-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J8j8kXOtfoO0mq6uW4PuYljca1TaY3wLLj5qpz0TuwruxAELfncIrVxGpfRw3sWy KTjvZ1IO+KY8wu2n/gYe7Q== 0000950137-04-006462.txt : 20040809 0000950137-04-006462.hdr.sgml : 20040809 20040809170546 ACCESSION NUMBER: 0000950137-04-006462 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THIRD WAVE TECHNOLOGIES INC /WI CENTRAL INDEX KEY: 0001120438 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 391791034 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31745 FILM NUMBER: 04962135 BUSINESS ADDRESS: STREET 1: 502 S ROSA RD CITY: MADISON STATE: WI ZIP: 53719-1256 BUSINESS PHONE: 608273 10-Q 1 c87372e10vq.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD to . -------- -------- COMMISSION FILE NUMBER: 000-31745 THIRD WAVE TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 39-1791034 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 502 S. ROSA ROAD, MADISON, WI 53719 (Address of principal executive offices) (Zip Code) (888) 898-2357 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes [X] No [ ] The number of shares outstanding of the registrant's Common Stock, $.001 par value, as of June 30, 2004, was 40,446,409. THIRD WAVE TECHNOLOGIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2004 TABLE OF CONTENTS
PAGE NO. PART I FINANCIAL INFORMATION........................................................ 3 Item 1. Financial Statements..................................................... 3 Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003......... 3 Consolidated Statements of Operations for the three and six months ended June 30, 2004 and 2003................................................ 4 Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003............................................................... 5 Notes to Consolidated Financial Statements.................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................... 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 13 Item 4. Controls and Procedures.................................................. 13 PART II OTHER INFORMATION........................................................... 14 Item 1. Legal Proceedings........................................................ 14 Item 2. Changes In Securities, Use Of Proceeds, and Issuer Purchases of Equity Securities.................................................................. 14 Item 3. Defaults Upon Senior Securities.......................................... 14 Item 4. Submission Of Matters To A Vote Of Security Holders...................... 14 Item 5. Other Information........................................................ 15 Item 6. Exhibits And Reports On Form 8-K......................................... 15 SIGNATURES.......................................................................... 15 EXHIBITS............................................................................
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THIRD WAVE TECHNOLOGIES, INC. Consolidated Balance Sheets
JUNE 30, 2004 DECEMBER 31, 2003 UNAUDITED ASSETS Current assets: Cash and cash equivalents $ 58,197,612 $ 47,015,746 Short-term investments 10,800,000 10,800,000 Receivables, net of allowance for doubtful accounts of $140,000 at June 30, 2004 and December 31, 2003 3,228,773 2,061,054 Inventories 1,922,788 1,394,046 Prepaid expenses and other 702,778 485,680 ------------- -------------------- Total current assets 74,851,951 61,756,526 Equipment and leasehold improvements: Machinery and equipment 15,558,444 18,544,956 Leasehold improvements 2,032,791 2,099,104 ------------- -------------------- 17,591,235 20,644,060 Less accumulated depreciation 11,232,045 12,116,813 ------------- -------------------- 6,359,190 8,527,247 Assets held for sale 312,000 0 Intangible assets, net of accumulated amortization 4,898,748 5,651,124 Indefinite lived intangible assets 1,007,411 1,007,411 Goodwill 489,873 489,873 Other long term assets 2,549,418 2,989,752 ------------- -------------------- Total assets $ 90,468,591 $ 80,421,933 ============= ==================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,653,085 $ 4,955,434 Accrued payroll and related liabilities 2,007,591 2,802,297 Other accrued liabilities 1,241,999 1,776,250 Deferred revenue 5,395,419 67,760 Long-term debt due within one year 9,558,481 9,500,000 ------------- -------------------- Total current liabilities 23,856,575 19,101,741 Long-term debt 154,852 13,333 Deferred revenue - long term 247,917 0 Other liabilities 2,793,789 2,019,024 Shareholders' equity: Participating preferred stock, Series A, $.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding 0 0 Common stock, $.001 par value, 100,000,000 shares authorized, 40,446,409 and 40,021,244 shares issued and outstanding, respectively 40,446 40,021 Additional paid-in capital 194,892,151 193,356,121 Unearned stock compensation (461,692) (309,996) Foreign currency translation adjustment 33,478 33,307 Accumulated deficit (131,088,925) (133,831,618) ------------- -------------------- Total shareholders' equity 63,415,458 59,287,835 ------------- -------------------- Total liabilities and shareholders' equity $ 90,468,591 $ 80,421,933 ============= ====================
See accompanying notes to financial statements. 3 THIRD WAVE TECHNOLOGIES, INC. Consolidated Statements of Operations (Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- ---------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Revenues: Product sales $ 12,543,461 $ 8,515,318 $ 27,758,099 $ 16,701,055 Development revenue 0 250,000 0 500,000 License and royalty revenue 40,404 28,028 81,045 53,600 Grant revenue 48,402 23,875 68,732 54,457 ------------ ------------ ------------ ------------ Total revenues 12,632,267 8,817,221 27,907,876 17,309,112 ------------ ------------ ------------ ------------ Operating expenses: Cost of goods sold Product cost of goods sold 2,948,652 2,884,950 6,449,405 5,487,216 Intangible and long-term asset amortization 541,561 490,296 1,112,657 977,201 ------------ ------------ ------------ ------------ Total cost of goods sold 3,490,213 3,375,246 7,562,062 6,464,417 Research and development 3,363,377 2,912,297 6,307,540 5,831,575 Selling and marketing 2,696,218 2,520,489 5,320,991 4,861,432 General and administrative 3,079,591 2,246,009 5,264,702 5,416,776 Impairment charge 758,716 0 758,716 0 ------------ ------------ ------------ ------------ Total operating expense 13,388,115 11,054,041 25,214,011 22,574,200 ------------ ------------ ------------ ------------ Income (loss) from operations (755,848) (2,236,820) 2,693,865 (5,265,088) Other income (expense): Interest income 142,758 160,271 269,948 331,066 Interest expense (58,755) (92,000) (115,749) (184,083) Other 566,115 7,804 (105,371) 33,535 ------------ ------------ ------------ ------------ Other income 650,118 76,075 48,828 180,518 ------------ ------------ ------------ ------------ Net income (loss) $ (105,730) $ (2,160,745) $ 2,742,693 $ (5,084,570) ============ ============ ============ ============ Net income (loss) per share - basic $ (0.00) $ (0.05) $ 0.07 $ (0.13) ============ ============ ============ ============ Net income (loss) per share - diluted $ (0.00) $ (0.05) $ 0.07 $ (0.13) ============ ============ ============ ============ Weighted Average Shares outstanding Basic 40,325,351 39,699,313 40,201,932 39,631,630 ============ ============ ============ ============ Diluted 40,325,351 39,699,313 41,874,808 39,631,630 ============ ============ ============ ============
See accompanying notes to financial statements. 4 THIRD WAVE TECHNOLOGIES, INC. Consolidated Statements of Cash Flows (Unaudited)
SIX MONTHS ENDED JUNE 30, ---------------------------- 2004 2003 ------------ ------------ OPERATING ACTIVITIES: Net income (loss) $ 2,742,693 $ (5,084,570) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,495,201 1,559,845 Amortization of intangible assets 752,376 752,376 Noncash stock compensation 544,178 434,849 Impairment charge and loss on disposal of equipment 870,058 20,614 Changes in operating assets and liabilities: Receivables (1,167,549) (1,054,552) Inventories (528,742) (28,486) Prepaid expenses and other assets (137,050) 607,479 Accounts payable 697,651 239,201 Accrued expenses and other liabilities (554,192) (1,093,962) Deferred revenue 5,575,576 (424,480) ------------ ------------ Net cash provided by (used in) operating activities 10,290,200 (4,071,686) INVESTING ACTIVITIES: Purchases of equipment and leasehold improvements (206,934) (119,367) Proceeds on sale of equipment 58,020 290,551 Sales and maturities of short-term investments 0 48,000 ------------ ------------ Net cash provided by (used in) investing activities (148,914) 219,184 FINANCING ACTIVITIES: Proceeds of long-term debt 200,000 0 Payments on long-term debt 0 (12,937) Proceeds from common stock, net 840,580 383,579 ------------ ------------ Net cash provided by financing activities 1,040,580 370,642 ------------ ------------ Net increase (decrease) in cash and cash equivalents 11,181,866 (3,481,860) Cash and cash equivalents at beginning of period 47,015,746 49,301,501 ------------ ------------ Cash and cash equivalents at end of period $ 58,197,612 $ 45,819,641 ============ ============
See accompanying notes to financialstatements. 5 THIRD WAVE TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004 (unaudited) (1) Basis of Presentation The accompanying unaudited consolidated financial statements of Third Wave Technologies, Inc. have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results that may be expected for the year ending December 31, 2004. The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements and footnotes thereto included in our Form 10-K for the fiscal year ended December 31, 2003 filed with the Securities and Exchange Commission. (2) Net Income (Loss) Per Share In accordance with accounting principles generally accepted in the United States, basic net income (loss) per share has been computed using the weighted-average number of shares of common stock outstanding during the respective periods. Diluted net income (loss) per share takes into account the weighted average shares from options that could potentially dilute basic net income per share in the future. Shares associated with stock options are excluded for the three months ended June 30, 2004 and the three and six months ended June 30, 2003 because they are antidilutive for the periods. The following table presents the calculation of basic and diluted net income (loss) per share:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Numerator: Net income (loss) $ (105,730) $ (2,160,745) $ 2,742,693 $ (5,084,570) Denominator Weighted average shares outstanding - basic 40,325,351 39,699,313 40,201,932 39,631,630 Dilutive securities - stock options N/A N/A 1,672,876 N/A Weighted average shares outstanding - diluted 40,325,351 39,699,313 41,874,808 39,631,630 Basic net income (loss) per share $ (0.00) $ (0.05) $ 0.07 $ (0.13) Dilutive net income (loss) per share $ (0.00) $ (0.05) $ 0.07 $ (0.13)
6 (3) Stock-Based Compensation Third Wave has stock-based employee compensation plans. Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. We have chosen to continue using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, in accounting for our stock option plans. Had compensation cost been determined based upon the fair value at the grant date for awards under the plans based on the provisions of SFAS No. 123, our SFAS No. 123 pro forma net income (loss) and net income (loss) per share would have been as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Net income (loss), as reported $ (105,730) $ (2,160,745) $ 2,742,693 $ (5,084,570) Add: Stock based compensation, as reported 311,617 199,576 544,178 434,849 Less: Stock-based compensation, using fair value method (1,156,271) (1,196,717) (2,441,184) (2,232,717) ------------- ------------- ------------- ------------- Pro forma net income (loss) $ (950,384) $ (3,157,886) $ 845,687 $ (6,882,438) ============= ============= ============= ============= Net income (loss) per share, basic, $ (0.00) $ (0.05) $ 0.07 $ (0.13) as reported Net income (loss) per share, $ (0.00) $ (0.05) $ 0.07 $ (0.13) diluted, as reported Pro forma net income (loss) per $ (0.02) $ (0.08) $ 0.02 $ (0.17) share, basic Pro forma net income (loss) per $ (0.02) $ (0.08) $ 0.02 $ (0.17) share, diluted
(4) Inventories Inventories, consisting mostly of raw materials, are carried at the lower of cost or market using the first-in, first-out (FIFO) method for determining cost. Inventories consist of the following:
JUNE 30, DECEMBER 31, 2004 2003 -------------- -------------- Raw materials $ 1,412,329 $ 1,609,866 Finished goods and work in process 1,257,443 534,180 Reserve for excess and obsolete inventory (746,984) (750,000) -------------- -------------- Total inventories $ 1,922,788 $ 1,394,046 ============== ==============
(5) Stock Compensation Included in operating expenses are the following stock compensation charges, net of reversals related to terminated employees:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2004 2003 2004 2003 -------- -------- -------- -------- Cost of goods sold $ 4,879 $ 14,369 $ 9,961 $ 70,021 Research and development 272,610 11,370 350,945 24,142 Selling and marketing 485 2,636 68,486 5,856 General and administrative 33,643 171,201 114,786 334,830 -------- -------- -------- -------- Total stock compensation $311,617 $199,576 $544,178 $434,849 -------- -------- -------- --------
7 (6) Comprehensive Income (Loss) The components of comprehensive income (loss) are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Net Income (Loss) $ (105,730) $(2,160,745) $ 2,742,693 $(5,084,570) Other comprehensive loss: Foreign currency translation adjustments (1,179) (2,209) 171 (2,968) ----------- ----------- ----------- ----------- Comprehensive loss $ (106,909) $(2,162,954) $ 2,742,864 $(5,087,538) =========== =========== =========== ===========
(7) Derivative Instruments We sell products in a number of countries throughout the world. In the quarters ending June 30, 2004 and 2003, we sold certain products with the resulting accounts receivable denominated in Japanese Yen. Simultaneous with such sales and purchase order commitments, we purchased foreign currency forward contracts to manage the risk associated with foreign currency collections in the normal course of business. These derivative instruments have maturities of less than one year and are intended to offset the effect of transaction gains and losses, which arise when collections in a foreign currency are received after the asset is generated. There were no contracts outstanding at June 30, 2004. The changes in the fair value of the derivatives and the loss or gain on the hedged asset relating to the risk being hedged are recorded currently in earnings. (8) Amortizable Intangible Assets Amortizable intangible assets consist of the following:
JUNE 30, 2004 DECEMBER 31, 2003 ---------------------------- ---------------------------- GROSS GROSS CARRYING ACCUMULATED CARRYING ACCUMULATED AMOUNT AMORTIZATION AMOUNT AMORTIZATION ----------- -------------- ----------- -------------- Costs of settling patent Litigation $10,533,248 $ 5,634,500 $10,533,248 $ 4,882,124 Reacquired marketing and Distribution rights 2,211,111 2,211,111 2,211,111 2,211,111 Customer agreements 38,000 38,000 38,000 38,000 ----------- -------------- ----------- -------------- Total $12,782,359 $ 7,883,611 $12,782,359 $ 7,131,235 =========== ============== =========== ==============
(9) Restructuring and Impairment of Long Lived Assets During the third quarter of 2002, we announced a restructuring plan designed to simplify product development and manufacturing operations and reduce operating expenses. The restructuring charges recorded were determined based upon plans submitted by the Company's management and approved by the Board of Directors using information available at the time. The restructuring charge included $2.5 million for the consolidation of facilities, $500,000 for prepayment penalties mainly under capital lease arrangements, an impairment charge of $7.2 million for abandoned leasehold improvements and equipment to be sold and $900,000 of other costs related to the restructuring. The Company also recorded a $1.1 million charge within cost of goods sold related to inventory that was considered obsolete based upon the restructuring plan. The facilities charge contained estimates based on the Company's potential to sublease a portion of its corporate office. The Company has offered the corporate office space for sublease, but has been unable to sublease the space. Accordingly, the Company decreased its estimate of the amount of sublease income it expects to receive. The estimated lease and operating expenses were also reduced, based on a portion of the office space being utilized. The following table shows the changes in the restructuring accrual since December 31, 2003. The remaining restructuring balance of $1.3 million is for rent payments on a non-cancelable lease, net of estimated sublease income, which will continue to be paid over the lease term through 2011. The current portion of the accrual is included in other accrued liabilities on the balance sheet and the remainder is included in other long-term liabilities. 8
Accrued restructuring balance at December 31, 2003 $ 1,414,044 Payments made (115,849) ------------- Accrued restructuring balance at June 30, 2004 $ 1,298,195 -------------
(10) Reclassifications Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation. THIRD WAVE TECHNOLOGIES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2004 and for the three and six months ended June 30, 2004 and 2003 should be read in conjunction with our Form 10-K for the fiscal year ended December 31, 2003 filed with the Securities and Exchange Commission. In this Form 10-Q, the terms "we," "us," "our," "Company," and "Third Wave" each refer to Third Wave Technologies, Inc. The following discussion of our financial condition and results of our operations should be read in conjunction with our Financial Statements, including the Notes thereto, included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. For a more detailed discussion of such forward-looking statements and the potential risks and uncertainties that may affect their accuracy, see the "Forward-Looking Statements" section of this Form 10-Q. OVERVIEW Third Wave Technologies, Inc. is a leading molecular diagnostics company. We believe our proprietary Invader(R) technology, a novel, chemistry-based platform, is easier to use, more accurate and cost-effective, and enables higher testing throughput than existing technology. These and other advantages conferred by our technology platform are enabling us to provide physicians and researchers with superior tools to diagnose and treat disease. More than 110 clinical laboratory customers are using Third Wave's products. Our customer base also includes the Japanese government's share of the International Haplotype Map Project. Other customers include pharmaceutical and biotechnology companies, academic research centers and major health care providers. Third Wave markets a growing number of products including analyte-specific reagents (ASRs). These ASRs allow certified clinical reference laboratories to create assays to screen for cystic fibrosis and other inherited disorders, and to test for the Factor V Leiden and a host of other mutations associated with predisposition to cardiovascular and other diseases. The Company has developed or plans to develop a menu of molecular diagnostic products for clinical applications that include genetic testing, pharmacogenetics, chromosomal analysis, infectious disease, and women's health. The Company also has a number of other Invader(R) products including those for research, agricultural and other applications. Our financial results may vary significantly from quarter to quarter due to fluctuations in the demand for our products, timing of new product introductions and deliveries made during the quarter, the timing of research, development and grant revenues, and increases in spending, including expenses related to our product development. CRITICAL ACCOUNTING POLICIES Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. We review the accounting policies we use in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, inventories, equipment and leasehold improvements and intangible assets. We base our estimates on historical 9 experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates and judgments are reviewed by management on an ongoing basis, and by the Audit Committee at the end of each quarter prior to the public release of our financial results. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. RESTRUCTURING AND OTHER CHARGES. The restructuring and other charges resulting from the restructuring plan in the third quarter of 2002 has been recorded in accordance with EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)", Staff Accounting Bulletin No. 100, "Restructuring and Impairment Charges," and Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The restructuring charge was comprised primarily of costs to consolidate facilities, impairment charges for abandoned leasehold improvements and equipment to be sold or abandoned, prepayment penalties related mainly to capital lease obligations on equipment to be sold or abandoned, and other costs related to the restructuring. The remaining accrued restructuring balance is for rent payments on a non-cancelable lease, net of estimated sublease income. In calculating the cost to consolidate the facilities, we estimated the future lease and operating costs to be paid until the leases are terminated and the amount, if any, of sublease receipts for each location. This required us to estimate the timing and costs of each lease to be terminated, the amount of operating costs, and the timing and rate at which we might be able to sublease the site. To form our estimates for these costs, we performed an assessment of the affected facilities and considered the current market conditions for each site. Our assumptions on the lease termination payments, operating costs until terminated, and the offsetting sublease receipts may turn out to be incorrect and our actual cost may be materially different from our estimates. LONG-LIVED ASSETS--IMPAIRMENT Equipment, leasehold improvements and amortizable identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For assets held and used, if the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. For assets removed from service and held for sale, we estimate the fair market value of such assets and record an adjustment if fair value less costs to sell is lower than carrying value. In the quarter ended June 30, 2004 we recorded an impairment charge of $0.8 million on certain equipment. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests under SFAS No. 142, "Goodwill and Other Intangible Assets." The annual impairment tests are completed in the quarter ended September 30. An impairment test was performed in the quarter ended June 30, 2004 due to a change in our forecast. Based on the analysis, it was determined that there was no impairment of goodwill or intangible assets with indefinite lives. DERIVATIVE INSTRUMENTS We sell products in a number of countries throughout the world. During 2004 and 2003, we sold certain products with the resulting accounts receivable denominated in Japanese Yen. Simultaneous with such sales and purchase order commitments, we purchased foreign currency forward contracts to manage the risk associated with collections of receivables denominated in foreign currencies in the normal course of business. These derivative instruments have maturities of less than one year and are intended to offset the effect of transaction gains and losses. There were no contracts outstanding at June 30, 2004. The changes in the fair value of the derivatives and the loss or gain on the hedged asset relating to the risk being hedged are recorded currently in earnings. INVENTORIES--SLOW MOVING AND OBSOLESCENCE Significant management judgment is required to determine the reserve for obsolete or excess inventory. Inventory on hand may exceed future demand either because of process improvements or technology advancements, the amount on hand is more than can be used to meet future need, or estimates of shelf lives may change. We currently consider all inventory that we expect will have no activity within one year as well as any additional specifically identified inventory to be subject to a provision for excess inventory. We also provide for the total value of inventories that we determine to be obsolete based on criteria such as changing manufacturing processes and technologies. At June 30, 2004, our inventory reserves were $0.7 million, or 28% of our $2.7 million total gross inventories. As of June 30, 2004, 27% of our gross inventory was held at a customer site pending inspection for approval. 10 RESULTS OF OPERATIONS Three and Six Months Ended June 30, 2004 and 2003 REVENUES. Revenues for the three months ended June 30, 2004 of $12.6 million represented an increase of $3.8 million, compared to revenues of $8.8 million for the corresponding period of 2003. Revenues for the six months ended June 30, 2004 of $27.9 million represented an increase of $10.6 million, compared to revenues of $17.3 million for the corresponding period of 2003. Product revenues increased to $12.5 million for the quarter ended June 30, 2004, from $8.5 million in the quarter ended June 30, 2003. Product revenues increased to $27.8 million for the six months ended June 30, 2004, from $16.7 million in the six months ended June 30, 2003. The increase in product sales during the three and six months ending June 30, 2004 was due to an increase in sales of genomic research product to a major Japanese research institute and an increase in molecular diagnostic sales compared to the corresponding periods of 2003. We expect our molecular diagnostic revenues to increase throughout 2004. We had no development revenues for the three months ended June 30, 2004, compared to development revenues of $0.3 million for the three months ended June 30, 2003. We had no development revenues for the six months ended June 30, 2004, compared to development revenues of $0.5 million for the six months ended June 30, 2003. The decrease was due to the transition from development revenue to product revenue in our development and commercialization agreement with BML, Inc. Significant Customer. We generated $19.1 million, or 68% of our revenues, from sales to a major Japanese research institute for use by several end-users during the six months ended June 30, 2004. As of June 30, 2004, $0.7 million of our accounts receivable were attributable to this customer. We also recorded deferred revenue of $5.1 million related to a product shipment that is subject to acceptance by this customer. This customer will continue to purchase Company products in 2004, however, the timing and total of such purchases will be influenced by the Japanese government funding process and amounts which are unpredictable and unknown to Third Wave. COST OF GOODS SOLD. Cost of goods sold consists of materials used in the manufacture of product, depreciation on manufacturing capital equipment, salaries and related expenses for management and personnel associated with our manufacturing and quality control departments and amortization of licenses and settlement fees. For the three months ended June 30, 2004, cost of goods sold increased to $3.5 million, compared to $3.4 million for the corresponding period of 2003. For the six months ended June 30, 2004, cost of goods sold increased to $7.6 million, compared to $6.5 million for the corresponding period of 2003. The increase was primarily due to the increase in sales volume. We expect gross margin to improve as molecular diagnostic revenues increase. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses consist primarily of salaries and related personnel costs, material costs for assays and product development, fees paid to consultants, depreciation and facilities costs and other expenses related to the design, development, testing and enhancement of our products and acquisition of technologies used or to be used in our products. Research and development costs are expensed as they are incurred. Research and development expenses for the three months ended June 30, 2004 were $3.4 million, compared to $2.9 million for the three months ended June 30, 2003. Research and development expenses for the six months ended June 30, 2004 were $6.3 million, compared to $5.8 million for the six months ended June 30, 2003. The increase in research and development expenses was primarily due to an increase in personnel related expenses. We will continue to invest in research and development, and expenditures in this area may increase as we expand our product development efforts. SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist primarily of salaries and related personnel costs for our sales and marketing management and field sales force, commissions, office support and related costs, and travel and entertainment. Selling and marketing expenses for the three months ended June 30, 2004 were $2.7 million, an increase of $0.2 million, compared to $2.5 million for the corresponding period of 2003. Selling and marketing expenses for the six months ended June 30, 2004 were $5.3 million, an increase of $0.4 million, compared to $4.9 million for the corresponding period of 2003. The increase in the six months ended June 30, 2004 was due to an increase in personnel related expenses compared to the same period in 2003. We anticipate selling and marketing expenses to continue to be at or above 2003 levels. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, legal and professional fees, office support and depreciation. General and administrative expenses increased to $3.1 million in the three months ended June 30, 2004, from $2.2 million for the corresponding period in 2003. General and administrative expenses decreased to $5.3 million in the six months ended June 30, 2004, 11 from $5.4 million for the corresponding period in 2003. The increase in the three months ended June 30, 2004 was due to an increase in personnel related expenses compared to the corresponding period of 2003. IMPAIRMENT CHARGE. In the three months ended June 30, 2004 an impairment charge of $0.8 million was recorded for equipment written down to fair value. INTEREST INCOME. Interest income for the three months ended June 30, 2004 was $0.1 million, compared to $0.2 million for the corresponding period of 2003. Interest income for the six months ended June 30, 2004 and 2003 was $0.3 million. INTEREST EXPENSE. Interest expense for the three months ended June 30, 2004 and 2003 was approximately $0.1 million. Interest expense for the six months ended June 30, 2004 was $0.1 million compared to $0.2 million for the six months ended June 30, 2003. OTHER INCOME (EXPENSE): Other income for the three months ended June 30, 2004 was $0.6 million, compared to other income of $8,000 for the three months ended June 30, 2003. Other expense for the three months ended June 30, 2004 was $0.1 million, compared to other income of $34,000 for the six months ended June 30, 2003. The increase in other income was due to the adjustment of foreign currency contracts. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have financed our operations primarily through private placements of equity securities, research grants from federal and state government agencies, payments from strategic collaborators, equipment loans, capital leases, sale of products, a convertible note and an initial public offering. As of June 30, 2004, we had cash and cash equivalents and short-term investments of $69.0 million. Net cash provided by operations for the six months ended June 30, 2004 was $10.3 million, compared to net cash used in operations of $4.1 million in the corresponding period in 2003. The increase in cash provided by operations was primarily due to the increase in revenue and deferred revenue. Net cash used in investing activities for the six months ended June 30, 2004 was $0.1 million, compared to net cash provided by investing of $0.2 million in the corresponding period in 2003. Investing activities included capital expenditures of $0.2 million in the six months ended June 30, 2004, compared to $0.1 million in the corresponding period in 2003. Investing activities included proceeds from the sale of equipment of $0.1 million in the six months ended June 30, 2004, compared to $0.3 million in the corresponding period in 2003. Investing activities in the six months ended June 30, 2003 also included $48,000 from the maturity of short-term investments. Net cash provided by financing activities was $1.0 million in the six months ended June 30, 2004, compared to $0.4 million in the six months ended June 30, 2003. Cash provided by financing activities in the six months ending June 30, 2004 consisted of proceeds from the sale of common stock of $0.8 million compared to $0.4 million in the corresponding period of 2003. In the six months ended June 30, 2004, there was $0.2 million of proceeds from long-term debt. In the six months ended June 30, 2003, $13,000 was used to repay debt. The following summarizes our contractual obligations at June 30, 2004 and the effect those obligations are expected to have on our liquidity and cash flow in future periods (in thousands):
TOTAL LESS THAN YEARS YEARS OVER 1 YEAR 2 - 3 4 - 5 5 YEARS ------- --------- ------- ------- ------- CONTRACTUAL OBLIGATION Non-cancelable operating lease obligations $14,505 $ 1,711 $ 3,759 $ 4,066 $ 4,969 Term loan 9,713 9,558 155 -- -- ------- --------- ------- ------- ------- Total obligation $24,218 $ 11,269 $ 3,914 $ 4,066 $ 4,969 ------- --------- ------- ------- -------
As of December 31, 2003 and June 30, 2004, a valuation allowance equal to 100% of our net deferred tax assets had been recognized since our future realization is not assured. At December 31, 2003, we had federal and state net operating loss carryforwards of approximately $114 million. The net operating loss carryforwards will expire at various dates beginning in 2008, if not utilized. Utilization of the net operating losses and credits to offset future taxable income may be subject to an annual limitation due to the 12 change of ownership provisions of federal tax laws and similar state provisions as a result of the initial public offering in February 2001. We cannot assure you that our business or operations will not change in a manner that would consume available resources more rapidly than anticipated. We also cannot assure you that we will not require substantial additional funding before we can achieve profitable operations. Our capital requirements depend on numerous factors, including the following: o our progress with our research and development programs; o our level of success in selling our products and technologies; o our ability to establish and maintain successful collaborative relationships; o the costs we incur in enforcing and defending our patent claims and other intellectual property rights; and o the timing of purchases of additional capital. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk is currently confined to changes in foreign exchange and interest rates. The securities in our investment portfolio are not leveraged and, due to their short-term nature, are subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Due to the short-term maturities of our investments, we do not believe that an increase in market rates would have any negative impact on the realized value of our investment portfolio. To reduce foreign exchange risk, we selectively use financial instruments. Our earnings are affected by fluctuations in the value of the U.S. dollar against foreign currencies as a result of the sales of our products in foreign markets. Forward foreign exchange contracts are used to hedge against the effects of such fluctuations. Our policy prohibits the trading of financial instruments for profit. A discussion of our accounting policies for derivative financial instruments is included in the notes to the financial statements. ITEM 4. CONTROLS AND PROCEDURES As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. As required by Rule 13a-15(d) under the Securities Exchange Act of 1934 the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the company's internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report. FORWARD-LOOKING STATEMENTS This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this Form 10-Q the words "believe," "anticipates," "intends," "plans," "estimates," and similar expressions are forward-looking statements. Such forward-looking statements contained in this Form 10-Q are based on current expectations. Forward-looking statements may address the following subjects: results of operations; customer growth and retention; development of technologies; losses or earnings; operating expenses, including, without limitation, marketing expense and technology and development expense; and revenue growth. We caution investors that there can be no assurance that actual results, outcomes or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, among others, our limited operating history, unpredictability of future revenues and operating results, competitive pressures and also the potential risks and uncertainties set forth in the "Overview" section hereof and in the "Overview" and "Risk Factors" sections of our annual report on Form 10-K for the fiscal year ended December 31, 2003 filed with the Securities and Exchange Commission, which factors are specifically incorporated herein by this reference. You should also carefully consider the factors set forth in other reports or documents that we file from time to time 13 with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update any forward-looking statements. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - There are no material legal proceedings pending. From time to time, we may be involved in litigation relating to claims arising out of our operations in the usual course of business. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES. (a) None (b) None (c) None (d) Use of Proceeds. Pursuant to our Registration Statement on Form S-1, as amended, filed with the Securities and Exchange Commission and declared effective February 9, 2001, (Registration No. 333-42694), we commenced our initial public offering of 7,500,000 registered shares of common stock, $0.001 par value, on February 9, 2001, at a price of $11.00 per share (the "Offering"). The Offering was completed on February 14, 2001, and all of the 7,500,000 shares were sold, generating gross proceeds of approximately $82,500,000. The managing underwriters for the Offering were Lehman Brothers Inc., CIBC World Markets, Dain Rauscher Incorporated, Robert W. Baird & Co. Incorporated, and Fidelity Capital Markets. In connection with the Offering, we incurred approximately $5.8 million in underwriting discounts and commissions, and approximately $1.9 million in other related expenses. The net offering proceeds to us, after deducting the foregoing expenses, were approximately $74.8 million. From the time of receipt through June 30, 2004, we have invested the net proceeds from the Offering in investment-grade, interest-bearing securities. We used $4.0 million of the proceeds to satisfy a cancellation fee for the termination of a distribution agreement with Endogen Corporation. We used approximately $14.0 million for general corporate purposes, including working capital and research and development activities. We expect to use the remainder of the net proceeds for general corporate purposes, including working capital and expanding research and development and sales and marketing efforts to accelerate the commercialization of new products and the development of new partnerships. A portion of the net proceeds may also be used to acquire or invest in complementary businesses or products to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we may evaluate potential acquisitions of these businesses, products, or technologies. We have no current agreements or commitments regarding any such transaction. (e) None ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: At the Annual Meeting of Shareholders held on June 22, 2004, the following matters were submitted to a vote of security holders: (a) Three directors were elected for terms of three years each, as follows:
Director Votes FOR Votes WITHHELD Lance Fors 32,715,869 3,611,696 David Thompson 33,546,753 2,780,812 John J. Puisis 35,992,677 334,888
(b) The appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 2004 was ratified, as follows: 14
Votes FOR Votes AGAINST Votes ABSTAIN Broker NON-VOTES 35,926,229 395,932 5,404 0
ITEM 5. OTHER INFORMATION - None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 10.1 Amendment No. 1 to Employment Agreement between Lance Fors and Third Wave Technologies, Inc. dated June 14, 2004 10.2 Amendment No. 2 to Employment Agreement between John Puisis and Third Wave Technologies, Inc. dated June 14, 2004 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32 Section 1350 Certifications (b) Reports on Form 8-K filed during the three months ended June 30, 2004: The Company filed a Form 8-K dated April 28, 2004 reporting the Company's press releases dated April 28, 2004 announcing the Company's quarter ending March 31, 2004 financial results. The Company filed a Form 8-K dated May 6, 2004 reporting the Company's press releases dated May 6, 2004 announcing the Company's management succession plan. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THIRD WAVE TECHNOLOGIES, INC. Date: August 9, 2004 /s/ John Puisis ---------------------------- John Puisis, CEO Date: August 9, 2004 /s/ David Nuti ---------------------------- David Nuti, CFO EX-10.1 2 c87372exv10w1.txt AMENDMENT #1 TO EMPLOYMENT AGREEMENT FOR LANCE FORS EXHIBIT 10.1 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT ("Amendment") is entered into as of the ___ day of ________, 2004, by and between LANCE FORS ("Employee" or "Executive") and THIRD WAVE TECHNOLOGIES, INC., a Delaware corporation (the "Company"). WHEREAS, the Company currently employs Employee as its Chairman and Chief Executive Officer pursuant to an Employment Agreement dated as of October 16, 2003 (the "Agreement"); and WHEREAS, the Company and the Employee wish to amend the Agreement on the terms and provisions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and conditions hereinafter set forth, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows: 1. Section 1 - Employment. The first two sentences of Section 1 are deleted in their entirety and the following are substituted therefore: The Company hereby agrees to employ Employee as its Chairman and Chief Executive Officer, and Employee hereby agrees to serve the Company in such positions, all subject to the terms and provisions of this Agreement; provided, however, subject to the authorization by the Board of Directors of the Company, as of June 15, 2004 (the "Change Date"), Employee shall be employed solely as the Executive Chairman of the Company. Employee agrees (a) to devote his full-time professional efforts, attention and energies to the business of the Company, and (b) to perform such reasonable responsibilities and duties customarily attendant to the positions of Chairman and CEO, provided; however, at such time as Employee is employed solely as Executive Chairman, Executive's time commitment to the Company shall be part-time and flexible. Executive shall be allowed to determine those hours needed to fulfill the Board approved role described on Schedule C to this Agreement, subject to the oversight of the Board. Any change in the Executive Chairman's role, responsibilities and duties shall be agreed by the Employee and the Company's Board of Directors. When Employee is employed solely as Executive Chairman after June 15, 2004, he will be allowed to work on non-Company matters, subject to the provisions of the Noncompetition and Nonsolicitation Agreement entered into by the Employee. 2. Section 2 - Term of Employment. Section 2 is deleted in its entirety and the following is substituted therefore: Subject to an earlier termination as provided in Section 6, Employee shall be employed hereunder through June 30, 2007. The Agreement shall automatically expire on June 30, 2007, unless the Company and Employee agree in writing at least six months prior to the expiration of the term to renew the Agreement for an extended term of one year. The parties may thereafter extend the Agreement for additional one year terms by agreeing in writing to such extensions at least six months prior to the expiration of each successive term. 3. Section 3.1 - Base Salary. Section 3.1 is deleted in its entirety and the following substituted therefore: Employee's base salary is $400,000 per annum through the Change Date ("Base Salary"). After the Change Date, Employee's Base Salary remains at $400,000 per annum, but will be treated as comprised of $133,000 per year for services to be performed as Executive Chairman ("Base Compensation") and $267,000 per year as a severance obligation associated with transition by Employee from the position of Chairman and Chief Executive Officer to Executive Chairman ("Severance Compensation"). All Base Salary shall be payable in accordance with the normal payroll practices of the Company. 4. Section 3.3 - Equity Incentives. The fourth and fifth sentences of Section 3.3 are deleted in their entirety and the following is substituted for the fourth sentence: In the event Employee resigns for Good Reason pursuant to Section 6.1(c), or is terminated by the Company for other than Cause pursuant to Section 6.2(c), or upon Non-Renewal as defined in and pursuant to Section 6.2(d), the stock options granted to Employee shall fully vest and be exercisable in accordance with Section 7.8. 5. Section 4.1 - General Benefits. Section 4.1 is deleted in its entirety and the following is substituted therefore: Employee will be entitled to participate in the sick leave, insurance (including medical, life and long-term disability), profit-sharing, retirement, and other benefit programs that are generally provided to executive employees of the Company, including any stock option plans, long term incentive plans or deferred compensation plans, all in accordance with the rules and policies of the Company as to such matters and the plans established therefore. 6. Section 4.2 - Paid Time Off (PTO). The following sentence is added to the end of Section 4.2: Employee will no longer be eligible for PTO once Employee is employed solely as the Executive Chairman of the Company because his position will be part time. The Company will pay to Employee within 15 days after the Change Date a prorated amount of Base Salary equal to the number of PTO days the Employee had accrued but unused as of the Change Date. 7. Section 6.1(d) - Good Reason. Section 6.1(d)(iii) is deleted in its entirety and the following is substituted therefore: 2 (iii) While employed as Chairman and Chief Executive Officer, Employee is assigned duties materially inconsistent with the duties of a chief executive officer of similarly situated companies; and while employed solely as Executive Chairman, Employee is assigned duties materially inconsistent with duties of a chairman of similarly situated companies, unless any inconsistent duties have been agreed to by the Employee and the Company's Board of Directors. 8. Section 6.1(d) - Good Reason. The following is added to the Agreement as Section 6.1(d)(v): (v) A resignation by Employee following the occurrence of a Change in Control (as defined in Schedule D to the Agreement as attached hereto), but not earlier than six months after the occurrence of the Change in Control; provided, that if the Executive is terminated without Cause during such six month period, the benefits of 7.1 shall apply; provided, that notwithstanding anything to the contrary herein, during such 6 month period the Employee shall be entitled to resign for Good Reason under the other provisions of Section 6.1(c). 9. Section 6.2(d) - Notice of Non-Renewal. Section 6.2(d) is deleted in it entirety and the following is substituted therefore: - (d) Notice of Renewal. Subject to Section 7.1, the Company and Employee may, pursuant to Section 2 hereof, renew Employee's term of employment for one-year terms by agreement in writing entered into at least six months prior to the expiration of the term. If the Company fails to provide to Employee a notice of its desire to renew this Agreement in accordance with its terms at least six months prior to the expiration of the term, Employee's employment shall expire at the conclusion of the applicable term (a "Non-Renewal"). Upon Non-Renewal by the Company under this Section 6.2(d), the Company may, in its sole discretion and for any or all of the six-month period prior to the expiration of the term, suspend Employee's duties, as long as the Company continues to pay compensation to Employee, including benefits, through such period. Employee shall not take any vacations during such notice period without the prior consent of the Company. 10. Section 7.1 - Termination of Agreement Pursuant to Section 6.1(c) or 6.2(c). The first sentence of Section 7.1 is deleted in its entirety and the following is substituted therefore: If the Employee terminates his employment for Good Reason pursuant to Section 6.1(c), or the Company terminates Employee's employment without Cause pursuant to Section 6.2(c), subject to the conditions described in Section 7.3 below, the Company will pay to Employee the following severance: (i) the greater of (A) an amount equal to all Base Compensation to which Employee would have been entitled through June 30, 2007 had he not been terminated without Cause or resigned for Good Reason, or (B) twenty-four (24) months of Employee's Base Compensation at the date of termination, 6/24ths of 3 which amount shall be paid in a lump sum within 3 business days of the termination date, with the balance to be paid in 18 equal monthly installments (the first installment due on the first day of the calendar month following the month in which termination occurs); (ii) any portion of Severance Compensation to which the Employee would have been entitled through June 30, 2007 had Employee not been terminated, which portion remains unpaid at termination, payable as follows: (A) if 18 months or less of Severance Compensation remains due hereunder, then Severance Compensation shall be paid in the amounts and at the times at which Severance Compensation would otherwise have been due hereunder, or (B) if more than 18 months of Severance Compensation remains due hereunder, then 6/24ths of such aggregate amount shall be paid in a lump sum within 3 business days of the termination date, with the balance to be paid in 18 equal monthly installments (the first installment due on the first day of the calendar month following the month in which termination occurs); (iii) a pro-rata portion of Employee's target annual incentive compensation award in or around March of the year following Employee's termination based upon the number of months (rounded to the next highest number for a partial month) of the year elapsed prior to Executive's termination and any other amounts earned, accrued or owing to Executive under the plans and programs of the Company, including any earned bonus for any completed fiscal year; (iv) an amount equal to 1/12th of 7.6% of Employee's Base Salary payable each month (the first installment due on the first day of the calendar month following the month in which termination occurs) in twelve (12) monthly installments, or a monthly amount equal to 1/12th of such greater percentage as may be in effect for senior employees of the Company immediately prior to Employee's termination; which amount is intended, but not required, to be used by Employee to acquire such medical, dental, hospitalization, accident, disability, life insurance and any other benefits as the Employee may determine; and (v) the purchase of an outplacement consulting package for Employee, up to a maximum value of Fifteen Thousand Dollars ($15,000), which shall be selected at the discretion of the Employee. 11. Section 7.2 Expiration of Agreement Pursuant to Section 6.2(d). The following is added to the end of Section 7.2: (iii) an amount equal to 1/12th of 7.6% of Employee's Base Salary payable each month (the first installment due on the first day of the calendar month following the month in which termination occurs) in twelve (12) monthly installments, or a monthly amount equal to 1/12th of such greater percentage as may be in effect for senior employees of the Company immediately prior to Employee's termination; which amount is intended, but not required, to be used by Employee to acquire such medical, dental, hospitalization, accident, disability, life insurance and any other benefits as the Employee may determine. 12. Section 7.3 - Conditions Precedent to Payment of Severance. Section 7.3 is deleted in its entirety and the following substituted therefore: 7.3 Conditions Precedent to Payment of Severance. The Company's obligations to Employee described in Section 7.1 and 7.2 are contingent on Employee's delivery to the Company of the form of agreement attached hereto as Schedule E pursuant to which 4 Employee (A) affirms his agreement not to compete with the Company for a period of one year following the termination of Employee's employment and (B) waives and releases any other claims which Employee may have against the Company. 13. Section 7.8 - Acceleration of Stock Options The following is added to the Agreement as Section 7.8: 7.8 Acceleration of Stock Options. In the event Executive is terminated by the Company other than for Cause, or should the Executive resign his employment for Good Reason, or in the event of Non-Renewal, all stock options granted to Executive shall be immediately accelerated and shall be considered fully vested upon such termination, resignation or Non-Renewal. Executive's vested Non-Qualified Stock Options (whether vested by their original terms or by acceleration upon termination other than for Cause or resignation for Good Reason or Non-Renewal) shall be open for exercise until the latest date on which those options would expire or are eligible to be exercised under the Option Grant Agreements, determined without regard to such termination or resignation or non-renewal. Executive and the Company acknowledge and agree that such extended exercise period shall not apply to any Incentive Stock Options, the exercise periods for which shall continue be governed by the terms of the Option Grant Agreements. Executive understands and agrees that any extended exercise period granted to Incentive Stock Options issued to the Executive on or prior to October 16, 2003 converted those Incentive Stock Options into Non-Qualified Stock Options. 14. Section 11 - General Provisions. The following is added as subparagraph (f) to Section 11: (f) Board Authority. To the extent that the Company shall be required or permitted to take or omit to take any action pursuant to this Agreement, such authority shall be derived from the Board of Directors of the Company who shall provide direction to the Company with respect to such matters. 15. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 16. Full Force and Effect. Except as amended hereby, the Agreement remains in full force and effect and is hereby ratified, confirmed and approved. (SIGNATURES CONTINUE ON THE NEXT PAGE) 5 The parties hereto have executed this Amendment No. 1 to Employment Agreement as of the date first written above. --------------------------------------- LANCE FORS THIRD WAVE TECHNOLOGIES, INC. By: ---------------------------------- Lance Fors, Chief Executive Officer Confirmed and Agreed: --------------------------------------- John Neis Chairman, Third Wave Technologies, Inc. Compensation Committee of the Board of Directors 6 SCHEDULE C EXECUTIVE CHAIRMAN'S ROLE AND TRANSITION EXECUTIVE CHAIRMAN'S GOAL: To manage BOD activities, assist with long-term strategic issues and to identify incremental technology opportunities for TWT. EXECUTIVE CHAIRMAN'S ROLE: 1. Manage relationships, communications and meetings with BOD. 2. Communicate and discuss long-term strategic issues with CEO. 3. Identify, assess and evaluate incremental technology opportunities. 4. Develop network of technology thought leaderships to assist in identification, assessment and evaluation of opportunities to leverage TWT into new technology areas (Technology Advisory Board). 5. Prepare science and technology plan which includes ways to leverage board members with R&D backgrounds such as Sam Eletr, Gordon Brunner and Lloyd Smith via BOD Technology Advisory Group, Thought Leaders and Technology Advisory Board, and present plan at October 2004 board meeting. As part of this role, Executive Chairman will assess technology opportunities (e.g. directly, via consultants, Technology Advisory Board, and select BOD members, etc.) and develop a technology opportunity plan (e.g. opportunity, potential value, costs, partners, milestones, etc). This plan will be presented to the BOD at the October board meeting. EXECUTIVE CHAIRMAN RESOURCES: 1. On-site Office and Executive Assistant(s). 2. Access to TWT employees subject to agreement by CEO concerning which employees and their availability. 3. Discretionary resources for technology landscape assessment and evaluation, and development of technology opportunity plan for October board meeting. TRANSITION TIMING: Announce in April, 2004 Implement by June 15, 2004 SCHEDULE D "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or group acting in concert, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, or securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets. SCHEDULE E TERMINATION AGREEMENT This Termination Agreement confirms the termination of Lance Fors (the "Executive") from employment with Third Wave Technologies, Inc. (the "Company") effective _____________, 200___. The Company shall provide Executive with the severance payments and other benefits (the "Severance") described in Executive's Employment Agreement dated as of October 16, 2003, as amended from time to time thereafter (the "Employment Agreement"), and in consideration therefore, Executive agrees to the terms set forth in this Termination Agreement. The terms are as follows: 1. Executive hereby confirms his agreement not to enter into competition with the Company for a period of one year following the termination of Executive's employment in accordance with the terms and conditions set forth in the Noncompetition and Nonsolicitation Agreement dated as of October 16, 2003 by and between the Executive and the Company, as amended. 2. In consideration for the Severance and the covenants of the Company set forth in the Employment Agreement, Executive, for and on behalf of himself and his heirs, successors, executors and assigns hereby absolutely and unconditionally releases, waives and forever discharges the Company, its parent and affiliated entities, its predecessors, successors and assigns, and their respective officers, members, partners, shareholders, directors, employees, representatives, agents and other affiliates, from any and all claims or liabilities of any nature whatsoever, whether known or unknown, in connection with his affiliation with the Company, the termination of his affiliation with the Company and any additional wages, vacation pay or other paid time off, other compensation and payments (whether in contract, tort or otherwise) (the "Release"), including but not limited to: (i) for wrongful termination or breach of the covenant of good faith and fair dealing; (ii) under Title VII of the Civil Rights Act of 1964, as amended; (iii) under the Civil Rights Act of 1991, as amended; (iv) under any Collective Bargaining Agreement; (v) the Wage Payment Act, Chap. 109 Wis. Stats.; as amended; (vi) the California Fair Employment and Housing Act, as amended; (vii) the California Labor Code, as amended; (viii) under the Americans with Disabilities Act of 1990, as amended; (ix) under any Wisconsin or California law prohibiting discrimination; (x) under any other Federal, and state and local laws, orders or regulations in any way relating to the employment relationship, termination or discrimination; (xi) under common law; and (xii) the Age Discrimination Employment Act ("ADEA"), and the Older Worker Benefit Protection Act, as amended. Excluded from this Termination Agreement are the Severance, any claims or administrative charges that cannot be waived by law and claims relating to health insurance continuation rights under the terms of COBRA, rights to vested retirement benefits, if any, and rights pursuant to Option Grant Agreements. 3. Executive will not sue the Company for any matter for which the Release has been given (except to enforce rights granted under paragraph 1, above). 4. Executive will immediately return to the Company all Company property, including but not limited to, all reports, memoranda, records, computerized information, keys, credit cards, computers, manuals and other property which Executive prepared or received in connection with his affiliation with the Company. Executive agrees not to retain any copies, duplicates or portions of such information. 5. The Company agrees not to contest any claim for unemployment filed after ______________, 200__. 6. This Termination Agreement shall be construed, interpreted and applied in accordance with the laws of the State of Wisconsin, without regard to its conflicts of laws rules. In the event the Company takes any action to enforce any term or provision hereof or defend any matter released, Executive will be liable to the Company for all of its costs, expenses and reasonable attorneys' fees. 7. If any portion of this Termination Agreement is held invalid by operation of law or otherwise, the remaining terms of this Termination Agreement shall not be effected. 8. Executive agrees that he has been provided with twenty-one days from the date he received this Agreement within which to consider its terms. Executive acknowledges that he has consulted with an attorney of his choice, and has negotiated the terms of this Agreement and Executive has also had the opportunity to consult with other professional persons unrelated to the Company regarding the terms of this Agreement. Executive's signature below indicates that he is entering into this Agreement freely, knowingly and voluntarily with a full understanding of its terms. Further, the terms of this Agreement cannot become effective or enforceable until seven (7) days following the date of its execution, during which time Executive may revoke the Agreement by notifying the Company in writing. Executive understands that any rights or claims he may have under the ADEA that arise after the date of this Agreement is executed are not waived by him. 9. All rights, privileges and remedies afforded the Company are cumulative and not exclusive; the exercise of any one shall not be deemed a waiver of any other right, privilege or remedy. 10. Executive represents and warrants that he has read and understands all terms of this Agreement, executes it knowingly and voluntarily with full knowledge of its significance and with the intent to be bound by it. Executive represents and warrants that he has been or had the opportunity to be represented by legal counsel of his choice in connection with this Agreement who has explained it and advised that it is a legally binding contract. This document contains the entire agreement between Executive and the Company and the terms hereof cannot be modified except in writing signed by both Executive and the Company. 11. The parties hereto agree that signatures transmitted by facsimile shall be legally binding. (Signatures continue on next page.) 2 IN WITNESS WHEREOF, the parties hereto have entered into this Termination Agreement as of the date and year set forth below. Third Wave Technologies, Inc. By: ---------------------------- Its: --------------------------- Date: ------------------------- AGREED TO AND ACCEPTED: - ----------------------------- -------------------- Lance Fors Date 3 EX-10.2 3 c87372exv10w2.txt AMENDMENT #2 TO EMPLOYMENT AGREEMENT FOR JOHN PUISIS EXHIBIT 10.2 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT THIS AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT ("Amendment") is entered into as of the ___ day of _________, 2004, by and between JOHN PUISIS ("Executive") and THIRD WAVE TECHNOLOGIES, INC., a Delaware corporation (the "Company"). WHEREAS, the Company currently employs Executive pursuant to an Employment Agreement commencing on September 24, 2001, as amended by Amendment to Employment Agreement effective as of July 17, 2003 (collectively, the "Agreement"); and WHEREAS, the Company and the Executive wish to amend the Agreement on the terms and provisions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and conditions hereinafter set forth, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows: 1. Section 1(a) - Position; Duties. Section 1(a) is deleted in its entirety and the following is substituted therefore: Company is currently employing and will continue to employ Executive as President and Chief Operating Officer of the Company hereunder; provided, however, subject to the authorization of the Board of Directors of the Company, Executive will be employed as President and Chief Executive Officer at a date commencing during 2004 to be agreed to by Executive and Lance Fors, the Company's Chairman and current Chief Executive Officer (the "CEO" or the "Chairman"). From and after the appointment of the Executive to the position of Chief Executive Officer, all references in the Agreement to the CEO, shall thereafter mean and refer to the Chairman. 2. Section 1(c) - Appointment to the Board of Directors. Section 1(c) is added to the Agreement as follows: (c) Appointment to the Board of Directors. The Company agrees to nominate Executive to the Board of Directors of the Company from time to time as necessary to permit Executive to serve on such Board throughout the term of this Agreement. 3. Section 4 - Equity Compensation. The last sentence of Section 4 is deleted in its entirety, and the following is substituted therefore: All options granted to Executive shall vest in equal installments over the four-year period commencing with the date of grant of such options, subject to the acceleration of vesting (i) as described in Section 9(c)(ii) hereof and (ii) in the Option Grant Agreements issued by the Company, as amended, provided, that in the event of a conflict between any Option Grant Agreement and Section 9(c)(ii) of this Agreement, this Agreement shall control. 4. Section 8 - Relocation. Section 8 is deleted in its entirety and the following is substituted therefore: The Company acknowledges that the Executive shall be entitled to maintain his principal residence in Illinois and to perform his duties hereunder from the State of Illinois. The Executive will have the flexibility to commute to Madison, Wisconsin as and when necessary as long as Executive's duties are performed to the reasonable standards set by the Company's Board of Directors. The Company will also provide for temporary housing for Executive when Executive is required to perform his duties in Madison, Wisconsin and reimburse Executive for expenses associated with commuting to and from Madison, Wisconsin, up to an aggregate amount of $30,000 per year. 5. Section 9(a)(i) - Death or Disability. Section 9(a)(i) is deleted in its entirety and the following substituted therefore: (i) All vested and exercisable stock options may be exercised after Executive's termination of employment in accordance with the terms and conditions of the Stock Option Plan and applicable option grant documents, except that the period during which such options are exercisable after termination shall be as set forth in Section 9(d). 6. Section 9(c) - Involuntary Termination Other Than for Cause or Voluntary Termination for Good Reason. The preface to Section 9(c) and Subsections 9(c)(i), (ii) and (iv) are deleted in their entirety and the following is substituted therefore: If Executive is terminated by the Company other than for Cause or Executive resigns his employment for Good Reason, then as liquidated damages and in lieu of any other damages or compensation under this Agreement or otherwise, Executive will receive the payments or other benefits described in this paragraph; provided; however, that Executive shall execute and deliver to the Company the form of agreement attached hereto as Exhibit C pursuant to which: Executive (A) affirms his agreement not to enter into Competition (as defined in this Agreement) with the Company for a period of one year following the termination of Executive's employment and (B) waives and releases any other claims which Executive may have against the Company. (i) Executive will receive a severance payment equal to 24 months of Executive's then current Base Salary, 6/24th of which shall be paid in a lump sum within 3 business days of the termination date, with the balance to be paid in 18 equal monthly installments (the first installment due on the first day of the calendar month following the month in which termination occurs). 2 (ii) In the event Executive is terminated by the Company other than for Cause or should the Executive resign his employment for Good Reason, all stock options granted to Executive shall be immediately accelerated and shall be considered fully vested upon such termination or resignation. Executive will be entitled to exercise such stock options in accordance with Section 9(d). (iv) Executive will receive an amount equal to 1/12th of 7.6% of Executive's Base Salary payable each month (the first installment due on the first day of the calendar month following the month in which termination occurs) in twelve (12) monthly installments, or a monthly amount equal to 1/12th of such greater percentage as may be in effect for senior employees of the Company immediately prior to Executive's termination; which amount is intended, but not required, to be used by Executive to acquire such medical, dental, hospitalization, accident, disability, life insurance and any other benefits as the Executive may determine. 7. Section 9(c) - Involuntary Termination Other Than for Cause or Voluntary Termination for Good Reason Section 9(c)(vii) is added as follows: Executive will receive an outplacement consulting package up to a maximum value of $15,000 that shall be selected at the discretion of the Executive. 8. Section 9(d)- Exercise Period upon Termination. Section 9(d) is hereby added as follows: (d) Notwithstanding anything contained herein or in the Option Grant Agreements to the contrary, Executive's vested Non-Qualified Stock Options (whether vested by their original terms or by acceleration upon termination for other than for Cause or resignation for Good Reason) shall be open for exercise until the latest date on which those options would expire or are eligible to be exercised under the Option Grant Agreements, determine without regard to such termination or resignation; provided, however, that in the event of a conflict between any Option Grant Agreement and Section 9(d) of this Agreement, this Agreement shall control. Executive and the Company acknowledge and agree that such extended exercise period shall not apply to any Incentive Stock Options, the exercise periods for which shall continue be governed by the terms of the Option Grant Agreements. Executive understands and agrees that any extended exercise period granted to Incentive Stock Options issued to Executive on or prior to July 17, 2003 converted those Incentive Stock Options into Non-Qualified Stock Options. 9. Section 10 - Cause; Good Reason. Sections 10(b) (ii), (vii) and (viii) are deleted in their entirety and the following are substituted therefore, and Sections (b)(ix), (x) and (xi) are added to this Agreement: (ii) The Company (A) fails to continue to retain Executive as its Chief Operating Officer, or (B) by December 31, 2004 and thereafter, fails to appoint and retain Executive 3 as its Chief Executive Officer, as contemplated herein; provided, however, after Executive is appointed as Chief Executive Officer, the failure to retain Executive as Chief Operating Officer shall no longer constitute Good Reason hereunder. (vii) In the event that Lance Fors is no longer the CEO of the Company and Executive is not appointed as CEO within six-months of the announcement of For's stepping down as CEO. (viii) A resignation by Executive following the occurrence of a Change in Control (as defined in the Indemnification Agreement attached hereto as Exhibit A). (ix) The Company fails to nominate Executive to the Board of Directors of the Company by December 31, 2004, or Executive is not thereafter nominated for re-election to the Board during the term of this Agreement. (x) The Executive is not elected to the Board of Directors of the Company by December 31, 2004, or Executive is not re-elected to the Board of Directors during the term of this Agreement. (xi) The Compensation Committee of the Board of Directors fails to adopt an amendment to the Option Grant Agreements issued to Executive in accordance with the terms of this Agreement within 30 days hereafter. 10. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 11. Full Force and Effect. Except as amended hereby, the Agreement remains in full force and effect and is hereby ratified, confirmed and approved. (SIGNATURES CONTINUE ON THE NEXT PAGE) 4 The parties hereto have executed this Amendment No. 2 to Employment Agreement as of the date first written above. --------------------------------------- JOHN PUISIS THIRD WAVE TECHNOLOGIES, INC. By: ----------------------------------- Lance Fors, Chief Executive Officer Confirmed and Agreed: --------------------------------------- John Neis Chairman, Third Wave Technologies, Inc. Compensation Committee of the Board of Directors 5 Exhibit C TERMINATION AGREEMENT This Termination Agreement confirms the termination of John Puisis (the "Executive") from employment with Third Wave Technologies, Inc. (the "Company") effective _____________, 200___. The Company shall provide Executive with the severance payments and other benefits (the "Severance") described in Executive's Employment Agreement dated as of September 19, 2001, as amended from time to time thereafter (the "Employment Agreement"), and in consideration therefore, Executive agrees to the terms set forth in this Termination Agreement. The terms are as follows: 1. Executive hereby confirms his agreement not to enter into Competition (as defined in the Employment Agreement) with the Company for a period of one year following the termination of Executive's employment in accordance with the terms and conditions set forth in the Employment Agreement. 2. In consideration for the Severance and the covenants of the Company set forth in the Employment Agreement, Executive, for and on behalf of himself and his heirs, successors, executors and assigns hereby absolutely and unconditionally releases, waives and forever discharges the Company, its parent and affiliated entities, its predecessors, successors and assigns, and their respective officers, members, partners, shareholders, directors, employees, representatives, agents and other affiliates, from any and all claims or liabilities of any nature whatsoever, whether known or unknown, in connection with his affiliation with the Company, the termination of his affiliation with the Company and any additional wages, vacation pay or other paid time off, other compensation and payments (whether in contract, tort or otherwise) (the "Release"), including but not limited to: (i) for wrongful termination or breach of the covenant of good faith and fair dealing; (ii) under Title VII of the Civil Rights Act of 1964, as amended; (iii) under the Civil Rights Act of 1991, as amended; (iv) under any Collective Bargaining Agreement; (v) the Wage Payment Act, Chap. 109 Wis. Stats.; (vi) the Illinois Wage Payment and Collection Act, 820 ILCS 115/11 et seq.; (vii) under the Americans with Disabilities Act of 1990, as amended; (viii) under any Wisconsin or Illinois law prohibiting discrimination; (ix) under any other Federal, and state and local laws, orders or regulations in any way relating to the employment relationship, termination or discrimination; (x) under common law and (xi) the Age Discrimination Employment Act ("ADEA"), and the Older Worker Benefit Protection Act, as amended. Excluded from this Termination Agreement are the Severance, any claims or administrative charges that cannot be waived by law and claims relating to health insurance continuation rights under the terms of COBRA, rights to vested retirement benefits, if any, and rights pursuant to Option Grant Agreements. 3. Executive will not sue the Company for any matter for which the Release has been given (except to enforce rights granted under paragraph 1, above). 6 4. Executive will immediately return to the Company all Company property, including but not limited to, all reports, memoranda, records, computerized information, keys, credit cards, computers, manuals and other property which Executive prepared or received in connection with his affiliation with the Company. Executive agrees not to retain any copies, duplicates or portions of such information. 5. The Company agrees not to contest any claim for unemployment filed after ______________, 200__. 6. This Termination Agreement shall be construed, interpreted and applied in accordance with the laws of the State of Wisconsin, without regard to its conflicts of laws rules. In the event the Company takes any action to enforce any term or provision of this Agreement or defend any matter released, Executive will be liable to the Company for all of its costs, expenses and reasonable attorneys' fees. 7. If any portion of this Termination Agreement is held invalid by operation of law or otherwise, the remaining terms of this Termination Agreement shall not be effected. 8. Executive agrees that he has been provided with twenty-one days from the date he received this Agreement within which to consider its terms. Executive acknowledges that he has consulted with an attorney of his choice, and has negotiated the terms of this Agreement and Executive has also had the opportunity to consult with other professional persons unrelated to the Company regarding the terms of this Agreement. Executive's signature below indicates that he is entering into this Agreement freely, knowingly and voluntarily with a full understanding of its terms. Further, the terms of this Agreement cannot become effective or enforceable until seven (7) days following the date of its execution, during which time Executive may revoke the Agreement by notifying the Company in writing. Executive understands that any rights or claims he may have under the ADEA that arise after the date of this Agreement is executed are not waived by him. 9. All rights, privileges and remedies afforded the Company are cumulative and not exclusive; the exercise of any one shall not be deemed a waiver of any other right, privilege or remedy. 10. Executive represents and warrants that he has read and understands all terms of this Agreement, executes it knowingly and voluntarily with full knowledge of its significance and with the intent to be bound by it. Executive represents and warrants that he has been or had the opportunity to be represented by legal counsel of his choice in connection with this Agreement who has explained it and advised that it is a legally binding contract. This document contains the entire agreement between Executive and the Company and the terms hereof cannot be modified except in writing signed by both Executive and the Company. 11. The parties hereto agree that signatures transmitted by facsimile shall be legally binding. 7 IN WITNESS WHEREOF, the parties hereto have entered into this Termination Agreement as of the date and year set forth below. Third Wave Technologies, Inc. By: ----------------------------- Its: ---------------------------- Date: --------------------------- AGREED TO AND ACCEPTED: - ----------------------------- -------------------- John Puisis Date 8 EX-31.1 4 c87372exv31w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION I, John Puisis, CEO of Third Wave Technologies, Inc. (the "registrant"), certify that: 1. I have reviewed this Quarterly Report on Form 10-Q (the "Report") of the registrant; 2. Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Report; 3. Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the Report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the Report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the Report, based on such evaluation; and (c) disclosed in the Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and, 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004 /s/ John Puisis --------------------------- John Puisis, CEO EX-31.2 5 c87372exv31w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION I, David Nuti, CFO of Third Wave Technologies, Inc. (the "registrant"), certify that: 1. I have reviewed this Quarterly Report on Form 10-Q (the "Report") of the registrant; 2. Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Report; 3. Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the Report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the Report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the Report, based on such evaluation; and (c) disclosed in the Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and, 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004 /s/ David Nuti --------------------------- David Nuti, CFO EX-32 6 c87372exv32.txt SECTION 1350 CERTIFICATIONS EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with Third Wave Technologies, Inc. (the "Company) Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), John Puisis, Chief Executive Officer of the Company, and David Nuti, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C Section 1350, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ John Puisis -------------------------------------- John Puisis Chief Executive Officer August 9, 2004 /s/ David Nuti -------------------------------------- David Nuti Chief Financial Officer August 9, 2004 -----END PRIVACY-ENHANCED MESSAGE-----