Document:

<PAGE>

                                SUPPLY AGREEMENT

         This Supply Agreement ("Agreement") is effective as of March 1, 2000
("Effective Date") by and between Cygnus, Inc., a Delaware corporation, with its
principal place of business at 400 Penobscot Drive, Redwood City, California
94063 ("Cygnus"), and Sanmina Medical Products Division, a division of Sanmina
Corporation, a California corporation, with its principal place of business at
355 East Trimble Road, San Jose, California 95131 ("Sanmina").

         WHEREAS, Cygnus has substantial knowledge and expertise in and owns
certain technology relating to the detection of human analytes useful for the
diagnosis and treatment of disease, including without limitation its
GlucoWatch-Registered Tradmark- Biographer;

         WHEREAS Sanmina has substantial knowledge and expertise in the
manufacture of medical devices;

         NOW,THEREFORE, in consideration of the above promises and the mutual
covenants contained herein, the Parties agree as follows:

I.       SCOPE OF AGREEMENT

         This Agreement covers the purchase by Cygnus and the sale by Sanmina of
the products identified in Exhibit A (the "Products") hereto. Sanmina agrees to
manufacture the Products in a turnkey manner, including the purchase and
inspection of components, programming of microprocessors, assembly of printed
circuit boards, in circuit testing, final assembly, functional testing, and
serialization in accordance with Cygnus' specifications and drawings set forth
in Exhibit B (the "Specifications") hereto.

II.      TERM

         A. This Agreement commences on the Effective Date and will be for a
Term of three (3) years, unless terminated as otherwise provided herein. This
Agreement shall automatically renew for successive one-year terms thereafter,
unless notice to terminate is provided in writing by one Party to the other
Party at least twelve (12) months prior to the end of the applicable Term.

         B. Additionally, in the event that Cygnus wishes to add a new
product(s) to this Agreement, Cygnus shall notify Sanmina and the Parties shall
then proceed to establish pricing and delivery schedules for each such new
product(s). Upon agreement of these items, such product(s) shall be considered
Products under this Agreement, and shall have the same Term as is currently
applicable.

                                       1.
<PAGE>

III.     PRICE AND PAYMENT

         A. The prices for the Products are set forth in Exhibit C, attached
hereto. Prices will not change for the Term of this Agreement except under the
following conditions:
         (1) Price changes to extraordinary raw material as listed in Exhibit C
hereto. Any price adjustments due to cost fluctuations (up or down) to such
extraordinary raw material will be effective the first day of each quarter
during the Term of this Agreement and will be based on costs actually paid by
Sanmina as evidenced by actual invoices or quotations made available for Cygnus'
review.
         (2) Changes in design, materials, or requirements made by Cygnus.
         (3) Change in productivity. Commencing on the Effective Date of this
Agreement, Sanmina will implement a continuous productivity program that will
ultimately result in annual price reductions. Price reductions obtained by
Sanmina through this program will be shared equally between both Parties. The
productivity projects will be jointly agreed on by both Parties and involve the
following types of activities:    (a) manufacturing process improvements;
                  (b) Sanmina's involvement in the design process to assure
                      manufacturability;
                  (c) target saving for materials/design;
                  (d) review of processes and equipment to ensure quality and
                      cost;
                  (e) joint efforts to plan inventory levels;
                  (f) reduced overhead rates; and
                  (g) improved layout and alternative packaging.

         B. Prices do not include applicable United States or state sales or use
taxes, which shall be paid by Cygnus, unless an exemption is available and is
separately indicated on the purchase order for the applicable shipment of
Products.

         C. Invoices will be submitted by Sanmina to the Cygnus location
indicated on purchase orders. Invoices will reference Cygnus' purchase order
number and will contain such other information as Cygnus may request. Invoices
are to be submitted upon shipment of the Products and are payable by Cygnus
within thirty (30) days of receipt of invoice or Products by Cygnus, whichever
date is later.

IV.      VALUE ENGINEERING

         Sanmina agrees to explore and identify cost reduction opportunities in
the Products in addition to those set forth in Paragraph III(A)(3) above. Cygnus
and Sanmina agree to share these cost reductions equally once all price
increases for raw materials have been offset. Sanmina agrees to provide support
to ensure compliance with current United States Food and Drug Administration
(FDA) regulations.

V.       PURCHASE ORDERS

         When Cygnus, at its sole discretion, wishes to purchase Products,
Cygnus shall issue its

                                       2.
<PAGE>

purchase order to Sanmina. Purchase orders may be issued by EDI, facsimile,
or regular mail. Cygnus and Sanmina may use standard forms in the purchase and
sale of the Products. In the event of a conflict between the terms of this
Agreement and those on the reverse side of the purchase order or any Sanmina
forms, the provisions of this Agreement shall govern. In addition, purchase
orders shall contain the following data:
         (1) purchase order number and date;
         (2) description, quantity, and price of Products;
         (3) date and location of delivery; and
         (4) mode of shipment.

VI.      DELIVERY AND SHIPPING TERMS

         Sanmina shall deliver Products to Cygnus' facility or to Cygnus' third
party suppliers as indicated on the purchase orders to meet the delivery dates
requested by Cygnus in its purchase orders, which in no event shall be less than
the lead times for the Products as set forth in Exhibit A hereto. On-time
delivery shall be three (3) days early or one (1) day late from the delivery
dates requested by Cygnus on its purchase orders. In the event that Sanmina does
not meet [CONFIDENTIAL TREATMENT REQUESTED] of on-time delivery for a one (1)
month period, then Paragraph XIV(A)(1)(iii) shall apply. Delivery of the
Products shall be F.O.B. shipping point, freight collect. The price of all
Products shall exclude shipping charges. Sanmina shall use Cygnus' designated
contract carriers that are indicated on the purchase order.

VII.     FORECASTS, BINDING PURCHASE ORDERS, AND BUFFER STOCK

         A. Cygnus shall provide Sanmina forecast(s) for Products as set forth
in Exhibit A hereto.

         B. Cygnus shall issue firm orders for forecasted Products as set forth
in Exhibit A hereto.

         C. Sanmina agrees to maintain an inventory of stock sufficient to
provide Cygnus an additional [CONFIDENTIAL TREATMENT REQUESTED] of Products over
and above the stock necessary to meet Cygnus' forecasted requirements of
Products. Sanmina will purchase all long lead time (longer than six (6) weeks)
components in a manner that reduces the risk of obsolescence due to engineering
changes.

VIII.    ORDER CANCELLATION AND RESCHEDULING

         A. Cygnus may cancel any purchase order for Products by giving Sanmina
at least [CONFIDENTIAL TREATMENT REQUESTED] written notice prior to the
scheduled delivery date.

         B. Cygnus may reschedule the delivery of any purchase order for
Products in accordance with the following matrix:

                                       3.
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                       [CONFIDENTIAL TREATMENT REQUESTED]

IX.      CHANGES

         A. Sanmina Changes: Sanmina agrees that it will not make any changes
in: (i) Products, (ii) specified qualified suppliers for components, (iii)
engineering or manufacturing processes, or (iv) the approved manufacturing
facility, without the prior written approval of Cygnus. In the event Sanmina
does make an unapproved change, then Cygnus shall have the right to cancel the
purchase orders for such Products at no liability to Cygnus if Sanmina has not
corrected the unapproved change within thirty (30) days from Cygnus' written
notice.

         B. Cygnus Changes: When a change to the Products is required by Cygnus,
Cygnus shall provide Sanmina the applicable documentation, specifications, and
requested effective date of such change. Sanmina shall respond within ten (10)
working days after receipt of such change, advising Cygnus as to (i) the
implementation and the effective date of such change, (ii) the associated costs
and effect to on-hand materials, (iii) the impact to on-order materials and work
in process, and (iv) the impact of the change upon existing Products pricing and
shipment schedules for the entire period for which purchase orders are
outstanding.

X.       CONSIGNMENT OF MATERIAL

         A. Cygnus shall deliver on consignment to Sanmina certain material
listed in Exhibit D hereto, for the sole purpose of incorporation by Sanmina
into the Products (the "Consigned Material"). All Consigned Material shall
remain the sole property of Cygnus, and Sanmina shall not pledge or otherwise
encumber such Consigned Material. Sanmina shall keep all Consigned Material in
the same safe manner, and shall apply the same security measures, as employed on
its own procured material. Sanmina shall maintain full replacement value
insurance coverage for all Consigned Material. Sanmina agrees to assume complete
liability for all losses of the Consigned Material while in Sanmina's
possession.

         B. Cygnus may require Sanmina to perform acceptance testing on
Consigned Material. This testing will be performed in accordance to the
Specifications set forth in Exhibit B attached hereto and the Quality Agreement
set forth in Exhibit E attached hereto.

XI.      REPRESENTATIONS AND WARRANTIES

         A. Sanmina hereby covenants, represents, and warrants that all Products
(excluding components purchased from third-party vendors) furnished hereunder
shall be free from defects in material and workmanship and shall conform to all
Specifications in this Agreement and in Cygnus' purchase orders. Warranty on
components is limited to the warranty provided to Sanmina by the component
vendor or manufacturer. Sanmina shall transfer to Cygnus any unexpired warranty
provided by such vendor or manufacturer. Additionally, Sanmina hereby covenants,
represents, and warrants that it has good title to the Products supplied (other
than to the Consigned

                                       4.
<PAGE>

Material), and that the Products supplied are free and clear from all liens and
encumbrances. These representations and warranties shall survive acceptance and
payment by Cygnus.

         B. If, within twelve (12) months after Cygnus' acceptance of any
Products, such Products fail to conform to the warranties set forth above,
Cygnus shall have the right to return the Products to Sanmina and Sanmina shall
pay all costs of transportation in returning the Products to Sanmina and then in
shipment of the replaced or repaired Products to Cygnus. Sanmina shall repair,
replace, or correct any defects or non conformances at no cost to Cygnus within
ten (10) days following receipt of the Products.

XII.     QUALIFICATION TESTING AND QUALITY

         A. Cygnus intends to, from time to time, and without notice to Sanmina,
subject samples of the Products to be purchased to qualification tests, which
will consist of sufficient testing to ensure that the Products meet all the
requirements of the Specifications, this Agreement, and purchase orders. Cygnus
shall notify Sanmina of any deficiencies indicated from the testing and Sanmina
shall, at Sanmina's expense, take appropriate corrective action. Design
responsibility shall remain solely with Cygnus and any costs associated with
design deficiency shall be borne by Cygnus.

         B. If Sanmina fails to satisfactorily correct the deficiencies
discovered in Cygnus' qualification testing within ten (10) working days after
receipt of notice from Cygnus, then Paragraph XIV(A)(1)(iii) shall apply and the
thirty (30) day cure period shall not apply.

         C. Cygnus shall have the right to conduct a source inspection or
process control audit at Sanmina's facility at any time prior to delivery of the
Products. Any such inspection or audit shall in no way relieve Sanmina of its
obligations to comply in all respects with the terms of this Agreement.

         D. Sanmina shall maintain ISO 9000 certification and shall manufacture
all Products in compliance with FDA Quality System Regulations, IPC-A-610 Class
II and IPC-J-STD-001B Class II, and the Quality Agreement attached hereto as
Exhibit E.

XIII.    INDEMNITY

         A. Each party shall defend, indemnify and hold harmless the other party
from and against all damages, claims or liabilities and expenses (including
attorney's fees) arising out of or resulting in any way from any act or omission
of the indemnifying party, its agents, employees or subcontracts. With respect
to Sanmina, the indemnification obligations in this Paragraph shall include, but
not be limited to, claims arising out of or resulting in any way from (a) a
manufacturing defect in the Product; (b) Sanmina's non-compliance with Cygnus'
Specifications; or (c) Sanmina's breach of any of the provisions of this
Agreement. With respect to Cygnus, the indemnification obligations in this
Paragraph shall include, but not be limited to, claims arising out of or
resulting in any way from (a) a design defect; (b) Cygnus' Specifications as
provided to Sanmina under this Agreement, including, infringement of any patent,
copyright, trade secret or any other proprietary

                                       5.
<PAGE>

right; or (c) Cygnus' breach of any of the provisions of this Agreement.

         B. Both parties shall secure and maintain in full force and effect
throughout the performance of this Agreement a policy or program of insurance in
amounts appropriate to the conduct of their respective business.

XIV.     TERMINATION

         A. Termination for Cause
         (1) This Agreement may be terminated immediately for cause by either
Party in the event the other Party (i) becomes insolvent or bankrupt, or (ii)
ceases to function as a going concern or to conduct its operation in the normal
course of business, or (iii) fails to perform any of the obligations imposed
upon it under the terms of this Agreement so as to be in default hereunder and
fails to cure such default within thirty (30) days after written notice.
         (2) Notwithstanding the termination of this Agreement, the Parties will
honor any of Cygnus' purchase orders that have already been issued to Sanmina.

         B. Upon termination of this Agreement for any reason, the rights and
obligations of the Parties shall continue, including but not limited to, the
provisions of Paragraphs X (Consignment of Material), XI (Representations and
Warranties), XIII (Indemnity), XV (Ownership and Control of Intellectual
Property), XVI (Title: UCC Filings) and XVII (Confidentiality) of this
Agreement.

         C.  Settlement of Termination Claims
         (1) Cygnus shall pay Sanmina the following amounts within thirty (30)
days after termination of this Agreement:
                  (a) the price for all conforming Products completed (which
items were delivered or available for delivery at the time notice of termination
was given) and not previously paid for by Cygnus only to the extent such
completed Products do not exceed any binding forecast;
                  (b) the actual, documented costs incurred related to the
terminated portion of the Agreement but only to the extent that any components,
materials, and other inventory cannot be used in any of Sanmina's non-Cygnus
Products: (i) Sanmina's cost of work in process materials, and (ii) all
components, materials and other items on order but not yet received by Sanmina
to fill Cygnus' binding orders for Products and which Sanmina is unable to
cancel; and
                  (c) Sanmina's actual on-hand buffer inventory but no more than
the amount identified in Paragraph VII(C) above.

         D. Notwithstanding the foregoing, payments made hereunder shall in no
event exceed the aggregate price specified in the terminated portion of the
Agreement less payments otherwise previously made.

XV.      OWNERSHIP AND CONTROL OF INTELLECTUAL PROPERTY

         A. Cygnus may require Sanmina to affix one or more of Cygnus' patent
numbers,

                                       6.
<PAGE>

 trademarks or tradenames (the "Marks") to the Products. The Marks shall
be applied only in accordance with Cygnus' instructions. Sanmina recognizes the
value of the proprietary rights and goodwill associated with the Marks and
acknowledges that the Marks, and all rights therein, belong exclusively to
Cygnus.

         B. This Agreement shall not be construed as a explicit or implicit
grant of a license or an assignment to Sanmina of any right, title, or interest
in and to the Marks. The Marks are and shall remain the exclusive property of
Cygnus and at no time shall Sanmina acquire property rights or any interests
therein.

         C. As between the Parties, Cygnus shall own all rights, title, and
interest in the Products, including without limitation, all patent rights,
copyrights, trade secret rights, mask work rights, and other rights throughout
the world, whether developed before or during the course of this Agreement.

XVI.     TITLE: UCC FILINGS

         Title to any equipment and/or tooling provided or purchased by Cygnus
hereunder shall remain with Cygnus or any party with whom Cygnus contracts to
obtain the equipment and/or tooling. Sanmina shall have no ownership interest in
any supply specific equipment, tooling or any replacement parts or components
installed in the equipment and/or tooling. Cygnus may display notice of its
ownership of the equipment and/or tooling by affixing to the equipment and/or
tooling an identifying label, or plate or any other indication of ownership, and
Sanmina shall not alter or remove any such identification. Sanmina shall
cooperate with Cygnus and shall execute any documents, including UCC filings or
other notices, as Cygnus may determine are advisable to document Cygnus' or
third-party ownership in the equipment and/or tooling. Sanmina shall cooperate
with Cygnus to sign any and all security agreements, financing statements, or
otherwise, in order to effectuate a bailment lien on the equipment and/or
tooling, and to file such documents at the proper location or locations.

XVII.    CONFIDENTIALITY

         A. Each Party agrees that all codes, inventions, algorithms, source
codes, schematics, test vectors, lists of suppliers, know-how, and ideas and all
other business, technical, and financial information it obtains from the other
Party that is identified in writing as "Confidential" or "Proprietary" are the
Confidential Information of the disclosing Party. Except as expressly allowed
herein, the receiving Party will hold in strictest confidence and not use or
disclose any Confidential Information of the disclosing Party, shall take
reasonable protective measures to ensure same (and at least the same measures it
takes for its own Confidential Information) and shall similarly bind its
employees in writing. The receiving Party shall not be obligated under this
paragraph with respect to information the receiving Party can document:
         (1) is or has become readily publicly available without restriction
through no fault of the receiving Party or its employees or agents; or
         (2) is received without restriction from a third party lawfully in
possession of such

                                       7.
<PAGE>

information and lawfully empowered to disclose such information; or
         (3) was rightfully in the possession of the receiving Party without
restriction prior to its disclosure by the other Party; or
         (4) was independently developed by employees or consultants of the
receiving Party without access to such Proprietary Information; or
         (5)  is required to be disclosed by law or order of the Court.

         B. If either Party breaches any of its obligations with respect to
confidentiality, the other Party shall be entitled to equitable relief,
including specific performance or an injunction, in addition to any other rights
or remedies, including money damages provided by law.

XVIII.   GENERAL

         A. The Parties agree that the terms and conditions of this Agreement
shall prevail, notwithstanding contrary or additional terms in any purchase
order, sales acknowledgment, confirmation or any other document issued by either
Party affecting the purchase and/or sale of Products. Furthermore, the headings
and captions in this Agreement are for convenience only and are not to be used
in the interpretation of this Agreement.

         B. This Agreement (and all Exhibits hereto) contains the entire
understanding of the Parties with respect to the subject matter hereof and
supersedes all prior agreements relating thereto, written or oral, between the
Parties, with the exception of the Confidential Disclosure Agreement between
Cygnus and Telo Electronics, Inc. (aka, Sanmina Medical Products Division),
dated June 2, 1999, which shall be superseded in its entirety only as of the
Effective Date of this Agreement. Amendments to this Agreement must be in
writing, signed by the duly authorized agents of the Parties.

         C. If any provision of this Agreement is held to be illegal or
unenforceable, that provision shall be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full force and
effect and be enforceable.

         D. Sanmina may not assign or transfer, in whole or in part, this
Agreement or any of its rights or obligations arising hereunder without the
prior written consent of Cygnus.

         E. Sanmina warrants that, in its performance of work under this
Agreement, it has complied with, or will comply with, all applicable federal,
state, and local laws, and ordinances enacted, including but not limited to, all
laws that regulate any material because it is radioactive, toxic, hazardous, or
otherwise a danger to health, reproduction, or the environment. In addition,
Sanmina shall secure and maintain adequate workers' compensation insurance in
accordance with the laws of the state or states from which Sanmina shall furnish
Products for Cygnus. Upon request, Sanmina shall provide to Cygnus certificates
of compliance with any of the aforementioned laws or regulations as may be
applicable to the Products being furnished hereunder.

         F. In fulfilling its obligations under this Agreement, each Party shall
be acting as an

                                       8.
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independent contractor. This Agreement does not make either Party the employee,
agent, or legal representative of the other.

         G. Except to the extent necessary under applicable laws or for ordinary
marketing purposes, the Parties agree that no press releases or other publicity
relating to the substance of the matters contained herein will be made without
approval by both Parties. Any press release announcing this Agreement will be
jointly developed and released by both Parties.

         H. This Agreement shall be governed, controlled, interpreted, and
defined by and under the laws of the State of California, without regard to the
conflicts of laws provisions thereof, or by and under the laws of the United
States if applicable. The Parties irrevocably submit to the jurisdiction of any
court of the State of California or the United States District Court for the
Northern District of California for the purpose of any suit, action, or other
proceeding arising out of this Agreement.

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

<TABLE>
<CAPTION>
CYGNUS, INC.                                    SANMINA CORPORATION, acting through
                                                its Sanmina Medical Products Division

<S>                                             <C>
By:     /s/ John C Hodgman                      By:     /s/ Joe W. Drummond
      ------------------------------                  ------------------------------------

Name:   John C Hodgman                          Name:   Joe W. Drummond
      ------------------------------                  ------------------------------------

Title:  Chairman, President & CEO               Title:  Vice President Sales & Marketing
      ------------------------------                  ------------------------------------

Date:   May 3, 2000                             Date:   May 3, 2000
      ------------------------------                  ------------------------------------
</TABLE>

                                       9.
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                                    Exhibit A
                             Products and Lead Times

[CONFIDENTIAL TREATMENT REQUESTED]

                                      10.
<PAGE>

                                    Exhibit B
                             Cygnus' Specifications

[CONFIDENTIAL TREATMENT REQUESTED]

                                      11.
<PAGE>

                                    Exhibit C
                            Pricing/Price Reductions

[CONFIDENTIAL TREATMENT REQUESTED]

                                      12.
<PAGE>

                                    Exhibit D
                               Consigned Material

[CONFIDENTIAL TREATMENT REQUESTED]

                                      13.<PAGE>

                                SUPPLY AGREEMENT

                  This Supply Agreement ("Agreement") is signed and effective on
June 23, 2000 ("Effective Date") by and between Cygnus, Inc., a Delaware
corporation, with its principal place of business at 400 Penobscot Drive,
Redwood City, California 94063 ("Cygnus"), and E. I. du Pont de Nemours and
Company, a Delaware corporation, with its principal place of business at 1007
Market Street, Wilmington, Delaware 19898 ("DuPont").

                  WHEREAS, Cygnus has substantial knowledge and expertise in and
owns certain technology relating to the development, manufacture and sale of
glucose monitoring systems;

                  WHEREAS, DuPont has substantial knowledge and expertise in and
owns certain technology relating to the development, manufacture and sale of
thick film materials commonly referred to as "inks" or "pastes";

                  WHEREAS, Cygnus and DuPont have signed a Detection of Analytes
Product Development and License Agreement and a separate Supply Agreement, both
on June 19, 1998;

                  WHEREAS, Cygnus and DuPont now wish to enter into a new Supply
Agreement that replaces and supercedes both of the above-mentioned agreements;

                  NOW THEREFORE, in consideration of the above premises and the
mutual covenants contained herein, the Parties hereto agree as follows:

1. DEFINITIONS. When used in this Agreement, each of the following terms shall
have the meaning provided below:

         a. "Development Agreement" means the Detection of Analytes Product
Development and License Agreement signed June 19, 1998 by the Parties.

         b. "Exclusive Material" means DuPont thick film material carrying the
Product Number [CONFIDENTIAL TREATMENT REQUESTED], or Modifications thereof. For
purposes of this Agreement, a "Modification" or "Modifications" of DuPont
Product Number [CONFIDENTIAL TREATMENT REQUESTED] shall mean any thick film
material that

                            [CONFIDENTIAL TREATMENT REQUESTED]

                                     [CONFIDENTIAL TREATMENT REQUESTED]

         c. "Diagnostics Field" means all sampling methods and applications for
the [CONFIDENTIAL TREATMENT REQUESTED] in connection with the diagnosis and
treatment of any disease or condition in animals and humans, including but not
limited to diabetes and complications of diabetes.

                                       1
<PAGE>

         d. "Material" or "Materials" refers to either the Exclusive Materials
or the Nonexclusive Materials or both, whichever is applicable, but shall not be
construed to exclude applicable Materials.

         e. "Nonexclusive Materials" refers collectively to DuPont Product
Numbers [CONFIDENTIAL TREATMENT REQUESTED] thick film material, respectively,
and, after [CONFIDENTIAL TREATMENT REQUESTED], to DuPont Product Number
[CONFIDENTIAL TREATMENT REQUESTED] and Modifications thereof.

         f. "Parties" means DuPont and Cygnus and, when used in the singular,
means either of them.

         g. "Specifications" means the specifications for the Materials as
described in Exhibit A attached hereto.

         h. "Supply Agreement" means the Supply Agreement signed June 19, 1998
by the Parties.

         i. "Transfer Letter" means a document as described in Exhibit C
attached hereto.

2. SUPPLY OF MATERIALS.

         a. SUPPLY TO CYGNUS.

                  (i) DuPont shall exclusively supply and Cygnus and Cygnus'
subcontractors shall exclusively purchase the Exclusive Materials for a period
from the Effective Date until [CONFIDENTIAL TREATMENT REQUESTED] unless the
Agreement is terminated earlier pursuant to Section 7.b.i. or 7.b.ii. below.
Until such date, DuPont will not supply or license the Exclusive Materials to a
third party for use within the Diagnostics Field; provided however, that in the
event that Cygnus has completely discontinued commercial use of the Exclusive
Materials, Cygnus shall so notify DuPont in writing prior to such date, and then
DuPont shall be free to supply the Exclusive Materials to third parties. On
[CONFIDENTIAL TREATMENT REQUESTED], the Exclusive Materials will become
Nonexclusive Materials, and shall be governed by Section 2.a.ii. below.

                  (ii) For the term of this Agreement, DuPont agrees to supply,
under the terms hereof, Cygnus' and Cygnus' subcontractors the Nonexclusive
Materials that Cygnus wishes to purchase from DuPont. Cygnus shall be under no
obligation to purchase the Nonexclusive Materials from DuPont, and DuPont shall
be under no obligation of exclusivity to Cygnus with regard to the Nonexclusive
Materials.

         b. SUPPLY TO CYGNUS' SUBCONTRACTORS. In the event that Cygnus should
choose to have its subcontractors purchase the Materials directly from DuPont,
the terms and conditions of this Agreement shall apply equally to those
purchases, except for credit terms.

                                       2
<PAGE>

         c. FORECASTS. Three (3) months prior to the first commercial
manufacturing order of the Materials by Cygnus or its subcontractors, Cygnus
will provide DuPont a non-binding forecast of anticipated orders of such
Materials for each calendar quarter during the following twelve (12) month
period. Thereafter, Cygnus will provide to DuPont within ten (10) days prior to
the beginning of each month a non-binding forecast of anticipated orders of such
Materials for each of the next three (3) months and, within ten (10) days prior
to the beginning of each calendar quarter, a non-binding forecast of anticipated
orders of such Materials for each calendar quarter during the following twelve
(12) month period.

         d. SECOND SOURCE OF MATERIALS. During the term of this Agreement,
DuPont will use reasonable efforts to ensure the availability of an alternative
manufacturing site as a second source of the Materials in the event that DuPont,
through its primary manufacturing site, is unable to meet its supply obligations
hereunder. If for any reason or no reason, DuPont determines that it may not be
able to supply all of Cygnus' or Cygnus' subcontractors' requirements of such
Materials, DuPont will provide Cygnus with prompt written notice of such
inability to supply. Promptly after giving such notice or if, at any time,
DuPont fails on [CONFIDENTIAL TREATMENT REQUESTED] consecutive occasions to
deliver such Materials by the date scheduled pursuant to Section 2.e. below,
DuPont will use its best efforts to use such secondary manufacturing site or to
assist an alternative supplier in providing Cygnus with its requirements of such
Materials.

         e. ORDERS. In ordering the Materials from DuPont, Cygnus or its
subcontractors shall use purchase orders referencing this Agreement. Cygnus or
its subcontractors will provide DuPont with a purchase order at least sixty (60)
days prior to a requested delivery date for such Materials. Cygnus agrees to
make reasonable commercial efforts to avoid submitting purchase orders that
deviate from Cygnus' most recent forecast by more than [CONFIDENTIAL TREATMENT
REQUESTED] and, in cases where such deviation is unavoidable, to notify DuPont
as early as possible prior to submitting such purchase order. DuPont will
provide Cygnus, within ten (10) days after receipt of an order, a firm delivery
schedule and an order acknowledgement. DuPont will use reasonable commercial
efforts to ship and deliver such ordered Materials on or before the date
requested. DuPont will be solely responsible for any costs associated with
expediting such Materials in order to meet the scheduled delivery dates for each
firm order (including, without limitation, overtime charges, fees required to
expedite such Materials or services used in manufacturing and incremental
transportation costs), provided that Cygnus has complied with the terms of this
Agreement in placing such order. DuPont will use reasonable commercial efforts
to meet Cygnus' reasonable requests for orders of such Materials that require
short lead time or expedited delivery dates.

         f. PRICING AND PAYMENTS.

                  (i) Price ranges for the Materials are set forth on Exhibit B
attached hereto. Subject to Exhibit B, the prices are for annual volumes and
will be adjusted quarterly for estimated volumes and at year-end once actual
purchase volumes are known. The final adjustment will be made and settled by
December 31 of the same year. The above-referenced

                                       3
<PAGE>

adjustments include both increases and decreases in volumes and prices. The
prices are also subject to adjustments based on the percentage of the precious
metal (i.e., platinum and silver) content of the Materials and the market price
of such precious metals as of the date of the invoice. DuPont will notify Cygnus
of the precious metal indices used to determine market price of such precious
metals and also of the precious metal factor of each Material to enable Cygnus
to calculate the change in the price of Material from the change in the precious
metal price. At the beginning of each calendar year, DuPont and Cygnus shall
agree on a precious metals basis price (the "Basis Price") for use in the
upcoming year. The Basis Price for the first contract year is set forth in
Exhibit B. Cygnus shall submit purchase orders and DuPont shall invoice Cygnus
using the Basis Price, and DuPont shall provide by credit or invoice to Cygnus a
monthly reconciliation of the difference between the actual price of precious
metals on the date of each invoice and the Basis Price. Prices shall be F.O.B.
destination (whether shipped to Cygnus or its subcontractors).

                  (ii) During the first year that DuPont supplies Cygnus
Materials under this Agreement, payment terms will be net [CONFIDENTIAL
TREATMENT REQUESTED] days after acceptance of such Materials; thereafter,
payment terms will be net [CONFIDENTIAL TREATMENT REQUESTED] days after
acceptance of such Materials purchased directly by Cygnus.

         g. CONFLICTING TERMS. In ordering and delivering the Materials, DuPont
and Cygnus and Cygnus' subcontractors may use their standard forms, however,
nothing in such forms shall be construed to amend or modify the terms of this
Agreement.

         h. ACCEPTANCE PROCEDURES. Acceptance criteria and procedures for the
Materials shall be mutually established and agreed to by the Parties and
included in the Quality Agreement described in Section 3.c below.

3. MANUFACTURING; TESTING.

         a. MANUFACTURING.

                  (i) DuPont will manufacture the Materials such that the
Materials meet the Specifications set forth in Exhibit A attached hereto.

                  (ii) DuPont shall at all times manufacture the Materials in an
ISO 9001 or ISO 9002 certified facility, or may propose a comparable regulatory
accreditation for Cygnus' review and acceptance, and shall adhere to the
requirements established in this Agreement and in the Quality Agreement
described below.

                  (iii) Cygnus shall have the right to audit the manufacturing
and quality control process and records at DuPont to ensure compliance with the
applicable ISO 9000 series (or comparable regulatory accreditation provided in
Section 3.a.ii. above), this Agreement, and the Quality Agreement. Such audits
will be performed at a mutually agreeable time for both Parties. Any
discrepancies identified in writing by Cygnus shall be responded to in writing
by DuPont

                                       4
<PAGE>

and corrected when reasonable and appropriate to do so.

         b. QUALITY CONTROL; TESTING. Prior to each shipment of the Materials,
DuPont shall perform, or cause to be performed, quality control procedures that
are calculated to verify that the quantity or batch of such Materials to be
shipped conforms with all Specifications, excluding the supplemental tests, as
set forth in Exhibit A attached hereto. Each shipment of such Materials shall be
accompanied by the documentation required by the Specifications.

         c. QUALITY AGREEMENT. The Parties have developed and will periodically
review a Quality Agreement that provides detail for the linkage between the
Parties' quality systems and establishes the detailed expectations, test
specifications, and procedures that govern the manufacture, supply, delivery and
acceptance of the Materials. This Quality Agreement is attached as Exhibit D
hereto.

         d. REJECTION. Cygnus or its subcontractors shall have thirty (30) days
following the day on which the Materials are received to reject such Materials
because all or part of the shipment fails to conform to the applicable
Specifications as set forth in Exhibit A attached hereto by giving written
notice to DuPont specifying the manner in which all or part of such shipment
fails to meet the foregoing requirements. All shipments or portions thereof not
rejected by Cygnus or its subcontractors during such period shall be paid for in
accordance with Section 2.f. above. All shipments or portions thereof which
Cygnus or its subcontractors rejects but did not have the right to reject shall
be paid for within thirty (30) days following the day on which such
determination was made, unless Cygnus or its subcontractors had paid earlier. In
the event Cygnus or its subcontractors rejects a shipment or portion thereof
within such thirty (30) day period in accordance with the terms hereof but after
payment therefor had been made, Cygnus or its subcontractors shall be entitled
only to recoup the payment amount by, at Cygnus' sole election, DuPont issuing a
prompt refund or by Cygnus or its subcontractors offsetting such amount against
the payment of future invoices hereunder. The warranties given by DuPont shall
survive any failure by Cygnus or its subcontractors to reject such Materials
under this paragraph.

         e. LATER DISCOVERED NONCONFORMITIES. It is recognized that it is
possible for a shipment of the Materials to have nonconformities to the
Specifications as set forth in Exhibit A attached hereto that would not be
discoverable upon reasonable physical inspection or testing. As soon as either
Party becomes aware of such a nonconformity in any lot or batch of such
Materials, it shall immediately notify the other Party in writing of the lot or
batch involved and, at Cygnus' election, such Materials shall be deemed rejected
as of the date of such notice. In the event that such Materials are found to be
nonconforming within [CONFIDENTIAL TREATMENT REQUESTED] after receipt by Cygnus
or its subcontractors, and provided that the Materials have been printed within
their shelf life, DuPont will reimburse Cygnus or its subcontractors for that
proportional share of Cygnus' or its subcontractors' total costs, including, but
not limited to, the costs of other materials, subsequent processing costs,
transportation costs, and the costs of product recalls as are attributable to
DuPont's failure to provide conforming Materials. Such reimbursement in any
twelve (12) month period is limited to the total value of the Materials
purchased by Cygnus or its subcontractors from DuPont within the [CONFIDENTIAL
TREATMENT REQUESTED] period prior to the written notification of the

                                       5
<PAGE>

nonconformity.

4. CONFIDENTIALITY.

         a. Each Party shall, for a period of [CONFIDENTIAL TREATMENT REQUESTED]
following the termination of this Agreement, keep confidential and not use for
other than the purposes of this Agreement, any information previously disclosed
by a Party under the Development Agreement or the Supply Agreement and
designated confidential or further disclosed hereunder and designated
confidential. Such disclosures, other than in writing, shall be confirmed in
writing within thirty (30) days of disclosure and marked confidential. However,
this provision shall not apply to information which:

                  (i) is or has become readily publicly available through no
fault of the receiving Party or its employees or agents; or

                  (ii) is received from a third party lawfully in possession of
such information and lawfully empowered to disclose such information and
provided the receiving Party abides by all restrictions, if any, imposed by such
third party; or

                  (iii) was rightfully in the possession of the receiving Party
prior to its disclosure by the other Party;

                  (iv) was independently developed by or for employees or
consultants of the receiving Party without use of or access to confidential
information of the disclosing Party; or

                  (v) is necessary in the filing or prosecution of any patent
application.

         b. Notwithstanding the foregoing, the receiving Party may disclose
confidential information to the extent it is required to be disclosed to a
governmental entity or agency in connection with seeking any governmental or
regulatory registration, approval or license, or pursuant to the lawful
requirement or request of a governmental entity or agency, provided that
reasonable measures are taken to obtain confidential treatment thereof and to
guard against further disclosure.

5. REPRESENTATIONS AND WARRANTIES.

         a. DuPont hereby covenants, represents and warrants to Cygnus that:

                  (i) All Materials sold by DuPont to Cygnus hereunder will
comply with the Specifications stated in Exhibit A attached hereto; and

                  (ii) Title to all Materials sold hereunder shall pass to
Cygnus as provided herein free and clear of any security interest, lien, or
other encumbrance; and

         EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 5, DUPONT MAKES NO

                                       6
<PAGE>

REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE MATERIALS, AND DUPONT
HEREBY EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES,
INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.

         b. Cygnus hereby covenants, represents, and warrants to DuPont that:

                  (i) Cygnus will take such actions as are needed to comply with
all laws and regulations pertinent to its glucose monitoring systems employing
the Materials, and has conducted or will conduct such studies as are needed to
evaluate the safety of, and the proper labeling and use of, its glucose
monitoring systems employing the Materials.

                  (ii) Cygnus will not use the Materials in any medical
applications involving permanent implantation into the human body or permanent
internal contact with body fluids or tissues (where "permanent" means intended
implantation or continuous internal contact with body fluids or tissues for more
than thirty (30) days) without the prior written approval of DuPont and will not
resell or otherwise transfer the Materials to any third party for use in any
such permanent medical applications without the prior written approval of
DuPont.

6. LIMITATION OF LIABILITY.

         EXCEPT FOR A BREACH OF SECTION 4 AND AS OTHERWISE PROVIDED IN SECTION
7.d.iv., NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER
PARTY WILL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY, FRAUD OR OTHER LEGAL
OR EQUITABLE THEORY FOR ANY INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES.

7. TERM AND TERMINATION.

         a. TERM. This Agreement will commence as of the Effective Date and,
unless earlier terminated pursuant to Section 7.b.i. or 7.b.ii. below, shall
continue in effect until a Party provides [CONFIDENTIAL TREATMENT REQUESTED]
prior written notice of termination, which notice may be given at any time on or
after [CONFIDENTIAL TREATMENT REQUESTED].

         b. TERMINATION FOR CAUSE.

                  (i) This Agreement may be terminated in its entirety by a
Party upon the occurrence of any of the following events:

                           A. By a Party upon sixty (60) days' written notice if
there has been a material breach of any representation, warranty, covenant or
obligation contained in this Agreement on the part of the other Party which such
party fails to cure during such sixty (60) day

                                       7
<PAGE>

period;

                           B. If the other Party ceases to do business, or
otherwise terminates its business operations;

                           C. If the other Party shall fail to promptly secure
or renew any license, registration, permit, authorization or approval necessary
for the conduct of its business in the manner contemplated by this Agreement, or
if any such license, registration, permit, authorization or approval is revoked
or suspended and not reinstated within sixty (60) days or, if reinstatement is
not possible within sixty (60) days, diligent efforts are not being made to
effect such reinstatement; or

                           D. If the other shall seek protection under any
bankruptcy, receivership, trust deed, or comparable proceeding, or if any such
proceeding is instituted against the other (and not dismissed within one hundred
and eighty (180) days).

                  (ii) DuPont may terminate this Agreement by giving Cygnus
written notice in the event of:

                           A. notice from any source to DuPont of any allegation
relating to the Materials or glucose monitoring systems using such Materials
that, in DuPont's sole discretion, may raise an issue or a controversy relating
to the safety of such Materials or glucose monitoring systems using such
Materials, or

                           B. notice from any source to DuPont of any allegation
of personal injury that, in DuPont's sole discretion, may raise an issue or a
controversy relating to the safety of the Materials or the glucose monitoring
systems using such Materials.

         c. LICENSE OPTION. If DuPont provides notice of termination pursuant to
Section 7.a. or Cygnus terminates this Agreement pursuant to Section 7.b.i.
then:

                  (i) Cygnus shall be entitled to make DuPont Product Number
[CONFIDENTIAL TREATMENT REQUESTED] and/or Modifications thereof or have such
Materials made by a third party manufacturer, and DuPont shall grant Cygnus
an [CONFIDENTIAL TREATMENT REQUESTED] (for so long DuPont Product Number
[CONFIDENTIAL TREATMENT REQUESTED] and/or Modifications thereof are still an
Exclusive Material; thereafter or otherwise [CONFIDENTIAL TREATMENT REQUESTED])
[CONFIDENTIAL TREATMENT REQUESTED] license in the Diagnostics Field,
[CONFIDENTIAL TREATMENT REQUESTED], under any DuPont patents, patent
applications, trade secrets, technical information, copyrights or other
intellectual property relating to such Materials to import, make, have made
or use such Materials or offer for sale or sell products incorporating such
Materials, provided Cygnus pays DuPont's prior actual, direct out-of-pocket
costs relating to such patent applications and patents and provided Cygnus
agrees to pay either DuPont's future reasonable in-house billing expenses or
those charges of a mutually agreed upon law firm, whichever is more
cost-effective, for prosecuting and maintaining such patent applications and
patents as requested

                                       8
<PAGE>

by Cygnus; or

                  (ii) upon Cygnus' request within sixty (60) days of such
termination or notice of termination, DuPont shall provide at no charge to
Cygnus or Cygnus' third party manufacturer a Transfer Letter detailing all
information necessary for Cygnus or its designated third party to manufacture to
specifications (as set forth in the Transfer Letter) DuPont Product Number
[CONFIDENTIAL TREATMENT REQUESTED] and/or Modifications thereof and take all
reasonable steps to assist Cygnus in such transfer, provided Cygnus pays DuPont
for DuPont's reasonable actual, direct costs in the preparation of the Transfer
Letter.

                  (iii) Cygnus shall be free to use any confidential information
it reasonably deems necessary in the development and commercialization of the
Materials for use in the Diagnostics Field, without any prior approval of
DuPont.

         d. TERMINATION UNDER SECTION 7.b.ii. In the event only that DuPont
provides written notice of its termination of this Agreement under Section
7.b.ii. then:

                  (i) DuPont shall, at the prompt written request of Cygnus,
immediately provide Cygnus or its designee a Transfer Letter detailing all
information necessary for Cygnus or its designated third party to manufacture to
specifications (as set forth in the Transfer Letter) DuPont Product Number
[CONFIDENTIAL TREATMENT REQUESTED] and/or Modifications thereof and take all
reasonable steps to assist Cygnus in such a transfer, provided Cygnus pays
DuPont for DuPont's reasonable actual, direct costs in the preparation of the
Transfer Letter; additionally, provided Cygnus places an order for any Materials
within sixty (60) days from receipt of Transfer Letter, DuPont shall sell Cygnus
up to [CONFIDENTIAL TREATMENT REQUESTED] supply of the Materials;

                  (ii) Cygnus shall be free to use any confidential information
it reasonably deems necessary in the development and commercialization of the
Materials for use in the Diagnostics Field, without any prior approval of
DuPont; and

                  (iii) DuPont shall perform one of the following with respect
to DuPont Product Number [CONFIDENTIAL TREATMENT REQUESTED] and/or Modifications
thereof at DuPont's sole discretion:

                           A. subject to the acceptance of Cygnus, grant
Cygnus an [CONFIDENTIAL TREATMENT REQUESTED] (for so long as DuPont Product
Number [CONFIDENTIAL TREATMENT REQUESTED] and/or Modifications thereof are
still an Exclusive Material; thereafter or otherwise [CONFIDENTIAL TREATMENT
REQUESTED]) [CONFIDENTIAL TREATMENT REQUESTED] license in the Diagnostics Field,
[CONFIDENTIAL TREATMENT REQUESTED], under any DuPont patents, patent
applications, trade secrets, technical information, copyrights or other
intellectual property relating to such Materials to import, make, have made,
or use such Materials or offer for sale or sell products incorporating such
Materials, provided Cygnus pays DuPont's prior actual, direct out-of-pocket
costs relating to such patent applications and patents and provided Cygnus
agrees to pay either DuPont's future reasonable in

                                       9
<PAGE>

house billing expenses or those charges of a mutually agreed upon law firm,
whichever is more cost-effective, for prosecuting and maintaining such patent
applications and patents as requested by Cygnus;

                           B. subject to the acceptance of Cygnus, assign
promptly any DuPont patents and patent applications relating to such Materials
applicable to the Diagnostics Field, provided Cygnus pays DuPont's prior actual
direct out-of-pocket costs relating to such patent applications and patents and
any actual direct out-of-pocket costs relating to the assignment of such patent
applications and patents; or

                           C. agree that it will not assert any patent or patent
application controlled (in the sense of having the right to grant licenses and
sublicenses) by DuPont corresponding in subject matter to such Materials to
prevent any party, including Cygnus, from importing, making, having made or
using such Materials or offering to sell or selling any product incorporating
such Materials for use in the Diagnostics Field.

                  (iv) Cygnus shall indemnify, defend, and hold DuPont harmless
from all claims for compensatory or punitive damages arising from personal
injury, wrongful death, property damage, or any other type of damages associated
with the transferred Materials, whether claims are based on any alleged: breach
of a contractual obligation; violation of any statute or regulation; or tortious
conduct, including but not limited to, claims of negligence, strict liability,
fraud, concert of action, conspiracy, third party contractor claims, or
allegations of DuPont's joint or sole negligence or other tortious conduct
associated with the transferred Materials; provided, however, such indemnity
shall apply to such Materials made by DuPont and transferred to Cygnus under
Section 7.d.i. only insofar as such Materials meet Specifications and
warranties, as delineated above in Sections 3 and 5, and Exhibit A attached
hereto.

         e. In the event DuPont terminates this Agreement pursuant to Section
7.b.i. or Cygnus provides notice of termination pursuant to Section 7.a. or
Cygnus does not purchase all of its requirements for DuPont Product Number
[CONFIDENTIAL TREATMENT REQUESTED] and/or Modifications thereof from DuPont
after [CONFIDENTIAL TREATMENT REQUESTED], then if Cygnus wishes to manufacture
or have manufactured DuPont Product Number [CONFIDENTIAL TREATMENT REQUESTED]
and/or Modifications thereof, DuPont grants Cygnus a [CONFIDENTIAL TREATMENT
REQUESTED] license in the Diagnostics Field, [CONFIDENTIAL TREATMENT REQUESTED],
to import, make, have made or use such Materials or offer for sale or sell
products incorporating such Materials; Cygnus shall pay DuPont a royalty of
[CONFIDENTIAL TREATMENT REQUESTED] on the [CONFIDENTIAL TREATMENT REQUESTED]
sales of its consumable component (e.g., the AutoSensor or its equivalent)
utilizing DuPont Product Number [CONFIDENTIAL TREATMENT REQUESTED] and/or
Modifications thereof; and DuPont shall, at the prompt written request of
Cygnus, immediately provide Cygnus or its designee a Transfer Letter detailing
all information necessary for Cygnus or its designated third party to
manufacture to specifications (as set forth in the Transfer Letter) DuPont
Product Number [CONFIDENTIAL TREATMENT REQUESTED] and/or Modifications thereof
and shall take all reasonable steps to assist Cygnus in such a transfer,
provided Cygnus pays DuPont

                                       10
<PAGE>

for DuPont's reasonable actual, direct costs in the preparation of the Transfer
Letter.

         f. If without the license granted under this Section 7.f., Cygnus would
infringe an issued, valid, and in force claim of U.S. 6,042,751 (USSN
09/156,309, filed September 17, 1998) or any foreign counterparts thereto, or
any continuations, divisionals, continuations-in-part, reissues, reexaminations,
or extensions thereof, by importing, making, having made, using, selling or
offering for sale any thick film material other than DuPont Product Number
[CONFIDENTIAL TREATMENT REQUESTED] and/or Modifications thereof that Cygnus has
developed independently or acquired independently of DuPont (hereinafter
"Independent Materials") and manufactures or has manufactured on its behalf,
DuPont and its successors in interest hereby grant Cygnus a [CONFIDENTIAL
TREATMENT REQUESTED] license in the Diagnostics Field, [CONFIDENTIAL TREATMENT
REQUESTED], to import, make, have made or use such Independent Materials or
offer for sale or sell products incorporating such Independent Materials; and
Cygnus shall pay to DuPont a royalty of [CONFIDENTIAL TREATMENT REQUESTED] prior
to [CONFIDENTIAL TREATMENT REQUESTED], [CONFIDENTIAL TREATMENT REQUESTED] from
[CONFIDENTIAL TREATMENT REQUESTED] until [CONFIDENTIAL TREATMENT REQUESTED] and
[CONFIDENTIAL TREATMENT REQUESTED] thereafter on the [CONFIDENTIAL TREATMENT
REQUESTED] sales of its consumable component employing such Independent
Materials in any country where an issued, valid and in force patent exists that
would also be infringed at the time of such sales. In the event that no issued,
valid, and in force patent exists in a particular country at the time of a sale
into such country but an issued, valid and in force patent exists in the country
of manufacture, then a royalty will be due and calculated based on the
[CONFIDENTIAL TREATMENT REQUESTED] sale price, but in no event, however, shall a
double royalty be due on such sale. If there are no issued, valid, and in force
patents in either the country of sale or the country of manufacture at the time
of sale, then no royalties shall be due on sales in such country of sale.

         For a patent to be "valid" under this Section 7.f., a final,
nonappealable judgment, settlement or decree must be entered, and the
construction placed upon patent claims by such irrevocable judgment, settlement
or decree will be followed. If such irrevocable judgment, settlement or decree
holds claims and/or patents invalid that, but for the license granted in this
Section 7.f, Cygnus would infringe, then Cygnus shall owe no further royalties
and any royalties previously paid by Cygnus under this Section 7.f. shall be
refunded by DuPont to Cygnus.

         In the situation where Cygnus notifies DuPont of a third party
infringer of the licensed patents and such third party infringer is importing,
making, having made, using, selling, or offering for sale a consumable component
that can be used in Cygnus' glucose monitoring systems and such third party
infringer has a market share of at least [CONFIDENTIAL TREATMENT REQUESTED],
DuPont shall either bring an infringement action or reduce the royalties paid by
Cygnus to [CONFIDENTIAL TREATMENT REQUESTED]. In none of the above instances
shall Cygnus pay any legal costs or fees.

         Furthermore, except as otherwise expressly provided in this Agreement,
nothing contained herein shall be construed as a grant by one Party to the other
Party of any other right or license by implication, estoppel or otherwise under
any intellectual property rights held by that Party, including any trade secret,
technical information, copyright, patent or patent application.

         Additionally, in the case of DuPont Product Number [CONFIDENTIAL
TREATMENT

                                       11
<PAGE>

REQUESTED] and/or Modifications thereof, Section 7.c, Section 7.d. or Section
7.e. only shall be applicable, and no royalties will be due under this Section
7.f.

         g. In the case of Sections 7.e and 7.f., "[CONFIDENTIAL TREATMENT
REQUESTED] sales" for a period and a country shall mean the [CONFIDENTIAL
TREATMENT REQUESTED] revenues in that period with respect to the consumable
component sold (excluding free samples) by Cygnus or its affiliates or
distributors, in such country to a customer, less (to the extent included in the
[CONFIDENTIAL TREATMENT REQUESTED] amount) the following: cash discounts
actually given, as set forth on customer invoices; credits or allowances
actually given or made on account of price adjustments, rebates (including
Medicaid or other governmental programs, chargebacks, and contractual
agreements), or volume reimbursements, as set forth on customer invoices;
separate stated taxes on sales (e.g., sales and use taxes), as set forth on
customer invoices; delivery charges actually paid to third party carriers
(including transportation and insurance costs), not to exceed [CONFIDENTIAL
TREATMENT REQUESTED] of [CONFIDENTIAL TREATMENT REQUESTED] revenues and as set
forth on third party carrier invoices; and separately stated credits actually
given for returned goods, as set forth on customer invoices; all as determined
in accordance with generally accepted accounting principles (GAAP). Cygnus shall
make written reports to DuPont, on an annual calendar basis on or before
[CONFIDENTIAL TREATMENT REQUESTED] of the following year, stating in each report
the number, description, and aggregate [CONFIDENTIAL TREATMENT REQUESTED] sales
of the consumable component sold or otherwise disposed of during the preceding
calendar year and upon which royalties are payable pursuant to Section 7.e. or
7.f. above. Concurrently with the making of each report, Cygnus shall pay to
DuPont the applicable royalties in US dollars. In addition, Cygnus will keep
such records as, under GAAP, can enable the royalties due hereunder to be
accurately determined. DuPont shall have the right to select an independent
certified public accountant which is acceptable to Cygnus (which acceptance will
not be unreasonably withheld) to inspect Cygnus' records once a year on
reasonable notice and during regular business hours, to verify Cygnus' reports
and payments. The cost for such inspection shall be borne by DuPont. Records
will be retained by Cygnus and such records need not be retained by Cygnus for
more than two (2) years after completion of an audit, if requested, and in any
event, no more than three (3) years from their date of origin.

         h. NO LIABILITY FOR TERMINATION. Neither Party shall incur any
liability whatsoever for any damage, loss or expenses of any kind suffered or
incurred by the other (or for any compensation to the other) arising from or
incident to any termination of this Agreement by such Party which, in
terminating, complies with the terms of this Agreement, whether or not such
Party is aware of any such damage, loss or expenses.

         i. EFFECT OF TERMINATION. In addition to provisions that by their terms
survive termination, the following provisions shall survive the termination of
this Agreement: Sections 3.d., 3.e., 4, 5, 6, 7, 8 and Exhibit B. Remedies for
all breaches and limitations of remedies hereunder will also survive. Upon any
termination by Cygnus or by DuPont pursuant to Section 7, Cygnus shall have the
right to purchase DuPont's existing inventory of the Materials at the then
applicable prices.

                                       12
<PAGE>

         j. TERMINATION NOT SOLE REMEDY. Termination is not the sole remedy
under this Agreement and, whether or not termination is effected, all other
remedies will remain available.

8. GENERAL.

         a. AMENDMENT AND WAIVER. Except as otherwise expressly provided herein,
any provision of this Agreement may be amended and the observance of any
provision of this Agreement may be waived (either generally or in any particular
instance and either retroactively or prospectively) only with the written
consent of both Parties. However, it is the intention of the Parties that this
Agreement be controlling over additional or different terms of any purchase
order, confirmation, invoice or similar document, even if accepted in writing by
both Parties, and that waivers and amendments of any provision of this Agreement
shall be effective only if made by non-pre-printed agreements signed by both
Parties and clearly understood by both Parties to be an amendment or waiver. The
failure of either Party to enforce its rights under this Agreement at any time
for any period shall not be construed as a waiver of such rights.

         b. GOVERNING LAW AND LEGAL ACTIONS. This Agreement shall be governed by
and construed under the laws of the State of California and the United States
without regard to conflicts of laws provisions thereof. In any action or
proceeding to enforce rights under this Agreement, the prevailing Party shall be
entitled to recover costs and attorneys' fees.

         c. HEADINGS. Headings and captions are for convenience only and are not
to be used in the interpretation of this Agreement.

         d. NOTICES. Any notice or other communication required or permitted to
be made or given to either Party under this Agreement shall be deemed
sufficiently made or given on the date of delivery if delivered in person or by
overnight commercial courier service with tracking capabilities with costs
prepaid, or three (3) days after the date of mailing if sent by certified first
class U.S. mail, return receipt requested and postage prepaid, at the address of
the Parties set forth below or such other address as may be given from time to
time under the terms of this notice provision:

                If to DuPont:          DuPont ITechnologies
                                       E.I. du Pont de Nemours and Company
                                       14 TW Alexander Drive
                                       P.O. Box 13999
                                       Research Triangle Park, NC 27709-3999
                                       Fax:     919-248-5715
                                       Attention: President, DuPont Microcircuit
                                                  Materials

                If to Cygnus:          Cygnus, Inc.
                                       400 Penobscot Drive
                                       Redwood City, California 94063
                                       Fax:     650-599-3913
                                       Attention:  Director, Materials

                                       13
<PAGE>

                                       with a copy to the General Counsel

         e. ENTIRE AGREEMENT. This Agreement (and all Exhibits hereto)
constitutes the entire understanding and agreement with respect to the subject
matter hereof and supersedes all proposals, oral or written, all negotiations,
conversations, or discussions between or among Parties relating to the subject
matter of this Agreement and all past dealing or industry custom. The
Development Agreement and the Supply Agreement between the Parties are hereby
mutually terminated as of the Effective Date of this Agreement, and this
Agreement shall completely replace and supersede any surviving provisions of the
Development Agreement and the Supply Agreement.

         f. SEVERABILITY. If any provision of this Agreement is held to be
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.

         g. RELATIONSHIP OF PARTIES. The Parties hereto expressly understand and
agree that the other is an independent contractor in the performance of each and
every part of this Agreement, is solely responsible for all of its employees and
agents and its labor costs and expenses arising in connection therewith.

         h. ASSIGNMENT. This Agreement and the rights hereunder are not
transferable or assignable without the prior written consent of the Parties
hereto, except for rights to payment and except to a person or entity who
acquires all or substantially all (defined as fifty percent (50%) or greater) of
a Party's stock, assets or business to which this Agreement pertains, whether by
sale, merger, acquisition or otherwise.

         i. PUBLICITY AND PRESS RELEASES. Except to the extent necessary under
applicable laws or for ordinary marketing purposes, the Parties agree that no
press releases or other publicity relating to the substance of the matters
contained herein will be made without approval by both Parties. Any press
release announcing this Agreement will be jointly developed and released by the
Parties.

         j. FORCE MAJEURE. No liability or loss of rights hereunder shall result
to either Party from delay or failure in performance caused by an event of force
majeure (that is, circumstances beyond the reasonable control of the Party
affected thereby, including, without limitation, acts of God, fire, flood, war,
government action, compliance with laws or regulations (including, without
limitation, those related to infringement), strikes, lockouts or other serious
labor disputes) for so long as such event of force majeure continues in effect;
provided that if such force majeure event continues and affects or delays a
Party's performance hereunder for more than sixty (60) days, the other Party may
terminate this Agreement pursuant to Section 7.b.

         k. REMEDIES. Except as otherwise expressly stated in this Agreement,
the rights and remedies of a Party set forth herein with respect to failure of
the other to comply with the terms of this Agreement (including, without
limitation, rights of full termination of this Agreement) are not exclusive, the
exercise thereof shall not constitute an election of remedies and the aggrieved

                                       14
<PAGE>

Party shall in all events be entitled to seek whatever additional remedies may
be available in law or in equity.

         l. COMPLIANCE WITH LAW; EXPORT CONTROL. Each Party agrees to comply
with the U.S. Foreign Corrupt Practices Act (regarding among other things,
payments to government officials) and all export laws, restrictions, national
security controls and regulations of the United States or other applicable
foreign agency or authority, and not to export or re-export, or allow the export
or re-export of any proprietary information or any copy or direct product
thereof in violation of any such restrictions, laws or regulations, or to any
Group D:1 or E:2 country (or any national of such country) specified in the then
current Supplement No. 1 to Part 740, or, in violation of the embargo provisions
in Part 746, of the U.S. Export Administration Regulations (or any successor
regulations or supplement), except in compliance with and with all licenses and
approvals required under applicable export laws and regulations, including
without limitation, those of the U.S. Department of Commerce.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
                     [THE NEXT PAGE IS THE SIGNATURE PAGE.]

                                       15
<PAGE>

         IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date indicated on the first page of this Agreement .

CYGNUS, INC.                             E. I. DU PONT DE NEMOURS
                                               AND COMPANY

By:    /s/ John C Hodgman                By:    /s/ Linda B. West
   --------------------------------         -----------------------------------
Name:  John C Hodgman                    Name:  Linda B. West

Title: Chairman, President and           Title: President, DuPont Microcircuit
       Chief Executive Officer                  Materials DuPont ITechnologies

                                       16
<PAGE>

                                    EXHIBIT A
                        SPECIFICATIONS FOR THE MATERIALS

[CONFIDENTIAL TREATMENT REQUESTED]

                                       17
<PAGE>

                                    EXHIBIT B
                          PRICE RANGE FOR THE MATERIALS

[CONFIDENTIAL TREATMENT REQUESTED]

                                       18
<PAGE>

                                    EXHIBIT C
                           CONTENTS OF TRANSFER LETTER

[CONFIDENTIAL TREATMENT REQUESTED]

                                       19
<PAGE>

                             EXHIBIT E. TEST METHODS

[CONFIDENTIAL TREATMENT REQUESTED]

                                       20

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