<PAGE>

                                                                   EXHIBIT 10.21

October 20, 2004

Dave Nuti
5764 Auburn Drive
Madison, WI  53711

Dear Dave:

The following are the terms of an agreement between you and Third Wave
Technologies, Inc.

                                    AGREEMENT

      1.    TRANSITION PERIOD.

            a.    You agree that you will continue serving as TWT's Chief
Financial Officer through the end of business October 29, 2004, and that,
without limiting the foregoing, you will participate in TWT's earnings call
scheduled for October 27, 2004 and if completed, sign required lawful and
appropriate SEC filings for TWT's third quarter financial results by October 29,
2004. Effective October 30, 2004, you will cease serving as TWT's Chief
Financial Officer. TWT agrees that it will pay you 100% of your accrued and
unused PTO through October 31, 2004 in your pay check for the period ending
October 31, 2004. You will not accrue additional PTO after October 30, 2004.

            b.    You agree that the transition period for your orderly
departure from TWT will commence October 30, 2004, and will conclude December
31, 2004 ("Transition Period"), subject to termination of the Transition Period
after October 30, 2004 and prior to December 31, 2004 if you start a new job
during that period. During the Transition Period, you will be employed as a
full-time financial advisor to TWT with respect to non-forward-looking financial
data. You agree you will come to the work site and make yourself available to
work during the Transition Period, as directed by John Puisis or his designee,
on financial advisory projects specified by John Puisis or his designee
consistent with the prior sentence. You will be paid your current salary of
$220,000 per year on a prorata basis during the Transition Period, to be paid in
accordance with TWT's regular payroll schedule and less all deductions currently
in place and for taxes required by law. Your existing benefits will continue
through December 31, 2004 (unless you obtain alternative employment and
terminate the Transition Period earlier).

      2.    SEVERANCE PAY. TWT will pay you non-cancelable severance payments
for six (6) months in the pre-tax amount of $15,000 per month ($7,500/paycheck *
2 paychecks/month * 6 months). Non-cancelable severance payments will commence
on the earlier of (i) January 1, 2005 or (ii) the date between October 30, 2004
and December 31, 2004 that you terminate the Transition Period as a result of
you starting a new job, and will end six months thereafter (the "Severance
Period"). Subject to Paragraph 4 below, severance will be payable in
installments on TWT's regular payroll dates. Each installment will occur in the
amount stated above each payroll period. Each severance payment will be subject
to deductions for income and payroll taxes. You understand that TWT has made
this offer with the intent that you will not receive unemployment compensation
until after the Severance Period ends and you agree not to apply for
unemployment benefits until after the Severance Period ends. TWT agrees it will
not affirmatively challenge your entitlement to unemployment compensation
benefits after the Severance Period ends.

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October 20, 2004
Page 2 of 8

      TWT may, in its sole discretion, elect to make cancelable severance
payments for an additional six (6) months commencing on July 1, 2005 or at the
end of the six (6) month severance period, if you have not secured alternative
employment by that date. Any such payments shall not be deemed to extend the
"Severance Period" for purposes of TWT's obligation to pay family health and
dental insurance premiums as described in the immediately following paragraph.

      TWT also agrees to pay 100% of the insurance premiums for family health
and dental coverage during the Severance Period, subject to the same insurance
policy co-payments currently in place, if you elect continuation coverage
through TWT's group health policy pursuant to COBRA (the "Insurance Payment").
You are responsible for paying the premiums for any insurance coverage for you
or your family after the Severance Period for health and dental, whether through
TWT's group health policy pursuant to COBRA continuation rights or through any
other employer or individual plan. You understand that your COBRA continuation
rights begin on the first day of the Severance Period for health and dental
insurance, even though TWT agrees to pay the premiums through the end of the
Severance Period for health and dental insurance. You agree that TWT will in no
way be responsible for damages resulting from any lapse in such coverage.

      3.    SPECIAL EQUITY. TWT will give you accelerated vesting on select
unvested stock options as identified in the attached Exhibit A, which is
incorporated herein by this reference. Additionally, for stock options already
vested on October 30, 2004, TWT will provide an extended exercise date beyond
the ninety (90) day limitation up to two years from October 30, 2004. The 10,000
options on the accelerated vesting schedule, as identified on Exhibit A, will
vest on October 30, 2004, and may be exercised within two years upon vesting.
Except for the 10,000 options, TWT may revoke extended exercise provisions
provided within this paragraph at any time at TWT's sole discretion for your
failure, in TWT's sole judgment, to act in accordance with your obligations
hereunder or to act in the best interests of TWT. In the event of such
revocation, you will receive written notice from TWT and you will be able to
exercise only those options that were vested per their original vesting schedule
as of October 30, 2004 provided such exercise is completed within ninety (90)
calendar days of the date of TWT's notice of revocation. You agree that you will
not trade any TWT security in violation of any insider trading laws.

      4.    RELEASE OF CLAIMS. In exchange for the severance payments and other
consideration described in this Agreement, you agree--for yourself, your heirs,
your beneficiaries and all other representatives--to waive and release and, with
this Agreement, you do waive and release all past or present claims of any
nature against TWT. Further, you agree not to institute or cause to be
instituted in any state or federal court any such action or claim. This waiver
and release of claims applies to any claims against TWT or anyone associated
with or representing TWT--including, but not limited to, its officers,
directors, partners, employees, attorneys, or agents (the "Releasees").

            a.    Claims Released. The claims you are waiving in exchange for
the payments and other consideration described in this Agreement include, but
are not limited to, claims under federal, state or local law including but not
limited to, the Civil Rights Act of 1964, as amended; the Family Medical Leave
Act, the Americans with Disabilities Act; the Wisconsin Fair Employment
Practices Act and if applicable, the Age Discrimination in Employment Act, for
discrimination of any kind, tort, breach of contract, wrongful discharge, lost
wages, compensatory damages, punitive damages, attorneys' fees, and all other
claims of any type or nature, whether known or unknown, matured or unmatured,
direct or indirect. Other claims you

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October 20, 2004
Page 3 of 8

are waiving are those that relate to ownership of any intellectual property or
trade secrets developed during the term of your employment. You acknowledge your
lab books and those of individuals who have worked for or with you are complete
and you acknowledge that all intellectual property and trade secrets conceived
or developed by you during the term of your employment are solely the property
of TWT.

            b.    Your Representation and Waiver. You represent that you have
not filed any such action or claim in any court or before any state, federal or
other governmental agency. You forever waive any right to recover money damages
or any other form of relief for any and all claims waived under this Agreement.
You further agree to waive your rights to and not accept any benefits which
might be conferred upon you in any administrative court or other legal
proceeding concerning any claim released by this Paragraph 4. You understand and
agree that this release forever bars you from suing, arbitrating or otherwise
asserting a claim against TWT on any released claim.

            c.    ADEA Release and Waiver. In exchange for the amounts paid to
you under this Agreement, you specifically waive any claims you may have under
the Age Discrimination in Employment Act of 1967, the Older Workers Benefit
Protection Act, or any similar law. You are not waiving any rights or claims
that may arise after the date of this Agreement. You further acknowledge that
you have been advised by this writing (i) to consult with an attorney prior to
executing this Agreement; (ii) that you have up to twenty-one (21) days to
review this Agreement and to decide whether to accept it; (iii) that you have
seven (7) days after signing it to cancel and revoke this Agreement; and (iv)
that this Agreement will not become effective until the seven-day time period
has passed. If you give notice of revocation before the end of the seven (7) day
period, this Agreement will become null and void. TWT is not required to provide
any portion of any payment or other benefit described in the Agreement before
the seven-day time period has passed.

            d.    Consideration for the Release of Claims. You acknowledge that
the payments and other consideration TWT has agreed to give under this Agreement
are benefits to which you would not have been entitled if you did not sign this
Agreement and that TWT has agreed to provide the consideration only if you sign
this Agreement and give up the claims described in it.

      5.    YOUR CONTINUING OBLIGATIONS.

            a.    Your Employment Agreement dated April 10, 2002 is hereby
incorporated by reference and any provision of said Agreement not superceded by
a specific provision of this Agreement shall remain in effect and be binding on
the parties with respect to your post employment obligations. A copy is included
with this Agreement.

            b.    You agree, in exchange for severance payments, Insurance
Payment, and special equity described in Paragraph 3 to substitute the following
in place of the arbitration and confidentiality provisions of the Employment
Agreement:

            Arbitration: You further acknowledge and agree that the parties may
enforce the terms of this Agreement in state or federal court in Dane County,
Wisconsin. You expressly consent to jurisdiction in Dane County, Wisconsin to
resolve any controversy involving this Agreement.

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October 20, 2004
Page 4 of 8

            Confidentiality: You acknowledge and agree that while employed at
TWT you have been privy to substantial confidential business, financial and
technology information relating to TWT and its business as well as current and
potential business partners and third parties in both commercial as well as
academic organizations, some of which is extremely sensitive and proprietary.
You expressly covenant as follows:

            (i)   You agree that you have not and will not disclose to others or
      use any Trade Secret owned or possessed by TWT or any other Releasee, or
      that any Trade Secret that was created by you or anyone related to TWT, or
      was disclosed to you, whether you have such Trade Secret in your memory or
      embodied in writing or other physical form, for as long as the information
      remains a Trade Secret. "Trade Secret" means all information which derives
      independent economic value, actual or potential, from not being generally
      known to, and not being readily ascertainable by proper means, by other
      persons who can obtain economic or personal value from its disclosure or
      use and is subject to TWT's or any other Releasee's efforts to maintain
      its secrecy that are reasonable under the circumstances.

            (ii)  In addition to the foregoing, you agree not to disclose or use
      between the date of this Agreement and two (2) years following the end of
      the Transition Period any Confidential Information which is possessed by
      or developed for TWT which relates to TWT's existing or potential business
      or technology, and either was created by you or was disclosed to you.
      Confidential Information is information or technology, product development
      plans or strategies, market adoption plans and business plans that are
      generally not known to the public and which information or technology TWT
      seeks to protect from disclosure to its existing or potential competitors
      or others, including, without limitation, for example: non-public business
      plans, strategies, existing or proposed bids, costs, technical and
      engineering developments, existing or proposed research or development
      projects, financial or business projections, marketing plans, investments,
      negotiation strategies, and information received by TWT from others which
      TWT has an obligation to treat as confidential.

                  You understand your obligations under this paragraph apply to,
      and are intended to prevent, the direct or indirect disclosure of
      Confidential Information to others where such disclosure of Confidential
      Information would reasonably be considered to be useful to TWT's
      competitors or to a third party to become a competitor based in whole or
      in part on such disclosure of Confidential Information.

            (iii) You acknowledge that damages for the violation of this
      paragraph entitled "Confidentiality" will be inadequate and will not give
      full sufficient relief to TWT, and that a breach of this paragraph will
      constitute irreparable harm to TWT. Therefore, you agree that in the event
      of any violation of any covenant contained in this Paragraph, TWT shall be
      entitled to injunctive relief against the continued violation thereof in
      any court (federal or state) located in Dane County, Wisconsin.

            Such remedy, however, shall be cumulative and nonexclusive and shall
      be in addition to any other remedy to which TWT may be entitled.

      6.    NON-DISPARAGEMENT. You agree that you will refrain from making
disparaging comments or remarks about TWT or about or to any of the Releasees,
except that you may provide truthful information about TWT or the Releasees to
the extent required by law.
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October 20, 2004
Page 5 of 8

      TWT agrees that it will refrain from making disparaging comments or
remarks about you, except that TWT may provide truthful information about you to
the extent required by law.

      7.    NON-DISCLOSURE. You agree not to disclose the terms of this
Agreement to any person except for your immediate family members, attorney, or
financial advisor consulted in connection with review of this Agreement. You
assure us that no family member, attorney, or financial advisor will disclose
the terms of this Agreement to any other person except as required by law.

      TWT agrees not to disclose the terms of this Agreement to any person
except for its officers, directors, attorneys, accountants and other
professional advisors, and except to the extent disclosure may be required, or
deemed advisable in the opinion of TWT's attorneys, under applicable laws, rules
or regulations, including without limitation federal or state securities laws,
rules or regulations. TWT assures you that no officer, director, attorney,
accountant or other professional advisor will disclose the terms of this
Agreement to any other person except as required by law.

      8.    REPRESENTATIONS AND WARRANTIES. You represent and warrant that to
the best of your actual knowledge: (i) up until the time you sign this
Agreement, you have not violated your legal obligations relating to TWT or the
confidentiality obligations described in Paragraph 5 above, made disparaging
comments or remarks about TWT or about any of the Releasees as described in
Paragraph 6 above, or discussed or disclosed the existence or terms of this
Agreement as described in Paragraph 7 above; (ii) you are not aware of any
actual, alleged or suspected accounting issues, violations, or improprieties
relating to TWT that could have a material adverse effect on TWT; and (iii) you
are not aware of any actual, alleged or suspected (x) violation of any law, rule
or regulation (including without limitation securities laws, rules or
regulations, the Sarbanes-Oxley Act, or any regulation promulgated thereunder),
(y) violation of any applicable securities exchange listing requirement, or (z)
violation of any TWT rule, regulation, policy or code (including without
limitation the TWT Code of Business Conduct), by TWT or any of its directors,
officers, employees or representatives that could have a material adverse effect
on TWT. Any exceptions to this representation must be disclosed by you in
writing to TWT on or before the final execution of this Agreement with
sufficient detail to allow TWT to fully understand such action. In addition, you
agree that if you become aware during the Transition Period or the Severance
Period of any matter described in Section 8(ii) or (iii), you will immediately
report such matter to an executive officer of TWT.

      In the event that TWT finds that the any representation or warranty set
forth in the previous paragraph is inaccurate or untrue, or if you violate the
provisions or your Employment Agreement or Paragraphs 1, 2, 3, 4, 5, 6, 7,8 or 9
hereof, you agree that TWT will be entitled to immediately stop paying the
cancelable severance payments and Insurance Payment and revoke any other
benefits received under this Agreement to which you are otherwise entitled under
this Agreement and TWT will have no further obligation to continue any payments.
In addition, should TWT determine that a violation of Paragraphs 1, 2, 3, 4, 5,
6, 7,8 or 9 hereof or the Employment Agreement has occurred, TWT will be
entitled to a complete recovery of all cancelable severance payments and
Insurance Payment previously made during the Severance Period. Finally, at any
time, TWT may pursue whatever other legal remedies are available to it
including, but not limited to, the right to seek temporary and permanent
injunctions, which you agree are appropriate additional remedies to prevent
irreparable harm to the Company in the event of a breach of this Agreement or
your Employment Agreement.

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October 20, 2004
Page 6 of 8

      IN THE EVENT TWT FINDS YOU HAVE BREACHED ANY OBLIGATIONS HEREUNDER, YOU
AGREE TO IMMEDIATELY TENDER BACK TO TWT ALL CANCELABLE SEVERANCE AND BENEFITS
PAID AS WELL AS THE NET VALUE OF THE 10,000 STOCK OPTIONS ISSUED TO YOU AS PART
OF THIS AGREEMENT, PROVIDED THEY HAVE BEEN EXERCISED.

      9.    NON-SOLICITATION. You acknowledge and confirm that you continue to
be bound by section 7 of your Employment Agreement dated April 10, 2002
regarding non-solicitation of employees. In addition, you shall not, prior to
the expiration of one (1) year following the expiration of the Severance Period,
solicit, encourage or otherwise aid any employee of TWT to leave TWT for the
purpose of becoming associated in any manner whatsoever with any business with
which you intend to be or are then associated in any manner whatsoever. You
further agree you shall not, prior to the expiration of one (1) year following
the expiration of the Severance Period, solicit, encourage or otherwise induce
any suppliers, collaborators, customers or third parties, with whom TWT has
established relationships to discontinue their relationships with TWT.

      10.   ACCEPTANCE PROCEDURES. TWT wishes to ensure that you voluntarily
agree to the terms contained in this document and do so only after you fully
understand them. Accordingly, the following procedures will apply:

            a.    You may accept this document's terms by signing and dating it
and returning the signed and dated document so that it is postmarked or faxed to
TWT on or before the twenty first (21st) day following your receipt of this
document. The signed and dated document must be directed to Katie Zingg,
Director of Human Resources, in an envelope marked "Personal and Confidential"
at Third Wave Technologies, Inc., 502 South Rosa Road, Madison, WI 53719.

            b.    You will have seven (7) calendar days from the date you sign
this Agreement in which to withdraw or revoke your acceptance (the "Revocation
Period"). If you choose to revoke your acceptance, you must do so in writing,
and the written notice must be received before the end of the first regular
business day following the Revocation Period by Katie Zingg, Director of Human
Resources, in an envelope marked "Personal and Confidential" at Third Wave
Technologies, Inc., 502 South Rosa Road, Madison, WI 53719. In the event you
take any steps to revoke your acceptance during the revocation period, this
Agreement shall be null and void.

            c.    TWT ENCOURAGES YOU TO REVIEW THIS DOCUMENT WITH AN ATTORNEY
PRIOR TO SIGNING IT.

      11.   MISCELLANEOUS. Should you accept this Agreement, its terms will be
governed by the following:

            a.    Except as provided in Paragraph 5 above, this document
constitutes the complete understanding between you and TWT concerning all
matters affecting your employment with TWT and the termination of that
employment. If you accept this Agreement, it supersedes all prior agreements,
understandings and practices concerning such matters, including, but not limited
to, any TWT personnel documents, handbooks, or policies and any prior customs or
practices of TWT except for your Employment Agreement.

            b.    Nothing in the releases contained in this Agreement should be
construed as an admission of wrongdoing or liability on the part of either TWT
or you. Both of us deny any liability to the other.

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October 20, 2004
Page 7 of 8

            c.    This Agreement and its interpretation will be governed and
construed in accordance with the laws of Wisconsin and will be binding upon the
parties to the Agreement and their respective successors and assigns.

            d.    Each provision of this Agreement is severable and intended to
be construed independently. The unenforceability of any provision shall not
affect the validity or enforceability of any other provision.

You represent and warrant that you have read and understand all terms of this
Agreement, executed knowingly and voluntarily with full knowledge of its
significance and with the intent to be bound by it. You represent and warrant
that you have been or have the opportunity to be represented by legal counsel of
your choice in connection with this agreement who has explained it and advised
that it is a legally binding contract. This Agreement contains the entire
Agreement between TWT and you and the terms of the Agreement cannot be modified
except in writing signed by both TWT and you.

                                      Very truly yours,

                                      THIRD WAVE TECHNOLOGIES

                                      By: /s/ John J. Puisis
                                          ---------------------------------
                                          John J. Puisis
                                          Chief Executive Officer

I agree with and accept the terms contained in this document and agree to be
bound by them.

Dated this 20th day of October, 2004.  /s/ David M. Nuti
                                       -------------------------------------
                                          Dave Nuti

<PAGE>

                                   Exhibit A

                                   DAVE NUTI

                             Number of options for
                                which vesting is
                                accelerated  to
                               October 31, 2004 =
                                     10,000

<TABLE>
<CAPTION>
                                                      OPTIONS UNDER
                                                       ACCELERATED
                                    # OPTIONS VESTED     VESTING
GRANT DATE  # OPTIONS  GRANT PRICE    ON 10/31/04      GRANT DATE   # OPTIONS  GRANT PRICE
<S>         <C>        <C>          <C>               <C>            <C>        <C>
 4/22/2002    20,000    $   4.10         10,000                                   $  4.10
 10/8/2002    20,000    $   1.40         10,000         10/8/2002     10,000      $  1.40
  1/3/2003    40,000    $   2.64         10,000                                   $  2.64
 4/28/2003    50,000    $   3.97         12,500                                   $  3.97
 7/17/2003   120,000    $   4.00         30,000
 2/24/2004    16,133    $   3.37              0                **         **           **
             -------    --------         ------         ---------     ------      -------
     TOTAL   266,133                     72,500                       10,000
</TABLE>
<PAGE>

October 21, 2004



David Nuti
5764 Auburn Drive
Madison, WI  53711

Re:  Amendment to Separation Letter Agreement

Dear Dave:

In consideration for your assistance to Third Wave Technologies in your
transition through December 2004, you will receive 20,000 additional stock
options at a $2.64 strike price, to vest on October 31, 2004 with a 2-year
exercise period. Such assistance will include occasional phone conversations,
not to exceed ten hours per month, that do not impede any other employment.

Sincerely,

/s/ John Puisis
----------------------------------
John Puisis
Chief Executive Officer



Accepted and Agreed:


/s/ David Nuti
---------------------------------
David Nuti