<PAGE>

                                                                   EXHIBIT 10.7B

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

                           MASTER PURCHASE AGREEMENT

                           Manufacturing and Supply

     This Master Purchase Agreement is effective as of June 1, 2001 (the
"Effective Date"), by and between TheraSense, Inc., a Delaware corporation
having its principal place of business at 1360 South Loop Road, Alameda,
California 94502 ("TheraSense") and Facet Technologies, LLC, a Georgia limited
liability company, having a place of business at 1850 Parkway Place, 9th Floor,
Marietta, Georgia 30067 ("Facet").

                                   RECITALS

     WHEREAS, Facet is a leader in the field of manufacturing lancing devices
and lancets for the diagnostic testing market; and

     WHEREAS, TheraSense develops and manufactures advanced blood glucose
monitoring devices for diabetics; and

     WHEREAS, TheraSense wishes to contract with Facet to manufacture certain
Products (as hereinafter defined) for use with the Freestyle blood glucose
monitoring device, as defined and described in the Specifications provided as
Exhibit B hereto, and to purchase the resulting Products from Facet; and

     WHEREAS, Facet agrees to manufacture and supply such Products to
TheraSense;

     NOW THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree to the terms and conditions specified below as follows:

                                   AGREEMENT

     The terms and conditions of this agreement and Exhibits A and B hereof
(collectively the "Agreement") and any Purchase Order(s) issued hereunder, shall
govern all sale and purchase transactions pertaining to the Products, that may
be entered into by TheraSense and Facet from time to time hereafter, unless
expressly otherwise agreed in writing.

     1.  DEFINITIONS

         1.1  "Acceptance" shall mean the successful completion of a mutually
agreed upon inspection and test procedure for Products which confirms that the
tested Product meets the Specifications (as defined hereinafter).

         1.2  "Affiliate" shall mean any entity that directly or indirectly
controls, is under common control with, or is controlled by, one of the parties
to this Agreement. An entity shall be deemed to be in control of another entity
only if, and for so long as, it owns or controls more than fifty-one percent
(51%) of the shares of the subject entity entitled to vote in the election of
the

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directors (or, in the case of an entity that is not a corporation, for the
election of the corresponding managing authority).

         1.3  "Cooperative Development Agreement" shall mean that certain
Cooperative Development Agreement between the parties dated as of December 1,
1998, as amended.

         1.4  "Engineering Change" shall mean any mechanical or process change
to any Product, including injection molding, or the manufacturing kitting, or
assembly process for any Product. An Engineering Change includes changes
originating from TheraSense or Facet that could affect the safety, performance,
reliability, serviceability, appearance, dimensions, tolerances, materials, and
composition of any bill of material of any Product.

         1.5  "FDA" shall mean the United States Department of Health and Human
Services' Food and Drug Administration.

         1.6  "Force Majeure" shall mean any act of God, earthquake, fire,
natural disaster, accident, act of government, or an act that is beyond the
reasonable control of either party.

         1.7  "Product" shall mean the lancing devices, as developed under the
CDA, and lancets for the Freestyle systems. Additional Products may be added
with the agreement of both parties.


         1.8  "Product Improvements" shall mean any modifications to the
Products or manufacturing assembly process including system kiting to enhance
performance and/or provide comparable performance at lower cost. All Product
Improvements must be approved in writing by TheraSense prior to
implementation.


         1.9  "Purchase Order" shall mean written order(s) from TheraSense to
Facet for the Products, specifically referencing this Agreement and including
the description, quantity, shipping destination, and required delivery date at
the destination.

         1.10 "Specifications" shall mean the mutually agreed upon
specifications for the Products and packaging.

         1.11 "TheraSense" as used herein shall mean TheraSense and/or its
authorized subcontractor(s), when referring to the ordering or delivery of or
payment for Products. TheraSense subcontractors must be authorized in writing
solely by TheraSense and all purchases by such parties shall be credited against
the volume of TheraSense purchases.

     2.  SUPPLY REQUIREMENTS

         2.1  During the term of this Agreement, Facet shall supply TheraSense
with those quantities of the Products ordered by TheraSense in a Purchase Order
submitted to Facet pursuant to this Agreement. The Products shall comply with
the Specifications and all jointly developed quality plans.

                                      -2-

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         2.2  In consideration of the services and support provided by Facet
under the Cooperative Development Agreement, TheraSense agrees to purchase the
Products exclusively from Facet for a period of six (6) years from the Effective
Date.

         2.3  Facet and TheraSense shall work jointly to develop a quality plan
for Facet's manufacturing line with the ultimate goal to achieve within
reasonable economic limits a process capability index (Cpk) of 1.67 or higher on
all key parameters of the Product Specifications.

         2.4  Facet agrees to implement process improvements and process
validations using the TheraSense process control methodology as outlined below.
TheraSense will provide appropriate support and training to support this
process.

[***]

         2.5  Facet shall share process data with TheraSense by submitting
Certificates of Compliance that include process control charts if required by
TheraSense, for every Product shipment.

     3.  FORECASTS AND ORDERS

     Starting on the Effective Date, and every [***] thereafter, TheraSense
shall provide Facet with a non-binding written forecast of TheraSense's expected
needs for the Products for no less than a [***] period from the date thereof
(the "Forecast"). At least [***], TheraSense shall place a [***] Purchase Order
with Facet for the Products.

     4.  MATERIAL PROCUREMENT

         4.1  Purchase Orders. TheraSense's accepted Purchase Orders will
              ---------------
constitute authorization for Facet to procure, using standard purchasing
practices, the components, materials and supplies necessary for the manufacture
of Products ("Inventory") covered by such Purchase Orders.

         4.2  Special Inventory. Subject to the conditions below, Facet may
              -----------------
purchase, in amounts beyond the amount necessary to fill accepted Purchase
Orders, the components, materials, and supplies: (i) which require greater than
ninety (90) days from the time they are ordered to the time they are delivered
to Facet ("Long Lead Time Components") plus thirty (30) days to account for the
order, shipment, receipt and manufacturing and, (ii) purchased in quantities
above the currently required amount in order to achieve price targets ("Economic
Order Inventory"), and (iii) purchased in excess of current requirements because
of minimum lot sizes available from manufacturers ("Minimum Order Inventory").
Collectively, these components, materials, and supplies are termed "Special
Inventory."


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         4.3  Safety Stock. In recognition of TheraSense's desire to have a
              ------------
ready supply of Products, Facet agrees to maintain a raw materials inventory at
its facility in an amount equivalent to [***]. Such inventory will be modified
from time to time based upon TheraSense's actual usage over the preceding [***].
All materials for TheraSense shall be cycled through this inventory on a FIFO
basis. TheraSense's obligation and sole liability for this service shall be to
purchase any such inventory at Facet's cost plus associated overhead expense
upon termination or expiration of this Agreement or cancellation of any Purchase
Order per 4.5, and provided Facet is not able to otherwise use such inventory.
Facet shall use reasonable commercial efforts to eliminate or reduce this
inventory at the approaching expiration of this Agreement.


         4.4  Quantity Increases and Shipment Schedule Changes. For any accepted
              ------------------------------------------------
Purchase Order, TheraSense may (i) increase the quantity of Products or (ii)
reschedule the quantity of Products and their delivery date. Any Purchase Order
quantities increased or rescheduled pursuant to this Section may not be
subsequently increased or rescheduled without the prior written approval of
Facet. Although Facet will use reasonable commercial efforts to satisfy
TheraSense's requested quantity increases or schedule changes, Facet's
obligation to do so is subject to material availability and TheraSense's
agreement to reimburse Facet for any extra costs incurred by Facet to meet a
quantity increase or schedule change. If there are extra costs required to meet
a quantity increase or schedule change, Facet will seek approval from TheraSense
to pay any extra costs required in advance of incurring such costs.

         4.5  Cancellation.  TheraSense may not cancel any portion of the
              ------------
quantity of an accepted Purchase Order without Facet's prior written approval,
which shall not be unreasonably withheld. If the parties agree upon a
cancellation, TheraSense will pay Facet for Products, Inventory, and Special
Inventory affected by the cancellation as follows: (i) *** of the contract price
for all finished Products in Facet's possession and on order from non-cancelable
Purchase Orders (ii) *** of the cost of all Inventory and Special Inventory in
Facet's possession and on order from non-cancelable Purchase Orders (iii) any
supplier cancellation charges incurred with respect to Inventory and Special
Inventory accepted for cancellation by the supplier; and (iv) expenses incurred
by Facet related to labor and equipment specifically put in place to support
TheraSense's Purchase Orders. Facet will use reasonable commercial efforts to
cancel pending orders for such inventory, and to otherwise mitigate the amounts
payable by TheraSense in case of cancellation.


     5.  ENGINEERING CHANGES

         5.1  TheraSense Requests. TheraSense may request, in writing, that
              -------------------
Facet incorporate an Engineering Change into any Product. Such request will
include a description of the proposed Engineering Change sufficient to permit
Facet to evaluate its feasibility, impacts, and cost. Facet's evaluation shall
be in writing and shall estimate the costs and time of implementation and the
impact on the manufacturing, delivery schedule, and pricing of the Product and
shall be delivered to TheraSense within fifteen (15) days of receiving the
request. TheraSense shall have thirty (30) days after receipt of Facet's
evaluation to decide whether or not to implement the requested Engineering
Change. Facet will not be obligated to proceed with the engineering change until
the parties have agreed upon the changes to the Product's Specifications,
delivery schedule and Product pricing and upon the implementation costs to be
borne by TheraSense including, without limitation, the cost of

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Inventory, Special Inventory and safety stock on-hand and on-order that becomes
obsolete. Facet will use reasonable commercial efforts to implement all
TheraSense required changes per TheraSense requests.

         5.2  Facet Requests. If Facet desires to make any Engineering Change,
              --------------
it will notify TheraSense not less than six (6) months prior to such change,
unless conditions not in Facet's control preclude this from happening, to enable
TheraSense to determine conformity of the changed Product with TheraSense's
manufacturing requirements and obligations with respect to regulatory
authorities. If Facet changes any Product or process to create non-conforming
Product or Product which fails to conform to TheraSense's regulatory
constraints, further processing needs, or performance standards for finished
goods, then Facet agrees to continue to supply unchanged Product for the
duration of the Agreement or until TheraSense can alter its process, standards
for finished goods or seek appropriate regulatory approval to accommodate the
changed Product or process. ECO implementation shall otherwise follow the
standard Facet procedure.


     6.  PURCHASE PRICE

     TheraSense's purchase price with respect to the Products shall be as
specified in Exhibit A. The price for Products to be manufactured will be set
[***] by reviewing actual component and assembly costs at Facet and making
adjustments to take account of the changes and the resultant changes necessary
to [***]. All prices quoted are exclusive of federal, state and local excise,
sales, use and similar taxes, and any duties, and TheraSense shall be
responsible for all such items.

     7.  DELIVERY

         7.1  Packaging; Shipping; Risk of Loss. Purchases of Products made
              ---------------------------------
hereunder by Purchase Orders shall be [***]. TheraSense will specify the carrier
and shipments will be made freight collect. Title and risk of loss of Products
shall pass to TheraSense at the [***]. Partial shipments, with TheraSense prior
approval, will be accepted. A certificate of conformance shall accompany each
shipment made hereunder. All Products delivered pursuant to the terms of this
Agreement shall be suitably packed for shipment in accordance with TheraSense's
Specifications, marked for shipment to TheraSense's destination specified in the
applicable Purchase Order and delivered to a carrier or forwarding agent.

         7.2  Late Delivery. Facet shall use its reasonable commercial efforts
              -------------
to maintain 100% on time delivery of Products. Facet shall notify TheraSense as
soon as practicable if for any reason Facet fails to comply, or anticipates that
it may fail to comply, with the terms of this Agreement or of a Purchase Order
(including but not limited to failure to meet a delivery date required in the
Purchase Order, provided that such delivery date has been accepted and agreed to
by Facet, or delivery of less than the required quantity of Products). If Facet
fails to deliver any Product (other than as a result of a Force Majeure event as
set forth in Section 18.1 herein), then, TheraSense may request and Facet shall
agree to work any necessary overtime at no additional cost to TheraSense to
minimize such delay, or TheraSense may request Facet to ship the Product by
premium transportation at no additional cost to TheraSense and Facet will comply
with such request.

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         7.3  Delivery Documentation. Facet shall include an invoice for every
              ----------------------
delivery of Products which includes the following information for every unit of
Product delivered: a complete noun description in the English language, a
statement as to the country of origin of the goods; TheraSense's Purchase Order
number, the value of the Products therein; Facet's identification number, or in
the absence of such number, the full address of Facet; and the terms of sale.

     8.  PAYMENTS

         8.1  Invoice payment terms applicable to Purchase Orders issued
hereunder shall be net thirty (30) days [***]. In addition to the invoice
documentation to accompany each delivery of Product, for payment purposes, Facet
shall issue an invoice directly to TheraSense upon Product shipment. Payment for
other costs to be paid by TheraSense hereunder shall be made within thirty (30)
days of Facet's invoice. All payments shall be made in lawful U.S. currency.

     9.  WARRANTY

         9.1  Facet warrants that the Products will be new, merchantable, free
from material defects in materials and workmanship and will conform to the
Specifications under normal and intended use for a period of [***] after
acceptance by TheraSense. This express limited warranty does not apply to (a)
materials consigned or supplied by TheraSense to Facet; (b) or Product that has
been abused, damaged, altered or misused by any person or entity after the title
passes to TheraSense. With respect to first articles, prototypes, pre-production
units, test units or other similar Products, Facet makes no representations or
warranties whatsoever. Upon any failure of a Product to comply with the above
warranty, Facet's sole obligation, and TheraSense's sole remedy, is for Facet,
at its option, to promptly repair or replace such unit and return it to
TheraSense freight pre-paid. TheraSense shall return Products covered by the
warranty freight pre-paid after completing a failure report and obtaining a
return material authorization number from Facet to be displayed on the shipping
container.

         9.2  Facet further represents and warrants that its supplying of
Products to TheraSense under this Agreement does not conflict with any other
agreement to which Facet is a party.

         9.3  Facet further represents and warrants that it has, and shall
maintain during the term of this Agreement, adequate equipment and facilities to
meet TheraSense's demand for Products as represented in TheraSense's Forecast as
described in Section 3 of this Agreement.

         9.4  Facet has stated that its manufacturing facilities are EN46001
registered and Facet will use all commercially reasonable efforts to assure that
such facilities and any new Facet facilities used for the production of Product
will continue to be registered under EN46001 during the term of this Agreement.
"Registered" as used herein shall mean certified and approved. Facet shall
notify TheraSense in writing within thirty (30) days of any change in
certification status.

         9.5  Facet further warrants that title to all Products shipped to
TheraSense or drop shipped directly to TheraSense's customers pursuant to this
Agreement shall pass to TheraSense or a TheraSense customer, as the case may be,
free and clear of any liens, charges, encumbrances,

                                      -6-

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restrictions or rights created in, by or against the Products or against Facet.
Provided that TheraSense has paid all associated fees for the Products,
TheraSense and TheraSense's customers shall have quiet enjoyment of the
Products.

         9.6  Facet further warrants that: (a) it shall comply in all material
respects with all legal requirements in fulfilling its obligations under this
Agreement, including, but not limited to, lawful manufacturing practices and its
treatment of its personnel and compliance; (b) there are no lawsuits, claims,
suits, proceedings or investigations pending or, to Facet's knowledge,
threatened against or affecting Facet in respect of its operations or processes
used therein, nor to Facet's knowledge, is there any basis for the same; and (c)
there is no action, suit or proceeding pending or, to Facet's knowledge,
threatened which questions the legality of the transactions contemplated by this
Agreement. Facet warrants that it owns, holds or possesses and shall maintain
all material licenses, franchises, permits, privileges, immunities, approvals
and other authorizations from a governmental body which are necessary to entitle
it to carry on and conduct its operations as contemplated herein.

         9.7  Facet warrants that all equipment used in the manufacturing and
planning of TheraSense Products is Year 2000 compliant.

         9.8 Facet warrants that it shall maintain design history files and
device history records for all Products and retain these records for five (5)
years after the products are last manufactured by Facet. Facet will also provide
TheraSense access to these records upon request.


         9.9  OTHER THAN THE WARRANTIES IN THIS SECTION 9, FACET MAKES NO OTHER
WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS, IMPLIED, STATUTORY, OR IN ANY
OTHER PROVISION OF THIS AGREEMENT OR COMMUNICATION WITH CUSTOMER, AND FACET
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OR CONDITIONS OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.

     10.  REGULATORY REQUIREMENTS

     During the term of this Agreement Facet will:

     A.   Comply with the pertinent Quality System Regulations ("QSR") as such
          may be determined by the FDA and all applicable United States
          government regulatory requirements.

     B.   Submit to periodic quality audits; TheraSense's Quality Assurance
          department may, at its sole option, perform audits of Facet's
          compliance with Quality System Regulations, with the quality control
          requirements specified herein and attached hereto as Exhibit C,
          together with any other quality systems and specifications mutually
          agreed upon.  Facet acknowledges that the preceding sentence granting
          TheraSense certain audit rights in no way relieves Facet of any of its
          obligations under this Agreement, nor shall such provision require
          TheraSense to conduct any such audits.

                                      -7-


<PAGE>


          (1) Any audits shall be conducted during normal business hours after
               reasonable notice (a minimum of four weeks) to Facet and not more
               frequently than once in any one hundred twenty (120) day period,
               except that TheraSense may conduct a limited audit in less than
               one hundred twenty (120) days of a previous audit for the limited
               purpose of reviewing any deficiencies discovered in a previous
               audit.

          (2) Any out of compliance observations noted during these audits must
               be corrected expeditiously. Facet shall, within thirty (30) days
               following receipt of an audit report that recommends corrective
               actions, provide TheraSense with a corrective action plan and
               schedule for carrying it out.

          (3) Following a TheraSense quality audit, Facet will be assigned an
               overall rating of acceptable, marginal or unacceptable. In the
               event Facet receives an unacceptable rating TheraSense will re-
               audit Facet within six (6) months. [***] unacceptable ratings by
               TheraSense will result in Facet's disqualification and
               termination of production. Any such termination shall be deemed
               to result from a breach of this Agreement by Facet and the
               provisions of Section 15 of this Agreement shall apply.


          (4)  Facet agrees to provide to TheraSense any observations and
               corrective actions implemented as the result of any audits
               conducted by the FDA.

          (5)  Facet shall have the right to refuse access to areas where Facet
               customer confidentiality issues may arise.

     11.  ACCEPTANCE

          11.1 Acceptance testing shall be performed by TheraSense in accordance
with the procedures agreed upon in writing by the parties and incorporated in
the Specifications. TheraSense shall notify Facet of any defects or non-
conformance as soon as reasonably possible after same are discovered by
TheraSense, and Facet shall have an opportunity to inspect and test the Product
claimed to be defective or non-conforming. Facet agrees to promptly replace (at
no additional charge to TheraSense) any Product supplied to TheraSense hereunder
which does not fully comply with the Specifications. Upon the successful
completion of Acceptance testing, the Product will be considered accepted. If,
within ten (10) business days after receipt, TheraSense does not reject the
Product or notify Facet that it will reject it, then such Product will be deemed
accepted.


          11.2  Except as set forth in Section 11.1, TheraSense shall not be
obligated to accept or pay for any Product that does not comply with the
Specifications or any rules or regulations referred to above. TheraSense's
failure to inspect, test, or reject any particular shipment shall not constitute
a waiver by TheraSense of any of its rights to inspect and reject any subsequent
shipment, or of Facet's responsibilities to provide subsequent shipments of
Product in accordance with the Specifications. Facet shall not be liable for
Product altered outside of its factory by someone other than Facet or for
Product subjected, by an entity other than Facet, to misuse, abuse, improper
alteration, accident or negligence in use, storage, transportation or handling.

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Notwithstanding the above, Facet shall not be responsible in any way for
modifications to the Product made by TheraSense during TheraSense's subsequent
manufacturing process.

     12.  LIMITATION OF LIABILITY

     EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT AND FOR INTENTIONAL ACTS OR
GROSS NEGLIGENCE, UNDER NO CIRCUMSTANCE WILL EITHER PARTY BE LIABLE TO THE OTHER
FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE
DESIGN, MANUFACTURE, PACKAGING, DELIVERY, STORAGE OR USE OF THE PRODUCT.

     13.  INTELLECTUAL PROPERTY INDEMNIFICATION

          13.1  Facet and TheraSense agree to promptly notify each other of any
assertion, claim, or action, whether actual or potential, alleging that Product,
or use of Product for its intended purpose, infringes any intellectual property
right of a third party (a "Claim") to the extent they have knowledge of the
same. TheraSense shall defend, indemnify and hold harmless Facet, its directors,
officers, agents and employees from and against any and loss, liability,
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees) related to a Claim. Administration of any Claim shall be
governed by Section 14.4 below.

          13.2  Should TheraSense decide any redesign is necessary due to an
actual or potential Claim, then so long as the redesign will result in only
modifications to existing molds (e.g., mold inserts), Facet agrees to
expeditiously work to redesign the Products [***] and any modifications to the
tooling [***]. If any such additional redesign would require more than slight
modifications to existing molds, then Facet and TheraSense agree to negotiate in
good faith any cost associated with the additional redesign and new tooling.

          13.3  THIS SECTION 13 STATES THE PARTIES' TOTAL RESPONSIBILITIES,
LIABILITIES, AND REMEDIES TO ONE ANOTHER FOR ANY ACTUAL OR ALLEGED INFRINGEMENT
OF ANY PATENT, TRADEMARK, COPYRIGHT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD
PARTIES.

     14.  GENERAL INDEMNITY

          14.1  Indemnification by Facet. Facet shall hold harmless and
                ------------------------
indemnify TheraSense, its directors, officers, agents, and employees, from any
and all third party claims, suits, losses and expenses, including attorneys'
fees, provided that any such claim, suit, loss or expense is attributable to
bodily injury, sickness, disease, or death, or injury to property which is
caused by Facet's failure to comply with federal, state or local law including
but not limited to the Civil Rights Act of 1964, 42 U.S.C. (S) 2000e et. seq.
("Title VII"), the Age Discrimination in Employment Act, 29 U.S.C. (S) 621 et.
seq., the American with Disabilities Act, the Civil Rights Act of 1966, the
Civil Rights Act of 1991, Executive Order 11246, as amended, and any other
statute, regulation or ordinance prohibiting illegal discrimination or
retaliation. Except as otherwise provided in this Agreement, Facet shall defend,
indemnify and hold harmless TheraSense, its directors, officers,

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employees, and agents from and against any and all claims, injuries,
liabilities, judgments, and damages, including but not limited to property
damage, personal injury and death, including all reasonable costs and expenses
(including, without limitation, reasonable attorneys' fees), as a result,
whether direct or indirect, of any injury or damage to a third party caused or
alleged to be caused solely on account of Facet's failure to meet manufacturing
workmanship Specifications. Notwithstanding the foregoing, Facet shall not be
required to defend any claim based upon: the use of the Product by TheraSense as
part of any procedure or in testing or experimenting other than with the prior
written agreement of Facet.

          14.2  Indemnification by TheraSense.  Except as otherwise provided in
                -----------------------------
this Agreement, TheraSense shall defend, indemnify and hold harmless Facet, its
directors, officers, agents and employees, from and against any and all claims,
injuries, liabilities, judgments, and damages, including but not limited to
property damage, personal injury and death, including all reasonable costs and
expenses (including, without limitation, reasonable attorneys' fees), as a
result, whether direct or indirect, of any injury or damage to a third party
caused or alleged to be caused on account of any alleged defect of any Product,
other than a defect related to workmanship for which Facet has indemnified
TheraSense under Section 14.1.

          14.3  Limits to Indemnification.  These obligations to defend and
                -------------------------
indemnify (in Sections 14.l and 14.2) do not extend to claims, injuries or
damages to the extent resulting from the negligent or intentional conduct, act,
omission or obligation of the party seeking indemnification.

          14.4  Administration of Third-Party Claims.  The indemnified party
                ------------------------------------
agrees to cooperate with the indemnifying party in the defense of any third-
party claim, lawsuit or action and to make available to each other at the
indemnifying party's expense such of the documents, employees and expertise as
are necessary in defense of any such action. Each party agrees to notify the
other of any third-party claim, suit or action promptly upon learning that same
is within the scope of the indemnification set forth herein. If the indemnifying
party acknowledges in writing its obligation to indemnify the party seeking
indemnification with respect to a third-party claim, lawsuit or action, the
indemnifying party shall be entitled to undertake the defense thereof by
representatives of its own choosing reasonably satisfactory to the indemnified
party. The indemnified party and any party hereto shall have the right to
participate in any such defense with advisory counsel of its own choosing at its
expense. If the indemnifying party fails to vigorously defend the party seeking
indemnification, such party may assume such defense with counsel of its own
choosing.

     15.  TERM AND TERMINATION

          15.1  Term.  The term of this Agreement shall commence on the
                ----
Effective Date and shall continue for six (6) years thereafter (the "Initial
Term") unless earlier terminated as provided in Section 15.2.

          15.2  Termination.  This Agreement may be terminated by either party:
                -----------
(a) if the other party defaults in any payment to the terminating party and such
default continues for a period of fifteen (15) days after the delivery of
written notice thereof by the non-defaulting party to the other party, (b) if
the other party defaults in the performance of any other material term or
condition of this Agreement and such default continues for a period of
sixty (60) days after the delivery of

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written notice thereof by the terminating party to the other party, or (c)
commences a voluntary or has involuntary proceeding commenced under any federal
or state, law or similar law and if involuntary, such is not set aside within
sixty (60) days of its being commenced; (ii) appoints or is appointed a
receiver, trustee or similar official or a general assignment for the benefit of
such party's creditors; (iii) proceeds to dissolve, wind up or liquidate; or
(iv) becomes unable to pay its debts either because it is subject to a
suspension of payments order, bankruptcy, or other insolvency proceeding.
Termination of this Agreement for any reason shall not affect the obligations of
either party that exist as of the date of termination. Upon termination under
Section 15.2, TheraSense shall be responsible for the finished Products,
Inventory, and Special Inventory in existence at the date of termination or
expiration in the same manner as for cancellations as set forth in Section 4.5.
Notwithstanding termination or expiration of this Agreement for any cause,
Sections 2.2, the last two sentences of Section 4.3, 9, 12, 13, 14, 15.2, 16, 17
and 18 shall survive said termination or expiration.

     16.  CONFIDENTIALITY

          16.1  Facet and TheraSense both agree that in the performance of this
contract there may be the need for one or the other party to disclose its
confidential information to the other.

          16.2  "Confidential Information" shall include information supplied to
the receiving party in written form and clearly marked "Confidential" and
information disclosed orally, provided that the disclosing party provides within
thirty (30) days of the first disclosure a document that identifies the topic of
the information considered confidential and states that it is "Confidential."

          16.3  Each party agrees to keep Confidential Information transferred
to it in strict confidence and not to disclose or otherwise use such information
for any purpose other than determining conformance to Specifications, processing
Products into TheraSense's products or otherwise fulfilling its obligations
under this Agreement without the prior written consent of the other party. All
such documents provided by the disclosing party containing Confidential
Information shall at either party's request be returned to it except that one
(1) copy shall be retained by counsel for that party to ensure compliance
hereunder.

          16.4  The above notwithstanding, each party's obligation of the
confidence with respect to the Confidential Information disclosed hereunder,
shall not include:

                (1)  Information which, at the time of disclosure to the
                     receiving party is published, known publicly or is
                     otherwise in the public domain;

                (2)  Information which, after disclosure to the receiving party
                     is published or becomes known publicly or otherwise becomes
                     part of the public domain, through no fault of the
                     receiving party;

                (3)  Information, which, prior to the time of disclosure to the
                     receiving party, was known to the receiving party, as
                     evidenced by its written records;

                                      -11-

<PAGE>

                (4)  Information which has been or is disclosed to the receiving
                     party in good faith by a third party who was not, or is
                     not, under any obligation of confidence or secrecy to the
                     receiving party at the time said third party discloses to
                     the receiving party; and

                (5)  Information which is independently developed by or on
                     behalf of the receiving party, without reliance on the
                     Information received hereunder.

          16.5  The above provisions notwithstanding, each party agrees to keep
in strict confidence and not to disclose the identity, interest and
participation of the other party in the work or evaluation and the relationship
of the parties hereunder except to the extent as required by law.

          16.6  Each party represents that it is under no obligation to any
third party that would interfere with its disclosing the Confidential
Information to the other party and, further, that any Confidential Information
which it transmits or otherwise discloses to the other party is not information
with respect to which that party is under any obligation to keep confidential or
which that party knows to be the proprietary property of any third party.

          16.7  Unless specifically provided in this Agreement, no right to use
any Confidential Information disclosed hereunder, either express or implied is
granted by either party. Confidentiality will remain in effect for a period of
five (5) years after the expiration of this Agreement or any extension of it.

          16.8  Except as required by securities laws, Facet shall not issue any
publicity, news release, technical article or other public announcement relating
to this Agreement and the products or services of TheraSense without, in any
case obtaining the prior written consent of TheraSense.

     17.  DISPUTES

     TheraSense's Director of Purchasing and Facet's Business Development
representative shall initially review any and all disputes between the parties
relating to this Agreement.  The two individuals shall meet and conduct good
faith discussions to attempt to resolve the dispute.  If they are unsuccessful,
review shall be escalated to the TheraSense Vice President of Operations and
Facet's Vice President of Marketing, who shall conduct a similar good faith
meeting.  If still unsuccessful after a reasonable time, the matter will be
escalated to the TheraSense President and the President of Facet for a good
faith meeting to attempt to resolve the dispute.  If settlement has not been
reached thereafter, then the dispute shall be settled by binding arbitration as
provided in section 14.2 of the Cooperative Development Agreement.

     18.  GENERAL

          18.1  Force Majeure.  Neither party will be deemed in default of this
                -------------
Agreement to the extent that performance of its obligations or attempts to cure
any breach are delayed or prevented by reason of a Force Majeure, provided that
such party gives the other party written notice thereof promptly and, in any
event, within ten (10) days of discovery thereof and uses its commercially
reasonable efforts to continue to so perform or cure. In the event of such a
Force Majeure, the time

                                      -12-



<PAGE>

for performance or cure will be extended for a period equal to the duration of
the Force Majeure, but in no event more than sixty (60) calendar days.

          18.2  Assignment.  The rights and liabilities of the parties hereto
                ----------
will bind and inure to the benefit of their respective Affiliates, successors,
executors and administrators, as the case may be; provided that, as TheraSense
has specifically contracted for Facet's services, Facet may not assign its
obligations, other than as specified herein, under this Agreement either in
whole or in part, without the prior written consent of TheraSense. Any attempted
assignment in violation of the provisions of this Section 18.2 will be void.
Notwithstanding the foregoing, Facet may subcontract part of its manufacturing
obligations hereunder to [***] to the same extent as it currently subcontracts
such obligations to such parties without TheraSense's prior consent. Any
additional or replacement subcontractors or any subcontracting to [***] of any
of Facet's manufacturing obligations not currently subcontracted to such parties
will be subject to TheraSense's approval, which approval TheraSense will not
unduly withhold or delay.

          18.3  Severability.  If for any reason a court of competent
                ------------
jurisdiction finds any provision of this Agreement, or portion thereof, to be
unenforceable, that provision of this Agreement shall be enforced to the maximum
extent permissible so as to effect the intent of the parties, and the remainder
of this Agreement shall continue if full force and effect.

          18.4  No Waiver.  All rights and remedies conferred under this
                ---------
Agreement or by any other instrument or law shall be cumulative, and may be
exercised singularly or concurrently. Failure by either party to enforce any
provision of this Agreement shall not be deemed a waiver of future enforcement
of that or any other provision.

          18.5  Notices.  All notices required or permitted under this Agreement
                -------
will be in writing, will reference this Agreement and will be deemed given when:
(i) delivered personally; (ii) when sent by confirmed telex or facsimile; (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) one (1) day after deposit with a
commercial overnight carrier, with written verification of receipt. All
communications will be sent to the addresses set forth below to or such other
address as may be designated by a party by giving written notice to the other
party pursuant to this Section 18.5:

TheraSense, Inc.                               Facet Technologies, LLC
1360 South Loop Road                           1850 Parkway Place, 9th Floor
Alameda, California 94502                      Marietta, Georgia 30067
Attn:  John Purlee                             Attn:  President
       Director of Purchasing
                               With a copy to: Facet Technologies, LLC
                                               c/o Matria Healthcare, Inc.
                                               1850 Parkway Place, 12th Floor
                                               Marietta, Georgia 30067
                                               Attn:  General Counsel

                                      -13-

*** Confidential Treatment Requested
<PAGE>

          18.6  Compliance with Laws and Regulations.  Facet and TheraSense
                ------------------------------------
agree to comply with all Federal, State and local laws and regulations that are
applicable to the Products in the Territory in which the Products are intended
for use.

          18.7  Governing Law.  This Agreement shall be governed by and
                -------------
construed in accordance with the laws of the United States and the State of
Georgia, as applied to agreements entered into and to be performed entirely
within Georgia. Any and all disputes between the parties relating in any way to
the entering into of this Agreement and/or the validity, construction, meaning,
enforceability, or performing of this Agreement or any of its provisions, or the
intent of its provisions, or any dispute relating to patent validity or
infringement arising under this Agreement shall be settled by arbitration as
provided in Section 17 hereof.

          18.8  Interpretation.  This Agreement will be fairly interpreted in
                --------------
accordance with its terms and without any strict construction in favor of or
against either party. The headings and captions are included for reference
purposes only and do not affect the interpretation of the provisions hereof.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original but all of which shall be deemed to constitute only
one Agreement. When used herein, the word "including" will not be construed as
limiting.

          18.9  Status.  The relationship between Facet and TheraSense is that
                ------
of independent contractors. Neither is the legal representative, agent, partner,
joint venturer or employee of the other for any purpose whatsoever, and has no
right or authority to create any obligations of any kind or to make any
representations or warranties, whether express or implied, in respect of the
other or to bind the other in any respect whatsoever. This Agreement shall be
deemed to have been drafted by both parties.

          18.10 Reports.  Each month during the term of this Agreement, Facet
                -------
shall provide the TheraSense buyer with a report of the deliveries made that
month, cumulative deliveries to date, and amount of raw materials available in
inventory.

          18.11 Complete Agreement.  This Agreement, in conjunction with the
                ------------------
Cooperative Development Agreement, including all Exhibits and any Purchase
Order(s) issued hereunder (but only with respect to Product quantities, shipping
destination and required delivery dates), constitute the entire Agreement
between the parties in connection with the subject matter hereof, and supersede
all prior agreements, understandings, negotiations and discussions, whether oral
or written, between the parties. The preprinted terms and conditions on
TheraSense's Purchase Order or any acknowledgment of Facet shall be inapplicable
to Products delivered hereunder.

     No amendment to or modification of this Agreement will be binding unless in
writing and signed by a duly authorized representative of both parties.

                                      -14-

<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first written above.

TheraSense, Inc.                    Facet Technologies, LLC

By:  /s/ John M. Purlee             By:   /s/ William C. Taylor
   ---------------------------         --------------------------------

Name:    John M. Purlee             Name:     William C. Taylor
     -------------------------           ------------------------------

Title: Director of Purchasing       Title:    President
      ------------------------            -----------------------------

Date:     7/18/01                   Date:       7/18/01
     -------------------------           ------------------------------

                                      -15-

<PAGE>

                                   EXHIBIT A

                                PRODUCT PRICING
                                ---------------


***                 Description                                   ***
                    -----------

***                 Lancing Device Warranty Kit                        ***
***                 Lancing Device Assy (Proto Mold)                   ***
***                 Lancing Device Assy (Prod Mold less than 1.2MM)    ***
***                 Lancing Device Assy (Prod Mold less than 1.2MM)    ***
***                 Lancets, 100 Count Box                             ***
***                 Lancing Device Replacement Cap Bagged              ***
***                 Lancets, 10 Count Bag                              ***
***                 Arm Cap Bag of 20                                  ***
***                 Finger Cap Bag of 20                               ***
***                 Lancing Device Box of 40                           ***
***                 Lancets Bags Box of 25                             ***


*** Confidential Treatment Requested
<PAGE>

                                   EXHIBIT B

                            PRODUCTS/SPECIFICATIONS
                            -----------------------



                              ***           ***           ***

Body Top                      ***           ***           ***
Body Bottom                   ***           ***           ***
Lancet Holder                 ***           ***           ***
Arm Cap                       ***           ***           ***
Depth Wheel                   ***           ***           ***
Button                        ***           ***           ***
Arming Part                   ***           ***           ***
Arming Chassis                ***           ***           ***
Retraction Spring             ***           ***           ***
Drive Spring                  ***           ***           ***
Finish Device SKU             ***           ***           ***
Number                        ***           ***           ***

***



*** Confidential Treatment Requested
<PAGE>

                                   EXHIBIT C

                          QUALITY CONTROL REQUIREMENTS
                          ----------------------------

     There are no additional quality requirements beyond what is stated in the
contract or on the drawing.