holders, such as
financial institutions, insurance companies, tax-exempt organizations,
U.S. expatriates, broker-dealers, and traders in securities; or

- special tax rules that may apply to a non-U.S. holder that holds our
common stock as part of a straddle, hedge, conversion transaction,
synthetic security or other integrated investment.

The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, as amended, applicable U.S. Treasury regulations and
administrative and judicial interpretations, all as in effect on the date of
this prospectus, and all of which are subject to change, retroactively or
prospectively. The following summary assumes that a non-U.S. holder holds our
common stock as a capital asset for U.S. federal income tax purposes. EACH
NON-U.S. HOLDER SHOULD CONSULT A TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE,
LOCAL, ESTATE, GIFT AND

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<PAGE>
NON-U.S. INCOME, ESTATE, GIFT AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING
AND DISPOSING OF SHARES OF OUR COMMON STOCK.

DIVIDENDS

We do not anticipate paying cash dividends on our common stock in the
foreseeable future. In the event, however, that we pay dividends on our common
stock, we will have to withhold a U.S. federal withholding tax at a rate of 30%,
or a lower rate under an applicable income tax treaty, from the gross amount of
the dividends paid to a non-U.S. holder. A non-U.S. holder who claims the
benefit of an applicable income tax treaty rate generally will be required to
satisfy applicable certification and other requirements. Non-U.S. holders should
consult their tax advisors regarding their entitlement to benefits under a
relevant income tax treaty.

Dividends that are effectively connected with a non-U.S. holder's conduct of
a trade or business in the United States and, in the event that an income tax
treaty applies, are also attributable to a permanent establishment maintained by
the non-U.S. holder in the United States, are taxed on a net income basis at the
regular graduated rates and in the manner applicable to U.S. persons. In that
case, we will not have to withhold U.S. federal withholding tax if the non-U.S.
holder complies with applicable certification and disclosure requirements. In
addition, a branch profits tax may be imposed at a 30% rate, or a lower rate
under an applicable income tax treaty, on dividends received by a foreign
corporation that are effectively connected with such foreign corporation's
conduct of a trade or business in the United States.

Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes of
determining the applicability of an income tax treaty rate. For dividends paid
after 2000, a non-U.S. holder who claims the benefit of an applicable income tax
treaty rate generally will be required to satisfy applicable certification and
other requirements. However,

- in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of the
partnership and the partnership will be required to provide certain
information;

- in the case of common stock held by a foreign trust, the certification
requirement will generally be applied to the trust or the beneficial
owners of the trust depending on whether the trust is a foreign complex
trust, foreign simple trust, or foreign grantor trust as defined in the
U.S. Treasury regulations; and

- look-through rules will apply for tiered partnerships, foreign simple
trusts and foreign grantor trusts.

A non-U.S. holder which is a foreign partnership or a foreign trust is urged
to consult its own tax advisor regarding its status under these U.S. Treasury
regulations and the certification requirements applicable to it.

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

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<PAGE>
GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be taxed on gain recognized on a
disposition of our common stock unless:

- the gain is effectively connected with the non-U.S. holder's conduct of a
trade or business in the United States and, in the event that an income
tax treaty applies, is also attributable to a permanent establishment
maintained by the non-U.S. holder in the United States; in these cases,
the gain will be taxed on a net income basis at the regular graduated
rates and in the manner applicable to U.S. persons, unless an applicable
treaty provides otherwise, and, if the non-U.S. holder is a foreign
corporation, the branch profits tax described above may also apply;

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

- we are or have been a U.S. real property holding corporation for U.S.
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition or the period that the
non-U.S. holder held our common stock.

Generally, a corporation is a U.S. real property holding corporation if the
fair market value of its U.S. real property interests equals or exceeds 50% of
the sum of the fair market value of its worldwide real property interests plus
its other assets used or held for use in a trade or business. The tax relating
to stock in a U.S. real property holding corporation generally will not apply to
a non-U.S. holder whose holdings, direct and indirect, at all times during the
applicable period, constituted 5% or less of our common stock, provided that our
common stock was regularly traded on an established securities market. We
believe that we are not currently, and we do not anticipate becoming in the
future, a U.S. real property holding corporation.

FEDERAL ESTATE TAX

Our common stock that is owned or is treated as owned by an individual who
is a non-U.S. holder at the time of death will be included in that individual's
gross estate for U.S. federal estate tax purposes, unless an applicable estate
tax or other treaty provides otherwise and, therefore, may be subject to U.S.
federal estate tax.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

We must report annually to the U.S. Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to that holder and the tax withheld
from those dividends. Copies of the information returns reporting those
dividends and withholding may also be made available to the tax authorities in
the country in which the non-U.S. holder is a resident under the provisions of
an applicable income tax treaty or agreement.

Under some circumstances, U.S. Treasury regulations require additional
information reporting and backup withholding at a rate of 31% on some payments
on our common stock. Under currently applicable law, non-U.S. holders generally
will be exempt from these additional information reporting requirements and from
backup withholding on dividends paid prior to 2001 if we either were required to
withhold a U.S. federal withholding tax from those dividends or we paid those
dividends to an address outside the United States. After 2000, however, the
gross amount of dividends not otherwise subject to U.S. federal withholding tax
paid to a non-U.S. holder that fails to certify its non-U.S. holder status in
accordance with applicable U.S. Treasury regulations generally will be reduced
by backup withholding at a rate of 31%.

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<PAGE>
The payment of the proceeds from the disposition of our common stock by a
non-U.S. holder to or through the U.S. office of a broker generally will be
reported to the U.S. Internal Revenue Service and reduced by backup withholding
at a rate of 31% unless the non-U.S. holder either certifies its status as a
non-U.S. holder under penalties of perjury or otherwise establishes an exemption
and the broker has no actual knowledge to the contrary. The payment of the
proceeds from the disposition of our common stock by a non-U.S. holder to or
through a non-U.S. office of a non-U.S. broker will not be reduced by backup
withholding or reported to the U.S. Internal Revenue Service unless the non-
U.S. broker is a U.S. related person. In general, the payment of the proceeds
from the disposition of our common stock by or through a non-U.S. office of a
broker that is a U.S. person or a U.S. related person will be reported to the
U.S. Internal Revenue Service and, after 2000, may in limited circumstances be
reduced by backup withholding at a rate of 31%, unless the broker receives a
statement from the non-U.S. holder, signed under penalties of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files that the holder is a non-U.S. holder and the broker has no actual
knowledge to the contrary. For this purpose, a U.S. related person is generally:

- a controlled foreign corporation for U.S. federal income tax purposes;

- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment, or for such part of the period that the broker has been in
existence, is derived from activities that are effectively connected with
the conduct of a U.S. trade or business; or

- effective after 2000, a foreign partnership if, at any time during the
taxable year, (A) at least 50% of the capital or profits interest in the
partnership is owned by U.S. persons, or (B) the partnership is engaged in
a U.S. trade or business.

Non-U.S. holders should consult their own tax advisors regarding the
application of the information reporting and backup withholding rules to them,
including changes to these rules that will become effective after 2000.

Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information or
appropriate claim for refund is furnished to the U.S. Internal Revenue Service.

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<PAGE>
UNDERWRITING

We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, CIBC World Markets Corp. and Thomas Weisel
Partners LLC are acting as U.S. representatives for each of the U.S.
underwriters named below. Subject to the terms and conditions set forth in a
U.S. purchase agreement between us and the U.S. underwriters, and currently with
the sale of shares of common stock to the international managers, we have agreed
to sell to the U.S. underwriters, and the U.S. underwriters severally have
agreed to purchase from us, the number of shares of common stock set forth
opposite their names below.

<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
CIBC World Markets Corp. ...................................
Thomas Weisel Partners LLC..................................
-------
Total.............................................
=======
</TABLE>

We have also entered into an international purchase agreement with the
international managers for whom Merrill Lynch International, CIBC World
Markets plc and Thomas Weisel Partners LLC are acting as lead managers for sale
of the shares outside the U.S. and Canada. Subject to the terms and conditions
set forth in the international purchase agreement, and concurrently with the
sale of shares to the U.S. underwriters pursuant to the U.S. purchase agreement,
we have agreed to sell to the international managers, and the international
mangers have agreed to purchase from us, an aggregate of shares. The
initial public offering price per share and the underwriting discount per share
are identical under the U.S. purchase agreement and the international purchase
agreement.

The U.S. underwriters and the international managers have agreed to purchase
all of the shares sold under the U.S. and international purchase agreements if
any of these shares are purchased. If an underwriter defaults, the U.S. and
international purchase agreements provide that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreements may be
terminated. The closings for the sale of shares to be purchased by the U.S.
underwriters and the international managers are conditioned upon one another.

We have agreed to indemnify the U.S. underwriters and the international
managers against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the U.S. underwriters and international
managers may be required to make in respect of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
146 completed transactions and has acted as a syndicate member in an additional
128 public offerings of equity securities. Thomas Weisel Partners does not have
any material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
under the U.S. purchase agreement entered into in connection with this offering.

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COMMISSIONS AND DISCOUNTS

The U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares to the public at the initial public offering price
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession not in excess of $ per share of common stock. The
U.S. underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of common stock on sales to certain other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.

The following table shows the public offering price, underwriting discount
and proceeds before expenses to EXACT. The information assumes either no
exercise or full exercise by the U.S. underwriters and the international
managers of their over-allotment options.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price............................ $ $ $
Underwriting discount............................ $ $ $
Proceeds, before expenses, to EXACT.............. $ $ $
</TABLE>

The expenses of the offering, not including the underwriting discount, are
estimated at $ and are payable by us.

OVER-ALLOTMENT OPTION

We have granted an option to the U.S. underwriters to purchase up to
additional shares at the public offering price less the underwriting
discount. The U.S. underwriters may exercise this option for 30 days from the
date of this prospectus solely to cover any over-allotments. If the U.S.
underwriters exercise this option, each will be obligated, subject to conditions
contained in the purchase agreements, to purchase a number of additional shares
proportionate to such U.S. underwriter's initial amount reflected in the table
above.

We have also granted an option to the international managers, exercisable
for 30 days from the date of this prospectus, to purchase up to an aggregate of
additional shares to cover any over-allotments on terms similar to those
granted to the U.S. underwriters.

INTERSYNDICATE AGREEMENT

The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the intersyndicate agreement, the U.S. underwriters and any dealer to whom
they sell shares will not offer to sell or sell shares to persons who are
non-U.S. or non-Canadian persons or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, except in the case of
transactions under the intersyndicate agreement. Similarly, the international
managers and any dealer to whom they sell shares will not offer to sell or sell
shares to U.S. or Canadian persons or to persons they believe intend to resell
to U.S. or Canadian persons, except in the case of transactions under the
intersyndicate agreement.

RESERVED SHARES

At our request, the U.S. underwriters have reserved for sale, at the initial
public offering price, up to shares offered by this prospectus for sale
to some of our directors, officers, employees and business associates. If these
persons purchase reserved shares, this will reduce the number of shares
available for sale to the general public. Any reserved shares that are not
orally confirmed for purchase

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<PAGE>
within one day of the pricing of this offering will be offered by the
underwriters to the general public on the same terms as the other shares offered
by this prospectus.

NO SALES OF SIMILAR SECURITIES

We and our executive officers and directors and most of our existing
stockholders have agreed, with limited exceptions, not to sell or transfer any
common stock for 180 days after the date of this prospectus without first
obtaining the written consent of Merrill Lynch. Specifically, we and the above-
named individuals have agreed not to directly or indirectly

- offer, pledge, sell or contract to sell any common stock;

- sell any option or contract to purchase any common stock;

- purchase any option or contract to sell any common stock;

- grant any option, right or warrant for the sale of any common stock;

- lend or otherwise dispose of or transfer any common stock;

- request or demand that we file a registration statement related to the
common stock; or

- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.

This lock-up provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.

QUOTATION ON THE NASDAQ NATIONAL MARKET

We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol EXAX.

Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us, the U.S. representatives and lead managers. In addition to prevailing market
conditions, the primary factors to be considered in determining the initial
public offering price are

- the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us;

- our financial information;

- the history of, and the prospects for, our company and the industry in
which we compete;

- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues;

- the present state of our development; and

59
<PAGE>
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also possible
that after the offering the shares will not trade in the public market at or
above the initial public offering price.

The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of the common stock is completed, SEC rules may limit
the underwriters from bidding for or purchasing our common stock. However, the
representatives may engage in transactions that stabilize the price of the
common shares, such as bids or purchases that peg, fix or maintain that price.

The underwriters may purchase and sell the common shares 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 sale 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 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 shares 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 shares 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 shares or preventing or retarding a decline in the
market price of the common shares. As a result, the price of the common shares
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
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common shares. In addition, neither we nor
any of the representatives make any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.

OTHER RELATIONSHIPS

Certain of the U.S. underwriters have from time to time provided investment
banking financial advisory services to us and our affiliates, for which they
have received customary compensation, and may continue to do so in the future.

60
<PAGE>
LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
Exact by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. As of the date
of this prospectus, Testa, Hurwitz & Thibeault, LLP beneficially owns 4,444
shares of our common stock under the name High Street Investors 2000. Edmund R.
Pitcher, a partner at Testa, Hurwitz & Thibeault, LLP beneficially owns 6,459
shares of our common stock, and Thomas C. Meyers, also a partner at Testa,
Hurwitz & Thibeault, LLP beneficially owns 1,000 shares of our common stock.
Legal matters in connection with this offering will be passed upon for the
underwriters by Shearman & Sterling, New York, New York.

EXPERTS

The financial statements included in this prospectus and elsewhere in the
Registration Statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock. This prospectus does not
contain all of the information contained in the registration statement, and the
exhibits and schedules to the registration statement. For further information
with respect to us and our common stock, we refer you to the registration
statement, and the exhibits and schedules filed as part of the registration
statement. Statements in this prospectus concerning the contents of any contract
or any other document are not necessarily complete. If a contract or document
has been filed as an exhibit to the registration statement, we refer you to that
exhibit. Each statement in this prospectus relating to a contract or document
filed as an exhibit to the registration statement is qualified by the filed
exhibits.

In addition, we file reports, proxy statements and other information with
the SEC. You may read and copy any document we file, including the registration
statement, at the SEC's public reference rooms in New York, New York. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public on the SEC's website at
http://www.sec.gov.

61
<PAGE>
EXACT CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-5
Statements of Stockholders' Equity.......................... F-6
Statements of Cash Flows.................................... F-8
Notes to Financial Statements............................... F-9
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To EXACT Corporation:

We have audited the accompanying balance sheets of EXACT Corporation (a
Delaware corporation in the development stage) as of December 31, 1998 and 1999
and the related statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of 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 EXACT Corporation as of
December 31, 1998 and 1999 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.

Boston, Massachusetts
March 14, 2000

F-2
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 2000
------------------------ -------------------------
1998 1999 ACTUAL PRO FORMA
ASSETS ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................. $8,825,738 $ 3,553,257 $32,156,753 $32,156,753
Prepaid expenses.......................................... 5,270 26,843 72,569 72,569
---------- ----------- ----------- -----------
Total current assets.................................... 8,831,008 3,580,100 32,229,322 32,229,322
Property and Equipment, at cost:
Laboratory equipment...................................... 402,954 594,385 777,900 777,900
Office and computer equipment............................. 219,902 255,161 307,969 307,969
Leasehold improvements.................................... 90,955 125,688 158,056 158,056
Furniture and fixtures.................................... 83,858 114,618 114,618 114,618
---------- ----------- ----------- -----------
797,669 1,089,852 1,358,543 1,358,543
Less--Accumulated depreciation and amortization........... (321,835) (663,397) (797,338) (797,338)
---------- ----------- ----------- -----------
475,834 426,455 561,205 561,205
Intangible and Other Assets, net of accumulated amortization
of approximately $43,000, $126,000 and $171,000 at
December 31, 1998, 1999 and June 30, 2000, respectively
(Note 2).................................................. 400,686 747,348 847,033 847,033
---------- ----------- ----------- -----------
$9,707,528 $ 4,753,903 $33,637,560 $33,637,560
========== =========== =========== ===========
</TABLE>

F-3
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 2000
------------------------ -------------------------
1998 1999 ACTUAL PRO FORMA
LIABILITIES AND STOCKHOLDERS' EQUITY ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>

Current Liabilities:
Capital lease obligations................................. $ 5,005 $ -- $ -- $ --
Accounts payable.......................................... 180,565 196,895 308,285 308,285
Accrued expenses.......................................... 223,487 146,993 218,965 218,965
---------- ----------- ----------- -----------
Total current liabilities............................... 409,057 343,888 527,250 527,250
---------- ----------- ----------- -----------
Commitments (Note 7)
Stockholders' Equity:
Series A convertible preferred stock,
$0.01 par value--Authorized--1,000,000 shares
Issued and outstanding--902,414 shares actual (liquidation
preference of $1,046,800), none pro forma............... 9,024 9,024 9,024 --
Series B convertible preferred stock,
$0.01 par value--Authorized--1,250,000 shares
Issued and outstanding--996,196 shares actual (liquidation
preference of $3,934,974), none pro forma............... 9,962 9,962 9,962 --
Series C convertible preferred stock,
$0.01 par value--Authorized--1,015,000 shares
Issued and outstanding--1,007,186 shares (liquidation
preference of $10,575,453), none pro forma.............. 10,072 10,072 10,072 --
Series D convertible preferred stock,
$0.01 par value--Authorized--1,435,373 shares
Issued and outstanding--1,417,534 shares actual at
June 30, 2000 (liquidation preference of $31,894,515),
none pro forma.......................................... -- -- 14,175 --
Common stock, $0.01 par value-
Authorized--7,500,000 shares
Issued--525,539, 575,581 and 950,809 shares at
December 31, 1998 and 1999 and June 30, 2000,
respectively, 5,274,139 shares pro forma................ 5,255 5,755 9,508 52,741
Treasury stock, 3,000 shares of common stock at
December 31, 1998, at cost................................ (1,200) -- -- --
Subscriptions receivable.................................... (43,778) (39,706) (693,234) (693,234)
Deferred compensation....................................... (15,991) (54,482) (3,896,212) (3,896,212)
Additional paid-in capital.................................. 15,576,763 15,684,951 52,762,188 52,762,188
Deficit accumulated during the development stage............ (6,251,636) (11,215,561) (15,115,173) (15,115,173)
---------- ----------- ----------- -----------
Total stockholders' equity.............................. 9,298,471 4,410,015 33,110,310 33,110,310
---------- ----------- ----------- -----------
$9,707,528 $ 4,753,903 $33,637,560 $33,637,560
========== =========== =========== ===========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-4
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, (FEBRUARY 10,
--------------------------------------- ------------------------- 1995) TO JUNE 30,
1997 1998 1999 1999 2000 2000
----------- ----------- ----------- ----------- ----------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating Expenses:
Research and
development......... $ 1,221,504 $ 2,848,763 $ 3,688,796 $ 1,814,386 $ 2,299,480 $ 10,424,347
General and
administrative...... 814,407 1,170,366 1,560,368 750,931 1,306,393 5,307,370
Stock-based
compensation(1)..... 845 1,902 13,780 1,645 785,525 802,052
----------- ----------- ----------- ----------- ----------- ------------
Loss from
operations........ (2,036,756) (4,021,031) (5,262,944) (2,566,962) (4,391,398) (16,533,769)
Interest Income......... 153,683 442,651 299,019 177,853 491,786 1,418,596
----------- ----------- ----------- ----------- ----------- ------------
Net loss............ $(1,883,073) $(3,578,380) $(4,963,925) $(2,389,109) $(3,899,612) $(15,115,173)
=========== =========== =========== =========== =========== ============
Net Loss per Share:
Basic and diluted..... $ (29.43) $ (16.73) $ (14.57) $ (8.27) $ (10.83)
=========== =========== =========== =========== ===========
Pro forma basic and
diluted
(unaudited)......... $ (1.53) $ (0.83)
=========== ===========
Weighted Average Common
Shares Outstanding:
Basic and diluted..... 63,983 213,870 340,763 289,020 360,075
=========== =========== =========== =========== ===========
Pro forma basic and
diluted
(unaudited)......... 3,246,559 4,683,405
=========== ===========

(1) The following summarizes the departmental allocation of stock-based compensation:
Research and
development........ $ 583 $ 1,427 $ 8,819 $ 1,151 $ 184,267 $ 195,096
General and
administrative..... 262 475 4,961 494 601,258 606,956
----------- ----------- ----------- ----------- ----------- ------------
Total.............. $ 845 $ 1,902 $ 13,780 $ 1,645 $ 785,525 $ 802,052
=========== =========== =========== =========== =========== ============
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-5
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE SERIES C CONVERTIBLE SERIES D CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ---------------------- ---------------------- ----------------------
NUMBER OF $0.01 PAR NUMBER OF $0.01 PAR NUMBER OF $0.01 PAR NUMBER OF $0.01 PAR
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
---------- --------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception, February 10, 1995... -- $ -- -- $ -- -- $ -- -- $ --
Sale of Series A convertible
preferred stock, net of
issuance costs of $6,665... 159,308 1,593 -- -- -- -- -- --
Sale of common stock......... -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- --
-------- ------ -------- ------ ---------- ------- ---------- -------
Balance, December 31, 1995..... 159,308 1,593 -- -- -- -- -- --
Sale of Series A convertible
preferred stock, net of
issuance costs of
$12,321.................... 743,106 7,431 -- -- -- -- -- --
Sale of Series B convertible
preferred stock, net of
issuance costs of
$36,892.................... -- -- 964,551 9,646 -- -- -- --
Sale of common stock......... -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- --
-------- ------ -------- ------ ---------- ------- ---------- -------
Balance, December 31, 1996..... 902,414 9,024 964,551 9,646 -- -- -- --
Sale of Series B convertible
preferred stock, net of
issuance costs of $4,138... -- -- 31,645 316 -- -- -- --
Sale of common stock......... -- -- -- -- -- -- -- --
Exercise of common stock
options.................... -- -- -- -- -- -- -- --
Compensation expense related
to issuance of stock
options.................... -- -- -- -- -- -- -- --
Repayment of subscription
receivable................. -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- --
-------- ------ -------- ------ ---------- ------- ---------- -------
Balance, December 31, 1997..... 902,414 9,024 996,196 9,962 -- -- -- --
Sale of Series C convertible
preferred stock, net of
issuance costs of
$37,414.................... -- -- -- -- 1,007,186 10,072 -- --
Sale of common stock......... -- -- -- -- -- -- -- --
Exercise of common stock
options.................... -- -- -- -- -- -- -- --
Repayment of subscription
receivable................. -- -- -- -- -- -- -- --
Compensation expense related
to issuance of stock
options.................... -- -- -- -- -- -- -- --
Repurchase of common stock... -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- --
-------- ------ -------- ------ ---------- ------- ---------- -------

COMMON STOCK TREASURY STOCK
---------------------- ---------------------- ADDITIONAL
NUMBER OF $0.01 PAR NUMBER OF $0.01 PAR SUBSCRIPTION DEFERRED PAID-IN
SHARES VALUE SHARES VALUE RECEIVABLE COMPENSATION CAPITAL
---------- --------- ---------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Inception, February 10, 1995... -- $ -- -- $ -- $ -- $ -- $ --
Sale of Series A convertible
preferred stock, net of
issuance costs of $6,665... -- -- -- -- -- -- 176,574
Sale of common stock......... 35,000 350 -- -- -- -- --
Net loss..................... -- -- -- -- -- -- --
--------- ------- ------- ------ --------- ----------- -----------
Balance, December 31, 1995..... 35,000 350 -- -- -- -- 176,574
Sale of Series A convertible
preferred stock, net of
issuance costs of
$12,321.................... -- -- -- -- (25,000) -- 842,617
Sale of Series B convertible
preferred stock, net of
issuance costs of
$36,892.................... -- -- -- -- -- -- 3,763,444
Sale of common stock......... 200,000 2,000 -- -- -- -- 22,000
Net loss..................... -- -- -- -- -- -- --
--------- ------- ------- ------ --------- ----------- -----------
Balance, December 31, 1996..... 235,000 2,350 -- -- (25,000) -- 4,804,635
Sale of Series B convertible
preferred stock, net of
issuance costs of $4,138... -- -- -- -- -- -- 120,500
Sale of common stock......... 74,039 740 -- -- -- -- 28,876
Exercise of common stock
options.................... 8,500 85 -- -- -- -- 935
Compensation expense related
to issuance of stock
options.................... -- -- -- -- -- (9,310) 10,155
Repayment of subscription
receivable................. -- -- -- -- 25,000 -- --
Net loss..................... -- -- -- -- -- -- --
--------- ------- ------- ------ --------- ----------- -----------
Balance, December 31, 1997..... 317,539 3,175 -- -- -- (9,310) 4,965,101
Sale of Series C convertible
preferred stock, net of
issuance costs of
$37,414.................... -- -- -- -- -- -- 10,527,979
Sale of common stock......... 20,000 200 -- -- -- -- 7,800
Exercise of common stock
options.................... 188,000 1,880 -- -- (47,580) -- 67,300
Repayment of subscription
receivable................. -- -- -- -- 3,802 -- --
Compensation expense related
to issuance of stock
options.................... -- -- -- -- -- (6,681) 8,583
Repurchase of common stock... -- -- 3,000 (1,200) -- -- --
Net loss..................... -- -- -- -- -- -- --
--------- ------- ------- ------ --------- ----------- -----------

<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
------------ -------------
<S> <C> <C>
Inception, February 10, 1995... $ -- $ --
Sale of Series A convertible
preferred stock, net of
issuance costs of $6,665... -- 178,167
Sale of common stock......... -- 350
Net loss..................... (138,163) (138,163)
------------ -----------
Balance, December 31, 1995..... (138,163) 40,354
Sale of Series A convertible
preferred stock, net of
issuance costs of
$12,321.................... -- 825,048
Sale of Series B convertible
preferred stock, net of
issuance costs of
$36,892.................... -- 3,773,090
Sale of common stock......... -- 24,000
Net loss..................... (652,020) (652,020)
------------ -----------
Balance, December 31, 1996..... (790,183) 4,010,472
Sale of Series B convertible
preferred stock, net of
issuance costs of $4,138... -- 120,816
Sale of common stock......... -- 29,616
Exercise of common stock
options.................... -- 1,020
Compensation expense related
to issuance of stock
options.................... -- 845
Repayment of subscription
receivable................. -- 25,000
Net loss..................... (1,883,073) (1,883,073)
------------ -----------
Balance, December 31, 1997..... (2,673,256) 2,304,696
Sale of Series C convertible
preferred stock, net of
issuance costs of
$37,414.................... -- 10,538,051
Sale of common stock......... -- 8,000
Exercise of common stock
options.................... -- 21,600
Repayment of subscription
receivable................. -- 3,802
Compensation expense related
to issuance of stock
options.................... -- 1,902
Repurchase of common stock... -- (1,200)
Net loss..................... (3,578,380) (3,578,380)
------------ -----------
</TABLE>

F-6
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE SERIES C CONVERTIBLE SERIES D CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ---------------------- ---------------------- ----------------------
NUMBER OF $0.01 PAR NUMBER OF $0.01 PAR NUMBER OF $0.01 PAR NUMBER OF $0.01 PAR
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
---------- --------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998.... 902,414 9,024 996,196 9,962 1,007,186 10,072 -- --
Exercise of common stock
options................... -- -- -- -- -- -- -- --
Repayment of subscription
receivable................ -- -- -- -- -- -- -- --
Compensation expense related
to issuance of stock
options................... -- -- -- -- -- -- -- --
Repurchase of common stock.. -- -- -- -- -- -- -- --
Retirement of treasury
stock..................... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
-------- ------ -------- ------ ---------- ------- ---------- -------
Balance, December 31, 1999.... 902,414 9,024 996,196 9,962 1,007,186 10,072 -- --
Sale of Series D convertible
preferred stock, net of
issuance costs of
$145,678.................. -- -- -- -- -- -- 1,417,534 14,175
Sale of common stock........ -- -- -- -- -- -- -- --
Repurchase of common stock.. -- -- -- -- -- -- -- --
Retirement of treasury
stock..................... -- -- -- -- -- -- -- --
Exercise of common stock
options................... -- -- -- -- -- -- -- --
Repayment of subscription
receivable................ -- -- -- -- -- -- -- --
Compensation expense related
to issuance of stock
options................... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
-------- ------ -------- ------ ---------- ------- ---------- -------
Balance, June 30, 2000
(unaudited)................. 902,414 9,024 996,196 9,962 1,007,186 10,072 1,417,534 14,175
Conversion of convertible
preferred stock into
common stock.............. (902,414) (9,024) (996,196) (9,962) (1,007,186) (10,072) (1,417,534) (14,175)
-------- ------ -------- ------ ---------- ------- ---------- -------
Pro Forma Balance, June 30,
2000 (unaudited).......... -- $ -- -- $ -- -- $ -- -- $ --
======== ====== ======== ====== ========== ======= ========== =======

COMMON STOCK TREASURY STOCK
---------------------- ---------------------- ADDITIONAL
NUMBER OF $0.01 PAR NUMBER OF $0.01 PAR SUBSCRIPTION DEFERRED PAID-IN
SHARES VALUE SHARES VALUE RECEIVABLE COMPENSATION CAPITAL
---------- --------- ---------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998.... 525,539 5,255 3,000 (1,200) (43,778) (15,991) 15,576,763
Exercise of common stock
options................... 56,542 565 -- -- -- -- 58,452
Repayment of subscription
receivable................ -- -- -- -- 4,072 -- --
Compensation expense related
to issuance of stock
options................... -- -- -- -- -- (38,491) 52,271
Repurchase of common stock.. -- -- 3,500 (1,400) -- -- --
Retirement of treasury
stock..................... (6,500) (65) (6,500) 2,600 -- -- (2,535)
Net loss.................... -- -- -- -- -- -- --
--------- ------- ------- ------ --------- ----------- -----------
Balance, December 31, 1999.... 575,581 5,755 -- -- (39,706) (54,482) 15,684,951
Sale of Series D convertible
preferred stock, net of
issuance costs of
$145,678.................. -- -- -- -- -- -- 31,734,662
Sale of common stock........ 17,500 175 -- -- -- -- 18,200
Repurchase of common stock.. -- -- 10,125 (5,215) -- -- --
Retirement of treasury
stock..................... (10,125) (101) (10,125) 5,215 -- -- (5,114)
Exercise of common stock
options................... 367,853 3,679 -- -- (662,080) -- 702,234
Repayment of subscription
receivable................ -- -- -- -- 8,552 -- --
Compensation expense related
to issuance of stock
options................... -- -- -- -- -- (3,841,730) 4,627,255
Net loss.................... -- -- -- -- -- -- --
--------- ------- ------- ------ --------- ----------- -----------
Balance, June 30, 2000
(unaudited)................. 950,809 9,508 -- -- (693,234) (3,896,212) 52,762,188
Conversion of convertible
preferred stock into
common stock.............. 4,323,330 43,233 -- -- -- -- --
--------- ------- ------- ------ --------- ----------- -----------
Pro Forma Balance, June 30,
2000 (unaudited).......... 5,274,139 $52,741 -- $ -- $(693,234) $(3,896,212) $52,762,188
========= ======= ======= ====== ========= =========== ===========

<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
------------ -------------
<S> <C> <C>
Balance, December 31, 1998.... (6,251,636) 9,298,471
Exercise of common stock
options................... -- 59,017
Repayment of subscription
receivable................ -- 4,072
Compensation expense related
to issuance of stock
options................... -- 13,780
Repurchase of common stock.. -- (1,400)
Retirement of treasury
stock..................... -- --
Net loss.................... (4,963,925) (4,963,925)
------------ -----------
Balance, December 31, 1999.... (11,215,561) 4,410,015
Sale of Series D convertible
preferred stock, net of
issuance costs of
$145,678.................. -- 31,748,837
Sale of common stock........ -- 18,375
Repurchase of common stock.. -- (5,215)
Retirement of treasury
stock..................... -- --
Exercise of common stock
options................... -- 43,833
Repayment of subscription
receivable................ -- 8,552
Compensation expense related
to issuance of stock
options................... -- 785,525
Net loss.................... (3,899,612) (3,899,612)
------------ -----------
Balance, June 30, 2000
(unaudited)................. (15,115,173) 33,110,310
Conversion of convertible
preferred stock into
common stock.............. -- --
------------ -----------
Pro Forma Balance, June 30,
2000 (unaudited).......... $(15,115,173) $33,110,310
============ ===========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-7
<PAGE>
EXACT CORPORATION

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED INCEPTION
YEAR ENDED DECEMBER 31, JUNE 30, (FEBRUARY 10,
--------------------------------------- -------------------------- 1995) TO JUNE 30,
1997 1998 1999 1999 2000 2000
----------- ----------- ----------- ----------- ------------ -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................. $(1,883,073) $(3,578,380) $(4,963,925) $(2,389,109) $ (3,899,612) $(15,115,173)
Adjustments to reconcile net loss to
net cash used in operating
activities--
Depreciation and amortization...... 114,692 243,832 424,285 201,837 179,477 968,439
Non-cash stock-based compensation
expense.......................... 845 1,902 13,780 1,645 785,525 802,052
Changes in assets and liabilities--
Prepaid expenses................. -- (5,270) (21,573) (11,699) (45,726) (72,569)
Cash overdraft................... (17,293) -- -- -- -- --
Accounts payable................. (41,000) 137,106 16,330 33,062 111,390 308,285
Accrued expenses................. 49,972 166,515 (76,494) (38,545) 71,972 218,965
----------- ----------- ----------- ----------- ------------ ------------
Net cash used in operating
activities................... (1,775,857) (3,034,295) (4,607,597) (2,202,809) (2,796,974) (12,890,001)
----------- ----------- ----------- ----------- ------------ ------------
Cash Flows from Investing Activities:
Purchases of property and
equipment.......................... (340,142) (355,201) (292,183) (277,169) (268,691) (1,341,592)
Increase in intangible and other
assets............................. (159,059) (140,312) (429,385) (309,043) (145,221) (1,018,134)
----------- ----------- ----------- ----------- ------------ ------------
Net cash used in investing
activities................... (499,201) (495,513) (721,568) (586,212) (413,912) (2,359,726)
----------- ----------- ----------- ----------- ------------ ------------
Cash Flows from Financing Activities:
Payments on capital lease
obligations........................ (5,437) (6,509) (5,005) (2,306) -- (16,951)
Repurchase of common stock........... -- (1,200) (1,400) (5,215) (7,815)
Net proceeds from sale of convertible
preferred stock.................... 120,816 10,538,051 -- -- 31,748,837 47,184,010
Net proceeds from sale of common
stock.............................. 29,616 8,000 -- -- 18,375 80,341
Proceeds from exercise of common
stock options...................... 1,020 21,600 59,017 15,238 43,833 125,470
Collection of stock subscription
receivable......................... 25,000 3,802 4,072 4,072 8,552 41,425
----------- ----------- ----------- ----------- ------------ ------------
Net cash provided by financing
activities................... 171,015 10,563,744 56,684 17,004 31,814,382 47,406,480
----------- ----------- ----------- ----------- ------------ ------------
Net (Decrease) Increase in Cash and
Cash Equivalents..................... (2,104,043) 7,033,936 (5,272,481) (2,772,017) 28,603,496 32,156,753
Cash and Cash Equivalents, beginning of
period............................... 3,895,845 1,791,802 8,825,738 8,825,738 3,553,257 --
----------- ----------- ----------- ----------- ------------ ------------
Cash and Cash Equivalents, end of
period............................... $ 1,791,802 $ 8,825,738 $ 3,553,257 $ 6,053,721 $ 32,156,753 $ 32,156,753
=========== =========== =========== =========== ============ ============
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Sale of restricted stock through
issuance of notes receivable....... $ -- $ 47,580 $ -- $ -- $ 662,079 $ 709,659
=========== =========== =========== =========== ============ ============
Purchase of treasury shares through
forgiveness of note receivable..... $ -- $ 1,200 $ 1,400 $ -- $ 5,215 $ 7,815
=========== =========== =========== =========== ============ ============
Equipment purchased through capital
lease obligations.................. $ 16,951 $ -- $ -- $ -- $ -- $ 16,951
=========== =========== =========== =========== ============ ============
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-8
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(1) ORGANIZATION

EXACT Corporation (the Company) was incorporated on February 10, 1995. The
Company is in the development stage and applies proprietary genomics
technologies to the early detection of several types of common cancers. The
Company has selected colorectal cancer as the first application of its
technology platform.

The Company is devoting substantially all of its efforts toward product
research and development, raising capital and marketing products under
development. The Company has not generated revenue to date and is subject to a
number of risks similar to those of other development-stage companies, including
dependence on key individuals, the need for the continued development of
commercially usable products and the need to obtain adequate additional
financing necessary to fund the development of its products. To date, the
Company has raised capital principally through private placements of its
preferred stock. The Company believes that proceeds from these financings will
be adequate to fund operations through the next fiscal year.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

UNAUDITED INTERIM FINANCIAL STATEMENTS

The financial statements as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 are unaudited. These unaudited financial statements have
been prepared on the same basis as the audited financial statements and in the
opinion of management include all adjustments, consisting only of normal
recurring adjustments, which are necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim periods
presented. The results of operations for the interim period ended June 30, 2000
are not necessarily indicative of the results to be expected for the entire
fiscal year.

UNAUDITED PRO FORMA PRESENTATION

All outstanding shares of Series A, B, C and D convertible preferred stock
will convert into 4,323,330 shares of common stock upon the closing of the
Company's proposed initial public offering. The unaudited pro forma consolidated
balance sheet as of June 30, 2000 reflects this conversion.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of three
months or less at the time of acquisition to be cash equivalents. Cash
equivalents consist primarily of money market funds at December 31, 1998 and
1999 and at June 30, 2000.

F-9
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION

Depreciation and amortization are computed using the straight-line method
based on the estimated useful lives of the related assets, as follows:

<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -------------
<S> <C>
Laboratory equipment........................................ 3 years
Office and computer equipment............................... 3 years
Leasehold improvements...................................... Life of lease
Furniture and fixtures...................................... 3 years
</TABLE>

NET LOSS PER SHARE

Basic and diluted net loss per share is presented in conformity with
Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE,
for all periods presented. In accordance with SFAS No. 128, basic and diluted
net loss per common share was determined by dividing net loss applicable to
common stockholders by the weighted average common shares outstanding during the
period, less shares subject to repurchase. Basic and diluted net loss per share
are the same because all outstanding common stock equivalents have been excluded
as they are antidilutive. All shares issuable upon conversion of outstanding
preferred stock, unvested restricted common shares of options to purchase a
total of 203,000, 418,211, 399,211, 422,961 and 399,556 common shares and
196,715, 291,116, 200,508, 245,811, and 421,165 have therefore been excluded
from the computations of diluted weighted average shares outstanding for the
years ended December 31, 1997, 1998 and 1999 and for the six months ended
June 30, 1999 and 2000, respectively.

In accordance with the SEC Staff Accounting Bulletin (SAB) No. 98, EARNINGS
PER SHARE IN AN INITIAL PUBLIC OFFERING, the Company has determined that there
were no nominal issuances of the Company's common stock prior to the Company's
initial public offering.

The Company's historical capital structure is not indicative of its capital
structure after the proposed initial public offering due to the automatic
conversion of all shares of preferred stock into common stock concurrent with
the closing of the Company's proposed initial public offering. Accordingly, pro
forma net loss per share is presented for the year ended December 31, 1999 and
the six months ended June 30, 2000 assuming the conversion of all outstanding
shares of preferred stock into common stock upon the closing of the Company's
initial public offering using the if-converted method from the respective dates
of issuance.

F-10
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of pro forma basic and diluted
net loss per share:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
------------ ----------------
<S> <C> <C>
Net loss........................................ $(4,963,925) $(3,899,612)
----------- -----------
Weighted average shares outstanding............. 340,763 360,075
Conversion of preferred stock to common stock... 2,905,796 4,323,330
----------- -----------
Pro forma weighted average shares
outstanding............................... 3,246,559 4,683,405
=========== ===========
Pro forma basic and diluted net loss per
share......................................... $ (1.53) $ (0.83)
=========== ===========
</TABLE>

INTANGIBLE AND OTHER ASSETS

Other assets consist of patent costs and deposits. Patent costs are
amortized beginning when patents are approved over an estimated useful life of
five years.

The Company applies SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121
requires the Company to continually evaluate whether events or circumstances
have occurred that indicate that the estimated remaining useful life of
long-lived assets and certain identifiable intangibles and goodwill may warrant
revision or that the carrying value of these assets may be impaired. To compute
whether assets have been impaired, the estimated gross cash flows for the
estimated remaining useful life of the assets are compared to the carrying
value. To the extent that the gross cash flows are less than the carrying value,
the assets are written down to the estimated fair value of the asset. The
Company does not believe that its long-lived assets have been impaired.

RESEARCH AND DEVELOPMENT EXPENSES

The Company charges research and development expenses to operations as
incurred.

COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. Comprehensive net loss is the same as reported net loss for all periods
presented.

FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosures about fair value of financial instruments. Financial
instruments consist of cash equivalents, accounts payable and

F-11
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
capital lease obligations. The estimated fair value of these financial
instruments approximates their carrying value.

CONCENTRATION OF CREDIT RISK

SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentration. The Company has no significant concentrations of credit risk,
such as foreign exchange contracts or other hedging arrangements. Financial
instruments that subject the Company to credit risk consist of cash and cash
equivalents.

SEGMENT INFORMATION

The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which requires companies to report selected
information about operating segments, as well as enterprise-wide disclosures
about products, services, geographic areas and major customers. Operating
segments are determined based on the way management organizes its business for
making operating decisions and assessing performance. The Company's chief
decision-maker, as defined under SFAS No. 131, is a combination of the chairman,
vice president and chief financial officer and president. The Company has
determined that it conducts its operations in one business segment. The Company
conducts its business primarily in the United States.

As a result, the financial information disclosed herein represents all of
the material financial information related to the Company's principal operating
segment.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1999, the FASB issued SFAS No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT NO. 133, which defers the effective date of SFAS No. 133 to all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, issued in
June 1998, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. It requires an entity to 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 adoption of this statement to have any impact on its financial position
or results of operations.

In December 1999, the SEC issued SAB No. 101, REVENUE RECOGNITION. This
bulletin establishes guidelines for revenue recognition and is effective for all
fiscal years beginning after December 15, 1999. The Company does not expect that
the adoption of this guidance will have a material impact on its financial
condition or results of operations.

In March 2000, the FASB issued Interpretation No. 44, ACCOUNTING FOR CERTAIN
TRANSACTIONS INVOLVING STOCK COMPENSATION--AN INTERPRETATION OF APB OPINION
NO. 25. The interpretation clarifies the application of Accounting Principles
Board (APB) Opinion No. 25 to accounting for stock issued to employees. The
interpretation is effective July 1, 2000, but covers certain events occurring
during the

F-12
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period between December 15, 1998 and July 1, 2000. If events covered by the
interpretation occur during this period, the effects of applying the
interpretation to the events would be recognized on a prospective basis from
July 1, 2000. As a result, the interpretation will not require that any
adjustments be made to our financial statements for periods before July 1, 2000
and no expense would be recognized for any additional compensation cost measured
that is attributable to periods before July 1, 2000. The Company believes the
adoption of this interpretation will not have a significant impact on its
financial position, results of operations or cash flows.

(3) INCOME TAXES

The Company accounts for income taxes under SFAS No. 109, ACCOUNTING FOR
INCOME TAXES. Under SFAS No. 109, deferred tax assets or liabilities are
computed based on the differences between the financial statement and income tax
bases of assets and liabilities using the enacted tax rates. Deferred income tax
expense or credits are based on changes in the asset or liability from period to
period. At December 31, 1999, the Company had net operating loss and research
tax credit carryforwards of approximately $10,654,000 and $389,000,
respectively, for financial reporting purposes, which may be used to offset
future taxable income.

The components of the net deferred tax asset with the approximate income tax
effect of each type of carryforward, credit and temporary difference are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Operating loss carryforwards......................... $2,325,000 $4,262,000
Tax credit carryforwards............................. 206,000 389,000
Temporary differences................................ (270,000) (127,000)
---------- ----------
2,261,000 4,524,000
Less--Valuation allowance............................ 2,261,000 4,524,000
---------- ----------
Net deferred tax asset............................... $ -- $ --
========== ==========
</TABLE>

The Company has recorded a full valuation allowance against its deferred tax
assets due to uncertainties surrounding the realization of these assets. The
carryforwards expire from 2010 to 2019 and are subject to review and possible
adjustment by the Internal Revenue Service. The Internal Revenue Code contains
provisions that may limit the net operating loss and research tax credit
carryforwards in the event of certain changes in the ownership interests of
significant stockholders.

(4) SUBSCRIPTIONS RECEIVABLE

In February 1998, the Company issued full recourse notes receivable to
several employees totaling $47,580 for the exercise of stock options. The notes
bear interest at 8.5% with interest payments due monthly over a five-year
period.

In March 2000, the Company issued full recourse notes receivable to several
employees totaling $262,080 for the exercise of stock options. The notes bear
interest at 9.0% with interest payments due

F-13
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(4) SUBSCRIPTIONS RECEIVABLE (CONTINUED)
monthly over a five-year period and are collateralized by the underlying stock.
In June 2000, the Company issued full recourse notes receivable to an executive
totaling $299,999 to purchase restricted stock. The notes bear interest at 9.5%
with interest payments due monthly over a five-year period.

(5) RELATED PARTY TRANSACTION

In February 1998, the Company entered into a research arrangement with one
of its shareholders. The Company paid approximately $143,000 and $114,000
related to this arrangement during the years ended December 31, 1998 and 1999,
respectively.

(6) STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

The Company has authorized 4,700,373 shares of $0.01 par value convertible
preferred stock, of which 1,000,000 are designated as Series A convertible
preferred stock (Series A preferred), 1,250,000 are designated as Series B
convertible preferred stock (Series B preferred), 1,015,000 are designated as
Series C convertible preferred stock (Series C preferred) and 1,435,373 are
designated as Series D convertible preferred stock (Series D preferred).

DIVIDENDS

The holders of Series A, B, C and D preferred are entitled to receive
dividends, as defined, if and when declared by the Company's Board of Directors.
To date, no dividends have been declared.

VOTING RIGHTS

Each holder of outstanding shares of Series A, B, C and D preferred is
entitled to a number of votes equal to the number of whole shares of common
stock into which such preferred shares are then convertible. All outstanding
holders of convertible preferred stock shall vote together with the holders of
common stock as a single class.

LIQUIDATION

In the event of any voluntary or involuntary dissolution of the Company and
before any distribution or other payment is made to any holders of any class or
series of capital stock of the Company, the holders of each share of Series A,
B, C and D preferred shall be entitled to receive $1.16, $3.95, $10.50 and
$22.50, respectively, plus any dividends declared but unpaid.

CONVERSION

Each share of Series A, B, C and D preferred is convertible, at the option
of the holder, into such number of shares of common stock as is determined by
dividing $1.16, $3.95, $10.50 and $22.50 per share, respectively, by the
conversion price, as defined. Series A, B, C and D preferred will automatically
convert into common stock upon the closing of an underwritten public offering,
as defined.

F-14
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(6) STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN

The Company has a stock option plan (the Plan) under which the Board of
Directors may grant incentive and nonqualified stock options to purchase an
aggregate of 1,450,000 shares of common stock to employees and consultants of
the Company. Nonqualified stock options may be granted to any employee or
consultant of the Company. The exercise price of each option is determined by
the Board of Directors. Incentive stock options may not be less than the fair
market value of the stock on the date of grant, as defined by the Board of
Directors.

Options granted under the Plan vest over a three-to-five-year period and
expire 10 years from the grant date. At June 30, 2000, 196,174 shares were
available for future grant under the Plan.

Information with respect to activity under the Plan is as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding, December 31, 1997.............................. 203,000 $0.26
Granted................................................... 408,211 0.89
Exercised................................................. (188,000) 0.37
Canceled.................................................. (5,000) 0.40
--------
Outstanding, December 31, 1998.............................. 418,211 0.82
Granted................................................... 48,000 1.05
Exercised................................................. (56,542) 1.04
Canceled.................................................. (10,458) 0.40
--------
Outstanding, December 31, 1999.............................. 399,211 0.83
Granted................................................... 386,700 3.41
Exercised................................................. (367,853) 1.92
Canceled.................................................. (18,502) 1.05
--------
Outstanding, June 30, 2000.................................. 399,556 $2.30
======== =====
Exercisable, December 31, 1998.............................. 47,325 $0.21
======== =====
Exercisable, December 31, 1999.............................. 226,759 $0.53
======== =====
Exercisable, June 30, 2000.................................. 138,265 $0.41
======== =====
</TABLE>

F-15
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(6) STOCKHOLDERS' EQUITY (CONTINUED)

The following table summarizes information relating to currently outstanding
and exercisable stock options as of June 30, 2000:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------------------- --------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
EXERCISE NUMBER OF CONTRACTUAL AVERAGE NUMBER OF AVERAGE
PRICE SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
-------- --------- ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.12 71,500 6.81 $0.12 71,500 $0.12
$0.40 35,000 7.74 0.40 34,250 0.40
$1.05 164,167 9.24 1.05 32,515 1.05
$5.63 128,889 10.0 5.63 -- 5.63
------- ----- ----- ------- -----
399,556 8.92 $2.30 138,265 $0.41
======= ===== ===== ======= =====
</TABLE>

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation plan under APB Opinion
No. 25. SFAS No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION establishes the
fair-value-based method of accounting for stock-based compensation plans. The
Company has adopted the disclosure-only alternative for options granted to
employees and directors under SFAS No. 123, which requires disclosure of the pro
forma effects on earnings as if SFAS No. 123 had been adopted, as well as
certain other information. For options granted to advisory board members and
other nonemployees, compensation expense, computed using the Black-Scholes
option pricing model, of $1,902, $9,500 and $5,467 was recorded in the
accompanying statements of operations for the years ended December 31, 1998 and
1999 and the six months ended June 30, 2000, respectively.

In connection with certain 1999 and 2000 stock option grants, the Company
recorded deferred compensation of $52,271 and $4,627,255 during the year ended
December 31, 1999 and the six months ended June 30, 2000, respectively. The
deferred compensation represents the aggregate difference between the option
exercise price and the deemed fair value of the common stock for accounting
purposes and is being charged to operations over the related vesting period. All
stock options granted and stock sold prior to 1999 were at fair market value and
therefore did not result in a compensation charge.

The Company expects to recognize amortization expense of deferred
compensation recorded through June 30, 2000 of approximately $1,553,000,
$1,476,000, $878,000, $511,000, $218,000 and $39,000 during the years ending
December 31, 2000, 2001, 2002, 2003, 2004 and 2005, respectively.

The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options granted as of December 31, 1997, 1998 and 1999 and
June 30, 2000 using the Black-Scholes option pricing model prescribed by SFAS
No. 123.

F-16
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(6) STOCKHOLDERS' EQUITY (CONTINUED)
The assumptions used for the years ended December 31, 1997, 1998 and 1999
and for the six months ended June 30, 2000 are as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------------ 2000
1997 1998 1999 (UNAUDITED)
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Risk-free interest rates.......... 5.90%-6.65% 4.65%-5.62% 5.44%-5.97% 5.25%-5.50%
Expected lives.................... 7 years 7 years 7 years 7 years
Expected volatility............... 0% 0% 0% 100%
Dividend yield.................... 0% 0% 0% 0%
Weighted average remaining
contractual life of options
outstanding..................... 9.21 9.30 8.33 8.92
Weighted average fair value of
grants.......................... $ 0.15 $ 0.30 $ 0.35 $ 3.31
</TABLE>

The effect of applying SFAS No. 123 would be as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- 2000
1997 1998 1999 (UNAUDITED)
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Net loss as reported.................... $(1,883,073) $(3,578,380) $(4,963,925) $(3,899,612)
Pro forma............................... $(1,884,473) $(3,581,433) $(4,993,586) $(3,937,232)
Basic and Diluted Net Loss per Share--
As reported........................... $ (29.43) $ (16.73) $ (14.57) $ (10.83)
Pro forma............................. $ (29.45) $ (16.75) $ (14.65) $ (10.93)
</TABLE>

RESTRICTED COMMON STOCK

On May 10, 1996, the Company sold 200,000 shares of restricted common stock
to a key employee. In 1997, the Company sold 25,000 shares of restricted common
stock to a key employee and 49,039 restricted common shares to another employee.
In February 1998, the Company sold 179,000 shares of restricted common stock to
employees of the Company pursuant to the exercise of options, 134,000 shares of
which were purchased through issuance of notes receivable (see Note 4). During
2000, the Company sold 349,111 shares of restricted common stock to employees of
the Company pursuant to the exercise of options, 323,111 shares of which were
purchased through issuance of notes receivable (Note 4). The shares were sold at
the then fair market value and vest over a five- to seven-year period. At
June 30, 2000, 380,985 shares were vested.

F-17
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(7) COMMITMENTS

The Company leases certain equipment and conducts its operations in a leased
facility under noncancelable operating leases expiring through June 2003. Future
minimum rental payments under the operating leases as of June 30, 2000 are
approximately as follows:

<TABLE>
<S> <C>
Year ending December 31,
2000...................................................... 118,000
2001...................................................... 236,000
2002...................................................... 236,000
2003...................................................... 118,000
--------
Total lease payments.................................... 708,000
========
</TABLE>

Rent expense included in the accompanying statements of operations was
approximately $65,000, $84,000 and $146,000 for the years ended December 31,
1997, 1998 and 1999, respectively. Rent expense for the six months ended
June 30, 1999 and 2000 was approximately $80,000 and $71,000, respectively.

(8) ROYALTY AGREEMENTS

ROCHE LICENSE. The Company licenses, on a non-exclusive basis, technology
for performing a step in its testing methods from Roche Molecular Systems, Inc.
This license relates to a gene amplification process used in almost all genetic
testing, and the patent that the Company utilizes expires in mid-2004. In
exchange for the license, the Company agreed to pay Roche a royalty based on net
revenues received from tests using the Company's technologies.

GENZYME LICENSE. The Company licenses, on a non-exclusive basis, technology
for performing a step in its testing methods from Genzyme Corporation, the
exclusive licensee of patents owned by Johns Hopkins University and of which Dr.
Vogelstein is an inventor. This license relates to the use of the APC and P53
genes and methodologies related thereto in connection with its products and
services and lasts for the life of the patent term of the last licensed Genzyme
patent. In exchange for the license, the Company has agreed to pay Genzyme a
royalty based on net revenues received from performing the Company's tests and
the sale of its reagents and diagnostic test kits, as well as certain milestone
payments and maintenance fees.

(9) EMPLOYEE BENEFIT PLAN

The Company maintains a qualified 401(k) retirement savings plan (the 401(k)
Plan) covering all employees. Under the 401(k) Plan, the participants may elect
to defer a portion of their compensation, subject to certain limitations.
Company matching contributions may be made at the discretion of the Board of
Directors. There have been no discretionary contributions made by the Company to
the 401(k) Plan to date.

(10) 2000 STOCK OPTION AND INCENTIVE PLAN

The Company adopted the 2000 Stock Option and Incentive Plan (the 2000
Option Plan) on October 17, 2000. A total of 1,000,000 shares of common stock
have been authorized and reserved for issuance under the 2000 Option Plan. The
2000 Option Plan provides that the number of shares

F-18
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(10) 2000 STOCK OPTION AND INCENTIVE PLAN (CONTINUED)
authorized for issuance will automatically increase on each January 1 by the
greater of 5% of the outstanding number of shares of common stock on the
preceding December 31 or that number of shares underlying option awards issued
during the one-year period prior to such January 1, or such lesser number as may
be approved by the Board of Directors. Under the terms of the 2000 Option Plan,
the Company is authorized to grant incentive stock options as defined under the
Code, non-qualified options, stock awards or opportunities to make direct
purchases of common stock to employees, officers, directors, consultants and
advisors.

The 2000 Option Plan is administered by the compensation committee of the
Board of Directors, which selects the individuals to whom equity-based awards
will be granted and determines the option exercise price and other terms of each
award, subject to the provisions of the 2000 Option Plan. The 2000 Option Plan
provides that upon an acquisition, all options to purchase common stock will
accelerate by a period of one year. In addition, upon the termination of an
employee without cause or for good reason prior to the first anniversary of the
completion of the acquisition, all options then outstanding under the 2000
Option Plan held by that employee will immediately become exercisable. To date,
no options have been granted under the 2000 Option Plan.

(11) 2000 EMPLOYEE STOCK PURCHASE PLAN

The 2000 Employee Stock Purchase Plan (the 2000 Purchase Plan) was adopted
on October 17, 2000. The 2000 Purchase Plan provides for the issuance of up to
an aggregate of 300,000 shares of common stock to participating employees. The
2000 Purchase Plan provides that the number of shares authorized for issuance
will automatically increase on each February 1 by the greater of 0.75% of the
outstanding number of shares of common stock on the immediately preceding
December 31 or that number of shares issued during the one-year period prior to
such February 1, or such lesser number as may be approved by the Board of
Directors.

The 2000 Purchase Plan is administered by the compensation committee of the
Board of Directors. Generally, all employees who have completed three months of
employment and whose customary employment is more than 20 hours per week and for
more than five months in any calendar year are eligible to participate in the
2000 Purchase Plan. The right to purchase common stock under the 2000 Purchase
Plan will be made available through a series of offerings. Participating
employees will be required to authorize an amount, between 1% and 10% of the
employee's compensation, to be deducted from the employee's pay during the
offering period. On the last day of the offering period, the employee will be
deemed to have exercised the option, at the option exercise price, to the extent
of accumulated payroll deductions. Under the terms of the 2000 Purchase Plan,
the option exercise price is an amount equal to 85% of the fair market value of
one share of common stock on either the first or last day of the offering
period, whichever is lower. No employee may be granted an option that would
permit the employee's rights to purchase common stock to accrue in excess of
$25,300 in any calendar year. The first offering period under the 2000 Purchase
Plan will commence on the date the shares issued in connection with the
Company's proposed initial public offering of its common stock are sold to the
underwriters and continues through July 31, 2001. Thereafter, the offering
periods will begin on each February 1 and August 1. Options granted under the
2000 Purchase Plan terminate upon an employee's voluntary withdrawal from the
plan at any time or upon termination of employment.

F-19
<PAGE>
EXACT CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(12) ACCRUED EXPENSES

Accrued expenses at December 31, 1998 and 1999 and June 30, 2000 consisted
of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Payroll and payroll-related................... $ 83,000 $ 47,000 $ 17,000
Professional fees............................. 43,070 48,265 62,140
Consulting.................................... 30,000 20,000 45,000
Travel and entertainment...................... 25,000 6,800 6,800
Research...................................... 30,000 -- 40,000
Occupancy..................................... 1,000 19,500 45,000
Other......................................... 11,417 5,428 3,025
-------- -------- --------
$223,487 $146,993 $218,965
======== ======== ========
</TABLE>

F-20
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Through and including (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

[LOGO]

COMMON STOCK

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

P R O S P E C T U S
----------------

MERRILL LYNCH & CO.

CIBC WORLD MARKETS

THOMAS WEISEL PARTNERS LLC

, 2000

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 27, 2000

P_R_O_S_P_E_C_T_U_S

[LOGO]

COMMON STOCK

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

This is EXACT's initial public offering of common stock. EXACT is selling
all of the shares of common stock. The international managers are offering
shares outside the U.S. and Canada and the U.S. underwriters are
offering shares in the U.S. and Canada.

We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will be quoted on the Nasdaq National Market
under the symbol "EXAX."

INVESTING IN OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $

Underwriting discount....................................... $ $

Proceeds, before expenses, to EXACT......................... $ $
</TABLE>

The international managers may also purchase up to an additional
shares from EXACT at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments. The
U.S. underwriters may similarly purchase up to an additional shares from
EXACT.

The shares will be ready for delivery on or about , 2000.

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

MERRILL LYNCH INTERNATIONAL

CIBC WORLD MARKETS

THOMAS WEISEL PARTNERS LLC
-----------

The date of this prospectus is , 2000.
<PAGE>

UNDERWRITING

We intend to offer the shares outside the U.S. and Canada through the
international managers and in the U.S. and Canada through the U.S. underwriters.
Merrill Lynch International, CIBC World Markets plc and Thomas Weisel Partners
LLC are acting as lead managers for the international managers named below.
Subject to the terms and conditions described in an international purchase
agreement among us and the international managers, and concurrently with the
sale of shares of common stock to the U.S. underwriters, we have agreed
to sell to the international managers, and the international managers severally
have agreed to purchase from us, the number of shares of common stock set forth
opposite their names below.

<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGER OF SHARES
--------------------- ---------
<S> <C> <C>
Merrill Lynch International..............................................
CIBC World Markets plc...................................................
Thomas Weisel Partners LLC...............................................
-------
Total.......................................................
=======
</TABLE>

We have also entered into a U.S. purchase agreement with the U.S.
underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, CIBC
World Markets and Thomas Weisel Partners LLC are acting as U.S. representatives,
for sale of the shares in the U.S. and Canada. Subject to the terms and
conditions set forth in the U.S. purchase agreement, and concurrently with the
sale of shares to the international managers pursuant to the
international purchase agreement, we have agreed to sell to the U.S.
underwriters, and the U.S. underwriters severally have agreed to purchase from
us, an aggregate of shares. The initial public offering price per share
and the underwriting discount per share are identical under the international
purchase agreement and the U.S. purchase agreement.

The international managers and the U.S. underwriters have agreed to purchase
all of the shares sold under the international and U.S. purchase agreements if
any of these shares are purchased. If an underwriter defaults, the international
and U.S. purchase agreements provide that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreements may be
terminated. The closings for the sale of shares to be purchased by the
international managers and the U.S. underwriters are conditioned on one another.

We have agreed to indemnify the international managers and the U.S.
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the international managers and U.S.
underwriters may be required to make in respect of those liabilities.

Thomas Weisel Partners LLC, one of the lead managers for the international
managers, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners has been named as a lead or
co-manager on 146 completed transactions and has acted as a syndicate member in
an additional 128 public offering of equity securities. Thomas Weisel Partners
does not have any material relationship with us or any of our officers,
directors or other controlling persons, except with respect to its contractual
relationship with us under the international purchase agreement entered into in
connection with this offering.

COMMISSIONS AND DISCOUNTS

The lead managers have advised us that the international managers propose
initially to offer the shares to the public at the initial public offering price
on the cover page of this prospectus and to

55
<PAGE>
dealers at that price less a concession not in excess of $ per share of
common stock. The international managers may allow, and such dealers may
reallow, a discount not in excess of $ per share of common stock on sales to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.

The following table shows the public offering price, underwriting discount
and proceeds before expenses to EXACT. The information assumes either no
exercise or full exercise by the international managers and the U.S.
underwriters of their over-allotment options.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price............................. $ $ $
Underwriting discount............................. $ $ $
Proceeds, before expenses, to EXACT............... $ $ $
</TABLE>

The expenses of the offering, not including the underwriting discount, are
estimated at $ and are payable by us.

OVER-ALLOTMENT OPTION

We have granted an option to the international managers to purchase up to
additional shares at the public offering price less the underwriting
discount. The international managers may exercise this option for 30 days from
the date of this prospectus solely to cover any over-allotments. If the
international managers exercise this option, each will be obligated, subject to
conditions contained in the purchase agreements, to purchase a number of
additional shares proportionate to such international manager's initial amount
reflected in the table above.

We have also granted an option to the U.S. underwriters, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of
additional shares to cover any over-allotments on terms similar to that granted
to the international managers.

INTERSYNDICATE AGREEMENT

The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the international managers and the U.S.
underwriters may sell shares to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the intersyndicate agreement, the international managers and any dealer to
whom they sell shares will not offer to sell or sell shares to persons who are
U.S. or Canadian persons or to persons they believe intend to resell to persons
who are U.S. or Canadian persons, except in the case of transactions under the
intersyndicate agreement. Similarly, the U.S. underwriters and any dealer to
whom they sell shares will not offer to sell or sell shares to non-U.S. persons
or non-Canadian persons or to persons they believe intend to resell to non-U.S.
or non-Canadian persons, except in the case of transactions under the
intersyndicate agreement.

RESERVED SHARES

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares offered by this prospectus for sale to
some of our directors, officers, employees and business associates. If these
persons purchase reserved shares, this will reduce the number of shares
available for sale to the general public. Any reserved shares that are not
orally confirmed for purchase within one day of the pricing of this offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered by this prospectus.

NO SALES OF SIMILAR SECURITIES

We and our executive officers and directors and most of our existing
stockholders have agreed, with limited exceptions, not to sell or transfer any
common stock for 180 days after the date of this

56
<PAGE>
prospectus without first obtaining the written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated. Specifically, we and the above-named individuals
have agreed not to directly or indirectly

- offer, pledge, sell or contract to sell any common stock;

- sell any option or contract to purchase any common stock;

- purchase any option or contract to sell any common stock;

- grant any option, right or warrant for the sale of any common stock;

- lend or otherwise dispose of or transfer any common stock;

- request or demand that we file a registration statement related to any
common stock; or

QUOTATION ON THE NASDAQ NATIONAL MARKET

We expect the shares to be approved for quotation on The Nasdaq National
Market, subject to notice of issuance, under the symbol EXAX.

- the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us;

- our financial information;

- the history of, and the prospects for, our company and the industry in
which we compete;

- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues;

- the present state of our development; and

- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also possible
that after the offering the shares will not trade in the public market at or
above the initial public offering price.

The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.

57
<PAGE>
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

UK SELLING RESTRICTIONS

Each international manager has agreed that

- it has not offered or sold and will not offer or sell any shares of shares
of our common stock to persons in the United Kingdom, except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which do not constitute an offer
to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995;

- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and

- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issuance
of common stock to a person who is of

58
<PAGE>
a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 as amended by the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1997 or is a person to whom such document may otherwise lawfully be issued
or passed on.

NO PUBLIC OFFERING OUTSIDE THE UNITED STATES

No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to us or shares of our common stock in any jurisdiction
where action for that purpose is required. Accordingly, the shares of our common
stock may not be offered or sold, directly or indirectly, and neither this
prospectus nor any other offering material or advertisements in connection with
the shares of our common stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of that country or jurisdiction.

You may be required to pay stamp taxes and other charges in accordance with
the laws and practices of the country of purchase in addition to the offering
price on the cover of this prospectus.

OTHER RELATIONSHIPS

59
<PAGE>

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

[LOGO]

COMMON STOCK

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

P R O S P E C T U S
----------------

MERRILL LYNCH INTERNATIONAL

CIBC WORLD MARKETS

THOMAS WEISEL PARTNERS LLC

, 2000

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Estimated expenses (other than the underwriting discount and commissions)
payable in connection with the sale of the common stock offered hereby are as
follows:

<TABLE>
<S> <C>
SEC registration fee........................................ $ 18,216
NASD filing fee............................................. 7,400
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 250,000
Blue Sky fees and expenses (including legal fees)........... 15,000
Transfer agent and registrar fees and expenses.............. 15,000
Miscellaneous............................................... 10,000
--------
Total..................................................... $ *
========
</TABLE>

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

* To be filed by amendment.

The Company will bear all expenses shown above.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Delaware General Corporation law and the Company's certificate of
incorporation and by-laws provide for indemnification of the Company's directors
and officers for liabilities and expenses that they may incur in such
capacities. In general directors and officers are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company and, with respect to any criminal
action or proceeding, actions that the indemnitee had no reasonable cause to
believe were unlawful. Reference is made to the Company's charter and by-laws
filed as Exhibits 3.1, 3.2, 3.3 and 3.4 hereto, respectively.

The Purchase Agreement and the International Purchase Agreement provide that
the Underwriters are obligated, under certain circumstances, to indemnify
directors, officers and controlling persons of Exact against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Reference is made to the forms of Purchase Agreement and
International Purchase Agreement filed as Exhibits 1.1 and 1.2 hereto.

In addition, the Company has an existing directors and officers liability
insurance policy.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act:

In November 1997, the Company sold an aggregate of 25,000 shares of common
stock to one investor at a price of $.40 per share.

In February 1998, the Company sold an aggregate of 20,000 shares of common
stock to one investor at a price of $.40 per share.

In March 1998, the Company sold an aggregate of 1,007,186 shares of
Series C convertible preferred stock to 17 investors at a price of $10.50 per
share.

II-1
<PAGE>
In March 2000, the Company sold an aggregate of 17,500 shares of common
stock to one investor at a price of $1.05 per share.

In April 2000, the Company sold an aggregate of 1,417,534 shares of Series D
convertible preferred stock to 75 investors at a price of $22.50 per share.

As of September 30, 2000, the Company had granted options to purchase an
aggregate of 1,118,076 shares of common stock under its 1995 stock option plan,
of which 605,687 have been exercised at exercise prices ranging from $.12 to
$5.625 for an aggregate purchase price of $828,423.33.

No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Act set forth in Section 4(2) thereof relative to sales by an issuer not
involving any public offering or the rules and regulations thereunder, or, in
the case of options to purchase common stock, Rule 701 of the Act. All of the
foregoing securities are deemed restricted securities for the purposes of the
Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS

(a) EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
1.1 Form of Purchase Agreement
1.2 Form of International Purchase Agreement
3.1* Fifth Amended and Restated Certificate of Incorporation, as
amended, of Registrant
3.2* By-Laws of Registrant
3.3* Form of Sixth Amended and Restated Certificate of
Incorporation of the Registrant to become effective upon the
closing of the offering under this Registration Statement
3.4* Form of Amended and Restated By-Laws of the Registrant to
become effective upon the closing of the offering under this
Registration Statement
4.1 Specimen certificate representing the Registrant's Common
Stock
5.1 Opinion of Testa, Hurwitz & Thibeault, LLP regarding the
legality of the securities being issued
10.1*+ 1995 Stock Option Plan
10.2*+ 2000 Stock Option and Incentive Plan
10.3*+ 2000 Employee Stock Purchase Plan
10.4* Sixth Amended and Restated Registration Rights Agreement
between the Registrant and the parties named therein dated
as of April 7, 2000
10.5*+ Restricted Stock Purchase Agreement between the Registrant
and Stanley N. Lapidus dated February 11, 1998
10.6*+ Restricted Stock Purchase Agreement between the Registrant
and Stanley N. Lapidus dated as of March 31, 2000
10.7*+ Restricted Stock Purchase Agreement between the Registrant
and Don M. Hardison dated as of June 23, 2000
10.8*+ Secured Promissory Note between the Registrant and Stanley
N. Lapidus dated as of March 31, 2000
10.9*+ Pledge Agreement between the Registrant and Stanley N.
Lapidus dated March 31, 2000
10.10*+ Secured Promissory Note between the Registrant and Don M.
Hardison dated as of June 23, 2000
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.11* Lease Agreement, dated December 10, 1996, between C.B.
Realty Limited Partnership and the Registrant, as amended
10.12@ License Agreement between the Registrant and Genzyme
Corporation dated as of March 25, 1999
10.13@ PCR Diagnostic Services Agreement between the Registrant and
Roche Molecular Systems, Inc.
23.1* Consent of Arthur Andersen LLP
23.2 Consent of Testa, Hurwitz & Thibeault, LLP (included in
Exhibit 5.1)
24.1* Power of Attorney (included on signature page of
Registration Statement)
27.1* Financial Data Schedule (EDGAR version only)
</TABLE>

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

* Filed herewith.

+ Indicates a management contract or any compensatory plan, contract or
arrangement.

@ Confidential Treatment requested for certain portions of this Agreement.

(b) FINANCIAL STATEMENTS SCHEDULES:

All schedules for which provision is made in the applicable accounting
regulation 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 for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing 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.

The undersigned registrant hereby undertakes that:

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

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

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Boston, Massachusetts,
on the 27th day of October 2000.

<TABLE>
<S> <C> <C>
EXACT CORPORATION

By: /s/ STANLEY N. LAPIDUS
-----------------------------------------
Stanley N. Lapidus
CHAIRMAN
</TABLE>

We, the undersigned officers and directors of Exact Corporation, hereby
severally constitute and appoint Stanley N. Lapidus, Don M. Hardison and John A.
McCarthy Jr., and each of them singly, our true and lawful attorneys, with full
power to them and each of them singly, to sign for us in our names in the
capacities indicated below, all pre-effective and post-effective amendments to
this registration statement and any related subsequent registration statement
pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and generally
to do all things in our names and on our behalf in such capacities to enable
Exact Corporation to comply with the provisions of the Securities Act of 1933,
as amended, and all requirements of the Securities and Exchange Commission.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ STANLEY N. LAPIDUS
--------------------------------- Chairman of the Board and Director October 27, 2000
Stanley N. Lapidus (PRINCIPAL EXECUTIVE OFFICER)

/s/ DON M. HARDISON
--------------------------------- President and Director October 27, 2000
Don M. Hardison

/s/ JOHN A. MCCARTHY, JR. Vice President and Chief Financial
--------------------------------- Officer (PRINCIPAL FINANCIAL AND October 27, 2000
John A. McCarthy, Jr. ACCOUNTING OFFICER)

/s/ NOUBAR B. AFEYAN
--------------------------------- Director October 27, 2000
Noubar B. Afeyan

/s/ RICHARD W. BARKER
--------------------------------- Director October 27, 2000
Richard W. Barker

/s/ SALLY W. CRAWFORD
--------------------------------- Director October 27, 2000
Sally W. Crawford

/s/ WYCLIFFE K. GROUSBECK
--------------------------------- Director October 27, 2000
Wycliffe K. Grousbeck

/s/ WILLIAM W. HELMAN
--------------------------------- Director October 27, 2000
William W. Helman

/s/ EDWIN M. KANIA, JR.
--------------------------------- Director October 27, 2000
Edwin M. Kania, Jr.

/s/ LANCE WILLSEY
--------------------------------- Director October 27, 2000
Lance Willsey
</TABLE>

II-4
<PAGE>
EXHIBIT INDEX

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

* Filed herewith.

+ Indicates a management contract or any compensatory plan, contract or
arrangement.

@ Confidential Treatment requested for certain portions of this Agreement