<PAGE>

                                                                    EXHIBIT 10.6

[CONFIDENTIAL TREATMENT REQUESTED, CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.]

                         TECHNOLOGY PURCHASE AGREEMENT

         This TECHNOLOGY PURCHASE AGREEMENT (this "Agreement") is entered into
                                                   ---------
as of October 10, 2000 (the "Effective Date") by and between, TheraSense, Inc.,
                             --------------
a California corporation ("Purchaser"), and E. Heller & Company, a Texas
                           ---------
corporation ("Seller"), (Purchaser and Seller each, a "Party;" together, the
              ------                                   -----
"Parties" ).
 -------
                                   RECITALS

          WHEREAS, Purchaser wishes to acquire from Seller, and Seller wishes to
sell to Purchaser, the biosensor-related technologies of Seller; and

          WHEREAS, Purchaser and Pepex Biomedical, LLC ("Pepex") have entered
into a grant of license dated on or before the date hereof;

          NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises contained in this Agreement, the Parties hereby agree as follows:

                                   ARTICLE 1
                                  DEFINITIONS

          1.1  Capitalized Terms. The following capitalized terms shall have the
meanings set forth below :

               (a)  "Affiliate" shall mean any entity which controls, is
                     ---------
controlled by or is under common control with a Party, but only so long as such
control exists. For purposes of this definition, "control" shall mean direct or
indirect ownership of more than fifty percent (50%) of the shares of the
respective entity entitled to vote in the election of directors (or, in the case
of a Person that is not a corporation, for the election of the corresponding
managing authority).

               (b)  "Business" shall mean the development, manufacture and sale
                     --------
of electrochemical biosensors and wired enzyme chemistry.

               (c)  "Competition" shall mean any Person engaged in the Business
                     -----------
or in the business of manufacturing, producing or selling medical devices
related to diabetes.

               (d)  "Current Products" shall mean the Purchaser's FreeStyle
                     ----------------
products and continuous glucose monitoring system under development (as embodied
in the current prototype of such system).

               (e)  "EHC-TheraSense Agreement" shall mean the license agreement
                     ------------------------
between Seller and Purchaser, dated April 21, 1997.

               (f)  "Exclusive Period" shall mean the period beginning on the
                     ----------------
Effective Date and ending thirty-six (36) months following the Effective Date.



<PAGE>

               (g) "Geographic Area" shall mean the United States, Canada,
                    ---------------
Europe or Japan.

               (h) "Intellectual Property Rights" shall mean, with respect to
                    ----------------------------
the Transferred Technologies, any or all of the following and all statutory
and/or common law rights throughout the world in, arising out of, or associated
therewith: (i) all patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and continuations-
in-part thereof; (ii) all inventions (whether patentable or not patentable,
copyrightable or not copyrightable), invention disclosures and improvements
thereto, (iii) all trade secrets and proprietary information relating thereto;
(iv) all algorithms, routines, schematics, works of authorship, copyrights, mask
works, copyright and mask work registrations and applications; (v) all files,
databases and data collections (including knowledge databases, customer lists
and customer databases); (vi) all rights in Software; (vii) all rights in
Materials, (viii) all similar, corresponding or equivalent rights to any of the
foregoing; (ix) all goodwill associated with any of the foregoing; and (x) all
rights to any tangible embodiments of any of the foregoing.

               (i)  "Know How" shall mean all ideas, know how, show-how,
                     --------
techniques, design rules, data, instructions, protocols, methods, processes,
formulas and test methodologies, including without limitation biological,
chemical, toxicological, physical and analytical, safety, manufacturing and
quality control data and information necessary and/or useful to develop and/or
commercialize the Intellectual Property Rights.

               (j)  "Liability" shall mean any liability or obligation (whether
                     ---------
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
whether incurred or consequential and whether due or to become due), including
any liability for taxes.

               (k)  "Lien" shall mean any mortgage, pledge, lien, security
                     ----
interest, charge, claim, equity, encumbrance, restriction on transfer,
conditional sale or other title retention device or arrangement (including,
without limitation, a capital lease), transfer for the purpose of subjection to
the payment of any indebtedness, or restriction on the creation of any of the
foregoing, whether relating to any property or right or the income or profits
therefrom.

               (l)  "Materials" shall mean any and all (i) chemical or
                     ---------
biological substances, including without limitation any organic or inorganic
chemical element, compound, composition, material, sample or product; (ii)
assays or reagents; (iii) fragments of (i) and/or (ii); (iv) any derivatives,
variants or mutations of (i) through (iii); (v) any DNA, protein or chemical
sequence of (i) through (iv); (vi) instruments, devices, prototypes, hardware,
development tools, or components of any of the foregoing; and (vii) tangible
embodiments of Intellectual Property Rights.

               (m)  "Pepex Agreements" shall mean the license agreements between
                     ----------------
Seller and Pepex, dated March 7, 1995 and February 8, 1996, and the first
amendment to the March 7, 1995 license agreement dated November 19, 1997.

               (n)  "Person" shall mean an individual, partnership, corporation,
                     ------
association, joint venture, trust, unincorporated organization or governmental
entity (or any department, agency or political subdivision thereof).



                                      -2-
<PAGE>

               (o)  "Purchaser Claim" shall mean any claim, suit or proceeding
                     ---------------
commenced against Purchaser.

               (p)  "Registered IP" shall mean all United States, international
                     -------------
and foreign: (i) patents and patent applications (including provisional
applications) or service marks related to the Business; and (ii) any other
Intellectual Property Rights related to the Business that are the subject of an
application, certificate, filing, registration or other document issued, filed
with, or recorded by any state, government or other public legal authority.

               (q)  "Seller Claim" shall mean any claim, suit or proceeding
                     ------------
commenced against Seller.

               (r)  "Software" shall mean all computer system software,
                     --------
including without limitation all source code, object code, upgrades, updates,
bug fixes, releases and supporting documentation relating thereto.

               (s)  "Transaction" shall mean the transaction contemplated by
                     -----------
this Agreement.

               (t)  "WGM" shall mean Weil, Gotshal & Manges, LLP.
                     ---

               (u)  "WGM Memo" shall mean that certain memo from WGM to
                     --------
Purchaser dated November 8, 1999 and the contracts, correspondence and other
documents provided to WGM in connection with the preparation of the memo.


                                   ARTICLE 2
                              TRANSFER OF ASSETS
                              ------------------

          2.1 Sale of Technologies. Seller hereby sells, conveys, transfers, and
              --------------------
assigns to Purchaser all rights, title and interest in the assets set forth in
Schedule 2.1(a), including, without limitation, any Intellectual Property
---------------
Rights, Know How, Registered IP Software and Materials owned or controlled by
Seller and related thereto, but specifically excluding those assets set forth in
Schedule 2.1(b) (the "Excluded Assets") (collectively, the "Transferred
---------------       ---------------                       -----------
Technologies"). To the best knowledge of Seller, Seller has no Software of
------------
Materials as of the Effective Date.

          2.2 Assumed Liabilities. Purchaser hereby assumes and becomes
              -------------------
responsible for all of the Liabilities set forth on Schedule 2.2 (the "Assumed
                                                                       -------
Liabilities").

          2.3 Excluded Liabilities. Excepts as provided in Section 6.3,
              --------------------                         -----------
Purchaser does not assume or have any responsibility with respect to any
Liabilities of the Seller not set forth on Schedule 2.2. Without limiting the
                                           ------------
generality of the foregoing, there shall not be sold, assigned, transferred or
delivered hereunder, and the terms "Transferred Technologies" and "Assumed
Contracts" does not include any of the Liabilities set forth on Schedule 2.3 or
                                                                ------------
those associated with the Excluded Assets (the "Excluded Liabilities").
                                                --------------------
          2.4 Termination of EHC-TheraSense Agreement. The EHC-TheraSense
              ---------------------------------------
Agreement is hereby terminated.



                                      -3-
<PAGE>

           2.5 Delivery of Transferred Technologies. Seller, in the manner and
               ------------------------------------
form, and to the locations, reasonably specified by Purchaser, hereby delivers
to Purchaser all of the Transferred Technologies, or other intangible assets and
such instruments as are necessary or desirable to transfer title to such assets
from Seller to Purchaser.

          2.6  Books and Records. Seller hereby transfers to Purchaser all
               -----------------
books, records, files and related materials in respect of the Transferred
Technologies in Seller's possession. Such books, records, files and related
materials constitute all of the books, records, files and related materials in
respect of the Transferred Technologies created or maintained by Seller.

          2.7  Agreement to Perform Necessary Acts. Seller shall take all action
               -----------------------------------
as may be reasonably necessary, proper or advisable to put Purchaser in
ownership, possession, and operating control of the Transferred Technologies,
without demanding any further consideration therefor, including execution,
acknowledgment and recordation of specific assignments, oaths, declarations and
other documents on a country-by-country basis and such other instruments of
sale, transfer, conveyance, and assignment as Purchaser or its counsel may
reasonably request.

          2.8  Power of Attorney. Seller hereby grants Purchaser the irrevocable
               -----------------
power of attorney to represent Seller, where such representation is legally
permissible, without restrictions towards legal entities and natural persons,
public authorities and courts, to do, sign under hand (or, as required, under
personal seal), deliver, receive and perform all and any acts, matters,
statements and things which may be necessary to put the Purchaser in ownership,
possession, and operating control of the Transferred Technologies, including
execution, acknowledgment and recordation of specific assignments, oaths,
declarations and other documents on a country-by-country basis and such other
instruments of sale, transfer, conveyance, and assignment as may be required for
this purpose. Under this power of attorney, the Purchaser is entitled to enter
into transactions on behalf of Seller with itself in its own name or in its
capacity as attorney-in-fact of a third party and, therefore, the Purchaser is
released from any prohibition or restriction of self dealing which may exist
under any applicable law. The Purchaser shall be entitled to delegate the rights
granted to it by this power-of-attorney and to grant dispensation from any legal
prohibition or restriction of self dealing which may exist. The foregoing power
of attorney is coupled with an interest and as of the Effective Date shall be
irrevocable.

                                   ARTICLE 3
                                PAYMENT; TAXES
                                --------------

          3.1 Payment to Seller. Purchaser shall pay an aggregate of five
              -----------------
hundred thousand dollars (U.S. $500,000.00) (the "Purchase Price") by check or
                                                  --------------
wire transfer to a bank account of Seller specified in writing.

          3.2 Taxes. Seller shall be solely responsible for the payment of, and
              -----
shall pay when due, any taxes that may be payable in connection with the sale of
the Transferred Technologies or the granting of the licenses granted hereunder,
other than taxes assessed on Purchaser's income.



                                      -4-
<PAGE>

                                   ARTICLE 4
                        REPRESENTATIONS AND WARRANTIES
                        ------------------------------

          Seller represents and warrants to Purchaser, subject to such
exceptions as are specifically set forth in the disclosure schedule (referencing
the appropriate Section and paragraph numbers) attached hereto (the "Disclosure
                                                                     ----------
Schedule") and dated as of the date hereof, as follows:
--------

          4.1  Authorization of Transaction. Seller has all requisite power and
               ---------------------------
authority to enter into this Agreement and any related agreements to which it is
a Party and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Seller, and no further actions are required on
the part of Seller or any of its stockholders to authorize the Agreement, any
related agreements to which it is a Party and the transactions contemplated
hereby.

          4.2  Noncontravention. The execution and delivery of this Agreement by
               ----------------
Seller and the consummation of the transactions contemplated hereby and thereby
do not conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
                                              --------
the charter documents or bylaws (or like document) of Seller, (ii) any mortgage,
lease, indenture, contract or other agreement or instrument, permit, concession,
franchise or license to which Seller is a Party or any of its properties or
assets are subject, (iii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Seller or its properties or assets.

          4.3  Restrictions on Transaction. There is no agreement (not to
               ---------------------------
compete or otherwise), commitment, judgment, injunction, order or decree to
which Seller is a Party or otherwise binding upon Seller which has or may have
the effect of prohibiting the Transaction or impairing the Transferred
Technologies. Seller has not entered into any agreement which places any
restrictions upon Seller with respect to the Transferred Technologies.

          4.4  Title to Transferred Technologies; Absence of Liens and
               -------------------------------------------------------
Encumbrances; Condition. Seller has good and valid title to all of the
-----------------------
Transferred Technologies, and the power to sell the Transferred Technologies
free and clear of any Liens. There are no other rights, options or licenses
granted pursuant to the Transferred Technologies other than those set forth on
Schedule 4.4. The Transferred Technologies are all of the technologies and
------------
rights, which are presently used, and are reasonably necessary for use in the
Current Products.

          4.5  Intellectual Property Rights. To the knowledge of Seller as of
               ----------------------------
the Effective Date, Seller owns, or possesses adequate licenses or other rights
to use, any and all Intellectual Property Rights used in or related to the
Transferred Technologies as used in the Current Products. Seller has not
received written notice of any claims, disputes, actions, proceedings, suits or
appeals pending against Seller with respect to any Intellectual Property Rights
or any other adverse consequences with respect to any Intellectual Property
Rights that would reasonably be expected to have a material adverse effect on
the Transferred Technologies, and, to the knowledge of Seller, none has been
overtly threatened. To the best knowledge of Seller as of the Effective Date,
except

                                      -5-
<PAGE>

pursuant to licenses obtained by Purchaser, none of the products or processes
using the Intellectual Property Rights as used in the Current Products infringes
on the proprietary rights of any third party, no product (or component thereof)
or process used by, sold or manufactured for, or supplied to, Seller or
Purchaser infringes or otherwise violates the proprietary rights of any other
Person. Except as set forth on Schedule 4.4, Seller has not granted any Person
                               ------------
the right to use the Intellectual Property Rights.

          4.6  Litigation. To the best knowledge of Seller, other than those
               ----------
related to prosecution of the Seller's Registered IP, there are no judicial or
administrative actions, claims, suits, proceedings or investigations pending or
threatened relating to the Transferred Technologies, nor is there any basis for
any such action, claim, suit, proceeding or investigation. There are no
judgments, orders, decrees, citations, fines or penalties heretofore assessed
against Seller affecting the Transferred Technologies under any foreign,
federal, state or local law.

          4.7  Disclosure. All information furnished by Seller to WGM or
               ----------
Purchaser and contained in the WGM Memo was and is accurate, complete and
correct and reflects all material discussions and understandings with respect to
the matters set forth therein.

                                   ARTICLE 5
                  REPRESENTATIONS AND WARRANTIES OF PURCHASER
                  -------------------------------------------

         Purchaser represents and warrants to Seller as follows:

          5.1  Organization of Purchaser. Purchaser is duly organized, validly
               -------------------------
existing, and in good standing under the laws of the jurisdiction of its
incorporation or formation.

          5.2  Authority for Agreement. Purchaser has all requisite corporate
               -----------------------
power and authority to enter into this Agreement and the related agreements to
which it is a Party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the related agreements
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of Purchaser.
This Agreement has been duly executed and delivered by Purchaser and
constitutes, and the related agreements, when duly executed and delivered by
Purchaser, will constitute the valid and binding obligations of Purchaser,
enforceable in accordance with their terms.

          5.3  Noncontravention. Neither the execution and the delivery of this
               ----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any provision of the charter or bylaws of Purchaser or (ii) Conflict
with any material agreement, contract, lease, license, instrument, or other
arrangement to which Purchaser is a Party or by which it is bound or to which
any of its assets is subject except for such Conflicts which would not, either
individually or in the aggregate, have a material adverse effect on Purchaser.

                                   ARTICLE 6
                         SURVIVAL OF REPRESENTATIONS,
                         ---------------------------
                        WARRANTIES AND INDEMNIFICATION
                        ------------------------------

          6.1  Survival of Representations and Warranties. All of the
               ------------------------------------------
representations and warranties of Seller and Purchaser contained herein shall
survive the Effective Date and continue in




                                      -6-
<PAGE>

full force and effect until 5:00 p.m., Pacific Time, sixty (60) months following
the Effective Date (the "Indemnity Period").

          6.2  Indemnification of Purchaser. Seller agrees to indemnify and hold
               ----------------------------
Purchaser and its officers, directors and Affiliates harmless against all
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses, and expenses of investigation
and defense (including, without limitation, any consequential damages)
(hereinafter individually a "Loss" and collectively "Losses"), incurred or
                             ----                    ------
suffered by Purchaser or its officers, directors, or Affiliates directly or
indirectly as a result of (i) any inaccuracy or breach of a representation or
warranty of Seller; (ii) any failure by Seller to perform or comply with any
covenant contained herein; (iii) any liabilities of Seller not specifically
assumed by Purchaser, or any liabilities in connection with the Transferred
Technologies, arising from Seller's actions or omissions prior to the Effective
Date; provided, that such Loss occurs during the Indemnity Period and Purchaser
      --------
provides Seller with notice of a Purchaser Claim under the foregoing indemnity
within twenty-four (24) months of the Effective Date.

          6.3  Indemnification of Seller. Purchaser agrees to indemnify and hold
               -------------------------
Seller and its officers, directors and Affiliates harmless against all Losses
incurred or suffered by Seller or its officers, directors or Affiliates directly
or indirectly as a result of (i) any inaccuracy or breach of a representation or
warranty of Purchaser; (ii) any liabilities in connection with the Transferred
Technologies arising from Purchaser's actions or omissions after the Effective
Date; and (iii) any liabilities related to the contracts, correspondence and
understandings disclosed to WGM or Purchaser and set forth in the WGM Memo;
provided, that such Loss occurs during the Indemnity Period and Seller provides
--------
Purchaser with notice of a Seller Claim under the foregoing indemnity within
twenty-four (24) months of the Effective Date.

          6.4  Third-Party Claims to Purchaser. In the event Purchaser becomes
               -------------------------------
aware of a third-party claim that Purchaser believes may result in Losses,
Purchaser shall notify Seller of such claim and Seller shall be entitled, at its
expense, to participate in, but not to determine or conduct, the defense of such
claim. Purchaser shall have the right in its sole discretion to conduct the
defense of and settle any such claim; provided, however, that unless such
                                      --------  -------
settlement is made with the written consent of Seller, no settlement of any such
claim with third-party claimants shall be determinative of the amount of any
claim for indemnification pursuant to Section 6.2 or whether such claim
                                      -----------
constitutes a Loss as defined in Section 6.2. In the event Seller has consented
                                 -----------
to any such settlement, Seller shall have no power or authority to object under
any provision of this Section 6.4 to the amount of any claim by Purchaser with
                      -----------
respect to such settlement.


          6.5  Third-Party Claims to Seller. In the event Seller becomes aware
               ----------------------------
of a third-party claim that Seller believes may result in Losses, Seller shall
notify Purchaser of such claim and Purchaser shall be entitled, at its expense,
to participate in, but not to determine or conduct, the defense of such claim.
Seller shall have the right in its sole discretion to conduct the defense of and
settle any such claim; provided, however, that unless such settlement is made
                       --------  -------
with the written consent of Purchaser, no settlement of any such claim with
third-party claimants shall be determinative of the amount of any claim for
indemnification pursuant to Section 6.3 or whether such claim constitutes a Loss
                            -----------
as defined in Section 6.3. In the event Purchaser has consented to any such
              -----------
settlement, Purchaser shall have no power of authority to object under any
provision of this Section 6.5 to the amount of any claim by Seller with respect
                  -----------
to such settlement.

                                      -7-
<PAGE>

                                   ARTICLE 7
                                   COVENANTS
                                   ---------

          7.1  Additional Documents and Further Assurances. Each Party, at the
               -------------------------------------------
request of another Party, shall execute and deliver such other instruments and
do and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.

          7.2  Non-Competition Obligation.
               --------------------------

               (a) During the Exclusive Period and within the Geographic Area,
Seller shall not directly or indirectly, without the prior written consent of
Purchaser, (i) have any ownership interest in (except for passive ownership of
five percent (5%) or less of an entity whose securities are publicly traded) any
Competition and excluding any ownership in Purchaser or any successor entity,
(ii) participate in the financing, operation, management or control, or assist
in or support the development of any Competition or (iii) license any
Intellectual Property Rights or technology to any Competition.

               (b) The covenants contained in Section 7.2(a) shall be construed
                                              --------------
as a series of separate covenants, one for each county, city, state and country
of the Geographic Area. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in Section
                                                                         -------
7.2(a). If, in any judicial proceeding, a court refuses to enforce any of such
------
separate covenants (or any part thereof), then such unenforceable covenant (or
such part) shall be eliminated from this Agreement to the extent necessary to
permit the remaining separate covenants (or portions thereof) to be enforced. In
the event that the provisions of this Section 7.2 are deemed to exceed the time,
                                      -----------
geographic or scope limitations permitted by applicable law, then such
provisions shall be reformed to the maximum time, geographic or scope
limitations, as the case may be, permitted by applicable laws.

               (c) Seller acknowledges that (i) the goodwill associated with the
Business and customer relationships prior to the Transaction is an integral
component of the value of the Business, including the Transferred Technologies,
to Purchaser and is reflected in the Purchase Price for the Transaction to be
received by Seller, (ii) Seller agreements as set forth herein are necessary to
preserve the value of the acquired Business including their goodwill and
customer relationships, for Purchaser following the Transaction and (iii)
Seller's covenants as set forth in Section 7.2(a) are necessary to preserve the
                                   --------------
value of the Transaction for Purchaser following the Effective Date.

               (d) Seller agrees that it may be impossible or inadequate to
fully measure and calculate Purchaser damages from any breach of the covenants
set forth in Section 7.2(a). Accordingly, Seller agrees that if it breaches or
             --------------
threatens to breach any provision of Section 7.2(a), Purchaser shall be entitled
                                     --------------
to, in addition to any other right or remedy otherwise available, an injunction
from a court of competent jurisdiction restraining such breach or threatened
breach and to specific performance of such provision of this Agreement. Seller
further agrees that no bond or other security shall be required of Purchaser in
obtaining such equitable relief, nor will proof of irreparable harm be required
for such equitable relief. Seller hereby expressly consents to the issuance of
such injunctive relief, whether in the form of a temporary restraining order or
otherwise, and to the ordering of such specific performance.

                                      -8-
<PAGE>

               (e) The provisions of this Section 7.2 shall not apply to Ephraim
                                          -----------
Heller as an individual; provided, however, that nothing contained in this
                         --------  -------
Agreement shall effect the duties, rights or obligations of Mr. Heller or
Purchaser under any arrangements or agreements between Mr. Heller and Purchaser.

          7.3  Solicitation of Employees. Seller agrees that for a period of
               -------------------------
thirty-six (36) months following the date hereof, Seller will not hire any
employees of Purchaser and will not either directly or indirectly, solicit,
induce, recruit or encourage any of the Purchaser's employees to leave their
employment, or take away such employees, or attempt to solicit, induce, recruit,
encourage or take away employees of the Purchaser, either for Seller or any
other person or entity.

          7.4 Termination of Pepex Agreements. Seller agrees that it shall use
              -------------------------------
reasonable efforts to terminate, in writing, the Pepex Agreements within ten
(10) days of the Effective Date.

                                   ARTICLE 8
                                    GENERAL
                                    -------

          8.1  No Agency. Except as expressly provided herein, each Party shall
               ---------
in all matters relating to this Agreement act as an independent contractor.
Neither Party shall have authority, nor shall either Party represent that it has
any authority, to assume or create any obligation, express or implied, on behalf
of the other, or to represent the other Party as agent or employee or in any
other capacity. Neither execution nor performance of this Agreement shall be
construed to have established any agency, joint venture, or partnership.

          8.2  Fees and Expenses. All expenses, including without limitation all
               -----------------
legal, accounting, financial advisory, consulting and other fees, incurred in
connection with the negotiation or effectuation of this Agreement or
consummation of the Transaction, shall be the obligation of the respective Party
incurring such expenses.

          8.3  Notices. Any notice or other communication required or permitted
               -------
to be delivered to any Party under this Agreement must be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such Party
below (or to such other address or facsimile telephone number as such Party may
have specified in a written notice given to the other Party):

                  if to Purchaser:          TheraSense, Inc.
                                            1360 South Loop Road
                                            Alameda, CA 94502
                                            Attn:  Chief Financial Officer
                                            Telephone:  (510) 749-5400
                                            Facsimile:  (510) 749-5401




                                      -9-
<PAGE>

                  with a copy to:           Wilson Sonsini Goodrich & Rosati
                                            Professional Corporation
                                            One Market, Spear Street Tower
                                            San Francisco, California 94105
                                            Attn:  Karen A. Dempsey
                                            Telephone:  (415) 947-2000
                                            Facsimile:  (415) 947-2099

                   if to Seller:            E. Heller & Company
                                            1360 South Loop Road
                                            Alameda, CA  94502
                                            Attn:  Ephraim Heller, President
                                            Telephone:  (510) 749-5411
                                            Facsimile:  (510) 749-5461

                  with a copy to:           Ropers, Majeski, Kohn & Bentley
                                            1001 Marshall Street
                                            Redwood City, CA 94063
                                            Attn:  Francois Laugier
                                            Telephone:  (650) 780-1691
                                            Facsimile:  (650) 780-1606

          8.4  Governing Law. This Agreement shall be governed in all respects
               -------------
by the laws of the United States of America and the State of California as such
laws apply to agreements entered into and to be performed entirely within
California by California residents.

          8.5  Forum and Venue. Any judicial action or proceeding arising
               ---------------
hereunder or relating hereto shall be brought in, and the Parties hereby consent
to the exclusive, personal jurisdiction of, the state and federal courts located
in Santa Clara, California. Seller hereby consents to the jurisdiction of such
courts and hereby appoints its counsel identified in Section 8.3 as its agent
for service of process.

          8.6  Breaches and Remedies. Except as otherwise provided herein, any
               ---------------------
and all remedies herein expressly conferred upon a Party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such Party, and the exercise by a Party of any one remedy
will not preclude the exercise of any other remedy.

          8.7  Waiver. No failure on the part of a Party to exercise any power,
               ------
right, privilege, or remedy under this Agreement, and no delay on the part of
any Party in exercising any power, right, privilege, or remedy under this
Agreement, will operate as a waiver of such power, right, privilege, or remedy;
and no single or partial exercise of any such power, right, privilege, or remedy
will preclude any other or further exercise thereof or of any other power,
right, privilege, or remedy. No Party shall be deemed to have waived any claim
arising from this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Party; and any such waiver will not be applicable or have any
effect except in the specific instance in which it is given.

                                      -10-
<PAGE>

          8.8  Assignment. Purchaser may assign all of its assets, licenses and
               ----------
other rights acquired hereunder in their entirety or in part prior to or after
the Effective Date in connection with a sale of substantially all assets of
Purchaser or in connection with merger solely for purposes of reincorporation.

          8.9  Severability. If, for any reason, a court of competent
               ------------
jurisdiction finds any provision of this Agreement, or portion thereof, to be
invalid or unenforceable, such provision of the Agreement will be enforced to
the maximum extent permissible so as to effect the intent of the Parties, and
the remainder of this Agreement will continue in full force and effect. The
Parties agree to negotiate in good faith an enforceable substitute provision for
any unenforceable provision that most nearly achieves the intent and economic
effect of the unenforceable provision. Notwithstanding the foregoing, if a court
of competent jurisdiction determines that any restriction on any license granted
herein is invalid or unenforceable, then the license grants to which such
restriction relates shall terminate automatically.

          8.10 Entire Agreement. This Agreement (including the Schedules and
               ----------------
Exhibits hereto) sets forth the entire understanding of the Parties hereto
relating to the subject matter hereof and supersedes all prior agreements and
understandings between the Parties hereto relating to the subject matter hereof.
8.11 Counterparts. This Agreement may be executed in counterparts, which, when
taken together, shall constitute one agreement.

          8.12 Amendments. This Agreement may not be amended, modified, altered
               ----------
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of Seller and Purchaser.

                                      -11-
<PAGE>

     IN WITNESS WHEREOF, the Parties, by their duly authorized representatives,
have executed this Agreement as of the Effective Date.

E. HELLER & COMPANY                       THERASENSE, INC.



By:   /s/ Ephraim Heller                  By:  /s/ W. Mark Lortz
      ________________________________         _________________________________

Name:     Ephraim Heller                  Name:  W. Mark Lortz
      ________________________________          ________________________________

Title:    President                       Title: President
      ________________________________          ________________________________
<PAGE>

                                Schedule 2.1(a)

                           Transferred Technologies
                           ------------------------

(1)  Agreement between Seller and the University of Texas at Austin ("UT")

          (a)  Assignment of Patent Rights and Technology entered into August 1,
               1991

          (b)  First Amendment to the Agreement Entitled 'Assignment of Patent
               Rights and Technology' entered into March 19, 1998

          (c)  Sponsored Research Agreement No. UTA98-0296 (collectively, the
               "UT Agreements")

(2)  Agreements between Seller and Bioanalytical Systems, Inc.

          (a)  License Agreement effective January 1, 1995

          (b)  First Amendment to the License Agreement dated October 7, 1998
               (collectively, the "BAS Agreements")

(3)  All of Seller's rights, title and interest in the patents and patent
     applications listed in the attached Patent Schedule, which, to Seller's
     knowledge, constitute all of the patents and patent applications required
     for use in the Current Products.

<PAGE>


                                Schedule 2.1(b)


                                Excluded Assets
                                ---------------

1.      All of Seller's cash

2.      All accounts receivables and/or notes due Seller

3.      All physical assets

4.      All technology not related to the Business

5.      All agreements and contracts related to Seller's photocatalyst business

6.      Shares of Purchaser owned by Seller

7.      Shares of LightStream owned by Seller

8.      Equity interests of Pepex owned by Seller

9.      All other assets not listed on Schedule 2.1(a)



<PAGE>


TheraSense Patent Summary

<TABLE>
<CAPTION>
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
                                                                                                                       Assignee
   M&G                                                                                                                (Inventor
  Matter #             Title                        Status               Serial Number           Inventors           Affiliations)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
<S>          <C>                          <C>                           <C>                 <C>                     <C>

01-US-I1     Interferant Eliminating      Issued 5,262,305 on 11/16/93  07/753,812          A. Heller, R. Maidan    EHC
             Biosensors                                                                                             (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

01-US-C1     Interferant Eliminating      Issued 5,365,786 on 10/18/94  08/161,682          A. Heller, R. Maidan    EHC
             Biosensors                                                                                             (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

02-US-01     Enzyme Electrodes            Issued 5,262,035 on 11/16/93  07/389,226          B. Gregg, A. Heller     EHC
                                                                                                                    (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

04-US-01     Electrode & Method for       Issued 5,320,725 on 6/14/94   07/880,759          A. Heller, B. Gregg     EHC
             Detection of Hydrogen                                                                                  (UT)
             Peroxide
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

04-DE-WO     Electrode & Method for       Pending                       Germany App.        A. Heller, B. Gregg     EHC
             Detection of Hydrogen                                      P4392197.3                                  (UT)
             Peroxide
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

04-JP-WO     Electrode & Method for       Pending                       Japan App.          A. Heller, B. Gregg     EHC
             Detection of Hydrogen                                      5-520192                                    (UT)
             Peroxide
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

05-US-01     Enzyme Electrodes            Issued 5,264,104 on 11/23/93  07/880,760          B. Gregg, A. Heller,    EHC
                                                                                            W. Kerner, M. Pishko,   (UT, Individual)
                                                                                            I. Katakis
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

05-US-D1     Enzyme Electrodes            Issued 5,264,105 on 11/23/93  08/032,806          B. Gregg, A. Heller,    EHC
                                                                                            W. Kerner, M. Pishko,   (UT, Individual)
                                                                                            I. Katakis
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

06-US-I1     Subcutaneous Glucose         Issued 5,593,852 on 1/14/97   08/299,526          A. Heller, M. Pishko    EHC
             Electrode                                                                                              (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

06-US-F1     Subcutaneous Glucose         Allowed                       08/767,110          A. Heller, M. Pishko    EHC
             Electrode                                                                                              (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

06-US-C2     Subcutaneous Glucose         Issued 5,965,380 on 10/12/99  09/229,235          A. Heller, M. Pishko    EHC
             Electrode                                                                                              (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

06-US-C3     Subcutaneous Glucose         Issued 6,083,710 on 7/4/00    09/334,480          A. Heller, M. Pishko    EHC
             Electrode                                                                                              (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

06-US-C4     Subcutaneous Glucose         Allowed                       09/356,102          A. Heller, M. Pishko    EHC
             Electrode                                                                                              (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

06-US-C5     Subcutaneous Glucose         Allowed                       09/477,053          A. Heller, M. Pishko    EHC
             Electrode                                                                                              (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
</TABLE>



<PAGE>


TheraSense Patent Summary

<TABLE>
<CAPTION>
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
                                                                                                                       Assignee
   M&G                                                                                                                (Inventor
  Matter #             Title                        Status               Serial Number           Inventors           Affiliations)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
<S>          <C>                          <C>                           <C>                 <C>                     <C>

06-US-C5     Subcutaneous Glucose         Pending (Filed 9/22/00)       N/A                 A. Heller, M. Pishko    EHC
             Electrode                                                                                              (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

06-EP-WO     Subcutaneous Glucose         Pending                       EPO App.            A. Heller, M. Pishko    EHC
             Electrode                                                  95931676.1                                  (UT)
                                                                        designating
                                                                        Germany, France,
                                                                        UK, Italy, Spain,
                                                                        Switzerland/
                                                                        Liechtenstein
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

06-JP-WO     Subcutaneous Glucose         Pending                       Japan App.          A. Heller, M. Pishko    EHC
             Electrode                                                  8-508981                                    (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

08-US-01     Soybean Peroxidase           Issued 5,665,222 on 9/9/97    08/540,789          A. Heller, M. Vreeke    EHC
             Electrochemical Sensor                                                                                 (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

08-US-I1     Electrochemical Analyte      Issued 5,972,199 on 10/26/99  App. 08/798,596     A. Heller, G.           EHC
             Sensors Using Thermostable                                                     Kenausis, Q. Chen, M.   (UT)
             Soybean Peroxidase                                                             Vreeke
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

 ***            ***                          ***                           ***                 ***                   ***

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

08-EP-WO     Soybean Peroxidase           Pending                       96 931 520.9        A. Heller, M. Vreeke    EHC
             Electrochemical Sensor                                     Published 8/5/98                            (UT)
                                                                        as number 0856064
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

08-JP-WO     Soybean Peroxidase           Pending                       JP 09-515039        A. Heller, M. Vreeke    EHC
             Electrochemical Sensor                                                                                 (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

08.I1-EP-    Electrochemical Analyte      Pending                       98907399.4          A. Heller, G.           EHC
W2           Sensors Using Thermostable                                                     Kenausis, Q. Chen, M.   (UT)
             Soybean Peroxidase                                                             Vreeke
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

08.I1-JP-    Electrochemical Analyte      Pending                       H10-534954          A. Heller, G.           EHC
W2           Sensors Using Thermostable                                                     Kenausis, Q. Chen, M.   (UT)
             Soybean Peroxidase                                                             Vreeke
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

11-US-C1     Small Volume In Vitro        Allowed                       09/213,040          A. Heller, B.           EHC (EHC/UT)
             Analyte Sensor                                                                 Feldman, J. Say, M.     TS (TS)
                                                                                            Vreeke
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

11-US-C2     Blood Analyte Sensor and     Allowed                       09/326,235          A. Heller, B.           EHC (EHC/UT)
             Method                                                                         Feldman, J. Say, M.     TS (TS)
                                                                                            Vreeke
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

 ***            ***                          ***                           ***                 ***                   ***

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

 ***            ***                          ***                           ***                 ***                   ***

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

11-EP-WO     Small Volume In Vitro        Pending                       98 906 328.4        B. Feldman, J. Say,     EHC (EHC/UT)
             Analyte Sensor                                                                 A. Heller, M. Vreeke    TS (TS)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
</TABLE>

***  Confidential Treatment Requested



<PAGE>


TheraSense Patent Summary

<TABLE>
<CAPTION>
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
                                                                                                                       Assignee
   M&G                                                                                                                (Inventor
  Matter #             Title                        Status               Serial Number           Inventors           Affiliations)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
<S>          <C>                          <C>                           <C>                 <C>                     <C>

11-JP-WO     Small Volume In Vitro        Pending                       H10-535046          B. Feldman, J. Say,     EHC (EHC/UT)
             Analyte Sensor                                                                 A. Heller, M. Vreeke    TS (TS)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

11-US-WO     Small Volume In Vitro        Pending                       09/355,547          B. Feldman, J. Say,     EHC (EHC/UT)
             Analyte Sensor                                                                 A. Heller, M. Vreeke    TS (TS)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

 ***            ***                          ***                           ***                 ***                   ***

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

 ***            ***                          ***                           ***                 ***                   ***

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

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

21-WO-U1     Multi-Sensor Array for       Pending                       PCT/US99/14460      T. de Lumley-           EHC
             Electrochemical                                            WO99/67628          Woodyear, D. Caruana,   (UT)
             Recognition of Nucleotide                                                      A. Heller
             Sequences and Methods
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

22-US-01     Electrochemical Affinity     Pending                       09/138,888          A. Heller, Charles N.   EHC
             Assay                                                                          Campbell                (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

22-WO-01     Electrochemical Affinity     Pending                       PCT/US99/19120      A. Heller, Charles N.   EHC
             Assay                                                      WO00/11474          Campbell                (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

***          ***                          ***                           ***                 ***                     ***
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

27-WO-U1     Combinatorial                Pending                       PCT/US99/14459      A. Heller, D. Caruana   EHC
             Electrochemical Synthesis                                  WO99/67019                                  (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

30-US-01     Rapid Amperometric           Allowed                       09/145,776          A. Heller, Thierry de   EHC
             Verification of PCR                                                            Lumley-Woodyear, G.     (UT)
             Amplification of DNA                                                           Georgiou, A. Freeman
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

30-WO-01     Rapid Amperometric           Pending                       PCT/US99/19130      A. Heller, Thierry de   EHC
             Verification of PCR                                        WO00/11224          Lumley-Woodyear, G.     (UT)
             Amplification of DNA                                                           Georgiou, A. Freeman
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

31-US-01     Potentiometric Sensors for   Pending                       09/158,973          A. Heller, C.           EHC
             Analyte Determination                                                          Yarnitzky               (UT)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------

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

 ***            ***                          ***                           ***                 ***                   ***

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

------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
</TABLE>

***  Confidential Treatment Requested



<PAGE>


TheraSense Patent Summary

<TABLE>
<CAPTION>
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
                                                                                                                       Assignee
   M&G                                                                                                                (Inventor
  Matter #             Title                        Status               Serial Number           Inventors           Affiliations)
------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
<S>          <C>                          <C>                           <C>                 <C>                     <C>

 ***            ***                          ***                           ***                 ***                   ***

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

------------ ---------------------------- ----------------------------- ------------------- ----------------------- ---------------
</TABLE>

***  Confidential Treatment Requested

<PAGE>

                                 Schedule 2.2

                              Assumed Liabilities
                              -------------------

        All Liabilities incurred in connection with the use of the Transferred
Technologies by Purchaser or its assignee after the Effective Date.


<PAGE>

                                 Schedule 2.3

                             Excluded Liabilities
                             --------------------

        Seller's Liabilities that are unrelated to the Transferred Technologies.

<PAGE>

                                 Schedule 4.4

                       Title to Transferred Technologies
                       ---------------------------------

        (i)     The University of Texas and the United States Government retain
certain rights to the Transferred Technology under the UT Agreements.

        (ii)    Bioanalytical Systems, Inc. retains certain rights to the
Transferred Technology under the BAS Agreements.

        (iii)   Pepex has been granted certain rights to the Transferred
Technology under that certain License Agreement between Purchaser and Pepex,
dated October __, 2000.