-----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, QvKe92QGn4ZwOzmxVkJAXBAFuRTXvcGi694zLQNMRAycVHMGPCmC/QfOX4djPccC jnjEE4Wm5S6SwR+3Rs8GMA== 0000950137-05-013410.txt : 20051107 0000950137-05-013410.hdr.sgml : 20051107 20051107172324 ACCESSION NUMBER: 0000950137-05-013410 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051107 DATE AS OF CHANGE: 20051107 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 FISCAL YEAR END: 0725 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31745 FILM NUMBER: 051184219 BUSINESS ADDRESS: STREET 1: 502 S ROSA RD CITY: MADISON STATE: WI ZIP: 53719-1256 BUSINESS PHONE: 608-663-7036 MAIL ADDRESS: STREET 1: 502 S. ROSA ROAD CITY: MADISON STATE: WI ZIP: 53719 10-Q 1 c99670e10vq.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 September 30, 2005 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 [ ] Indicate by check mark whether the registrant is a shell company (as defined in 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 November 4, 2005, was 41,236,377. ================================================================================ THIRD WAVE TECHNOLOGIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2005 TABLE OF CONTENTS
PAGE NO. PART I FINANCIAL INFORMATION.......................................................................................... 3 Item 1. Consolidated Financial Statements.......................................................................... 3 Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004....................................... 3 Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004............ 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004...................... 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.................................................................................... 14 PART II OTHER INFORMATION............................................................................................. 14 Item 1. Legal Proceedings.......................................................................................... 14 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds................................................ 14 Item 3. Defaults Upon Senior Securities............................................................................ 16 Item 4. Submission Of Matters To A Vote Of Security Holders........................................................ 16 Item 5. Other Information.......................................................................................... 16 Item 6. Exhibits................................................................................................... 16 SIGNATURES............................................................................................................ 17 EXHIBITS
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THIRD WAVE TECHNOLOGIES, INC. Consolidated Balance Sheets
September 30, 2005 December 31, 2004 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 42,431,168 $ 55,619,981 Short-term investments 11,835,000 11,070,000 Receivables, net of allowance for doubtful accounts of $185,000 and $300,000 at September 30, 2005 and December 31, 2004, respectively 3,642,717 5,784,679 Inventories 2,234,084 1,236,392 Prepaid expenses and other 650,148 260,316 ------------- ------------- Total current assets 60,793,117 73,971,368 Equipment and leasehold improvements: Machinery and equipment 15,453,981 15,832,489 Leasehold improvements 2,347,093 2,277,604 ------------- ------------- 17,801,074 18,110,093 Less accumulated depreciation 12,792,956 12,139,423 ------------- ------------- 5,008,118 5,970,670 ------------- ------------- Assets held for sale - 269,000 Intangible assets, net of accumulated amortization 3,017,808 4,146,372 Indefinite lived intangible assets 1,007,411 1,007,411 Goodwill 489,873 489,873 Other long term assets 1,857,730 2,212,935 ------------- ------------- Total assets $ 72,174,057 $ 88,067,629 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,169,092 $ 6,519,005 Accrued payroll and related liabilities 1,936,319 2,873,506 Other accrued liabilities 3,286,377 1,867,361 Deferred revenue 213,269 129,530 Capital lease obligation 104,095 66,867 Long-term debt due within one year 9,873,800 9,614,127 ------------- ------------- Total current liabilities 21,582,952 21,070,396 Long-term debt 749,356 335,069 Deferred revenue - long term 172,645 254,434 Capital lease obligations - long term 209,283 151,885 Other liabilities 4,581,460 3,520,948 Shareholders' equity: Participating preferred stock, Series A, $.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding - - Common stock, $.001 par value, 100,000,000 shares authorized, 41,370,234 shares issued, 41,152,234 shares outstanding at September 30, 2005 and 41,102,764 shares issued and outstanding at December 31, 2004 41,370 41,103 Additional paid-in capital 199,073,727 198,990,162 Unearned stock compensation (312,277) (554,293) Treasury stock - 218,000 shares acquired at an average price of $4.02 per share (877,159) - Foreign currency translation adjustment 41,136 31,949 Accumulated deficit (153,088,436) (135,774,024) ------------- ------------- Total shareholders' equity 44,878,361 62,734,897 ------------- ------------- Total liabilities and shareholders' equity $ 72,174,057 $ 88,067,629 ============= =============
See accompanying notes to consolidated financial statements. 3 THIRD WAVE TECHNOLOGIES, INC. Consolidated Statements of Operations (Unaudited)
Three Months Ended: Nine Months Ended: September 30, September 30, 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Revenues: Clinical product sales $ 4,031,766 $ 3,828,240 $ 11,407,180 $ 10,284,198 Research product sales 1,039,569 6,496,157 6,152,540 27,783,714 License and royalty revenue 89,763 71,492 272,609 167,121 Grant revenue 61,293 83,138 287,819 151,870 ------------ ------------ ------------ ------------ Total revenues 5,222,391 10,479,027 18,120,148 38,386,903 ------------ ------------ ------------ ------------ Operating expenses: Cost of goods sold Product cost of goods sold 1,108,385 1,813,702 3,960,294 8,565,560 Intangible and long-term asset amortization 468,035 521,505 1,427,625 1,634,160 ------------ ------------ ------------ ------------ Total cost of goods sold 1,576,420 2,335,207 5,387,919 10,199,720 Research and development 2,063,762 3,026,445 6,569,300 8,726,631 Selling and marketing 3,662,014 2,370,231 10,208,077 7,691,222 General and administrative 5,600,641 2,863,852 13,647,600 8,433,456 Impairment charge - - 202,707 758,716 ------------ ------------ ------------ ------------ Total operating expense 12,902,837 10,595,735 36,015,603 35,809,745 ------------ ------------ ------------ ------------ Income (loss) from operations (7,680,446) (116,708) (17,895,455) 2,577,158 Other income (expense): Interest income 459,704 210,997 1,200,042 480,945 Interest expense (128,516) (74,030) (313,278) (189,779) Other (30,685) 4,015 (305,721) (101,357) ------------ ------------ ------------ ------------ Total other income (expense) 300,503 140,982 581,043 189,809 Net income (loss) $ (7,379,943) $ 24,274 $(17,314,412) $ 2,766,967 Net income (loss) per share - basic $ (0.18) $ 0.00 $ (0.42) $ 0.07 Net income (loss) per share - diluted $ (0.18) $ 0.00 $ (0.42) $ 0.07 Weighted average shares outstanding Basic 41,073,652 40,521,411 41,094,740 40,309,084 Diluted 41,073,652 42,509,345 41,094,740 42,070,075
See accompanying notes to consolidated financial statements. 4 THIRD WAVE TECHNOLOGIES, INC. Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2005 2004 OPERATING ACTIVITIES: Net income (loss) $(17,314,412) $ 2,766,967 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,596,997 2,103,010 Amortization of intangible assets 1,128,564 1,128,564 Noncash stock compensation (354,827) 1,329,404 Impairment charge and loss on disposal of equipment 208,731 870,058 Changes in operating assets and liabilities: Receivables 2,084,109 (1,658,382) Inventories (997,692) 124,122 Prepaid expenses and other assets (266,647) 121,605 Accounts payable (349,913) 629,801 Accrued expenses and other liabilities 1,542,341 161,368 Deferred revenue 1,950 421,237 ------------ ------------ Net cash provided by (used in) operating activities (12,720,799) 7,997,754 INVESTING ACTIVITIES: Purchases of equipment and leasehold improvements (307,185) (532,601) Proceeds on sale of equipment 197,287 65,020 Purchases of short-term investments (11,835,000) (11,070,000) Sales and maturities of short-term investments 11,070,000 10,800,000 ------------ ------------ Net cash used in investing activities (874,898) (737,581) FINANCING ACTIVITIES: Proceeds of long-term debt 800,000 470,000 Payments on long-term debt (126,040) (10,399) Payment on capital lease obligations (70,591) - Proceeds from common stock, net 680,674 1,332,168 Repurchase of stock (877,159) - ------------ ------------ Net cash provided by financing activities 406,884 1,791,769 Net increase (decrease) in cash and cash equivalents (13,188,813) 9,051,942 Cash and cash equivalents at beginning of period 55,619,981 47,015,746 Cash and cash equivalents at end of period $ 42,431,168 $ 56,067,688
During the nine months ended September 30, 2005, the Company entered into capital lease obligations of $165,217. See accompanying notes to consolidated financial statements. 5 THIRD WAVE TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 (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, 2005. The balance sheet at December 31, 2004 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, 2004 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 and nine months ended September 30, 2005 because they are anti-dilutive. The following table presents the calculation of basic and diluted net income (loss) per share:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2005 2004 2005 2004 ------------ ------------- ------------- ------------ Numerator: Net income (loss) $ (7,379,943) $ 24,274 $(17,314,412) $ 2,766,967 Denominator Weighted average shares outstanding - basic 41,073,652 40,521,411 41,094,740 40,309,084 Dilutive securities - stock options N/A 1,987,934 N/A 1,760,991 Weighted average shares outstanding - diluted 41,073,652 42,509,345 41,094,740 42,070,075 Basic net income (loss) per share $ (0.18) $ (0.00) $ (0.42) $ 0.07 Dilutive net income (loss) per share $ (0.18) $ (0.00) $ (0.42) $ 0.07
(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: 6
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2005 2004 2005 2004 -------------- ----------- -------------- ------------- Net income (loss), as reported $ (7,379,943) $ 24,274 $ (17,314,412) $ 2,766,967 Add: Stock-based compensation, as reported 422,357 785,226 (354,827) 1,329,404 Less: Stock-based compensation, using fair value method (1,217,295) (814,730) (3,557,025) (3,013,856) Less: Stock-based compensation, related to the employee stock purchase plan determined under SFAS No. 123 -0- -0- (95,847) (151,017) -------------- ---------- -------------- ------------- Pro forma net income (loss) $ (8,174,881) $ (5,230) $ (21,322,111) 931,498 ============== ========== ============== ============= Net income (loss) per share, basic, as reported $ (0.18) $ (0.00) $ (0.42) $ 0.07 Net income (loss) per share, diluted, as reported $ (0.18) $ (0.00) $ (0.42) $ 0.07 Pro forma net income (loss) per share, basic $ (0.20) $ (0.00) $ (0.52) $ 0.02 Pro forma net income (loss) per share, diluted $ (0.20) $ (0.00) $ (0.52) $ 0.02
As described in Note 2 of Notes to Consolidated Financial Statements in our Form 10-K for the year ended December 31, 2004, the Financial Accounting Standards Board recently issued SFAS No. 123 (revised 2004), "Share-Based Payment", which is a revision of SFAS No. 123. The Company expects to adopt SFAS No. 123(R) on January 1, 2006. (4) Inventories Inventories 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:
SEPTEMBER 30, DECEMBER 31, 2005 2004 -------------- ---------- Raw materials $ 1,630,456 $ 1,318,771 Finished goods and work in process 1,363,628 567,621 Reserve for excess and obsolete inventory (760,000) (650,000) ------------- ------------ Total inventories $ 2,234,084 $ 1,236,392 ============= ============
(5) Stock Compensation Included in operating expenses are the following stock compensation charges, net of reversals related to terminated employees:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2005 2004 ------------ ----------- ------------ ------------- Cost of goods sold $ 40,143 $ 47,731 $ 27,163 $ 57,692 Research and development 1,969 419,025 (499,113) 769,970 Selling and marketing 33,150 188 45,557 68,674 General and administrative 347,095 318,282 71,566 433,068 ------------ ----------- ------------ ------------- Total stock compensation $ 422,357 $ 785,226 $ (354,827) $ 1,329,404 ------------ ----------- ------------ -------------
(6) Comprehensive Income (Loss) The components of comprehensive income (loss) are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2005 2004 -------------- ----------- -------------- ------------- Net income (loss) $ (7,379,943) $ 24,274 $(17,314,412) $ 2,766,967 Other comprehensive income (loss): Foreign currency translation adjustments 4,625 (1,945) 9,187 (1,774) ------------- ---------- ------------- ------------- Comprehensive income (loss) $ (7,375,318) $ 22,329 $ (17,305,225) $ 2,765,193 ============= ========== ============= =============
7 (7) Derivative Instruments We sell products in a number of countries throughout the world. In the quarters ended September 30, 2005 and 2004, 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 September 30, 2005. 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 in earnings. (8) Amortizable Intangible Assets Amortizable intangible assets consist of the following:
SEPTEMBER 30, 2005 DECEMBER 31, 2004 -------------------------------------------------------------------------------- GROSS GROSS CARRYING ACCUMULATED CARRYING ACCUMULATED AMOUNT AMORTIZATION AMOUNT AMORTIZATION ------------- ------------ ------------- ------------ Costs of settling patent litigation $ 10,533,248 $ 7,515,440 $ 10,533,248 $ 6,386,876 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 $ 9,764,551 $ 12,782,359 $ 8,635,987 ============== ============= ============== =============
(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, 2004. The remaining restructuring balance of $1.0 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 sheets and the remainder is included in other long-term liabilities. Accrued restructuring balance at December 31, 2004 $ 1,116,848 Payments made (118,768) ------------ Accrued restructuring balance at September 30, 2005 $ 998,080 ------------
(10) Shareholder's Equity The Board of Directors has authorized a program for the repurchase by the Company of up to 5% of its outstanding common stock. Third Wave has repurchased 218,000 shares of common stock as of September 30, 2005 for $877,159. (11) Reclassifications Certain reclassifications have been made to the 2004 financial statements to conform to the 2005 presentation. 8 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 September 30, 2005 and for the three and nine months ended September 30, 2005 and 2004 should be read in conjunction with our Form 10-K for the fiscal year ended December 31, 2004 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 discussion below under the caption "Forward-Looking Statements". OVERVIEW Third Wave Technologies, Inc. is a leading molecular diagnostics company. We believe our proprietary Invader(R) chemistry, a novel, proprietary molecular chemistry is easier to use, more accurate and cost-effective, and enables higher testing throughput. These and other advantages conferred by our chemistry are enabling us to provide clinicians and researchers with superior molecular solutions. More than 120 clinical laboratory customers are using Third Wave's products. 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 test for hepatitis C virus, human papillomavirus, cystic fibrosis and other inherited disorders, including the Factor V Leiden and a host of other mutations associated with cardiovascular and other diseases. The Company recently received FDA clearance of its UGT1A1 pharmacogenetic test, which is designed to detect mutations associated with adverse reaction to the chemotherapy Camptosar. The Company has developed and plans to continue to develop a menu of molecular diagnostic products for clinical applications that include genetics/pharmacogenetics, oncology/chromosomal analysis, and infectious disease/women's health. The Company also has a number of other Invader(R) products 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. As a result, annual financial results are more indicative of the Company's performance than quarterly results and results of operations in any quarterly period may not be indicative of results likely to be realized in the subsequent quarterly periods. 9 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 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. REVENUE RECOGNITION Revenue from product sales is recognized upon delivery which is generally when the title passes to the customer, provided that the Company has completed all performance obligations and the customer has accepted the products. Customers have no contractual rights of return or refunds associated with product sales. Consideration received in multiple element arrangements is allocated to the separate units based upon their relative fair values. Grant and development revenues consist primarily of research grants from agencies of the federal government and revenue from companies with which the Company has established strategic alliances, the revenue from which is recognized as research is performed. Payments received which are related to future performance are deferred and recorded as revenue when earned. Grant payments designated to purchase specific assets to be used in the performance of a contract are recognized as revenue over the shorter of the useful life of the asset acquired or the contract. License and royalty revenue includes amounts earned from third parties for licenses of the Company's intellectual property and are recognized when earned under the terms of the related agreements. License revenues are generally recognized upon receipt unless the Company has continuing performance obligations, in which case the license revenue is recognized ratably over the period of expected performance. RESTRUCTURING AND OTHER CHARGES. The restructuring and other charges resulting from the restructuring plan in the third quarter of 2002 have 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 10 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 nine months ended September 30, 2005 and September 30, 2004, we recorded an impairment charge on certain equipment of $0.2 million and $0.8 million, respectively. 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. In the quarter ended September 30, 2005, the annual impairment test was performed and 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 2005 and 2004, 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 September 30, 2005. 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 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 September 30, 2005, our inventory reserves were at $0.8 million, or 25% of our $3.0 million total gross inventories. RESULTS OF OPERATIONS Three and Nine Months Ended September 30, 2005 and 2004 REVENUES. Revenues for the three months ended September 30, 2005 of $5.2 million represented a decrease of $5.3 million, compared to revenues of $10.5 million for the corresponding period of 2004. Revenues for the nine months ended September 30, 2005 of $18.1 million represented a decrease of $20.3 million, compared to revenues of $38.4 million for the corresponding period of 2004. Product revenues decreased to $5.1 million for the quarter ended September 30, 2005, from $10.3 million in the quarter ended September 30, 2004. Product revenues decreased to $17.6 million for the nine months ended September 30, 2005, from $38.1 million in the nine months ended September 30, 2004. The decrease in product sales during the three and nine months ending September 30, 2005 was primarily due to a decrease in sales of genomic research product to a major Japanese research institute partially offset by an increase in clinical molecular diagnostic sales compared to the corresponding periods of 2004. As we continue to develop and expand our line of molecular diagnostic products, we expect our molecular diagnostic revenues to increase. Significant Customer. We generated $3.6 million, or 20% of our revenues, from sales to a major Japanese research institute for use by several end-users during the nine months ended September 30, 2005, compared to $25.0 million, or 65% of our revenues during the nine months ended September 30, 2004. We believe this customer will continue to purchase Company products. However, the timing and amount of such purchases will be influenced by the Japanese government funding process and other factors beyond the Company's control, as a result of which the timing and amount of such purchases 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 September 30, 2005, cost of goods sold decreased to $1.6 million, compared to $2.3 million for the corresponding period of 2004. For the nine months ended 11 September 30, 2005, cost of goods sold decreased to $5.4 million, compared to $10.2 million for the corresponding period of 2004. The decrease in the nine month period was primarily due to the decrease 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 September 30, 2005 were $2.1 million, compared to $3.0 million for the three months ended September 30, 2004. Research and development expenses for the nine months ended September 30, 2005 were $6.6 million, compared to $8.7 million for the nine months ended September 30, 2004. The decrease in research and development expenses was primarily due to a decrease 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 September 30, 2005 were $3.7 million, an increase of $1.3 million, compared to $2.4 million for the corresponding period of 2004. Selling and marketing expenses for the nine months ended September 30, 2005 were $10.2 million, an increase of $2.5 million, compared to $7.7 million for the corresponding period of 2004. The increase in selling and marketing expenses was due to an increase in personnel related expenses compared to the same period in 2004. We anticipate selling and marketing expenses to continue to be at or above 2004 levels for the remainder of 2005 and beyond. 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 $5.6 million in the three months ended September 30, 2005, from $2.9 million for the corresponding period in 2004. General and administrative expenses increased to $13.6 million in the nine months ended September 30, 2005, from $8.4 million for the corresponding period in 2004. The increase in general and administrative expenses was primarily due to an increase in legal expenses as a result of the patent infringement lawsuit against Stratagene. The Company anticipates a continued high level of legal expenses as a result of the additional lawsuits with Innogenetics, Chiron Corporation, Bayer Corporation, Digene Corporation and Stratagene discussed in further detail below in Part II - Item 1 "Legal Proceedings." In addition, as the Company moves towards consideration of FDA cleared or approved products, there will be increased expenses attributed to these activities. IMPAIRMENT. In the nine months ended September 30, 2005 an impairment charge of $0.2 million was recorded for the loss on equipment that was sold, compared to $0.8 million for the nine months ended September 30, 2004 for equipment written down to fair value. INTEREST INCOME. Interest income for the three months ended September 30, 2005 was $0.5 million, compared to $0.2 million for the corresponding period of 2004. Interest income for the nine months ended September 30, 2005 was $1.2 million compared to $0.5 million in the nine months ended September 30, 2004. The increase in interest income was due to higher interest rates compared to 2004. INTEREST EXPENSE. Interest expense for the three months ended September 30, 2005 and 2004 was approximately $0.1 million. Interest expense for the nine months ended September 30, 2005 was $0.3 million compared to $0.2 million in the corresponding period of 2004. OTHER INCOME (EXPENSE): Other expense for the three months ended September 30, 2005 was approximately $31,000 compared to other income of approximately $4,000 for the same period in 2004. Other expense for the nine months ended September 30, 2005 was $0.3 million, compared to other expense of $0.1 million for the nine months ended September 30, 2004. OTHER ITEMS: On September 14, 2004, Third Wave filed suit against Stratagene Corporation in the United States District Court for the Western District of Wisconsin. The complaint alleged patent infringement by Stratagene's sale of its QPCR; QRTPCR Full Velocity products of two Third Wave patents concerning the Company's proprietary Invader technology. The case was tried before a jury in August 2005 and the jury found that Stratagene willfully infringed Third Wave's patents, and that Third Wave's patents were valid. The jury awarded Third Wave $5.29 million in damages. Post-trial motions are currently pending before the Court, including Stratagene's motion for a new trial and to resolve the damages award and Third Wave's motion for trebled damages, attorneys fees and costs. Stratagene may post a bond with the court pending appellate review in lieu of paying Third Wave any awarded damages or costs. The appellate review is expected to take between 1-3 years. 12 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, product sales, a convertible note and an initial public offering. As of September 30, 2005, we had cash and cash equivalents and short-term investments of $54.3 million. Net cash used in operations for the nine months ended September 30, 2005 was $12.7 million, compared to net cash provided by operations of $8.0 million in the corresponding period in 2004. The decrease in cash provided by operations was primarily due to an increase in operating losses. Net cash used in investing activities for the nine months ended September 30, 2005 was $0.9 million, compared $0.7 million in the corresponding period in 2004. Investing activities included capital expenditures of $0.3 million in the nine months ended September 30, 2005 versus $0.5 million for the same period in 2004. Investing activities included proceeds from the sale of equipment of $0.2 million in the nine months ended September 30, 2005, compared to $0.1 million in the corresponding period in 2004. Investing activities in the nine months ended September 30, 2005 also included net cash usage of $0.8 million to purchase short-term investments, compared to $0.3 million in 2004. Net cash provided by financing activities was $0.4 million in the nine months ended September 30, 2005, compared to $1.8 million in the nine months ended September 30, 2004. Cash provided by financing activities in the nine months ending September 30, 2005 consisted of proceeds from the sale of common stock under the Company's employee stock purchase plan and stock option plans of $0.7 million compared to $1.3 million in the corresponding period of 2004. In the nine months ended September 30, 2005, there was $0.8 million of proceeds from long-term debt compared to $0.5 million in the nine months ended September 30, 2004. Additionally, in the nine months ended September 30, 2005, $0.9 million was used to repurchase 218,000 shares of company stock; $126,000 was used to repay debt; and $71,000 was used for capital lease obligations. The Company has a $9,500,000 note payable with a bank due on August 14, 2006, bearing annual interest at 5.17%. Interest on this note is payable monthly and principal is payable at maturity. The Company has three additional notes payable in the original amounts of $200,000, $270,000, and $800,000. These additional notes have respective final maturity dates of July 1, 2007, October 1, 2009, and July 1, 2008, bear annual interest at 4.25%, 4.93%, and 5.2%, respectively, and require monthly principal and interest payments. The borrowings under the notes payable are secured by short-term investments consisting of certificates of deposit in the aggregate amount of $10,535,000. The Company has an available and unused $1,300,000 letter of credit with the same bank that expires on September 1, 2006. The Company believes that its current cash reserves together with its ability to establish borrowing arrangements will be sufficient to support the short-term and long-term liquidity requirements for current operations (including annual capital expenditures). However, we cannot assure you that our business or operations will not change in a manner that would consume available resources more rapidly than anticipated. We also cannot assure you that we will not require substantial additional funding before we can achieve profitable operations. Our capital requirements depend on numerous factors, including the following: - our progress with our research and development programs; - our level of success in selling our products and technologies; - our ability to establish and maintain successful collaborative relationships; - the costs we incur in enforcing and defending our patent claims and other intellectual property rights; and - the timing of purchases of additional capital expenditures. 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 of this Form 10-Q and in the "Overview" and "Risk Factors" sections of our annual report on Form 10-K for the fiscal year ended December 31, 2004 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 with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update any forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based. 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. 13 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. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, we may be involved in litigation relating to claims arising out of our operations in the usual course of business. On September 14, 2004, Third Wave filed suit against Stratagene Corporation in the United States District Court for the Western District of Wisconsin. The complaint alleged patent infringement by Stratagene's sale of its QPCR; QRTPCR Full Velocity products of two Third Wave patents concerning the Company's proprietary Invader technology. The case was tried before a jury in August 2005 and the jury found that Stratagene willfully infringed Third Wave's patents, and that Third Wave's patents were valid. The jury awarded Third Wave $5.29 million in damages. Post-trial motions are currently pending before the Court, including Stratagene's motion for a new trial and to resolve the damages award and Third Wave's motion for trebled damages, attorneys fees and costs. On May 6, 2005, Stratagene Corporation filed suit against Third Wave in the United States District Court for the District of Delaware. The complaint alleges patent infringement by Third Wave relating to its Invader Plus chemistry of claims of two Stratagene patents. The complaint was served on Third Wave in early September. Discovery is expected to begin in the near future. No trial date has been set by the Court. On September 29, 2005, Innogenetics filed a suit against the Company in the United States District Court for the Western District of Wisconsin. The complaint alleges that the Company's HCVg ASRs infringe a patent owned by Innogenetics relating to the detection of the hepatitis C virus. No trial date has been set. In October 2005, the Company filed a declaratory judgment suit in the United States District Court for the Western District of Wisconsin against Chiron Corporation and Bayer Corporation asking the Court for a ruling that the Company's HCVg ASRs do not infringe any valid claims of Chiron's hepatitis C related patents. No trial date has been set. Also in October 2005, the Company filed a declaratory judgment suit in the United States District Court for the Western District of Wisconsin against Digene Corporation asking the court for a ruling that the Company's HPV ASRs do not infringe any valid claims of Digene's human papillomavirus related patents. No trial date has been set. The Company intends to vigorously pursue its infringement claims against third parties and to vigorously defend itself against infringement claims brought against it by third parties. There can be no assurance, however, that the Company will prevail in these proceedings and should the outcome of any of these actions be unfavorable, the Company's business, financial condition, results of operations and cash flows could be materially adversely affected. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (a) None 14 (b) 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 September 30, 2005, 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 $16.5 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. (c) None 15 ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None. ITEM 5. OTHER INFORMATION On August 14, 2005, we entered into an Amendment to Loan Agreement and Note with U.S. Bank N.A. with respect to our $9,500,000 note payable to U.S. Bank. Under the terms of the amendment, the note's maturity date was extended from August 14, 2005 to August 14, 2006 and the annual interest rate was increased to 5.17%. A copy of this Amendment to Loan Agreement is filed with this report as Exhibits 10.1 and is incorporated herein by reference. On October 25, 2005 Sam Eletr resigned from the Board of Directors. ITEM 6. EXHIBITS 10.1 Term Loan Agreement dated as of August 14, 2003 between the Company and U.S. Bank N.A. 10.2 $9,500,000 Term Note payable to U.S. Bank N.A dated August 14, 2003 10.3 Amendment to Loan Agreement and Note dated as of August 14, 2005 between the Company and U.S. Bank N.A. 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 16 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: November 7, 2005 /s/ John Puisis ----------------------------------- John Puisis, CEO Date: November 7, 2005 /s/ James Herrmann ----------------------------------- James Herrmann, Principal Financial Officer 17 EX-10.1 2 c99670exv10w1.txt TERM LOAN AGREEMENT EXHIBIT 10.1 TERM LOAN AGREEMENT This Term Loan Agreement (the "AGREEMENT") is made and entered into by and between the undersigned borrower (the "BORROWER") and the undersigned bank (the "BANK") as of the date set forth on the last page of this Agreement. ARTICLE I. LOANS 1.1 TERMS FOR ADVANCE(S). [CHOOSE ONE:] [X] SINGLE ADVANCE TERM LOAN. As of the date hereof, the Borrower has obtained a term loan from the Bank in the amount of $9,500,000.00 (the "LOAN AMOUNT"). The term loan is evidenced by a single promissory note of the Borrower to the order of the Bank in the principal amount of the Loan Amount and dated as of the date hereof (the "NOTE"). [ ] MULTIPLE ADVANCE TERM LOAN. Prior to n/a or the earlier termination hereof, the Borrower may obtain advances from the Bank in an aggregate amount not exceeding $ n/a (the "LOAN AMOUNT"). The term loans will be evidenced by a single promissory note of the Borrower to the Bank in the principal amount of the Loan Amount and dated as of the date hereof (the "NOTE"). Although the Note will be expressed as payable in the full Loan Amount, the Borrower will be obligated to pay only the amounts actually disbursed hereunder, together with accrued interest on the outstanding balance at the rates and on the dates specified therein and such other charges provided for herein. 1.2 ADVANCES AND PAYING PROCEDURE. The Bank is authorized and directed to credit any of the Borrower's accounts with the Bank (or to the account the Borrower designates in writing) for all loans made hereunder, and the Bank is authorized to debit such account or any other account of the Borrower with the Bank for the amount of any principal, interest or expenses due under the Note or other amount due hereunder on the due date with respect thereto. If, upon any request by the Borrower to the Bank to issue a wire transfer, there is an inconsistency between the name of the recipient of the wire and its identification number as specified by the Borrower, the Bank may, without liability, transmit the payment via wire based solely upon the identification number. 1.3 CLOSING FEE. The Borrower will pay the Bank a one-time closing fee of $ n/a contemporaneously with execution of this Agreement. This fee is in addition to all other fees, expenses and other amounts due hereunder. 1.4 COMPENSATING BALANCES. The Borrower will maintain on deposit with the Bank in non-interest bearing accounts average daily collected balances, in excess of that required to support account activity and other credit facilities extended to the Borrower by the Bank, an amount at least equal to the sum of (i) $ n/a and (ii) n/a % of the Loan Amount as computed on a monthly basis. If the Borrower fails to keep and maintain such balances, it will pay a deficiency fee, payable within five days after receipt of a statement therefor calculated on the amount by which the Borrower's average daily balances are less than the requirements set forth above, computed at a rate equal to the rate set forth in the Note. 1.5 EXPENSES AND ATTORNEYS' FEES. Upon demand, the Borrower will immediately reimburse the Bank and any Participant (defined below) for all reasonable attorneys' fees and all other costs, fees and out-of-pocket disbursements incurred by the Bank or any Participant in connection with the preparation, execution, delivery, administration, defense and enforcement of this Agreement or any of the other Loan Documents (defined below), including attorneys' fees and all other costs and fees (a) incurred before or after commencement of litigation or at trial, on appeal or in any other proceeding, (b) incurred in any bankruptcy proceeding and (c) related to any waivers or amendments with respect thereto (examples of costs and fees include but are not limited to fees and costs for: filing, perfecting or confirming the priority of the Bank's lien, title searches or insurance, appraisals, environmental audits and other reviews related to the Borrower, any collateral or the loans, if requested by the Bank). The Borrower will also reimburse the Bank and any Participant for all reasonable costs of collection, including all attorneys' fees, before and after judgment, and the costs of preservation and/or liquidation of any collateral. 1.6 CONDITIONS TO BORROWING. The Bank will not be obligated to make (or continue to make) advances hereunder unless (i) the Bank has received executed originals of the Note and all other documents or agreements applicable to the loans described herein, including but not limited to the documents specified in Article III (collectively with this Agreement the "Loan Documents" ), in form and content satisfactory to the Bank; (ii) if the loan is secured, the Bank has received confirmation satisfactory to it that the Bank has a properly perfected security interest, mortgage or lien, with the proper priority, (iii) the Bank has received certified copies of the Borrower's governance documents and certification of entity status satisfactory to the Bank and all other relevant documents; (iv) the Bank has received a certified copy of a resolution or authorization in form and content satisfactory to the Bank authorizing the loan and all acts contemplated by this Agreement and all related documents, and confirmation of proper authorization of all guaranties and other acts of third parties contemplated hereunder; (v) if required by the Bank, the Bank has been provided with Opinion of the Borrower's counsel in form and content satisfactory to the Bank confirming the matters outlined in Section 2.2 and such other matters as the Bank requests; (vi) no default exists under this Agreement or under any other Loan Documents, or under any other agreements by and between the Borrower and the Bank; and (vii) all proceedings taken in connection with the transactions contemplated by this Agreement (including any required environmental assessments), and all instruments, authorizations and other documents applicable thereto, are satisfactory to the Bank and its counsel. (c) us bancorp 2001 Page 1 of 6 ARTICLE II. WARRANTIES AND COVENANTS While any part of the credit granted to the Borrower under this Agreement or the other Loan Documents is available or any obligations under any of the Loan Documents are unpaid or outstanding, the Borrower continuously warrants and agrees as follows: 2.1 ACCURACY OF INFORMATION. All information, certificates or statements given to the Bank pursuant to this Agreement and the other Loan Documents will be true and complete when given. 2.2 ORGANIZATION AND AUTHORITY; LITIGATION. This Agreement and the other Loan Documents are the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms. The execution, delivery and performance of this Agreement and all other Loan Documents to which the Borrower is a party (i) are within the borrower's power; (ii) have been duly authorized by all appropriate entity action; (iii)do not require the approval of any governmental agency; and (iv) will not violate any law, agreement or restriction by which the Borrower is bound. If the Borrower is not an individual, the Borrower is validly existing and in good standing under the laws of its state of organization, has all requisite power and authority and possesses all licenses necessary to conduct its business and own its properties. There is no litigation or administrative proceeding threatened or pending against the Borrower which would, if adversely determined, have a material adverse effect on the Borrower's financial condition or its property. 2.3 EXISTENCE; BUSINESS ACTIVITIES; ASSETS; CHANGE OF CONTROL. The Borrower will (i) preserve its existence, rights and franchises; (ii) not make any material change in the nature or manner of its business activities; (iii)not liquidate, dissolve, acquire another entity or merge or consolidate with or into another entity or change its form of organization; (iv) not amend its organizational documents in any manner that may conflict with any term or condition of the Loan Documents; and (v) not sell, lease, transfer or otherwise dispose of all or substantially all of its assets. Other than the transfer to a trust beneficially controlled by the transferor, no event shall occur which causes or results in a transfer of majority ownership of the Borrower while any Obligations are outstanding or while the Bank has any obligation to provide funding to the Borrower. 2.4 USE OF PROCEEDS; MARGIN STOCK; SPECULATION. Advances by the Bank hereunder will be used exclusively by the Borrower for the purposes represented to the Bank. The Borrower will not, without the prior written consent of the Bank, redeem, purchase, or retire any of the capital stock or declare or pay any dividends, or make any other payments or distributions of a similar type or nature including withdrawal distributions. The Borrower will not use any of the loan proceeds to purchase or carry "margin" stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System). No part of any of the proceeds will be used for speculative investment purposes, including, without limitation, speculating or hedging in the commodities and/or futures market. 2.5 ENVIRONMENTAL MATTERS. Except as disclosed in a written schedule attached to this Agreement (if no schedule is attached, there are no exceptions), there exists no uncorrected violation by the Borrower of any federal, state or local laws (including statutes, regulations, ordinances or other governmental restrictions and requirements) relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or Hazardous Substances as hereinafter defined, whether such laws currently exist or are enacted in the future (collectively "ENVIRONMENTAL LAWS"). The term "HAZARDOUS SUBSTANCES" will mean any hazardous or toxic wastes, chemicals or other substances, the generation, possession or existence of which is prohibited or governed by any Environmental Laws. The Borrower is not subject to any judgment, decree, order or citation, or a party to (or threatened with) any litigation or administrative proceeding, which asserts that the Borrower (i) has violated any Environmental Laws; (ii) is required to clean up, remove or take remedial or other action with respect to any Hazardous Substances (collectively "REMEDIAL ACTION"); or (iii) is required to pay all or a portion of the cost of any Remedial Action, as a potentially responsible party. Except as disclosed on the Borrower's environmental questionnaire provided to the Bank, there are not now, nor to the Borrower's knowledge after reasonable investigation have there ever been, any Hazardous Substances (or tanks or other facilities for the storage of Hazardous Substances) stored, deposited, recycled or disposed of on, under or at any real estate owned or occupied by the Borrower during the periods that the Borrower owned or occupied such real estate, which if present on the real estate or in soils or ground water, could require Remedial Action. To the Borrower's knowledge, there are no proposed or pending changes in Environmental Laws which would adversely affect the Borrower or its business, and there are no conditions existing currently or likely to exist while the Loan Documents are in effect which would subject the Borrower to Remedial Action or other liability. The Borrower currently complies with and will continue to timely comply with all applicable Environmental Laws; and will provide the Bank, immediately upon receipt, copies of any correspondence, notice, complaint, order or other document from any source asserting or alleging any circumstance or condition which requires or may require a financial contribution by the Borrower or Remedial Action or other response by or on the part of the Borrower under Environmental Laws, or which seeks damages or civil, criminal or punitive penalties from the Borrower for an alleged violation of Environmental Laws. 2.6 COMPLIANCE WITH LAWS. The Borrower has complied with all laws applicable to its business and its properties, and has all permits, licenses and approvals required by such laws, copies of which have been provided to the Bank. 2.9 RESTRICTION ON CONTINGENT LIABILITIES. The Borrower will not guarantee or become a surety or otherwise contingently liable for any obligations of others, except pursuant to the deposit and collection of checks and similar matters in the ordinary course of business. Page 2 of 6 2.10 INSURANCE. The Borrower will maintain insurance to such extent, covering such risks and with such insurers as is usual and customary for businesses operating similar properties, and as is satisfactory to the Bank, including insurance for fire and other risks insured against by extended coverage, public liability insurance and workers' compensation insurance. 2.11 TAXES AND OTHER LIABILITIES. The Borrower will pay and discharge, when due, all of its taxes, assessments and other liabilities, except when the payment thereof is being contested in good faith by appropriate procedures which will avoid foreclosure of liens securing such items, and with adequate reserves provided therefor. 2.12 FINANCIAL STATEMENTS AND REPORTING. The financial statements and other information previously provided to the Bank or provided to the Bank in the future are or will be complete and accurate and prepared in accordance with generally accepted accounting principles. There has been no material adverse change in the Borrower's financial condition since such information was provided to the Bank. The Borrower will (i) maintain accounting records in accordance with generally recognized and accepted principles of accounting consistently applied throughout the accounting periods involved; (ii) provide the Bank with such information concerning its business affairs and financial condition (including insurance coverage) as the Bank may request; and (iii) without request, provide the Bank with management-prepared financial statements: [X] quarterly within 45 days of the end of each quarter; [ ] monthly within n/a days of the end of each month; and annual audited within 120 days of the end of each fiscal year. 2.13 INSPECTION OF PROPERTIES AND RECORDS; FISCAL YEAR. The Borrower will permit representatives of the Bank to visit and inspect any of the properties and examine any of the books and records of the Borrower at any reasonable time and as often as the Bank may reasonably desire. The Borrower will not change its fiscal year. 2.14 FINANCIAL STATUS. The Borrower will maintain at all times: (i) Net Working Capital in the amount of at least $ n/a. (ii) Tangible Net Worth in the amount of at least $ n/a. (iii) Debt to Worth Ratio of not more than n/a. (iv) Current Ratio of at least n/a. (v) Capital Expenditures not to exceed $ n/a per fiscal year. (vi) Cash Flow Coverage Ratio of at least n/a. (vii) Officers, Directors, Partners, Members, and Management Salaries and Other Compensation not to exceed $ n/a per fiscal year. The terms used in this Section 2.14 will have the meanings set forth in a supplement entitled "Financial Definitions," a copy of which the Borrower hereby acknowledges having received with this Agreement and which is incorporated herein by reference. ARTICLE III. COLLATERAL AND GUARANTIES 3.1 COLLATERAL. This Agreement and the Note are secured by any and all security interests, pledges, described in the following documents: [ ] Real Estate Mortgage(s)/Deed(s) of Trust dated ___________________________ covering real estate located at __________________________________________ __________________________________________________________________________ [ ] Security Agreement(s) dated ______________________________________________ [X] Collateral Pledge Agreement(s) dated 08/14/03 and by any and all security interests, pledges, mortgages granted to Bank which Borrower shall hereafter agree in writing secure the Agreement and Note. 3.2 GUARANTIES. This Agreement and the Note are guarantied by each and every guaranty now or hereafter in existence guarantying the indebtedness of the Borrower to the Bank (except for any guaranty expressly limited by its terms to a specific separate obligation of Borrower to the Bank) including, without limitation, the following:______________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 3.3 CREDIT BALANCES; SETOFF. As additional security for the payment of the obligations described in the Loan Documents and any other obligations of the Borrower to the Bank of any nature whatsoever (collectively the "OBLIGATIONS"), the Borrower hereby grants to the Bank a security interest in, a lien on and an express contractual right to set off against all depository account balances, cash and any other property of the Borrower now or hereafter in the possession of the Bank and the right to refuse to allow withdrawals from any account (collectively "SETOFF"). The Bank may, at any time upon the occurrence of a default hereunder (notwithstanding any notice requirements Page 3 of 6 or grace/cure periods under this or other agreements between the Borrower and the Bank) Setoff against the Obligations whether or not the Obligations (including future installments) are then due or have been accelerated, all without any advance or contemporaneous notice or demand of any kind to the Borrower, such notice and demand being expressly waived. The omission of any reference to an agreement in Sections 3.1 and 3.2 above will not affect the validity or enforceability thereof. The rights and remedies of the Bank outlined in this Agreement and the documents identified above are intended to be cumulative. ARTICLE IV. DEFAULTS 4.1 DEFAULTS. Notwithstanding any cure periods described below, the Borrower will immediately notify the Bank in writing when the Borrower obtains knowledge of the occurrence of any default specified below. Regardless of whether the Borrower has given the required notice, the occurrence of one or more of the following will constitute a default: (a) NONPAYMENT. The Borrower shall fail to pay (i) any interest due on the Note or any fees, charges, costs or expenses under the Loan Documents by 5 days after the same becomes due; or (ii) any principal amount of the Note when due. (b) NONPERFORMANCE. The Borrower or any guarantor of Borrower's Obligations to the Bank ("GUARANTOR") shall fail to perform or observe any agreement, term, provision, condition, or covenant (other than a default occurring under (a), (c), (d), (e), (f) or (g) of this Section 4.1) required to be performed or observed by the Borrower or any Guarantor hereunder or under any other Loan Document or other agreement with or in favor of the Bank. (c) MISREPRESENTATION. Any financial information, statement, certificate, representation or warranty given to the Bank by the Borrower or any Guarantor (or any of their representatives) in connection with entering into this Agreement or the other Loan Documents and/or any borrowing thereunder, or required to be furnished under the terms thereof, shall prove untrue or misleading in any material respect (as determined by the Bank in the exercise of its judgment) as of the time when given. (e) JUDGMENTS. Any judgment shall be obtained against the Borrower or any Guarantor which, together with all other outstanding unsatisfied judgments against the Borrower (or such Guarantor), shall exceed the sum of $100,000 and shall remain unvacated, unbonded or unstayed for a period of 30 days following the date of entry thereof. (f) INABILITY TO PERFORM; BANKRUPTCY/INSOLVENCY. (i) The Borrower or any Guarantor shall die or cease to exist; or (ii) any Guarantor shall attempt to revoke any guaranty of the Obligations described herein, or any guaranty becomes unenforceable in whole, or in part for any reason; or (iii)any bankruptcy, insolvency or receivership proceedings, or an assignment for the benefit of creditors, shall be commenced under any Federal or state law by or against the Borrower or any Guarantor; or (iv) the Borrower or any Guarantor shall become the subject of any out-of-court settlement with its creditors; or (v) the Borrower or any Guarantor is unable or admits in writing its inability to pay its debts as they mature: or (vi) if the Borrower is a limited liability company, any member thereof shall withdraw or otherwise become disassociated from the Borrower. 4.2 TERMINATION OF LOANS; ADDITIONAL BANK RIGHTS. Upon the occurrence of any of the events identified in Section 4.1, the Bank may at any time (notwithstanding any notice requirements or grace/cure periods under this or other agreements between the Borrower and the Bank) (i) immediately terminate its obligation, if any, to make additional loans to the Borrower; (ii)Setoff; and/or (iii) take such other steps to protect or preserve the Bank's interest in any collateral, including without limitation, notifying account debtors to make payments directly to the Bank, advancing funds to protect any collateral and insuring collateral at the Borrower's expense; all without demand or notice of any kind, all of which are hereby waived. 4.3 ACCELERATION OF OBLIGATIONS. Upon the occurrence of any of the events identified in Sections 4.1(a) through 4.l (e) and the passage of any applicable cure periods, the Bank may at any time thereafter, by written notice to the Borrower, declare the unpaid principal balance of any Obligations, together with the interest accrued thereon and other amounts accrued hereunder and under the other Loan Documents, to be immediately due and payable; and the unpaid balance will thereupon be due and payable, all without presentation, demand, protest or further notice of any kind, all of which are hereby waived, and notwithstanding anything to the contrary contained herein or in any of the other Loan Documents. Upon the occurrence of any event under Section 4.l(f), the unpaid principal balance of any Obligations, together with all interest accrued thereon and other amounts accrued hereunder and under the other Loan Documents, will thereupon be immediately due and payable, all without presentation, demand, protest or notice of any kind, all of which are hereby waived, and notwithstanding anything to the contrary contained herein or in any of the other Loan Documents. Nothing contained in Section 4.1, Section 4.2 or this section will limit the Bank's right to Setoff as provided in Section 3.3 or otherwise in this Agreement. 4.4 OTHER REMEDIES. Nothing in this Article IV is intended to restrict the Bank's rights under any of the Loan Documents or at law, and the Bank may exercise all such rights and remedies as and when they are available. Page 4 of 6 ARTICLE V. OTHER TERMS 5.1 FINANCIAL DEFINITIONS SUPPLEMENT. If covenants regarding financial status apply to this loan, the "Financial Definitions" Supplement identified in Section 2.14 of this Agreement is hereby incorporated into this Agreement. The Borrower acknowledges receiving a copy of such Supplement. 5.2 ADDITIONAL TERMS; ADDENDUM/SUPPLEMENTS. The warranties, covenants, conditions and other terms described in this Section and/or in the Addendum and/or other attached document(s) referenced in this Section are incorporated into this Agreement: SEE ATTACHED ADDENDUM ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ARTICLE VI. MISCELLANEOUS 6.1 DELAY; CUMULATIVE REMEDIES. No delay on the part of the Bank in exercising any right, power or privilege hereunder or under any of the other Loan Documents will operate as a waiver thereof, nor will any single or partial exercise of any right, power or privilege hereunder preclude other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein specified are cumulative and are not exclusive of any rights or remedies which the Bank would otherwise have. 6.2 RELATIONSHIP TO OTHER DOCUMENTS. The warranties, covenants and other obligations of the Borrower (and the rights and remedies of the Bank) that are outlined in this Agreement and the other Loan Documents are intended to supplement each other. In the event of any inconsistencies in any of the terms in the Loan Documents, all terms will be cumulative so as to give the Bank the most favorable rights set forth in the conflicting documents, except that if there is a direct conflict between any preprinted terms and specifically negotiated terms (whether included in an addendum or otherwise), the specifically negotiated terms will control. 6.3 PARTICIPATIONS; GUARANTORS. The Bank may, at its option, sell all or any interests in the Note and other Loan Documents to other financial institutions (the "PARTICIPANT"), and in connection with such sales (and thereafter) disclose any financial information the Bank may have concerning the Borrower to any such Participant or potential Participant. From time to time, the Bank may, in its discretion and without obligation to the Borrower, any Guarantor or any other third party, disclose information about the Borrower and this loan to any Guarantor, surety or other accommodation party. This provision does not obligate the Bank to supply any information or release the Borrower from its obligation to provide such information, and the Borrower agrees to keep all Guarantors advised of its financial condition and other matters which may be relevant to the Guarantors' obligations to the Bank. 6.4 SUCCESSORS. The rights, options, powers and remedies granted in this Agreement and the other Loan Documents will extend to the Bank and to its successors and assigns, will be binding upon the Borrower and its successors and assigns and will be applicable hereto and to all renewals and/or extensions hereof. 6.5 INDEMNIFICATION. Except for harm arising from the Bank's willful misconduct, the Borrower hereby indemnifies and agrees to defend and hold the Bank harmless from any and all losses, costs, damages, claims and expenses of any kind suffered by or asserted against the Bank relating to claims by third parties arising out of the financing provided under the Loan Documents or related to any collateral (including, without limitation, the Borrower's failure to perform its obligations relating to Environmental Matters described in Section 2.5 above). This indemnification and hold harmless provision will survive the termination of the Loan Documents and the satisfaction of the Obligations due the Bank. 6.6 NOTICE OF CLAIMS AGAINST BANK; LIMITATION OF CERTAIN DAMAGES. In order to allow the Bank to mitigate any damages to the Borrower from the Bank's alleged breach of its duties under the Loan Documents or any other duty, if any, to the Borrower, the Borrower agrees to give the Bank immediate written notice of any claim or defense it has against the Bank, whether in tort or contract, relating to any action or inaction by the Bank under the Loan Documents, or the transactions related thereto, or of any defense to payment of the Obligations for any reason. The requirement of providing timely notice to the Bank represents the parties' agreed-to standard of performance regarding claims against the Bank. Notwithstanding any claim that the Borrower may have against the Bank, and regardless of any notice the Borrower may have given the Bank, the Bank will not be liable to the Borrower for consequential and/or special damages arising therefrom, except those damages arising from the Bank's willful misconduct. 6.7 NOTICES. Notice of any record shall be deemed delivered when the record has been (a) deposited in the United States Mail, postage pre-paid, (b) received by overnight delivery service, (c) received by telex, (d) received by telecopy, (e) received through the internet, or (f) when personally delivered. 6.8 PAYMENTS. Payments due under the Note and other Loan Documents will be made in lawful money of the United States. All payments may be applied by the Bank to principal, interest and other amounts due under the Loan Documents in any order which the Bank elects. Page 5 of 6 6.9 APPLICABLE LAW AND JURISDICTION; INTERPRETATION; JOINT LIABILITY; SEVERABILITY. This Agreement and all other Loan Documents will be governed by and interpreted in accordance with the internal laws of the State of WISCONSIN, except to the extent superseded by Federal law. Invalidity of any provisions of this Agreement will not affect any other provision. THE BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN THE COUNTY OR FEDERAL JURISDICTION OF THE BANK'S BRANCH WHERE THE LOAN WAS ORIGINATED, AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, WITH REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATING TO THIS AGREEMENT, THE NOTE, THE COLLATERAL ANY OTHER LOAN DOCUMENT, OR ANY TRANSACTIONS ARISING THEREFROM, OR ENFORCEMENT AND/OR INTERPRETATION OF ANY OF THE FOREGOING. Nothing herein will affect the Bank's rights to serve process in any manner permitted by law, or limit the Bank's right to bring proceedings against the Borrower in the competent courts of any other jurisdiction or jurisdictions. This Agreement, the other Loan Documents and any amendments hereto (regardless of when executed) will be deemed effective and accepted only at the Bank's offices, and only upon the Bank's receipt of the executed originals thereof. If there is more than one Borrower, the liability of the Borrowers will be joint and several, and the reference to "Borrower" will be deemed to refer to all Borrowers. Invalidity of any provision of this Agreement shall not affect the validity of any other provision. 6.10 COPIES; ENTIRE AGREEMENT; MODIFICATION. The Borrower hereby acknowledges the receipt of a copy of this Agreement and all other Loan Documents. This Agreement is a "transferable record" as defined in applicable law relating to electronic transactions. Therefore, the holder of this Agreement may, on behalf of Borrower, create a microfilm or optical disk or other electronic image of this Agreement that is an authoritative copy as defined in such law. The holder of this Agreement may store the authoritative copy of such Agreement in its electronic form and then destroy the paper original as part of the holder's normal business practices. The holder, on its own behalf, may control and transfer such authoritative copy as permitted by such law. IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING EXPRESSING CONSIDERATION AND SIGNED BY THE PARTIES ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED. THE TERMS OF THIS AGREEMENT MAY ONLY BE CHANGED BY ANOTHER WRITTEN AGREEMENT. THIS NOTICE SHALL ALSO BE EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS NOW IN EFFECT BETWEEN BORROWER AND THE BANK. A MODIFICATION ANY OTHER CREDIT AGREEMENTS NOW IN EFFECT BETWEEN BORROWER AND THE BANK, WHICH OCCURS AFTER RECEIPT BY BORROWER OF THIS NOTICE, MAY BE MADE ONLY BY ANOTHER WRITTEN INSTRUMENT. ORAL OR IMPLIED MODIFICATIONS TO SUCH CREDIT AGREEMENTS ARE NOT ENFORCEABLE AND SHOULD NOT BE RELIED UPON. 6.11 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY JOINTLY AND SEVERALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS THERE UNDER, ANY COLLATERAL SECURING THE OBLIGATIONS, OR ANY TRANSACTION ARISING THEREFROM OR CONNECTED THERETO. THE BORROWER AND THE BANK EACH REPRESENTS TO THE OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN. 6.12 ATTACHMENTS. All documents attached hereto, including any appendices, schedules, riders, and exhibits to this Agreement, are hereby expressly incorporated by reference. IN WITNESS WHEREOF, the undersigned have executed this TERM LOAN AGREEMENT as of AUGUST 14, 2003. (Individual Borrower) THIRD WAVE TECHNOLOGIES, INC. ----------------------------- Borrower Name (Organization) ______________________ a DELAWARE Corporation Borrower Name N/A By /s/ Lance Fors ------------------------------------------------ Name and Title LANCE FORS, CHIEF EXECUTIVE OFFICER ______________________ By ________________________________________________ Borrower Name N/A Name and Title ____________________________________ U.S. BANK N.A. _____________________________ (Bank) By /s/ Daniel J. Stein ------------------------------------------------ Name and Title DANIEL J. STEIN, VICE PRESIDENT Borrower Address: 502 S ROSA ROAD, MADISON, WI 53719 Borrower Telephone No.: 608-273-8933 Page 6 of 6 ADDENDUM TO TERM LOAN AGREEMENT BETWEEN THIRD WAVE TECHNOLOGIES, INC. ("BORROWER") AND U.S. BANK, N.A. ("BANK") This Addendum is made a part of the Term Loan Agreement between Borrower and Bank, dated as of August 14, 2003, as if set forth in full therein: 5.2 NOTICE OF CERTAIN INDEBTEDNESS AND LIENS. Borrower will provide Bank with written notice not less than ten (10) business days prior to: (A) Borrower incurring or assuming any indebtedness for borrowed money (including capitalized leases) in an aggregate amount exceeding $1,000,000.00, except for (i) any indebtedness owing to the Bank and its affiliates, and (ii) any other indebtedness outstanding on the date hereof, and shown on the Borrower's financial statements delivered to the Bank prior to the date hereof; or (B) Borrower granting, incurring, assuming or permitting any mortgages, pledges, encumbrances or other liens or levies upon or security interests in any of the Borrower's property now owned or hereafter acquired, securing obligations in an aggregate principal amount exceeding $1,000,000.00, except for (i) taxes and assessments which are either not delinquent or which are being contested in good faith with adequate reserves provided, (ii) liens in favor of the Bank and its affiliates, and (iii) other liens disclosed in writing to the Bank prior to the date hereof. Any written notice required to be delivered to Bank pursuant to this Addendum will provide reasonable detail regarding the nature and basic terms of the transaction resulting in creation of such indebtedness or lien. THIRD WAVE TECHNOLOGIES, INC., a Delaware corporation By: /s/ Lance Fors -------------------------- Lance Fors, Chief Executive Officer U.S. BANK, N.A. By: /s/ Daniel J. Stein -------------------------- Daniel J. Stein Vice President EX-10.2 3 c99670exv10w2.txt $9,500,000 TERM NOTE EXHIBIT 10.2 FOR BANK USE ONLY Reviewed by ____________ Due AUGUST 14, 2004 Customer # 6479134919 Loan # __________________ TERM NOTE (FOR TERM LOAN AGREEMENT; BREAKFUNDING INDEMNITY) $ 9,500,000.00 AUGUST 14, 2003 FOR VALUE RECEIVED, the undersigned borrower (the "BORROWER"), promises to pay to the order of U.S. BANK N.A. (the "Bank"), the principal sum of NINE MILLION FIVE HUNDRED THOUSAND AND NO/100 Dollars ($ 9,500,000.00). Interest. The unpaid principal balance will bear interest at an annual rate of 2.350%. Payment Schedule. Interest is payable beginning SEPTEMBER 15, 2003, and on the same date of each CONSECUTIVE month thereafter (except that if a given month does not have such a date, the last day of such month), plus a final interest payment with the final payment of principal. Principal is payable on AUGUST 14, 2004. Interest will be computed for the actual number of days principal is unpaid, using a daily factor obtained by dividing the stated interest rate by 360. Notwithstanding any provision of this Note to the contrary, upon any default or at any time during the continuation thereof (including failure to pay upon maturity), the Bank may, at its option and subject to applicable law, increase the interest rate on this Note to a rate of 5% per annum plus the interest rate otherwise payable hereunder. Notwithstanding the foregoing and subject to applicable law, upon the occurrence of a default by the Borrower or any guarantor involving bankruptcy, insolvency, receivership proceedings or an assignment for the benefit of creditors, the interest rate on this Note shall automatically increase to a rate of 5% per annum plus the rate otherwise payable hereunder. In no event will the interest rate hereunder exceed that permitted by applicable law. If any interest or other charge is finally determined by a court of competent jurisdiction to exceed the maximum amount permitted by law, the interest or charge shall be reduced to the maximum permitted by law, and the Bank may credit any excess amount previously collected against the balance due or refund the amount to the Borrower. Subject to applicable law, if any payment is not made on or before its due date, the Bank may collect a delinquency charge of 5.00% of the unpaid amount. Collection of the late payment fee shall not be deemed to be a waiver of the Bank's right to declare a default hereunder. THERE SHALL BE NO PREPAYMENTS OF THIS NOTE, PROVIDED THAT THE BANK MAY CONSIDER REQUESTS FOR ITS CONSENT WITH RESPECT TO PREPAYMENT OF THIS NOTE, WITHOUT INCURRING AN OBLIGATION TO DO SO, AND THE BORROWER ACKNOWLEDGES THAT IN THE EVENT THAT SUCH CONSENT IS GRANTED, THE BORROWER SHALL BE REQUIRED TO PAY THE BANK, UPON PREPAYMENT OF ALL OR PART OF THE PRINCIPAL AMOUNT BEFORE FINAL MATURITY, A PREPAYMENT INDEMNITY ("PREPAYMENT FEE") EQUAL TO THE GREATER OF ZERO, OR THAT AMOUNT, CALCULATED ON ANY DATE OF PREPAYMENT ("PREPAYMENT DATE"), WHICH IS DERIVED BY SUBTRACTING: (a) THE PRINCIPAL AMOUNT OF THE NOTE OR PORTION OF THE NOTE TO BE PREPAID FROM (b) THE NET PRESENT VALUE OF THE NOTE OR PORTION OF THE NOTE TO BE PREPAID ON SUCH PREPAYMENT DATE; PROVIDED, HOWEVER, THAT THE PREPAYMENT FEE SHALL NOT IN ANY EVENT EXCEED THE MAXIMUM PREPAYMENT FEE PERMITTED BY APPLICABLE LAW. "NET PRESENT VALUE" shall mean the amount which is derived by summing the present values of each prospective payment of principal and interest which, without such full or partial prepayment, could otherwise have been received by the Bank over the shorter of the remaining contractual life of the Note or next repricing date if the Bank had instead initially invested the Note proceeds at the Initial Money Market Rate. The individual discount rate used to present value each prospective payment of interest and/or principal shall be the Money Market Rate at Prepayment for the maturity matching that of each specific payment of principal and/or interest. "INITIAL MONEY MARKET RATE" shall mean the rate per annum, determined solely by the Bank, on the first day of the term of this Note or the most recent repricing date or as mutually agreed upon by the Borrower and the Bank, as the rate at which the Bank would be able to borrow funds in Money Markets for the amount of this Note and with an interest payment frequency and principal repayment schedule equal to this Note and for a term as may be arranged and agreed upon by the Borrower and the Bank, adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation. Borrower acknowledges that the Bank is under no obligation to actually purchase and/or match funds for the Initial Money Market Rate of this Note. (c) us bancorp 2001 "MONEY MARKET RATE AT PREPAYMENT" shall mean that zero-coupon rate, calculated on the Prepayment Date, and determined solely by the Bank, as the rate at which the Bank would be able to borrow funds in Money Markets for the prepayment amount matching the maturity of a specific prospective Note payment or repricing date, adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation. A separate Money Market Rate at Prepayment will be calculated for each prospective interest and/or principal payment date. "MONEY MARKETS" shall mean one or more wholesale funding markets available to the Bank, including negotiable certificates of deposit, commercial paper, eurodollar deposits, bank notes, federal funds, interest rate swaps or others. In calculating the amount of such Prepayment Fee, the Bank is hereby authorized by the Borrower to make such assumptions regarding the source of funding, redeployment of funds and other related matters, as the Bank may deem appropriate. If the Borrower fails to pay any Prepayment Fee when due, the amount of such Prepayment Fee shall thereafter bear interest until paid at the default rate specified in this Note (computed on the basis of a 360-day year, actual days elapsed). Any prepayment of principal shall be accompanied by a payment of interest accrued to date thereon; and said prepayment shall be applied to the principal installments in the inverse order of their maturities. All prepayments shall be in an amount of at least $100,000 or, if less, the remaining entire principal balance of the loan. Without affecting the liability of any Borrower, endorser, surety or guarantor, the Bank may, without notice, renew or extend the time for payment, accept partial payments, release or impair any collateral security for the payment of this Note, or agree not to sue any party liable on it. This Term Note constitutes the Note issued under a Term Loan Agreement dated as of the date hereof between the Borrower and the Bank, to which Agreement reference is hereby made for a statement of the terms under which the loan evidenced hereby was made and a description of the terms and conditions upon which the maturity of this Note may be accelerated, and for a description of the collateral securing this Note. This Note is a "transferable record" as defined in applicable law relating to electronic transactions. Therefore, the holder of this Note may, on behalf of Borrower, create a microfilm or optical disk or other electronic image of this Note that is an authoritative copy as defined in such law. The holder of this Note may store the authoritative copy of such Note in its electronic form and then destroy the paper original as part of the holder's normal business practices. The holder, on its own behalf, may control and transfer such authoritative copy as permitted by such law. ALL DOCUMENTS ATTACHED HERETO, INCLUDING ANY APPENDICES, SCHEDULES, RIDERS, AND EXHIBITS TO THIS TERM NOTE, ARE HEREBY EXPRESSLY INCORPORATED BY REFERENCE. The Borrower hereby acknowledges the receipt of a copy of this Note. (Individual Borrower) THIRD WAVE TECHNOLOGIES, INC. ----------------------------- Borrower Name (Organization) ________________________ a DELAWARE Corporation Borrower Name N/A By /s/ Lance Fors ----------------------------------------------- Name and Title LANCE FORS, CHIEF EXECUTIVE OFFICER ________________________ By _______________________________________________ Borrower Name N/A Name and Title ___________________________________ EX-10.3 4 c99670exv10w3.txt AMENDMENT TO LOAN AGREEMENT AND NOTE EXHIBIT 10.3 FOR BANK USE ONLY Reviewed by______________ Due AUGUST 14, 2006 Customer # 6479134919 Loan # 42 AMENDMENT TO LOAN AGREEMENT AND NOTE This amendment (the "AMENDMENT"), dated as of the date specified below, is by and between the borrower (the "BORROWER") and the bank (the "BANK") identified below. RECITALS A. The Borrower and the Bank have executed a Loan Agreement (the "AGREEMENT") dated AUGUST 14, 2003 and the Borrower has executed a Note (the "NOTE"), dated AUGUST 14, 2003, either or both which may have been amended and replaced from time to time, and the Borrower (and if applicable, certain (third parties) have executed the collateral documents which may or may not be identified in the Agreement and certain other related documents (collectively the "LOAN DOCUMENTS"), setting forth the terms and conditions upon which the Borrower may obtain loans from the Bank from time to time in the original amount of $ 9,500,000.00, as may be amended from time to time. B. The Borrower has requested that the Bank permit certain modifications to the Agreement and Note as described below. C. The Bank has agreed to such modifications, but only upon the terms and conditions outlined in this Amendment. TERMS OF AGREEMENT In consideration of the mutual covenants contained herein, and for other good and valuable consideration, the Borrower and the Bank agree as follows: [X] CHANGE IN MATURITY DATE. If checked here, any references in the Agreement or Note to the maturity date or date of final payment are hereby deleted and replaced with "AUGUST 14, 2006". [ ] CHANGE IN MAXIMUM LOAN AMOUNT. If checked here, all references in the Agreement and in the Note (whether or not numerically) to the maximum loan amount are hereby deleted and replaced with "$____", which evidences an additional $_____ available to be advanced subject to the terms and conditions of the Agreement and Note. [ ] TEMPORARY INCREASE IN MAXIMUM LOAN AMOUNT. If checked here, notwithstanding the maximum principal amount that may be borrowed from time to time under the Agreement and Note, the maximum principal amount that may be borrowed thereunder shall increase from $____ to $____ effective ____ through ____ annually. On ____ through ____ annually, the maximum principal amount that may be borrowed thereunder shall revert to $____ and any loans outstanding in excess of that amount will be immediately due and payable without further demand by the Bank. [ ] CHANGE IN MULTIPLE ADVANCE TERMINATION DATE. If checked here, all references in the Agreement and in the Note to the termination date for multiple advances are hereby deleted and replaced with "_______". CHANGE IN FINANCIAL COVENANT(s). (i) [ ] If checked here, all references to "$____" in the Agreement as the minimum Net Working Capital amount are hereby deleted and replaced with "$____" for the period beginning _______ and thereafter. (ii) [ ] If checked here, all references to "$____" in the Agreement as the minimum Tangible Net Worth amount are hereby deleted and replaced with "$____" for the period beginning _______ and thereafter. (iii) [ ] If checked here, all references to "_______" in the Agreement as the maximum Debt to Worth Ratio are hereby deleted and replaced with "________" for the period beginning _______ and thereafter. (iv) [ ] If checked here, all references to "_______" in the Agreement as the minimum Current Ratio are hereby deleted and replaced with "_______" for the period beginning _______ and thereafter. (v) [ ] If checked here, all references to "$_____" in the Agreement as the maximum Capital Expenditures amount are hereby deleted and replaced with "$____" for the period beginning _______ and thereafter. (vi) [ ] If checked here, all references to "_______" in the Agreement as the minimum Cash Flow Coverage Ratio are hereby deleted and replaced with "_______" for the period beginning _______ and thereafter. (vii) [ ] If checked here, all references to "$____" in the Agreement as the maximum Officers, Directors, Partners, and Management Salaries and Other Compensation amount are hereby deleted and replaced with "$____" for the period beginning _______ and thereafter. [X] CHANGE IN PAYMENT SCHEDULE. If checked here, effective upon the date of this Amendment, any payment terms are amended as follows: Interest is payable beginning SEPTEMBER 15, 2005, and on the same date of each CONSECUTIVE month thereafter (except that if a given month does not have such a date, the last day of such month), plus a final interest payment with the final payment of principal. Principal is payable on AUGUST 14, 2006. (c) us bancorp 2001 Page 1 of 3 [X] INTEREST RATE. If checked here, effective upon the date of this Amendment, interest payable under the Note is amended as follows: The unpaid principal balance will bear interest at an annual rate described in the Interest Rate Rider attached to this Amendment. [X] CHANGE IN PREPAYMENT TERMS. If checked here, refer to attached Interest Rate Rider. [ ] CHANGE IN LATE PAYMENT FEE. If checked here, subject to applicable law, if any payment is not made on or before its due date, the Bank may collect a delinquency charge of _______% of the unpaid amount. Collection of the late payment fee shall not be deemed to be a waiver of the Bank's right to declare a default hereunder. [ ] CHANGE IN CLOSING FEE. If checked here and subject to applicable law, the Borrower will pay the Bank a closing fee of $____ (apart from any prior closing fee) contemporaneously with the execution of this Amendment. This fee is in addition to all other fees, expenses and other amounts due hereunder. [ ] CHANGE IN BORROWING BASE. If checked here, the Borrowing Base is hereby changed to an amount equal to the sum of (i)_______% of the face amount of Eligible Accounts, and (ii) the lesser of $____ or _______% of the Borrower's cost of Eligible Inventory, as such cost may be diminished as a result of any event causing loss or depreciation in value of Eligible Inventory less (iii) the current outstanding loan balance on note(s) in the original amount(s) of $____, and less (iv) undrawn amounts of outstanding letters of credit issued by Bank or any affiliate thereof. The Borrower will provide the Bank with information regarding the Borrowing Base in such form and at such times as the Bank may request. The terms used in this section will have the meanings set forth in a supplement entitled "Financial Definitions," a copy of which the Borrower acknowledges having received with this Amendment, which is incorporated herein by reference and which replaces any prior Financial Definitions supplement. [ ] CHANGE IN PAID-IN-FULL PERIOD. If checked here, all revolving loans under the Agreement and the Note must be paid in full for a period of at least _______ consecutive days during each fiscal year. Any previous Paid-in-Full provision is hereby replaced with this provision. DEFAULT INTEREST RATE. Notwithstanding any provision of this Note to the contrary, upon any default or at any time during the continuation thereof (including failure to pay upon maturity), the Bank may, at its option and subject to applicable law, increase the interest rate on this Note to a rate of 5% per annum plus the interest rate otherwise payable hereunder. Notwithstanding the foregoing and subject to applicable law, upon the occurrence of a default by the Borrower or any guarantor involving bankruptcy, insolvency, receivership proceedings or an assignment for the benefit of creditors, the interest rate on this Note shall automatically increase to a rate of 5% per annum plus the rate otherwise payable hereunder. EFFECTIVENESS OF PRIOR DOCUMENTS. Except as specifically amended hereby, the Agreement, the Note and the other Loan Documents shall remain in full force and effect in accordance with their respective terms. All warranties and representations contained in the Agreement and the other Loan Documents are hereby reconfirmed as of the date hereof. All collateral previously provided to secure the Agreement and/or Note continues as security, and all guaranties guaranteeing obligations under the Loan Documents remain in full force and effect. This is an amendment, not a novation. PRECONDITIONS TO EFFECTIVENESS. This Amendment shall only become effective upon execution by the Borrower and the Bank, and approval by any other third party required by the Bank. NO WAIVER OF DEFAULTS; WARRANTIES. This Amendment shall not be construed as or be deemed to be a waiver by the Bank of existing defaults by the Borrower, whether known or undiscovered. All agreements, representations and warranties made herein shall survive the execution of this Amendment. COUNTERPARTS. This Amendment may be signed in any number of counterparts, each of which shall be considered an original, but when taken together shall constitute one document. AUTHORIZATION. The Borrower represents and warrants that the execution, delivery and performance of this Amendment and the documents referenced herein are within the authority of the Borrower and have been duly authorized by all necessary action. TRANSFERABLE RECORD. The agreement and note, as amended, is a "transferable record" as defined in applicable law relating to electronic transactions. Therefore, the holder of the agreement and note, as amended, may, on behalf of Borrower, create a microfilm or optical disk or other electronic image of the agreement and note, as amended, that is an authoritative copy as defined in such law. The holder of the agreement and note, as amended, may store the authoritative copy of such agreement and note, as amended, in its electronic form and then destroy the paper original as part of the holder's normal business practices. The holder, on its own behalf, may control and transfer such authoritative copy as permitted by such law. ATTACHMENTS. ALL DOCUMENTS ATTACHED HERETO, INCLUDING ANY APPENDICES, SCHEDULES, RIDERS, AND EXHIBITS TO THIS AMENDMENT, ARE HEREBY EXPRESSLY INCORPORATED HEREIN BY REFERENCE. [SIGNATURE(S) ON NEXT PAGE] Page 2 of 3 Dated as of: AUGUST 14, 2005 THIRD WAVE TECHNOLOGIES, INC. ----------------------------- (Individual Borrower) Borrower Name (Organization) _______________________________ a DELAWARE Corporation Borrower Name N/A By: /s/ John Puisis ------------------------- _______________________________ Name and Title : JOHN PUISIS PRESIDENT By: _________________________ Borrower Name N/A Name and Title : ____________ Agreed to: U.S. BANK N.A. - ------------------------------- (Bank) By: /s/ Daniel J. Stein --------------------------- Name and Title: DANIEL J. STEIN VICE PRESIDENT Page 3 of 3 ` INTEREST RATE RIDER This Rider is made part of the Amendment to Loan Agreement and Note (the "AMENDMENT") dated AUGUST 14, 2005 by the undersigned borrower (the "BORROWER") in favor of U.S. BANK N.A. (the "BANK') as of the date identified below. The following interest rate description is hereby added to the Amendment: The unpaid principal balance will bear interest at an annual rate of 5.170%. If this fixed rate facility is prepaid, whether by the Borrower voluntarily or as a result of acceleration upon default or otherwise, the Borrower agrees to pay all of the Bank's costs, expenses and Interest Differential (as determined by the Bank) incurred as a result of such prepayment. The term 'Interest Differential' shall mean that sum equal to the greater of zero or the financial loss incurred by the Bank resulting from prepayment, calculated as the difference between the amount of interest the Bank would have earned (from like investments in the Money Markets as of the first day of the loan) had prepayment not occurred and the interest the Bank will actually earn (from like investments in the Money Markets as of the date of prepayment) as a result of the redeployment of funds from the prepayment. The term 'Money Markets' refers to one or more wholesale funding markets available to the Bank, including negotiable certificates of deposit, commercial paper, eurodollar deposits, bank notes, federal funds, interest rate swaps or others. Because of the short-term nature of this facility, the Borrower agrees that the Interest Differential shall not be discounted to its present value. The Bank's internal records of applicable interest rates shall be determinative in the absence of manifest error. All prepayments shall be in an amount of at least $100,000 or, if less, the remaining entire principal balance of the loan. Dated as of: AUGUST 14, 2005 (Individual Borrower) THIRD WAVE TECHNOLOGIES. INC. --------------------------------------- Borrower Name (Organization) _____________________________ a DELAWARE Corporation Borrower Name N/A By /s/ John Puisis ------------------------------------ Name and Title JOHH PUISIS, PRESIDENT ______________________________ By_____________________________________ Borrower Name N/A Name and Title _______________________ (c) us bancorp 2001 EX-31.1 5 c99670exv31w1.txt CERTIFICATION 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, this 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 this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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) and internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) 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 this Report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) 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: November 7, 2005 /s/ John Puisis ------------------------------ John Puisis, CEO EX-31.2 6 c99670exv31w2.txt CERTIFICATION EXHIBIT 31.2 CERTIFICATION I, James Herrmann, Principal Financial Officer 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, this 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 this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 this 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) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 this Report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) 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: November 7, 2005 /s/ James Herrmann ------------------------------- James Herrmann, Principal Financial Officer EX-32 7 c99670exv32.txt CERTIFICATION 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 September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), John Puisis, Chief Executive Officer of the Company, and James Herrmann, Principal Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C Section 1350, that on the date of this certification: (1) The Quarterly Report on Form 10-Q (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 this 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 November 7, 2005 /s/ James Herrmann --------------------------------- James Herrmann Principal Financial Officer November 7, 2005 -----END PRIVACY-ENHANCED MESSAGE-----