<PAGE>   1

                                                                    EXHIBIT 10.3

                         THIRD WAVE TECHNOLOGIES, INC.
                      1997 NONQUALIFIED STOCK OPTION PLAN

     1. PURPOSE. The purpose of the THIRD WAVE TECHNOLOGIES, INC., NONQUALIFIED
STOCK OPTION PLAN (the "Plan") is to encourage certain employees, and certain
members of, and advisors to, the Board of Directors of the Corporation of
Third Wave Technologies, Inc. (the "Corporation") to acquire to increase their
stock ownership in the Corporation, to provide and incentive to such
individuals to promote the financial success of the Corporation, and to enable
the Corporation to attract and retain the personnel necessary for continued
growth and profitability.

     2. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective as of
January 1, 1997, and shall continue in effect for an indefinite period
thereafter subject to termination as provided in Paragraph 16.

     3. STOCK SUBJECT TO PLAN. Only common stock, with $1.00 par value per
share, of the Corporation ("Common Stock") may be issued pursuant to options
granted under this Plan. The maximum number of shares of Common Stock that may
be issued pursuant to the exercise of options granted under the Plan
("Options") is One Hundred Fifty (150) shares of the Corporation's common
stock, subject to any adjustments provided in Paragraph 15. If any Options
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for further grants
under the Plan.

     4. ADMINISTRATION. The Plan shall be administered by the committee
described in Paragraph 5 (the "Committee"). Subject to the express provisions of
the Plan, the Committee shall have complete authority in its discretion to
determine those employees, directors, and advisors ("Participants") to whom
Options shall be granted, the Option Price, the Option Periods and the number of
shares subject to each Option. Subject to the express provisions of the Plan,
the Committee shall also have the authority in its discretion to prescribe the
time or times at which Options may be exercised, the limitations upon the
exercise of Options (including limitations effective upon death, disability or
termination of employment of any Participant) and the restrictions, if any, to
be imposed upon the transferability of shares acquired upon exercise of Options.
In making such determinations, the Committee may take into account the nature of
the services rendered by the respective Participants, their present and
potential contributions to the success of the Corporation and such other factors
as the Committee in its discretion shall deem relevant. Subject to the express
provisions of the Plan, the Committee shall also have complete authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of the respective
Option Agreements described in Paragraph 13 (which need not be identical), to
determine whether the shares delivered upon exercise of Options will be treasury
shares or will be authorized but previously unissued shares, and to make all
other determinations necessary or advisable for the administration of the Plan.
The Committee's determination on the matters referred to in this Paragraph shall
be conclusive.

     5. COMMITTEE. The Committee shall consist of not less than three members
of the Board of Directors who are not eligible, and have not at any time within
one year prior to appointment to the Committee been eligible, to receive
options under the Plan or any other plan of the Corporation entitling
participants therein to acquire stock or stock options of the Corporation.
The Committee shall be appointed members of the Committee in substitution for
members previously appointed and may fill vacancies, however caused, in the
Committee. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by all of the

<PAGE>   2
members shall be fully as effective as if it had been made by a majority vote
at a meeting duly called and held. The Committee may hold meetings by use of
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other.

     6. ELIGIBILITY. Options may be granted under the Plan to those employees,
directors and advisors designated as eligible to participate by the Committee.
Such designations shall be subject to the approval of the Board of Directors.
The Committee shall inform each individual so designated of his or her
eligibility to participate in the Plan. Participation in the Plan shall be
entirely voluntary. Members of the Committee shall not, while serving as
members of the Committee, be eligible to receive Options.

     7. STOCK OPTIONS. The number of shares subject to any Options granted
under this Plan shall be established by the Committee. The Committee shall
notify each Participant of the number of shares subject to the Option granted
to the Participant.

     8. OPTION PRICE. The Option Price per share shall be determined by the
Committee at the time each Option is granted. The Committee shall notify each
Participant of the Option Price per share of the stock subject to the Option
granted to the Participant.

     9. OPTION PERIODS. The term of each Option shall be for a period
determined by the Committee (the "Option Period"). An Option shall be
considered granted on the date the Committee acts to grant the Option, or such
other date as the Committee shall specify. The Committee shall inform each
Participant of the Option Period applicable to the Option granted to the
Participant. Each Option shall be subject to earlier termination as described
under Paragraph 16.

     10. EXERCISE OF OPTIONS. Each Option may be exercised at any time during
the option period for such Option (subject to the restrictions in Paragraph 12,
and in the Option Agreements referred to in Paragraph 13) by written notice
delivered to an officer of the Corporation, stating the number of shares with
respect to which the Option is being exercised. In no event shall the
Corporation be required to transfer fractional shares to a Participant.

     11. PAYMENT FOR SHARES. Within five (5) business days following the date
of exercise, the Participant shall make full payment of the Option Price
either: (i) in cash; (ii) with the consent of the Committee, by tendering
previously acquired shares of Common Stock (valued at their fair market value,
as determined by the Committee, as of the date of exercise); or (iii) any
combination of (i) or (ii). Shares of Common Stock tendered shall be duly
endorsed in blank or accompanied by stock powers duly endorsed in blank. Upon
receipt of the payment of the entire Option Price for the shares so purchased,
certificates for such shares shall be delivered to the Participant. Such
certificates shall bear a legend on the reverse side reflecting the transfer
restrictions described in Paragraph 12.

     12. TRANSFER RESTRICTIONS. Shares of common stock purchased under the Plan
are governed by, and may not be sold or otherwise disposed of except in
compliance with (i) the Corporation's Bylaws and (ii) the registration
requirements of the Securities Act of 1933 and any applicable state securities
laws (unless such transaction is, in the opinion of counsel for the
Corporation, exempt from registration under such Act and laws). The
transferability of such shares shall be subject to the restrictions contained
in the Shareholder Agreement dated as of July 29, 1994, and the Participant
agrees to execute such documents as may be required by the Corporation to
become an "Agreeing Shareholder" as such term is defined in the Shareholder
Agreement.

     13. OPTION AGREEMENTS. Options granted pursuant to the Plan shall be
evidenced by stock option agreements ("Option Agreements") between the
Corporation and The Participant to whom the Option is granted, in such form as
the Committee shall from time to time adopt.


                                       2
<PAGE>   3
     14. TERMINATION OF OPTION. Except as hereinafter provided, no Option may
be exercised later than three months after a Participant terminates his or her
employment, or services with the Corporation or its Subsidiaries, as the case
may be. If such termination results from the deliberate, willful or gross
misconduct of a Participant, then the Option may not be exercised and all of
the Participant's rights in the Option shall be forfeited upon termination. If
such termination results from the disability of a Participant within the
meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended,
any Option may be exercised at any time within twelve months after such
termination of employment, but in no event beyond the Option Period. If such
termination results from death of a Participant, the personal representative of
the Participant's estate, or a person who by bequest, inheritance, or otherwise
by reason of the Participant's death, acquired the right to exercise the
Option, may exercise any Option at any time within three years after the death
of such Participant, but in no event beyond the Option Period. The Committee
may impose additional restrictions upon the exercise of Options after
termination of employment or services with the Corporation, including
prohibition of such exercise.

     15.  NONTRANSFERABILITY OF OPTIONS. Options under the Plan are not
transferable by a Participant other than by will or the laws of descent or
distribution, and may be exercised during the lifetime of a Participant only by
the Participant.

     16.  ADJUSTMENT OF NUMBER OF SHARES. In the event of any change in the
number or kind of shares of outstanding common stock of the Corporation by
reason of stock dividends, recapitalizations, reorganizations, mergers,
consolidations, split-ups, combinations or exchanges of shares and the like,
the Committee shall, consistent with such change, appropriately adjust the
number and kind of shares which thereafter may be optioned and sold under the
Plan, the number and kind of shares under Option in outstanding Option
Agreements, and the purchase price per share thereof. The determination of the
Committee as any such adjustment shall be final and conclusive. No adjustment
or substitution provided for in this paragraph shall require the Corporation in
any Stock Option Agreement to sell a fractional share, and the total
substitution or adjustment with respect to each Option Agreement shall be
limited accordingly.

     17.  AMENDMENT, SUSPENSION, OR TERMINATION. The Board of Directors may
from time to time amend, suspend or terminate the Plan in such respects as the
Board may deem advisable. No amendment shall, without the Participant's
consent, alter or impair any amendment, suspension, or termination.

     18.  APPLICABLE LAW. The Plan shall, to the extent not inconsistent with
applicable federal law, be construed under the laws of the State of Wisconsin.

     Dated as of this 1st day of January, 1997.


                                        THIRD WAVE TECHNOLOGIES, INC.


                                        BY:
                                           -------------------------------------

                                        ATTEST:
                                               ---------------------------------


                                       3