Document:

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[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.

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          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-
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     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-
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     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 voluntary
termination *** 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-
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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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                                   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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                                      -4-<PAGE>

                                                                   EXHIBIT 10.7B

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

                           MASTER PURCHASE AGREEMENT

                           Manufacturing and Supply

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

                                   RECITALS

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

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

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

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

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

                                   AGREEMENT

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

     1.  DEFINITIONS

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

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

                                      -1-
<PAGE>

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

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

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

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

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

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

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

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

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

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

     2.  SUPPLY REQUIREMENTS

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

                                      -2-

<PAGE>

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

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

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

[***]

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

     3.  FORECASTS AND ORDERS

     Starting on the Effective Date, and every three (3) months thereafter,
TheraSense shall provide Facet with a non-binding written forecast of
TheraSense's expected needs for the Products for no less than a six (6) month
period from the date thereof (the "Forecast"). At least quarterly, TheraSense
shall place a three (3) month Purchase Order with Facet for the Products.

     4.  MATERIAL PROCUREMENT

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

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

                                      -3-

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

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

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

     5.  ENGINEERING CHANGES

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

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

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

     6.  PURCHASE PRICE

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

     7.  DELIVERY

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

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

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

     8.  PAYMENTS

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

     9.  WARRANTY

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

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

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

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

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

                                      -6-

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

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

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

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

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

     10.  REGULATORY REQUIREMENTS

     During the term of this Agreement Facet will:

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

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

                                      -7-

<PAGE>

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

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

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

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

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

     11.  ACCEPTANCE

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

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

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

     12.  LIMITATION OF LIABILITY

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

     13.  INTELLECTUAL PROPERTY INDEMNIFICATION

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

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

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

     14.  GENERAL INDEMNITY

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

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

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

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

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

     15.  TERM AND TERMINATION

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

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

                                      -10-

<PAGE>

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

     16.  CONFIDENTIALITY

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

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

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

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

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

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

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

                                      -11-

<PAGE>

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

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

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

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

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

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

     17.  DISPUTES

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

     18.  GENERAL

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

                                      -12-

<PAGE>

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

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

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

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

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

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

                                      -13-

*** Confidential Treatment Requested
<PAGE>

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

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

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

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

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

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

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

                                      -14-

<PAGE>

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

TheraSense, Inc.                    Facet Technologies, LLC

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

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

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

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

                                      -15-

<PAGE>

                                   EXHIBIT A

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

Part Number     Description                                      Pricing
-----------     -----------                                      -------

PRT 00148-001   Lancing Device Warranty Kit                        ***
PRT 00178-001   Lancing Device Assy (Proto Mold)                   ***
PRT 00178-001   Lancing Device Assy (Prod Mold less than 1.2MM)    ***
PRT 00178-001   Lancing Device Assy (Prod Mold less than 1.2MM)    ***
PRT 00202-001   Lancets, 100 Count Box                             ***
PRT 00207-001   Lancing Device Replacement Cap Bagged              ***
PRT 00192-001   Lancets, 10 Count Bag                              ***
PRT 00596       Arm Cap Bag of 20                                  ***
PRT 00597       Finger Cap Bag of 20                               ***
PRT 00598       Lancing Device Box of 40                           ***
PRT 00604       Lancets Bags Box of 25                             ***

*** Confidential Treatment Requested
<PAGE>

                                   EXHIBIT B

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

                      Low Volume        High Volume        High Volume
                     Mold Part #S       Mold Part #S          Revs.

Body Top                0204001          PRT00556           Revision A
Body Bottom             0205001          PRT00555           Revision A
Lancet Holder           0206001          PRT00557           Revision A
Arm Cap                 0207001          PRT00558           Revision A
Depth Wheel             0208001          PRT00559           Revision A
Button                  0209001          PRT00560           Revision A
Arming Part             0210001          PRT00561           Revision A
Arming Chassis          0211001          PRT00562           Revision A
Retraction Spring       0212001          0212001            Revision C
Drive Spring            0213001          0213001            Revision F
Finish Device SKU       0178001          PRT00178001        Revision E
Number

Revision levels may change in the future.

<PAGE>

                                   EXHIBIT C

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

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

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