<PAGE>

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

                                                                    Exhibit 10.7

                       COOPERATIVE DEVELOPMENT AGREEMENT

Parties:

Gainor Medical North America, LLC ("Gainor")    TheraSense, Inc. ("TheraSense")
2205 Highway 42 North                           1311 Harbor Bay Parkway
P.O. Box 353                                    Suite 2000
McDonough, Georgia 30253-0353                   Alameda, CA 94502
Attn: Bill Taylor                               Attn: Charlie Liamos
Phone: (770) 474-4414                           Phone: (510) 749-5436
Fax:  (770) 474-6214                            Fax:  (510) 749-5438

     This Agreement is entered into as of December 1, 1998 by and between
Gainor, a Georgia limited liability company, and TheraSense, a California
corporation,

                                   Recitals

     TheraSense has developed certain patented and non-patented technologies
related to measurement of glucose levels in humans.  Gainor is in the business
of designing and manufacturing microsampling products for use in connection with
measurement of glucose levels.  Gainor and TheraSense wish to enter into a
cooperative arrangement for the development of two new systems and related
marketable products for simplified measurement of glucose levels utilizing the
TheraSense technologies.

     The first system, referred to as "Colossus" is intended to be a minimally
invasive monitoring technique utilizing an electrochemical method of measuring
blood glucose proprietary to TheraSense. This method requires a significantly
smaller blood sample than current technologies. Gainor will develop new
microsampling methods and devices for this system.

     The second system, referred to as "Messenger" is intended to be a resident
glucose monitoring system utilizing an electrochemical device shallowly embedded
in the abdomen or other part of the body for constant monitoring of glucose
levels: Gainor will develop methods and devices for introducing the device into
the patient.

                                   Agreement

     In furtherance of the above goals, and in consideration of the mutual
covenants contained in this Agreement and other valuable consideration, the
receipt and sufficiency of which are acknowledged by the parties, Gainor and
TheraSense agree as follows:

     1.   Definitions.  The following terms as used in this Agreement shall
          -----------
have the following meanings:

          1.1  "Confidential Information" shall mean any competitively
                ------------------------
sensitive or secret business, marketing, financial or technical information of
Gainor or TheraSense, including the terms of this Agreement and all other
agreements and communications between Gainor and TheraSense.


<PAGE>

     Confidential Information shall not include information which is (i)
generally known to the public or readily ascertainable from public sources
(other than as a result of a breach of confidentiality hereunder), (ii)
independently developed by the receiving party without reference to or reliance
on any Confidential Information of the disclosing party, as demonstrated by
written records of the receiving party, or (iii) obtained from an independent
third party who created or acquired such information without reference to or
reliance on Confidential Information.

          1.2  "Products" shall mean all marketable products which result from
                --------
the Projects.

          1.3  "Projects" means the two new glucose monitoring systems
                --------
(including the Gainor Components) being developed by TheraSense, currently
referred to as "Colossus" and "Messenger" as more particularly described in the
Recitals above and in the Project Plan.

          1.4  "Project Plan" is defined in Section 2.4.
                ------------

          1.5  "Project Managers" are defined in Section 2.2.
                ----------------

          1.6  "Steering Committee" is defined in Section 2.3.
                ------------------

          1.7  "Technology or Technologies" shall mean collectively all
                --------------------------
inventions, devices, processes, methods, techniques and associated intellectual
property rights.

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

     2.   Development.
          -----------

          2.1  General.  Gainor shall work with TheraSense to develop certain
               -------
components (the "Gainor Components") of two new glucose monitoring systems being
developed by TheraSense, currently referred to as "Colossus" and "Messenger".

          2.2  Project Managers.  Each party shall appoint a Project Manager,
               ----------------
who shall be responsible for managing the Project. The initial Project Managers
are listed on Exhibit A attached hereto.
              ---------

          2.3  Steering Committee.  In addition to the Project Managers, the
               ------------------
parties shall form a Steering Committee consisting of senior management of each
party. The Steering Committee shall be responsible for the success of the
Projects, resolve all disputes between the Project Managers, and approve all
changes to the Project Plan.

          2.4  Project Plan.  The Project Plan shall be attached to this
               ------------
agreement as Exhibit A.  The Project Plan shall set forth, at a minimum: a list
             ---------
of the Gainor Components; the development and management responsibilities of
each party; the development schedule for the Gainor Components and the projects;
the resources to be provided by each party (including personnel, facilities,
Technology and capital investment); the specifications for the Gainor
Components; and the budget for each of the Gainor Components setting forth
projected development costs, capital expenditures, projected sales,
manufacturing costs, and normal margins.


                                      -2-
<PAGE>

          2.5  Revision of Project Plan.  The Project Managers shall meet
               ------------------------
periodically at times and places to be mutually agreed upon, but no less than
once per quarter. The Project Plan may be amended from time to time to reflect
the results of such meetings, and as necessary from time to time to reflect
changes in Technology, development schedule, cost estimates, and other changes.
In the event of significant cost overruns or changes in the base assumptions
upon which the Project Plan was prepared, the development of the Gainor
Components will be reassessed and the Project Plan may be revised. Suggested
revisions to the Project Plan may only be submitted to the steering committee by
the mutual agreement of the Project Managers, who shall work together in good
faith to keep the Project Plan up to date and accurate. All amendments to the
Project Plan must be approved by the Steering Committee as evidenced by the
signature of each member of the Steering Committee on an amended Project Plan.

          2.6  Cooperation.  Unless or until a Project is discontinued as
               -----------
provided in Section 11 hereof, each party shall cooperate fully with the other,
and use its best efforts to further the development of the Gainor Components and
the Projects. Each party shall provide such information regarding preexisting
technologies as the other shall require to fulfill its obligations hereunder.

          2.7  Subcontracting.  Gainor may subcontract portions of its rights
               --------------
and responsibilities hereunder to ***, and/or *** but only to the extent
specifically set forth in the Project Plan.

          2.8   Gainor agrees to give TheraSense' marketing and sales
organization access to Gainor's *** and ***. The senior executive officer of the
Gainor Medical *** business will determine the extent of this access, if any,
and will provide it to TheraSense at no cost, other than those associated with
the marketing and distribution expenses. Due to ***, no *** or *** will be given
to TheraSense. Any access allowed will be coordinated and given through the
Gainor Medical *** business.


         3.0   Manufacturing.  In exchange for its efforts under this
                -------------
Agreement, Gainor shall have the exclusive worldwide right for a period of seven
years from the date of this agreement to manufacture, or have manufactured, the
Gainor Components. Gainor and TheraSense shall work jointly to develop a control
plan for Gainor's manufacturing process to obtain process improvements with the
ultimate goal to achieve within reasonable economic limits process capability
index (Cpk) of 1.67 or higher on all key parameters of the Product
Specifications. Gainor agrees to implement process improvements and process
validations using Process Failure Mode Effect analysis (FMEA) for each step of
the process. *** will be responsible to fund the manufacturing tooling required
to satisfy the delivery requirements outlined in the manufacturing and supply
agreement for the Gainor Components. Gainor Components produced by Gainor shall
be supplied solely to TheraSense or such other manufacturing and/or distribution
channels as TheraSense may designate. Terms for manufacturing and distributing
the Gainor Components and other components to be produced by Gainor shall be set
forth in a manufacturing and supply agreement after the viability of each
Project has been proven from a technological and economic standpoint. Pricing
for the Gainor Components shall be as set forth in the project plan based on
cost, manufacturing equipment amortization, and normal Gainor margins. ***, but
will be addressed separately as detailed in the Funding section below.

*** Confidential treatment requested

                                      -3-
<PAGE>


     4.   Funding.  Each party will fund its own development efforts and pay
          -------
all of its own costs and expenses.  Each party will make such investments as
reasonably necessary to successfully complete each Project. Gainor shall arrange
for the capital necessary to develop manufacturing capacities for the Gainor
Components. Each party shall provide the other with such financial and technical
information regarding the Projects as the other shall reasonably request,
including: total expenditures incurred to date for the Projects; monthly and
quarterly budgets for future expenditures; and expected sources of funding and
financing for completion of the Projects. Upon request, TheraSense shall provide
Gainor with its most recent balance sheets showing capital available for
completion of the Projects.  *** for the Gainor Components. TheraSense shall pay
to Gainor, in addition to payment for the Gainor Components under the
manufacturing and supply agreement, *** for each of the first *** Colossus
systems shipped by TheraSense to its distribution channel. If sales to
TheraSense of the Gainor Components exceed a cumulative total of ***, then
TheraSense shall receive a payment (credit) of *** divided into *** equal
installments to be paid over the *** period) after achieving such goal. In the
event that market conditions are such that *** the Gainor Components, TheraSense
agrees to an adjustment in the amount of the credit to be issued, based on the
following scale: ***. In the event this agreement is terminated, the licensing
or royalty fees described in Section 11, Termination, will account for any
payments after termination rather than the methods described in this section.

     5.   Marketing.  TheraSense or assigns, or marketing and/or distribution
          ---------
partners will be responsible for the marketing, sale and distribution of the all
Products.

     6.   Intellectual Property.  All Technologies owned or developed solely by
          ---------------------
a party and its employees and agents, whether prior to or subsequent to the date
of this Agreement, and all related intellectual property rights, shall remain
the exclusive property of such party.  Each party hereby grants the other such
rights and license in and to use such Technology as the other shall reasonably
require to exercise its rights and fulfill its obligations hereunder, including
the right of TheraSense to sell Products.  Technologies developed jointly by
Gainor and TheraSense shall be jointly owned.  This Section shall survive any
termination of this agreement.

     7.   Exclusivity.  TheraSense shall work exclusively with Gainor for
          -----------
development of the Gainor Components. Gainor shall not supply the Gainor
Components to any third party without the written consent of TheraSense. Neither
party shall use the jointly owned Technologies outside of the Projects(other
than pursuant to the sale of Products by TheraSense) without the written consent
of and Proper compensation to the other party. Notwithstanding the foregoing,
neither party shall be precluded from using the general know-how gained during
the development of the Projects under this Agreement. Gainor shall not be
precluded from developing any Technology for any third party, provided Gainor
does not use the Technology owned by TheraSense or the Intellectual Property
developed specifically for the Gainor Components.

*** Confidential treatment requested

                                      -4-
<PAGE>

     8.   Inventions, Patents and Trademarks.
          ----------------------------------

          8.1  Notice.  Each party shall promptly notify the other upon the
               ------
making, conceiving or reducing to practice of any patentable invention or
discovery related to the Projects.

          8.2  Right to Patent.  Each party shall have the sole right to
               ---------------
prepare, file, prosecute, maintain and extend patent applications and patents
concerning all patentable Technology owned by such party, as determined under
Section 6, provided each party shall give notice to the other of its intent to
patent any technology concerning the projects prior to filing. If such party
elects not to file, prosecute or maintain patent applications or ensuing patents
or certain claims encompassed by such patent applications or ensuing patents in
any country with respect to any invention or discovery related to the Projects,
then the other party may elect to do so on the developing party's behalf. Such
party shall give notice to the developer and owner of the patentable Technology
of its intent to so prepare, file and prosecute a patent, and the owner shall
have 30 days to choose to take such action on its own behalf, and take
significant action toward doing so. At the end of such notice period, if the
owner has not taken such action, the non-owner may do so.

          8.3  Joint Patents.  TheraSense and Gainor shall mutually agree upon
               -------------
which party shall be responsible to prepare, file, prosecute, maintain and
extend patent applications and patents concerning all patentable inventions and
discoveries owned jointly by Gainor and TheraSense. If the parties cannot agree,
then Gainor shall have the right to apply for such patents using counsel of its
choice, in consultation with TheraSense.

          8.4  Protection of Ability to Patent.  Neither party shall take any
               -------------------------------
action which would have a material adverse effect on the patentability of any
newly developed Technology or improvement to any Technology, including any
public sale or disclosure thereof, until the parties either file an application
or mutually agree not to pursue a patent.

     9.   Regulatory Approval.  TheraSense will be responsible for regulatory
          -------------------
approval of the Products, with such assistance from Gainor as TheraSense shall
reasonably request, on terms to be agreed upon.

     10.  Confidentiality.  Each party shall at all times keep confidential all
          ---------------
Confidential Information of the other.  Neither party shall permit or authorize
access to or disclosure of the other party's Confidential Information to any
person or entity other than (i) employees (including temporary contract
employees, engineers and developers) who have signed confidentiality agreements
with protection substantially similar to that contained in this Agreement and
professional advisors under a professional obligation of confidentiality
(including lawyers, accountants, financial advisors, and sources of funding)
with a "need to know" such information, (ii) independent contractors who have
signed confidentiality agreements with protection substantially similar to that
contained in this agreement, provided that each party shall have the right to
approve (approval not to be unreasonably withheld) in advance all contractors
who are given access to the Confidential Information of such party and (iii)
governmental regulatory authorities, to the extent required for compliance with
applicable laws, and subject to such protective measures as may be available to
preserve the confidentiality of such information following disclosure.  Each
party shall promptly

                                      -5-
<PAGE>

notify the other in writing of the existence of any unauthorized knowledge,
possession or use of the other party's Confidential Information by any person or
entity.

     11.  Termination.
          -----------

          11.1  Voluntary Termination.  Gainor may terminate its development
                ---------------------
obligations under this Agreement with respect to either or both Projects with 90
days written notice to TheraSense upon a reasonable determination by Gainor that
the resources required to develop the Gainor Components for such Project will
materially exceed the projections set forth in the Project Plan or has elected
not to enter into a manufacturing agreement for strategic reasons. (The
inability of Gainor and TheraSense to come to terms, i.e. price, etc., on a
manufacturing agreement is not considered a strategic reason for not entering
the agreement.) Upon such termination, (i) Gainor shall no longer be responsible
for development of the Gainor Components for such Project, (ii) In the case that
such termination occurs on or before August 31, 1999, TheraSense shall have the
right to Purchase a fully paid up license, for the purpose, of developing,
manufacturing and selling products which measure glucose (as distinct from micro
sampling products) all Gainor Technology developed prior to termination and all
jointly owned technology for a payment of *** of the *** prior to the ***
election, (iii) In the case that termination occurs after August 31, 1999,
TheraSense may license from Gainor the technology of Gainor required for
TheraSense or its nominee to complete the Gainor Components for such Project,
(iv) Gainor shall be entitled to utilize on a *** basis the Gainor Technology
and jointly owned Technology developed prior to termination for the purpose of
developing, manufacturing and selling micro sampling products
(as distinct from products which measure glucose).


          11.2  Termination by TheraSense on Default of Gainor.
                ----------------------------------------------

                (a)  Gainor Event of Default.  The following shall constitute
                     -----------------------
an Event of Default by Gainor:

                     (i)    Gainor discontinues its development work on the
Gainor Components for either Project for any reason other than as set forth in
11.1 above.

                     (ii)   Gainor is unwilling or unable to complete the Gainor
Components for a Project or any Products substantially within the time periods
and budget set forth in the Project Plan.

                     (iii)  Gainor (prior to execution of a definitive
manufacturing and supply agreement) is unwilling or unable to manufacture and
supply the Gainor Components for completed products in the amounts, within the
quality or upon the time frame required to avoid a material adverse effect upon
TheraSense.

                     (iv)   Gainor otherwise materially breaches its obligations
hereunder.

               (b)   Result of Gainor Event of Default.  Upon an Event of
                     ---------------------------------
Default by Gainor, TheraSense shall provide written notice to Gainor of such
occurrence, and Gainor shall have 30 days to cure such problem or breach, or
reach a mutual agreement with TheraSense for

*** Confidential treatment requested

                                      -6-
<PAGE>

remedying same or this Agreement shall be terminated. Upon the expiration of
such 30 day period, if Gainor has not cured the Event of Default of otherwise
reached agreement with TheraSense, (i) TheraSense may continue development of
the Gainor Components on its own, or Contract for a third party to continue
development of the Gainor Components, (ii) TheraSense shall have the right to
use all Technologies developed and owned by Gainor for such discontinued Project
and all jointly owned Technologies developed for such Project to finish, use,
manufacture, market and distribute the Products. Gainor shall provide to
TheraSense such technical and other information regarding the Gainor Components,
including technical and development plans and documentation, as TheraSense may
require to exercise its rights under this Section. As an alternative to
terminating this Agreement, but without effecting the other rights granted in
the immediately proceeding sentence, following an Event of Default described in
Section 11.2(a)(iii). TheraSense may utilize additional suppliers to obtain
Gainor Components. TheraSense shall compensate Gainor for its work through such
termination at a reasonable royalty rate consistent with industry standards, and
the level of completion of the Gainor Components at such time.

          11.3  Termination by Gainor on Default of TheraSense.
                ----------------------------------------------

                (a)  TheraSense Event of Default.  The following shall
                     ---------------------------
constitute an Event of Default by TheraSense:

                     (i)    TheraSense discontinues either Project for any
reason.

                     (ii)   TheraSense is unwilling or unable to complete a
Project or any Products under a Project substantially within the time periods
and budget set forth in the Project Plan.

                     (iii)  TheraSense is unwilling or unable to manufacture,
market and distribute the Products within a reasonable amount of time following
completion of the Products and obtaining any necessary regulatory approvals.

                     (iv)   TheraSense otherwise materially breaches its
obligations hereunder.

               (b)   Result of TheraSense Event of Default.  Upon an Event of
                     -------------------------------------
Default by TheraSense, Gainor may terminate its obligations with respect to such
Project by providing written notice thereof to TheraSense, who shall have 30
days to cure such Event of Default, or reach a mutual agreement with Gainor for
remedying same or this agreement shall be terminated. Upon the expiration of
such 30 day period, if TheraSense has not cured the Event of Default of
otherwise reached agreement with Gainor, (i) Gainor shall have the right use all
Technologies owned by Gainor and all jointly owned Technologies developed for
such Project for any purpose with no further obligation to TheraSense, and (ii)
Gainor shall continue to have the exclusive right to manufacture the Gainor
Components if a Project ever produces marketable Projects. TheraSense shall
provide to Gainor such technical and other information regarding such Projects
and all related Products, including technical and development plans and
documentation, as Gainor may require to exercise its rights under this Section.
Gainor shall compensate TheraSense for use of jointly developed and owned
Technology used in any product completed and sold by Gainor at a reasonable

                                      -7-
<PAGE>

royalty rate consistent with industry standards based on the amount of such
Technology included in any such finished product.

     12.  Right to Perform.  Each party hereby represents to the other that it
          ----------------
has the necessary rights and licenses to enter into and perform under the terms
of this Agreement and to grant such rights and licenses as it has agreed to
grant hereunder. Each party shall notify the other promptly upon discovering
that any of its Technology related to the Projects is or may be infringing upon
the rights of any third party, and shall promptly notify the other if it
believes or receives notice that any third party is infringing on any its
technologies.

     13.  Indemnification.  Each party shall indemnify and hold the other party
          ---------------
harmless from and against any and all claims, judgments, liabilities and damages
arising out of (i) any claim that the Technology of the indemnifying party
infringes any patent, trade secret or other intellectual property right of a
third party or (ii) any negligent act, error or omission by the indemnifying
party, its employees, agents, servants or representatives in the performance of
its duties and obligations hereunder.  In the event any such claim is made, the
party to be indemnified (the "Indemnitee") shall immediately notify the
                              ----------
indemnifying party (the "Indemnitor").  The Indemnitor shall have the right to
control the defense of such claim with counsel of its choice and shall bear all
cost and expense of such defense.  The Indemnitee shall allow the Indemnitor to
control the defense of such claims, shall cooperate as reasonably necessary in
the defense of any such claim at the expense of the Indemnitor, and may
participate in the defense with counsel of its choice at Indemnitee's cost.  If
the Indemnitor fails to vigorously defend Indemnitee.  Indemnitee may assume
such defense with counsel of its own choice.  To the extent a claim is based on
infringement by Technology jointly owned by both parties, each party shall bear
the cost and expense of its own defense, and shall indemnify, reimburse and hold
the other party harmless to the extent that it is determined that such
infringement is not attributable to such other party or such other party's
Technology.

     14.  Dispute Resolution.
          ------------------

          14.1  Negotiation.  The Steering Committee shall negotiate in good
                -----------
faith to resolve any dispute under this Agreement. If the Steering Committee
cannot agree, the dispute shall be referred to appropriate senior management of
each party for resolution, and such senior management shall negotiate in good
faith to resolve such dispute.

          14.2  Arbitration.  If a claim, controversy or dispute between the
                -----------
parties cannot be resolved within a reasonable time period as set forth above,
either party may demand that such matter be submitted to final and binding
arbitration. Issuance of an arbitration demand shall suspend the effect of any
default entailed by such claim, controversy or dispute and any judicial or
administrative proceedings instituted in connection therewith, for the duration
of the arbitration proceedings. Arbitration shall be governed by the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA").
Arbitration shall be conducted by three arbitrators. Each party shall choose one
arbitrator within 10 days of the arbitration demand. The final arbitrator shall
be chosen by the first two within 10 days of their appointment. If the first two
arbitrators cannot agree, the third arbitrator shall be chosen by AAA. The
arbitrator or arbitrators shall evaluate all outstanding claims and dispute,
determine the relative fault of each party, and deliver its or their decision
within 60 days of the date of receipt of the arbitration demand, specifying such
remedy

                                      -8-
<PAGE>

(including money damages) as shall (a) fully implement the intent and purposes
of this Agreement and (b) indemnify and hold harmless the non-breaching party
from all losses, costs and expenses (including costs of arbitration and
reasonable attorneys' fees) resulting from the default. Termination or
limitation of either party's rights to its Technology, or any associated
intellectual property rights may not be awarded under any circumstances. The
right to demand arbitration and to receive damages and obtain other available
remedies as provided hereunder shall be the exclusive remedy in the event an
arbitration demand is made. The parties hereby consent to the enforcement in the
courts of each state where each party resides or maintains assets of any
arbitral judgment or award rendered pursuant to this Section.

     15.  General.
          -------

          15.1  Notices.  Notices shall be deemed given as of receipt as shown
                -------
by the records of FedEx, UPS, registered US Mail, or other courier service, or
fax with a confirmation notice, if properly addressed as first set forth above.
Either party may change their address by notice in compliance with this section.

          15.2  Assignment.  This Agreement shall not be assignable by either
                ----------
party to any third party without the written consent of the other party hereto;
except that either party may assign this Agreement without the other party's
consent to an entity that acquires substantially all of the business or assets
of the assigning party whether by merger, transfer of assets, or otherwise. Upon
a permitting assignment of this Agreement, all references herein to the
assigning party shall be deemed references to the parry to whom the Agreement is
so assigned.

          15.3  Waiver.  The failure of either party to enforce any term of
                ------
this Agreement shall not constitute a waiver of either party's right to enforce
every term of this Agreement.

          15.4  Enforcement.  If either party brings an action under this
                -----------
Agreement (including appeal), the prevailing party shall be entitled to recover
reasonable attorneys' fees and costs.

          15.5  Enforceability.  Should any provision of this Agreement be held
                --------------
by a court of competent jurisdiction or arbitration authority to be
unenforceable, the remaining provisions of this Agreement shall not be affected
or impaired thereby except to the extent necessary to give effect, as close as
possible to the intent of the parties as expressed herein.

          15.6  Choice Of Law.  This agreement shall be governed by and
                -------------
construed under the laws of the state of Georgia, excluding its conflict of laws
rules.

          15.7  Force Majeure.  Neither party shall be in default by reason of
                -------------
any failure in the performance of this Agreement, other than a failure to make
payment when due or to comply with restrictions upon the use of the other's
Technology, if such failure arises out of any act, event or circumstance beyond
the reasonable control of such parry, whether or not otherwise foreseeable. The
party so affected will resume performance as soon as reasonably possible,

          15.8  Headings and Captions.  The headings and captions appearing in
                ---------------------
this Agreement are inserted only as a matter of convenience and in no way limit
the scope or affect the meaning of any section.

                                      -9-
<PAGE>

          15.9    Employees.  Neither party shall hire or solicit for hire any
                  ---------
employee of the other without the express written consent of the other party.

          15.10   Prior Agreements, Amendment.  This Agreement constitutes the
                  ---------------------------
entire agreement between the parties and supersedes all prior understandings and
agreements between them regarding the content hereof, and may not be modified or
amended except in writing signed by authorized representatives of both parties.

     IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as
of the date first set forth above.

Gainor Medical North America, LLC          TheraSense, Inc.

By: /s/ Mark J. Gainor                     By: /s/ W. Mark Lortz
------------------------------------       ----------------------------------

Mark J. Gainor                             W. Mark Lortz
------------------------------------       ----------------------------------
____
Print Name                                 Print Name

Chairman & CEO                             President & CEO
------------------------------------       ----------------------------------
Print Title                                Print Title

12/18/98                                   12/17/98
------------------------------------       ----------------------------------
Date                                       Date

                                      -10-
<PAGE>


                                   EXHIBIT A
          TheraSense/Gainor Medical Cooperative Development Agreement
                           Project Plan - CONFIDENTIAL

This project plan is intended to outline the key components of the cooperative
development efforts relative to Colossus blood acquisition and Messenger sensor
delivery. The initial released revision of this document will be attached to the
cooperative development agreement (contract), and updated revisions to the
project plan can only be made by the Steering Committee as evidenced by their
signatures on an amended project plan.

Project Definitions:

         Colossus: Colossus is a minimally invasive blood glucose measurement
         system. It is considered minimally invasive because the blood volume
         required to fill the sensor is *** which is about *** the volume of the
         lowest volume meter system currently on the market. This minimal blood
         requirement enables the end user to obtain the sample from sites other
         than the finger, thus allowing for the possibility of less painful
         blood sampling. The first generation Colossus system is considered
         non-integrated, as it will utilize lancets and a lancing device to
         obtain the blood sample. The end user will then place the sensor into
         the blood sample for acquisition of the blood. The second generation
         Colossus is planned as ***.

         Messenger: Messenger is an in-dwelling glucose measurement system. One
         sensor is inserted into the skin in a position such as the abdomen for
         a three-day duration. The sensor then will have the ability to make
         continuous glucose readings.

Development & Management Responsibilities:

Gainor Medical will establish an internal project team for the TheraSense
projects. This team will include a project manager, engineers and designers.
Additional support will come from the group Director. All strategic business
issues will be addressed and approved by the group Director.

         Colossus - Blood Acquisition

         Gainor will lead the efforts in the blood acquisition portion of the
         project, working with TheraSense in the integration of this portion
         into the total system. Gainor and TheraSense will jointly define all
         specifications and requirements relative to the blood acquisition
         portion of the project.

         For the non-integrated system, Gainor Medical will perform studies to
         determine if commercially available devices or slight variations
         thereof can consistently obtain an off finger blood sample greater than
         300 l in an acceptable amount of time without manipulation. The final
         acceptance criteria have not been finalized but will


*** Confidential treatment requested
<PAGE>


                                   EXHIBIT A
          TheraSense/Gainor Medical Cooperative Development Agreement
                           Project Plan - CONFIDENTIAL

         include a success rate equal to or exceeding that of current
         conventional finger puncture methods used in conjunction with
         conventional meter/strip systems.

         The acceptance criteria for *** have not been finalized but will
         include a success rate per sensor to equal or exceeding that of
         conventional strips on the market today. After the lancing device is
         *** the sensor will ***. In this configuration, the lancing and sensor
         are *** prior to each test. A secondary approach may be utilized if
         ***. In this secondary approach, the lancet and sensor would be ***,
         but the sensor would still ***.



         Messenger - Sensor Delivery

         Gainor will perform the development efforts on the adhesive mount,
         inserter mechanism, and the introducer by taking the design input and
         current design concepts generated by TheraSense and further developing
         them. The acceptance criteria for this system are not yet finalized
         either, however the intent is to design the *** such that it is ***.
         The secondary plan is to design the *** such that only the ***, and
         the *** is ***. Cost, size, and portability are all factors in this
         decision.


         At the current time, the location of the final production assembly is
         unknown. Initial thoughts are for total *** assembly at ***, but this
         opens several other questions relative to the *** of the *** prior to
         ***. This item is TBD.


Overall Schedule:

The key milestones are noted in the project schedule attached. The project
managers maintain the detailed schedule, and it is updated periodically as
needed. Substantial changes to the product availability from the dates listed
above must be approved by the Steering Committee, as evidenced by their
signatures on an amended project schedule.

Resources:

The development budget for Gainor Medical for these projects is an aggregate of
***. Gainor and Gainor's manufacturing partners ***. Using these budgetary
figures, it is expected that Gainor will supply *** on these projects, a portion
of which were in place as of August 31. The search for additional personnel is
underway, and is expected to conclude within several weeks. TheraSense will
provide a project manager or coordinator for the projects to interface with
Gainor.


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<PAGE>


                                   EXHIBIT A
          TheraSense/Gainor Medical Cooperative Development Agreement
                           Project Plan - CONFIDENTIAL

Projected Sales & Manufacturing Costs:

The sale price to TheraSense will be based on ***. There will be *** in the sale
of these items. This *** will occur separately as defined in the cooperative
development agreement.


Project Managers:

The project managers for both projects as of October 1998 are Michael Lipoma,
Gainor Medical, and Jeff Funderburk, TheraSense.

Steering Committee:

Bill Taylor of Gainor Medical and Fred Colman of TheraSense are the members of
the Steering Committee as of December 1998.


This project plan has been reviewed and approved by:


/s/ Fred Colman                          12-17-98
----------------------------------       -------------------
Fred Colman                              Date
Vice President, Engineering
TheraSense, Inc.



/s/ Bill Taylor                          12-18-98
----------------------------------       -------------------
Bill Taylor                              Date
Director, Product Technology Group
Gainor Medical North America, LLC


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<PAGE>

                                   EXHIBIT A

          TheraSense/Gainor Medical Cooperative Development Agreement


                          Project Plan - Confidential


       Milestone Description                      Estimated Finish Dates

                                      ***


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