10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

OR

(   ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from      to      

Commission File Number: 0-21696

ARIAD Pharmaceuticals, Inc.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 22-3106987
(I.R.S. Employer Identification No.)

26 Landsdowne Street, Cambridge, Massachusetts 02139

(Address of principal executive offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (617) 494-0400

Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report: Not Applicable

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    (X)     No   (  )

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes    (X)    No   (  )

The number of shares of the Registrant’s common stock outstanding as of April 30, 2003 was 34,917,396

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. UNAUDITED FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO UNAUDITED CONDENSED CONSOLIDATED
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
EX-10.1 CREDIT AGREEMENT
EX-10.2 TERM NOTE
EX-10.3 SECURITY AGREEMENT - ARIAD PHARMACEUTICALS
EX-10.4 SECURITY AGREEMENT - ARIAD CORPORATION
EX-10.5 SECURITY AGREEMENT/ARIAD GENE THERAPEUTICS
EX-99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
EX-99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER
EX-99.3 CERTIFICATION PURSUANT TO SECTION 906

ARIAD PHARMACEUTICALS, INC.

TABLE OF CONTENTS

		Page No.
PART I:	FINANCIAL INFORMATION
ITEM 1.	UNAUDITED FINANCIAL STATEMENTS:
	Condensed Consolidated Balance Sheets – March 31, 2003 and December 31, 2002	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002	2
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	8
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	12
ITEM 4.	CONTROLS AND PROCEDURES	12
PART II:	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	13
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	13
	SIGNATURES	15
	EXHIBIT INDEX	16

PART I.  FINANCIAL INFORMATION

ITEM 1.  UNAUDITED FINANCIAL STATEMENTS

ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

			March 31,			December 31,
In thousands, except share and per share data			2003			2002
ASSETS
Current assets:
	Cash and cash equivalents		$	21,414		$	26,850
	Inventory and other current assets			989			847
		Total current assets		22,403			27,697
Property and equipment:
	Leasehold improvements			12,642			12,642
	Equipment and furniture			5,901			5,668
		Total		18,543			18,310
	Less accumulated depreciation and amortization			(17,362	)		(17,269	)
		Property and equipment, net		1,181			1,041
Intangible and other assets, net				5,855			6,366
Total assets			$	29,439		$	35,104
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt		$	1,500		$	1,478
	Accounts payable			1,787			2,145
	Accrued compensation and benefits			255			399
	Accrued product development expenses			679			1,006
	Other accrued expenses			229			1,310
	Deferred revenue – current portion			608			187
		Total current liabilities		5,058			6,525
Long-term debt				6,000			5,437
Deferred revenue				549			46
Deferred executive compensation				1,243			1,244
Stockholders’ equity:
	Common stock, $.001 par value; authorized, 60,000,000 shares; issued and outstanding, 34,869,153 shares in 2003 and 34,828,689 shares in 2002			35			35
	Additional paid-in capital			158,188			158,147
	Deferred compensation			(4	)		(13	)
	Accumulated other comprehensive loss			(1	)
	Accumulated deficit			(141,629	)		(136,317	)
		Total stockholders’ equity		16,589			21,852
Total liabilities & stockholders’ equity			$	29,439		$	35,104

See notes to unaudited condensed consolidated financial statements.

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ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

			Three Months Ended
			March 31,
In thousands, except share and per share data			2003			2002
License revenue			$	126		$	0
Operating expenses:
	Research and development *			4,541			5,099
	General and administrative			885			1,184
		Total operating expenses		5,426			6,283
Loss from operations				(5,300	)		(6,283	)
Other income (expense):
	Interest income			59			201
	Interest expense			(71	)		(85	)
Total other income (expense), net				(12	)		116
Net loss			$	(5,312	)	$	(6,167	)
Net loss per share (basic and diluted)			$	(.15	)	$	(.19	)
Weighted average number of shares of common stock outstanding – basic and diluted				34,849,405			32,317,924
* Includes non-cash stock-based compensation expense (income):			$	(3	)	$	22

See notes to unaudited condensed consolidated financial statements.

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ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

			Three Months Ended
			March 31,
In thousands			2003			2002
Cash flows from operating activities:
	Net loss		$	(5,312	)	$	(6,167	)
	Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			749			466
	Executive compensation expense			76			62
	Stock-based compensation			(3	)		22
	Increase (decrease) from:
		Inventory and other current assets		(142	)		118
		Other assets		4			(96	)
		Accounts payable		(358	)		70
		Accrued compensation and benefits		(144	)		(322	)
		Accrued product development expenses		(327	)		1,067
		Other accrued expenses		(1,080	)		(263	)
		Deferred revenue		924
		Deferred executive compensation		(1	)
	Net cash used in operating activities			(5,614	)		(5,043	)
Cash flows from investing activities:
	Investment in property and equipment			(234	)		(35	)
	Acquisition of intangible assets			(226	)		(435	)
	Net cash used in investing activities			(460	)		(470	)
Cash flows from financing activities:
	Proceeds from long-term debt borrowings			7,500
	Repayment of borrowings			(6,915	)		(363	)
	Proceeds from issuance of stock pursuant to stock option and purchase plans			53			534
	Net cash provided by financing activities			638			171
Net decrease in cash and equivalents				(5,436	)		(5,342	)
Cash and equivalents, beginning of period				26,850			46,742
Cash and equivalents, end of period			$	21,414		$	41,400

See notes to unaudited condensed consolidated financial statements.

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ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

1. Management Statement

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of March 31, 2003 and the results of operations and cash flows for the three-month periods ended March 31, 2003 and 2002. The results of operations for the three-month period ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, which includes consolidated financial statements and notes thereto for the years ended December 31, 2002, 2001 and 2000.

In March 2003, the Company announced that it is focusing its resources primarily on developing its lead anti-cancer small-molecule product candidates. As a result of this decision, the Company expects to reduce its operating expenses in 2003 by approximately 33% from those amounts incurred in 2002. In addition, the Company has entered into a new term loan agreement with a bank for $7.5 million (see Note 5), the proceeds of which were used to repay existing long-term debt, to pay off obligations under certain operating leases and for general working capital purposes. This refinancing also lowered the Company’s cost of financing its equipment. The Company will require substantial additional funding for its research and development programs, including preclinical development and clinical trials, for operating expenses, for the pursuit of regulatory approvals and for establishing manufacturing, marketing and sales capabilities.

The Company will continue to pursue additional funding through the capital markets, collaborations for one or more of its product candidates and additional licenses for its technologies. Based on its current operating plans and the effect of the above actions and assuming no further funding, management believes that the Company’s current available funds will be adequate to satisfy its capital and operating requirements into the second quarter of 2004.

2. Cash Equivalents

Cash equivalents include short-term, highly liquid investments, which consist principally of United States Treasury and Agency securities and high-grade domestic corporate securities, purchased with remaining maturities of 90 days or less, and money market accounts. United States Treasury and Agency securities are carried at market value.

3. Inventory

Inventory consists of bulk pharmaceutical materials to be used for multiple development programs. Inventory is carried at cost using the first in, first out method and is charged to research and development expense when consumed. The carrying value of inventory amounted to $430,000 at both March 31, 2003 and December 31, 2002.

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4. Intangible and Other Assets

Intangible and other assets, net, was comprised of the following at March 31, 2003 and December 31, 2002 :

In thousands	2003			2002
Capitalized patent and license costs	$	7,925		$	8,130
Less accumulated amortization		(2,859	)		(2,680	)
		5,066			5,450
Unvested executive deferred compensation (Note 7)		650			726
Other		139			190
	$	5,855		$	6,366

The cost of purchased patents and patent applications costs incurred in filing patents and certain license fees are capitalized. Capitalized costs related to issued patents are amortized over a period not to exceed seventeen years or the remaining life of the patent, whichever is shorter, using the straight-line method. Capitalized license fees are amortized over the period to which they relate. In addition, capitalized patent and license costs are expensed when it becomes determinable that such technology will not be pursued. The Company expensed $434,000 and $0 in the quarters ended in March 31, 2003 and 2002, respectively, in accordance with this policy.

5. Long-Term Debt

Long-term debt was comprised of the following at March 31, 2003 and December 31, 2002:

	2003			2002
	In thousands
Bank term note at prime rate (4.25% at March 31, 2003) payable in monthly installments of $125,000 plus interest, through March, 2006.	$	7,500
Bank term note at prime plus 1%, repaid in full in March 2003				$	6,300
General Electric Capital Corporation term notes at average interest rate of 9.48%, repaid in full in March 2003					615
Less current portion		(1,500	)		(1,478	)
Long-term debt	$	6,000		$	5,437

In March 2003, the Company entered into a term loan agreement with a bank for $7.5 million. The proceeds of this term loan were used to repay the $6.3 million bank term note and the $615,000 term notes with General Electric Capital Corporation as well as buy out remaining obligations under certain operating leases for equipment. The loan is secured by a lien on all assets of the Company excluding intellectual property, which the Company has agreed not to pledge to any other party.

The term loan carries interest at the bank’s prime rate or at LIBOR plus 2% and is repayable in 36 monthly installments of $125,000 plus interest beginning in April 2003 with a balloon payment of $3.0 million in March 2006. The term loan requires the Company to maintain a minimum of $10.0 million in unrestricted cash, cash equivalents and investments. The agreement also contains certain covenants that restrict additional indebtedness, additional liens, sales of assets, and dividends, distributions or

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repurchases of common stock. The Company expects to remain in compliance with all covenants of the term loan through at least December 31, 2003.

6. Revenue Recognition

Revenue is principally comprised of license fees received under agreements that provide the licensees with access to and/or review and evaluation of certain technology owned or controlled by the Company. Upfront annual license fees are recorded as deferred revenue upon receipt and recognized as revenue on a systematic basis over the period of time they are earned in accordance with the terms of the agreements. Such agreements may include milestone and royalty payments. Such payments will be recognized as revenue when earned in accordance with terms of the related agreements.

7. Executive Compensation Plan

Since 1998, the Company has maintained an executive compensation plan which provides participants, in lieu of a cash bonus, an option to purchase certain designated mutual funds at a discount (75% for each year since the plan’s inception) equal to the amount of the bonus. The options vest equally over four years. For awards granted prior to 2002, the benefit obligation had been recorded as compensation and a liability as the obligation vested based on the fair market value of the underlying designated mutual funds.

In April 2002, the Emerging Issues Task Force (“EITF”) issued EITF 02-8, Accounting for Options Granted to Employees in Unrestricted, Publicly Traded Shares of an Unrelated Entity. This consensus requires that the Company account for such benefits as derivatives under the SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Under these pronouncements, the fair value of the derivative is recorded at its inception as an asset and liability, with the asset amortized to expense over the vesting period. Subsequent changes in the fair value of the underlying derivative are immediately included in the determination of net income or loss.

In July 2002, the Company approved the 2002 grants to certain executives and key employees and modified all prior year grants to conform certain terms with current year grants. As a result, all of the grants are being accounted for in accordance with EITF 02-8. Total expense related to the executive compensation plan amounted to $76,000 and $62,000 for the three months ended March 31, 2003 and March 31, 2002, respectively.

8. Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in stockholders’ equity that are excluded from net income (loss). Specifically, unrealized holding gains (losses) on the Company’s available-for-sale securities are included in accumulated other comprehensive income in stockholders’ equity. Comprehensive income (loss) was not materially different from net loss for all periods presented.

9. Net Loss Per Share

Net loss per share amounts have been computed based on the weighted average number of common shares outstanding during each period. Because of the net loss reported in each period, diluted and basic per share amounts are the same. For the three months ended March 31, 2003 and March 31, 2002, options to purchase 5,532,659 and 4,640,418 shares of common stock, respectively, were not included in the computation of net loss per share, because the effect would have been anti-dilutive.

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10. Common Stock Shelf Registrations

At March 31, 2003, the Company had a total of 3,372,288 shares of registered common stock available for sale pursuant to shelf registrations previously filed with the Securities and Exchange Commission (“SEC”).

11. Recently Issued Accounting Pronouncements

In December 2002, the EITF issued EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This consensus provides guidance in determining when a revenue arrangement with multiple deliverables should be divided into separate units of accounting, and, if separation is appropriate, how the arrangement consideration should be allocated to the identified accounting units. The provisions of EITF 00-21 are effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company will evaluate multiple element arrangements in accordance with this EITF conclusion upon its effective date for new arrangements into which it enters.

12. Stock Based Compensation

The Company uses the intrinsic value method to measure compensation expense associated with grants of stock options to employees. On a pro forma basis, had the Company used the fair value method to measure compensation for all stock options, the net loss and net loss per share would have been reported as follows as of March 31:

In thousands (except per share data)	2003			2002
Net loss, as reported	$	(5,312	)	$	(6,167	)
Effect of stock options if valued at fair value		(1,042	)	$	(748	)
Pro forma net loss	$	(6,354	)		(6,915	)
Net loss per share, as reported	$	(.15	)	$	(.19	)
Effect of stock options if valued at fair market		(.03	)		(.02	)
Pro forma net loss per share	$	(.18	)	$	(.21	)

The above disclosure, required by SFAS No. 123, includes only the effect of grants made subsequent to January 1, 1996. For purposes of calculating the above disclosure, the fair value of options on their grant date was measured using the Black-Scholes option pricing model. Key assumptions used to apply this pricing model included a risk-free interest rate of 3.1% for 2003, and 3.0% for 2002, expected lives of the option grants ranging from one to six years and expected rates of volatility for the underlying stock of 113% for 2003, and 111% for 2002. Using this model, the weighted average fair value per option for all options granted to employees in 2003 and 2002 was $ 1.14 and $3.77, respectively.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are engaged in the discovery and development of breakthrough medicines that regulate cell signaling with small molecules. Breakthrough medicines are products, created de novo, that may be used to treat diseases in innovative ways. We are developing a comprehensive approach to the treatment of cancer and are primarily focused on a series of product candidates for targeted oncology indications. We have an exclusive license to pioneering technology and patents related to the discovery, development, and use of drugs that regulate NF-kB cell-signaling activity, which has been implicated in many major diseases.

Since our inception in 1991, we have devoted substantially all of our resources to our research and development programs. We receive no revenue from the sale of pharmaceutical products, and most of our revenue to date has been received in connection with our past relationship with Aventis Pharmaceuticals, Inc. (“Aventis”). Except for the gain on the sale of our fifty percent interest in the Hoechst-ARIAD Genomics Center LLC (the “Genomics Center”) to Aventis in December 1999, which resulted in net income for fiscal 1999, we have not been profitable since inception. We expect to incur substantial operating losses for the foreseeable future, primarily due to costs associated with our pharmaceutical product development programs, clinical trials, and product manufacturing. We expect that losses will fluctuate from quarter to quarter and that these fluctuations may be substantial. As of March 31, 2003, we had an accumulated deficit of $141.6 million.

Our business strategy aims to balance near-term revenues from product partnering and technology licensing with independent product development and commercialization. With respect to the development and commercialization of our lead product candidates, our goals are to: (1) enter into a partnership with a pharmaceutical or biotechnology company to develop and commercialize our lead product candidate, AP23573, to treat cancer; (2) enter into partnerships with medical device companies to develop and commercialize our lead product candidate, AP23573, in drug-delivery stents to decrease reblockage of arteries following angioplasty and stenting; (3) independently develop as many of our product candidates as possible through at least phase 2 before partnering them; (4) establish the commercial infrastructure to market or co-market our anti-cancer product candidates in the United States; and (5) enter into partnerships for our other product candidates outside the United States. With respect to our core technologies and intellectual property, our goals are to license our NF-kB technology to pharmaceutical and biotechnology companies conducting research on the discovery of drugs that modulate NF-kB cell signaling and/or marketing such drugs and to license our RegTech cell-signaling technologies to pharmaceutical and biotechnology companies to accelerate their drug discovery. In addition, we may jointly develop product candidates incorporating our ARGENT cell-signaling regulation technology, especially with companies that have proprietary therapeutic genes, cellular systems or gene delivery vectors. As of April 30, 2003, we have not entered into any partnerships for any of our lead product candidates and there can be no assurance that we will be successful in achieving our strategies and generating future revenue streams.

Critical Accounting Policies

Our financial position and results of operations are affected by subjective and complex judgments, particularly in the areas of stock-based compensation to consultants, deferred compensation benefits for executives and key employees, and the carrying value of intangible assets. In determining expense related to stock-based compensation and deferred compensation, recorded balances are adjusted at each reporting period to reflect fair value utilizing the Black Scholes financial model that takes into account, among other things, the price and volatility of our common stock or other underlying securities, an interest-free discount rate, and an estimate of the life of the option contract. Fluctuations in those factors result in uneven expense charges or credits to our statements of operations. If, for example, the price and

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volatility of our common stock were 10% greater as of March 31, 2003, we would have recognized an increase of $3,000 in stock-based compensation to consultants in the first quarter of 2003. Similarly, if the market price of the underlying securities in our executive deferred compensation plan was 10% higher at March 31, 2003, we would have recognized an additional $143,000 in compensation expense in the first quarter of 2003.

At March 31, 2003, we reported $5.1 million of intangible assets consisting of costs related primarily to purchased patents, patent applications and licenses. These costs are being amortized over the estimated useful lives of the underlying patents or licenses. Changes in these lives or a decision to discontinue using the technologies could result in material changes to our balance sheet and statements of operations. For example, during the three months ended March 31, 2003, we expensed $434,000 of unamortized costs related to certain intangible assets which we are not actively developing any longer. We have concluded that the carrying value of our remaining intangible assets is not currently impaired, because they are utilized in our current product development programs and/or are viable technologies for collaborations or licensing efforts which we continue to pursue. If we were to abandon the underlying technologies or terminate our efforts to pursue collaborations or license agreements, we may be required to write off all or a portion of the carrying value of our intangible assets.

Results of Operations

Three Months Ended March 31, 2003 Compared with the Three Months Ended March 31, 2002

Revenue

We recognized revenue of $126,000 for the quarter ended March 31, 2003 compared to $0 for the corresponding period in 2002. The 2003 revenue is due to license agreements into which we have entered with Bristol-Myers Squibb Company in the fourth quarter of 2002 and with GPC Biotech AG in the first quarter of 2003 related to our NF-kB and ARGENT cell-signaling technologies.

Operating Expenses

Research and development expenses decreased by 11% to $4.5 million for the quarter ended March 31, 2003 compared to $5.1 million for the corresponding period in 2002. In the quarter ended March 31, 2003, we wrote off $434,000 of capitalized patent and license costs related to technology that was licensed from an academic institution, which we determined was not critical to the Company’s business and will not be pursued. Excluding this expense, research and development expenses in the quarter ended March 31, 2003 decreased by $992,000 or 19% compared to the corresponding period in 2002. In March 2003, we announced that we were focusing our research and development efforts primarily on our anti-cancer small-molecule product candidates and reducing or deferring our research and development efforts in certain other programs. The decrease in research and development expenses is attributable in part to this decision as expenses related to scaled-back programs decreased by $1.1 million in the quarter ended March 31, 2003 as compared to the corresponding period in 2002. Our research and development expenses related to our core anti-cancer product candidates increased by $329,000 due primarily to costs related to the initiation of Phase 1 clinical trials for our lead product candidate AP23573. This increase in costs was largely offset by a decrease in overhead expenses related to research and development of $202,000, consisting primarily of lower occupancy, depreciation and amortization, in the quarter ended March 31, 2003 as compared to the corresponding period in 2002.

General and administrative expenses decreased by 25% to $885,000 for the quarter ended March 31, 2003 compared to $1.2 million for the corresponding period in 2002. This $299,000 decrease was primarily due to decreased professional fees of $332,000, principally from legal fees related to corporate and litigation matters.

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Interest Income/Expense

Interest income decreased by $142,000 to $59,000 for the quarter ended March 31, 2003 compared to $201,000 for the corresponding period in 2002, primarily as a result of lower interest rates and a lower level of funds invested during the first quarter of 2003.

Interest expense decreased to $71,000 for the quarter ended March 31, 2003 from $85,000 for the corresponding period in 2002. The decrease resulted primarily from a lower level of long-term debt outstanding during the first quarter of 2003, prior to refinancing our long-term debt in March 2003.

Operating Results

We reported a loss from operations of $5.3 million for the quarter ended March 31, 2003 compared to a loss from operations of $6.3 million for the corresponding period ended March 31, 2002, a decrease in loss of $983,000, or 16%. We expect operating losses will be substantial for the foreseeable future as our product development activities continue, and these losses are expected to fluctuate from quarter to quarter as a result of differences in the timing and composition of revenue earned and expense incurred.

We reported a net loss of $5.3 million for the quarter ended March 31, 2003 compared to a net loss of $6.2 million for the corresponding period in 2002, a decrease in net loss of $855,000 or 14%, and $.15 and $.19 per share (basic and diluted), respectively.

Liquidity and Capital Resources

We have financed our operations and investments to date primarily through the private placement and public offering of our equity securities and through research revenue and other transactions resulting from our collaboration with Aventis from 1995 to 1999, including the sale of our 50% interest in the Genomics Center in December 1999. In addition, we have financed our operations through the issuance of long-term debt, operating and capital lease transactions, certain licensing transactions, interest income, and government-sponsored research grants.

In March 2003, we announced that we are focusing our resources primarily on developing our three lead anti-cancer small-molecule product candidates. As a result of this decision, we expect to reduce our operating expenses in 2003 by approximately 33% from those amounts incurred in 2002. In addition, we have entered into a new term loan agreement with a bank for $7.5 million, the proceeds of which were used to repay existing long-term debt, to pay off obligations under certain operating leases and for general working capital purposes. This refinancing also lowered our cost of financing our equipment.

At March 31, 2003, we had cash and cash equivalents totaling $21.4 million and working capital of $17.3 million compared to cash and cash equivalents totaling $26.9 million and working capital of $21.1 million at December 31, 2002.

The primary uses of cash during the three months ended March 31. 2003 were $5.6 million to finance our operations and working capital requirements, $6.9 million to repay long-term debt, $226,000 to acquire intellectual property and $234,000 to purchase equipment. The primary sources of cash during the three months ended March 31, 2003 were $7.5 million from proceeds from refinancing our debt and $53,000 from the sale of shares of common stock pursuant to our stock option and employee stock purchase plans.

At March 31, 2003, we had a total of 3,372,288 shares of registered common stock available for sale pursuant to shelf registrations previously filed with the SEC.

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We have substantial fixed contractual obligations under various research and licensing agreements, consulting and employment agreements, lease agreements and long-term debt instruments. These contractual obligations were comprised of the following as of March 31, 2003:

In thousands	Payments Due By Period
					2004		2007
			In		through		through		After
Contractual Obligations	Total		2003		2006		2008		2008
Long-term debt	$	7,500	$	1,125	$	6,375	$	—	$	—
Operating leases		2,355		384		1,650		321
Other long-term obligations *		6,791		2,205		3,996		230		360
Total fixed contractual obligations	$	16,646	$	3,714	$	12,021	$	551	$	360

* Other long-term obligations are comprised primarily of employment agreements and licensing agreements.

We will require substantial additional funding for our research and development programs, including preclinical development and clinical trials, for operating expenses, for the pursuit of regulatory approvals and for establishing manufacturing, marketing and sales capabilities. We are pursuing the necessary funding to support our research and development programs through potential partnerships for our lead product candidates or product classes; licensing of our cell-signaling regulation technologies, including our NF-kB intellectual property portfolio; and sale of common stock as market conditions permit. Adequate funding may not be available when needed or on terms acceptable to us.

Based on our current operating plans and assuming no further funding or potential revenues that may be generated from product partnering or licensing initiatives we are currently pursuing, we believe our current available funds will be adequate to satisfy our capital and operating requirements into the second quarter of 2004. However, there can be no assurance that changes in our research and development plans or other future events affecting our revenues or operating expenses will not result in the earlier depletion of our funds.

Securities Litigation Reform Act

Safe harbor statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information contained in this Quarterly Report on Form 10-Q, the matters discussed herein are forward-looking statements that involve risks and uncertainties, including, but not limited to, risks and uncertainties regarding our ability to succeed in developing marketable drugs or generating product revenues, our ability to accurately estimate the actual research and development expenses and other costs associated with the preclinical and clinical development of our product candidates, the success of our preclinical studies, our ability to commence clinical studies, the adequacy of our capital resources and the availability of additional funding, as well as general economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices, and other factors discussed under the headings “Risk Factors” and “Certain Factors That May Affect Future Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2002, which has been filed with the Securities and Exchange Commission. As a result of these and other factors, actual events or results could differ materially from those described herein.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest our available funds in accordance with our investment policy to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment.

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We invest cash balances in excess of operating requirements first in short-term, highly liquid securities, with maturities of 90 days or less, and money market accounts. Depending on our level of available funds and our expected cash requirements, we may invest a portion of our funds in marketable securities, consisting generally of corporate debt and U.S. government securities with maturities of one year or less, but generally less than six months. These securities are classified as available-for-sale. Available-for-sale securities are recorded on the balance sheet at fair market value with unrealized gains or losses reported as a separate component of stockholders’ equity (accumulated other comprehensive loss). Gains and losses on marketable security transactions are reported on the specific-identification method. Interest income is recognized when earned. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary results in a charge to earnings and establishes a new cost basis for the security.

Our investments are sensitive to interest rate risk. We believe, however, that the effect, if any, of reasonable possible near-term changes in interest rates on our financial position, results of operations and cash flows generally would not be material due to the short-term nature of these investments. In particular, at March 31, 2003, because our available funds are invested solely in cash equivalents and short-term securities with maturities less than 90 days, our risk of loss due to changes in interest rates is not material.

We have an executive compensation plan which provides participants, in lieu of a cash bonus, an option to purchase certain designated mutual funds at a discount equal to the amount of the bonus. These deferred compensation arrangements are accounted for as derivatives under SFAS No. 133. The fair value of the derivatives is reflected as a liability on our balance sheet. As of March 31, 2003, in the event of a hypothetical 10% increase (decrease) in the fair market value of the underlying mutual funds, we would incur approximately $143,000 of additional (less) compensation expense.

At March 31, 2003, we have a $7.5 million bank term note which bears interest at prime. This note is sensitive to interest rate risk. In the event of a hypothetical 10% increase in the prime rate (42.5 basis points), we would incur approximately $29,000 of additional interest expense per year based on expected balances over the next twelve months.

ITEM 4. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures. The Company’s principal executive officer and principal financial officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within 45 days of the filing date of this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.

(b)  Changes in Internal Controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company’s internal controls. Accordingly, no corrective actions were required or undertaken.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On May 19, 1999, we filed suit in the Massachusetts Superior Court against Michael Z. Gilman, Ph.D., or Dr. Gilman, our former Chief Scientific Officer, seeking equitable relief for breach of his employment agreements in accepting a position as the research director of molecular biology at Biogen, Inc., or Biogen. The Superior Court issued a temporary injunction on May 19, 1999 restraining Dr. Gilman from using any of our confidential information in his new employment. On June 21, 1999, Dr. Gilman filed counterclaims against us seeking an order awarding damages for breach of contract and barring us from enforcing any provisions of our employment agreements with Dr. Gilman. On May 26, 1999, Biogen filed a motion to intervene as a defendant in the action which the Superior Court granted on August 2, 1999. Discovery in the case has been completed, and Summary Judgment Motions have been filed, heard and ruled upon.

Counsel for us, counsel for Biogen and counsel for Dr. Gilman have executed a stipulated partial judgment, or the Stipulated Judgment, which was approved pursuant to entry by the Court on January 13, 2003. The Stipulated Judgment dismisses with prejudice our claim for breach of contract against Dr. Gilman and dismisses Biogen as a party to the action. Dr. Gilman’s counterclaims will now proceed to trial in July of 2003. The ultimate outcome of the litigation with Dr. Gilman is not determinable at this time, and as a result, we cannot estimate whether any damages will be awarded or what the range of such an award might be and have not recorded any liability on the March 31, 2003 balance sheet.

On June 25, 2002, we, together with Massachusetts Institute of Technology, The Whitehead Institute for Biomedical Research and Harvard University, filed a lawsuit in the United States District Court for the District of Massachusetts, or the U.S. District Court, against Eli Lilly and Company, or Lilly, alleging infringement upon issuance of certain claims of our U.S. patent covering methods of treating human disease by regulating NF-kB cell-signaling activity, or the NF- kB ‘516 Claims, through sales of Lilly’s osteoporosis drug, Evista®, and Lilly’s septic shock drug, Xigris®, and seeking monetary damages from Lilly. On August 26, 2002, Lilly filed a motion to dismiss or, alternatively, for summary judgment, or Lilly’s Combined Motion, challenging the validity of the NF-kB ‘516 Claims. We filed a response to Lilly’s Combined Motion on October 17, 2002 and Lilly filed a reply on November 17, 2002. Oral argument on Lilly’s Combined Motion was heard in the U.S. District Court on November 21, 2002. As of April 30, 2003, the U.S. District Court had not yet ruled on Lilly’s Combined Motion. While the ruling on Lilly’s Combined Motion is not currently determinable, if Lilly were to be successful and its Combined Motion is granted, we will consider filing an appeal with the Court of Appeals for the Federal Circuit. If Lilly’s Combined Motion is denied, a trial scheduling conference pursuant to Rule 16(b) of the Federal Rules of Civil Procedure will be scheduled by the U.S. District Court, and the case will proceed to the discovery phase leading to trial. The ultimate outcome of the litigation cannot be determined at this time, and, as a result, an estimate of a damage award or range of awards, if any, cannot be made.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

10.1	Credit Agreement, dated as of March 12, 2003, by and among ARIAD Pharmaceuticals, Inc., ARIAD Corporation and ARIAD Gene Therapeutics, Inc. and Citizens Bank of Massachusetts.
10.2	Term Note, dated March 12, 2003, by and among ARIAD Pharmaceuticals, Inc., ARIAD Corporation and ARIAD Gene Therapeutics, Inc. and Citizens Bank of Massachusetts.
10.3	Security Agreement – All Assets, dated as of March 12, 2003, by and between ARIAD Pharmaceuticals, Inc. and Citizens Bank of Massachusetts.
10.4	Security Agreement – All Assets, dated as of March 12, 2003, by and between ARIAD Corporation and Citizens Bank of Massachusetts.
10.5	Security Agreement – All Assets, dated as of March 12, 2003, by and between ARIAD Gene Therapeutics, Inc. and Citizens Bank of Massachusetts.
99.1	Certification of the Chief Executive Officer.
99.2	Certification of the Chief Financial Officer.
99.3	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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(b)	Reports on Form 8-K
	The Company filed five Current Reports on Form 8-K during the quarter ended March 31, 2003.
	The Form 8-K, filed on January 3, 2003, reported that the Company announced that the investigational new drug application (IND) for AP23573, the Company’s lead anti-cancer product candidate, was filed with the United States Food and Drug Administration in late December 2002, in support of initiating Phase 1 clinical development.
	The Form 8-K, filed on January 14, 2003 announced the issuance of a U.S. patent covering intramuscular administration of therapeutic genes controlled by the Company’s cell-signaling regulation technology.
	The Form 8-K, filed on February 4, 2003, announced that the Company entered into a non-exclusive license agreement with GPC Biotech AG, which gives GPC Biotech AG the right to use the Company’s proprietary ARGENT cell-signaling regulation technology in GPC’s proprietary LeadCode drug discovery and Reverse Genomics platform.
	The Form 8-K, filed on February 24, 2003, announced that Harvey J. Berger, M.D., the Company’s Chairman and Chief Executive Officer was scheduled to speak at the annual Biotechnology’s Industry Organization CEO and Investor Conference in New York City on February 27, 2003.
	The Form 8-K, filed on March 11, 2003, announced the result of the Company’s financial results for the fourth quarter and the year ended December 31, 2002. The Company also announced its plans to focus resources primarily on developing its three lead anti-cancer small-molecule product candidates and a reduction in the work force by approximately 20% and expected cash burn rate for 2003 by approximately 33%.
	ARIAD, the ARIAD logo, ARGENT and RegTech are our trademarks. The domain name and website address www.ariad.com, and all rights thereto, are registered in the name of, and owned by, ARIAD. The information in our website is not intended to be part of this Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ARIAD Pharmaceuticals, Inc. (Registrant)
	By: /s/ Harvey J. Berger, M.D.
		Harvey J. Berger, M.D. Chairman, Chief Executive Officer and President
Date: May 13, 2003	By: /s/ Edward M. Fitzgerald
		Edward M. Fitzgerald Senior Vice President and Chief Financial Officer (Duly authorized officer, principal financial officer and chief accounting officer)

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EXHIBIT INDEX

Exhibit No.	Title
10.1	Credit Agreement, dated as of March 12, 2003, by and among ARIAD Pharmaceuticals, Inc., ARIAD Corporation and ARIAD Gene Therapeutics, Inc. and Citizens Bank of Massachusetts.
10.2	Term Note, dated March 12, 2003, by and among ARIAD Pharmaceuticals, Inc., ARIAD Corporation and ARIAD Gene Therapeutics, Inc. and Citizens Bank of Massachusetts.
10.3	Security Agreement – All Assets, dated as of March 12, 2003, by and between ARIAD Pharmaceuticals, Inc. and Citizens Bank of Massachusetts.
10.4	Security Agreement – All Assets, dated as of March 12, 2003, by and between ARIAD Corporation and Citizens Bank of Massachusetts.
10.5	Security Agreement – All Assets, dated as of March 12, 2003, by and between ARIAD Gene Therapeutics, Inc. and Citizens Bank of Massachusetts.
99.1	Certification of the Chief Executive Officer.
99.2	Certification of the Chief Financial Officer.
99.3	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

16 EX-10.1 3 b46496apexv10w1.txt EX-10.1 CREDIT AGREEMENT EXHIBIT 10.1 CREDIT AGREEMENT This CREDIT AGREEMENT, dated as of March 12, 2003, by and among ARIAD PHARMACEUTICALS, INC., a Delaware corporation, ARIAD CORPORATION, a Delaware corporation, and ARIAD GENE THERAPEUTICS, INC., a Delaware corporation (hereinafter sometimes referred to collectively as the "BORROWERS" and each singly as a "BORROWER") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts bank (the "LENDER"). In consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms not defined herein but defined in APPENDIX A attached hereto shall have the meanings given to such terms in Appendix A attached hereto. All terms defined in this Agreement shall also have such defined meanings when used in the other Financing Documents or any certificate or other document made or delivered pursuant hereto or thereto, unless otherwise specified herein or therein. All references in this Agreement to Sections, Subsections, Exhibits, Schedules and Appendices refer to the Sections, Subsections, Exhibits, Schedules and Appendices of this Agreement unless otherwise indicated. All Exhibits, Schedules and Appendices attached to this Agreement are incorporated herein and made a part hereof. SECTION 2. THE LOAN. 2.1 General. (a) Subject to the terms and conditions hereof, the Lender agrees to make a loan (the "LOAN") to the Borrowers on the Closing Date in the original principal amount of Seven Million Five Hundred Thousand and 00/100 Dollars ($7,500,000.00). The principal amount of the Loan may from time to time be advanced as or converted to (i) LIBOR Loans, (ii) Prime Rate Loans or (iii) a combination thereof, as determined by the Borrowers and notified to the Lender in accordance with subsections 2.2 and 2.8. (b) On the Closing Date, the Borrowers shall execute and deliver to the Lender a certain Term Note of the Borrowers dated as of the Closing Date evidencing the Loan, substantially in the form of EXHIBIT A attached hereto (the "NOTE"). The Lender is hereby authorized to record the date, Type and amount of the Loan made, the date and amount of each payment or prepayment of principal thereof, each continuation thereof, each conversion of all or a portion thereof to another Type and, in the case of LIBOR Loans, the length of each Interest Period and LIBOR Rate with respect thereto, on the schedule (or any continuation of the schedule) annexed to and constituting a part of the Note and any such recordation shall, to the extent permitted by applicable law, constitute prima facie evidence of the accuracy of the information so recorded (absent manifest error); provided, however, that the failure to make any such recordation (or any error therein) shall not affect the obligation of the Borrowers to repay (with applicable interest) the Loan. 2.2 Procedure for Borrowing. If all or any part of the Loan is to be initially LIBOR Loans, the Borrowers shall give the Lender irrevocable notice thereof (which notice must be received by the Lender prior to 3:00 p.m., Boston, Massachusetts time, three (3) Business Days prior to the Closing Date), specifying (a) the amount of the Loan which is initially to be LIBOR Loans and (b) the respective amounts thereof and the lengths of the initial Interest Periods therefor. To the extent that the Borrowers do not deliver a notice pursuant to the immediately preceding sentence, the Loan shall initially be Prime Rate Loans. On the Closing Date, the Lender will credit the account of the Borrowers on the books of the Lender with the amount so borrowed. 2.3 Use of Proceeds. The proceeds of the Loan shall be used by the Borrowers to refinance existing indebtedness and for general corporate purposes. 2.4 Interest Rates. (a) Each portion of the unpaid principal balance of the Loan which is a LIBOR Loan shall bear interest, for each Interest Period applicable thereto, at a rate per annum equal to the LIBOR Rate plus 2.00%. (b) Each portion of the unpaid principal balance of the Loan which is a Prime Rate Loan shall bear interest at a rate per annum equal to the Prime Rate. 2.5 Payment of Term Loan. The Borrowers hereby unconditionally promise to pay to the order of the Lender the principal amount of the Loan in thirty-five monthly installments of One Hundred Twenty Five Thousand 00/100 Dollars ($125,000.00) commencing on April 30, 2003, and continuing on the last day of each consecutive month thereafter until the Maturity Date. The Borrowers hereby further agree to pay interest on the unpaid principal balance of the Loan, in arrears, on each Interest Payment Date; provided, however, any such interest accruing at the Late Rate shall be due and payable on demand. On the Maturity Date (or such earlier date on which the Loan becomes due and payable pursuant to subsection 7.1), the entire remaining outstanding balance of the Loan (including, without limitation, all unpaid principal, all accrued but unpaid interest and all unpaid fees, charges, costs and expenses) shall be immediately due and payable in full. 2.6 Method of Payment. All payments (including prepayments) to be made by the Borrowers hereunder, whether on account of principal, interest, fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 3:00 p.m., Boston, Massachusetts time, on the due date thereof to the Lender, at the Lender's office specified in subsection 9.4 (or such other place as the Lender may specify in writing from time to time), in Dollars and in immediately available funds. Payments received by the Lender after such time shall be deemed to have been received on the next Business Day. If any payment hereunder (other than payments on LIBOR Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a LIBOR Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day (and, with respect to payments of principal, interest shall be payable thereon at the then applicable rate during such extension) unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding -2- Business Day. The Borrowers hereby authorize the Lender to charge or debit any deposit account of any Borrower with the Lender to effect any payment due hereunder. 2.7 Prepayments. (a) Optional Prepayment. The Borrowers may at any time and from time to time prepay the Loan, in whole or in part, without premium or penalty (other than as provided in subsection 2.16), upon irrevocable notice to the Lender prior to 3:00 p.m., Boston, Massachusetts time, one (1) Business Day prior to such prepayment, specifying the date and amount of prepayment and whether the prepayment is of LIBOR Loans, Prime Rate Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each; provided, however, notwithstanding the foregoing to the contrary, no such notice shall be required in connection with the prepayment of any Prime Rate Loan. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to subsection 2.16. Amounts prepaid on account of the Loan may not be reborrowed. Partial prepayments shall be in the aggregate principal amount of One Hundred Thousand and 00/100 Dollars ($100,000.00) or a whole multiple of Fifty Thousand and 00/100 Dollars ($50,000.00) in excess thereof. No partial prepayment shall postpone or extend the date on which any principal or interest is otherwise due under any Loan hereunder. (b) Application of Prepayments. All amounts received for the prepayment of Loans shall be applied to the Obligations as follows, so long as no Event of Default has occurred and is continuing: first, to any fees, charges, costs and expenses then owed by any Borrower to the Lender and second, to the unpaid principal balance of the Loan in inverse order of maturity. The application of any prepayment pursuant to this subsection shall be made first to the Prime Rate Loans and second to the LIBOR Loans. Upon the occurrence and during the continuation of any Event of Default, all amounts received for the prepayment of Loans shall be applied to the Obligations in such manner as the Lender may reasonably determine. 2.8 Conversion and Continuation Options. (a) The Borrowers may elect from time to time to convert LIBOR Loans to Prime Rate Loans by giving the Lender at least one (1) Business Day's prior irrevocable notice of such election, provided that any such conversion of LIBOR Loans may only be made on the last day of an Interest Period with respect thereto (or on any other day if on the date of such conversion the Borrowers pay to the Lender accrued interest on such LIBOR Loans to the date of such conversion together with all amounts payable under subsection 2.16). The Borrowers may elect from time to time to convert Prime Rate Loans to LIBOR Loans by giving the Lender at least three (3) Business Days' prior irrevocable notice of such election. Any such notice of conversion to LIBOR Loans shall specify the length of the initial Interest Period or Interest Periods therefor. All or any part of outstanding LIBOR Loans and Prime Rate Loans may be converted as provided herein; provided, however, that (i) no Loan may be converted into a LIBOR Loan when any Event of Default has occurred and is continuing and the Lender has determined that such a conversion is not appropriate and (ii) no Loan may be converted into a LIBOR Loan after the date that is one month prior to the Maturity Date. -3- (b) Any LIBOR Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrowers giving notice to the Lender, in accordance with the applicable provisions of the term "Interest Period" set forth in Appendix A, of the length of the next Interest Period to be applicable to such Loans; provided, however, that no LIBOR Loan may be continued as such (i) when any Event of Default has occurred and is continuing and the Lender has determined that such a continuation is not appropriate or (ii) after the date that is one month prior to the maturity of the Loan; and provided further that if the Borrowers shall fail to give such notice or if such continuation is not permitted, such Loans shall be automatically converted to Prime Rate Loans on the last day of such then expiring Interest Period. 2.9 Minimum Amounts and Maximum Number of LIBOR Loans. All borrowings, conversions and continuations of LIBOR Loans and Prime Rate Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loan comprising each LIBOR Loan shall be equal to Five Hundred Thousand and 00/100 Dollars ($500,000.00) or a whole multiple of One Hundred Thousand and 00/100 Dollars ($100,000.00) in excess thereof. In no event shall there be more than Five (5) LIBOR Loans outstanding at any time. 2.10 Late Rate; Late Charge. (a) Notwithstanding any provision contained in this Agreement or any other Financing Document to the contrary, if all or a portion of (i) the principal amount of the Loan, (ii) any interest payable thereon or (iii) any fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise, but taking into account any applicable grace period under subsection Section 7(a)), such overdue amount shall bear interest at a rate per annum (hereinafter referred to as the "LATE RATE") which is (x) in the case of overdue principal, the rate that would otherwise be applicable to the Loan under this Agreement, plus Three Percent (3.0%) or (y) in the case of overdue interest, fees or other amounts due and payable hereunder, the rate that would otherwise be applicable under this Agreement to that portion of the unpaid principal amount of the Loan that is a Prime Rate Loan, plus Three Percent (3.0%), in each case from the date of such non-payment until such amount is paid in full (after as well as before judgment). (b) The Borrowers agree to pay, on demand and in addition to all other amounts payable under this Agreement and the other Financing Documents, a late charge on any payment that is more than ten (10) calendar days late, which late charge shall be equal to Thirty Five and 00/100 Dollars ($35.00). The assessment or collection of late charges is not intended and shall not be construed to permit payment of any amount payable under this Agreement or any of the other Financing Documents beyond the applicable due date thereof. The time period which is allowed before the assessment of late charges is not intended and shall not be construed as a grace or cure period with respect to payment or performance of any obligation under this Agreement or any of the other Financing Documents. (c) Notwithstanding any provision contained in this Agreement or any other Financing Document to the contrary, in no event shall the amount paid or agreed to be -4- paid by the Borrowers (or any other Person) as interest or as a premium on the Loan or any other Obligations exceed the highest lawful rate permissible under any law applicable thereto. 2.11 Computation of Interest and Fees. (a) Interest and all fees payable hereunder shall be computed daily on the basis of a year of 360 days and paid for the number of actual days for which due. The Lender shall as soon as practicable, notify the Borrowers of each determination of a LIBOR Rate. Any change in the interest rate on a Loan resulting from a change in the Prime Rate or the LIBOR Reserve Requirement shall become effective as of the opening of business on the day on which such change becomes effective. The Lender shall, as soon as practicable, notify the Borrowers of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Lender pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers in the absence of manifest error. The Lender shall, at the request of the Borrowers, deliver to the Borrowers a statement showing the quotations used by the Lender in determining any interest rate hereunder. 2.12 Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Lender shall have determined (which determination shall be conclusive and binding upon the Borrowers) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the LIBOR Rate for such Interest Period, or (b) the Lender shall have determined (which determination shall be conclusive and binding upon the Borrowers) that the LIBOR Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to the Lender of making or maintaining its affected LIBOR Loans during such Interest Period, the Lender shall give telecopy or telephonic notice thereof to the Borrowers as soon as practicable thereafter. If such notice is given, (x) any LIBOR Loans requested to be made on the first day of such Interest Period shall be made as Prime Rate Loans, (y) any Prime Rate Loans that were to have been converted on the first day of such Interest Period to LIBOR Loans shall be converted to or continued as Prime Rate Loans and (z) any outstanding LIBOR Loans shall be converted, on the first day of such Interest Period, to Prime Rate Loans. Until such notice has been withdrawn by the Lender, no further LIBOR Loans shall be made or continued as such, nor shall the Borrowers have the right to convert Prime Rate Loans to LIBOR Loans. 2.13 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for the Lender to make or maintain LIBOR Loans as contemplated by this Agreement, (a) the commitment of the Lender hereunder to make LIBOR Loans, continue LIBOR Loans as such and convert Prime Rate Loans to LIBOR Loans shall forthwith be suspended until such time as it shall no longer be unlawful for the Lender to make or maintain LIBOR Loans as contemplated by this Agreement and (b) the portion of the Lender's Loan then outstanding as -5- LIBOR Loans, if any, shall be converted automatically to Prime Rate Loans on the respective last days of the then current Interest Periods with respect to such LIBOR Loans or within such earlier period as required by law. If any such conversion of a LIBOR Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrowers shall pay to the Lender such amounts, if any, as may be required pursuant to subsection 2.16. 2.14 Increased Costs; Changes in Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by the Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made subsequent to the date hereof: (i) shall subject the Lender to any tax of any kind whatsoever with respect to this Agreement, the Note or any LIBOR Loan made by it, or change the basis of taxation of payments to the Lender in respect thereof (except for Non-Excluded Taxes, changes in the rate of tax on the overall net income of the Lender and taxes imposed as a result of any future, present or former connection between the Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or the Note)); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of the Lender which is not otherwise included in the determination of the LIBOR Rate hereunder; or (iii) shall impose on the Lender any other condition; and the result of any of the foregoing is to increase the cost to the Lender, by an amount which the Lender reasonably deems to be material, of making, converting into, continuing or maintaining LIBOR Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrowers shall, within ten (10) Business Days after receipt by the Borrowers of the Lender's written demand, pay the Lender such additional amount or amounts as will compensate the Lender for such increased cost or reduced amount receivable. If the Lender has demanded such compensation under this subsection with respect to any LIBOR Loan, the Borrowers shall have the option to convert immediately such LIBOR Loan into a Prime Rate Loan until the circumstances giving rise to such demand for compensation no longer apply; provided, however, that (i) no such conversion shall affect the Borrowers' obligation to pay compensation as provided herein which is due with respect to the period prior to such conversion and (ii) on the date of such conversion the Borrowers shall pay to the Lender accrued interest on such LIBOR Loan to the date of conversion, together with any amounts payable pursuant to subsection 2.16. -6- (b) If the Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by the Lender or any corporation controlling the Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority, in each case made subsequent to the date hereof, shall have the effect of reducing the rate of return on the Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which the Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration the Lender's or such corporation's policies with respect to capital adequacy) by an amount reasonably deemed by the Lender to be material, then from time to time, within ten (10) Business Days after receipt by the Borrowers of the Lender's written demand, the Borrowers shall pay to the Lender such additional amount or amounts as will compensate the Lender for such reduction. 2.15 Taxes. (a) All payments made by the Borrowers under this Agreement and the Note shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Lender as a result of any future, present or former connection between the Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or the Note or any other Financing Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings ("NON-EXCLUDED TAXES") are required to be withheld from any amounts payable to the Lender hereunder or under the Note, the amounts so payable to the Lender shall be increased ("INCREASED AMOUNTS") to the extent necessary to yield to the Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement. Whenever any Non-Excluded Taxes are payable by the Borrowers, the Borrowers shall promptly send to the Lender, a certified copy of an original official receipt received by the Borrowers showing payment thereof or other evidence of remittance of Non-Excluded Taxes reasonably acceptable to the Lender. If the Borrowers fail to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fail to remit to the Lender the required receipts or other reasonably acceptable evidence, the Borrowers shall indemnify the Lender for any incremental taxes, interest or penalties that may become payable by the Lender as a result of any such failure. The Borrowers shall indemnify the Lender for the amount of Non-Excluded Taxes paid by the Lender, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. The agreements in this subsection 2.15 shall survive the termination of this Agreement and the payment of the Loan and all other amounts payable hereunder. (b) If the Lender shall become aware that it is entitled to claim a refund from a Governmental Authority in respect of Non-Excluded Taxes as to which it has been indemnified by the Borrowers, or with respect to which the Borrowers have paid -7- Increased Amounts, pursuant to this subsection, it shall promptly notify the Borrowers of the availability of such refund claim and shall make the appropriate claim to such Governmental Authority for such refund. If the Lender receives a refund (including pursuant to a claim for refund made pursuant to the preceding sentence) in respect of any Non-Excluded Tax as to which it has been indemnified by the Borrowers, or with respect to which the Borrowers have paid Increased Amounts pursuant to this subsection, it shall within thirty (30) days from the date of such receipt pay over such refund to the Borrowers, net of all out-of-pocket third-party expenses of the Lender. 2.16 Breakage - Indemnity. The Borrowers agree to indemnify the Lender and to hold the Lender harmless from any loss or expense which the Lender may sustain or incur as a consequence of (a) default by the Borrowers in making a borrowing of, conversion into or continuation of LIBOR Loans after the Borrowers have given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrowers in making any prepayment after the Borrowers have given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of LIBOR Loans or converting any LIBOR Loans to Prime Rate Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the last day of the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such LIBOR Loans provided for herein over (ii) the amount of interest (as reasonably determined by the Lender) which would have accrued to the Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the London interbank market. This covenant shall survive the termination of this Agreement and the payment of the Loan and all other amounts payable hereunder. SECTION 3. CONDITIONS PRECEDENT. The effectiveness of this Agreement and the agreement of the Lender to make the initial Extension of Credit requested to be made by it is subject to the satisfaction, immediately prior to or concurrently with the making of such Extension of Credit on the Closing Date, of the following conditions precedent: 3.1 Financing Documents. The Lender shall have received the following Financing Documents, each as duly executed by the parties thereto, with their signatures properly witnessed and notarized thereon where indicated: (i) this Agreement; (ii) the Note conforming to the requirements hereof; and (iii) the Security Agreements. 3.2 Actions to Perfect Liens. The Lender shall have received evidence in form and substance reasonably satisfactory to it that all filings, recordings and registrations, including, without limitation, the filing of duly executed financing statements on form UCC-1, necessary or, in the opinion of the Lender, desirable to perfect the Liens created by the Security Documents shall have been completed (or, to the extent that any such filings, recordings, registrations and other actions shall not have been completed, arrangements satisfactory to the Lender for the completion thereof shall have been made). -8- 3.3 Intentionally Omitted. 3.4 Lien Searches. The Lender shall have received the results of a recent search by a Person reasonably satisfactory to the Lender, of the UCC, judgment and tax lien filings which may have been filed with respect to personal property of the Borrower and each of its Subsidiaries in the jurisdictions set forth in APPENDIX B, and the results of such search shall be satisfactory to the Lender. 3.5 Payoff Letters. The Lender shall have received payoff letters from Transamerica Business Credit Corporation, GE Capital Corporation and Fleet National Bank, setting forth in reasonable detail the total amount of Indebtedness owed by the Borrowers to said lenders as of the Closing Date, together with appropriate wire instructions attached thereto. 3.6 UCC-3 Termination Statements. The Lender shall have received UCC-3 termination statements and any other instrument necessary to terminate the Liens granted by the Borrowers to any Person (other than Permitted Liens) (or, to the extent that any such UCC-3 termination statements or any other instrument shall not have been obtained and filed, arrangements satisfactory to the Lender for the obtaining and filing thereof shall have been made). 3.7 Corporate Proceedings of the Borrowers. The Lender shall have received a copy of the resolutions, in form and substance satisfactory to the Lender, of the Board of Directors of each Borrower authorizing (i) the execution, delivery and performance of this Agreement and the other Financing Documents to which it is a party, (ii) the Extensions of Credit contemplated hereunder and (iii) the granting by it of the Liens created pursuant to the Security Documents to which it is a party, all as certified by the Secretary or an Assistant Secretary of each Borrowers as of the Closing Date, which certificates shall be in form and substance reasonably satisfactory to the Lender and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. 3.8 Borrowers Incumbency Certificates. The Lender shall have received a certificate from each of the Borrowers, dated as of the Closing Date, as to the incumbency and signature of the officers of such Borrower executing any Financing Document reasonably satisfactory in form and substance to the Lender, executed by the President or any Vice President and the Secretary or an Assistant Secretary of such Borrower. 3.9 Corporate Documents. The Lender shall have received true and complete copies of the Certificate of Incorporation and By-Laws of each of the Borrowers, as certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of each of the Borrowers. 3.10 Legal Existence, Good Standing, Tax Good Standing and Foreign Qualification Certificates. The Lender shall have received certificates of legal existence, good standing, tax good standing and foreign qualification for each of the Borrowers, all of recent date issued by the appropriate Governmental Authorities. 3.11 Insurance. The Lender shall have received evidence in form and substance satisfactory to it that all of the requirements of subsection 5.5 and those Sections of the Security Documents requiring the maintenance of insurance shall have been satisfied. -9- 3.12 December 31, 2002 Financial Statements. The Lender shall have received the audited consolidated financial statements of the Borrowers for the year ended December 31, 2002 without a "going concern" or like qualification or exception, or a qualification arising out of the scope of the audit, prepared by Deloitte & Touche LLP in a draft form subject only to immaterial changes. A change in the auditors' opinion shall constitute a material change under this subsection. 3.13 Legal Opinion. The Lender shall have received an executed legal opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to the Borrowers, covering such matters related to the transactions contemplated by this Agreement and the other Financing Documents as the Lender may reasonably request. Such legal opinion shall be in a form and substance reasonably acceptable to the Lender and its counsel. 3.14 Fees and Expenses The Lender shall have received reimbursement or payment of (i) all reasonable and documented legal fees incurred by the Lender in connection with the transactions contemplated herein, and (ii) all other reasonable and documented out-of-pocket costs and expenses incurred by the Lender in connection with the transactions contemplated herein. SECTION 4. REPRESENTATIONS AND WARRANTIES. To induce the Lender to enter into this Agreement and to make the Loan, the Borrowers hereby jointly and severally represent and warrant to the Lender that, except as otherwise described in the MASTER DISCLOSURE SCHEDULE attached hereto: 4.1 Financial Condition. The Borrowers have furnished to the Lender the financial statements of the Borrowers for the years ended December 31, 2000, December 31, 2001 and December 31, 2002 (collectively, the "INITIAL FINANCIAL STATEMENTS"). The Initial Financial Statements were prepared in accordance with GAAP, consistently maintained and applied throughout the periods covered thereby (except as may be noted therein) and fairly present the financial condition of the Borrowers on the respective dates thereof and the results of the Borrowers' operations for the respective periods covered thereby. 4.2 No Change. Since December 31, 2002, (a) there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect, (b) there has been no sale, transfer or other disposition by the Borrowers of any material part of their respective businesses or properties and no purchase or other acquisition of any business or property (including any Capital Stock of any Borrower) material in relation to the financial condition of the Borrowers on December 31, 2002, and (c) no dividends or other distributions have been declared, paid or made upon the Capital Stock of any Borrower (other than those dividends and distributions permitted pursuant to subsection 6.9 nor has any of the Capital Stock of any Borrower been redeemed, retired, purchased or otherwise acquired for value by such Borrower. 4.3 Existence; Compliance with Law. Each of the Borrowers (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified or licensed to do business as a foreign company and in good standing under the laws of each -10- jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except where the failure to be so qualified and/or in good standing, in the aggregate could not reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law and applicable Charter Documents except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 4.4 Power; Authorization; Enforceable Obligations. Each of the Borrowers has the power and authority, and the legal right, to make, deliver and perform the Financing Documents to which it is a party and, to borrow hereunder. Each of the Borrowers has taken all necessary action to authorize the Loan on the terms and conditions of this Agreement and the Note and to authorize the execution, delivery and performance by it of the Financing Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required to be obtained or made by any Borrower in connection with the Loan hereunder or with the execution, delivery or performance by such Borrower or the validity or enforceability with respect to or against such Borrower, as the case may be, of the Financing Documents to which such Borrower is a party (other than the filings of Uniform Commercial Code financing statements in order to perfect the security interest that can be perfected by such filings). Each of the Financing Documents, when executed and delivered, will constitute a legal, valid and binding obligation of each of the Borrowers enforceable against each of them to the extent that it is a party thereto, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4.5 No Legal Bar. The execution, delivery and performance of the Financing Documents, the Loan hereunder and the use of the proceeds thereof by the Borrowers will not violate any Requirement of Law, Charter Document or Contractual Obligation of any Borrower which could reasonably be expected to have a Material Adverse Effect and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law, Charter Document or Contractual Obligation other than as contemplated in or permitted by the Financing Documents. 4.6 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrowers, threatened by or against any Borrower or against any of their respective properties or revenues which has a reasonable possibility of an adverse determination, and if adversely determined, could reasonably be expected to have a Material Adverse Effect. 4.7 No Default. None of the Borrowers is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing hereunder. 4.8 Ownership of Property; Liens. Each of the Borrowers has good record and marketable title in fee simple to, or a valid leasehold interest in, all of its real property except for such matters as do not materially adversely affect the use of the property in the conduct of the business as currently conducted, and good title to, or a valid leasehold interest in, all its other material property, and none of such property is subject to any Lien (other than Permitted Liens). Set forth on the Master Disclosure Schedule is a true and complete list of all of real property -11- owned or leased by the Borrowers as of the Closing Date and all Liens granted by the Borrowers in respect of any real property owned or leased by the Borrowers or any of them as of the Closing Date. 4.9 Intellectual Property. (a) Each of the Borrowers owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect and (b) no claim of which any Borrower has been given notice has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does any Borrower know of any valid basis for any such claim, except for such claims that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 4.10 No Burdensome Restrictions. No Requirement of Law or Contractual Obligation applicable to any Borrower could reasonably be expected to have a Material Adverse Effect. 4.11 Taxes. Each Borrower has filed or caused to be filed all tax returns which, to the knowledge of such Borrower, are required to be filed and have paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property in respect of such periods and all other material taxes imposed on it or any of its property by any Governmental Authority (other than any taxes the amount or validity of which are being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrowers and other than any taxes which in the aggregate would not have a Material Adverse Effect) in respect of such periods. 4.12 Federal Regulations. No part of the proceeds of any Loan will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulations G, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. If requested by the Lender, the Borrower will furnish to the Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. 4.13 ERISA. Each Borrower and each Commonly Controlled Entity is in compliance in all material respects with ERISA and the provisions of the Tax Code applicable to any Plans. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Tax Code or Section 302 of ERISA) has occurred with respect to any Plan. Neither any Borrower nor any Commonly Controlled Entity has incurred any liability to the PBGC over and above premiums which are required by law and which would constitute a Material Adverse Effect. Neither any Borrower nor any Commonly Controlled Entity has terminated any Plan in a manner which could result in the imposition of a Lien on the property of any Borrower. 4.14 Investment Company Act; Other Regulations. None of the Borrowers is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. None of the Borrowers is subject to regulation under any Federal or State statute or regulation which limits its ability to incur Indebtedness as contemplated herein. -12- 4.15 Subsidiaries. Set forth on the Master Disclosure Schedule is a true and complete list of all of the Subsidiaries of each of the Borrowers as of the Closing Date. 4.16 Environmental Matters. Except to the extent that the inaccuracy of any of the following (or the circumstances giving rise to such inaccuracy), individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and to the knowledge of any Responsible Officer of any Borrower: (a) The facilities and properties owned, leased or operated by any Borrower does not contain any Hazardous Materials in amounts or concentrations which (i) constitute a violation of, or (ii) could give rise to any liability under, any Environmental Law or could interfere with the continued operation of the facilities and properties owned, leased or operated by any of the Borrowers or could reasonably be expected to impair the fair saleable value thereof. (b) The Borrowers, together with all of the facilities and properties owned, leased or operated by any of the Borrowers, are in compliance, and to the knowledge of the Borrowers have in the last three years been in compliance with all applicable Environmental Laws and applicable Environmental Permits, and the Borrowers reasonably believe that they will be able to comply with all applicable Environmental Laws in the future and renew or obtain all Environmental Permits necessary for their operations in the future. (c) None of the Borrowers has received any written notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the facilities and properties owned, leased or operated by any Borrower or the business of any Borrower, nor to the knowledge of the Borrowers, is such notice being threatened. (d) Hazardous Materials have not been transported, disposed of, emitted, discharged, or otherwise released or threatened to be released, nor has their disposal been arranged for, (i) by any Borrower in violation of, or (ii) in a manner or to a location which could reasonably be expected to give rise to liability under, any applicable Environmental Law; nor have any Hazardous Materials been generated, treated, stored, emitted, discharged or otherwise released or threatened to be released or disposed of at, on or under any of the facilities and properties owned, leased or operated by any Borrower in violation of, or in a manner that could reasonably be expected to give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of any of the Borrowers, threatened, under any Environmental Law to which any Borrower is or to the knowledge of any of the Borrowers will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to any Borrower, or any of the facilities and properties owned, leased or operated by any Borrower. 4.17 Solvency. As of the Closing Date, after giving effect to the transactions contemplated to occur on the Closing Date, each of the Borrowers is Solvent. -13- SECTION 5. AFFIRMATIVE COVENANTS. The Borrowers hereby jointly and severally covenant and agree that so long as all or any portion of the Loan is outstanding, that: 5.1 Financial Statements. The Borrowers shall furnish to the Lender the following financial statements: (a) As soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Borrowers, a copy of the audited consolidated balance sheet of the Borrowers as at the end of such fiscal year and the related audited consolidated statements of income and retained earnings and of cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or a qualification arising out of the scope of the audit, by Deloitte & Touche LLP or such other independent certified public accountants reasonably satisfactory to the Lender (it being understood that the requirements of the provisions of this clause (a) for any fiscal year may be satisfied by delivery of a copy of ARIAD Pharmaceuticals, Inc.'s annual report on Form 10-K for such fiscal year); and (b) As soon as available, but in any event not later than forty-five (45) days after the end of each of the first 3 quarterly periods of each fiscal year of the Borrowers, the management-prepared consolidated balance sheet of the Borrowers as at the end of such quarter and the related management-prepared consolidated statements of income and retained earnings and of cash flows of the Borrowers for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer of each Borrower as being fairly stated in all material respects (subject to normal year-end audit adjustments) (it being understood that the requirements of the provisions of this clause (b) for any quarterly period may be satisfied by delivery of a copy of ARIAD Pharmaceuticals, Inc.'s quarterly report on Form 10-Q for such fiscal year). (c) Concurrently with the delivery of the financial statements referred to in subsections 5.1(a) and 5.1(b), the Borrowers shall each furnish to the Lender a compliance certificate ("COMPLIANCE CERTIFICATE"), signed by the respective Chief Financial Officer of each Borrower, certifying that as of the end of such quarter the Borrowers are in full compliance with the terms and conditions of this Agreement. Such Compliance Certificate shall be in the form attached hereto as EXHIBIT B. (d) As soon as available, but in any event, within ten (10) days after the end of each month, a cash report summarizing the Borrowers' cash investments in the form attached hereto as EXHIBIT C. (e) As soon as available, but in any event, within forty five (45) days after the issuance thereof, the Borrowers shall each furnish to the Lender copies of such other financial statements, proxy materials and reports as it shall send or make available to its stockholders, and promptly upon the filing thereof, copies of all reports and materials which any of the Borrowers file with any governmental commission (including, without limitation the SEC), department or agency or with any domestic or foreign stock -14- exchange or with the NASDAQ, including without limitation, copies of (i) any registration statements, prospectuses and any amendments and supplements thereto, and any regular and periodic reports (including, without limitation, reports on Form 10-K, Form 10-Q and Form 8-K) filed by ARIAD Pharmaceuticals, Inc. with the SEC or any domestic or foreign stock exchange or with the NASDAQ; and (ii) any letter of comment or correspondence with respect to filings or compliance matters sent to any of the Borrowers by the SEC or the NASDAQ; provided that the foregoing provisions shall not apply to reports, materials, letters or correspondence (other than those filed with or received from the SEC) filed or received by any of the Borrowers in the ordinary course of business or which otherwise do not involve matters that could result in a Material Adverse Effect. All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or Responsible Officer, as the case may be, and disclosed therein). For purposes of this Agreement, financial statements shall be deemed delivered upon being posted on the Electronic Data Gathering Analysis and Retrieval System. 5.2 Certificates; Other Information. The Borrowers shall furnish to the Lender the following certificates and other information: (a) concurrently with the delivery of the financial statements referred to in subsection 5.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) not later than forty-five (45) days after the beginning of each fiscal year of the Borrowers, a copy of the projections by the Borrowers of the balance sheet, income statement and cash flow statement of each of the Borrowers for such fiscal year, such projections to be accompanied by a certificate of a Responsible Officer of each of the Borrowers to the effect that such projections have been prepared using assumptions believed in good faith by management of each respective Borrower to be reasonable at the time made and that such Responsible Officer has no reason to believe that such projections are incorrect or misleading in any material respect; (c) within fifteen (15) calendar days after the same are sent, copies of all other financial statements and reports which the Borrowers send to the holders of any class of its debt securities or public equity securities and within fifteen (15) calendar days after the same are filed, copies of all other financial statements and reports which the Borrowers may make to, or file with, the SEC or any successor or analogous Governmental Authority; and The Borrowers shall furnish to the Lender promptly, such additional financial and other information within the possession of the Borrowers as the Lender may from time to time reasonably request. All information supplied to the Lender pursuant to this Agreement shall be treated as confidential information. -15- 5.3 Payment of Obligations. The Borrowers shall pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all of the material obligations of each such Borrower, except as contemplated by this Agreement or where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrowers, as the case may be. 5.4 Conduct of Business and Maintenance of Existence. The Borrowers shall: (a) continue to engage in the business of the same general type as now conducted by each Borrower; (b) preserve, renew and keep in full force and effect their existence and take all reasonable action to maintain in all material respects all rights, privileges and franchises necessary or desirable in the normal conduct of their businesses except as otherwise permitted pursuant to subsection 6.56; and (c) comply in all material respects with all Contractual Obligations and Requirements of Law, except where (i) any such Contractual Obligation is being contested in good faith, a bona fide dispute exists with respect to any such Contractual Obligation or failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, and (ii) any such Requirement of Law is being contested in good faith and the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.5 Maintenance of Property; Insurance. Each Borrower shall: (a) keep all property material to the conduct of its business in good working order and condition; (b) maintain insurance with financially sound and reputable insurance companies on such of its property and in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and (c) furnish to the Lender, upon written request, full information as to the insurance carried. 5.6 Inspection of Property; Books and Records; Discussions. The Borrowers shall: (a) keep proper financial records in conformity with GAAP and all Requirements of Law; (b) permit representatives of the Lender to visit and inspect any of their properties and examine and make abstracts from any of their books and records at any reasonable time, upon reasonable notice, once per year if no Event of Default has occurred and is continuing and as often as may reasonably be desired if an Event of Default has occurred and is continuing; and (c) permit, upon reasonable notice during normal business hours, representatives of the Lender to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers charged with management and/or oversight of the financial affairs of the Borrower and its Subsidiaries. 5.7 Notices. The Borrowers shall give prompt notice to the Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of any Borrower or (ii) litigation, investigation or proceeding which may exist at any time between any Borrower and any Governmental Authority, which in either case, if not cured, or resolved or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting any Borrower in which the amount involved is not covered by insurance or in which injunctive or similar relief is sought -16- which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; (d) the following events, as soon as possible and in any event within thirty (30) days after any Borrower knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or any Borrower or any Commonly Controlled Entity with respect to the withdrawal from, or the termination, reorganization or insolvency of, any Plan; and (e) any development or event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrowers propose to take with respect thereto. 5.8 Environmental Laws. The Borrowers shall: (a) comply with, and use reasonable efforts to ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply with and maintain, and use reasonable efforts to ensure that all tenants and subtenants, if any, obtain and comply with and maintain, any and all Environmental Permits required by applicable Environmental Laws; and (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws, except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not be reasonably expected to have a Material Adverse Effect. 5.9 Maintenance of Liens of the Security Documents. The Borrowers shall promptly, upon the reasonable request of the Lender, at the sole cost and expense of the Borrowers, execute, acknowledge and deliver, or cause the execution, acknowledgement and delivery of, and thereafter register, file or record, or cause to be registered, filed or recorded, in an appropriate governmental office, any document or instrument supplemental to or confirmatory of the Security Documents or otherwise reasonably deemed by the Lender necessary or desirable for the continued validity, perfection and priority of the Liens on the Collateral covered thereby. 5.10 Pledge of After Acquired Property. If at any time following the Closing Date, any Borrower shall acquire property of any nature whatsoever having a value in excess of Fifty Thousand and 00/100 Dollars ($50,000.00) which is intended by the terms of the applicable Security Document to be, but is not, subject to the Liens created by the Security Documents, such Borrower shall, as soon as possible and in no event later than thirty (30) days after the relevant acquisition date and, to the extent permitted by applicable law, grant to the Lender a first priority (subject to Permitted Liens) Lien on such property as collateral security for the Obligations pursuant to documentation reasonably satisfactory in form and substance to the Lender. The Borrowers, at their sole expense, shall execute, acknowledge and deliver, or cause -17- the execution, acknowledgement and delivery of, and thereafter register, file or record in an appropriate governmental office, any document or instrument (including legal opinions, title insurance, consents and corporate documents) and take all such actions reasonably deemed by the Lender to be necessary or desirable to ensure the creation, priority and perfection of such Lien. 5.11 New Subsidiaries. The Borrowers shall cause, at their sole cost and expense, each new Subsidiary of a Borrower created or acquired on or after the date hereof, promptly upon such creation or acquisition, to execute and deliver to the Lender the following agreements and documents, which agreements and documents shall be in form and substance reasonably satisfactory to the Lender: (a) a joinder agreement in such form as the Lender shall require pursuant to which such new Domestic Subsidiary shall become a co-borrower hereunder; (b) a security agreement in such form as the Lender shall require, pursuant to which, such Domestic Subsidiary shall grant to the Lender a first priority perfected security interest in all of its assets in order to secure the full and prompt payment and performance of the Obligations; (c) any and all UCC financing statements which the Lender deems necessary and appropriate in order to perfect its first priority perfected security interests in all of the assets of such Domestic Subsidiary; and (d) such other agreements, documents, financing statements, instruments, opinions and certificates and completion of such other matters, as the Lender may reasonably deem necessary or appropriate. Promptly upon the creation or acquisition of any Foreign Subsidiary created or acquired after the date hereof, the Borrowers shall cause, at their sole cost and expense, 65% of the Capital Stock, membership interests and other equity interests of each such Foreign Subsidiary, to be pledged to the Lender so that the Lender has a first priority perfected security interest in all such shares, membership interests and other equity interests. Such pledge shall be pursuant to a pledge agreement in a form and substance reasonably satisfactory to the Lender. 5.12 Depository Accounts. Each Borrower shall maintain the Lender as its primary bank for all depository accounts. 5.13 Cash, Cash Equivalents, Marketable Securities and Investments. (a) During the term of this Agreement, the Borrowers shall maintain, as evidenced on their consolidated balance sheet, not less than Ten Million and 00/100 Dollars ($10,000,000.00) in Unrestricted Cash, unrestricted Cash Equivalents, and unrestricted marketable securities (the "LIQUID ASSETS"). (b) Not less than Eighty-Five Percent (85%) of the Borrowers' total Liquid Assets shall be invested through and held by the Treasury Desk in Cash Equivalents or such other debt investments as are offered through the Treasury Desk and which are consistent with the Borrowers' current investment policy, a copy of which is attached hereto as EXHIBIT D, all of such investments to be in book entry form with maturity dates of not less than thirty (30) days (each singly, a "TREASURY DESK INVESTMENT" and collectively, the "TREASURY DESK INVESTMENTS"). (c) Each Maturing Treasury Desk Investment shall automatically be renewed for a like period and on market terms unless the Borrowers have notified the Lender of their intent to change the Treasury Desk Investment. To institute such a change, the Borrower -18- shall, not less than two (2) Business Days prior to the maturity of such Treasury Desk Investment, provide special instructions to the Treasury Desk regarding the maturing Treasury Desk Investment. The Borrowers shall confirm such instructions to the Treasury Desk and the Lender the same day by e-mail notification in the form attached hereto as EXHIBIT E (the "CONFIRMATION NOTIFICATION"). The Confirmation Notification shall contain, in addition to standard instructions, a representation and warranty that the execution of the requested instructions shall not cause a breach of any of the covenants contained in this Agreement. SECTION 6. NEGATIVE COVENANTS. The Borrowers hereby jointly and severally covenant and agree that so long as all or any portion of the Loan is outstanding, that: 6.1 Limitation on Changes in Fiscal Year. The Borrowers shall not change their fiscal year. 6.2 Limitation on Indebtedness. The Borrowers shall not create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness to the Lender arising under any of the Financing Documents; (b) in addition to the Indebtedness listed in the other subsections of this Section 6.2, Indebtedness of the Borrowers, on a consolidated basis, not to exceed Two Hundred Fifty Thousand and 00/100 Dollars in the aggregate. (c) current liabilities which are incurred in the ordinary course of business and which are not incurred through (i) the borrowing of money or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services; (d) Indebtedness with respect to taxes, assessments, governmental charges or levies which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Borrowers in conformity with GAAP; and (e) Indebtedness of any Borrower to any Subsidiary and of any Subsidiary to any Borrower or any other Subsidiary, so long as such Indebtedness (i) is subordinated in right of payment to all Obligations; and (ii) has terms and conditions as the Lender may reasonably require. 6.3 Limitation on Contingent Liabilities. The Borrowers shall not assume, guarantee, endorse or otherwise become directly or contingently liable (including without limitation, liable by way of agreement, contingent or otherwise to purchase or provide funds for payment, to supply funds to or otherwise invest in any debtor or otherwise to assure any creditor against any loss) in connection with any Indebtedness of any other Person, except for liabilities to the Lender arising under any of the Financing Documents. -19- 6.4 Limitation on Liens. The Borrowers shall not create, incur, assume or suffer to exist any Lien upon any of their properties, assets or revenues, whether now owned or hereafter acquired, except for the following (hereinafter referred to collectively as "PERMITTED LIENS"): (a) Liens created pursuant to the Security Documents; (b) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Borrowers in conformity with GAAP; (c) statutory landlords' liens and carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business for sums which are not overdue for a period of more than sixty (60) days or which are being contested in good faith by appropriate proceedings; (d) judgment Liens created by or resulting from any litigation or legal proceeding if released or bonded within thirty (30) days of the date of creation thereof, unless such litigation or legal proceeding could reasonably be expected to have a Material Adverse Effect; (e) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (f) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) Liens consisting of easements, zoning restrictions, flowage rights, rights-of-way, covenants, conditions, restrictions, reservations, licenses, agreements and other similar matters, which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the use of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or such Subsidiary; (h) Liens to secure Indebtedness for Purchase Money Indebtedness to the extent that such Indebtedness is permitted under subsection 6.2(b); provided, however, that (i) each such Lien is given only to secure the purchase price of the property which is the subject of such Purchase Money Indebtedness, does not extend to any other property and is given at the time of acquisition of the property; and (ii) the Purchase Money Indebtedness secured thereby does not exceed the lesser of the cost of such property or its fair market value at the time of acquisition; (i) Liens in favor of lessors under Capitalized Leases to the extent that the Capitalized Lease Obligations thereunder is Indebtedness permitted under subsection 6.2; provided, however, that each such Lien extends only to the property which is subject of such Capitalized Lease, is given only to secure the Capitalized Lease Obligations under such Capitalized Lease, and is given at the commencement date of such Capitalized Lease; and -20- (j) Liens in existence on the date hereof listed on the Master Disclosure Schedule; provided, however, that no such Lien encumbers any additional property after the Closing Date and that the amount of Indebtedness secured thereby shall not subsequently be increased. 6.5 Limitation on Negative Pledges. The Borrowers shall not enter into with any Person any agreement (other than this Agreement and the other Financing Documents) which prohibits or limits the ability of the Borrowers to create, incur, assume or suffer to exist any Lien upon any of their properties, assets or revenues, whether now owned or hereafter acquired. 6.6 Limitation on Fundamental Changes. The Borrowers shall not enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve themselves (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of their property, business or assets, or make any material change in their present method of conducting business, except pursuant to any sale of assets expressly permitted by subsection 6.7. 6.7 Limitation on Sale of Assets. The Borrowers shall not convey, sell, lease, assign, transfer or otherwise dispose of any of their properties, businesses or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, except: (a) the conveyance, sale, lease, assignment, transfer or other disposition of Obsolete Property or surplus property in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) the sale or discount for fair value, without recourse and consistent with sound business practices of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof; (d) the partnering or collaboration with respect to, or the licensing, sublicensing or other sharing of, Intellectual Property in the ordinary course of business; and (e) leases or subleases of property not materially interfering with the ordinary course of conduct of the business of the Borrower and its Subsidiaries. 6.8 Limitation on Sales and Leasebacks. The Borrowers shall not enter into any arrangement with any Person providing for the leasing by any such Borrower of real or personal property which has been or is to be sold or transferred by such Borrower to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of such Borrower. 6.9 Restricted Payments. The Borrowers shall not declare or pay any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of any Borrower or any warrants or options to purchase any such shares of Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrowers (such -21- declarations, payments, setting apart, purchases, redemptions, defeasances, retirements, acquisitions and distributions being herein called "RESTRICTED PAYMENTS"). 6.10 Limitation on Investments, Loans and Advances. The Borrowers shall not make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of, or any assets constituting a business unit of, or make any other investment in, any Person (an "INVESTMENT"), except: (a) investments in Cash Equivalents; (b) securities held by the Borrowers prior to the Closing Date and listed on the Master Disclosure Schedule; and (c) extensions of trade credit and endorsements of negotiable instruments and other negotiable documents in the ordinary course of business. 6.11 Limitation on Transactions with Affiliates. The Borrowers shall not enter into any transaction (including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service) with any Affiliate unless such transaction is (a) otherwise permitted under this Agreement; (b) in the ordinary course of the business of such Borrower; and (c) upon fair and reasonable terms no less favorable to the Borrowers, than they would obtain in a comparable arm's length transaction with a Person which is not an Affiliate; provided, however, that the foregoing restriction shall not prohibit (i) any employment agreement entered into by any Borrower in the ordinary course of business; (ii) any issuance of securities in connection with employment arrangements, stock options and stock ownership plans of any Borrower entered into in the ordinary course of business; (iii) transactions between any of the Borrowers; and (iv) the transactions contemplated by the agreements listed on the Master Disclosure Schedule. 6.12 Limitation on Lines of Business. The Borrowers shall not enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrowers are engaged on the date of this Agreement or which are reasonably related thereto. 6.13 Negative Pledge on Intellectual Property. The Borrowers shall not create, incur, assume or suffer to exist any Lien upon the Intellectual Property of the Borrowers whether now owned or hereafter acquired, except for encumbrances which may be deemed to arise from licensing, sublicensing or other sharing arrangements permitted under subsection 6.7(d). SECTION 7. EVENTS OF DEFAULT. 7.1 Events of Default; Acceleration. If any of the following events shall occur: (a) the Borrowers shall fail to pay when due: (i) any principal of the Loan in accordance with the terms of this Agreement and the other Financing Documents; (ii) any interest on any Loan; or (iii) any other amount payable hereunder; or -22- (b) any representation or warranty made or deemed made by any Borrower or any other Loan Party herein or in any other Financing Document or which is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Financing Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) the failure by any Borrower or any other Loan Party to punctually perform, observe, comply with or satisfy any covenant, agreement or condition contained in (i) Section 5 or Section 6 of this Agreement or (ii) Sections 4.1 and 5.6(a)-(c) of each of the Security Agreements; or (d) any Borrower shall default in the observance or performance of any other agreement contained in this Agreement or any other Financing Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of thirty (30) days after the earlier of (i) the date on which a Responsible Officer of such Borrower gives notice of such default to the Lender or (ii) the date on which written notice thereof shall have been given to the Borrowers by the Lender; or (e) any Borrower shall fail to pay when due (after any applicable period of grace) any Indebtedness of such Borrower (other than Indebtedness comprising the Obligations), which together with all such other due but unpaid Indebtedness, exceeds the sum of Fifty Thousand and 00/100 Dollars ($50,000.00), or shall fail (after any applicable period of grace) to observe or perform any term, covenant or agreement evidencing or securing such Indebtedness, which, if uncured or unwaived, permits the acceleration of such Indebtedness, or any default or event of default shall have been declared under any agreement relating to such Indebtedness; or (f) any Borrower or any other Loan Party shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar official of itself or of all or a substantial part of its property, (ii) be generally not paying its debts as such debts become due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the United States Bankruptcy Code, as amended from time to time, (v) take any action or commence any case or proceeding under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, or any other law providing for the relief of debtors, (vi) fail to contest in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the United States Bankruptcy Code, as amended from time to time or other law, (vii) take any action under the laws of its jurisdiction of incorporation or organization similar to any of the foregoing, or (viii) take any corporate action for the purpose of effecting any of the foregoing; or (g) a proceeding or case shall be commenced against any Borrower or any other Loan Party, without the application or consent of any Borrower or such Loan Party, in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding up, or composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets, or (iii) similar relief in respect of it, under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts or any -23- other law providing for the relief of debtors, and such proceeding or case shall continue undismissed, or unstayed and in effect, for a period of forty-five (45) days; or an order for relief shall be entered in an involuntary case under the United States Bankruptcy Code, as amended from time to time, against any Borrower or any other Loan Party; or action under the laws of the jurisdiction of incorporation or organization of any Borrower or any other Loan Party similar to any of the foregoing shall be taken with respect to any Borrower or any other Loan Party and shall continue unstayed and in effect for a period of forty-five (45) days; or (h) (i) any Borrower or any Commonly Controlled Entity shall fail to pay when due any amount that it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA, unless (A) such liability is being contested in good faith by appropriate proceedings, such Borrower or such Commonly Controlled Entity, as the case may be, has established and is maintaining adequate reserves in accordance with GAAP and no lien shall have been filed to secure such liability or (B) which would not have a Material Adverse Effect; (ii) the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans; or (iii) a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or (i) one or more judgments or decrees shall be entered against any Borrower or any of its Subsidiaries involving individually a liability of Fifty Thousand and 00/100 Dollars ($50,000.00) (not paid or fully covered by insurance) or in the aggregate a liability (not paid or fully covered by insurance) of One Hundred Thousand and 00/100 Dollars ($100,000.00) or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within thirty (30) days from the entry thereof; or (j) service of any process upon the Lender, seeking to attach by Lien, levy, mesne, trustee or other process, any funds of any Borrower on deposit with, or in possession or control of the Lender; or (k) if any of the Financing Documents (or any provision contained therein) shall be cancelled, terminated, revoked, curtailed or rescinded otherwise than in accordance with the terms thereof or with the express prior written agreement, consent or approval of the Lender, or any action at law, suit or in equity or other legal proceeding to cancel, revoke, curtail or rescind any of the Financing Documents shall be commenced by or on behalf of any Borrower or any of its officers, director or stockholders, or any Governmental Authority of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any of the Financing Documents (or any provision contained therein) is illegal, invalid or unenforceable in accordance with the terms thereof; or (l) any of the Security Documents shall, at any time after their execution and delivery for any reason, cease to create a valid and perfected first priority security interest in and to all of the Collateral pledged or granted thereunder; or (m) a material portion of the property of the Borrowers (whether or not Collateral) is damaged by fire or other casualty, or otherwise lost or stolen, the restoration or -24- replacement cost of which property exceeds, in the aggregate, the amount of insurance proceeds readily available for such restoration or replacement, and such loss would have a Material Adverse Effect; or (n) any default shall exist and remains unwaived or uncured with respect to any of the Subordinated Debt if, as a result of such default, any holder of the Subordinated Debt, is entitled to cause any such Subordinated Debt to become due prior to its stated date of maturity; or (o) any of the subordination provisions contained in any of the Subordination Agreements ceases to be enforceable in accordance with its terms; or (p) there shall be a change in record or the beneficial ownership of an aggregate of more than 30% of the outstanding shares of Capital Stock of any of the Borrowers, in one or more transactions, compared to the ownership of outstanding shares of Capital Stock of such Borrower in effect on the date hereof, as evidenced by the filing by one Person or a group of Persons of a Schedule 13-D with the SEC; then, and in any such event, so long as the same may be continuing, the Lender may, by notice in writing to the Borrowers, declare all amounts owing with respect to this Agreement, the Notes and the other Financing Documents to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers; provided that in the event of any Event of Default specified in subsections 7.1(c), Section 7(f), Section 7(g) or 7.1(j), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Lender. SECTION 8. RIGHTS AND REMEDIES. 8.1 Rights and Remedies. In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the Lender shall have accelerated the maturity of the Loan pursuant to subsection 7.1, the Lender, if owed any amount with respect to the Loan may proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to the Lender are evidenced, including as permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of the Lender. 8.2 Setoff. Regardless of the adequacy of any of the Collateral, upon the occurrence and during the continuance of any Event of Default, any deposits or other sums credited by or due from the Lender to any Borrower and any securities or other property of any Borrower in the possession of the Lender may be applied to or set off by the Lender against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of any Borrower to the Lender, without any requirement of prior notice from the Lender. 8.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Lender, any right, remedy, power or privilege hereunder or under the other -25- Financing Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 8.4 Distribution of Collateral Proceeds. In the event that, following the occurrence or during the continuance of any Event of Default, the Lender receives any monies in connection with the enforcement of any of the Security Documents, or otherwise with respect to the realization upon any of the Collateral, such monies shall be distributed for application as follows: (a) first, to the Obligations in such order or preference as the Lender may determine; (b) second, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Lender of all of the Obligations, to the payment of any obligations required to be paid pursuant to Section 9-504(l)(c) of the UCC; and (c) third, the excess, if any, shall be returned to the Borrowers or to such other Persons as are entitled thereto. SECTION 9. MISCELLANEOUS. 9.1 Survival of Covenants. Except for those which by their terms survive termination of the Financing Documents, all agreements, representations, covenants and warranties made by the Borrowers and any Loan Party in the Financing Documents shall remain in full force and effect until all Obligations to the Lender have been paid in full and satisfied. 9.2 Prior Discussions; Amendments in Writing; Counterparts. The Financing Documents incorporate all discussions and negotiations among the Lender, the Borrower and the other Loan Parties and either express or implied, concerning the Obligations, notwithstanding any custom, usage or oral agreement or understanding to the contrary. This Agreement may be amended or modified only in writing signed by the parties hereto, and in the case of the Lender signed by a duly authorized officer thereof. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but such counterparts together shall constitute one and the same instrument. Any proof of this Agreement shall require production of only one such counterpart. 9.3 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.4 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile transmission), and, unless otherwise expressly provided herein, shall be deemed to have been duly given when delivered by hand, or when sent by facsimile transmission or by telex, answer back received, or on the first Business Day after delivery to any overnight delivery service, freight prepaid, or three (3) Business Days after being sent by certified or registered mail, return receipt requested, postage prepaid, and addressed as follows in the case of the Borrowers and the Lender, or to such other address as may be hereafter notified by the respective parties hereto: -26- (a) If to the Borrowers then: ARIAD Pharmaceuticals, Inc. 26 Landsdowne Street Cambridge, Massachusetts 02139 Attention: Laurie A. Allen, Esq., Senior Vice President and Chief Legal Counsel Telecopier No: (617) 225-2860 with copies to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02110 Attention: Jeffrey M. Wiesen, Esq. Telecopier No: 617-542-2241 (b) If to the Lender, then: Citizens Bank of Massachusetts 53 State Street Boston, Massachusetts 02109 Attention: Scott Haskell, Vice President Telecopier No: (617) 742-9548 with copies to: Eckert Seamans Cherin & Mellott, LLC One International Place Boston, MA 02110 Attention: Anil Khosla, Esq. Telecopier No: 617-342-6899 provided that any notice, request or demand to or upon the Lender pursuant to subsection 2.2, 2.6, 2.7 or 2.8 shall not be effective until received. 9.5 Expenses. The Borrowers agree jointly and severally to pay (a) the reasonable costs of producing and reproducing this Agreement, the other Financing Documents and the other agreements and instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Lender (other than taxes based upon the Lender's net income) on or with respect to the transactions contemplated by this Agreement (the Borrowers hereby agreeing to indemnify the Lender with respect thereto), (c) the reasonable fees, expenses and disbursements of counsel to the Lender incurred in connection with the preparation, negotiation, administration or interpretation of the Financing Documents and other instruments mentioned herein, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (d) the reasonable fees, expenses and disbursements of the Lender incurred by the Lender in connection with the preparation, negotiation, administration or interpretation of the Financing Documents and other instruments mentioned herein, including all title insurance premiums and surveyor, engineering and appraisal charges, (e) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs of outside legal counsel, and reasonable consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred by the Lender in connection with (i) the enforcement of or preservation of rights under any of the Financing Documents against the Borrowers or the administration thereof after the occurrence of a Default or Event of Default (including engineering appraiser and investment banking charges) and (ii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to the Lender's relationship with the Borrowers and (f) all -27- reasonable fees, expenses and disbursements of the Lender incurred in connection with UCC searches, UCC filings or mortgage recordings. The covenants contained in this subsection shall survive payment or satisfaction in full of all other Obligations. 9.6 Indemnification. The Borrowers agree jointly and severally to indemnify and hold harmless the Lender from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Agreement or any of the other Financing Documents or the transactions contemplated hereby including, without limitation, (a) any actual or proposed use by the Borrowers of the proceeds of the Loan, (b) any actual or alleged infringement of any patent, copyright, trademark, service mark or similar right of any Borrower or any other Loan Party comprised in the Collateral, (c) all liabilities, obligations, claims, damages, costs, losses and expenses (including court costs and attorney's reasonable fees and expenses) that the Lender may sustain or incur by reason of, relating to or arising out of the preparation of this Agreement, the defending or protecting of any Collateral or the priority of the Lender's interest therein, or in collecting or enforcing the Obligations, or in enforcing any of the Lender's rights or remedies, or in the prosecution or defense of any action or proceeding concerning any matter growing out of or connected with this Agreement, any of the other Financing Documents, the Obligations, the Collateral, or on account of the Lender's relationship with any Borrower or any other Loan Party (except for such claims which have been determined by a court of competent jurisdiction to have arisen out of the Lender's actual bad faith, willful misconduct or gross negligence) or (d) with respect to any Borrower or any other Loan Party and their respective properties and assets, the violation of any Environmental Law, the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any hazardous Substances (including, but not limited to, claims with respect to wrongful death, personal injury or damage to property), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding; provided however that such indemnification shall not apply to claims which have been determined by a court of competent jurisdiction to have arisen out of the Lender's actual bad faith, willful misconduct or gross negligence. In litigation, or the preparation therefor, the Lender shall be entitled to select its own counsel and, in addition to the foregoing indemnity, the Borrowers, jointly and severally, agree to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrowers under this subsection are unenforceable for any reason, the Borrowers hereby agree to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The covenants contained in this subsection shall survive payment or satisfaction in full of all other Obligations. 9.7 Acknowledgements. The Borrowers hereby acknowledge that (a) the Borrowers have been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Financing Documents; (b) the Lender has no fiduciary relationship with or duty to the Borrowers arising out of or in connection with this Agreement or any of the other Financing Documents, and the relationship of the Lender, on the one hand, and the Borrowers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Financing Documents or otherwise exists by virtue of the transactions contemplated hereby between the Borrowers and the Lender. -28- 9.8 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Lender and their respective successors and assigns, except that the Borrowers may not assign or transfer any of their rights or obligations under this Agreement. 9.9 Loss, Theft, Destruction or Mutilation of any Note. Upon receipt of an affidavit of an officer of the Lender as to the loss, theft, destruction or mutilation of any Note or any other Financing Document which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon cancellation of such Note or other Financing Document, the Borrowers will issue, in lieu thereof, a replacement note or other Financing Document in the same principal amount thereof and otherwise of like tenor. 9.10 Joint and Several Liability. All of the obligations and liabilities of the Borrowers under this Agreement and the other Financing Documents are joint and several. 9.11 WAIVER OF JURY TRIAL. EACH BORROWER AND THE LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER FINANCING DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. 9.12 Governing Law; Jurisdiction. This Agreement and the other Financing Documents are executed and delivered under seal and shall be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts, without giving effect to the conflict of law provisions thereof. Each Borrower submits itself to the non-exclusive jurisdiction of the courts of The Commonwealth of Massachusetts for all purposes with respect to the Financing Documents and such Borrower's relationship with the Lender. [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK] -29- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered under seal by their proper and duly authorized officers as of the day and year first above written. WITNESS AS TO ALL: ARIAD PHARMACEUTICALS, INC. By: /s/ Edward M. Fitzgerald ___________________________________ ----------------------------------- Name: Name: Edward M. Fitzgerald Title: Chief Financial Officer ARIAD CORPORATION By: /s/ Edward M. Fitzgerald ----------------------------------- Name: Edward M. Fitzgerald Title: Chief Financial Officer ARIAD GENE THERAPEUTICS, INC. By: /s/ Harvey Berger ----------------------------------- Name: Harvey J. Berger, M.D. Title: Chief Executive Officer CITIZENS BANK OF MASSACHUSETTS By: /s/ Scott Haskell ----------------------------------- Scott Haskell, Vice President -30- STATE OF NEW YORK COUNTY OF NEW YORK, ss. On this 12th day of March, 2003, appeared before me the above-named Edward M. Fitzgerald, Chief Financial Officer of ARIAD Pharmaceuticals, Inc., who proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of ARIAD Pharmaceuticals, Inc. /s/ Nyisha Shakur -------------------------------------------- Notary Public My Commission Expires: May 7, 2006 STATE OF NEW YORK COUNTY OF NEW YORK, ss. On this 12th day of March, 2003, appeared before me the above-named Edward M. Fitzgerald, Chief Financial Officer of ARIAD Corporation, who proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of ARIAD Corporation. /s/ Nyisha Shakur -------------------------------------------- Notary Public My Commission Expires: May 7, 2006 STATE OF NEW YORK COUNTY OF NEW YORK, ss. On this 12th day of March, 2003, appeared before me the above-named Harvey J. Berger, M.D., Chief Executive Officer of ARIAD Gene Therapeutics, Inc., who proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of ARIAD Gene Therapeutics, Inc.. /s/ Nyisha Shakur -------------------------------------------- Notary Public My Commission Expires: May 7, 2006 -31- COMMONWEALTH OF MASSACHUSETTS Suffolk County, ss. March 14, 2003 Then personally appeared the above-named Scott Haskell as Vice President of Citizens Bank of Massachusetts, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of Citizens Bank of Massachusetts, before me. /s/ Todd H. Whilton -------------------------------------------- Notary Public My commission expires: 1/30/09 [AFFIX NOTARIAL SEAL] -32- EXHIBIT 10.1 - -------------------------------------------------------------------------------- CREDIT AGREEMENT (the "AGREEMENT") by and between CITIZENS BANK OF MASSACHUSETTS (the "LENDER") and ARIAD PHARMACEUTICALS, INC., ARIAD CORPORATION and ARIAD GENE THERAPEUTICS, INC. (each individually, a "BORROWER" and collectively, the "BORROWERS") - -------------------------------------------------------------------------------- MASTER DISCLOSURE SCHEDULE The Borrowers, jointly and severally, represent and warrant to the Lender that the statements contained in Section 4 of the Agreement are true, correct and complete as of the date of the Agreement, except as set forth in this Master Disclosure Schedule (as the same may be supplemented, from time to time, the "MASTER DISCLOSURE SCHEDULE"). The Master Disclosure Schedule is arranged in sections corresponding to the lettered and numbered sections contained in Section 4 of the Agreement. 4.6 No exceptions except ongoing litigation as a plaintiff against Eli Lilly and Company as described in ARIAD Pharmaceuticals, Inc.'s Form 10-Q for the fiscal quarter ended September 30, 2002, filed on November 14, 2002, and its draft Form 10-K for the year ended December 31, 2002. 4.15 ARIAD Pharmaceuticals, Inc. has the following subsidiaries: ARIAD Corporation (100% owned) ARIAD Gene Therapeutics, Inc. (80% owned) Neither ARIAD Corporation nor ARIAD Gene Therapeutics, Inc. has any subsidiaries. EXHIBIT 10.1 - -------------------------------------------------------------------------------- CREDIT AGREEMENT (the "AGREEMENT") by and between CITIZENS BANK OF MASSACHUSETTS (the "LENDER") and ARIAD PHARMACEUTICALS, INC., ARIAD CORPORATION and ARIAD GENE THERAPEUTICS, INC. (each individually, a "BORROWER" and collectively, the "BORROWERS") - -------------------------------------------------------------------------------- APPENDIX A 1. Definitions. As used in the Agreement, the following terms shall have the following meanings: "AFFILIATE": as to any Person, any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "AGREEMENT": this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "ASSET SALE": with respect each of the Loan Parties, any voluntary or involuntary sale or other disposition subsequent to the Closing Date of any Collateral. "BOARD OF GOVERNORS": the Board of Governors of the Federal Reserve System and any Governmental Authority which succeeds to the powers and functions thereof. "BORROWERS": as defined in the preamble to this Agreement. "BORROWING DATE": any Business Day specified in a notice pursuant to subsection 2.2 as a date on which the Borrowers request the Lender to make Loans hereunder. "BUSINESS DAY": (a) for all purposes other than as described by clause (b) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of The Commonwealth of Massachusetts, or is a day on which banking institutions located in The Commonwealth of Massachusetts are required or authorized by any Requirement of Law to be closed, and (b) with respect to all notices, determinations, fundings and payments in connection with LIBOR Loans, any day which is a Business Day described in clause (a) and which is also a day for trading in dollar deposits by and between banks in the London interbank market. "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "CAPITALIZED LEASE": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "CAPITALIZED LEASE OBLIGATIONS": as to any Person, the obligations of such Person to pay rent or other amounts under any Capitalized Leases; the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "CASH EQUIVALENTS": (a) securities issued or directly and fully guaranteed or insured by the United States Government, or any agency or instrumentality thereof, having maturities of not more than one year from the date of acquisition, (b) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition thereof, having a credit rating of "A" or better from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (c) certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or bankers' acceptances having maturities of not more than one year from the date of acquisition thereof of the Lender, or of any domestic commercial bank the long-term debt of which is rated at the time of acquisition thereof at least A or the equivalent thereof by Standard & Poor's Ratings Group, or A or the equivalent thereof by Moody's Investors Service, Inc., and having capital and surplus in excess of Five Hundred Million and 00/100 Dollars ($500,000,000.00), (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (a), (b) and (c) entered into with any bank meeting the qualifications specified in clause (c) above, (e) commercial paper rated at the time of acquisition thereof at least A-2 or the equivalent thereof by Standard & Poor's Ratings Group or P-2 or the equivalent thereof by Moody's Investors Service, Inc., or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of investments, and in either case maturing within three hundred sixty five (365) days after the date of acquisition thereof and (f) other investment instruments approved in writing by the Lender and offered by the Lender or by any financial institution which has a combined capital and surplus of not less than One Hundred Million and 00/100 Dollars ($100,000,000.00). -2- "CHARTER DOCUMENTS": as to any Person, the Certificate (or Articles) of Incorporation (or Organization) and By-laws or other organizational or governing documents of such Person. "CLOSING DATE": the date on which the conditions precedent set forth in Section 3 shall be satisfied or waived. "COLLATERAL": all assets of the Loan Parties, now owned or hereinafter acquired, upon which a Lien is purported to be created by any Security Document. "COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated, which is under common control with any Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes any Borrower and which is treated as a single employer under Section 414(b) or (c) of the Tax Code or, solely for purposes of determining liability under Section 412 of the Tax Code, which is treated as a single employer under Section 414(b), (c), (m) or (o) of the Tax Code. "COMPLIANCE CERTIFICATE": as defined in subsection 5.1(c). "CONFIRMATION NOTIFICATION": as defined in subsection 5.13(c). "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "COPYRIGHTS": means any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held. "DEFAULT": any of the events specified in subsection 7.1, whether or not any requirement contained therein for the giving of notice, the lapse of time or both, has been satisfied. "DOLLARS" and "$": dollars in lawful currency of the United States of America. "DOMESTIC SUBSIDIARY": any Subsidiary that is organized under the laws of any jurisdiction within the United States. "ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "ENVIRONMENTAL PERMITS": all permits, licenses, registrations, notifications, exemptions, and other authorizations required under Environmental Laws. -3- "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "EVENT OF DEFAULT": any of the events specified in subsection 7.1, provided, however, that any requirement contained therein for the giving of notice, the lapse of time or both, has been satisfied. "EXTENSION OF CREDIT": the making of any Loan by the Lender. "FINANCING DOCUMENTS": this Agreement, the Note, the Security Documents, the Subordination Agreements, and any and all other agreements, guaranties, instruments, documents, certificates, financing statements, powers of attorney, consents and filings, whether heretofore, now, or hereafter executed by or on behalf of any Borrower or any of such Borrower's Subsidiaries or any other Person and delivered to the Lender in connection with the Loan, all as may be amended, modified, supplemented, restated or extended from time to time. "FOREIGN SUBSIDIARY": Any Subsidiary that is organized under the laws of any jurisdiction outside the United States. "GAAP": generally accepted accounting principles in the United States of America in effect from time to time. "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "HAZARDOUS MATERIALS": any petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos and asbestos-containing materials, pollutants, contaminants, and all other materials and substances including but not limited to radioactive materials regulated pursuant to any Environmental Laws or that could result in liability under any Environmental Law. "INCREASED AMOUNTS": as defined in subsection 2.15(a). "INDEBTEDNESS": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under Capitalized Leases, (d) all obligations of such Person in respect of acceptances issued or created for the account of such Person and (e) all indebtedness of others of the types described in (a) through (d) above secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof (the amount of such indebtedness with respect to such Person being deemed to be the lesser of the value of such property or the amount of indebtedness of others so secured). -4- "INITIAL FINANCIAL STATEMENTS": as defined in subsection 4.1. "INTELLECTUAL PROPERTY": means (a) any and all Copyrights, (b) any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; (c) any and all Patents; (d) any and all Trademarks; (e) any and all claims for damages by way of past, present and future infringements of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (f) any and all licenses or other rights to use any of the Copyrights, Patents, or Trademarks and all license fees and royalties arising from such use to the extent permitted by such license or rights; (g) any and all amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks, or Patents; (h) any and all proprietary biological materials, including without limitation, cell lines, DNA, RNA, plasmids, and vectors; (i) any and all licenses granting the Borrowers the right to use any Copyrights, Patents, Trademarks, trade secrets, computer software, or biological materials of third parties; and (j) any and all proceeds and products of the foregoing, including without limitation, all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. "INTEREST PAYMENT DATE": (a) as for any Prime Rate Loans, the last day of each calendar month, commencing in April, 2003; (b) as for any LIBOR Loan having an Interest Period of three (3) months or less, the last day of such Interest Period; and (c) as for any LIBOR Loan having an Interest Period longer than three months, each day which is three (3) months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period. "INTEREST PERIOD": with respect to any LIBOR Loan: (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such LIBOR Loan and ending thirty (30), sixty (60), ninety (90) or one hundred eighty (180) days thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such LIBOR Loan and ending thirty (30), sixty (60), ninety (90) or one hundred eighty (180) days, as selected by the Borrower by irrevocable notice to the Lender not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided, however, that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period pertaining to a LIBOR Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended -5- to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) the Borrowers shall not select any Interest Period for the Loan that would otherwise extend beyond the Maturity Date; (iii) any Interest Period pertaining to a LIBOR Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iv) the Borrowers shall select Interest Periods so as not to require a payment or prepayment of any LIBOR Loan during an Interest Period for such LIBOR Loan. "INVENTORY": all "inventory" (as that term is defined in the UCC) of the Borrowers, and to the extent not included in such definition, shall also mean and include all raw materials and other materials and supplies, work-in-process and finished goods of any Borrower and any products made or processed therefrom and all substances, if any, commingled therewith or added thereto. "INVESTMENT": as defined in subsection 6.10. "LATE RATE": as defined in subsection 2.10. "LENDER": as defined in the preamble to this Agreement. "LIBOR BASE RATE": with respect to each day during each Interest Period pertaining to a LIBOR Loan, the rate per annum equal to the average rate at which the Lender is offered Dollar deposits at or about 10:00 A.M., Boston, Massachusetts time, three (3) Business Days prior to the beginning of such Interest Period by prime banks in the London interbank market where foreign currency and exchange operations in respect of its LIBOR Loans are then being conducted for delivery on the first day of such Interest Period for a period comparable to the number of days comprised therein and in an amount comparable to the amount of its LIBOR Loan to be outstanding during such Interest Period. "LIBOR LOANS": the portion of the unpaid principal amount of the Loan for which the applicable rate of interest is based upon the LIBOR Rate. "LIBOR RATE": with respect to each day during each Interest Period pertaining to a LIBOR Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 0.0005%): LIBOR Base Rate --------------------------------- 1.00 - LIBOR Reserve Requirements "LIBOR RESERVE REQUIREMENTS": for any day as applied to a LIBOR Loan, the aggregate (without duplication) of the rates (expressed as a decimal to the fourth digit) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors or other Governmental Authority having jurisdiction with respect, thereto) -6- prescribed for London interbank market funding (currently referred to as "LIBOR Liabilities" in Regulation D of the Board of Governors) maintained by a member bank of the Federal Reserve System and applicable with respect to such LIBOR Loan. "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Capitalized Lease having substantially the same economic effect as any of the foregoing). "LIQUID ASSETS": as defined in subsection 5.13(a). "LOAN": as defined in subsection 2.1. "LOAN PARTIES": the Borrowers and any Subsidiary which is now or hereafter becomes a party to any Financing Document. "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE": a material adverse effect or change on (a) the business, operations, property or condition (financial or otherwise) of the Borrowers taken as a whole or (b) the validity or enforceability of this Agreement or any of the other Financing Documents or the rights or remedies of the Lender hereunder or thereunder. "MATURITY DATE": March 30, 2006 "NON-EXCLUDED TAXES": as defined in subsection 2.15(a). "NOTE": as defined in subsection 2.1(b). "OBLIGATIONS": all Indebtedness, obligations and liabilities of the Borrowers to the Lender, individually or collectively, now existing or hereafter arising, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Agreement or any of the other Financing Documents or in respect of the Loan or the Note or other instruments at any time evidencing any thereof. "OBSOLETE PROPERTY": any property of any Borrower which is obsolete, outdated or worn out or the useful life of which has ended, in each case in the good faith determination of such Borrower. "PATENTS": means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same. -7- "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any Governmental Authority which succeeds to the powers and functions thereof. "PERMITTED LIENS": as defined in subsection 6.4. "PERSON": an individual, partnership, corporation, business trust, joint stock company, limited liability company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PLAN": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which any Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PRIME RATE": for any day, a rate equal to the variable rate of interest per annum, most recently announced by the Lender at its headquarters in Boston, Massachusetts, as its "prime rate," with the understanding that the Lender's "prime rate" is one of its interest rates and serves as a basis upon which effective rates of interest are calculated for loans making reference thereto and may not be the lowest of the Lender's interest rates. Any change in the Prime Rate shall be effective as of the effective date stated in the announcement by the Lender of such change. "PRIME RATE LOANS": the portion of the unpaid principal amount of the Loan for which the rate of interest is based upon the Prime Rate. "PURCHASE MONEY INDEBTEDNESS": any Indebtedness incurred by any Borrower in connection with the acquisition by such Borrower of any real or personal property. "REPORTABLE EVENT": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615. "REQUIREMENT OF LAW": as to any Person, any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESPONSIBLE OFFICER": as to any Person, the chief executive officer and the president of such Person or, with respect to financial matters, the chief financial officer of such Person or, in either case, such other executive officers as may be designated from time to time by such Person in writing to the Lender. "RESTRICTED CASH": as defined in accordance with GAAP. "RESTRICTED PAYMENTS": as defined in subsection 6.9. -8- "SEC": the United States Securities and Exchange Commission or any other federal governmental agency which may hereafter perform its functions. "SECURITY AGREEMENTS": collectively, the Security Agreement - All Assets to be executed and delivered by each Borrower, substantially in the form of EXHIBIT F as the same may be amended, supplemented or otherwise modified from time to time. "SECURITY DOCUMENTS": collectively, the Security Agreements and all other security agreements, pledge agreements, financing statements, assignments, mortgages, agreements, documents and instruments now or hereafter delivered to the Lender granting a Lien on any asset or assets of any Person to secure the Obligations or to secure any guarantee of any such Obligations and, including, without limitation, any such document delivered pursuant to subsections 5.10 and 5.11. "SOLVENT": when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount that will be required to pay all "liabilities of such Person, contingent or otherwise", as of such date (as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors) as such debts become absolute and matured, (b) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (c) such Person will be able to pay its debts as they mature, taking into account the timing of and amounts of cash to be received by such Person and the timing of and amounts of cash to be payable on or in respect of indebtedness of such Person; in each case after giving effect to (A) as of the Closing Date the making of the extensions of credit to be made on the Closing Date and to the application of the proceeds of such extensions of credit and (B) on any date after the Closing Date, the making of any extension of credit to be made on such date, and to the application of the proceeds of such extension of credit. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "SUBORDINATED DEBT": any and all Indebtedness, liabilities and obligations of each of the Borrowers to any Person (other than the Lender) which is subordinated to the Obligations upon terms and conditions which are reasonably satisfactory to the Lender. "SUBORDINATION AGREEMENTS": any subordination agreement (or provision) by which the Subordinated Debt is subordinated to the Obligations upon terms and conditions which are reasonably satisfactory to the Lender. "SUBSIDIARY": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other -9- than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "TAX CODE": the Internal Revenue Code of 1986, as amended from time to time. "TRADEMARKS": means any trademark and service mark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of the Borrowers connected with and symbolized by such trademarks. "TREASURY DESK" the Government Securities Division of Citizens Bank. "TREASURY DESK INVESTMENT": as defined in subsection 5.13(b). "TYPE": as to any Loan, its nature as a Prime Rate Loan or a LIBOR Loan. "UCC": the Uniform Commercial Code as from time to time in effect in The Commonwealth of Massachusetts. "UNRESTRICTED CASH": any cash that is not Restricted Cash. 2. Use of Terms. The use of the singular of terms which are defined in the plural shall mean and refer to any one of them; and pronouns used herein shall be deemed to include the singular and the plural and all genders. The use of the connective "or" is not intended to be exclusive; the term "may not" is intended to be prohibitive and not permissive; use of "includes" and "including" is intended to be interpreted as expansive and amplifying and not as limiting in any way. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All references in this Agreement to Articles, Sections, Exhibits, Schedules and Appendices refer to Articles, Sections, Exhibits, Schedules and Appendices of this Agreement unless otherwise indicated. All Exhibits, Schedules and Appendices attached to this Agreement are incorporated herein and made a part hereof. -10- EXHIBIT 10.1 - -------------------------------------------------------------------------------- CREDIT AGREEMENT (the "AGREEMENT") by and between CITIZENS BANK OF MASSACHUSETTS (the "LENDER") and ARIAD PHARMACEUTICALS, INC., ARIAD CORPORATION and ARIAD GENE THERAPEUTICS, INC. (each individually, a "BORROWER" and collectively, the "BORROWERS") - -------------------------------------------------------------------------------- LIEN SEARCHES APPENDIX B EXHIBIT B [FORM OF COMPLIANCE CERTIFICATE] COMPLIANCE CERTIFICATE Reference is hereby made to a certain Credit Agreement, dated as of March ___, 2003 (as the same may be amended, modified, supplemented, extended or restated, from time to time, the "CREDIT AGREEMENT") by and between ARIAD PHARMACEUTICALS, INC., a Delaware corporation, ("API"), ARIAD CORPORATION, a Delaware corporation ("AC"), and ARIAD GENE THERAPEUTICS, INC., a Delaware corporation ("AGTI"), (API, AC and AGTI are sometimes hereinafter referred to collectively as the "BORROWERS" and each singly as a "BORROWER") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts bank (the "LENDER"). All capitalized terms not defined herein but defined in the Credit Agreement shall have the meanings given to such terms in the Credit Agreement. The undersigned hereby certify that they are Responsible Officers of the respective Borrowers and as such, are authorized, for and on behalf of the Borrowers, to execute and deliver this Compliance Certificate to the Lender in accordance with the provisions of the Credit Agreement. Pursuant to the provisions of subsection 5.1(c) of the Credit Agreement, the undersigned hereby certifies to the Lender as follows: 1. Each of the representations and warranties made by the Borrowers pursuant to the Financing Documents is true and correct in all material respects on and as of the date hereof, as if made on and as of the date hereof, except (a) to the extent such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall be true and correct in all material respects as of such earlier date, and (b) as follows: [Describe divergences, if any] 2. Since the end of the last fiscal quarter of the Borrowers, no Material Adverse Change has occurred except: [Describe, if any] 3. Except as set forth in the certificates attached hereto and except as heretofore disclosed to the Lender in previous Compliance Certificates, there has been no change (i) in the Certificate of Incorporation or By-laws of any of the Borrowers, or (ii) in the incumbency of the officers of Borrowers whose signatures have heretofore been certified to the Lender. 4. The financial statements submitted herewith (if any) are in compliance with the applicable provisions of subsections 5.1 and 5.2 of the Credit Agreement. 5. The undersigned has reviewed or caused to be reviewed all of the Financing Documents, and based upon such review and to the knowledge of the undersigned, no Default or Event of Default has occurred and is continuing as of the date hereof (or if applicable, will occur after giving effect to the making of the Loans requested to be made on the date hereof), except as follows: [Describe Defaults or Events of Default] 6. Attached hereto as APPENDIX A are calculations demonstrating that, based upon the financial statements of the Borrowers submitted herewith (if any), the Borrowers were in compliance as of the date of such financial statements with all financial covenants set forth in subsection 5.13 of the Credit Agreement to be measured as of such date, except as noted on Appendix A attached hereto. 7. Any changes in the chief executive office and chief place of business of any of the Borrowers which have occurred and/or any additional locations at which any of the Inventory or equipment are kept, notice of which has not yet been provided to the Lender, in accordance with the provisions of the Security Documents, are set forth below: [Describe] EXECUTED under seal as of this ________ day of March, 2003. ARIAD PHARMACEUTICALS, INC. By:___________________________________ Name: Title: Its duly authorized officer ARIAD CORPORATION By:___________________________________ Name: Title: Its duly authorized officer ARIAD GENE THERAPEUTICS, INC. By:___________________________________ Name: Title: Its duly authorized officer APPENDIX A TO COMPLIANCE CERTIFICATE ARIAD PHARMACEUTICALS, INC. ARIAD CORPORATION ARIAD GENE THERAPEUTICS, INC. I. TOTAL BALANCE SHEET CASH & INVESTMENTS: 1. Total Cash & Investments: ________________________ 2. Required Total Cash & Investments: $10,000,000 ________________________ II. CITIZENS TREASURY DESK INVESTMENTS: ________________________ 3. Treasury Desk Investments*: ________________________ 4. Treasury Investment Portion (#3/#1): ________________________ 5. Required Treasury Investment Portion: 85% ________________________ III. TREASURY DESK INVESTMENT SUMMARY: * Government Securities: ________________________ Commercial Paper: ________________________ Citizens Certificate of Deposits: ________________________ Treasury Bills: ________________________ Total (Equals #3): ________________________ EXHIBIT C ARIAD PHARMACEUTICALS, INC. ARIAD CORPORATION ARIAD GENE THERAPEUTICS, INC. SUMMARY CASH REPORT

FINANCIAL INSTITUTION INVESTMENTS ($000S) - --------------------- ----------- [Name of Institution] [Type of Investment] ($) - ------------------------------------------------------------------------------------------------------ Institution Total ($) Total [Name of Institution] [Type of Investment] ($) Institution Total ($) Total --------------- Total: ($)

EX-10.2 4 b46496apexv10w2.txt EX-10.2 TERM NOTE EXHIBIT 10.2 TERM NOTE $7,500,000.00 March 12, 2003 FOR VALUE RECEIVED, the undersigned, ARIAD PHARMACEUTICALS, INC., a Delaware corporation, ARIAD CORPORATION, a Delaware corporation, and ARIAD GENE THERAPEUTICS, INC., a Delaware corporation (hereinafter sometimes referred to collectively as the "BORROWERS and each singly as a BORROWER"), HEREBY UNCONDITIONALLY PROMISES TO PAY TO THE ORDER OF CITIZENS BANK OF MASSACHUSETTS, a Massachusetts bank (the "LENDER") at the office of the Lender, located at 28 State Street, Boston, Massachusetts 02109 (or such other place as the holder hereof may specify in writing), in lawful money of the United States of America and in immediately available funds, the principal amount of SEVEN MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($7,500,000.00) (the "LOAN"). The Borrowers jointly and severally agree to pay the principal amount of the Loan in the amounts and on the dates specified in subsection 2.5 of the Credit Agreement, dated of even date herewith (as the same may be amended, modified, supplemented, extended or restated from time to time, the "CREDIT AGREEMENT") by and between the Lender and the Borrowers. The Borrowers further agree to pay interest on the unpaid principal balance of the Loan from time to time outstanding from the Closing Date until paid, at the rates and at the times provided in the Credit Agreement. This Note is issued pursuant to the Credit Agreement, and the holder hereof is entitled to, and shall have, all of the benefits of the Credit Agreement, and all other agreements, instruments, guarantees and other documents executed and delivered in connection therewith and herewith. All capitalized terms not defined herein but defined in the Credit Agreement shall have the meanings given to such terms in the Credit Agreement. This Note is secured as provided in the Security Documents. Reference is hereby made to the Security Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security, the terms and conditions upon which the security interests were granted and the rights of the holder of this Note in respect thereof. Upon the occurrence and during the continuance of any one or more of the Events of Default, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. This Note shall be binding upon the Borrowers and their successors and assigns, and shall inure to the benefit of the Lender and its successors, assigns, endorsees and transferees. All of the obligations and liabilities of the Borrowers under the Note are joint and several. EACH BORROWER AND THE LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE, ANY OF THE OTHER FINANCING DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED - 1 - EXHIBIT 10.2 HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. This Note and the other Financing Documents are executed and delivered under seal and shall be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts, without giving effect to the conflict of law provisions thereof. Each Borrower submits itself to the non-exclusive jurisdiction of the Courts of The Commonwealth of Massachusetts for all purposes with respect to the Financing Documents and such Borrower's relationship with the Lender. IN WITNESS WHEREOF, the undersigned has executed this Note under its seal as of the date first written above. WITNESS TO ALL: ARIAD PHARMACEUTICALS, INC. /s/ Andrew Levine By: /s/ Edward M. Fitzgerald - --------------------------- ------------------------------------- Name: Andrew Levine Name: Edward M. Fitzgerald Title: Chief Financial Officer ARIAD CORPORATION By: /s/ Edward M. Fitzgerald ------------------------------------- Name: Edward M. Fitzgerald Title: Chief Financial Officer ARIAD GENE THERAPEUTICS, INC. By: /s/ Harvey Berger ------------------------------------- Name: Harvey J. Berger, M.D. Title: Chief Executive Officer - 2 - EXHIBIT 10.2 STATE OF NEW YORK COUNTY OF NEW YORK, ss. On this 12th day of March, 2003, appeared before me the above-named Edward M. Fitzgerald, Chief Financial Officer of ARIAD Pharmaceuticals, Inc., who proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of ARIAD Pharmaceuticals, Inc. /s/ Nyisha Shakur ---------------------------------------- Notary Public My Commission Expires: May 7, 2006 STATE OF NEW YORK COUNTY OF NEW YORK, ss. On this 12th day of March, 2003, appeared before me the above-named Edward M. Fitzgerald, Chief Financial Officer of ARIAD Corporation, who proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of ARIAD Corporation. /s/ Nyisha Shakur ---------------------------------------- Notary Public My Commission Expires: May 7, 2006 STATE OF NEW YORK COUNTY OF NEW YORK, ss. On this 12th day of March, 2003, appeared before me the above-named Harvey J. Berger, M.D., Chief Executive Officer of ARIAD Gene Therapeutics, Inc., who proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of ARIAD Gene Therapeutics, Inc.. /s/ Nyisha Shakur ---------------------------------------- Notary Public My Commission Expires: May 7, 2006 - 3 - EX-10.3 5 b46496apexv10w3.txt EX-10.3 SECURITY AGREEMENT - ARIAD PHARMACEUTICALS Exhibit 10.3 SECURITY AGREEMENT - ALL ASSETS This SECURITY AGREEMENT - ALL ASSETS (this "AGREEMENT") is made as of March 12, 2003, by and between ARIAD PHARMACEUTICALS, INC., a Delaware Corporation (the "BORROWER") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts Bank (the "LENDER"). All capitalized terms not defined herein but defined in the Credit Agreement, dated of even date herewith (as the same may be amended, modified, supplemented, extended or restated, from time to time, the "CREDIT AGREEMENT") by and among the Borrower, ARIAD CORPORATION, a Delaware corporation and ARIAD GENE THERAPEUTICS, INC., a Delaware corporation (the "CO-BORROWERS"), and the Lender, shall have the meanings given to such terms in the Credit Agreement. Preliminary Statements: WHEREAS, the Borrower and the Co-Borrowers have requested that the Lender enter into the Credit Agreement and to make certain Loans to or for the benefit of the Borrower and Co-Borrowers, as provided for therein; and WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and to the obligation of the Lender to make such Loans that the Borrower enter into this Agreement; NOW, THEREFORE, in order to induce the Lender to enter into the Credit Agreement and to make such Loans to or for the benefit of the Borrower and the Co-Borrowers, and in consideration thereof and in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower hereby agrees with the Lender as follows: SECTION 1. DEFINITIONS; USE OF TERMS. 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings given to such terms in the Uniform Commercial Code in effect in The Commonwealth of Massachusetts on the date hereof: "COMMERCIAL TORT CLAIMS," "DEPOSIT ACCOUNTS," "DOCUMENTS," "FARM PRODUCTS," "FIXTURES," "GOODS," "HEALTH-CARE-INSURANCE RECEIVABLES," "INSTRUMENTS," "PAYMENT INTANGIBLE," "SOFTWARE," "STATE" and "SUPPORTING OBLIGATIONS." The following terms shall have the meanings given to such terms as set forth below: "ACCOUNTS": all "accounts" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include any right to payment of a monetary obligation, whether or not earned by performance, (a) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a policy of insurance issued or to be issued, (d) for a secondary obligation incurred or to be incurred, (e) for energy provided or to be provided, (f) for the use or hire of a vessel under a charter or other contract, (g) arising out of the use of a credit or charge card or information contained on or for use with the card, or (h) as winnings in a lottery or other game of change operated or sponsored by a State, -1- Exhibit 10.3 governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State (including without limitation, (i) all Health-Care-Insurance Receivables and other accounts receivable, and (ii) all debts, and other forms of obligations or indebtedness whether now owned or hereafter acquired). "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership or membership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "CHATTEL PAPER": all "chattel paper" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include any record that evidences both a monetary obligation and a security interest in specific Goods, any security interest in specific Goods and Software used in the Goods, any security interest in specific Goods and license of Software used in the Goods, any lease of specific Goods, or any lease of specific Goods and license of Software used in the Goods (including without limitation, all electronic chattel paper (as defined in the UCC) and all tangible chattel paper (as defined in the UCC)). "CONTRACT": with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof, including, without limitation, (a) all rights of the Borrower to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of the Borrower to damages arising out of, or for, breach or default in respect thereof and (c) all rights of the Borrower to perform and to exercise all remedies thereunder. "EQUIPMENT": all "equipment" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include all machinery, furniture and motor vehicles. "GENERAL INTANGIBLES": all "general intangibles" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include any Payment Intangibles, Software, franchise agreements or rights to know-how, any trade secrets, product or service development ideas and designs, advertising commercials, renderings, strategies and plans, blueprints, architectural drawings, site location, personnel and franchisee information, proprietary information, contracts with distributors, and any similar items, all interest rate, foreign currency or similar agreements and general intangibles attributable to the Capital Stock of each Subsidiary, provided however, such definition shall not include any Intellectual Property. "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "INTELLECTUAL PROPERTY": means (a) any and all Copyrights, (b) any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; (c) any and all -2- Exhibit 10.3 Patents; (d) any and all Trademarks; (e) any and all claims for damages by way of past, present and future infringements of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (f) any and all licenses or other rights to use any of the Copyrights, Patents, or Trademarks and all license fees and royalties arising from such use to the extent permitted by such license or rights; (g) any and all amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks, or Patents; (h) any and all proprietary biological materials, including without limitation, cell lines, DNA, RNA, plasmids, and vectors; (i) any and all licenses granting the Borrower the right to use any Copyrights, Patents, Trademarks, trade secrets, computer software, or biological materials of third parties; and (j) any and all proceeds and products of the foregoing, including without limitation, all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. "INVENTORY": all "inventory" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include all raw materials and other materials and supplies, work-in-process and finished goods and any products made or processed therefrom and all substances, if any, commingled therewith or added thereto. "INVESTMENT PROPERTY": all "investment property", as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include all stock (with the exception of stock in any Domestic Subsidiary), bonds, debentures, securities, treasury bills, certificates of deposit, mutual or money market fund shares, bills, notes (including, without limitation, all Pledged Notes), evidences of indebtedness or other obligations issued by any Person (including, without limitation, federal government of the United States or any agency thereof), whether in registered, bearer or other form, and whether certificated or uncertificated, in book-entry or other form. "ISSUERS": (a) the Persons identified in Section 4 of the Master Disclosure Schedule attached hereto as the issuers of the Pledged Notes and (b) any other issuer of any Investment Property. "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capitalized lease having substantially the same economic effect as any of the foregoing). "MASTER DISCLOSURE SCHEDULE": the Master Disclosure Schedule attached hereto and incorporated herein by reference. "PLEDGED NOTES": all promissory notes listed in Section 3 of the Master Disclosure Schedule attached hereto, and, if requested by the Lender, any other promissory note issued to or held by the Borrower (other than promissory notes issued in -3- Exhibit 10.3 connection with extensions of trade credit by the Borrower in the ordinary course of business). "PROCEEDS": all "proceeds," as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include (a) any and all proceeds of any insurance, indemnity, warranty, guaranty or letter of credit payable to the Borrower, from time to time with respect to any of the Collateral, (b) all payments (in any form whatsoever) paid or payable to the Borrower from time to time in connection with any taking of all or any part of the Collateral by any Governmental Authority or any Person acting under color of Governmental Authority, (c) all judgments in favor of the Borrower in respect of the Collateral, (d) all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto and (e) all other amounts from time to time paid or payable or received or receivable under or in connection with any of the Collateral. "SECURITIES ACT": the Securities Act of 1933, as amended from time to time. "SUBSIDIARY": means any corporation or other entity of which a majority of the outstanding ownership interests entitled to vote for the election of directors or other governing body (otherwise than as the result of a default) is owned by Borrower directly or indirectly through Subsidiaries. "UCC": the Uniform Commercial Code as from time to time in effect in The Commonwealth of Massachusetts; provided, however, that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, then the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy. 1.2 Use of Terms; Exhibits and Schedules. The use of the singular of terms which are defined in the plural shall mean and refer to any one of them; and pronouns used herein shall be deemed to include the singular and the plural and all genders. The use of the connective "or" is not intended to be exclusive; the term "may not" is intended to be prohibitive and not permissive; use of "includes" and "including" is intended to be interpreted as expansive and amplifying and not as limiting in any way. All exhibits and schedules to this Agreement are incorporated herein. SECTION 2. GRANT OF SECURITY INTEREST. As security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, the Borrower hereby grants and otherwise pledges to the Lender a continuing security interest in all of the present and future rights, title and interests of the Borrower in and to the following property, and each item thereof, all whether now or hereafter existing, or owned or acquired by the Borrower, or now or hereafter arising or due or to become due, wherever such property may be located, together with all -4- Exhibit 10.3 substitutions for, replacements of, additions to, accessions to, and products, Proceeds and records of any and all of the following (collectively, the "COLLATERAL"): (a) all Accounts; (b) all Inventory; (c) all Equipment; (d) all Fixtures; (e) all Contracts; (f) all Chattel Paper; (g) all Documents; (h) all Instruments; (i) all Investment Property; (j) all Deposit Accounts; (k) all General Intangibles; (l) all Supporting Obligations; (m) all Commercial Tort Claims; and (n) all other items of tangible and intangible personal property of any and every kind and description which are not otherwise described herein, excluding Intellectual Property and Capital Stock in a Domestic Subsidiary. SECTION 3. GENERAL REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants as follows: 3.1 Power and Authority. The Borrower has the power and authority and the legal right to execute and deliver, to perform its obligations under, and to grant the Lien on the Collateral pursuant to, this Agreement and has taken all necessary actions to authorize its execution, delivery and performance of, and grant of the Lien on the Collateral pursuant to, this Agreement. 3.2 Master Disclosure Schedule. All of the information contained in the Master Disclosure Schedule attached hereto is true, correct and complete. 3.3 Name; Chief Executive Office. -5- Exhibit 10.3 (a) The name of the Borrower set forth in the first paragraph of this Agreement is the true, correct and complete legal name of the Borrower, and the Borrower has not done business under, or used, any other name, except as otherwise described in Section 1.2 of the Master Disclosure Schedule attached hereto. (b) The chief executive office and principal place of business of the Borrower is located at the address listed in Section 2.1 of the Master Disclosure Schedule attached hereto. (c) All of the Inventory and Equipment of the Borrower (other than mobile vehicles) is kept at the locations listed in Section 2.2 of the Master Disclosure Schedule attached hereto. 3.4 Title; No Other Liens. Except for (a) the Lien granted to the Lender pursuant to this Agreement and (b) the Permitted Liens, the Borrower owns each item of the Collateral free and clear of any and all Liens or claims of others. No security agreement, financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as may have been filed in favor of the Lender, pursuant to this Agreement or as may be permitted pursuant to the Credit Agreement. 3.5 Perfected Liens. Upon the completion of filing of financing statements at the Delaware Secretary of State, the Liens granted by the Borrower pursuant to this Agreement will constitute perfected Liens on the Collateral (other than the Pledged Notes) in which a security interest may be perfected by the filing of financing statements pursuant to Article 9 of the Uniform Commercial Code as in effect in each relevant jurisdiction in favor of the Lender which are enforceable as such against all creditors of and purchasers from the Borrower, except in each case as enforceability is affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether involved in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 3.6 Accounts, etc. No amount payable to the Borrower under or in connection with any Account, Contract or License, or any Investment Property, Deposit Accounts or General Intangibles, in excess of Twenty Thousand and 00/100 Dollars ($20,000.00) is evidenced by any Instrument or Chattel Paper which has not been delivered to the Lender. The amount represented by the Borrower to the Lender from time to time as owing by each account debtor or by all account debtors in respect of the Accounts will at such time be the correct amount actually owing by such account debtor or debtors thereunder in all material respects, subject to adjustments in the ordinary course of business. 3.7 Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 3.8 Investment Property. (a) To the best knowledge of the Borrower, each of the Pledged Notes pledged by the Borrower hereunder constitutes a valid and legally enforceable obligation of the other obligor in respect thereof or parties thereto, enforceable in accordance with -6- Exhibit 10.3 its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally. (b) The Borrower is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except for the Lien created by this Agreement and Permitted Liens. SECTION 4. GENERAL COVENANTS. The Borrower hereby covenants and agrees as follows: 4.1 Changes in Name and Locations. The Borrower will not (a) change its name, identity, organizational structure, jurisdiction of organization, chief executive office or place where its business records are kept, (b) move any tangible Collateral to a location other than those set forth in the Master Disclosure Schedule attached hereto, or (c) merge into or consolidate with any other entity, unless in each case it shall have given the Lender at least thirty (30) days prior written notice thereof and all filings and other actions to maintain the perfection of the security interest granted hereby shall have been made. 4.2 Maintenance of Records. The Borrower will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Accounts, Contracts and Licenses. The Borrower will, upon request of the Lender, mark its books and records pertaining to the Collateral to evidence this Agreement and the security interests granted hereby. 4.3 Right of Inspection. Lender may inspect the property and records of the Borrower in accordance with Section 5.6 of the Credit Agreement. 4.4 Payment of Taxes and Other Amounts. The Borrower will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral which have a reasonable likelihood of adverse determination, except that no such charge need be paid if (a) the validity or amount thereof is being contested in good faith, (b) such contest does not involve any material danger of the sale, forfeiture or loss of any material portion of the Collateral or any interest therein and (c) such charge is adequately reserved against the Borrower's books in accordance with GAAP or if the failure to pay such charge would not have a Material Adverse Effect. 4.5 Maintenance and Use of Properties. The Borrower will safeguard, protect and preserve the Collateral for the benefit of the Lender, will keep the Collateral free from any Lien (other than the Permitted Liens and Liens in favor of the Lender), will keep all tangible property constituting part of the Collateral in good working order and repair, will preserve all beneficial contract rights, will take commercially reasonable steps to collect all Accounts, and will not waste or destroy the Collateral or any part thereof; and the Borrower will, consistent with good business practices, otherwise preserve, maintain and protect its rights and keep its properties and -7- Exhibit 10.3 assets in good repair, working order and condition, and capable of identification, and make (or cause to be made) all needful and proper repairs or renewals, additions and improvements thereto and replacements thereof, and shall use its assets only in the ordinary course of business and in compliance with all applicable law. 4.6 Notices and Reports Pertaining to Collateral. The Borrower will (a) promptly notify the Lender of any Lien (except for Liens in favor of the Lender and Permitted Liens) asserted against the Collateral and of any information received by the Borrower relating to the Collateral (including the Accounts, the account debtors or other persons obligated in connection therewith) that may in any way materially adversely affect the value of the Collateral or the rights and remedies of the Lender with respect thereto; (b) promptly notify the Lender when it obtains knowledge of actual or threatened bankruptcy or other insolvency proceeding of any material account debtor or issuer of Securities; (c) notify the Lender of any return or adjustment, rejection, repossession, or loss or damage of or to merchandise represented by Accounts or constituting Inventory if material in amount and of any credit, adjustment or dispute arising in connection with the goods or services represented by Accounts or constituting Inventory if material in amount; and (d) notify the Lender of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or, with respect to any material portion of the Collateral, on the Liens created hereunder. The Borrower authorizes the Lender to destroy all invoices, delivery receipts, reports and other types of documents (other than documents constituting Collateral) and records submitted to the Lender in connection with the transactions contemplated herein at any time subsequent to twelve (12) months from the time such items are delivered to the Lender. 4.7 Liens on Collateral. The Borrower will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created hereby and the Permitted Liens, and will defend the right, title and interest of the Lender in and to any of the Collateral against the claims and demands of all Persons whomsoever. 4.8 Maintenance of Insurance. (a) The Borrower will maintain insurance, at all times, with financially sound and reputable companies as are reasonably satisfactory to the Lender, in such amounts and against such risks as are customarily insured against by businesses operating in a similar line of business in a similar area, and consistent with sound business practice, in no event less than the lesser of (i) the full insurable replacement cost value of all of the Borrower's tangible personal property (and, in any case, the amount necessary to avoid any coinsurance or contributions by the Borrower) or (ii) the total aggregate outstanding principal indebtedness owing by the Borrower to the Lender, including casualty insurance covering the Collateral and other property of the Borrower against the hazards of fire, flood, sprinkler leakage, burglary, theft, pilferage, loss in transit, those hazards covered by extended coverage, and such other coverages as the Lender may reasonably require, all such insurance to be in such form, for such periods and with such companies as shall be reasonably acceptable to the Lender. All premiums thereon shall be paid by the Borrower and if the Borrower fails to do so, the Lender may at its option (but without -8- Exhibit 10.3 obligation) procure such insurance and charge the cost to the Borrower's account, provided, however, that any such payment by the Lender shall not constitute satisfaction of the Borrower's obligations with respect to payment hereunder, or a waiver by the Lender of any Event of Default with respect to such non-payment. (b) All such insurance policies shall provide, in form and substance satisfactory to the Lender, that: (i) any loss thereunder shall be payable to the Lender as loss payee (first to the Lender and then to the Borrower, as their interests may appear); (ii) any such payment to the Lender shall be made by an instrument to the Lender alone and not to the Borrower and the Lender jointly; and (iii) no cancellation or modification of such policy shall be effective without at least thirty (30) days prior written notice to the Lender. If any insurance losses are paid by check, draft or other instrument payable to the Borrower and the Lender jointly, the Lender may endorse the Borrower's name thereon and do such other things as the Lender may deem advisable to reduce the same to cash. All loss recoveries received by the Lender upon any such insurance shall be applied to the Obligations, whether or not matured, in such order as the Lender in its sole discretion may determine. Any surplus shall be paid by the Lender to the Borrower or applied as may be otherwise required by law. (c) Certificates of insurance of, and upon request of the Lender, the original policies of, all such casualty insurance policies and endorsements thereto, shall be delivered to the Lender; and, upon request, satisfactory evidence of general liability, products liability, workers' compensation and other insurance coverage, in form and substance satisfactory to the Lender, shall be furnished to the Lender, in each case within three (3) business days of each Lender's request therefor. The Borrower shall advise the Lender of each claim made by the Borrower under any policy of insurance which covers the Collateral and will permit the Lender, at the Lender's option in each instance, to participate in the adjustment of each such claim. 4.9 Maintenance of Perfected Liens; Further Documentation. At any time and from time to time, upon the written request of the Lender, and at the sole expense of the Borrower, the Borrower will promptly and duly execute and deliver such further instruments and documents and take such further action as the Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted (including, without limitation, (a) obtaining governmental and other third party consents and approvals, including without limitation any consent of any licensor or lessor; (b) obtaining waivers from mortgagees and landlords; and (c) in the case of Investment Property, and any other relevant Collateral, taken action necessary to enable the Lender to obtain "control" (within the meaning of the applicable Uniform Commercial Code) with respect thereto). The Borrower also hereby authorizes the Lender to file (after written notice to the Borrower) any such financing or continuation statement without the signature of the Borrower to the extent permitted by applicable law, provided, however, that any failure to give any such notice shall not affect the validity or effectiveness of any such filing. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. 4.10 Costs and Expenses. Except as otherwise provided in the Credit Agreement, the Borrower agrees to pay (a) the reasonable costs of producing and reproducing this Agreement, -9- Exhibit 10.3 the other Financing Documents and the other agreements and instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Lender (other than taxes based upon the Lender's net income) on or with respect to the transactions contemplated by this Agreement (the Borrower hereby agreeing to indemnify the Lender with respect thereto), (c) the reasonable fees, expenses and disbursements of outside counsel to the Lender incurred in connection with the preparation, administration or interpretation of the Financing Documents and other instruments mentioned herein, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (d) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs of outside legal counsel, and reasonable consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred by the Lender in connection with (i) the enforcement of or preservation of rights under any of the Financing Documents against the Borrower or the administration thereof after demand is made by the Lender to the Borrower for payment in full of the Obligations and (ii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to the Lender's relationship with the Borrower and (e) all reasonable fees, expenses and disbursements of the Lender incurred in connection with UCC searches, UCC filings or mortgage recordings. The covenants contained in this subsection shall survive payment or satisfaction in full of all other Obligations 4.11 Negative Pledge on Intellectual Property. The Borrower shall not create, incur, assume or suffer to exist any Lien upon the Intellectual Property of the Borrower whether now owned or hereafter acquired, except for encumbrances which may be deemed to arise from licensing, sublicensing or other sharing arrangements permitted under subsection 6.7(d) of the Credit Agreement. SECTION 5. SPECIFIC COVENANTS REGARDING CERTAIN COLLATERAL. The Borrower hereby covenants and agrees as follows: 5.1 Accounts. (a) Collection on Accounts and Proceeds. The Borrower shall enforce, compromise and collect amounts owing on its Accounts; provided, however, the right of the Borrower hereunder to enforce, compromise and collect amounts owing on such Accounts may at the option of the Lender be terminated upon the occurrence and during the continuance of any Event of Default. If any Accounts of the Borrower are at any time evidenced by promissory notes, trade acceptances or other Instruments for the payment of money, the Borrower will promptly deliver the same to the Lender appropriately endorsed to the Lender's order and, regardless of dishonor, protest, notice of protest and all other notices with respect thereto. After an Event of Default has occurred and is continuing and the Borrower has received notice thereof from the Lender, any Proceeds collected by the Borrower (whether consisting of checks, notes, drafts, bills of exchange, money orders, commercial paper of any kind whatsoever, or other documents received in payment of any Account or in payment for any Inventory or otherwise), shall be promptly turned over by the Borrower to the Lender, in precisely the form received, except for its endorsement when required, and until so turned over, shall be deemed to be held in trust -10- Exhibit 10.3 by the Borrower for and as the Lender's property, and shall be held separately from the Borrower's other funds. (b) Limitations on Discounts and Compromises of Accounts. Other than in the ordinary course of business as generally conducted by the Borrower over a period of time, the Borrower will not compromise, compound or settle the Accounts for less than the full amount thereof, or release, wholly or partially, any Person liable for the payment thereof, except in each case as permitted under the Credit Agreement. (c) Notice to Account Debtors. At any time after the occurrence and during the continuance of an Event of Default, the Borrower shall, at the request of the Lender, notify its account debtors, and the Lender itself may notify such account debtors directly, of the security interest of the Lender in any Account and that payment thereof is to be made directly to the Lender. At any time after the occurrence and during the continuance of an Event of Default, the Lender may communicate with account debtors to verify with them to its satisfaction the existence, amount and terms of any Account. (d) Information on Accounts. The Borrower shall furnish to the Lender from time to time, and upon request, a list and description of all Accounts created or acquired by the Borrower, together with copies of shipping or delivery receipts for all goods and services sold or otherwise provided, and any other information or documents which the Lender reasonably may request from time to time related to the Borrower's Accounts. 5.2 Inventory. (a) Pricing, Credit Terms and Accounts. So long as no Event of Default has occurred and is continuing, the Borrower may sell items of Inventory: (a) for cash in amounts not less than the Borrower's published, usual or customary prices, less only usual and customary discounts for volume sales or prompt payment; or (b) on credit terms usual and customary in the business conducted by the Borrower, at prices which conform to the above terms, and under such circumstances as give rise to Accounts subject to this Agreement. (b) Notice to Landlords, Warehousemen and Agents. If any Inventory is in the possession or control of any landlords, warehousemen or agents, the Borrower shall notify them of the Lender's security interest therein, and at the Lender's request, instruct them to hold the same for the Lender's account and subject to the Lender's instructions. The Lender shall enjoy all of the rights and remedies of a secured party in the Inventory and shall be subrogated to all guaranties and security now or which may in the future be held by the Borrower. The Lender shall not be liable in any manner for exercising or refusing or failing to exercise any such rights. 5.3 Contracts with Governmental Authorities. None of the account debtors or other Persons obligated on any of the Collateral is a Governmental Authority covered by the Federal Assignment of Claims Act or like federal, state or local statute or rule in respect of such Collateral. -11- Exhibit 10.3 5.4 Chattel Paper. Unless an Event of Default shall have occurred and be continuing, the Borrower shall be entitled to retain possession of all Collateral consisting of Chattel Paper, and shall hold all such Chattel Paper in trust for the Lender. If the Lender has made demand for payment in full of the Obligations, then upon the request of the Lender, such Chattel Paper shall be immediately delivered to the Lender, to be held as Collateral pursuant to this Agreement. The Borrower shall not permit any other Person (other than a Borrower) to possess any such Collateral at any time. 5.5 Equipment - Certificates of Title. The Borrower shall deliver to the Lender, upon request, the originals of all certificates of title pertaining to any Equipment for which such certificates are or should be issued under applicable law, together with a duly completed and executed application to add the Lender as a lienholder on each such certificate. The Borrower covenants and agrees that it will promptly deliver to the Lender, upon request, all certificates of title relating to any Equipment hereafter acquired, together with duly completed and executed applications to add the Lender as a lienholder therewith (in form and content satisfactory for filing with the appropriate office), and that the Borrower shall not seek to obtain any certificate of title for any Equipment currently lacking such a certificate, and it shall not attempt to recertify or obtain a new certificate for any Equipment currently evidenced by a certificate of title (whether in The Commonwealth of Massachusetts or any other jurisdiction) without first notifying the Lender, and only if the original of such certificate of title is or will be delivered to the Lender upon issuance thereof and does or will properly name the Lender as first lienholder thereon (subject only to any Permitted Liens), in each case duly perfecting the Lender's security interest granted under this Agreement. 5.6 Investment Property. (a) If the Borrower shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Issuer or any other Investment Property, the Borrower shall accept the same as the agent of the Lender, hold the same in trust for the Lender and promptly deliver (or cause to be delivered) the same to the Lender in the exact form received, duly indorsed by the Borrower to the Lender, if required, together with an undated stock power covering such certificate duly executed in blank by the Borrower and with, if the Lender so requests, signature guaranteed, to be held by the Lender, subject to the terms hereof, as additional collateral security for the Obligations. (b) Without the prior written consent of the Lender, the Borrower will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Investment Property or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement) or (ii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Investment Property or Proceeds thereof, or any interest therein, except for the Lien provided for by this Agreement and Permitted Liens. -12- Exhibit 10.3 (c) Unless an Event of Default shall have occurred and be continuing, the Borrower shall be permitted to receive all payments made in respect of the Pledged Notes, and to exercise all voting and corporate rights with respect to the Investment Property; provided, however, that the Borrower agrees that it shall not vote in any way that would be inconsistent with or result in any violation of any provision of the Credit Agreement, the Note, the Security Documents or any of the other Financing Documents. (d) If an Event of Default shall occur and be continuing, then (i) the Lender shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Investment Property and make application thereof to the Obligations in such order as the Lender may determine, and (ii) any or all of the Investment Property may be registered in the name of the Lender or its nominee, and, subject to the terms of this Agreement, the Lender or its nominee may thereafter exercise (A) all voting, corporate and other rights pertaining to such Investment Property at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (B) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Investment Property as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by the Borrower or the Lender of any right, privilege or option pertaining to such Investment Property, and in connection therewith, the right to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Lender may determine), all without liability except to account for property actually received by it, and except for its gross negligence or willful misconduct, but the Lender shall have no duty to the Borrower to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (e) The Borrower hereby authorizes and instructs each Issuer of any Investment Property pledged by the Borrower hereunder to comply with any instruction received by it from the Lender in writing that (i) states that an Event of Default has occurred and is continuing and (ii) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from the Borrower, and the Borrower agrees that each Issuer shall be fully protected in so complying, to the extent such instruction is in compliance with applicable law. (f) The rights of the Lender hereunder shall not be conditioned or contingent upon the pursuit by the Lender of any right or remedy against any other Person which may be or become liable in respect of all or any part of the Obligations or against any collateral security thereof, guarantee therefore or right of offset with respect thereto. The Lender shall not be liable for any failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so, nor shall the Lender be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Borrower or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The Lender agrees to release promptly to the Borrower any dividends, cash, securities, instruments and other property paid, payable or otherwise distributed in -13- Exhibit 10.3 respect of the Collateral which it may receive under subsection 5.6(d) hereof if, prior to the occurrence of an acceleration of any of the Obligations, all Defaults and Events of Default have been waived or are no longer continuing. SECTION 6. POWER OF ATTORNEY. 6.1 Appointment and Powers. The Borrower hereby irrevocably constitutes and appoints the Lender as the Borrower's true and lawful attorney, coupled with an interest, with full power of substitution (in each case at the sole risk, cost and expense of the Borrower but for the benefit of the Lender) to do the following: (a) at any time or times (whether or not an Event of Default has occurred), (i) to file and record without the Borrower's signature, or to sign the Borrower's name to and file and record, financing statements and any other instruments (including applications to name the Lender as lienholder on any motor vehicle or other certificates of title), and (ii) to take such other actions as the Lender may deem necessary in order to perfect or maintain the perfection or priority of the Lender's security interest in the Collateral or any portion thereof; and (b) after an Event of Default has occurred and is continuing, in addition to the actions described above, (i) to protect the Lender's security interest in the Collateral or any portion thereof; (ii) to receive and open the Borrower's mail, remove therefrom and hold or apply any Collateral and dispose of such mail or turn over such mail (other than such Collateral) to the Borrower or any trustee in bankruptcy, receiver, assignee for benefit of creditors or other legal representatives to whom the Lender determines to be the appropriate recipient thereof; (iii) to endorse the name of the Borrower in favor of the Lender upon any and all checks, drafts, notes, money orders, acceptances and other items, Instruments and forms of payment, and to sign and endorse the name of the Borrower on, and receive as secured party, any of the Collateral; (iv) to sign the Borrower's name to any invoices, schedules, freight or express receipts, bills of lading, and other Documents or writings of a similar or different nature, relating to the Collateral; (v) to sign the name of the Borrower on any schedules and assignments of Accounts, and on notices of assignment, financing statements and other public records relating to the Collateral, and on any notice to the Borrower's account debtors for verification of the Accounts; (vi) to prosecute, defend, compromise or release any action relating to the Collateral; (vii) to notify the post office authorities to change the address for delivery of the Borrower's mail to an address designated by the Lender, and to sign change of address forms therefor; (viii) to sign the Borrower's name in proofs of = claim in bankruptcies of account debtors, notices of lien, claims of mechanics liens, or assignments or releases of any Liens securing the Accounts; (ix) to take any such actions as may be necessary to obtain payment of any letter of credit of which the Borrower is a beneficiary; (x) to repair, manufacture, assemble, complete, package, deliver, alter or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any customer of the Borrower; (xi) to notify any Persons of the rights and interests of the Lender, of the applicable Events of Default and of any matter relating to Collateral; (xii) to take any and all other actions (including, without limitation, the right to sue in the name of the Borrower or the Lender to collect upon any and all Collateral and to settle, adjust or -14- Exhibit 10.3 compromise any and all claims with respect to Collateral including insurance claims) as the Lender shall deem necessary or expedient to convert the Collateral into cash; and (xiii) otherwise to exercise any rights or remedies of the Lender hereunder or under any of the Financing Documents, or otherwise under agreement or applicable law, including the UCC. 6.2 Ratification and Indemnification Under Power of Attorney. In connection with all powers of attorney set forth in this Agreement, the Lender shall have full power to exercise such powers as fully and effectually as the Borrower might or could do; the Borrower agrees that the Lender shall not be obligated to exercise any of the powers authorized herein, and shall be free to exercise or refrain from exercising any of such powers at any time or times in its absolute discretion, and, if the Lender elects to exercise any of such powers, it shall not be accountable for more than it actually receives as a result of such exercise of power, and shall not be responsible to the Borrower except for the Lender's negligence, bad faith or willful misconduct; and all powers conferred upon the Lender by this Agreement, being coupled with an interest, shall be irrevocable until such time as all Obligations have been paid (without being subject to or susceptible of recovery by any Person) or performed and the Lender's agreement, if any, to make advances has terminated. 6.3 Performance By Lender of Borrower's Obligations. If the Borrower fails to perform or comply with any of its agreements contained herein and the Lender, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with any agreement, the expense of the Lender incurred in connection with such performance or compliance, together with interest thereon at the Late Rate, shall be payable by the Borrower to the Lender on demand and shall constitute Obligations secured hereby. SECTION 7. REMEDIES. 7.1 General Remedies. In addition to and without in any way limiting any other rights and remedies available to the Lender under this Agreement prior to an Event of Default, or any other rights and remedies available to the Lender (whether prior to or after an Event of Default) under any of the other Financing Documents or under applicable law or in equity, upon and during the continuance of an Event of Default: (a) the Lender may decline to honor the credit of the Borrower or may refuse to make further advances to the Borrower; (b) the Lender may collect the Accounts with or without taking possession of the Collateral; (c) the Lender shall be entitled to immediate possession of the Collateral or any portion or portions thereof and may, so far as the Borrower can give authority therefor, enter upon the Borrower's premises to take possession thereof; may require the Borrower to assemble the Collateral and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties; or may require the Borrower to deliver all Records relating to the Collateral to the Lender; -15- Exhibit 10.3 (d) the Lender may enter upon, occupy, and use any premises owned or occupied by the Borrower (or by any agent of the Borrower at which Collateral is located), and may exclude the Borrower from such premises or portion thereof as may have been so entered upon, occupied, or used by the Lender; the Lender shall not be required to remove any of the Collateral from any such premises upon the Lender's taking possession thereof, and may render any Collateral unusable to the Borrower; and in no event shall the Lender be liable to the Borrower for use or occupancy by the Lender of any premises pursuant to this Agreement except for claims arising out of the Lender's negligence, bad faith or willful misconduct, nor for any charge (such as wages for the Borrower's employees and utilities) incurred in connection with the Lender's exercise of the Lender's rights and remedies; (e) the Lender may take such steps as it deems necessary to protect the Lender's interest in, and to preserve the Collateral, and the Borrower agrees to cooperate fully with all of the Lender's efforts and to take such actions as the Lender shall direct, all to preserve the Collateral; (f) the Lender shall have the rights and remedies of a secured party under the UCC and other applicable laws, the choice and manner of exercise of any right or remedy being in the Lender's sole discretion; and, pursuant thereto, the Lender shall have the right to foreclose the security interest granted in any Collateral by any available judicial procedure and to take possession of and sell any or all of the Collateral with or without judicial process; the Lender may lease or otherwise dispose of the Collateral, or may sell the Collateral, or any part thereof, at public or private sales, at any time or place (including the Borrower's premises), in one or more sales, at such price or prices, and upon such terms, either for cash, credit or future delivery, as the Lender may elect, and, except as to that part of the Collateral which is perishable or threatens to decline speedily in value, or is of the type customarily sold on a recognized market, the Lender shall give the Borrower reasonable notification of such sale or sales, it being agreed that, in all events, reasonable notification means written notice mailed to the Borrower at least ten (10) days prior to each such public sale or at least ten (10) days prior to the date after which any such private sales or other intended dispositions may be made; at any public sale the Lender may (but shall have no obligation to) bid for and become the purchaser of any Collateral; the Borrower hereby waives any and all rights it may have to judicial hearing in advance of the enforcement of any of the Lender's rights hereunder, including the Lender's right to take immediate possession of the Collateral; and the Lender may do any of the foregoing or otherwise deal with the Collateral in its then condition, or following such preparation as the Lender deems advisable, with or without taking possession thereof; (g) the Lender shall have the right to apply to the Obligations any deposits or other sums at any time credited by or due from the Lender to the Borrower; and (h) the Lender may treat any or all of the Financing Documents as being in default and may exercise any rights and remedies thereunder as it shall deem appropriate. -16- Exhibit 10.3 7.2 No Duty of Preservation; Joint Property. The Lender may at all times proceed directly against the Borrower, or against any other Person responsible for any Obligations, to enforce the payment of the Obligations, and the Lender shall not be required to take any action of any kind to preserve, collect upon or protect the rights of the Lender or of any other Person in any Collateral, except as specifically required by the UCC. Without limiting the generality of the foregoing, the Lender shall not be required to take any action to preserve rights against prior parties in the cases of Instruments or Chattel Paper, and the Lender may co-mingle any items of Collateral with other property and shall not be required to keep any Collateral identifiable. In the event any Collateral, including any Deposit Account, is held in joint or common names, the Lender may deal with such Collateral or any Deposit Account, for all purposes hereunder and under any or all of the Financing Documents, as if belonging to any one, and no more than one, of such joint or common owners. 7.3 Remedies Not Exclusive. The enumeration of rights and remedies in the Financing Documents is not intended to be exclusive, and they shall be in addition to and not by way of limitation of such others as the Lender may have under the UCC, other applicable law, and any and all other Documents, Instruments, agreements or other writings between or among the Borrower, the Lender or other Persons. The Lender shall, in its sole discretion, determine its choice of rights and remedies and the order in which they shall be exercised, and which Collateral, if any, is to be proceeded against and in which order. The exercise of any right or remedy against the Borrower, any other Person or any or all Collateral shall not preclude the exercise of others or the exercise thereof against the Borrower, any other Persons or any other Collateral, all of which shall be cumulative. No act, failure or delay by the Lender shall constitute a waiver of any of its rights and remedies. No single or partial waiver by the Lender of any provision of the Financing Documents, or of any breach or default thereunder, or of any right or remedy which the Lender may have shall operate as a waiver of any other provision, breach, default, right or remedy or of the same one on a future occasion. 7.4 Deficiency. The Borrower shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations and the reasonable fees and disbursements of any attorneys employed by the Lender to collect such deficiency. 7.5 Requirement of Law. Notwithstanding any provision contained in this Agreement to the contrary, the exercise of remedies or any power of attorney granted hereunder with respect to Collateral is subject to any applicable Requirement of Law of any Governmental Authority. No action will be taken by the Lender hereunder if such action will result in a violation of any applicable Requirement of Law of any Government Authority by the Borrower. SECTION 8. MISCELLANEOUS. 8.1 Survival of Covenants; Binding Effect. All agreements, representations, covenants and warranties made by the Borrower in this Agreement, the other Financing Documents, or in any certificate or other document delivered to the Lender in connection herewith shall survive the termination of this Agreement and survive the execution and delivery of this Agreement, and shall remain in full force and effect until all Obligations to the Lender been paid in full and satisfied, and the security interest, Lien and rights granted to the Lender in -17- Exhibit 10.3 any Collateral and its rights and remedies hereunder and under the other Financing Documents shall continue in full force and effect, notwithstanding the fact that Loans may, from time to time, be in a zero or credit position, until all Obligations have been satisfied. All the terms and provisions of this Agreement and the other Financing Documents shall be binding upon, inure to the benefit of and be enforceable by and against the parties hereto and their respective successors and assigns. 8.2 Prior Discussions; Amendments in Writing; Counterparts; Filing As Financing Statement. This Agreement and all other Financing Documents incorporate all discussions and negotiations between the Borrower and the Lender, either express or implied, concerning the matters included herein and therein, any custom, usage or other writing to the contrary notwithstanding. No such discussions or negotiations shall limit, modify, or otherwise affect the provisions of the Financing Documents. This Agreement may be amended or modified only in writing signed by the parties hereto, and in the case of the Lender signed by a duly authorized officer thereof. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but such counterparts together shall constitute one and the same instrument. Any proof of this Agreement shall require production of only one such counterpart. A carbon, photographic or other reproduction of this Agreement or of any financing statement executed to perfect the security interest created herein may be filed as a financing statement under the UCC (or under the Uniform Commercial Code in effect in any jurisdiction outside Massachusetts). 8.3 General Indemnification. The Borrower shall, and does hereby, indemnify and save the Lender harmless from (and agrees to defend the Lender from) any and all liabilities, damages, costs, losses and expenses (including court costs and attorney's reasonable fees of outside counsel and expenses) that the Lender may sustain or incur by reason of, relating to or arising out of the preparation of this Agreement, the defending or protecting of any Collateral or the priority of the Lender's interest therein, or in collecting or enforcing the Obligations, or in enforcing any of the Lender's rights or remedies, or in the prosecution or defense of any action or proceeding concerning any matter growing out of or connected with this Agreement, any of the other Financing Documents, the Obligations, the Collateral, or on account of the Lender's relationship with the Borrower, or any other Person responsible for any of the Obligations (each of which may be defended, compromised, settled or pursued by the Lender with counsel of the Lender's selection, at the expense of the Borrower) except for such claims which have been determined by a court of competent jurisdiction to have arisen out of the Lender's actual bad faith, willful misconduct or gross negligence. The within indemnification shall survive termination of this Agreement. The Borrower's obligations under this subsection constitute part of the Obligations secured by the security interest created by this Agreement. 8.4 Destruction of Documents; Receipt of Copy. This Agreement and all other Financing Documents may be reproduced by the Lender by any photographic, photostatic, microfilm, or similar process, and the Lender may destroy the original from which any document was so reproduced. Any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business). The Borrower acknowledges receipt of a true, correct and complete copy or counterpart of this Agreement. -18- Exhibit 10.3 8.5 Notices. All notices required or permitted hereunder shall be in writing and delivered in accordance with the provisions of the Credit Agreement. 8.6 Application of Proceeds. Subject to the provisions of the Credit Agreement, the Lender shall apply (or change any application previously made of) the proceeds of any collection, sale or other disposition of the Collateral, or of any other payments received hereunder, toward the Obligations in such order and manner as the Lender, in its sole discretion, shall determine, any statute (the application of which may be waived or modified by agreement), customs or practices to the contrary notwithstanding. The Borrower shall remain liable to the Lender for any deficiency remaining following such application. 8.7 Severability. If any provision of this Agreement or any of the other Financing Documents, or any portion of such provision, or the application thereof to any Person or circumstance, shall to any extent be prohibited or held invalid or unenforceable, the remainder of this Agreement and the other Financing Documents or the remainder of such provision and the application thereof to other Persons or circumstances (other than those as to which it is prohibited or held invalid or unenforceable) shall not be affected thereby, and each term and provision hereof and of the other Financing Documents shall be valid and enforced to the fullest extent permitted by law. To the extent permitted by law, the parties hereto waive any provision of law which renders any such provision or the application thereof to any Person or circumstance prohibited, invalid or unenforceable in any respect. 8.8 Headings. Headings appearing in this Agreement are intended for convenience only and do not constitute, and shall not be interpreted to be, a part of this Agreement. 8.9 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER FINANCING DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. 8.10 Governing Law; Jurisdiction. This Agreement and the other Financing Documents are executed and delivered under seal and shall be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts, without giving effect to the conflict of law provisions thereof. Each of the Lender and the Borrower submits itself to the non-exclusive jurisdiction of the courts of The Commonwealth of Massachusetts for all purposes with respect to the Financing Documents and the Borrower's relationship with the Lender. [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK] -19- Exhibit 10.3 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed and delivered under their seals as of the date first above written. WITNESS: ARIAD PHARMACEUTICALS, INC. /s/ Andrew Levine By: /s/ Edward M. Fitzgerald - ------------------------------------ ------------------------------------- Name: Andrew Levine Name: Edward M. Fitzgerald Title: Chief Financial Officer Its duly authorized officer WITNESS: CITIZENS BANK OF MASSACHUSETTS /s/ Todd H. Whilton By: /s/ Scott Haskell - ------------------------------------ ------------------------------------- Name: Todd H. Whilton Name: Scott Haskell Title: Vice President Its duly authorized officer -20- Exhibit 10.3 COMMONWEALTH OF MASSACHUSETTS ______________ County, ss. March ___, 2003 Then personally appeared the above-named _____________________ as __________________ of ARIAD Pharmaceuticals, Inc., and acknowledged the foregoing instrument to be his/her free act and deed and the free act and deed of ARIAD Pharmaceuticals, Inc., before me. ________________________________________ Notary Public My commission expires: [AFFIX NOTARIAL SEAL] COMMONWEALTH OF MASSACHUSETTS Suffolk County, ss. March 14, 2003 Then personally appeared the above-named Scott Haskell as Vice President of Citizens Bank, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of Citizens Bank, before me. /s/ Todd H. Whilton --------------------------------- Notary Public My commission expires: 1/30/09 [AFFIX NOTARIAL SEAL] STATE OF NEW YORK COUNTY OF NEW YORK, ss. On this 12th day of March, 2003, appeared before me the above-named Edward M. Fitzgerald, Chief Financial Officer of ARIAD Pharmaceuticals, Inc., who proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of ARIAD Pharmaceuticals, Inc. /s/ Nyisha Shakur --------------------------------- Notary Public My Commission Expires: May 7, 2006 -21- - -------------------------------------------------------------------------------- SECURITY AGREEMENT - ALL ASSETS by and between CITIZENS BANK OF MASSACHUSETTS (the "LENDER") and ARIAD PHARMACEUTICALS, INC. (the "BORROWER") - -------------------------------------------------------------------------------- 1. Name of Borrower. 1.1. The exact corporate name of the Borrower as it appears on its organizational documents and its taxpayer identification number and its organizations identification number are as follows: ARIAD Pharmaceuticals, Inc. Federal Tax Identification No. 22-3106987 1.2. The following is a list of all other names (including trade names or similar appellations) used by the Borrower or any other business or organization to which the Borrower became the successor by merger, consolidation, acquisition, change in form, nature or jurisdiction of organization or otherwise, at any time during the past five (5) years: None 1.3. The following is the state (or jurisdiction) of organization (or formation) of the Borrower: Delaware 2. Locations. 2.1. The chief executive office and principal place of business of the Borrower is located at the following address: 26 Landsdowne Street Cambridge, Massachusetts 02139 2.2. The following is a list of all of the other locations in which the Borrower maintains any books or records relating to any of the Collateral consisting of Accounts, Chattel Paper, General Intangibles or mobile goods: None 2.3. The following are all of the other places of business of the Borrower: None 2.4. The following are all other locations where any of the Collateral consisting of Inventory or Equipment is located: None 3. The following is a summary of all of the Pledged Notes:

Borrower * Principal Amount Date ---------- ---------------- ---- Promissory Note Laurie A. Allen $ 75,000.00 July 24, 2002 Promissory Note Joseph Snodgrass $ 20,000.00 March 8, 2002 Promissory Note Charles Purtell $ 15,000.00 January 5, 2002

* All borrowers are current employees of the Company. EX-10.4 6 b46496apexv10w4.txt EX-10.4 SECURITY AGREEMENT - ARIAD CORPORATION EXHIBIT 10.4 SECURITY AGREEMENT - ALL ASSETS This SECURITY AGREEMENT - ALL ASSETS (this "AGREEMENT") is made as of March 12, 2003, by and between ARIAD CORPORATION, a Delaware Corporation (the "BORROWER") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts Bank (the "LENDER"). All capitalized terms not defined herein but defined in the Credit Agreement, dated of even date herewith (as the same may be amended, modified, supplemented, extended or restated, from time to time, the "CREDIT AGREEMENT") by and among the Borrower, ARIAD PHARMACEUTICALS, INC., a Delaware corporation and ARIAD GENE THERAPEUTICS, INC., a Delaware corporation (the "CO-BORROWERS"), and the Lender, shall have the meanings given to such terms in the Credit Agreement. Preliminary Statements: WHEREAS, the Borrower and the Co-Borrowers have requested that the Lender enter into the Credit Agreement and to make certain Loans to or for the benefit of the Borrower and Co-Borrowers, as provided for therein; and WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and to the obligation of the Lender to make such Loans that the Borrower enter into this Agreement; NOW, THEREFORE, in order to induce the Lender to enter into the Credit Agreement and to make such Loans to or for the benefit of the Borrower and the Co-Borrowers, and in consideration thereof and in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower hereby agrees with the Lender as follows: SECTION 1. DEFINITIONS; USE OF TERMS. 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings given to such terms in the Uniform Commercial Code in effect in The Commonwealth of Massachusetts on the date hereof: "COMMERCIAL TORT CLAIMS," "DEPOSIT ACCOUNTS," "DOCUMENTS," "FARM PRODUCTS," "FIXTURES," "GOODS," "HEALTH-CARE-INSURANCE RECEIVABLES," "INSTRUMENTS," "PAYMENT INTANGIBLE," "SOFTWARE," "STATE" and "SUPPORTING OBLIGATIONS." The following terms shall have the meanings given to such terms as set forth below: "ACCOUNTS": all "accounts" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include any right to payment of a monetary obligation, whether or not earned by performance, (a) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a policy of insurance issued or to be issued, (d) for a secondary obligation incurred or to be incurred, (e) for energy provided or to be provided, (f) for the use or hire of a vessel under a charter or other contract, (g) arising out of the use of a credit or charge card or information contained on or for use with the card, or (h) as winnings in a lottery or other game of change operated or sponsored by a State, -1- EXHIBIT 10.4 governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State (including without limitation, (i) all Health-Care-Insurance Receivables and other accounts receivable, and (ii) all debts, and other forms of obligations or indebtedness whether now owned or hereafter acquired). "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership or membership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "CHATTEL PAPER": all "chattel paper" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include any record that evidences both a monetary obligation and a security interest in specific Goods, any security interest in specific Goods and Software used in the Goods, any security interest in specific Goods and license of Software used in the Goods, any lease of specific Goods, or any lease of specific Goods and license of Software used in the Goods (including without limitation, all electronic chattel paper (as defined in the UCC) and all tangible chattel paper (as defined in the UCC)). "CONTRACT": with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof, including, without limitation, (a) all rights of the Borrower to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of the Borrower to damages arising out of, or for, breach or default in respect thereof and (c) all rights of the Borrower to perform and to exercise all remedies thereunder. "EQUIPMENT": all "equipment" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include all machinery, furniture and motor vehicles. "GENERAL INTANGIBLES": all "general intangibles" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include any Payment Intangibles, Software, franchise agreements or rights to know-how, any trade secrets, product or service development ideas and designs, advertising commercials, renderings, strategies and plans, blueprints, architectural drawings, site location, personnel and franchisee information, proprietary information, contracts with distributors, and any similar items, all interest rate, foreign currency or similar agreements and general intangibles attributable to the Capital Stock of each Subsidiary, provided however, such definition shall not include any Intellectual Property. "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "INTELLECTUAL PROPERTY": means (a) any and all Copyrights, (b) any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; (c) any and all -2- EXHIBIT 10.4 Patents; (d) any and all Trademarks; (e) any and all claims for damages by way of past, present and future infringements of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (f) any and all licenses or other rights to use any of the Copyrights, Patents, or Trademarks and all license fees and royalties arising from such use to the extent permitted by such license or rights; (g) any and all amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks, or Patents; (h) any and all proprietary biological materials, including without limitation, cell lines, DNA, RNA, plasmids, and vectors; (i) any and all licenses granting the Borrower the right to use any Copyrights, Patents, Trademarks, trade secrets, computer software, or biological materials of third parties; and (j) any and all proceeds and products of the foregoing, including without limitation, all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. "INVENTORY": all "inventory" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include all raw materials and other materials and supplies, work-in-process and finished goods and any products made or processed therefrom and all substances, if any, commingled therewith or added thereto. "INVESTMENT PROPERTY": all "investment property", as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include all stock (with the exception of stock in any Domestic Subsidiary), bonds, debentures, securities, treasury bills, certificates of deposit, mutual or money market fund shares, bills, notes (including, without limitation, all Pledged Notes), evidences of indebtedness or other obligations issued by any Person (including, without limitation, federal government of the United States or any agency thereof), whether in registered, bearer or other form, and whether certificated or uncertificated, in book-entry or other form. "ISSUERS": (a) the Persons identified in Section 4 of the Master Disclosure Schedule attached hereto as the issuers of the Pledged Notes and (b) any other issuer of any Investment Property. "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capitalized lease having substantially the same economic effect as any of the foregoing). "MASTER DISCLOSURE SCHEDULE": the Master Disclosure Schedule attached hereto and incorporated herein by reference. "PLEDGED NOTES": all promissory notes listed in Section 3 of the Master Disclosure Schedule attached hereto, and, if requested by the Lender, any other promissory note issued to or held by the Borrower (other than promissory notes issued in -3- EXHIBIT 10.4 connection with extensions of trade credit by the Borrower in the ordinary course of business). "PROCEEDS": all "proceeds," as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include (a) any and all proceeds of any insurance, indemnity, warranty, guaranty or letter of credit payable to the Borrower, from time to time with respect to any of the Collateral, (b) all payments (in any form whatsoever) paid or payable to the Borrower from time to time in connection with any taking of all or any part of the Collateral by any Governmental Authority or any Person acting under color of Governmental Authority, (c) all judgments in favor of the Borrower in respect of the Collateral, (d) all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto and (e) all other amounts from time to time paid or payable or received or receivable under or in connection with any of the Collateral. "SECURITIES ACT": the Securities Act of 1933, as amended from time to time. "SUBSIDIARY": means any corporation or other entity of which a majority of the outstanding ownership interests entitled to vote for the election of directors or other governing body (otherwise than as the result of a default) is owned by Borrower directly or indirectly through Subsidiaries. "UCC": the Uniform Commercial Code as from time to time in effect in The Commonwealth of Massachusetts; provided, however, that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, then the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy. 1.2 Use of Terms; Exhibits and Schedules. The use of the singular of terms which are defined in the plural shall mean and refer to any one of them; and pronouns used herein shall be deemed to include the singular and the plural and all genders. The use of the connective "or" is not intended to be exclusive; the term "may not" is intended to be prohibitive and not permissive; use of "includes" and "including" is intended to be interpreted as expansive and amplifying and not as limiting in any way. All exhibits and schedules to this Agreement are incorporated herein. SECTION 2. GRANT OF SECURITY INTEREST. As security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, the Borrower hereby grants and otherwise pledges to the Lender a continuing security interest in all of the present and future rights, title and interests of the Borrower in and to the following property, and each item thereof, all whether now or hereafter existing, or owned or acquired by the Borrower, or now or hereafter arising or due or to become due, wherever such property may be located, together with all -4- EXHIBIT 10.4 substitutions for, replacements of, additions to, accessions to, and products, Proceeds and records of any and all of the following (collectively, the "COLLATERAL"): (a) all Accounts; (b) all Inventory; (c) all Equipment; (d) all Fixtures; (e) all Contracts; (f) all Chattel Paper; (g) all Documents; (h) all Instruments; (i) all Investment Property; (j) all Deposit Accounts; (k) all General Intangibles; (l) all Supporting Obligations; (m) all Commercial Tort Claims; and (n) all other items of tangible and intangible personal property of any and every kind and description which are not otherwise described herein, excluding Intellectual Property and Capital Stock in a Domestic Subsidiary. SECTION 3. GENERAL REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants as follows: 3.1 Power and Authority. The Borrower has the power and authority and the legal right to execute and deliver, to perform its obligations under, and to grant the Lien on the Collateral pursuant to, this Agreement and has taken all necessary actions to authorize its execution, delivery and performance of, and grant of the Lien on the Collateral pursuant to, this Agreement. 3.2 Master Disclosure Schedule. All of the information contained in the Master Disclosure Schedule attached hereto is true, correct and complete. 3.3 Name; Chief Executive Office. -5- EXHIBIT 10.4 (a) The name of the Borrower set forth in the first paragraph of this Agreement is the true, correct and complete legal name of the Borrower, and the Borrower has not done business under, or used, any other name, except as otherwise described in Section 1.2 of the Master Disclosure Schedule attached hereto. (b) The chief executive office and principal place of business of the Borrower is located at the address listed in Section 2.1 of the Master Disclosure Schedule attached hereto. (c) All of the Inventory and Equipment of the Borrower (other than mobile vehicles) is kept at the locations listed in Section 2.2 of the Master Disclosure Schedule attached hereto. 3.4 Title; No Other Liens. Except for (a) the Lien granted to the Lender pursuant to this Agreement and (b) the Permitted Liens, the Borrower owns each item of the Collateral free and clear of any and all Liens or claims of others. No security agreement, financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as may have been filed in favor of the Lender, pursuant to this Agreement or as may be permitted pursuant to the Credit Agreement. 3.5 Perfected Liens. Upon the completion of filing of financing statements at the Delaware Secretary of State, the Liens granted by the Borrower pursuant to this Agreement will constitute perfected Liens on the Collateral (other than the Pledged Notes) in which a security interest may be perfected by the filing of financing statements pursuant to Article 9 of the Uniform Commercial Code as in effect in each relevant jurisdiction in favor of the Lender which are enforceable as such against all creditors of and purchasers from the Borrower, except in each case as enforceability is affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether involved in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 3.6 Accounts, etc. No amount payable to the Borrower under or in connection with any Account, Contract or License, or any Investment Property, Deposit Accounts or General Intangibles, in excess of Twenty Thousand and 00/100 Dollars ($20,000.00) is evidenced by any Instrument or Chattel Paper which has not been delivered to the Lender. The amount represented by the Borrower to the Lender from time to time as owing by each account debtor or by all account debtors in respect of the Accounts will at such time be the correct amount actually owing by such account debtor or debtors thereunder in all material respects, subject to adjustments in the ordinary course of business. 3.7 Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 3.8 Investment Property. (a) To the best knowledge of the Borrower, each of the Pledged Notes pledged by the Borrower hereunder constitutes a valid and legally enforceable obligation of the other obligor in respect thereof or parties thereto, enforceable in accordance with -6- EXHIBIT 10.4 its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally. (b) The Borrower is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except for the Lien created by this Agreement and Permitted Liens. SECTION 4. GENERAL COVENANTS. The Borrower hereby covenants and agrees as follows: 4.1 Changes in Name and Locations. The Borrower will not (a) change its name, identity, organizational structure, jurisdiction of organization, chief executive office or place where its business records are kept, (b) move any tangible Collateral to a location other than those set forth in the Master Disclosure Schedule attached hereto, or (c) merge into or consolidate with any other entity, unless in each case it shall have given the Lender at least thirty (30) days prior written notice thereof and all filings and other actions to maintain the perfection of the security interest granted hereby shall have been made. 4.2 Maintenance of Records. The Borrower will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Accounts, Contracts and Licenses. The Borrower will, upon request of the Lender, mark its books and records pertaining to the Collateral to evidence this Agreement and the security interests granted hereby. 4.3 Right of Inspection. Lender may inspect the property and records of the Borrower in accordance with Section 5.6 of the Credit Agreement. 4.4 Payment of Taxes and Other Amounts. The Borrower will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral which have a reasonable likelihood of adverse determination, except that no such charge need be paid if (a) the validity or amount thereof is being contested in good faith, (b) such contest does not involve any material danger of the sale, forfeiture or loss of any material portion of the Collateral or any interest therein and (c) such charge is adequately reserved against the Borrower's books in accordance with GAAP or if the failure to pay such charge would not have a Material Adverse Effect. 4.5 Maintenance and Use of Properties. The Borrower will safeguard, protect and preserve the Collateral for the benefit of the Lender, will keep the Collateral free from any Lien (other than the Permitted Liens and Liens in favor of the Lender), will keep all tangible property constituting part of the Collateral in good working order and repair, will preserve all beneficial contract rights, will take commercially reasonable steps to collect all Accounts, and will not waste or destroy the Collateral or any part thereof; and the Borrower will, consistent with good business practices, otherwise preserve, maintain and protect its rights and keep its properties and -7- EXHIBIT 10.4 assets in good repair, working order and condition, and capable of identification, and make (or cause to be made) all needful and proper repairs or renewals, additions and improvements thereto and replacements thereof, and shall use its assets only in the ordinary course of business and in compliance with all applicable law. 4.6 Notices and Reports Pertaining to Collateral. The Borrower will (a) promptly notify the Lender of any Lien (except for Liens in favor of the Lender and Permitted Liens) asserted against the Collateral and of any information received by the Borrower relating to the Collateral (including the Accounts, the account debtors or other persons obligated in connection therewith) that may in any way materially adversely affect the value of the Collateral or the rights and remedies of the Lender with respect thereto; (b) promptly notify the Lender when it obtains knowledge of actual or threatened bankruptcy or other insolvency proceeding of any material account debtor or issuer of Securities; (c) notify the Lender of any return or adjustment, rejection, repossession, or loss or damage of or to merchandise represented by Accounts or constituting Inventory if material in amount and of any credit, adjustment or dispute arising in connection with the goods or services represented by Accounts or constituting Inventory if material in amount; and (d) notify the Lender of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or, with respect to any material portion of the Collateral, on the Liens created hereunder. The Borrower authorizes the Lender to destroy all invoices, delivery receipts, reports and other types of documents (other than documents constituting Collateral) and records submitted to the Lender in connection with the transactions contemplated herein at any time subsequent to twelve (12) months from the time such items are delivered to the Lender. 4.7 Liens on Collateral. The Borrower will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created hereby and the Permitted Liens, and will defend the right, title and interest of the Lender in and to any of the Collateral against the claims and demands of all Persons whomsoever. 4.8 Maintenance of Insurance. (a) The Borrower will maintain insurance, at all times, with financially sound and reputable companies as are reasonably satisfactory to the Lender, in such amounts and against such risks as are customarily insured against by businesses operating in a similar line of business in a similar area, and consistent with sound business practice, in no event less than the lesser of (i) the full insurable replacement cost value of all of the Borrower's tangible personal property (and, in any case, the amount necessary to avoid any coinsurance or contributions by the Borrower) or (ii) the total aggregate outstanding principal indebtedness owing by the Borrower to the Lender, including casualty insurance covering the Collateral and other property of the Borrower against the hazards of fire, flood, sprinkler leakage, burglary, theft, pilferage, loss in transit, those hazards covered by extended coverage, and such other coverages as the Lender may reasonably require, all such insurance to be in such form, for such periods and with such companies as shall be reasonably acceptable to the Lender. All premiums thereon shall be paid by the Borrower and if the Borrower fails to do so, the Lender may at its option (but without -8- EXHIBIT 10.4 obligation) procure such insurance and charge the cost to the Borrower's account, provided, however, that any such payment by the Lender shall not constitute satisfaction of the Borrower's obligations with respect to payment hereunder, or a waiver by the Lender of any Event of Default with respect to such non-payment. (b) All such insurance policies shall provide, in form and substance satisfactory to the Lender, that: (i) any loss thereunder shall be payable to the Lender as loss payee (first to the Lender and then to the Borrower, as their interests may appear); (ii) any such payment to the Lender shall be made by an instrument to the Lender alone and not to the Borrower and the Lender jointly; and (iii) no cancellation or modification of such policy shall be effective without at least thirty (30) days prior written notice to the Lender. If any insurance losses are paid by check, draft or other instrument payable to the Borrower and the Lender jointly, the Lender may endorse the Borrower's name thereon and do such other things as the Lender may deem advisable to reduce the same to cash. All loss recoveries received by the Lender upon any such insurance shall be applied to the Obligations, whether or not matured, in such order as the Lender in its sole discretion may determine. Any surplus shall be paid by the Lender to the Borrower or applied as may be otherwise required by law. (c) Certificates of insurance of, and upon request of the Lender, the original policies of, all such casualty insurance policies and endorsements thereto, shall be delivered to the Lender; and, upon request, satisfactory evidence of general liability, products liability, workers' compensation and other insurance coverage, in form and substance satisfactory to the Lender, shall be furnished to the Lender, in each case within three (3) business days of each Lender's request therefor. The Borrower shall advise the Lender of each claim made by the Borrower under any policy of insurance which covers the Collateral and will permit the Lender, at the Lender's option in each instance, to participate in the adjustment of each such claim. 4.9 Maintenance of Perfected Liens; Further Documentation. At any time and from time to time, upon the written request of the Lender, and at the sole expense of the Borrower, the Borrower will promptly and duly execute and deliver such further instruments and documents and take such further action as the Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted (including, without limitation, (a) obtaining governmental and other third party consents and approvals, including without limitation any consent of any licensor or lessor; (b) obtaining waivers from mortgagees and landlords; and (c) in the case of Investment Property, and any other relevant Collateral, taken action necessary to enable the Lender to obtain "control" (within the meaning of the applicable Uniform Commercial Code) with respect thereto). The Borrower also hereby authorizes the Lender to file (after written notice to the Borrower) any such financing or continuation statement without the signature of the Borrower to the extent permitted by applicable law, provided, however, that any failure to give any such notice shall not affect the validity or effectiveness of any such filing. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. 4.10 Costs and Expenses. Except as otherwise provided in the Credit Agreement, the Borrower agrees to pay (a) the reasonable costs of producing and reproducing this Agreement, -9- EXHIBIT 10.4 the other Financing Documents and the other agreements and instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Lender (other than taxes based upon the Lender's net income) on or with respect to the transactions contemplated by this Agreement (the Borrower hereby agreeing to indemnify the Lender with respect thereto), (c) the reasonable fees, expenses and disbursements of outside counsel to the Lender incurred in connection with the preparation, administration or interpretation of the Financing Documents and other instruments mentioned herein, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (d) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs of outside legal counsel, and reasonable consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred by the Lender in connection with (i) the enforcement of or preservation of rights under any of the Financing Documents against the Borrower or the administration thereof after demand is made by the Lender to the Borrower for payment in full of the Obligations and (ii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to the Lender's relationship with the Borrower and (e) all reasonable fees, expenses and disbursements of the Lender incurred in connection with UCC searches, UCC filings or mortgage recordings. The covenants contained in this subsection shall survive payment or satisfaction in full of all other Obligations 4.11 Negative Pledge on Intellectual Property. The Borrower shall not create, incur, assume or suffer to exist any Lien upon the Intellectual Property of the Borrower whether now owned or hereafter acquired, except for encumbrances which may be deemed to arise from licensing, sublicensing or other sharing arrangements permitted under subsection 6.7(d) of the Credit Agreement. SECTION 5. SPECIFIC COVENANTS REGARDING CERTAIN COLLATERAL. The Borrower hereby covenants and agrees as follows: 5.1 Accounts. (a) Collection on Accounts and Proceeds. The Borrower shall enforce, compromise and collect amounts owing on its Accounts; provided, however, the right of the Borrower hereunder to enforce, compromise and collect amounts owing on such Accounts may at the option of the Lender be terminated upon the occurrence and during the continuance of any Event of Default. If any Accounts of the Borrower are at any time evidenced by promissory notes, trade acceptances or other Instruments for the payment of money, the Borrower will promptly deliver the same to the Lender appropriately endorsed to the Lender's order and, regardless of dishonor, protest, notice of protest and all other notices with respect thereto. After an Event of Default has occurred and is continuing and the Borrower has received notice thereof from the Lender, any Proceeds collected by the Borrower (whether consisting of checks, notes, drafts, bills of exchange, money orders, commercial paper of any kind whatsoever, or other documents received in payment of any Account or in payment for any Inventory or otherwise), shall be promptly turned over by the Borrower to the Lender, in precisely the form received, except for its endorsement when required, and until so turned over, shall be deemed to be held in trust -10- EXHIBIT 10.4 by the Borrower for and as the Lender's property, and shall be held separately from the Borrower's other funds. (b) Limitations on Discounts and Compromises of Accounts. Other than in the ordinary course of business as generally conducted by the Borrower over a period of time, the Borrower will not compromise, compound or settle the Accounts for less than the full amount thereof, or release, wholly or partially, any Person liable for the payment thereof, except in each case as permitted under the Credit Agreement. (c) Notice to Account Debtors. At any time after the occurrence and during the continuance of an Event of Default, the Borrower shall, at the request of the Lender, notify its account debtors, and the Lender itself may notify such account debtors directly, of the security interest of the Lender in any Account and that payment thereof is to be made directly to the Lender. At any time after the occurrence and during the continuance of an Event of Default, the Lender may communicate with account debtors to verify with them to its satisfaction the existence, amount and terms of any Account. (d) Information on Accounts. The Borrower shall furnish to the Lender from time to time, and upon request, a list and description of all Accounts created or acquired by the Borrower, together with copies of shipping or delivery receipts for all goods and services sold or otherwise provided, and any other information or documents which the Lender reasonably may request from time to time related to the Borrower's Accounts. 5.2 Inventory. (a) Pricing, Credit Terms and Accounts. So long as no Event of Default has occurred and is continuing, the Borrower may sell items of Inventory: (a) for cash in amounts not less than the Borrower's published, usual or customary prices, less only usual and customary discounts for volume sales or prompt payment; or (b) on credit terms usual and customary in the business conducted by the Borrower, at prices which conform to the above terms, and under such circumstances as give rise to Accounts subject to this Agreement. (b) Notice to Landlords, Warehousemen and Agents. If any Inventory is in the possession or control of any landlords, warehousemen or agents, the Borrower shall notify them of the Lender's security interest therein, and at the Lender's request, instruct them to hold the same for the Lender's account and subject to the Lender's instructions. The Lender shall enjoy all of the rights and remedies of a secured party in the Inventory and shall be subrogated to all guaranties and security now or which may in the future be held by the Borrower. The Lender shall not be liable in any manner for exercising or refusing or failing to exercise any such rights. 5.3 Contracts with Governmental Authorities. None of the account debtors or other Persons obligated on any of the Collateral is a Governmental Authority covered by the Federal Assignment of Claims Act or like federal, state or local statute or rule in respect of such Collateral. -11- EXHIBIT 10.4 5.4 Chattel Paper. Unless an Event of Default shall have occurred and be continuing, the Borrower shall be entitled to retain possession of all Collateral consisting of Chattel Paper, and shall hold all such Chattel Paper in trust for the Lender. If the Lender has made demand for payment in full of the Obligations, then upon the request of the Lender, such Chattel Paper shall be immediately delivered to the Lender, to be held as Collateral pursuant to this Agreement. The Borrower shall not permit any other Person (other than a Borrower) to possess any such Collateral at any time. 5.5 Equipment - Certificates of Title. The Borrower shall deliver to the Lender, upon request, the originals of all certificates of title pertaining to any Equipment for which such certificates are or should be issued under applicable law, together with a duly completed and executed application to add the Lender as a lienholder on each such certificate. The Borrower covenants and agrees that it will promptly deliver to the Lender, upon request, all certificates of title relating to any Equipment hereafter acquired, together with duly completed and executed applications to add the Lender as a lienholder therewith (in form and content satisfactory for filing with the appropriate office), and that the Borrower shall not seek to obtain any certificate of title for any Equipment currently lacking such a certificate, and it shall not attempt to recertify or obtain a new certificate for any Equipment currently evidenced by a certificate of title (whether in The Commonwealth of Massachusetts or any other jurisdiction) without first notifying the Lender, and only if the original of such certificate of title is or will be delivered to the Lender upon issuance thereof and does or will properly name the Lender as first lienholder thereon (subject only to any Permitted Liens), in each case duly perfecting the Lender's security interest granted under this Agreement. 5.6 Investment Property. (a) If the Borrower shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Issuer or any other Investment Property, the Borrower shall accept the same as the agent of the Lender, hold the same in trust for the Lender and promptly deliver (or cause to be delivered) the same to the Lender in the exact form received, duly indorsed by the Borrower to the Lender, if required, together with an undated stock power covering such certificate duly executed in blank by the Borrower and with, if the Lender so requests, signature guaranteed, to be held by the Lender, subject to the terms hereof, as additional collateral security for the Obligations. (b) Without the prior written consent of the Lender, the Borrower will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Investment Property or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement) or (ii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Investment Property or Proceeds thereof, or any interest therein, except for the Lien provided for by this Agreement and Permitted Liens. -12- EXHIBIT 10.4 (c) Unless an Event of Default shall have occurred and be continuing, the Borrower shall be permitted to receive all payments made in respect of the Pledged Notes, and to exercise all voting and corporate rights with respect to the Investment Property; provided, however, that the Borrower agrees that it shall not vote in any way that would be inconsistent with or result in any violation of any provision of the Credit Agreement, the Note, the Security Documents or any of the other Financing Documents. (d) If an Event of Default shall occur and be continuing, then (i) the Lender shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Investment Property and make application thereof to the Obligations in such order as the Lender may determine, and (ii) any or all of the Investment Property may be registered in the name of the Lender or its nominee, and, subject to the terms of this Agreement, the Lender or its nominee may thereafter exercise (A) all voting, corporate and other rights pertaining to such Investment Property at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (B) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Investment Property as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by the Borrower or the Lender of any right, privilege or option pertaining to such Investment Property, and in connection therewith, the right to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Lender may determine), all without liability except to account for property actually received by it, and except for its gross negligence or willful misconduct, but the Lender shall have no duty to the Borrower to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (e) The Borrower hereby authorizes and instructs each Issuer of any Investment Property pledged by the Borrower hereunder to comply with any instruction received by it from the Lender in writing that (i) states that an Event of Default has occurred and is continuing and (ii) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from the Borrower, and the Borrower agrees that each Issuer shall be fully protected in so complying, to the extent such instruction is in compliance with applicable law. (f) The rights of the Lender hereunder shall not be conditioned or contingent upon the pursuit by the Lender of any right or remedy against any other Person which may be or become liable in respect of all or any part of the Obligations or against any collateral security thereof, guarantee therefore or right of offset with respect thereto. The Lender shall not be liable for any failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so, nor shall the Lender be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Borrower or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The Lender agrees to release promptly to the Borrower any dividends, cash, securities, instruments and other property paid, payable or otherwise distributed in -13- EXHIBIT 10.4 respect of the Collateral which it may receive under subsection 5.6(d) hereof if, prior to the occurrence of an acceleration of any of the Obligations, all Defaults and Events of Default have been waived or are no longer continuing. SECTION 6. POWER OF ATTORNEY. 6.1 Appointment and Powers. The Borrower hereby irrevocably constitutes and appoints the Lender as the Borrower's true and lawful attorney, coupled with an interest, with full power of substitution (in each case at the sole risk, cost and expense of the Borrower but for the benefit of the Lender) to do the following: (a) at any time or times (whether or not an Event of Default has occurred), (i) to file and record without the Borrower's signature, or to sign the Borrower's name to and file and record, financing statements and any other instruments (including applications to name the Lender as lienholder on any motor vehicle or other certificates of title), and (ii) to take such other actions as the Lender may deem necessary in order to perfect or maintain the perfection or priority of the Lender's security interest in the Collateral or any portion thereof; and (b) after an Event of Default has occurred and is continuing, in addition to the actions described above, (i) to protect the Lender's security interest in the Collateral or any portion thereof; (ii) to receive and open the Borrower's mail, remove therefrom and hold or apply any Collateral and dispose of such mail or turn over such mail (other than such Collateral) to the Borrower or any trustee in bankruptcy, receiver, assignee for benefit of creditors or other legal representatives to whom the Lender determines to be the appropriate recipient thereof; (iii) to endorse the name of the Borrower in favor of the Lender upon any and all checks, drafts, notes, money orders, acceptances and other items, Instruments and forms of payment, and to sign and endorse the name of the Borrower on, and receive as secured party, any of the Collateral; (iv) to sign the Borrower's name to any invoices, schedules, freight or express receipts, bills of lading, and other Documents or writings of a similar or different nature, relating to the Collateral; (v) to sign the name of the Borrower on any schedules and assignments of Accounts, and on notices of assignment, financing statements and other public records relating to the Collateral, and on any notice to the Borrower's account debtors for verification of the Accounts; (vi) to prosecute, defend, compromise or release any action relating to the Collateral; (vii) to notify the post office authorities to change the address for delivery of the Borrower's mail to an address designated by the Lender, and to sign change of address forms therefor; (viii) to sign the Borrower's name in proofs of = claim in bankruptcies of account debtors, notices of lien, claims of mechanics liens, or assignments or releases of any Liens securing the Accounts; (ix) to take any such actions as may be necessary to obtain payment of any letter of credit of which the Borrower is a beneficiary; (x) to repair, manufacture, assemble, complete, package, deliver, alter or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any customer of the Borrower; (xi) to notify any Persons of the rights and interests of the Lender, of the applicable Events of Default and of any matter relating to Collateral; (xii) to take any and all other actions (including, without limitation, the right to sue in the name of the Borrower or the Lender to collect upon any and all Collateral and to settle, adjust or -14- EXHIBIT 10.4 compromise any and all claims with respect to Collateral including insurance claims) as the Lender shall deem necessary or expedient to convert the Collateral into cash; and (xiii) otherwise to exercise any rights or remedies of the Lender hereunder or under any of the Financing Documents, or otherwise under agreement or applicable law, including the UCC. 6.2 Ratification and Indemnification Under Power of Attorney. In connection with all powers of attorney set forth in this Agreement, the Lender shall have full power to exercise such powers as fully and effectually as the Borrower might or could do; the Borrower agrees that the Lender shall not be obligated to exercise any of the powers authorized herein, and shall be free to exercise or refrain from exercising any of such powers at any time or times in its absolute discretion, and, if the Lender elects to exercise any of such powers, it shall not be accountable for more than it actually receives as a result of such exercise of power, and shall not be responsible to the Borrower except for the Lender's negligence, bad faith or willful misconduct; and all powers conferred upon the Lender by this Agreement, being coupled with an interest, shall be irrevocable until such time as all Obligations have been paid (without being subject to or susceptible of recovery by any Person) or performed and the Lender's agreement, if any, to make advances has terminated. 6.3 Performance By Lender of Borrower's Obligations. If the Borrower fails to perform or comply with any of its agreements contained herein and the Lender, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with any agreement, the expense of the Lender incurred in connection with such performance or compliance, together with interest thereon at the Late Rate, shall be payable by the Borrower to the Lender on demand and shall constitute Obligations secured hereby. SECTION 7. REMEDIES. 7.1 General Remedies. In addition to and without in any way limiting any other rights and remedies available to the Lender under this Agreement prior to an Event of Default, or any other rights and remedies available to the Lender (whether prior to or after an Event of Default) under any of the other Financing Documents or under applicable law or in equity, upon and during the continuance of an Event of Default: (a) the Lender may decline to honor the credit of the Borrower or may refuse to make further advances to the Borrower; (b) the Lender may collect the Accounts with or without taking possession of the Collateral; (c) the Lender shall be entitled to immediate possession of the Collateral or any portion or portions thereof and may, so far as the Borrower can give authority therefor, enter upon the Borrower's premises to take possession thereof; may require the Borrower to assemble the Collateral and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties; or may require the Borrower to deliver all Records relating to the Collateral to the Lender; -15- EXHIBIT 10.4 (d) the Lender may enter upon, occupy, and use any premises owned or occupied by the Borrower (or by any agent of the Borrower at which Collateral is located), and may exclude the Borrower from such premises or portion thereof as may have been so entered upon, occupied, or used by the Lender; the Lender shall not be required to remove any of the Collateral from any such premises upon the Lender's taking possession thereof, and may render any Collateral unusable to the Borrower; and in no event shall the Lender be liable to the Borrower for use or occupancy by the Lender of any premises pursuant to this Agreement except for claims arising out of the Lender's negligence, bad faith or willful misconduct, nor for any charge (such as wages for the Borrower's employees and utilities) incurred in connection with the Lender's exercise of the Lender's rights and remedies; (e) the Lender may take such steps as it deems necessary to protect the Lender's interest in, and to preserve the Collateral, and the Borrower agrees to cooperate fully with all of the Lender's efforts and to take such actions as the Lender shall direct, all to preserve the Collateral; (f) the Lender shall have the rights and remedies of a secured party under the UCC and other applicable laws, the choice and manner of exercise of any right or remedy being in the Lender's sole discretion; and, pursuant thereto, the Lender shall have the right to foreclose the security interest granted in any Collateral by any available judicial procedure and to take possession of and sell any or all of the Collateral with or without judicial process; the Lender may lease or otherwise dispose of the Collateral, or may sell the Collateral, or any part thereof, at public or private sales, at any time or place (including the Borrower's premises), in one or more sales, at such price or prices, and upon such terms, either for cash, credit or future delivery, as the Lender may elect, and, except as to that part of the Collateral which is perishable or threatens to decline speedily in value, or is of the type customarily sold on a recognized market, the Lender shall give the Borrower reasonable notification of such sale or sales, it being agreed that, in all events, reasonable notification means written notice mailed to the Borrower at least ten (10) days prior to each such public sale or at least ten (10) days prior to the date after which any such private sales or other intended dispositions may be made; at any public sale the Lender may (but shall have no obligation to) bid for and become the purchaser of any Collateral; the Borrower hereby waives any and all rights it may have to judicial hearing in advance of the enforcement of any of the Lender's rights hereunder, including the Lender's right to take immediate possession of the Collateral; and the Lender may do any of the foregoing or otherwise deal with the Collateral in its then condition, or following such preparation as the Lender deems advisable, with or without taking possession thereof; (g) the Lender shall have the right to apply to the Obligations any deposits or other sums at any time credited by or due from the Lender to the Borrower; and (h) the Lender may treat any or all of the Financing Documents as being in default and may exercise any rights and remedies thereunder as it shall deem appropriate. -16- EXHIBIT 10.4 7.2 No Duty of Preservation; Joint Property. The Lender may at all times proceed directly against the Borrower, or against any other Person responsible for any Obligations, to enforce the payment of the Obligations, and the Lender shall not be required to take any action of any kind to preserve, collect upon or protect the rights of the Lender or of any other Person in any Collateral, except as specifically required by the UCC. Without limiting the generality of the foregoing, the Lender shall not be required to take any action to preserve rights against prior parties in the cases of Instruments or Chattel Paper, and the Lender may co-mingle any items of Collateral with other property and shall not be required to keep any Collateral identifiable. In the event any Collateral, including any Deposit Account, is held in joint or common names, the Lender may deal with such Collateral or any Deposit Account, for all purposes hereunder and under any or all of the Financing Documents, as if belonging to any one, and no more than one, of such joint or common owners. 7.3 Remedies Not Exclusive. The enumeration of rights and remedies in the Financing Documents is not intended to be exclusive, and they shall be in addition to and not by way of limitation of such others as the Lender may have under the UCC, other applicable law, and any and all other Documents, Instruments, agreements or other writings between or among the Borrower, the Lender or other Persons. The Lender shall, in its sole discretion, determine its choice of rights and remedies and the order in which they shall be exercised, and which Collateral, if any, is to be proceeded against and in which order. The exercise of any right or remedy against the Borrower, any other Person or any or all Collateral shall not preclude the exercise of others or the exercise thereof against the Borrower, any other Persons or any other Collateral, all of which shall be cumulative. No act, failure or delay by the Lender shall constitute a waiver of any of its rights and remedies. No single or partial waiver by the Lender of any provision of the Financing Documents, or of any breach or default thereunder, or of any right or remedy which the Lender may have shall operate as a waiver of any other provision, breach, default, right or remedy or of the same one on a future occasion. 7.4 Deficiency. The Borrower shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations and the reasonable fees and disbursements of any attorneys employed by the Lender to collect such deficiency. 7.5 Requirement of Law. Notwithstanding any provision contained in this Agreement to the contrary, the exercise of remedies or any power of attorney granted hereunder with respect to Collateral is subject to any applicable Requirement of Law of any Governmental Authority. No action will be taken by the Lender hereunder if such action will result in a violation of any applicable Requirement of Law of any Government Authority by the Borrower. SECTION 8. MISCELLANEOUS. 8.1 Survival of Covenants; Binding Effect. All agreements, representations, covenants and warranties made by the Borrower in this Agreement, the other Financing Documents, or in any certificate or other document delivered to the Lender in connection herewith shall survive the termination of this Agreement and survive the execution and delivery of this Agreement, and shall remain in full force and effect until all Obligations to the Lender been paid in full and satisfied, and the security interest, Lien and rights granted to the Lender in -17- EXHIBIT 10.4 any Collateral and its rights and remedies hereunder and under the other Financing Documents shall continue in full force and effect, notwithstanding the fact that Loans may, from time to time, be in a zero or credit position, until all Obligations have been satisfied. All the terms and provisions of this Agreement and the other Financing Documents shall be binding upon, inure to the benefit of and be enforceable by and against the parties hereto and their respective successors and assigns. 8.2 Prior Discussions; Amendments in Writing; Counterparts; Filing As Financing Statement. This Agreement and all other Financing Documents incorporate all discussions and negotiations between the Borrower and the Lender, either express or implied, concerning the matters included herein and therein, any custom, usage or other writing to the contrary notwithstanding. No such discussions or negotiations shall limit, modify, or otherwise affect the provisions of the Financing Documents. This Agreement may be amended or modified only in writing signed by the parties hereto, and in the case of the Lender signed by a duly authorized officer thereof. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but such counterparts together shall constitute one and the same instrument. Any proof of this Agreement shall require production of only one such counterpart. A carbon, photographic or other reproduction of this Agreement or of any financing statement executed to perfect the security interest created herein may be filed as a financing statement under the UCC (or under the Uniform Commercial Code in effect in any jurisdiction outside Massachusetts). 8.3 General Indemnification. The Borrower shall, and does hereby, indemnify and save the Lender harmless from (and agrees to defend the Lender from) any and all liabilities, damages, costs, losses and expenses (including court costs and attorney's reasonable fees of outside counsel and expenses) that the Lender may sustain or incur by reason of, relating to or arising out of the preparation of this Agreement, the defending or protecting of any Collateral or the priority of the Lender's interest therein, or in collecting or enforcing the Obligations, or in enforcing any of the Lender's rights or remedies, or in the prosecution or defense of any action or proceeding concerning any matter growing out of or connected with this Agreement, any of the other Financing Documents, the Obligations, the Collateral, or on account of the Lender's relationship with the Borrower, or any other Person responsible for any of the Obligations (each of which may be defended, compromised, settled or pursued by the Lender with counsel of the Lender's selection, at the expense of the Borrower) except for such claims which have been determined by a court of competent jurisdiction to have arisen out of the Lender's actual bad faith, willful misconduct or gross negligence. The within indemnification shall survive termination of this Agreement. The Borrower's obligations under this subsection constitute part of the Obligations secured by the security interest created by this Agreement. 8.4 Destruction of Documents; Receipt of Copy. This Agreement and all other Financing Documents may be reproduced by the Lender by any photographic, photostatic, microfilm, or similar process, and the Lender may destroy the original from which any document was so reproduced. Any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business). The Borrower acknowledges receipt of a true, correct and complete copy or counterpart of this Agreement. -18- EXHIBIT 10.4 8.5 Notices. All notices required or permitted hereunder shall be in writing and delivered in accordance with the provisions of the Credit Agreement. 8.6 Application of Proceeds. Subject to the provisions of the Credit Agreement, the Lender shall apply (or change any application previously made of) the proceeds of any collection, sale or other disposition of the Collateral, or of any other payments received hereunder, toward the Obligations in such order and manner as the Lender, in its sole discretion, shall determine, any statute (the application of which may be waived or modified by agreement), customs or practices to the contrary notwithstanding. The Borrower shall remain liable to the Lender for any deficiency remaining following such application. 8.7 Severability. If any provision of this Agreement or any of the other Financing Documents, or any portion of such provision, or the application thereof to any Person or circumstance, shall to any extent be prohibited or held invalid or unenforceable, the remainder of this Agreement and the other Financing Documents or the remainder of such provision and the application thereof to other Persons or circumstances (other than those as to which it is prohibited or held invalid or unenforceable) shall not be affected thereby, and each term and provision hereof and of the other Financing Documents shall be valid and enforced to the fullest extent permitted by law. To the extent permitted by law, the parties hereto waive any provision of law which renders any such provision or the application thereof to any Person or circumstance prohibited, invalid or unenforceable in any respect. 8.8 Headings. Headings appearing in this Agreement are intended for convenience only and do not constitute, and shall not be interpreted to be, a part of this Agreement. 8.9 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER FINANCING DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. 8.10 Governing Law; Jurisdiction. This Agreement and the other Financing Documents are executed and delivered under seal and shall be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts, without giving effect to the conflict of law provisions thereof. Each of the Lender and the Borrower submits itself to the non-exclusive jurisdiction of the courts of The Commonwealth of Massachusetts for all purposes with respect to the Financing Documents and the Borrower's relationship with the Lender. [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK] -19- EXHIBIT 10.4 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed and delivered under their seals as of the date first above written. WITNESS: ARIAD CORPORATION /s/ Andrew Levine By: /s/ Edward M. Fitzgerald - --------------------------- ------------------------------------- Name: Andrew Levine Name: Edward M. Fitzgerald Title: Chief Financial Officer Its duly authorized officer WITNESS: CITIZENS BANK OF MASSACHUSETTS /s/ Todd H. Whilton By: /s/ Scott Haskell - --------------------------- ------------------------------------- Name: Todd H. Whilton Name: Scott Haskell Title: Vice President Its duly authorized officer -20- EXHIBIT 10.4 COMMONWEALTH OF MASSACHUSETTS ______________ County, ss. March ___, 2003 Then personally appeared the above-named _____________________ as __________________ of ARIAD Corporation, and acknowledged the foregoing instrument to be his/her free act and deed and the free act and deed of ARIAD Pharmaceuticals, Inc., before me. ________________________________________ Notary Public My commission expires: [AFFIX NOTARIAL SEAL] COMMONWEALTH OF MASSACHUSETTS Suffolk County, ss. March 14, 2003 Then personally appeared the above-named Scott Haskell as Vice President of Citizens Bank, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of Citizens Bank, before me. /s/ Todd H. Whilton ---------------------------------------- Notary Public My commission expires: 1/30/09 [AFFIX NOTARIAL SEAL] STATE OF NEW YORK COUNTY OF NEW YORK, ss. On this 12th day of March, 2003, appeared before me the above-named Edward M. Fitzgerald, Chief Financial Officer of ARIAD Corporation, who proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of ARIAD Corporation. /s/ Nyisha Shakur ---------------------------------------- Notary Public My Commission Expires: May 7, 2006 -21- - -------------------------------------------------------------------------------- SECURITY AGREEMENT - ALL ASSETS by and between CITIZENS BANK OF MASSACHUSETTS (the "LENDER") and ARIAD CORPORATION (the "BORROWER") - -------------------------------------------------------------------------------- 1. Name of Borrower. 1.1. The exact corporate name of the Borrower as it appears on its organizational documents and its taxpayer identification number and its organizations identification number are as follows: ARIAD Corporation Federal Tax Identification No. 04-3150252 1.2. The following is a list of all other names (including trade names or similar appellations) used by the Borrower or any other business or organization to which the Borrower became the successor by merger, consolidation, acquisition, change in form, nature or jurisdiction of organization or otherwise, at any time during the past five (5) years: None 1.3. The following is the state (or jurisdiction) of organization (or formation) of the Borrower: Delaware 2. Locations. 2.1. The chief executive office and principal place of business of the Borrower is located at the following address: 26 Landsdowne Street Cambridge, Massachusetts 02139 2.2. The following is a list of all of the other locations in which the Borrower maintains any books or records relating to any of the Collateral consisting of Accounts, Chattel Paper, General Intangibles or mobile goods: None 2.3. The following are all of the other places of business of the Borrower: None 2.4. The following are all other locations where any of the Collateral consisting of Inventory or Equipment is located: None 3. The following is a summary of all of the Pledged Notes: None EX-10.5 7 b46496apexv10w5.txt EX-10.5 SECURITY AGREEMENT/ARIAD GENE THERAPEUTICS Exhibit 10.5 SECURITY AGREEMENT - ALL ASSETS This SECURITY AGREEMENT - ALL ASSETS (this "AGREEMENT") is made as of March 12, 2003, by and between ARIAD GENE THERAPEUTICS, INC., a Delaware Corporation (the "BORROWER") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts Bank (the "LENDER"). All capitalized terms not defined herein but defined in the Credit Agreement, dated of even date herewith (as the same may be amended, modified, supplemented, extended or restated, from time to time, the "CREDIT AGREEMENT") by and among the Borrower, ARIAD PHARMACEUTICALS, INC., a Delaware corporation and ARIAD CORPORATION, a Delaware corporation (the "CO-BORROWERS"), and the Lender, shall have the meanings given to such terms in the Credit Agreement. Preliminary Statements: WHEREAS, the Borrower and the Co-Borrowers have requested that the Lender enter into the Credit Agreement and to make certain Loans to or for the benefit of the Borrower and Co-Borrowers, as provided for therein; and WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and to the obligation of the Lender to make such Loans that the Borrower enter into this Agreement; NOW, THEREFORE, in order to induce the Lender to enter into the Credit Agreement and to make such Loans to or for the benefit of the Borrower and the Co-Borrowers, and in consideration thereof and in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower hereby agrees with the Lender as follows: SECTION 1. DEFINITIONS; USE OF TERMS. 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings given to such terms in the Uniform Commercial Code in effect in The Commonwealth of Massachusetts on the date hereof: "COMMERCIAL TORT CLAIMS," "DEPOSIT ACCOUNTS," "DOCUMENTS," "FARM PRODUCTS," "FIXTURES," "GOODS," "HEALTH-CARE-INSURANCE RECEIVABLES," "INSTRUMENTS," "PAYMENT INTANGIBLE," "SOFTWARE," "STATE" and "SUPPORTING OBLIGATIONS." The following terms shall have the meanings given to such terms as set forth below: "ACCOUNTS": all "accounts" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include any right to payment of a monetary obligation, whether or not earned by performance, (a) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a policy of insurance issued or to be issued, (d) for a secondary obligation incurred or to be incurred, (e) for energy provided or to be provided, (f) for the use or hire of a vessel under a charter or other contract, (g) arising out of the use of a credit or charge card or information contained on or for use with the card, or (h) as winnings in a lottery or other game of change operated or sponsored by a State, -1- Exhibit 10.5 governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State (including without limitation, (i) all Health-Care-Insurance Receivables and other accounts receivable, and (ii) all debts, and other forms of obligations or indebtedness whether now owned or hereafter acquired). "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership or membership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "CHATTEL PAPER": all "chattel paper" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include any record that evidences both a monetary obligation and a security interest in specific Goods, any security interest in specific Goods and Software used in the Goods, any security interest in specific Goods and license of Software used in the Goods, any lease of specific Goods, or any lease of specific Goods and license of Software used in the Goods (including without limitation, all electronic chattel paper (as defined in the UCC) and all tangible chattel paper (as defined in the UCC)). "CONTRACT": with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof, including, without limitation, (a) all rights of the Borrower to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of the Borrower to damages arising out of, or for, breach or default in respect thereof and (c) all rights of the Borrower to perform and to exercise all remedies thereunder. "EQUIPMENT": all "equipment" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include all machinery, furniture and motor vehicles. "GENERAL INTANGIBLES": all "general intangibles" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include any Payment Intangibles, Software, franchise agreements or rights to know-how, any trade secrets, product or service development ideas and designs, advertising commercials, renderings, strategies and plans, blueprints, architectural drawings, site location, personnel and franchisee information, proprietary information, contracts with distributors, and any similar items, all interest rate, foreign currency or similar agreements and general intangibles attributable to the Capital Stock of each Subsidiary, provided however, such definition shall not include any Intellectual Property. "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "INTELLECTUAL PROPERTY": means (a) any and all Copyrights, (b) any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; (c) any and all -2- Exhibit 10.5 Patents; (d) any and all Trademarks; (e) any and all claims for damages by way of past, present and future infringements of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (f) any and all licenses or other rights to use any of the Copyrights, Patents, or Trademarks and all license fees and royalties arising from such use to the extent permitted by such license or rights; (g) any and all amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks, or Patents; (h) any and all proprietary biological materials, including without limitation, cell lines, DNA, RNA, plasmids, and vectors; (i) any and all licenses granting the Borrower the right to use any Copyrights, Patents, Trademarks, trade secrets, computer software, or biological materials of third parties; and (j) any and all proceeds and products of the foregoing, including without limitation, all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. "INVENTORY": all "inventory" as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include all raw materials and other materials and supplies, work-in-process and finished goods and any products made or processed therefrom and all substances, if any, commingled therewith or added thereto. "INVESTMENT PROPERTY": all "investment property", as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include all stock (with the exception of stock in any Domestic Subsidiary), bonds, debentures, securities, treasury bills, certificates of deposit, mutual or money market fund shares, bills, notes (including, without limitation, all Pledged Notes), evidences of indebtedness or other obligations issued by any Person (including, without limitation, federal government of the United States or any agency thereof), whether in registered, bearer or other form, and whether certificated or uncertificated, in book-entry or other form. "ISSUERS": (a) the Persons identified in Section 4 of the Master Disclosure Schedule attached hereto as the issuers of the Pledged Notes and (b) any other issuer of any Investment Property. "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capitalized lease having substantially the same economic effect as any of the foregoing). "MASTER DISCLOSURE SCHEDULE": the Master Disclosure Schedule attached hereto and incorporated herein by reference. "PLEDGED NOTES": all promissory notes listed in Section 3 of the Master Disclosure Schedule attached hereto, and, if requested by the Lender, any other promissory note issued to or held by the Borrower (other than promissory notes issued in -3- Exhibit 10.5 connection with extensions of trade credit by the Borrower in the ordinary course of business). "PROCEEDS": all "proceeds," as that term is defined in the UCC, and to the extent not included in such definition, shall also mean and include (a) any and all proceeds of any insurance, indemnity, warranty, guaranty or letter of credit payable to the Borrower, from time to time with respect to any of the Collateral, (b) all payments (in any form whatsoever) paid or payable to the Borrower from time to time in connection with any taking of all or any part of the Collateral by any Governmental Authority or any Person acting under color of Governmental Authority, (c) all judgments in favor of the Borrower in respect of the Collateral, (d) all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto and (e) all other amounts from time to time paid or payable or received or receivable under or in connection with any of the Collateral. "SECURITIES ACT": the Securities Act of 1933, as amended from time to time. "SUBSIDIARY": means any corporation or other entity of which a majority of the outstanding ownership interests entitled to vote for the election of directors or other governing body (otherwise than as the result of a default) is owned by Borrower directly or indirectly through Subsidiaries. "UCC": the Uniform Commercial Code as from time to time in effect in The Commonwealth of Massachusetts; provided, however, that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, then the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy. 1.2 Use of Terms; Exhibits and Schedules. The use of the singular of terms which are defined in the plural shall mean and refer to any one of them; and pronouns used herein shall be deemed to include the singular and the plural and all genders. The use of the connective "or" is not intended to be exclusive; the term "may not" is intended to be prohibitive and not permissive; use of "includes" and "including" is intended to be interpreted as expansive and amplifying and not as limiting in any way. All exhibits and schedules to this Agreement are incorporated herein. SECTION 2. GRANT OF SECURITY INTEREST. As security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, the Borrower hereby grants and otherwise pledges to the Lender a continuing security interest in all of the present and future rights, title and interests of the Borrower in and to the following property, and each item thereof, all whether now or hereafter existing, or owned or acquired by the Borrower, or now or hereafter arising or due or to become due, wherever such property may be located, together with all -4- Exhibit 10.5 substitutions for, replacements of, additions to, accessions to, and products, Proceeds and records of any and all of the following (collectively, the "COLLATERAL"): (a) all Accounts; (b) all Inventory; (c) all Equipment; (d) all Fixtures; (e) all Contracts; (f) all Chattel Paper; (g) all Documents; (h) all Instruments; (i) all Investment Property; (j) all Deposit Accounts; (k) all General Intangibles; (l) all Supporting Obligations; (m) all Commercial Tort Claims; and (n) all other items of tangible and intangible personal property of any and every kind and description which are not otherwise described herein, excluding Intellectual Property and Capital Stock in a Domestic Subsidiary. SECTION 3. GENERAL REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants as follows: 3.1 Power and Authority. The Borrower has the power and authority and the legal right to execute and deliver, to perform its obligations under, and to grant the Lien on the Collateral pursuant to, this Agreement and has taken all necessary actions to authorize its execution, delivery and performance of, and grant of the Lien on the Collateral pursuant to, this Agreement. 3.2 Master Disclosure Schedule. All of the information contained in the Master Disclosure Schedule attached hereto is true, correct and complete. 3.3 Name; Chief Executive Office. -5- Exhibit 10.5 (a) The name of the Borrower set forth in the first paragraph of this Agreement is the true, correct and complete legal name of the Borrower, and the Borrower has not done business under, or used, any other name, except as otherwise described in Section 1.2 of the Master Disclosure Schedule attached hereto. (b) The chief executive office and principal place of business of the Borrower is located at the address listed in Section 2.1 of the Master Disclosure Schedule attached hereto. (c) All of the Inventory and Equipment of the Borrower (other than mobile vehicles) is kept at the locations listed in Section 2.2 of the Master Disclosure Schedule attached hereto. 3.4 Title; No Other Liens. Except for (a) the Lien granted to the Lender pursuant to this Agreement and (b) the Permitted Liens, the Borrower owns each item of the Collateral free and clear of any and all Liens or claims of others. No security agreement, financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as may have been filed in favor of the Lender, pursuant to this Agreement or as may be permitted pursuant to the Credit Agreement. 3.5 Perfected Liens. Upon the completion of filing of financing statements at the Delaware Secretary of State, the Liens granted by the Borrower pursuant to this Agreement will constitute perfected Liens on the Collateral (other than the Pledged Notes) in which a security interest may be perfected by the filing of financing statements pursuant to Article 9 of the Uniform Commercial Code as in effect in each relevant jurisdiction in favor of the Lender which are enforceable as such against all creditors of and purchasers from the Borrower, except in each case as enforceability is affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether involved in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 3.6 Accounts, etc. No amount payable to the Borrower under or in connection with any Account, Contract or License, or any Investment Property, Deposit Accounts or General Intangibles, in excess of Twenty Thousand and 00/100 Dollars ($20,000.00) is evidenced by any Instrument or Chattel Paper which has not been delivered to the Lender. The amount represented by the Borrower to the Lender from time to time as owing by each account debtor or by all account debtors in respect of the Accounts will at such time be the correct amount actually owing by such account debtor or debtors thereunder in all material respects, subject to adjustments in the ordinary course of business. 3.7 Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 3.8 Investment Property. (a) To the best knowledge of the Borrower, each of the Pledged Notes pledged by the Borrower hereunder constitutes a valid and legally enforceable obligation of the other obligor in respect thereof or parties thereto, enforceable in accordance with -6- Exhibit 10.5 its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally. (b) The Borrower is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except for the Lien created by this Agreement and Permitted Liens. SECTION 4. GENERAL COVENANTS. The Borrower hereby covenants and agrees as follows: 4.1 Changes in Name and Locations. The Borrower will not (a) change its name, identity, organizational structure, jurisdiction of organization, chief executive office or place where its business records are kept, (b) move any tangible Collateral to a location other than those set forth in the Master Disclosure Schedule attached hereto, or (c) merge into or consolidate with any other entity, unless in each case it shall have given the Lender at least thirty (30) days prior written notice thereof and all filings and other actions to maintain the perfection of the security interest granted hereby shall have been made. 4.2 Maintenance of Records. The Borrower will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Accounts, Contracts and Licenses. The Borrower will, upon request of the Lender, mark its books and records pertaining to the Collateral to evidence this Agreement and the security interests granted hereby. 4.3 Right of Inspection. Lender may inspect the property and records of the Borrower in accordance with Section 5.6 of the Credit Agreement. 4.4 Payment of Taxes and Other Amounts. The Borrower will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral which have a reasonable likelihood of adverse determination, except that no such charge need be paid if (a) the validity or amount thereof is being contested in good faith, (b) such contest does not involve any material danger of the sale, forfeiture or loss of any material portion of the Collateral or any interest therein and (c) such charge is adequately reserved against the Borrower's books in accordance with GAAP or if the failure to pay such charge would not have a Material Adverse Effect. 4.5 Maintenance and Use of Properties. The Borrower will safeguard, protect and preserve the Collateral for the benefit of the Lender, will keep the Collateral free from any Lien (other than the Permitted Liens and Liens in favor of the Lender), will keep all tangible property constituting part of the Collateral in good working order and repair, will preserve all beneficial contract rights, will take commercially reasonable steps to collect all Accounts, and will not waste or destroy the Collateral or any part thereof; and the Borrower will, consistent with good business practices, otherwise preserve, maintain and protect its rights and keep its properties and -7- Exhibit 10.5 assets in good repair, working order and condition, and capable of identification, and make (or cause to be made) all needful and proper repairs or renewals, additions and improvements thereto and replacements thereof, and shall use its assets only in the ordinary course of business and in compliance with all applicable law. 4.6 Notices and Reports Pertaining to Collateral. The Borrower will (a) promptly notify the Lender of any Lien (except for Liens in favor of the Lender and Permitted Liens) asserted against the Collateral and of any information received by the Borrower relating to the Collateral (including the Accounts, the account debtors or other persons obligated in connection therewith) that may in any way materially adversely affect the value of the Collateral or the rights and remedies of the Lender with respect thereto; (b) promptly notify the Lender when it obtains knowledge of actual or threatened bankruptcy or other insolvency proceeding of any material account debtor or issuer of Securities; (c) notify the Lender of any return or adjustment, rejection, repossession, or loss or damage of or to merchandise represented by Accounts or constituting Inventory if material in amount and of any credit, adjustment or dispute arising in connection with the goods or services represented by Accounts or constituting Inventory if material in amount; and (d) notify the Lender of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or, with respect to any material portion of the Collateral, on the Liens created hereunder. The Borrower authorizes the Lender to destroy all invoices, delivery receipts, reports and other types of documents (other than documents constituting Collateral) and records submitted to the Lender in connection with the transactions contemplated herein at any time subsequent to twelve (12) months from the time such items are delivered to the Lender. 4.7 Liens on Collateral. The Borrower will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created hereby and the Permitted Liens, and will defend the right, title and interest of the Lender in and to any of the Collateral against the claims and demands of all Persons whomsoever. 4.8 Maintenance of Insurance. (a) The Borrower will maintain insurance, at all times, with financially sound and reputable companies as are reasonably satisfactory to the Lender, in such amounts and against such risks as are customarily insured against by businesses operating in a similar line of business in a similar area, and consistent with sound business practice, in no event less than the lesser of (i) the full insurable replacement cost value of all of the Borrower's tangible personal property (and, in any case, the amount necessary to avoid any coinsurance or contributions by the Borrower) or (ii) the total aggregate outstanding principal indebtedness owing by the Borrower to the Lender, including casualty insurance covering the Collateral and other property of the Borrower against the hazards of fire, flood, sprinkler leakage, burglary, theft, pilferage, loss in transit, those hazards covered by extended coverage, and such other coverages as the Lender may reasonably require, all such insurance to be in such form, for such periods and with such companies as shall be reasonably acceptable to the Lender. All premiums thereon shall be paid by the Borrower and if the Borrower fails to do so, the Lender may at its option (but without -8- Exhibit 10.5 obligation) procure such insurance and charge the cost to the Borrower's account, provided, however, that any such payment by the Lender shall not constitute satisfaction of the Borrower's obligations with respect to payment hereunder, or a waiver by the Lender of any Event of Default with respect to such non-payment. (b) All such insurance policies shall provide, in form and substance satisfactory to the Lender, that: (i) any loss thereunder shall be payable to the Lender as loss payee (first to the Lender and then to the Borrower, as their interests may appear); (ii) any such payment to the Lender shall be made by an instrument to the Lender alone and not to the Borrower and the Lender jointly; and (iii) no cancellation or modification of such policy shall be effective without at least thirty (30) days prior written notice to the Lender. If any insurance losses are paid by check, draft or other instrument payable to the Borrower and the Lender jointly, the Lender may endorse the Borrower's name thereon and do such other things as the Lender may deem advisable to reduce the same to cash. All loss recoveries received by the Lender upon any such insurance shall be applied to the Obligations, whether or not matured, in such order as the Lender in its sole discretion may determine. Any surplus shall be paid by the Lender to the Borrower or applied as may be otherwise required by law. (c) Certificates of insurance of, and upon request of the Lender, the original policies of, all such casualty insurance policies and endorsements thereto, shall be delivered to the Lender; and, upon request, satisfactory evidence of general liability, products liability, workers' compensation and other insurance coverage, in form and substance satisfactory to the Lender, shall be furnished to the Lender, in each case within three (3) business days of each Lender's request therefor. The Borrower shall advise the Lender of each claim made by the Borrower under any policy of insurance which covers the Collateral and will permit the Lender, at the Lender's option in each instance, to participate in the adjustment of each such claim. 4.9 Maintenance of Perfected Liens; Further Documentation. At any time and from time to time, upon the written request of the Lender, and at the sole expense of the Borrower, the Borrower will promptly and duly execute and deliver such further instruments and documents and take such further action as the Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted (including, without limitation, (a) obtaining governmental and other third party consents and approvals, including without limitation any consent of any licensor or lessor; (b) obtaining waivers from mortgagees and landlords; and (c) in the case of Investment Property, and any other relevant Collateral, taken action necessary to enable the Lender to obtain "control" (within the meaning of the applicable Uniform Commercial Code) with respect thereto). The Borrower also hereby authorizes the Lender to file (after written notice to the Borrower) any such financing or continuation statement without the signature of the Borrower to the extent permitted by applicable law, provided, however, that any failure to give any such notice shall not affect the validity or effectiveness of any such filing. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. 4.10 Costs and Expenses. Except as otherwise provided in the Credit Agreement, the Borrower agrees to pay (a) the reasonable costs of producing and reproducing this Agreement, -9- Exhibit 10.5 the other Financing Documents and the other agreements and instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Lender (other than taxes based upon the Lender's net income) on or with respect to the transactions contemplated by this Agreement (the Borrower hereby agreeing to indemnify the Lender with respect thereto), (c) the reasonable fees, expenses and disbursements of outside counsel to the Lender incurred in connection with the preparation, administration or interpretation of the Financing Documents and other instruments mentioned herein, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (d) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs of outside legal counsel, and reasonable consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred by the Lender in connection with (i) the enforcement of or preservation of rights under any of the Financing Documents against the Borrower or the administration thereof after demand is made by the Lender to the Borrower for payment in full of the Obligations and (ii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to the Lender's relationship with the Borrower and (e) all reasonable fees, expenses and disbursements of the Lender incurred in connection with UCC searches, UCC filings or mortgage recordings. The covenants contained in this subsection shall survive payment or satisfaction in full of all other Obligations 4.11 Negative Pledge on Intellectual Property. The Borrower shall not create, incur, assume or suffer to exist any Lien upon the Intellectual Property of the Borrower whether now owned or hereafter acquired, except for encumbrances which may be deemed to arise from licensing, sublicensing or other sharing arrangements permitted under subsection 6.7(d) of the Credit Agreement. SECTION 5. SPECIFIC COVENANTS REGARDING CERTAIN COLLATERAL. The Borrower hereby covenants and agrees as follows: 5.1 Accounts. (a) Collection on Accounts and Proceeds. The Borrower shall enforce, compromise and collect amounts owing on its Accounts; provided, however, the right of the Borrower hereunder to enforce, compromise and collect amounts owing on such Accounts may at the option of the Lender be terminated upon the occurrence and during the continuance of any Event of Default. If any Accounts of the Borrower are at any time evidenced by promissory notes, trade acceptances or other Instruments for the payment of money, the Borrower will promptly deliver the same to the Lender appropriately endorsed to the Lender's order and, regardless of dishonor, protest, notice of protest and all other notices with respect thereto. After an Event of Default has occurred and is continuing and the Borrower has received notice thereof from the Lender, any Proceeds collected by the Borrower (whether consisting of checks, notes, drafts, bills of exchange, money orders, commercial paper of any kind whatsoever, or other documents received in payment of any Account or in payment for any Inventory or otherwise), shall be promptly turned over by the Borrower to the Lender, in precisely the form received, except for its endorsement when required, and until so turned over, shall be deemed to be held in trust -10- Exhibit 10.5 by the Borrower for and as the Lender's property, and shall be held separately from the Borrower's other funds. (b) Limitations on Discounts and Compromises of Accounts. Other than in the ordinary course of business as generally conducted by the Borrower over a period of time, the Borrower will not compromise, compound or settle the Accounts for less than the full amount thereof, or release, wholly or partially, any Person liable for the payment thereof, except in each case as permitted under the Credit Agreement. (c) Notice to Account Debtors. At any time after the occurrence and during the continuance of an Event of Default, the Borrower shall, at the request of the Lender, notify its account debtors, and the Lender itself may notify such account debtors directly, of the security interest of the Lender in any Account and that payment thereof is to be made directly to the Lender. At any time after the occurrence and during the continuance of an Event of Default, the Lender may communicate with account debtors to verify with them to its satisfaction the existence, amount and terms of any Account. (d) Information on Accounts. The Borrower shall furnish to the Lender from time to time, and upon request, a list and description of all Accounts created or acquired by the Borrower, together with copies of shipping or delivery receipts for all goods and services sold or otherwise provided, and any other information or documents which the Lender reasonably may request from time to time related to the Borrower's Accounts. 5.2 Inventory. (a) Pricing, Credit Terms and Accounts. So long as no Event of Default has occurred and is continuing, the Borrower may sell items of Inventory: (a) for cash in amounts not less than the Borrower's published, usual or customary prices, less only usual and customary discounts for volume sales or prompt payment; or (b) on credit terms usual and customary in the business conducted by the Borrower, at prices which conform to the above terms, and under such circumstances as give rise to Accounts subject to this Agreement. (b) Notice to Landlords, Warehousemen and Agents. If any Inventory is in the possession or control of any landlords, warehousemen or agents, the Borrower shall notify them of the Lender's security interest therein, and at the Lender's request, instruct them to hold the same for the Lender's account and subject to the Lender's instructions. The Lender shall enjoy all of the rights and remedies of a secured party in the Inventory and shall be subrogated to all guaranties and security now or which may in the future be held by the Borrower. The Lender shall not be liable in any manner for exercising or refusing or failing to exercise any such rights. 5.3 Contracts with Governmental Authorities. None of the account debtors or other Persons obligated on any of the Collateral is a Governmental Authority covered by the Federal Assignment of Claims Act or like federal, state or local statute or rule in respect of such Collateral. -11- Exhibit 10.5 5.4 Chattel Paper. Unless an Event of Default shall have occurred and be continuing, the Borrower shall be entitled to retain possession of all Collateral consisting of Chattel Paper, and shall hold all such Chattel Paper in trust for the Lender. If the Lender has made demand for payment in full of the Obligations, then upon the request of the Lender, such Chattel Paper shall be immediately delivered to the Lender, to be held as Collateral pursuant to this Agreement. The Borrower shall not permit any other Person (other than a Borrower) to possess any such Collateral at any time. 5.5 Equipment - Certificates of Title. The Borrower shall deliver to the Lender, upon request, the originals of all certificates of title pertaining to any Equipment for which such certificates are or should be issued under applicable law, together with a duly completed and executed application to add the Lender as a lienholder on each such certificate. The Borrower covenants and agrees that it will promptly deliver to the Lender, upon request, all certificates of title relating to any Equipment hereafter acquired, together with duly completed and executed applications to add the Lender as a lienholder therewith (in form and content satisfactory for filing with the appropriate office), and that the Borrower shall not seek to obtain any certificate of title for any Equipment currently lacking such a certificate, and it shall not attempt to recertify or obtain a new certificate for any Equipment currently evidenced by a certificate of title (whether in The Commonwealth of Massachusetts or any other jurisdiction) without first notifying the Lender, and only if the original of such certificate of title is or will be delivered to the Lender upon issuance thereof and does or will properly name the Lender as first lienholder thereon (subject only to any Permitted Liens), in each case duly perfecting the Lender's security interest granted under this Agreement. 5.6 Investment Property. (a) If the Borrower shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Issuer or any other Investment Property, the Borrower shall accept the same as the agent of the Lender, hold the same in trust for the Lender and promptly deliver (or cause to be delivered) the same to the Lender in the exact form received, duly indorsed by the Borrower to the Lender, if required, together with an undated stock power covering such certificate duly executed in blank by the Borrower and with, if the Lender so requests, signature guaranteed, to be held by the Lender, subject to the terms hereof, as additional collateral security for the Obligations. (b) Without the prior written consent of the Lender, the Borrower will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Investment Property or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement) or (ii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Investment Property or Proceeds thereof, or any interest therein, except for the Lien provided for by this Agreement and Permitted Liens. -12- Exhibit 10.5 (c) Unless an Event of Default shall have occurred and be continuing, the Borrower shall be permitted to receive all payments made in respect of the Pledged Notes, and to exercise all voting and corporate rights with respect to the Investment Property; provided, however, that the Borrower agrees that it shall not vote in any way that would be inconsistent with or result in any violation of any provision of the Credit Agreement, the Note, the Security Documents or any of the other Financing Documents. (d) If an Event of Default shall occur and be continuing, then (i) the Lender shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Investment Property and make application thereof to the Obligations in such order as the Lender may determine, and (ii) any or all of the Investment Property may be registered in the name of the Lender or its nominee, and, subject to the terms of this Agreement, the Lender or its nominee may thereafter exercise (A) all voting, corporate and other rights pertaining to such Investment Property at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (B) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Investment Property as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by the Borrower or the Lender of any right, privilege or option pertaining to such Investment Property, and in connection therewith, the right to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Lender may determine), all without liability except to account for property actually received by it, and except for its gross negligence or willful misconduct, but the Lender shall have no duty to the Borrower to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (e) The Borrower hereby authorizes and instructs each Issuer of any Investment Property pledged by the Borrower hereunder to comply with any instruction received by it from the Lender in writing that (i) states that an Event of Default has occurred and is continuing and (ii) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from the Borrower, and the Borrower agrees that each Issuer shall be fully protected in so complying, to the extent such instruction is in compliance with applicable law. (f) The rights of the Lender hereunder shall not be conditioned or contingent upon the pursuit by the Lender of any right or remedy against any other Person which may be or become liable in respect of all or any part of the Obligations or against any collateral security thereof, guarantee therefore or right of offset with respect thereto. The Lender shall not be liable for any failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so, nor shall the Lender be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Borrower or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The Lender agrees to release promptly to the Borrower any dividends, cash, securities, instruments and other property paid, payable or otherwise distributed in -13- Exhibit 10.5 respect of the Collateral which it may receive under subsection 5.6(d) hereof if, prior to the occurrence of an acceleration of any of the Obligations, all Defaults and Events of Default have been waived or are no longer continuing. SECTION 6. POWER OF ATTORNEY. 6.1 Appointment and Powers. The Borrower hereby irrevocably constitutes and appoints the Lender as the Borrower's true and lawful attorney, coupled with an interest, with full power of substitution (in each case at the sole risk, cost and expense of the Borrower but for the benefit of the Lender) to do the following: (a) at any time or times (whether or not an Event of Default has occurred), (i) to file and record without the Borrower's signature, or to sign the Borrower's name to and file and record, financing statements and any other instruments (including applications to name the Lender as lienholder on any motor vehicle or other certificates of title), and (ii) to take such other actions as the Lender may deem necessary in order to perfect or maintain the perfection or priority of the Lender's security interest in the Collateral or any portion thereof; and (b) after an Event of Default has occurred and is continuing, in addition to the actions described above, (i) to protect the Lender's security interest in the Collateral or any portion thereof; (ii) to receive and open the Borrower's mail, remove therefrom and hold or apply any Collateral and dispose of such mail or turn over such mail (other than such Collateral) to the Borrower or any trustee in bankruptcy, receiver, assignee for benefit of creditors or other legal representatives to whom the Lender determines to be the appropriate recipient thereof; (iii) to endorse the name of the Borrower in favor of the Lender upon any and all checks, drafts, notes, money orders, acceptances and other items, Instruments and forms of payment, and to sign and endorse the name of the Borrower on, and receive as secured party, any of the Collateral; (iv) to sign the Borrower's name to any invoices, schedules, freight or express receipts, bills of lading, and other Documents or writings of a similar or different nature, relating to the Collateral; (v) to sign the name of the Borrower on any schedules and assignments of Accounts, and on notices of assignment, financing statements and other public records relating to the Collateral, and on any notice to the Borrower's account debtors for verification of the Accounts; (vi) to prosecute, defend, compromise or release any action relating to the Collateral; (vii) to notify the post office authorities to change the address for delivery of the Borrower's mail to an address designated by the Lender, and to sign change of address forms therefor; (viii) to sign the Borrower's name in proofs of claim in bankruptcies of account debtors, notices of lien, claims = of mechanics liens, or assignments or releases of any Liens securing the Accounts; (ix) to take any such actions as may be necessary to obtain payment of any letter of credit of which the Borrower is a beneficiary; (x) to repair, manufacture, assemble, complete, package, deliver, alter or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any customer of the Borrower; (xi) to notify any Persons of the rights and interests of the Lender, of the applicable Events of Default and of any matter relating to Collateral; (xii) to take any and all other actions (including, without limitation, the right to sue in the name of the Borrower or the Lender to collect upon any and all Collateral and to settle, adjust or -14- Exhibit 10.5 compromise any and all claims with respect to Collateral including insurance claims) as the Lender shall deem necessary or expedient to convert the Collateral into cash; and (xiii) otherwise to exercise any rights or remedies of the Lender hereunder or under any of the Financing Documents, or otherwise under agreement or applicable law, including the UCC. 6.2 Ratification and Indemnification Under Power of Attorney. In connection with all powers of attorney set forth in this Agreement, the Lender shall have full power to exercise such powers as fully and effectually as the Borrower might or could do; the Borrower agrees that the Lender shall not be obligated to exercise any of the powers authorized herein, and shall be free to exercise or refrain from exercising any of such powers at any time or times in its absolute discretion, and, if the Lender elects to exercise any of such powers, it shall not be accountable for more than it actually receives as a result of such exercise of power, and shall not be responsible to the Borrower except for the Lender's negligence, bad faith or willful misconduct; and all powers conferred upon the Lender by this Agreement, being coupled with an interest, shall be irrevocable until such time as all Obligations have been paid (without being subject to or susceptible of recovery by any Person) or performed and the Lender's agreement, if any, to make advances has terminated. 6.3 Performance By Lender of Borrower's Obligations. If the Borrower fails to perform or comply with any of its agreements contained herein and the Lender, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with any agreement, the expense of the Lender incurred in connection with such performance or compliance, together with interest thereon at the Late Rate, shall be payable by the Borrower to the Lender on demand and shall constitute Obligations secured hereby. SECTION 7. REMEDIES. 7.1 General Remedies. In addition to and without in any way limiting any other rights and remedies available to the Lender under this Agreement prior to an Event of Default, or any other rights and remedies available to the Lender (whether prior to or after an Event of Default) under any of the other Financing Documents or under applicable law or in equity, upon and during the continuance of an Event of Default: (a) the Lender may decline to honor the credit of the Borrower or may refuse to make further advances to the Borrower; (b) the Lender may collect the Accounts with or without taking possession of the Collateral; (c) the Lender shall be entitled to immediate possession of the Collateral or any portion or portions thereof and may, so far as the Borrower can give authority therefor, enter upon the Borrower's premises to take possession thereof; may require the Borrower to assemble the Collateral and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties; or may require the Borrower to deliver all Records relating to the Collateral to the Lender; -15- Exhibit 10.5 (d) the Lender may enter upon, occupy, and use any premises owned or occupied by the Borrower (or by any agent of the Borrower at which Collateral is located), and may exclude the Borrower from such premises or portion thereof as may have been so entered upon, occupied, or used by the Lender; the Lender shall not be required to remove any of the Collateral from any such premises upon the Lender's taking possession thereof, and may render any Collateral unusable to the Borrower; and in no event shall the Lender be liable to the Borrower for use or occupancy by the Lender of any premises pursuant to this Agreement except for claims arising out of the Lender's negligence, bad faith or willful misconduct, nor for any charge (such as wages for the Borrower's employees and utilities) incurred in connection with the Lender's exercise of the Lender's rights and remedies; (e) the Lender may take such steps as it deems necessary to protect the Lender's interest in, and to preserve the Collateral, and the Borrower agrees to cooperate fully with all of the Lender's efforts and to take such actions as the Lender shall direct, all to preserve the Collateral; (f) the Lender shall have the rights and remedies of a secured party under the UCC and other applicable laws, the choice and manner of exercise of any right or remedy being in the Lender's sole discretion; and, pursuant thereto, the Lender shall have the right to foreclose the security interest granted in any Collateral by any available judicial procedure and to take possession of and sell any or all of the Collateral with or without judicial process; the Lender may lease or otherwise dispose of the Collateral, or may sell the Collateral, or any part thereof, at public or private sales, at any time or place (including the Borrower's premises), in one or more sales, at such price or prices, and upon such terms, either for cash, credit or future delivery, as the Lender may elect, and, except as to that part of the Collateral which is perishable or threatens to decline speedily in value, or is of the type customarily sold on a recognized market, the Lender shall give the Borrower reasonable notification of such sale or sales, it being agreed that, in all events, reasonable notification means written notice mailed to the Borrower at least ten (10) days prior to each such public sale or at least ten (10) days prior to the date after which any such private sales or other intended dispositions may be made; at any public sale the Lender may (but shall have no obligation to) bid for and become the purchaser of any Collateral; the Borrower hereby waives any and all rights it may have to judicial hearing in advance of the enforcement of any of the Lender's rights hereunder, including the Lender's right to take immediate possession of the Collateral; and the Lender may do any of the foregoing or otherwise deal with the Collateral in its then condition, or following such preparation as the Lender deems advisable, with or without taking possession thereof; (g) the Lender shall have the right to apply to the Obligations any deposits or other sums at any time credited by or due from the Lender to the Borrower; and (h) the Lender may treat any or all of the Financing Documents as being in default and may exercise any rights and remedies thereunder as it shall deem appropriate. -16- Exhibit 10.5 7.2 No Duty of Preservation; Joint Property. The Lender may at all times proceed directly against the Borrower, or against any other Person responsible for any Obligations, to enforce the payment of the Obligations, and the Lender shall not be required to take any action of any kind to preserve, collect upon or protect the rights of the Lender or of any other Person in any Collateral, except as specifically required by the UCC. Without limiting the generality of the foregoing, the Lender shall not be required to take any action to preserve rights against prior parties in the cases of Instruments or Chattel Paper, and the Lender may co-mingle any items of Collateral with other property and shall not be required to keep any Collateral identifiable. In the event any Collateral, including any Deposit Account, is held in joint or common names, the Lender may deal with such Collateral or any Deposit Account, for all purposes hereunder and under any or all of the Financing Documents, as if belonging to any one, and no more than one, of such joint or common owners. 7.3 Remedies Not Exclusive. The enumeration of rights and remedies in the Financing Documents is not intended to be exclusive, and they shall be in addition to and not by way of limitation of such others as the Lender may have under the UCC, other applicable law, and any and all other Documents, Instruments, agreements or other writings between or among the Borrower, the Lender or other Persons. The Lender shall, in its sole discretion, determine its choice of rights and remedies and the order in which they shall be exercised, and which Collateral, if any, is to be proceeded against and in which order. The exercise of any right or remedy against the Borrower, any other Person or any or all Collateral shall not preclude the exercise of others or the exercise thereof against the Borrower, any other Persons or any other Collateral, all of which shall be cumulative. No act, failure or delay by the Lender shall constitute a waiver of any of its rights and remedies. No single or partial waiver by the Lender of any provision of the Financing Documents, or of any breach or default thereunder, or of any right or remedy which the Lender may have shall operate as a waiver of any other provision, breach, default, right or remedy or of the same one on a future occasion. 7.4 Deficiency. The Borrower shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations and the reasonable fees and disbursements of any attorneys employed by the Lender to collect such deficiency. 7.5 Requirement of Law. Notwithstanding any provision contained in this Agreement to the contrary, the exercise of remedies or any power of attorney granted hereunder with respect to Collateral is subject to any applicable Requirement of Law of any Governmental Authority. No action will be taken by the Lender hereunder if such action will result in a violation of any applicable Requirement of Law of any Government Authority by the Borrower. SECTION 8. MISCELLANEOUS. 8.1 Survival of Covenants; Binding Effect. All agreements, representations, covenants and warranties made by the Borrower in this Agreement, the other Financing Documents, or in any certificate or other document delivered to the Lender in connection herewith shall survive the termination of this Agreement and survive the execution and delivery of this Agreement, and shall remain in full force and effect until all Obligations to the Lender been paid in full and satisfied, and the security interest, Lien and rights granted to the Lender in -17- Exhibit 10.5 any Collateral and its rights and remedies hereunder and under the other Financing Documents shall continue in full force and effect, notwithstanding the fact that Loans may , from time to time, be in a zero or credit position, until all Obligations have been satisfied. All the terms and provisions of this Agreement and the other Financing Documents shall be binding upon, inure to the benefit of and be enforceable by and against the parties hereto and their respective successors and assigns. 8.2 Prior Discussions; Amendments in Writing; Counterparts; Filing As Financing Statement. This Agreement and all other Financing Documents incorporate all discussions and negotiations between the Borrower and the Lender, either express or implied, concerning the matters included herein and therein, any custom, usage or other writing to the contrary notwithstanding. No such discussions or negotiations shall limit, modify, or otherwise affect the provisions of the Financing Documents. This Agreement may be amended or modified only in writing signed by the parties hereto, and in the case of the Lender signed by a duly authorized officer thereof. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but such counterparts together shall constitute one and the same instrument. Any proof of this Agreement shall require production of only one such counterpart. A carbon, photographic or other reproduction of this Agreement or of any financing statement executed to perfect the security interest created herein may be filed as a financing statement under the UCC (or under the Uniform Commercial Code in effect in any jurisdiction outside Massachusetts). 8.3 General Indemnification. The Borrower shall, and does hereby, indemnify and save the Lender harmless from (and agrees to defend the Lender from) any and all liabilities, damages, costs, losses and expenses (including court costs and attorney's reasonable fees of outside counsel and expenses) that the Lender may sustain or incur by reason of, relating to or arising out of the preparation of this Agreement, the defending or protecting of any Collateral or the priority of the Lender's interest therein, or in collecting or enforcing the Obligations, or in enforcing any of the Lender's rights or remedies, or in the prosecution or defense of any action or proceeding concerning any matter growing out of or connected with this Agreement, any of the other Financing Documents, the Obligations, the Collateral, or on account of the Lender's relationship with the Borrower, or any other Person responsible for any of the Obligations (each of which may be defended, compromised, settled or pursued by the Lender with counsel of the Lender's selection, at the expense of the Borrower) except for such claims which have been determined by a court of competent jurisdiction to have arisen out of the Lender's actual bad faith, willful misconduct or gross negligence. The within indemnification shall survive termination of this Agreement. The Borrower's obligations under this subsection constitute part of the Obligations secured by the security interest created by this Agreement. 8.4 Destruction of Documents; Receipt of Copy. This Agreement and all other Financing Documents may be reproduced by the Lender by any photographic, photostatic, microfilm, or similar process, and the Lender may destroy the original from which any document was so reproduced. Any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business). The Borrower acknowledges receipt of a true, correct and complete copy or counterpart of this Agreement. -18- Exhibit 10.5 8.5 Notices. All notices required or permitted hereunder shall be in writing and delivered in accordance with the provisions of the Credit Agreement. 8.6 Application of Proceeds. Subject to the provisions of the Credit Agreement, the Lender shall apply (or change any application previously made of) the proceeds of any collection, sale or other disposition of the Collateral, or of any other payments received hereunder, toward the Obligations in such order and manner as the Lender, in its sole discretion, shall determine, any statute (the application of which may be waived or modified by agreement), customs or practices to the contrary notwithstanding. The Borrower shall remain liable to the Lender for any deficiency remaining following such application. 8.7 Severability. If any provision of this Agreement or any of the other Financing Documents, or any portion of such provision, or the application thereof to any Person or circumstance, shall to any extent be prohibited or held invalid or unenforceable, the remainder of this Agreement and the other Financing Documents or the remainder of such provision and the application thereof to other Persons or circumstances (other than those as to which it is prohibited or held invalid or unenforceable) shall not be affected thereby, and each term and provision hereof and of the other Financing Documents shall be valid and enforced to the fullest extent permitted by law. To the extent permitted by law, the parties hereto waive any provision of law which renders any such provision or the application thereof to any Person or circumstance prohibited, invalid or unenforceable in any respect. 8.8 Headings. Headings appearing in this Agreement are intended for convenience only and do not constitute, and shall not be interpreted to be, a part of this Agreement. 8.9 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER FINANCING DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. 8.10 Governing Law; Jurisdiction. This Agreement and the other Financing Documents are executed and delivered under seal and shall be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts, without giving effect to the conflict of law provisions thereof. Each of the Lender and the Borrower submits itself to the non-exclusive jurisdiction of the courts of The Commonwealth of Massachusetts for all purposes with respect to the Financing Documents and the Borrower's relationship with the Lender. [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK] -19- Exhibit 10.5 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed and delivered under their seals as of the date first above written. WITNESS: ARIAD GENE THERAPEUTICS, INC. /s/ Andrew Levine By: /s/ Harvey Berger - --------------------------------- ------------------------------------ Name: Andrew Levine Name: Harvey J. Berger, M.D. Title: Chief Executive Officer Its duly authorized officer WITNESS: CITIZENS BANK OF MASSACHUSETTS /s/ Todd H. Whilton By: /s/ Scott Haskell - --------------------------------- ------------------------------------ Name: Todd H. Whilton Name: Scott Haskell Title: Vice President Its duly authorized officer -20- Exhibit 10.5 COMMONWEALTH OF MASSACHUSETTS ______________ County, ss. March ___, 2003 Then personally appeared the above-named _____________________ as __________________ of ARIAD Gene Therapeutics, Inc., and acknowledged the foregoing instrument to be his/her free act and deed and the free act and deed of ARIAD Gene Therapeutics, Inc., before me. ________________________________________ Notary Public My commission expires: [AFFIX NOTARIAL SEAL] COMMONWEALTH OF MASSACHUSETTS Suffolk County, ss. March 14, 2003 Then personally appeared the above-named Scott Haskell as Vice President of Citizens Bank, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of Citizens Bank, before me. /s/ Todd H. Whilton ---------------------------------------- Notary Public My commission expires: 1/30/09 [AFFIX NOTARIAL SEAL] STATE OF NEW YORK COUNTY OF NEW YORK, ss. On this 12th day of March, 2003, appeared before me the above-named Harvey J. Berger, M.D., Chief Executive Officer of ARIAD Gene Therapeutics, Inc., who proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of ARIAD Therapeutics, Inc. /s/ Nyisha Shakur ---------------------------------------- Notary Public My Commission Expires: May 7, 2006 -21- - -------------------------------------------------------------------------------- SECURITY AGREEMENT - ALL ASSETS by and between CITIZENS BANK OF MASSACHUSETTS (the "LENDER") and ARIAD GENE THERAPEUTICS, INC. (the "BORROWER") - -------------------------------------------------------------------------------- 1. Name of Borrower. 1.1. The exact corporate name of the Borrower as it appears on its organizational documents and its taxpayer identification number and its organizations identification number are as follows: ARIAD Gene Therapeutics, Inc. Federal Tax Identification No. 04-3216824 1.2. The following is a list of all other names (including trade names or similar appellations) used by the Borrower or any other business or organization to which the Borrower became the successor by merger, consolidation, acquisition, change in form, nature or jurisdiction of organization or otherwise, at any time during the past five (5) years: None 1.3. The following is the state (or jurisdiction) of organization (or formation) of the Borrower: Delaware 2. Locations. 2.1. The chief executive office and principal place of business of the Borrower is located at the following address: 26 Landsdowne Street Cambridge, Massachusetts 02139 2.2. The following is a list of all of the other locations in which the Borrower maintains any books or records relating to any of the Collateral consisting of Accounts, Chattel Paper, General Intangibles or mobile goods: None 2.3. The following are all of the other places of business of the Borrower: None 2.4. The following are all other locations where any of the Collateral consisting of Inventory or Equipment is located: None 3. The following is a summary of all of the Pledged Notes: None EX-99.1 8 b46496apexv99w1.txt EX-99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 99.1 CERTIFICATIONS CHIEF EXECUTIVE OFFICER I, Harvey J. Berger, M.D., certify that: 1. I have reviewed this quarterly report on Form 10-Q of ARIAD Pharmaceuticals, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Harvey J. Berger, M.D. -------------------------- Harvey J. Berger, M.D. Chairman, Chief Executive Officer and President Date: May 13, 2003 EX-99.2 9 b46496apexv99w2.txt EX-99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 99.2 CERTIFICATIONS CHIEF FINANCIAL OFFICER I, Edward M. Fitzgerald, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ARIAD Pharmaceuticals, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Edward M. Fitzgerald ------------------------- Edward M. Fitzgerald Senior Vice President and Chief Financial Officer (Principal financial officer and Date: May 13, 2003 chief accounting officer) EX-99.3 10 b46496apexv99w3.txt EX-99.3 CERTIFICATION PURSUANT TO SECTION 906 Exhibit 99.3 PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (A) AND (B) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of ARIAD Pharmaceuticals, Inc., a Delaware corporation (the Company"), does hereby certify, to such officer's knowledge, that: The Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 13, 2003 /s/ Harvey J. Berger, M.D. -------------------------------- Harvey J. Berger, M.D. Chairman, Chief Executive Officer and President Date: May 13, 2003 /s/ Edward M. Fitzgerald --------------------------------- Edward M. Fitzgerald Senior Vice President and Chief Financial Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of title 18, United States code) and is not being filed as a separate disclosure document. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 10-Q 11 b46496ape10vqxpdfy.pdf COURTESY PDF begin 644 b46496ape10vqxpdfy.pdf M)5!$1BTQ+C(-)>+CS],-"C@Q(#`@;V)J#3P\(`TO3&EN96%R:7IE9"`Q(`TO M3R`X,R`-+T@@6R`Y.34@-#DR(%T@#2],(#,Q-#@U.2`-+T4@,C,Y,3D@#2]. 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EX-10.1

                                                                    EXHIBIT 10.1

                                CREDIT AGREEMENT

         This CREDIT AGREEMENT, dated as of March 12, 2003, by and among ARIAD
PHARMACEUTICALS, INC., a Delaware corporation, ARIAD CORPORATION, a Delaware
corporation, and ARIAD GENE THERAPEUTICS, INC., a Delaware corporation
(hereinafter sometimes referred to collectively as the "BORROWERS" and each
singly as a "BORROWER") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts bank
(the "LENDER").

         In consideration of the mutual covenants contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

SECTION 1.        DEFINITIONS.

         All capitalized terms not defined herein but defined in APPENDIX A
attached hereto shall have the meanings given to such terms in Appendix A
attached hereto. All terms defined in this Agreement shall also have such
defined meanings when used in the other Financing Documents or any certificate
or other document made or delivered pursuant hereto or thereto, unless otherwise
specified herein or therein.

         All references in this Agreement to Sections, Subsections, Exhibits,
Schedules and Appendices refer to the Sections, Subsections, Exhibits, Schedules
and Appendices of this Agreement unless otherwise indicated. All Exhibits,
Schedules and Appendices attached to this Agreement are incorporated herein and
made a part hereof.

SECTION 2.        THE LOAN.

         2.1 General.

                  (a) Subject to the terms and conditions hereof, the Lender
         agrees to make a loan (the "LOAN") to the Borrowers on the Closing Date
         in the original principal amount of Seven Million Five Hundred Thousand
         and 00/100 Dollars ($7,500,000.00). The principal amount of the Loan
         may from time to time be advanced as or converted to (i) LIBOR Loans,
         (ii) Prime Rate Loans or (iii) a combination thereof, as determined by
         the Borrowers and notified to the Lender in accordance with subsections
         2.2 and 2.8.

                  (b) On the Closing Date, the Borrowers shall execute and
         deliver to the Lender a certain Term Note of the Borrowers dated as of
         the Closing Date evidencing the Loan, substantially in the form of
         EXHIBIT A attached hereto (the "NOTE"). The Lender is hereby authorized
         to record the date, Type and amount of the Loan made, the date and
         amount of each payment or prepayment of principal thereof, each
         continuation thereof, each conversion of all or a portion thereof to
         another Type and, in the case of LIBOR Loans, the length of each
         Interest Period and LIBOR Rate with respect thereto, on the schedule
         (or any continuation of the schedule) annexed to and constituting a
         part of the Note and any such recordation shall, to the extent
         permitted by applicable law, constitute prima facie evidence of the
         accuracy of the information so recorded (absent manifest error);
         provided, however, that the failure to make any such recordation (or
         any error therein) shall not affect the obligation of the Borrowers to
         repay (with applicable interest) the Loan.



         2.2 Procedure for Borrowing. If all or any part of the Loan is to be
initially LIBOR Loans, the Borrowers shall give the Lender irrevocable notice
thereof (which notice must be received by the Lender prior to 3:00 p.m., Boston,
Massachusetts time, three (3) Business Days prior to the Closing Date),
specifying (a) the amount of the Loan which is initially to be LIBOR Loans and
(b) the respective amounts thereof and the lengths of the initial Interest
Periods therefor. To the extent that the Borrowers do not deliver a notice
pursuant to the immediately preceding sentence, the Loan shall initially be
Prime Rate Loans. On the Closing Date, the Lender will credit the account of the
Borrowers on the books of the Lender with the amount so borrowed.

         2.3 Use of Proceeds. The proceeds of the Loan shall be used by the
Borrowers to refinance existing indebtedness and for general corporate purposes.

         2.4 Interest Rates.

                  (a) Each portion of the unpaid principal balance of the Loan
         which is a LIBOR Loan shall bear interest, for each Interest Period
         applicable thereto, at a rate per annum equal to the LIBOR Rate plus
         2.00%.

                  (b) Each portion of the unpaid principal balance of the Loan
         which is a Prime Rate Loan shall bear interest at a rate per annum
         equal to the Prime Rate.

         2.5 Payment of Term Loan. The Borrowers hereby unconditionally promise
to pay to the order of the Lender the principal amount of the Loan in
thirty-five monthly installments of One Hundred Twenty Five Thousand 00/100
Dollars ($125,000.00) commencing on April 30, 2003, and continuing on the last
day of each consecutive month thereafter until the Maturity Date. The Borrowers
hereby further agree to pay interest on the unpaid principal balance of the
Loan, in arrears, on each Interest Payment Date; provided, however, any such
interest accruing at the Late Rate shall be due and payable on demand. On the
Maturity Date (or such earlier date on which the Loan becomes due and payable
pursuant to subsection 7.1), the entire remaining outstanding balance of the
Loan (including, without limitation, all unpaid principal, all accrued but
unpaid interest and all unpaid fees, charges, costs and expenses) shall be
immediately due and payable in full.

         2.6 Method of Payment. All payments (including prepayments) to be made
by the Borrowers hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without set off or counterclaim and shall be made prior
to 3:00 p.m., Boston, Massachusetts time, on the due date thereof to the Lender,
at the Lender's office specified in subsection 9.4 (or such other place as the
Lender may specify in writing from time to time), in Dollars and in immediately
available funds. Payments received by the Lender after such time shall be deemed
to have been received on the next Business Day. If any payment hereunder (other
than payments on LIBOR Loans) becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next succeeding Business
Day, and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension. If any payment on a
LIBOR Loan becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day (and,
with respect to payments of principal, interest shall be payable thereon at the
then applicable rate during such extension) unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding

                                      -2-


Business Day. The Borrowers hereby authorize the Lender to charge or debit any
deposit account of any Borrower with the Lender to effect any payment due
hereunder.

         2.7 Prepayments.

                  (a) Optional Prepayment. The Borrowers may at any time and
         from time to time prepay the Loan, in whole or in part, without premium
         or penalty (other than as provided in subsection 2.16), upon
         irrevocable notice to the Lender prior to 3:00 p.m., Boston,
         Massachusetts time, one (1) Business Day prior to such prepayment,
         specifying the date and amount of prepayment and whether the prepayment
         is of LIBOR Loans, Prime Rate Loans or a combination thereof, and, if
         of a combination thereof, the amount allocable to each; provided,
         however, notwithstanding the foregoing to the contrary, no such notice
         shall be required in connection with the prepayment of any Prime Rate
         Loan. If any such notice is given, the amount specified in such notice
         shall be due and payable on the date specified therein, together with
         any amounts payable pursuant to subsection 2.16. Amounts prepaid on
         account of the Loan may not be reborrowed. Partial prepayments shall be
         in the aggregate principal amount of One Hundred Thousand and 00/100
         Dollars ($100,000.00) or a whole multiple of Fifty Thousand and 00/100
         Dollars ($50,000.00) in excess thereof. No partial prepayment shall
         postpone or extend the date on which any principal or interest is
         otherwise due under any Loan hereunder.

                  (b) Application of Prepayments. All amounts received for the
         prepayment of Loans shall be applied to the Obligations as follows, so
         long as no Event of Default has occurred and is continuing: first, to
         any fees, charges, costs and expenses then owed by any Borrower to the
         Lender and second, to the unpaid principal balance of the Loan in
         inverse order of maturity. The application of any prepayment pursuant
         to this subsection shall be made first to the Prime Rate Loans and
         second to the LIBOR Loans. Upon the occurrence and during the
         continuation of any Event of Default, all amounts received for the
         prepayment of Loans shall be applied to the Obligations in such manner
         as the Lender may reasonably determine.

         2.8 Conversion and Continuation Options.

                  (a) The Borrowers may elect from time to time to convert LIBOR
         Loans to Prime Rate Loans by giving the Lender at least one (1)
         Business Day's prior irrevocable notice of such election, provided that
         any such conversion of LIBOR Loans may only be made on the last day of
         an Interest Period with respect thereto (or on any other day if on the
         date of such conversion the Borrowers pay to the Lender accrued
         interest on such LIBOR Loans to the date of such conversion together
         with all amounts payable under subsection 2.16). The Borrowers may
         elect from time to time to convert Prime Rate Loans to LIBOR Loans by
         giving the Lender at least three (3) Business Days' prior irrevocable
         notice of such election. Any such notice of conversion to LIBOR Loans
         shall specify the length of the initial Interest Period or Interest
         Periods therefor. All or any part of outstanding LIBOR Loans and Prime
         Rate Loans may be converted as provided herein; provided, however, that
         (i) no Loan may be converted into a LIBOR Loan when any Event of
         Default has occurred and is continuing and the Lender has determined
         that such a conversion is not appropriate and (ii) no Loan may be
         converted into a LIBOR Loan after the date that is one month prior to
         the Maturity Date.

                                      -3-



                  (b) Any LIBOR Loans may be continued as such upon the
         expiration of the then current Interest Period with respect thereto by
         the Borrowers giving notice to the Lender, in accordance with the
         applicable provisions of the term "Interest Period" set forth in
         Appendix A, of the length of the next Interest Period to be applicable
         to such Loans; provided, however, that no LIBOR Loan may be continued
         as such (i) when any Event of Default has occurred and is continuing
         and the Lender has determined that such a continuation is not
         appropriate or (ii) after the date that is one month prior to the
         maturity of the Loan; and provided further that if the Borrowers shall
         fail to give such notice or if such continuation is not permitted, such
         Loans shall be automatically converted to Prime Rate Loans on the last
         day of such then expiring Interest Period.

         2.9 Minimum Amounts and Maximum Number of LIBOR Loans. All borrowings,
conversions and continuations of LIBOR Loans and Prime Rate Loans hereunder and
all selections of Interest Periods hereunder shall be in such amounts and be
made pursuant to such elections so that, after giving effect thereto, the
aggregate principal amount of the Loan comprising each LIBOR Loan shall be equal
to Five Hundred Thousand and 00/100 Dollars ($500,000.00) or a whole multiple of
One Hundred Thousand and 00/100 Dollars ($100,000.00) in excess thereof. In no
event shall there be more than Five (5) LIBOR Loans outstanding at any time.

         2.10 Late Rate; Late Charge.

                  (a) Notwithstanding any provision contained in this Agreement
         or any other Financing Document to the contrary, if all or a portion of
         (i) the principal amount of the Loan, (ii) any interest payable thereon
         or (iii) any fee or other amount payable hereunder shall not be paid
         when due (whether at the stated maturity, by acceleration or otherwise,
         but taking into account any applicable grace period under subsection
         Section 7(a)), such overdue amount shall bear interest at a rate per
         annum (hereinafter referred to as the "LATE RATE") which is (x) in the
         case of overdue principal, the rate that would otherwise be applicable
         to the Loan under this Agreement, plus Three Percent (3.0%) or (y) in
         the case of overdue interest, fees or other amounts due and payable
         hereunder, the rate that would otherwise be applicable under this
         Agreement to that portion of the unpaid principal amount of the Loan
         that is a Prime Rate Loan, plus Three Percent (3.0%), in each case from
         the date of such non-payment until such amount is paid in full (after
         as well as before judgment).

                  (b) The Borrowers agree to pay, on demand and in addition to
         all other amounts payable under this Agreement and the other Financing
         Documents, a late charge on any payment that is more than ten (10)
         calendar days late, which late charge shall be equal to Thirty Five and
         00/100 Dollars ($35.00). The assessment or collection of late charges
         is not intended and shall not be construed to permit payment of any
         amount payable under this Agreement or any of the other Financing
         Documents beyond the applicable due date thereof. The time period which
         is allowed before the assessment of late charges is not intended and
         shall not be construed as a grace or cure period with respect to
         payment or performance of any obligation under this Agreement or any of
         the other Financing Documents.

                  (c) Notwithstanding any provision contained in this Agreement
         or any other Financing Document to the contrary, in no event shall the
         amount paid or agreed to be

                                      -4-


         paid by the Borrowers (or any other Person) as interest or as a premium
         on the Loan or any other Obligations exceed the highest lawful rate
         permissible under any law applicable thereto.

         2.11 Computation of Interest and Fees.

                  (a) Interest and all fees payable hereunder shall be computed
         daily on the basis of a year of 360 days and paid for the number of
         actual days for which due. The Lender shall as soon as practicable,
         notify the Borrowers of each determination of a LIBOR Rate. Any change
         in the interest rate on a Loan resulting from a change in the Prime
         Rate or the LIBOR Reserve Requirement shall become effective as of the
         opening of business on the day on which such change becomes effective.
         The Lender shall, as soon as practicable, notify the Borrowers of the
         effective date and the amount of each such change in interest rate.

                  (b) Each determination of an interest rate by the Lender
         pursuant to any provision of this Agreement shall be conclusive and
         binding on the Borrowers in the absence of manifest error. The Lender
         shall, at the request of the Borrowers, deliver to the Borrowers a
         statement showing the quotations used by the Lender in determining any
         interest rate hereunder.

         2.12 Inability to Determine Interest Rate. If prior to the first day of
any Interest Period:

                  (a) the Lender shall have determined (which determination
         shall be conclusive and binding upon the Borrowers) that, by reason of
         circumstances affecting the relevant market, adequate and reasonable
         means do not exist for ascertaining the LIBOR Rate for such Interest
         Period, or

                  (b) the Lender shall have determined (which determination
         shall be conclusive and binding upon the Borrowers) that the LIBOR Rate
         determined or to be determined for such Interest Period will not
         adequately and fairly reflect the cost to the Lender of making or
         maintaining its affected LIBOR Loans during such Interest Period,

the Lender shall give telecopy or telephonic notice thereof to the Borrowers as
soon as practicable thereafter. If such notice is given, (x) any LIBOR Loans
requested to be made on the first day of such Interest Period shall be made as
Prime Rate Loans, (y) any Prime Rate Loans that were to have been converted on
the first day of such Interest Period to LIBOR Loans shall be converted to or
continued as Prime Rate Loans and (z) any outstanding LIBOR Loans shall be
converted, on the first day of such Interest Period, to Prime Rate Loans. Until
such notice has been withdrawn by the Lender, no further LIBOR Loans shall be
made or continued as such, nor shall the Borrowers have the right to convert
Prime Rate Loans to LIBOR Loans.

         2.13 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for the Lender to make or maintain
LIBOR Loans as contemplated by this Agreement, (a) the commitment of the Lender
hereunder to make LIBOR Loans, continue LIBOR Loans as such and convert Prime
Rate Loans to LIBOR Loans shall forthwith be suspended until such time as it
shall no longer be unlawful for the Lender to make or maintain LIBOR Loans as
contemplated by this Agreement and (b) the portion of the Lender's Loan then
outstanding as

                                      -5-



LIBOR Loans, if any, shall be converted automatically to Prime Rate Loans on the
respective last days of the then current Interest Periods with respect to such
LIBOR Loans or within such earlier period as required by law. If any such
conversion of a LIBOR Loan occurs on a day which is not the last day of the then
current Interest Period with respect thereto, the Borrowers shall pay to the
Lender such amounts, if any, as may be required pursuant to subsection 2.16.

         2.14 Increased Costs; Changes in Requirements of Law.

                  (a) If the adoption of or any change in any Requirement of Law
         or in the interpretation or application thereof or compliance by the
         Lender with any request or directive (whether or not having the force
         of law) from any central bank or other Governmental Authority, in each
         case made subsequent to the date hereof:

                           (i)     shall subject the Lender to any tax of any
                  kind whatsoever with respect to this Agreement, the Note or
                  any LIBOR Loan made by it, or change the basis of taxation of
                  payments to the Lender in respect thereof (except for
                  Non-Excluded Taxes, changes in the rate of tax on the overall
                  net income of the Lender and taxes imposed as a result of any
                  future, present or former connection between the Lender and
                  the jurisdiction of the Governmental Authority imposing such
                  tax or any political subdivision or taxing authority thereof
                  or therein (other than any such connection arising solely from
                  the Lender having executed, delivered or performed its
                  obligations or received a payment under, or enforced, this
                  Agreement or the Note));

                           (ii)    shall impose, modify or hold applicable any
                  reserve, special deposit, compulsory loan or similar
                  requirement against assets held by, deposits or other
                  liabilities in or for the account of, advances, loans or other
                  extensions of credit by, or any other acquisition of funds by,
                  any office of the Lender which is not otherwise included in
                  the determination of the LIBOR Rate hereunder; or

                           (iii)   shall impose on the Lender any other
                  condition;

         and the result of any of the foregoing is to increase the cost to the
         Lender, by an amount which the Lender reasonably deems to be material,
         of making, converting into, continuing or maintaining LIBOR Loans or to
         reduce any amount receivable hereunder in respect thereof, then, in any
         such case, the Borrowers shall, within ten (10) Business Days after
         receipt by the Borrowers of the Lender's written demand, pay the Lender
         such additional amount or amounts as will compensate the Lender for
         such increased cost or reduced amount receivable. If the Lender has
         demanded such compensation under this subsection with respect to any
         LIBOR Loan, the Borrowers shall have the option to convert immediately
         such LIBOR Loan into a Prime Rate Loan until the circumstances giving
         rise to such demand for compensation no longer apply; provided,
         however, that (i) no such conversion shall affect the Borrowers'
         obligation to pay compensation as provided herein which is due with
         respect to the period prior to such conversion and (ii) on the date of
         such conversion the Borrowers shall pay to the Lender accrued interest
         on such LIBOR Loan to the date of conversion, together with any amounts
         payable pursuant to subsection 2.16.

                                      -6-



                  (b) If the Lender shall have determined that the adoption of
         or any change in any Requirement of Law regarding capital adequacy or
         in the interpretation or application thereof or compliance by the
         Lender or any corporation controlling the Lender with any request or
         directive regarding capital adequacy (whether or not having the force
         of law) from any Governmental Authority, in each case made subsequent
         to the date hereof, shall have the effect of reducing the rate of
         return on the Lender's or such corporation's capital as a consequence
         of its obligations hereunder to a level below that which the Lender or
         such corporation could have achieved but for such adoption, change or
         compliance (taking into consideration the Lender's or such
         corporation's policies with respect to capital adequacy) by an amount
         reasonably deemed by the Lender to be material, then from time to time,
         within ten (10) Business Days after receipt by the Borrowers of the
         Lender's written demand, the Borrowers shall pay to the Lender such
         additional amount or amounts as will compensate the Lender for such
         reduction.

         2.15 Taxes.

                  (a) All payments made by the Borrowers under this Agreement
         and the Note shall be made free and clear of, and without deduction or
         withholding for or on account of, any present or future income, stamp
         or other taxes, levies, imposts, duties, charges, fees, deductions or
         withholdings, now or hereafter imposed, levied, collected, withheld or
         assessed by any Governmental Authority, excluding net income taxes and
         franchise taxes (imposed in lieu of net income taxes) imposed on the
         Lender as a result of any future, present or former connection between
         the Lender and the jurisdiction of the Governmental Authority imposing
         such tax or any political subdivision or taxing authority thereof or
         therein (other than any such connection arising solely from the Lender
         having executed, delivered or performed its obligations or received a
         payment under, or enforced, this Agreement or the Note or any other
         Financing Document). If any such non-excluded taxes, levies, imposts,
         duties, charges, fees deductions or withholdings ("NON-EXCLUDED TAXES")
         are required to be withheld from any amounts payable to the Lender
         hereunder or under the Note, the amounts so payable to the Lender shall
         be increased ("INCREASED AMOUNTS") to the extent necessary to yield to
         the Lender (after payment of all Non-Excluded Taxes) interest or any
         such other amounts payable hereunder at the rates or in the amounts
         specified in this Agreement. Whenever any Non-Excluded Taxes are
         payable by the Borrowers, the Borrowers shall promptly send to the
         Lender, a certified copy of an original official receipt received by
         the Borrowers showing payment thereof or other evidence of remittance
         of Non-Excluded Taxes reasonably acceptable to the Lender. If the
         Borrowers fail to pay any Non-Excluded Taxes when due to the
         appropriate taxing authority or fail to remit to the Lender the
         required receipts or other reasonably acceptable evidence, the
         Borrowers shall indemnify the Lender for any incremental taxes,
         interest or penalties that may become payable by the Lender as a result
         of any such failure. The Borrowers shall indemnify the Lender for the
         amount of Non-Excluded Taxes paid by the Lender, and any liability
         (including penalties, interest and expenses) arising therefrom or with
         respect thereto. The agreements in this subsection 2.15 shall survive
         the termination of this Agreement and the payment of the Loan and all
         other amounts payable hereunder.

                  (b) If the Lender shall become aware that it is entitled to
         claim a refund from a Governmental Authority in respect of Non-Excluded
         Taxes as to which it has been indemnified by the Borrowers, or with
         respect to which the Borrowers have paid

                                      -7-



         Increased Amounts, pursuant to this subsection, it shall promptly
         notify the Borrowers of the availability of such refund claim and shall
         make the appropriate claim to such Governmental Authority for such
         refund. If the Lender receives a refund (including pursuant to a claim
         for refund made pursuant to the preceding sentence) in respect of any
         Non-Excluded Tax as to which it has been indemnified by the Borrowers,
         or with respect to which the Borrowers have paid Increased Amounts
         pursuant to this subsection, it shall within thirty (30) days from the
         date of such receipt pay over such refund to the Borrowers, net of all
         out-of-pocket third-party expenses of the Lender.

         2.16 Breakage - Indemnity. The Borrowers agree to indemnify the Lender
and to hold the Lender harmless from any loss or expense which the Lender may
sustain or incur as a consequence of (a) default by the Borrowers in making a
borrowing of, conversion into or continuation of LIBOR Loans after the Borrowers
have given a notice requesting the same in accordance with the provisions of
this Agreement, (b) default by the Borrowers in making any prepayment after the
Borrowers have given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of LIBOR Loans or converting any
LIBOR Loans to Prime Rate Loans on a day which is not the last day of an
Interest Period with respect thereto. Such indemnification may include an amount
equal to the excess, if any, of (i) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, converted or continued,
for the period from the date of such prepayment or of such failure to borrow,
convert or continue to the last day of such Interest Period (or, in the case of
a failure to borrow, convert or continue, the last day of the Interest Period
that would have commenced on the date of such failure) in each case at the
applicable rate of interest for such LIBOR Loans provided for herein over (ii)
the amount of interest (as reasonably determined by the Lender) which would have
accrued to the Lender on such amount by placing such amount on deposit for a
comparable period with leading banks in the London interbank market. This
covenant shall survive the termination of this Agreement and the payment of the
Loan and all other amounts payable hereunder.

SECTION 3.        CONDITIONS PRECEDENT.

         The effectiveness of this Agreement and the agreement of the Lender to
make the initial Extension of Credit requested to be made by it is subject to
the satisfaction, immediately prior to or concurrently with the making of such
Extension of Credit on the Closing Date, of the following conditions precedent:

         3.1 Financing Documents. The Lender shall have received the following
Financing Documents, each as duly executed by the parties thereto, with their
signatures properly witnessed and notarized thereon where indicated: (i) this
Agreement; (ii) the Note conforming to the requirements hereof; and (iii) the
Security Agreements.

         3.2 Actions to Perfect Liens. The Lender shall have received evidence
in form and substance reasonably satisfactory to it that all filings, recordings
and registrations, including, without limitation, the filing of duly executed
financing statements on form UCC-1, necessary or, in the opinion of the Lender,
desirable to perfect the Liens created by the Security Documents shall have been
completed (or, to the extent that any such filings, recordings, registrations
and other actions shall not have been completed, arrangements satisfactory to
the Lender for the completion thereof shall have been made).

                                      -8-



         3.3 Intentionally Omitted.

         3.4 Lien Searches. The Lender shall have received the results of a
recent search by a Person reasonably satisfactory to the Lender, of the UCC,
judgment and tax lien filings which may have been filed with respect to personal
property of the Borrower and each of its Subsidiaries in the jurisdictions set
forth in APPENDIX B, and the results of such search shall be satisfactory to the
Lender.

         3.5 Payoff Letters. The Lender shall have received payoff letters from
Transamerica Business Credit Corporation, GE Capital Corporation and Fleet
National Bank, setting forth in reasonable detail the total amount of
Indebtedness owed by the Borrowers to said lenders as of the Closing Date,
together with appropriate wire instructions attached thereto.

         3.6 UCC-3 Termination Statements. The Lender shall have received UCC-3
termination statements and any other instrument necessary to terminate the Liens
granted by the Borrowers to any Person (other than Permitted Liens) (or, to the
extent that any such UCC-3 termination statements or any other instrument shall
not have been obtained and filed, arrangements satisfactory to the Lender for
the obtaining and filing thereof shall have been made).

         3.7 Corporate Proceedings of the Borrowers. The Lender shall have
received a copy of the resolutions, in form and substance satisfactory to the
Lender, of the Board of Directors of each Borrower authorizing (i) the
execution, delivery and performance of this Agreement and the other Financing
Documents to which it is a party, (ii) the Extensions of Credit contemplated
hereunder and (iii) the granting by it of the Liens created pursuant to the
Security Documents to which it is a party, all as certified by the Secretary or
an Assistant Secretary of each Borrowers as of the Closing Date, which
certificates shall be in form and substance reasonably satisfactory to the
Lender and shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded.

         3.8 Borrowers Incumbency Certificates. The Lender shall have received a
certificate from each of the Borrowers, dated as of the Closing Date, as to the
incumbency and signature of the officers of such Borrower executing any
Financing Document reasonably satisfactory in form and substance to the Lender,
executed by the President or any Vice President and the Secretary or an
Assistant Secretary of such Borrower.

         3.9 Corporate Documents. The Lender shall have received true and
complete copies of the Certificate of Incorporation and By-Laws of each of the
Borrowers, as certified as of the Closing Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of each of the Borrowers.

         3.10 Legal Existence, Good Standing, Tax Good Standing and Foreign
Qualification Certificates. The Lender shall have received certificates of legal
existence, good standing, tax good standing and foreign qualification for each
of the Borrowers, all of recent date issued by the appropriate Governmental
Authorities.

         3.11 Insurance. The Lender shall have received evidence in form and
substance satisfactory to it that all of the requirements of subsection 5.5 and
those Sections of the Security Documents requiring the maintenance of insurance
shall have been satisfied.

                                      -9-


         3.12 December 31, 2002 Financial Statements. The Lender shall have
received the audited consolidated financial statements of the Borrowers for the
year ended December 31, 2002 without a "going concern" or like qualification or
exception, or a qualification arising out of the scope of the audit, prepared by
Deloitte & Touche LLP in a draft form subject only to immaterial changes. A
change in the auditors' opinion shall constitute a material change under this
subsection.

         3.13 Legal Opinion. The Lender shall have received an executed legal
opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to the
Borrowers, covering such matters related to the transactions contemplated by
this Agreement and the other Financing Documents as the Lender may reasonably
request. Such legal opinion shall be in a form and substance reasonably
acceptable to the Lender and its counsel.

         3.14 Fees and Expenses The Lender shall have received reimbursement or
payment of (i) all reasonable and documented legal fees incurred by the Lender
in connection with the transactions contemplated herein, and (ii) all other
reasonable and documented out-of-pocket costs and expenses incurred by the
Lender in connection with the transactions contemplated herein.

SECTION 4.        REPRESENTATIONS AND WARRANTIES.

         To induce the Lender to enter into this Agreement and to make the Loan,
the Borrowers hereby jointly and severally represent and warrant to the Lender
that, except as otherwise described in the MASTER DISCLOSURE SCHEDULE attached
hereto:

         4.1 Financial Condition. The Borrowers have furnished to the Lender the
financial statements of the Borrowers for the years ended December 31, 2000,
December 31, 2001 and December 31, 2002 (collectively, the "INITIAL FINANCIAL
STATEMENTS"). The Initial Financial Statements were prepared in accordance with
GAAP, consistently maintained and applied throughout the periods covered thereby
(except as may be noted therein) and fairly present the financial condition of
the Borrowers on the respective dates thereof and the results of the Borrowers'
operations for the respective periods covered thereby.

         4.2 No Change. Since December 31, 2002, (a) there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect, (b) there has been no sale, transfer or other
disposition by the Borrowers of any material part of their respective businesses
or properties and no purchase or other acquisition of any business or property
(including any Capital Stock of any Borrower) material in relation to the
financial condition of the Borrowers on December 31, 2002, and (c) no dividends
or other distributions have been declared, paid or made upon the Capital Stock
of any Borrower (other than those dividends and distributions permitted pursuant
to subsection 6.9 nor has any of the Capital Stock of any Borrower been
redeemed, retired, purchased or otherwise acquired for value by such Borrower.

         4.3 Existence; Compliance with Law. Each of the Borrowers (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the power and authority to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently engaged, (c) is duly qualified or licensed
to do business as a foreign company and in good standing under the laws of each

                                      -10-


jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification except where the failure to be so
qualified and/or in good standing, in the aggregate could not reasonably be
expected to have a Material Adverse Effect and (d) is in compliance with all
Requirements of Law and applicable Charter Documents except to the extent that
the failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.

         4.4 Power; Authorization; Enforceable Obligations. Each of the
Borrowers has the power and authority, and the legal right, to make, deliver and
perform the Financing Documents to which it is a party and, to borrow hereunder.
Each of the Borrowers has taken all necessary action to authorize the Loan on
the terms and conditions of this Agreement and the Note and to authorize the
execution, delivery and performance by it of the Financing Documents to which it
is a party. No consent or authorization of, filing with, notice to or other act
by or in respect of, any Governmental Authority or any other Person is required
to be obtained or made by any Borrower in connection with the Loan hereunder or
with the execution, delivery or performance by such Borrower or the validity or
enforceability with respect to or against such Borrower, as the case may be, of
the Financing Documents to which such Borrower is a party (other than the
filings of Uniform Commercial Code financing statements in order to perfect the
security interest that can be perfected by such filings). Each of the Financing
Documents, when executed and delivered, will constitute a legal, valid and
binding obligation of each of the Borrowers enforceable against each of them to
the extent that it is a party thereto, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).

         4.5 No Legal Bar. The execution, delivery and performance of the
Financing Documents, the Loan hereunder and the use of the proceeds thereof by
the Borrowers will not violate any Requirement of Law, Charter Document or
Contractual Obligation of any Borrower which could reasonably be expected to
have a Material Adverse Effect and will not result in, or require, the creation
or imposition of any Lien on any of its or their respective properties or
revenues pursuant to any such Requirement of Law, Charter Document or
Contractual Obligation other than as contemplated in or permitted by the
Financing Documents.

         4.6 No Material Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrowers, threatened by or against any Borrower or against any
of their respective properties or revenues which has a reasonable possibility of
an adverse determination, and if adversely determined, could reasonably be
expected to have a Material Adverse Effect.

         4.7 No Default. None of the Borrowers is in default under or with
respect to any of its Contractual Obligations in any respect which could
reasonably be expected to have a Material Adverse Effect. No Default or Event of
Default has occurred and is continuing hereunder.

         4.8 Ownership of Property; Liens. Each of the Borrowers has good record
and marketable title in fee simple to, or a valid leasehold interest in, all of
its real property except for such matters as do not materially adversely affect
the use of the property in the conduct of the business as currently conducted,
and good title to, or a valid leasehold interest in, all its other material
property, and none of such property is subject to any Lien (other than Permitted
Liens). Set forth on the Master Disclosure Schedule is a true and complete list
of all of real property

                                      -11-


owned or leased by the Borrowers as of the Closing Date and all Liens granted by
the Borrowers in respect of any real property owned or leased by the Borrowers
or any of them as of the Closing Date.

         4.9 Intellectual Property. (a) Each of the Borrowers owns, or is
licensed to use, all Intellectual Property necessary for the conduct of its
business except for those the failure to own or license which could not
reasonably be expected to have a Material Adverse Effect and (b) no claim of
which any Borrower has been given notice has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does any
Borrower know of any valid basis for any such claim, except for such claims
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.

         4.10 No Burdensome Restrictions. No Requirement of Law or Contractual
Obligation applicable to any Borrower could reasonably be expected to have a
Material Adverse Effect.

         4.11 Taxes. Each Borrower has filed or caused to be filed all tax
returns which, to the knowledge of such Borrower, are required to be filed and
have paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property in respect of such periods
and all other material taxes imposed on it or any of its property by any
Governmental Authority (other than any taxes the amount or validity of which are
being contested in good faith by appropriate proceedings and with respect to
which reserves in conformity with GAAP have been provided on the books of the
Borrowers and other than any taxes which in the aggregate would not have a
Material Adverse Effect) in respect of such periods.

         4.12 Federal Regulations. No part of the proceeds of any Loan will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulations G, U or X of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect. If requested by the Lender, the Borrower will furnish to the Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
U-1 referred to in said Regulation U.

         4.13 ERISA. Each Borrower and each Commonly Controlled Entity is in
compliance in all material respects with ERISA and the provisions of the Tax
Code applicable to any Plans. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Tax Code or
Section 302 of ERISA) has occurred with respect to any Plan. Neither any
Borrower nor any Commonly Controlled Entity has incurred any liability to the
PBGC over and above premiums which are required by law and which would
constitute a Material Adverse Effect. Neither any Borrower nor any Commonly
Controlled Entity has terminated any Plan in a manner which could result in the
imposition of a Lien on the property of any Borrower.

         4.14 Investment Company Act; Other Regulations. None of the Borrowers
is an "investment company" within the meaning of the Investment Company Act of
1940, as amended. None of the Borrowers is subject to regulation under any
Federal or State statute or regulation which limits its ability to incur
Indebtedness as contemplated herein.

                                      -12-


         4.15 Subsidiaries. Set forth on the Master Disclosure Schedule is a
true and complete list of all of the Subsidiaries of each of the Borrowers as of
the Closing Date.

         4.16 Environmental Matters. Except to the extent that the inaccuracy of
any of the following (or the circumstances giving rise to such inaccuracy),
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, and to the knowledge of any Responsible Officer of any
Borrower:

                  (a) The facilities and properties owned, leased or operated by
         any Borrower does not contain any Hazardous Materials in amounts or
         concentrations which (i) constitute a violation of, or (ii) could give
         rise to any liability under, any Environmental Law or could interfere
         with the continued operation of the facilities and properties owned,
         leased or operated by any of the Borrowers or could reasonably be
         expected to impair the fair saleable value thereof.

                  (b) The Borrowers, together with all of the facilities and
         properties owned, leased or operated by any of the Borrowers, are in
         compliance, and to the knowledge of the Borrowers have in the last
         three years been in compliance with all applicable Environmental Laws
         and applicable Environmental Permits, and the Borrowers reasonably
         believe that they will be able to comply with all applicable
         Environmental Laws in the future and renew or obtain all Environmental
         Permits necessary for their operations in the future.

                  (c) None of the Borrowers has received any written notice of
         violation, alleged violation, non-compliance, liability or potential
         liability regarding environmental matters or compliance with
         Environmental Laws with regard to any of the facilities and properties
         owned, leased or operated by any Borrower or the business of any
         Borrower, nor to the knowledge of the Borrowers, is such notice being
         threatened.

                  (d) Hazardous Materials have not been transported, disposed
         of, emitted, discharged, or otherwise released or threatened to be
         released, nor has their disposal been arranged for, (i) by any Borrower
         in violation of, or (ii) in a manner or to a location which could
         reasonably be expected to give rise to liability under, any applicable
         Environmental Law; nor have any Hazardous Materials been generated,
         treated, stored, emitted, discharged or otherwise released or
         threatened to be released or disposed of at, on or under any of the
         facilities and properties owned, leased or operated by any Borrower in
         violation of, or in a manner that could reasonably be expected to give
         rise to liability under, any applicable Environmental Law.

                  (e) No judicial proceeding or governmental or administrative
         action is pending or, to the knowledge of any of the Borrowers,
         threatened, under any Environmental Law to which any Borrower is or to
         the knowledge of any of the Borrowers will be named as a party, nor are
         there any consent decrees or other decrees, consent orders,
         administrative orders or other orders, or other administrative or
         judicial requirements outstanding under any Environmental Law with
         respect to any Borrower, or any of the facilities and properties owned,
         leased or operated by any Borrower.

         4.17 Solvency. As of the Closing Date, after giving effect to the
transactions contemplated to occur on the Closing Date, each of the Borrowers is
Solvent.

                                      -13-


SECTION 5.        AFFIRMATIVE COVENANTS.

         The Borrowers hereby jointly and severally covenant and agree that so
long as all or any portion of the Loan is outstanding, that:

         5.1 Financial Statements. The Borrowers shall furnish to the Lender the
following financial statements:

                  (a) As soon as available, but in any event within ninety (90)
         days after the end of each fiscal year of the Borrowers, a copy of the
         audited consolidated balance sheet of the Borrowers as at the end of
         such fiscal year and the related audited consolidated statements of
         income and retained earnings and of cash flows for such fiscal year,
         setting forth in each case in comparative form the figures for the
         previous year, reported on without a "going concern" or like
         qualification or exception, or a qualification arising out of the scope
         of the audit, by Deloitte & Touche LLP or such other independent
         certified public accountants reasonably satisfactory to the Lender (it
         being understood that the requirements of the provisions of this clause
         (a) for any fiscal year may be satisfied by delivery of a copy of ARIAD
         Pharmaceuticals, Inc.'s annual report on Form 10-K for such fiscal
         year); and

                  (b) As soon as available, but in any event not later than
         forty-five (45) days after the end of each of the first 3 quarterly
         periods of each fiscal year of the Borrowers, the management-prepared
         consolidated balance sheet of the Borrowers as at the end of such
         quarter and the related management-prepared consolidated statements of
         income and retained earnings and of cash flows of the Borrowers for
         such quarter and the portion of the fiscal year through the end of such
         quarter, setting forth in each case in comparative form the figures for
         the previous year, certified by a Responsible Officer of each Borrower
         as being fairly stated in all material respects (subject to normal
         year-end audit adjustments) (it being understood that the requirements
         of the provisions of this clause (b) for any quarterly period may be
         satisfied by delivery of a copy of ARIAD Pharmaceuticals, Inc.'s
         quarterly report on Form 10-Q for such fiscal year).

                  (c) Concurrently with the delivery of the financial statements
         referred to in subsections 5.1(a) and 5.1(b), the Borrowers shall each
         furnish to the Lender a compliance certificate ("COMPLIANCE
         CERTIFICATE"), signed by the respective Chief Financial Officer of each
         Borrower, certifying that as of the end of such quarter the Borrowers
         are in full compliance with the terms and conditions of this Agreement.
         Such Compliance Certificate shall be in the form attached hereto as
         EXHIBIT B.

                  (d) As soon as available, but in any event, within ten (10)
         days after the end of each month, a cash report summarizing the
         Borrowers' cash investments in the form attached hereto as EXHIBIT C.

                  (e) As soon as available, but in any event, within forty five
         (45) days after the issuance thereof, the Borrowers shall each furnish
         to the Lender copies of such other financial statements, proxy
         materials and reports as it shall send or make available to its
         stockholders, and promptly upon the filing thereof, copies of all
         reports and materials which any of the Borrowers file with any
         governmental commission (including, without limitation the SEC),
         department or agency or with any domestic or foreign stock

                                      -14-


         exchange or with the NASDAQ, including without limitation, copies of
         (i) any registration statements, prospectuses and any amendments and
         supplements thereto, and any regular and periodic reports (including,
         without limitation, reports on Form 10-K, Form 10-Q and Form 8-K) filed
         by ARIAD Pharmaceuticals, Inc. with the SEC or any domestic or foreign
         stock exchange or with the NASDAQ; and (ii) any letter of comment or
         correspondence with respect to filings or compliance matters sent to
         any of the Borrowers by the SEC or the NASDAQ; provided that the
         foregoing provisions shall not apply to reports, materials, letters or
         correspondence (other than those filed with or received from the SEC)
         filed or received by any of the Borrowers in the ordinary course of
         business or which otherwise do not involve matters that could result in
         a Material Adverse Effect.

All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or Responsible Officer, as the
case may be, and disclosed therein). For purposes of this Agreement, financial
statements shall be deemed delivered upon being posted on the Electronic Data
Gathering Analysis and Retrieval System.

         5.2 Certificates; Other Information. The Borrowers shall furnish to the
Lender the following certificates and other information:

                  (a) concurrently with the delivery of the financial statements
         referred to in subsection 5.1(a), a certificate of the independent
         certified public accountants reporting on such financial statements
         stating that in making the examination necessary therefor no knowledge
         was obtained of any Default or Event of Default, except as specified in
         such certificate;

                  (b) not later than forty-five (45) days after the beginning of
         each fiscal year of the Borrowers, a copy of the projections by the
         Borrowers of the balance sheet, income statement and cash flow
         statement of each of the Borrowers for such fiscal year, such
         projections to be accompanied by a certificate of a Responsible Officer
         of each of the Borrowers to the effect that such projections have been
         prepared using assumptions believed in good faith by management of each
         respective Borrower to be reasonable at the time made and that such
         Responsible Officer has no reason to believe that such projections are
         incorrect or misleading in any material respect;

                  (c) within fifteen (15) calendar days after the same are sent,
         copies of all other financial statements and reports which the
         Borrowers send to the holders of any class of its debt securities or
         public equity securities and within fifteen (15) calendar days after
         the same are filed, copies of all other financial statements and
         reports which the Borrowers may make to, or file with, the SEC or any
         successor or analogous Governmental Authority; and

         The Borrowers shall furnish to the Lender promptly, such additional
financial and other information within the possession of the Borrowers as the
Lender may from time to time reasonably request. All information supplied to the
Lender pursuant to this Agreement shall be treated as confidential information.

                                      -15-


         5.3 Payment of Obligations. The Borrowers shall pay, discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all of the material obligations of each such Borrower, except as
contemplated by this Agreement or where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Borrowers, as the case may be.

         5.4 Conduct of Business and Maintenance of Existence. The Borrowers
shall: (a) continue to engage in the business of the same general type as now
conducted by each Borrower; (b) preserve, renew and keep in full force and
effect their existence and take all reasonable action to maintain in all
material respects all rights, privileges and franchises necessary or desirable
in the normal conduct of their businesses except as otherwise permitted pursuant
to subsection 6.56; and (c) comply in all material respects with all Contractual
Obligations and Requirements of Law, except where (i) any such Contractual
Obligation is being contested in good faith, a bona fide dispute exists with
respect to any such Contractual Obligation or failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect,
and (ii) any such Requirement of Law is being contested in good faith and the
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.

         5.5 Maintenance of Property; Insurance. Each Borrower shall: (a) keep
all property material to the conduct of its business in good working order and
condition; (b) maintain insurance with financially sound and reputable insurance
companies on such of its property and in at least such amounts and against at
least such risks as are usually insured against in the same general area by
companies engaged in the same or a similar business; and (c) furnish to the
Lender, upon written request, full information as to the insurance carried.

         5.6 Inspection of Property; Books and Records; Discussions. The
Borrowers shall: (a) keep proper financial records in conformity with GAAP and
all Requirements of Law; (b) permit representatives of the Lender to visit and
inspect any of their properties and examine and make abstracts from any of their
books and records at any reasonable time, upon reasonable notice, once per year
if no Event of Default has occurred and is continuing and as often as may
reasonably be desired if an Event of Default has occurred and is continuing; and
(c) permit, upon reasonable notice during normal business hours, representatives
of the Lender to discuss the business, operations, properties and financial and
other condition of the Borrower and its Subsidiaries with officers charged with
management and/or oversight of the financial affairs of the Borrower and its
Subsidiaries.

         5.7 Notices. The Borrowers shall give prompt notice to the Lender of:

                  (a) the occurrence of any Default or Event of Default;

                  (b) any (i) default or event of default under any Contractual
         Obligation of any Borrower or (ii) litigation, investigation or
         proceeding which may exist at any time between any Borrower and any
         Governmental Authority, which in either case, if not cured, or resolved
         or if adversely determined, as the case may be, could reasonably be
         expected to have a Material Adverse Effect;

                  (c) any litigation or proceeding affecting any Borrower in
         which the amount involved is not covered by insurance or in which
         injunctive or similar relief is sought

                                      -16-


         which, if adversely determined, could reasonably be expected to have a
         Material Adverse Effect;

                  (d) the following events, as soon as possible and in any event
         within thirty (30) days after any Borrower knows or has reason to know
         thereof: (i) the occurrence or expected occurrence of any Reportable
         Event with respect to any Plan, a failure to make any required
         contribution to a Plan, the creation of any Lien in favor of the PBGC
         or a Plan or (ii) the institution of proceedings or the taking of any
         other action by the PBGC or any Borrower or any Commonly Controlled
         Entity with respect to the withdrawal from, or the termination,
         reorganization or insolvency of, any Plan; and

                  (e) any development or event which could reasonably be
         expected to have a Material Adverse Effect.

         Each notice pursuant to this subsection shall be accompanied by a
statement of a Responsible Officer setting forth details of the occurrence
referred to therein and stating what action the Borrowers propose to take with
respect thereto.

         5.8 Environmental Laws. The Borrowers shall:

                  (a) comply with, and use reasonable efforts to ensure
         compliance by all tenants and subtenants, if any, with, all applicable
         Environmental Laws and obtain and comply with and maintain, and use
         reasonable efforts to ensure that all tenants and subtenants, if any,
         obtain and comply with and maintain, any and all Environmental Permits
         required by applicable Environmental Laws; and

                  (b) Conduct and complete all investigations, studies, sampling
         and testing, and all remedial, removal and other actions required under
         Environmental Laws and promptly comply with all lawful orders and
         directives of all Governmental Authorities regarding Environmental
         Laws, except to the extent that the same are being contested in good
         faith by appropriate proceedings and the pendency of such proceedings
         could not be reasonably expected to have a Material Adverse Effect.

         5.9 Maintenance of Liens of the Security Documents. The Borrowers shall
promptly, upon the reasonable request of the Lender, at the sole cost and
expense of the Borrowers, execute, acknowledge and deliver, or cause the
execution, acknowledgement and delivery of, and thereafter register, file or
record, or cause to be registered, filed or recorded, in an appropriate
governmental office, any document or instrument supplemental to or confirmatory
of the Security Documents or otherwise reasonably deemed by the Lender necessary
or desirable for the continued validity, perfection and priority of the Liens on
the Collateral covered thereby.

         5.10 Pledge of After Acquired Property. If at any time following the
Closing Date, any Borrower shall acquire property of any nature whatsoever
having a value in excess of Fifty Thousand and 00/100 Dollars ($50,000.00) which
is intended by the terms of the applicable Security Document to be, but is not,
subject to the Liens created by the Security Documents, such Borrower shall, as
soon as possible and in no event later than thirty (30) days after the relevant
acquisition date and, to the extent permitted by applicable law, grant to the
Lender a first priority (subject to Permitted Liens) Lien on such property as
collateral security for the Obligations pursuant to documentation reasonably
satisfactory in form and substance to the Lender. The Borrowers, at their sole
expense, shall execute, acknowledge and deliver, or cause

                                      -17-


the execution, acknowledgement and delivery of, and thereafter register, file or
record in an appropriate governmental office, any document or instrument
(including legal opinions, title insurance, consents and corporate documents)
and take all such actions reasonably deemed by the Lender to be necessary or
desirable to ensure the creation, priority and perfection of such Lien.

         5.11 New Subsidiaries. The Borrowers shall cause, at their sole cost
and expense, each new Subsidiary of a Borrower created or acquired on or after
the date hereof, promptly upon such creation or acquisition, to execute and
deliver to the Lender the following agreements and documents, which agreements
and documents shall be in form and substance reasonably satisfactory to the
Lender: (a) a joinder agreement in such form as the Lender shall require
pursuant to which such new Domestic Subsidiary shall become a co-borrower
hereunder; (b) a security agreement in such form as the Lender shall require,
pursuant to which, such Domestic Subsidiary shall grant to the Lender a first
priority perfected security interest in all of its assets in order to secure the
full and prompt payment and performance of the Obligations; (c) any and all UCC
financing statements which the Lender deems necessary and appropriate in order
to perfect its first priority perfected security interests in all of the assets
of such Domestic Subsidiary; and (d) such other agreements, documents, financing
statements, instruments, opinions and certificates and completion of such other
matters, as the Lender may reasonably deem necessary or appropriate.

         Promptly upon the creation or acquisition of any Foreign Subsidiary
created or acquired after the date hereof, the Borrowers shall cause, at their
sole cost and expense, 65% of the Capital Stock, membership interests and other
equity interests of each such Foreign Subsidiary, to be pledged to the Lender so
that the Lender has a first priority perfected security interest in all such
shares, membership interests and other equity interests. Such pledge shall be
pursuant to a pledge agreement in a form and substance reasonably satisfactory
to the Lender.

         5.12 Depository Accounts. Each Borrower shall maintain the Lender as
its primary bank for all depository accounts.

         5.13 Cash, Cash Equivalents, Marketable Securities and Investments.

                  (a) During the term of this Agreement, the Borrowers shall
         maintain, as evidenced on their consolidated balance sheet, not less
         than Ten Million and 00/100 Dollars ($10,000,000.00) in Unrestricted
         Cash, unrestricted Cash Equivalents, and unrestricted marketable
         securities (the "LIQUID ASSETS").

                  (b) Not less than Eighty-Five Percent (85%) of the Borrowers'
         total Liquid Assets shall be invested through and held by the Treasury
         Desk in Cash Equivalents or such other debt investments as are offered
         through the Treasury Desk and which are consistent with the Borrowers'
         current investment policy, a copy of which is attached hereto as
         EXHIBIT D, all of such investments to be in book entry form with
         maturity dates of not less than thirty (30) days (each singly, a
         "TREASURY DESK INVESTMENT" and collectively, the "TREASURY DESK
         INVESTMENTS").

                  (c) Each Maturing Treasury Desk Investment shall automatically
         be renewed for a like period and on market terms unless the Borrowers
         have notified the Lender of their intent to change the Treasury Desk
         Investment. To institute such a change, the Borrower

                                      -18-


         shall, not less than two (2) Business Days prior to the maturity of
         such Treasury Desk Investment, provide special instructions to the
         Treasury Desk regarding the maturing Treasury Desk Investment. The
         Borrowers shall confirm such instructions to the Treasury Desk and the
         Lender the same day by e-mail notification in the form attached hereto
         as EXHIBIT E (the "CONFIRMATION NOTIFICATION"). The Confirmation
         Notification shall contain, in addition to standard instructions, a
         representation and warranty that the execution of the requested
         instructions shall not cause a breach of any of the covenants contained
         in this Agreement.

SECTION 6.        NEGATIVE COVENANTS.

         The Borrowers hereby jointly and severally covenant and agree that so
long as all or any portion of the Loan is outstanding, that:

         6.1 Limitation on Changes in Fiscal Year. The Borrowers shall not
change their fiscal year.

         6.2 Limitation on Indebtedness. The Borrowers shall not create, incur,
assume or suffer to exist any Indebtedness, except:

                  (a) Indebtedness to the Lender arising under any of the
         Financing Documents;

                  (b) in addition to the Indebtedness listed in the other
         subsections of this Section 6.2, Indebtedness of the Borrowers, on a
         consolidated basis, not to exceed Two Hundred Fifty Thousand and 00/100
         Dollars in the aggregate.

                  (c) current liabilities which are incurred in the ordinary
         course of business and which are not incurred through (i) the borrowing
         of money or (ii) the obtaining of credit except for credit on an open
         account basis customarily extended and in fact extended in connection
         with normal purchases of goods and services;

                  (d) Indebtedness with respect to taxes, assessments,
         governmental charges or levies which are being contested in good faith
         by appropriate proceedings, provided that adequate reserves with
         respect thereto are maintained on the books of the Borrowers in
         conformity with GAAP; and

                  (e) Indebtedness of any Borrower to any Subsidiary and of any
         Subsidiary to any Borrower or any other Subsidiary, so long as such
         Indebtedness (i) is subordinated in right of payment to all
         Obligations; and (ii) has terms and conditions as the Lender may
         reasonably require.

         6.3 Limitation on Contingent Liabilities. The Borrowers shall not
assume, guarantee, endorse or otherwise become directly or contingently liable
(including without limitation, liable by way of agreement, contingent or
otherwise to purchase or provide funds for payment, to supply funds to or
otherwise invest in any debtor or otherwise to assure any creditor against any
loss) in connection with any Indebtedness of any other Person, except for
liabilities to the Lender arising under any of the Financing Documents.

                                      -19-


         6.4 Limitation on Liens. The Borrowers shall not create, incur, assume
or suffer to exist any Lien upon any of their properties, assets or revenues,
whether now owned or hereafter acquired, except for the following (hereinafter
referred to collectively as "PERMITTED LIENS"):

                  (a) Liens created pursuant to the Security Documents;

                  (b) Liens for taxes not yet due or which are being contested
         in good faith by appropriate proceedings, provided that adequate
         reserves with respect thereto are maintained on the books of the
         Borrowers in conformity with GAAP;

                  (c) statutory landlords' liens and carriers', warehousemen's,
         mechanics', materialmen's, repairmen's or other like Liens arising in
         the ordinary course of business for sums which are not overdue for a
         period of more than sixty (60) days or which are being contested in
         good faith by appropriate proceedings;

                  (d) judgment Liens created by or resulting from any litigation
         or legal proceeding if released or bonded within thirty (30) days of
         the date of creation thereof, unless such litigation or legal
         proceeding could reasonably be expected to have a Material Adverse
         Effect;

                  (e) pledges or deposits in connection with workers'
         compensation, unemployment insurance and other social security
         legislation and deposits securing liability to insurance carriers under
         insurance or self-insurance arrangements;

                  (f) deposits to secure the performance of bids, trade
         contracts (other than for borrowed money), leases, statutory
         obligations, surety and appeal bonds, performance bonds and other
         obligations of a like nature incurred in the ordinary course of
         business;

                  (g) Liens consisting of easements, zoning restrictions,
         flowage rights, rights-of-way, covenants, conditions, restrictions,
         reservations, licenses, agreements and other similar matters, which, in
         the aggregate, are not substantial in amount and which do not in any
         case materially detract from the use of the property subject thereto or
         materially interfere with the ordinary conduct of the business of the
         Borrower or such Subsidiary;

                  (h) Liens to secure Indebtedness for Purchase Money
         Indebtedness to the extent that such Indebtedness is permitted under
         subsection 6.2(b); provided, however, that (i) each such Lien is given
         only to secure the purchase price of the property which is the subject
         of such Purchase Money Indebtedness, does not extend to any other
         property and is given at the time of acquisition of the property; and
         (ii) the Purchase Money Indebtedness secured thereby does not exceed
         the lesser of the cost of such property or its fair market value at the
         time of acquisition;

                  (i) Liens in favor of lessors under Capitalized Leases to the
         extent that the Capitalized Lease Obligations thereunder is
         Indebtedness permitted under subsection 6.2; provided, however, that
         each such Lien extends only to the property which is subject of such
         Capitalized Lease, is given only to secure the Capitalized Lease
         Obligations under such Capitalized Lease, and is given at the
         commencement date of such Capitalized Lease; and

                                      -20-


                  (j) Liens in existence on the date hereof listed on the Master
         Disclosure Schedule; provided, however, that no such Lien encumbers any
         additional property after the Closing Date and that the amount of
         Indebtedness secured thereby shall not subsequently be increased.

         6.5 Limitation on Negative Pledges. The Borrowers shall not enter into
with any Person any agreement (other than this Agreement and the other Financing
Documents) which prohibits or limits the ability of the Borrowers to create,
incur, assume or suffer to exist any Lien upon any of their properties, assets
or revenues, whether now owned or hereafter acquired.

         6.6 Limitation on Fundamental Changes. The Borrowers shall not enter
into any merger, consolidation or amalgamation, or liquidate, wind up or
dissolve themselves (or suffer any liquidation or dissolution), or convey, sell,
lease, assign, transfer or otherwise dispose of, all or substantially all of
their property, business or assets, or make any material change in their present
method of conducting business, except pursuant to any sale of assets expressly
permitted by subsection 6.7.

         6.7 Limitation on Sale of Assets. The Borrowers shall not convey, sell,
lease, assign, transfer or otherwise dispose of any of their properties,
businesses or assets (including, without limitation, receivables and leasehold
interests), whether now owned or hereafter acquired, except:

                  (a) the conveyance, sale, lease, assignment, transfer or other
         disposition of Obsolete Property or surplus property in the ordinary
         course of business;

                  (b) the sale of inventory in the ordinary course of business;

                  (c) the sale or discount for fair value, without recourse and
         consistent with sound business practices of accounts receivable arising
         in the ordinary course of business in connection with the compromise or
         collection thereof;

                  (d) the partnering or collaboration with respect to, or the
         licensing, sublicensing or other sharing of, Intellectual Property in
         the ordinary course of business; and

                  (e) leases or subleases of property not materially interfering
         with the ordinary course of conduct of the business of the Borrower and
         its Subsidiaries.

         6.8 Limitation on Sales and Leasebacks. The Borrowers shall not enter
into any arrangement with any Person providing for the leasing by any such
Borrower of real or personal property which has been or is to be sold or
transferred by such Borrower to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of such Borrower.

         6.9 Restricted Payments. The Borrowers shall not declare or pay any
dividend on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital Stock of
any Borrower or any warrants or options to purchase any such shares of Capital
Stock, whether now or hereafter outstanding, or make any other distribution in
respect thereof, either directly or indirectly, whether in cash or property or
in obligations of the Borrowers (such

                                      -21-


declarations, payments, setting apart, purchases, redemptions, defeasances,
retirements, acquisitions and distributions being herein called "RESTRICTED
PAYMENTS").

         6.10 Limitation on Investments, Loans and Advances. The Borrowers shall
not make any advance, loan, extension of credit or capital contribution to, or
purchase any stock, bonds, notes, debentures or other securities of, or any
assets constituting a business unit of, or make any other investment in, any
Person (an "INVESTMENT"), except:

                  (a) investments in Cash Equivalents;

                  (b) securities held by the Borrowers prior to the Closing Date
         and listed on the Master Disclosure Schedule; and

                  (c) extensions of trade credit and endorsements of negotiable
         instruments and other negotiable documents in the ordinary course of
         business.

                  6.11 Limitation on Transactions with Affiliates. The Borrowers
         shall not enter into any transaction (including, without limitation,
         any purchase, sale, lease or exchange of property or the rendering of
         any service) with any Affiliate unless such transaction is (a)
         otherwise permitted under this Agreement; (b) in the ordinary course of
         the business of such Borrower; and (c) upon fair and reasonable terms
         no less favorable to the Borrowers, than they would obtain in a
         comparable arm's length transaction with a Person which is not an
         Affiliate; provided, however, that the foregoing restriction shall not
         prohibit (i) any employment agreement entered into by any Borrower in
         the ordinary course of business; (ii) any issuance of securities in
         connection with employment arrangements, stock options and stock
         ownership plans of any Borrower entered into in the ordinary course of
         business; (iii) transactions between any of the Borrowers; and (iv) the
         transactions contemplated by the agreements listed on the Master
         Disclosure Schedule.

                  6.12 Limitation on Lines of Business. The Borrowers shall not
         enter into any business, either directly or through any Subsidiary,
         except for those businesses in which the Borrowers are engaged on the
         date of this Agreement or which are reasonably related thereto.

                  6.13 Negative Pledge on Intellectual Property. The Borrowers
shall not create, incur, assume or suffer to exist any Lien upon the
Intellectual Property of the Borrowers whether now owned or hereafter acquired,
except for encumbrances which may be deemed to arise from licensing,
sublicensing or other sharing arrangements permitted under subsection 6.7(d).

SECTION 7.        EVENTS OF DEFAULT.

                  7.1 Events of Default; Acceleration. If any of the following
         events shall occur:

                  (a) the Borrowers shall fail to pay when due: (i) any
         principal of the Loan in accordance with the terms of this Agreement
         and the other Financing Documents; (ii) any interest on any Loan; or
         (iii) any other amount payable hereunder; or

                                      -22-


                  (b) any representation or warranty made or deemed made by any
         Borrower or any other Loan Party herein or in any other Financing
         Document or which is contained in any certificate, document or
         financial or other statement furnished by it at any time under or in
         connection with this Agreement or any such other Financing Document
         shall prove to have been incorrect in any material respect on or as of
         the date made or deemed made; or

                  (c) the failure by any Borrower or any other Loan Party to
         punctually perform, observe, comply with or satisfy any covenant,
         agreement or condition contained in (i) Section 5 or Section 6 of this
         Agreement or (ii) Sections 4.1 and 5.6(a)-(c) of each of the Security
         Agreements; or

                  (d) any Borrower shall default in the observance or
         performance of any other agreement contained in this Agreement or any
         other Financing Document (other than as provided in paragraphs (a)
         through (c) of this Section), and such default shall continue
         unremedied for a period of thirty (30) days after the earlier of (i)
         the date on which a Responsible Officer of such Borrower gives notice
         of such default to the Lender or (ii) the date on which written notice
         thereof shall have been given to the Borrowers by the Lender; or

                  (e) any Borrower shall fail to pay when due (after any
         applicable period of grace) any Indebtedness of such Borrower (other
         than Indebtedness comprising the Obligations), which together with all
         such other due but unpaid Indebtedness, exceeds the sum of Fifty
         Thousand and 00/100 Dollars ($50,000.00), or shall fail (after any
         applicable period of grace) to observe or perform any term, covenant or
         agreement evidencing or securing such Indebtedness, which, if uncured
         or unwaived, permits the acceleration of such Indebtedness, or any
         default or event of default shall have been declared under any
         agreement relating to such Indebtedness; or

                  (f) any Borrower or any other Loan Party shall (i) apply for
         or consent to the appointment of, or the taking of possession by, a
         receiver, custodian, trustee, liquidator or similar official of itself
         or of all or a substantial part of its property, (ii) be generally not
         paying its debts as such debts become due, (iii) make a general
         assignment for the benefit of its creditors, (iv) commence a voluntary
         case under the United States Bankruptcy Code, as amended from time to
         time, (v) take any action or commence any case or proceeding under any
         law relating to bankruptcy, insolvency, reorganization, winding-up or
         composition or adjustment of debts, or any other law providing for the
         relief of debtors, (vi) fail to contest in a timely or appropriate
         manner, or acquiesce in writing to, any petition filed against it in an
         involuntary case under the United States Bankruptcy Code, as amended
         from time to time or other law, (vii) take any action under the laws of
         its jurisdiction of incorporation or organization similar to any of the
         foregoing, or (viii) take any corporate action for the purpose of
         effecting any of the foregoing; or

                  (g) a proceeding or case shall be commenced against any
         Borrower or any other Loan Party, without the application or consent of
         any Borrower or such Loan Party, in any court of competent
         jurisdiction, seeking (i) the liquidation, reorganization, dissolution,
         winding up, or composition or readjustment of its debts, (ii) the
         appointment of a trustee, receiver, custodian, liquidator or the like
         of it or of all or any substantial part of its assets, or (iii) similar
         relief in respect of it, under any law relating to bankruptcy,
         insolvency, reorganization, winding-up or composition or adjustment of
         debts or any

                                      -23-


         other law providing for the relief of debtors, and such proceeding or
         case shall continue undismissed, or unstayed and in effect, for a
         period of forty-five (45) days; or an order for relief shall be entered
         in an involuntary case under the United States Bankruptcy Code, as
         amended from time to time, against any Borrower or any other Loan
         Party; or action under the laws of the jurisdiction of incorporation or
         organization of any Borrower or any other Loan Party similar to any of
         the foregoing shall be taken with respect to any Borrower or any other
         Loan Party and shall continue unstayed and in effect for a period of
         forty-five (45) days; or

                  (h) (i) any Borrower or any Commonly Controlled Entity shall
         fail to pay when due any amount that it shall have become liable to pay
         to the PBGC or to a Plan under Title IV of ERISA, unless (A) such
         liability is being contested in good faith by appropriate proceedings,
         such Borrower or such Commonly Controlled Entity, as the case may be,
         has established and is maintaining adequate reserves in accordance with
         GAAP and no lien shall have been filed to secure such liability or (B)
         which would not have a Material Adverse Effect; (ii) the PBGC shall
         institute proceedings under Title IV of ERISA to terminate or to cause
         a trustee to be appointed to administer any such Plan or Plans; or
         (iii) a condition shall exist by reason of which the PBGC would be
         entitled to obtain a decree adjudicating that any such Plan or Plans
         must be terminated; or

                  (i) one or more judgments or decrees shall be entered against
         any Borrower or any of its Subsidiaries involving individually a
         liability of Fifty Thousand and 00/100 Dollars ($50,000.00) (not paid
         or fully covered by insurance) or in the aggregate a liability (not
         paid or fully covered by insurance) of One Hundred Thousand and 00/100
         Dollars ($100,000.00) or more, and all such judgments or decrees shall
         not have been vacated, discharged, stayed or bonded pending appeal
         within thirty (30) days from the entry thereof; or

                  (j) service of any process upon the Lender, seeking to attach
         by Lien, levy, mesne, trustee or other process, any funds of any
         Borrower on deposit with, or in possession or control of the Lender; or

                  (k) if any of the Financing Documents (or any provision
         contained therein) shall be cancelled, terminated, revoked, curtailed
         or rescinded otherwise than in accordance with the terms thereof or
         with the express prior written agreement, consent or approval of the
         Lender, or any action at law, suit or in equity or other legal
         proceeding to cancel, revoke, curtail or rescind any of the Financing
         Documents shall be commenced by or on behalf of any Borrower or any of
         its officers, director or stockholders, or any Governmental Authority
         of competent jurisdiction shall make a determination that, or issue a
         judgment, order, decree or ruling to the effect that, any of the
         Financing Documents (or any provision contained therein) is illegal,
         invalid or unenforceable in accordance with the terms thereof; or

                  (l) any of the Security Documents shall, at any time after
         their execution and delivery for any reason, cease to create a valid
         and perfected first priority security interest in and to all of the
         Collateral pledged or granted thereunder; or

                  (m) a material portion of the property of the Borrowers
         (whether or not Collateral) is damaged by fire or other casualty, or
         otherwise lost or stolen, the restoration or

                                      -24-


         replacement cost of which property exceeds, in the aggregate, the
         amount of insurance proceeds readily available for such restoration or
         replacement, and such loss would have a Material Adverse Effect; or

                  (n) any default shall exist and remains unwaived or uncured
         with respect to any of the Subordinated Debt if, as a result of such
         default, any holder of the Subordinated Debt, is entitled to cause any
         such Subordinated Debt to become due prior to its stated date of
         maturity; or

                  (o) any of the subordination provisions contained in any of
         the Subordination Agreements ceases to be enforceable in accordance
         with its terms; or

                  (p) there shall be a change in record or the beneficial
         ownership of an aggregate of more than 30% of the outstanding shares of
         Capital Stock of any of the Borrowers, in one or more transactions,
         compared to the ownership of outstanding shares of Capital Stock of
         such Borrower in effect on the date hereof, as evidenced by the filing
         by one Person or a group of Persons of a Schedule 13-D with the SEC;

then, and in any such event, so long as the same may be continuing, the Lender
may, by notice in writing to the Borrowers, declare all amounts owing with
respect to this Agreement, the Notes and the other Financing Documents to be,
and they shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers; provided that in the event of any
Event of Default specified in subsections 7.1(c), Section 7(f), Section 7(g) or
7.1(j), all such amounts shall become immediately due and payable automatically
and without any requirement of notice from the Lender.

SECTION 8.        RIGHTS AND REMEDIES.

         8.1 Rights and Remedies. In case any one or more of the Events of
Default shall have occurred and be continuing, and whether or not the Lender
shall have accelerated the maturity of the Loan pursuant to subsection 7.1, the
Lender, if owed any amount with respect to the Loan may proceed to protect and
enforce its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Agreement and the other Loan Documents or any instrument
pursuant to which the Obligations to the Lender are evidenced, including as
permitted by applicable law the obtaining of the ex parte appointment of a
receiver, and, if such amount shall have become due, by declaration or
otherwise, proceed to enforce the payment thereof or any other legal or
equitable right of the Lender.

         8.2 Setoff. Regardless of the adequacy of any of the Collateral, upon
the occurrence and during the continuance of any Event of Default, any deposits
or other sums credited by or due from the Lender to any Borrower and any
securities or other property of any Borrower in the possession of the Lender may
be applied to or set off by the Lender against the payment of Obligations and
any and all other liabilities, direct, or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, of any Borrower to the
Lender, without any requirement of prior notice from the Lender.

         8.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay
in exercising, on the part of the Lender, any right, remedy, power or privilege
hereunder or under the other

                                      -25-


Financing Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.

         8.4 Distribution of Collateral Proceeds. In the event that, following
the occurrence or during the continuance of any Event of Default, the Lender
receives any monies in connection with the enforcement of any of the Security
Documents, or otherwise with respect to the realization upon any of the
Collateral, such monies shall be distributed for application as follows: (a)
first, to the Obligations in such order or preference as the Lender may
determine; (b) second, upon payment and satisfaction in full or other provisions
for payment in full satisfactory to the Lender of all of the Obligations, to the
payment of any obligations required to be paid pursuant to Section 9-504(l)(c)
of the UCC; and (c) third, the excess, if any, shall be returned to the
Borrowers or to such other Persons as are entitled thereto.

SECTION 9.        MISCELLANEOUS.

         9.1 Survival of Covenants. Except for those which by their terms
survive termination of the Financing Documents, all agreements, representations,
covenants and warranties made by the Borrowers and any Loan Party in the
Financing Documents shall remain in full force and effect until all Obligations
to the Lender have been paid in full and satisfied.

         9.2 Prior Discussions; Amendments in Writing; Counterparts. The
Financing Documents incorporate all discussions and negotiations among the
Lender, the Borrower and the other Loan Parties and either express or implied,
concerning the Obligations, notwithstanding any custom, usage or oral agreement
or understanding to the contrary. This Agreement may be amended or modified only
in writing signed by the parties hereto, and in the case of the Lender signed by
a duly authorized officer thereof. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but such counterparts
together shall constitute one and the same instrument. Any proof of this
Agreement shall require production of only one such counterpart.

         9.3 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

         9.4 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given when delivered by hand, or when sent by
facsimile transmission or by telex, answer back received, or on the first
Business Day after delivery to any overnight delivery service, freight prepaid,
or three (3) Business Days after being sent by certified or registered mail,
return receipt requested, postage prepaid, and addressed as follows in the case
of the Borrowers and the Lender, or to such other address as may be hereafter
notified by the respective parties hereto:

                                      -26-


   (a) If to the Borrowers

                  then:           ARIAD Pharmaceuticals, Inc.
                                  26 Landsdowne Street
                                  Cambridge, Massachusetts 02139
                                  Attention: Laurie A. Allen, Esq., Senior Vice
                                  President and Chief Legal Counsel
                                  Telecopier No: (617) 225-2860

                 with copies to:  Mintz, Levin, Cohn, Ferris, Glovsky and
                                  Popeo, P.C.
                                  One Financial Center
                                  Boston, Massachusetts 02110
                                  Attention: Jeffrey M. Wiesen, Esq.
                                  Telecopier No: 617-542-2241

  (b) If to the Lender, then:     Citizens Bank of Massachusetts
                                  53 State Street
                                  Boston, Massachusetts 02109
                                  Attention: Scott Haskell, Vice President
                                  Telecopier No: (617) 742-9548

                 with copies to:  Eckert Seamans Cherin & Mellott, LLC
                                  One International Place
                                  Boston, MA 02110
                                  Attention: Anil Khosla, Esq.
                                  Telecopier No: 617-342-6899

provided that any notice, request or demand to or upon the Lender pursuant to
subsection 2.2, 2.6, 2.7 or 2.8 shall not be effective until received.

         9.5 Expenses. The Borrowers agree jointly and severally to pay (a) the
reasonable costs of producing and reproducing this Agreement, the other
Financing Documents and the other agreements and instruments mentioned herein,
(b) any taxes (including any interest and penalties in respect thereto) payable
by the Lender (other than taxes based upon the Lender's net income) on or with
respect to the transactions contemplated by this Agreement (the Borrowers hereby
agreeing to indemnify the Lender with respect thereto), (c) the reasonable fees,
expenses and disbursements of counsel to the Lender incurred in connection with
the preparation, negotiation, administration or interpretation of the Financing
Documents and other instruments mentioned herein, and amendments, modifications,
approvals, consents or waivers hereto or hereunder, (d) the reasonable fees,
expenses and disbursements of the Lender incurred by the Lender in connection
with the preparation, negotiation, administration or interpretation of the
Financing Documents and other instruments mentioned herein, including all title
insurance premiums and surveyor, engineering and appraisal charges, (e) all
reasonable out-of-pocket expenses (including without limitation reasonable
attorneys' fees and costs of outside legal counsel, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and
charges) incurred by the Lender in connection with (i) the enforcement of or
preservation of rights under any of the Financing Documents against the
Borrowers or the administration thereof after the occurrence of a Default or
Event of Default (including engineering appraiser and investment banking
charges) and (ii) any litigation, proceeding or dispute whether arising
hereunder or otherwise, in any way related to the Lender's relationship with the
Borrowers and (f) all

                                      -27-


reasonable fees, expenses and disbursements of the Lender incurred in connection
with UCC searches, UCC filings or mortgage recordings. The covenants contained
in this subsection shall survive payment or satisfaction in full of all other
Obligations.

         9.6 Indemnification. The Borrowers agree jointly and severally to
indemnify and hold harmless the Lender from and against any and all claims,
actions and suits whether groundless or otherwise, and from and against any and
all liabilities, losses, damages and expenses of every nature and character
arising out of this Agreement or any of the other Financing Documents or the
transactions contemplated hereby including, without limitation, (a) any actual
or proposed use by the Borrowers of the proceeds of the Loan, (b) any actual or
alleged infringement of any patent, copyright, trademark, service mark or
similar right of any Borrower or any other Loan Party comprised in the
Collateral, (c) all liabilities, obligations, claims, damages, costs, losses and
expenses (including court costs and attorney's reasonable fees and expenses)
that the Lender may sustain or incur by reason of, relating to or arising out of
the preparation of this Agreement, the defending or protecting of any Collateral
or the priority of the Lender's interest therein, or in collecting or enforcing
the Obligations, or in enforcing any of the Lender's rights or remedies, or in
the prosecution or defense of any action or proceeding concerning any matter
growing out of or connected with this Agreement, any of the other Financing
Documents, the Obligations, the Collateral, or on account of the Lender's
relationship with any Borrower or any other Loan Party (except for such claims
which have been determined by a court of competent jurisdiction to have arisen
out of the Lender's actual bad faith, willful misconduct or gross negligence) or
(d) with respect to any Borrower or any other Loan Party and their respective
properties and assets, the violation of any Environmental Law, the presence,
disposal, escape, seepage, leakage, spillage, discharge, emission, release or
threatened release of any Hazardous Substances or any action, suit, proceeding
or investigation brought or threatened with respect to any hazardous Substances
(including, but not limited to, claims with respect to wrongful death, personal
injury or damage to property), in each case including, without limitation, the
reasonable fees and disbursements of counsel and allocated costs of internal
counsel incurred in connection with any such investigation, litigation or other
proceeding; provided however that such indemnification shall not apply to claims
which have been determined by a court of competent jurisdiction to have arisen
out of the Lender's actual bad faith, willful misconduct or gross negligence. In
litigation, or the preparation therefor, the Lender shall be entitled to select
its own counsel and, in addition to the foregoing indemnity, the Borrowers,
jointly and severally, agree to pay promptly the reasonable fees and expenses of
such counsel. If, and to the extent that the obligations of the Borrowers under
this subsection are unenforceable for any reason, the Borrowers hereby agree to
make the maximum contribution to the payment in satisfaction of such obligations
which is permissible under applicable law. The covenants contained in this
subsection shall survive payment or satisfaction in full of all other
Obligations.

         9.7 Acknowledgements. The Borrowers hereby acknowledge that (a) the
Borrowers have been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Financing Documents; (b) the Lender has
no fiduciary relationship with or duty to the Borrowers arising out of or in
connection with this Agreement or any of the other Financing Documents, and the
relationship of the Lender, on the one hand, and the Borrowers, on the other
hand, in connection herewith or therewith is solely that of debtor and creditor;
and (c) no joint venture is created hereby or by the other Financing Documents
or otherwise exists by virtue of the transactions contemplated hereby between
the Borrowers and the Lender.

                                      -28-


         9.8 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, the Lender and their respective
successors and assigns, except that the Borrowers may not assign or transfer any
of their rights or obligations under this Agreement.

         9.9 Loss, Theft, Destruction or Mutilation of any Note. Upon receipt of
an affidavit of an officer of the Lender as to the loss, theft, destruction or
mutilation of any Note or any other Financing Document which is not of public
record, and, in the case of any such loss, theft, destruction or mutilation,
upon cancellation of such Note or other Financing Document, the Borrowers will
issue, in lieu thereof, a replacement note or other Financing Document in the
same principal amount thereof and otherwise of like tenor.

         9.10 Joint and Several Liability. All of the obligations and
liabilities of the Borrowers under this Agreement and the other Financing
Documents are joint and several.

         9.11 WAIVER OF JURY TRIAL. EACH BORROWER AND THE LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER FINANCING DOCUMENTS OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY
CLAIMS.

         9.12 Governing Law; Jurisdiction. This Agreement and the other
Financing Documents are executed and delivered under seal and shall be construed
in accordance with and governed by the laws of The Commonwealth of
Massachusetts, without giving effect to the conflict of law provisions thereof.
Each Borrower submits itself to the non-exclusive jurisdiction of the courts of
The Commonwealth of Massachusetts for all purposes with respect to the Financing
Documents and such Borrower's relationship with the Lender.

            [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]

                                      -29-


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered under seal by their proper and duly authorized
officers as of the day and year first above written.

WITNESS AS TO ALL:                       ARIAD PHARMACEUTICALS, INC.

                                         By:  /s/ Edward M. Fitzgerald
___________________________________         -----------------------------------
Name:                                        Name: Edward M. Fitzgerald
                                             Title: Chief Financial Officer

                                         ARIAD CORPORATION

                                         By:  /s/ Edward M. Fitzgerald
                                            -----------------------------------
                                             Name: Edward M. Fitzgerald
                                             Title: Chief Financial Officer

                                         ARIAD GENE THERAPEUTICS, INC.

                                         By:  /s/ Harvey Berger
                                            -----------------------------------
                                             Name: Harvey J. Berger, M.D.
                                             Title: Chief Executive Officer

                                         CITIZENS BANK OF MASSACHUSETTS

                                         By:  /s/ Scott Haskell
                                            -----------------------------------
                                             Scott Haskell, Vice President

                                      -30-


STATE OF NEW YORK

COUNTY OF NEW YORK, ss.

         On this 12th day of March, 2003, appeared before me the above-named
Edward M. Fitzgerald, Chief Financial Officer of ARIAD Pharmaceuticals, Inc.,
who proved to me on the basis of satisfactory evidence to be the individual
whose name is subscribed to the within instrument, and acknowledged the
foregoing instrument to be his free act and deed and the free act and deed of
ARIAD Pharmaceuticals, Inc.

                                   /s/ Nyisha Shakur
                                   --------------------------------------------
                                   Notary Public
                                   My Commission Expires: May 7, 2006

STATE OF NEW YORK

COUNTY OF NEW YORK, ss.

         On this 12th day of March, 2003, appeared before me the above-named
Edward M. Fitzgerald, Chief Financial Officer of ARIAD Corporation, who proved
to me on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within instrument, and acknowledged the foregoing instrument
to be his free act and deed and the free act and deed of ARIAD Corporation.

                                   /s/ Nyisha Shakur
                                   --------------------------------------------
                                   Notary Public
                                   My Commission Expires: May 7, 2006

STATE OF NEW YORK

COUNTY OF NEW YORK, ss.

         On this 12th day of March, 2003, appeared before me the above-named
Harvey J. Berger, M.D., Chief Executive Officer of ARIAD Gene Therapeutics,
Inc., who proved to me on the basis of satisfactory evidence to be the
individual whose name is subscribed to the within instrument, and acknowledged
the foregoing instrument to be his free act and deed and the free act and deed
of ARIAD Gene Therapeutics, Inc..

                                   /s/ Nyisha Shakur
                                   --------------------------------------------
                                   Notary Public
                                   My Commission Expires: May 7, 2006

                                      -31-


                          COMMONWEALTH OF MASSACHUSETTS

Suffolk County, ss.                                             March 14, 2003

         Then personally appeared the above-named Scott Haskell as Vice
President of Citizens Bank of Massachusetts, and acknowledged the foregoing
instrument to be his free act and deed and the free act and deed of Citizens
Bank of Massachusetts, before me.

                                   /s/ Todd H. Whilton
                                   --------------------------------------------
                                   Notary Public
                                   My commission expires: 1/30/09
                                   [AFFIX NOTARIAL SEAL]

                                      -32-


                                                                    EXHIBIT 10.1

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

                                CREDIT AGREEMENT
                                (the "AGREEMENT")

                                 by and between

                         CITIZENS BANK OF MASSACHUSETTS
                                 (the "LENDER")

                                       and

                       ARIAD PHARMACEUTICALS, INC., ARIAD

                  CORPORATION and ARIAD GENE THERAPEUTICS, INC.
       (each individually, a "BORROWER" and collectively, the "BORROWERS")

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

                           MASTER DISCLOSURE SCHEDULE

         The Borrowers, jointly and severally, represent and warrant to the
Lender that the statements contained in Section 4 of the Agreement are true,
correct and complete as of the date of the Agreement, except as set forth in
this Master Disclosure Schedule (as the same may be supplemented, from time to
time, the "MASTER DISCLOSURE SCHEDULE"). The Master Disclosure Schedule is
arranged in sections corresponding to the lettered and numbered sections
contained in Section 4 of the Agreement.

         4.6      No exceptions except ongoing litigation as a plaintiff against
                  Eli Lilly and Company as described in ARIAD Pharmaceuticals,
                  Inc.'s Form 10-Q for the fiscal quarter ended September 30,
                  2002, filed on November 14, 2002, and its draft Form 10-K for
                  the year ended December 31, 2002.

         4.15     ARIAD Pharmaceuticals, Inc. has the following subsidiaries:

                           ARIAD Corporation (100% owned)
                           ARIAD Gene Therapeutics, Inc. (80% owned)

                  Neither ARIAD Corporation nor ARIAD Gene Therapeutics, Inc.
                  has any subsidiaries.



                                                                    EXHIBIT 10.1

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

                                CREDIT AGREEMENT
                                (the "AGREEMENT")

                                 by and between

                         CITIZENS BANK OF MASSACHUSETTS
                                 (the "LENDER")

                                       and

                       ARIAD PHARMACEUTICALS, INC., ARIAD

                  CORPORATION and ARIAD GENE THERAPEUTICS, INC.
       (each individually, a "BORROWER" and collectively, the "BORROWERS")

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

                                   APPENDIX A

         1.       Definitions. As used in the Agreement, the following terms
shall have the following meanings:

                  "AFFILIATE": as to any Person, any other Person (other than a
         Subsidiary) which, directly or indirectly, is in control of, is
         controlled by, or is under common control with, such Person. For
         purposes of this definition, "control" of a Person means the power,
         directly or indirectly, either to (a) vote 10% or more of the
         securities having ordinary voting power for the election of directors
         of such Person or (b) direct or cause the direction of the management
         and policies of such Person, whether by contract or otherwise.

                  "AGREEMENT": this Credit Agreement, as amended, supplemented
         or otherwise modified from time to time.

                  "ASSET SALE": with respect each of the Loan Parties, any
         voluntary or involuntary sale or other disposition subsequent to the
         Closing Date of any Collateral.

                  "BOARD OF GOVERNORS": the Board of Governors of the Federal
         Reserve System and any Governmental Authority which succeeds to the
         powers and functions thereof.

                  "BORROWERS": as defined in the preamble to this Agreement.

                  "BORROWING DATE": any Business Day specified in a notice
         pursuant to subsection 2.2 as a date on which the Borrowers request the
         Lender to make Loans hereunder.

                  "BUSINESS DAY": (a) for all purposes other than as described
         by clause (b) below, any day excluding Saturday, Sunday and any day
         which is a legal holiday under the laws of The Commonwealth of
         Massachusetts, or is a day on which banking institutions



         located in The Commonwealth of Massachusetts are required or authorized
         by any Requirement of Law to be closed, and (b) with respect to all
         notices, determinations, fundings and payments in connection with LIBOR
         Loans, any day which is a Business Day described in clause (a) and
         which is also a day for trading in dollar deposits by and between banks
         in the London interbank market.

                  "CAPITAL STOCK": any and all shares, interests, participations
         or other equivalents (however designated) of capital stock of a
         corporation, any and all equivalent ownership interests in a Person
         (other than a corporation) and any and all warrants or options to
         purchase any of the foregoing.

                  "CAPITALIZED LEASE": any lease of property, real or personal,
         the obligations of the lessee in respect of which are required in
         accordance with GAAP to be capitalized on a balance sheet of the
         lessee.

                  "CAPITALIZED LEASE OBLIGATIONS": as to any Person, the
         obligations of such Person to pay rent or other amounts under any
         Capitalized Leases; the amount of such obligations at any time shall be
         the capitalized amount thereof at such time determined in accordance
         with GAAP.

                  "CASH EQUIVALENTS": (a) securities issued or directly and
         fully guaranteed or insured by the United States Government, or any
         agency or instrumentality thereof, having maturities of not more than
         one year from the date of acquisition, (b) marketable general
         obligations issued by any state of the United States of America or any
         political subdivision of any such state or any public instrumentality
         thereof maturing within one year from the date of acquisition thereof
         and, at the time of acquisition thereof, having a credit rating of "A"
         or better from either Standard & Poor's Ratings Group or Moody's
         Investors Service, Inc.; (c) certificates of deposit, time deposits,
         eurodollar time deposits, overnight bank deposits or bankers'
         acceptances having maturities of not more than one year from the date
         of acquisition thereof of the Lender, or of any domestic commercial
         bank the long-term debt of which is rated at the time of acquisition
         thereof at least A or the equivalent thereof by Standard & Poor's
         Ratings Group, or A or the equivalent thereof by Moody's Investors
         Service, Inc., and having capital and surplus in excess of Five Hundred
         Million and 00/100 Dollars ($500,000,000.00), (d) repurchase
         obligations with a term of not more than seven days for underlying
         securities of the types described in clauses (a), (b) and (c) entered
         into with any bank meeting the qualifications specified in clause (c)
         above, (e) commercial paper rated at the time of acquisition thereof at
         least A-2 or the equivalent thereof by Standard & Poor's Ratings Group
         or P-2 or the equivalent thereof by Moody's Investors Service, Inc., or
         carrying an equivalent rating by a nationally recognized rating agency,
         if both of the two named rating agencies cease publishing ratings of
         investments, and in either case maturing within three hundred sixty
         five (365) days after the date of acquisition thereof and (f) other
         investment instruments approved in writing by the Lender and offered by
         the Lender or by any financial institution which has a combined capital
         and surplus of not less than One Hundred Million and 00/100 Dollars
         ($100,000,000.00).

                                      -2-


                  "CHARTER DOCUMENTS": as to any Person, the Certificate (or
         Articles) of Incorporation (or Organization) and By-laws or other
         organizational or governing documents of such Person.

                  "CLOSING DATE": the date on which the conditions precedent set
         forth in Section 3 shall be satisfied or waived.

                  "COLLATERAL": all assets of the Loan Parties, now owned or
         hereinafter acquired, upon which a Lien is purported to be created by
         any Security Document.

                  "COMMONLY CONTROLLED ENTITY": an entity, whether or not
         incorporated, which is under common control with any Borrower within
         the meaning of Section 4001 of ERISA or is part of a group which
         includes any Borrower and which is treated as a single employer under
         Section 414(b) or (c) of the Tax Code or, solely for purposes of
         determining liability under Section 412 of the Tax Code, which is
         treated as a single employer under Section 414(b), (c), (m) or (o) of
         the Tax Code.

                  "COMPLIANCE CERTIFICATE": as defined in subsection 5.1(c).

                  "CONFIRMATION NOTIFICATION": as defined in subsection 5.13(c).

                  "CONTRACTUAL OBLIGATION": as to any Person, any provision of
         any security issued by such Person or of any agreement, instrument or
         other undertaking to which such Person is a party or by which it or any
         of its property is bound.

                  "COPYRIGHTS": means any and all copyright rights, copyright
         applications, copyright registrations and like protections in each work
         of authorship and derivative work thereof, whether published or
         unpublished and whether or not the same also constitutes a trade
         secret, now or hereafter existing, created, acquired or held.

                  "DEFAULT": any of the events specified in subsection 7.1,
         whether or not any requirement contained therein for the giving of
         notice, the lapse of time or both, has been satisfied.

                  "DOLLARS" and "$": dollars in lawful currency of the United
         States of America.

                  "DOMESTIC SUBSIDIARY": any Subsidiary that is organized under
         the laws of any jurisdiction within the United States.

                  "ENVIRONMENTAL LAWS": any and all foreign, Federal, state,
         local or municipal laws, rules, orders, regulations, statutes,
         ordinances, codes, decrees, requirements of any Governmental Authority
         or other Requirements of Law (including common law) regulating,
         relating to or imposing liability or standards of conduct concerning
         protection of human health or the environment, as now or may at any
         time hereafter be in effect.

                  "ENVIRONMENTAL PERMITS": all permits, licenses, registrations,
         notifications, exemptions, and other authorizations required under
         Environmental Laws.

                                      -3-


                  "ERISA": the Employee Retirement Income Security Act of 1974,
         as amended from time to time.

                  "EVENT OF DEFAULT": any of the events specified in subsection
         7.1, provided, however, that any requirement contained therein for the
         giving of notice, the lapse of time or both, has been satisfied.

                  "EXTENSION OF CREDIT": the making of any Loan by the Lender.

                  "FINANCING DOCUMENTS": this Agreement, the Note, the Security
         Documents, the Subordination Agreements, and any and all other
         agreements, guaranties, instruments, documents, certificates, financing
         statements, powers of attorney, consents and filings, whether
         heretofore, now, or hereafter executed by or on behalf of any Borrower
         or any of such Borrower's Subsidiaries or any other Person and
         delivered to the Lender in connection with the Loan, all as may be
         amended, modified, supplemented, restated or extended from time to
         time.

                  "FOREIGN SUBSIDIARY": Any Subsidiary that is organized under
         the laws of any jurisdiction outside the United States.

                  "GAAP": generally accepted accounting principles in the United
         States of America in effect from time to time.

                  "GOVERNMENTAL AUTHORITY": any nation or government, any state
         or other political subdivision thereof and any entity exercising
         executive, legislative, judicial, regulatory or administrative
         functions of or pertaining to government.

                  "HAZARDOUS MATERIALS": any petroleum (including crude oil or
         any fraction thereof) or petroleum products, polychlorinated biphenyls,
         urea-formaldehyde insulation, asbestos and asbestos-containing
         materials, pollutants, contaminants, and all other materials and
         substances including but not limited to radioactive materials regulated
         pursuant to any Environmental Laws or that could result in liability
         under any Environmental Law.

                  "INCREASED AMOUNTS": as defined in subsection 2.15(a).

                  "INDEBTEDNESS": of any Person at any date, without
         duplication, (a) all indebtedness of such Person for borrowed money or
         for the deferred purchase price of property or services (other than
         current trade liabilities incurred in the ordinary course of business
         and payable in accordance with customary practices), (b) any other
         indebtedness of such Person which is evidenced by a note, bond,
         debenture or similar instrument, (c) all obligations of such Person
         under Capitalized Leases, (d) all obligations of such Person in respect
         of acceptances issued or created for the account of such Person and (e)
         all indebtedness of others of the types described in (a) through (d)
         above secured by any Lien on any property owned by such Person even
         though such Person has not assumed or otherwise become liable for the
         payment thereof (the amount of such indebtedness with respect to such
         Person being deemed to be the lesser of the value of such property or
         the amount of indebtedness of others so secured).

                                      -4-


                  "INITIAL FINANCIAL STATEMENTS": as defined in subsection 4.1.

                  "INTELLECTUAL PROPERTY": means (a) any and all Copyrights, (b)
         any and all trade secrets, and any and all intellectual property rights
         in computer software and computer software products now or hereafter
         existing, created, acquired or held; (c) any and all Patents; (d) any
         and all Trademarks; (e) any and all claims for damages by way of past,
         present and future infringements of any of the rights included above,
         with the right, but not the obligation, to sue for and collect such
         damages for said use or infringement of the intellectual property
         rights identified above; (f) any and all licenses or other rights to
         use any of the Copyrights, Patents, or Trademarks and all license fees
         and royalties arising from such use to the extent permitted by such
         license or rights; (g) any and all amendments, extensions, renewals and
         extensions of any of the Copyrights, Trademarks, or Patents; (h) any
         and all proprietary biological materials, including without limitation,
         cell lines, DNA, RNA, plasmids, and vectors; (i) any and all licenses
         granting the Borrowers the right to use any Copyrights, Patents,
         Trademarks, trade secrets, computer software, or biological materials
         of third parties; and (j) any and all proceeds and products of the
         foregoing, including without limitation, all payments under insurance
         or any indemnity or warranty payable in respect of any of the
         foregoing.

                  "INTEREST PAYMENT DATE":

                           (a)      as for any Prime Rate Loans, the last day of
                  each calendar month, commencing in April, 2003;

                           (b)      as for any LIBOR Loan having an Interest
                  Period of three (3) months or less, the last day of such
                  Interest Period; and

                           (c)      as for any LIBOR Loan having an Interest
                  Period longer than three months, each day which is three (3)
                  months, or a whole multiple thereof, after the first day of
                  such Interest Period and the last day of such Interest Period.

                  "INTEREST PERIOD": with respect to any LIBOR Loan:

                           (a)      initially, the period commencing on the
                  borrowing or conversion date, as the case may be, with respect
                  to such LIBOR Loan and ending thirty (30), sixty (60), ninety
                  (90) or one hundred eighty (180) days thereafter, as selected
                  by the Borrower in its notice of borrowing or notice of
                  conversion, as the case may be, given with respect thereto;
                  and

                           (b)      thereafter, each period commencing on the
                  last day of the next preceding Interest Period applicable to
                  such LIBOR Loan and ending thirty (30), sixty (60), ninety
                  (90) or one hundred eighty (180) days, as selected by the
                  Borrower by irrevocable notice to the Lender not less than
                  three Business Days prior to the last day of the then current
                  Interest Period with respect thereto;

         provided, however, that, all of the foregoing provisions relating to
         Interest Periods are subject to the following: (i) if any Interest
         Period pertaining to a LIBOR Loan would otherwise end on a day that is
         not a Business Day, such Interest Period shall be extended

                                      -5-


         to the next succeeding Business Day unless the result of such extension
         would be to carry such Interest Period into another calendar month in
         which event such Interest Period shall end on the immediately preceding
         Business Day; (ii) the Borrowers shall not select any Interest Period
         for the Loan that would otherwise extend beyond the Maturity Date;
         (iii) any Interest Period pertaining to a LIBOR Loan that begins on the
         last Business Day of a calendar month (or on a day for which there is
         no numerically corresponding day in the calendar month at the end of
         such Interest Period) shall end on the last Business Day of a calendar
         month; and (iv) the Borrowers shall select Interest Periods so as not
         to require a payment or prepayment of any LIBOR Loan during an Interest
         Period for such LIBOR Loan.

                  "INVENTORY": all "inventory" (as that term is defined in the
         UCC) of the Borrowers, and to the extent not included in such
         definition, shall also mean and include all raw materials and other
         materials and supplies, work-in-process and finished goods of any
         Borrower and any products made or processed therefrom and all
         substances, if any, commingled therewith or added thereto.

                  "INVESTMENT": as defined in subsection 6.10.

                  "LATE RATE": as defined in subsection 2.10.

                  "LENDER": as defined in the preamble to this Agreement.

                  "LIBOR BASE RATE": with respect to each day during each
         Interest Period pertaining to a LIBOR Loan, the rate per annum equal to
         the average rate at which the Lender is offered Dollar deposits at or
         about 10:00 A.M., Boston, Massachusetts time, three (3) Business Days
         prior to the beginning of such Interest Period by prime banks in the
         London interbank market where foreign currency and exchange operations
         in respect of its LIBOR Loans are then being conducted for delivery on
         the first day of such Interest Period for a period comparable to the
         number of days comprised therein and in an amount comparable to the
         amount of its LIBOR Loan to be outstanding during such Interest Period.

                  "LIBOR LOANS": the portion of the unpaid principal amount of
         the Loan for which the applicable rate of interest is based upon the
         LIBOR Rate.

                  "LIBOR RATE": with respect to each day during each Interest
         Period pertaining to a LIBOR Loan, a rate per annum determined for such
         day in accordance with the following formula (rounded upward to the
         nearest 0.0005%):

                                 LIBOR Base Rate
                        ---------------------------------
                        1.00 - LIBOR Reserve Requirements

                  "LIBOR RESERVE REQUIREMENTS": for any day as applied to a
         LIBOR Loan, the aggregate (without duplication) of the rates (expressed
         as a decimal to the fourth digit) of reserve requirements in effect on
         such day (including, without limitation, basic, supplemental, marginal
         and emergency reserves under any regulations of the Board of Governors
         or other Governmental Authority having jurisdiction with respect,
         thereto)

                                      -6-


         prescribed for London interbank market funding (currently referred to
         as "LIBOR Liabilities" in Regulation D of the Board of Governors)
         maintained by a member bank of the Federal Reserve System and
         applicable with respect to such LIBOR Loan.

                  "LIEN": any mortgage, pledge, hypothecation, assignment,
         deposit arrangement, encumbrance, lien (statutory or other), charge or
         other security interest or any preference, priority or other security
         agreement or preferential arrangement of any kind or nature whatsoever
         (including, without limitation, any conditional sale or other title
         retention agreement and any Capitalized Lease having substantially the
         same economic effect as any of the foregoing).

                  "LIQUID ASSETS": as defined in subsection 5.13(a).

                  "LOAN": as defined in subsection 2.1.

                  "LOAN PARTIES": the Borrowers and any Subsidiary which is now
         or hereafter becomes a party to any Financing Document.

                  "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE": a
         material adverse effect or change on (a) the business, operations,
         property or condition (financial or otherwise) of the Borrowers taken
         as a whole or (b) the validity or enforceability of this Agreement or
         any of the other Financing Documents or the rights or remedies of the
         Lender hereunder or thereunder.

                  "MATURITY DATE": March 30, 2006

                  "NON-EXCLUDED TAXES": as defined in subsection 2.15(a).

                  "NOTE": as defined in subsection 2.1(b).

                  "OBLIGATIONS": all Indebtedness, obligations and liabilities
         of the Borrowers to the Lender, individually or collectively, now
         existing or hereafter arising, direct or indirect, joint or several,
         absolute or contingent, matured or unmatured, liquidated or
         unliquidated, secured or unsecured, arising by contract, operation of
         law or otherwise, arising or incurred under this Agreement or any of
         the other Financing Documents or in respect of the Loan or the Note or
         other instruments at any time evidencing any thereof.

                  "OBSOLETE PROPERTY": any property of any Borrower which is
         obsolete, outdated or worn out or the useful life of which has ended,
         in each case in the good faith determination of such Borrower.

                  "PATENTS": means all patents, patent applications and like
         protections including without limitation improvements, divisions,
         continuations, renewals, reissues, extensions and continuations-in-part
         of the same.

                                      -7-


                  "PBGC": the Pension Benefit Guaranty Corporation established
         pursuant to Subtitle A of Title IV of ERISA and any Governmental
         Authority which succeeds to the powers and functions thereof.

                  "PERMITTED LIENS": as defined in subsection 6.4.

                  "PERSON": an individual, partnership, corporation, business
         trust, joint stock company, limited liability company, trust,
         unincorporated association, joint venture, Governmental Authority or
         other entity of whatever nature.

                  "PLAN": at a particular time, any employee benefit plan which
         is covered by ERISA and in respect of which any Borrower or a Commonly
         Controlled Entity is (or, if such plan were terminated at such time,
         would under Section 4069 of ERISA be deemed to be) an "employer" as
         defined in Section 3(5) of ERISA.

                  "PRIME RATE": for any day, a rate equal to the variable rate
         of interest per annum, most recently announced by the Lender at its
         headquarters in Boston, Massachusetts, as its "prime rate," with the
         understanding that the Lender's "prime rate" is one of its interest
         rates and serves as a basis upon which effective rates of interest are
         calculated for loans making reference thereto and may not be the lowest
         of the Lender's interest rates. Any change in the Prime Rate shall be
         effective as of the effective date stated in the announcement by the
         Lender of such change.

                  "PRIME RATE LOANS": the portion of the unpaid principal amount
         of the Loan for which the rate of interest is based upon the Prime
         Rate.

                  "PURCHASE MONEY INDEBTEDNESS": any Indebtedness incurred by
         any Borrower in connection with the acquisition by such Borrower of any
         real or personal property.

                  "REPORTABLE EVENT": any of the events set forth in Section
         4043(b) of ERISA, other than those events as to which the thirty day
         notice period is waived under subsections .13, .14, .16, .18, .19 or
         .20 of PBGC Reg. Section 2615.

                  "REQUIREMENT OF LAW": as to any Person, any law, treaty, rule
         or regulation or determination of an arbitrator or a court or other
         Governmental Authority, in each case applicable to or binding upon such
         Person or any of its property or to which such Person or any of its
         property is subject.

                  "RESPONSIBLE OFFICER": as to any Person, the chief executive
         officer and the president of such Person or, with respect to financial
         matters, the chief financial officer of such Person or, in either case,
         such other executive officers as may be designated from time to time by
         such Person in writing to the Lender.

                  "RESTRICTED CASH": as defined in accordance with GAAP.

                  "RESTRICTED PAYMENTS": as defined in subsection 6.9.

                                      -8-


                  "SEC": the United States Securities and Exchange Commission or
         any other federal governmental agency which may hereafter perform its
         functions.

                  "SECURITY AGREEMENTS": collectively, the Security Agreement -
         All Assets to be executed and delivered by each Borrower, substantially
         in the form of EXHIBIT F as the same may be amended, supplemented or
         otherwise modified from time to time.

                  "SECURITY DOCUMENTS": collectively, the Security Agreements
         and all other security agreements, pledge agreements, financing
         statements, assignments, mortgages, agreements, documents and
         instruments now or hereafter delivered to the Lender granting a Lien on
         any asset or assets of any Person to secure the Obligations or to
         secure any guarantee of any such Obligations and, including, without
         limitation, any such document delivered pursuant to subsections 5.10
         and 5.11.

                  "SOLVENT": when used with respect to any Person, means that,
         as of any date of determination, (a) the amount of the "present fair
         saleable value" of the assets of such Person will, as of such date,
         exceed the amount that will be required to pay all "liabilities of such
         Person, contingent or otherwise", as of such date (as such quoted terms
         are determined in accordance with applicable federal and state laws
         governing determinations of the insolvency of debtors) as such debts
         become absolute and matured, (b) such Person will not have, as of such
         date, an unreasonably small amount of capital with which to conduct its
         business, and (c) such Person will be able to pay its debts as they
         mature, taking into account the timing of and amounts of cash to be
         received by such Person and the timing of and amounts of cash to be
         payable on or in respect of indebtedness of such Person; in each case
         after giving effect to (A) as of the Closing Date the making of the
         extensions of credit to be made on the Closing Date and to the
         application of the proceeds of such extensions of credit and (B) on any
         date after the Closing Date, the making of any extension of credit to
         be made on such date, and to the application of the proceeds of such
         extension of credit. For purposes of this definition, (i) "debt" means
         liability on a "claim", and (ii) "claim" means any (x) right to
         payment, whether or not such a right is reduced to judgment,
         liquidated, unliquidated, fixed, contingent, matured, unmatured,
         disputed, undisputed, legal equitable, secured or unsecured or (y)
         right to an equitable remedy for breach of performance if such breach
         gives rise to a right to payment, whether or not such right to an
         equitable remedy is reduced to judgment, fixed, contingent, matured or
         unmatured, disputed, undisputed, secured or unsecured.

                  "SUBORDINATED DEBT": any and all Indebtedness, liabilities and
         obligations of each of the Borrowers to any Person (other than the
         Lender) which is subordinated to the Obligations upon terms and
         conditions which are reasonably satisfactory to the Lender.

                  "SUBORDINATION AGREEMENTS": any subordination agreement (or
         provision) by which the Subordinated Debt is subordinated to the
         Obligations upon terms and conditions which are reasonably satisfactory
         to the Lender.

                  "SUBSIDIARY": as to any Person, a corporation, partnership or
         other entity of which shares of stock or other ownership interests
         having ordinary voting power (other

                                      -9-


         than stock or such other ownership interests having such power only by
         reason of the happening of a contingency) to elect a majority of the
         board of directors or other managers of such corporation, partnership
         or other entity are at the time owned, or the management of which is
         otherwise controlled, directly or indirectly through one or more
         intermediaries, or both, by such Person. Unless otherwise qualified,
         all references to a "Subsidiary" or to "Subsidiaries" in this Agreement
         shall refer to a Subsidiary or Subsidiaries of the Borrower.

                  "TAX CODE": the Internal Revenue Code of 1986, as amended from
         time to time.

                  "TRADEMARKS": means any trademark and service mark rights,
         whether registered or not, applications to register and registrations
         of the same and like protections, and the entire goodwill of the
         business of the Borrowers connected with and symbolized by such
         trademarks.

                  "TREASURY DESK" the Government Securities Division of Citizens
         Bank.

                  "TREASURY DESK INVESTMENT": as defined in subsection 5.13(b).

                  "TYPE": as to any Loan, its nature as a Prime Rate Loan or a
         LIBOR Loan.

                  "UCC": the Uniform Commercial Code as from time to time in
         effect in The Commonwealth of Massachusetts.

                  "UNRESTRICTED CASH": any cash that is not Restricted Cash.

         2.       Use of Terms. The use of the singular of terms which are
defined in the plural shall mean and refer to any one of them; and pronouns used
herein shall be deemed to include the singular and the plural and all genders.
The use of the connective "or" is not intended to be exclusive; the term "may
not" is intended to be prohibitive and not permissive; use of "includes" and
"including" is intended to be interpreted as expansive and amplifying and not as
limiting in any way.

         The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All references in this
Agreement to Articles, Sections, Exhibits, Schedules and Appendices refer to
Articles, Sections, Exhibits, Schedules and Appendices of this Agreement unless
otherwise indicated. All Exhibits, Schedules and Appendices attached to this
Agreement are incorporated herein and made a part hereof.

                                      -10-


                                                                    EXHIBIT 10.1

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

                                CREDIT AGREEMENT
                                (the "AGREEMENT")

                                 by and between

                         CITIZENS BANK OF MASSACHUSETTS
                                 (the "LENDER")

                                       and

                       ARIAD PHARMACEUTICALS, INC., ARIAD

                  CORPORATION and ARIAD GENE THERAPEUTICS, INC.
       (each individually, a "BORROWER" and collectively, the "BORROWERS")

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

                                  LIEN SEARCHES

                                   APPENDIX B



                                                                       EXHIBIT B

                        [FORM OF COMPLIANCE CERTIFICATE]

                             COMPLIANCE CERTIFICATE

         Reference is hereby made to a certain Credit Agreement, dated as of
March ___, 2003 (as the same may be amended, modified, supplemented, extended or
restated, from time to time, the "CREDIT AGREEMENT") by and between ARIAD
PHARMACEUTICALS, INC., a Delaware corporation, ("API"), ARIAD CORPORATION, a
Delaware corporation ("AC"), and ARIAD GENE THERAPEUTICS, INC., a Delaware
corporation ("AGTI"), (API, AC and AGTI are sometimes hereinafter referred to
collectively as the "BORROWERS" and each singly as a "BORROWER") and CITIZENS
BANK OF MASSACHUSETTS, a Massachusetts bank (the "LENDER"). All capitalized
terms not defined herein but defined in the Credit Agreement shall have the
meanings given to such terms in the Credit Agreement.

         The undersigned hereby certify that they are Responsible Officers of
the respective Borrowers and as such, are authorized, for and on behalf of the
Borrowers, to execute and deliver this Compliance Certificate to the Lender in
accordance with the provisions of the Credit Agreement. Pursuant to the
provisions of subsection 5.1(c) of the Credit Agreement, the undersigned hereby
certifies to the Lender as follows:

                  1.       Each of the representations and warranties made by
         the Borrowers pursuant to the Financing Documents is true and correct
         in all material respects on and as of the date hereof, as if made on
         and as of the date hereof, except (a) to the extent such
         representations and warranties expressly relate to an earlier date in
         which case such representations and warranties shall be true and
         correct in all material respects as of such earlier date, and (b) as
         follows:

                           [Describe divergences, if any]

                  2.       Since the end of the last fiscal quarter of the
         Borrowers, no Material Adverse Change has occurred except:

                           [Describe, if any]

                  3.       Except as set forth in the certificates attached
         hereto and except as heretofore disclosed to the Lender in previous
         Compliance Certificates, there has been no change (i) in the
         Certificate of Incorporation or By-laws of any of the Borrowers, or
         (ii) in the incumbency of the officers of Borrowers whose signatures
         have heretofore been certified to the Lender.

                  4.       The financial statements submitted herewith (if any)
         are in compliance with the applicable provisions of subsections 5.1 and
         5.2 of the Credit Agreement.

                  5.       The undersigned has reviewed or caused to be reviewed
         all of the Financing Documents, and based upon such review and to the
         knowledge of the undersigned, no Default or Event of Default has
         occurred and is continuing as of the date



         hereof (or if applicable, will occur after giving effect to the making
         of the Loans requested to be made on the date hereof), except as
         follows:

                           [Describe Defaults or Events of Default]

                  6.       Attached hereto as APPENDIX A are calculations
         demonstrating that, based upon the financial statements of the
         Borrowers submitted herewith (if any), the Borrowers were in compliance
         as of the date of such financial statements with all financial
         covenants set forth in subsection 5.13 of the Credit Agreement to be
         measured as of such date, except as noted on Appendix A attached
         hereto.

                  7.       Any changes in the chief executive office and chief
         place of business of any of the Borrowers which have occurred and/or
         any additional locations at which any of the Inventory or equipment are
         kept, notice of which has not yet been provided to the Lender, in
         accordance with the provisions of the Security Documents, are set forth
         below:

                           [Describe]

         EXECUTED under seal as of this ________ day of March, 2003.

                                         ARIAD PHARMACEUTICALS, INC.

                                         By:___________________________________
                                            Name:
                                            Title:
                                              Its duly authorized officer

                                         ARIAD CORPORATION

                                         By:___________________________________
                                            Name:
                                            Title:
                                              Its duly authorized officer

                                         ARIAD GENE THERAPEUTICS, INC.

                                         By:___________________________________
                                            Name:
                                            Title:
                                              Its duly authorized officer



                      APPENDIX A TO COMPLIANCE CERTIFICATE
                           ARIAD PHARMACEUTICALS, INC.
                                ARIAD CORPORATION
                          ARIAD GENE THERAPEUTICS, INC.

I. TOTAL BALANCE SHEET CASH & INVESTMENTS:

         1. Total Cash & Investments:
                                                        ________________________
         2. Required Total Cash & Investments:                 $10,000,000
                                                        ________________________

II. CITIZENS TREASURY DESK INVESTMENTS:

                                                        ________________________
         3. Treasury Desk Investments*:
                                                        ________________________
         4. Treasury Investment Portion (#3/#1):
                                                        ________________________
         5. Required Treasury Investment Portion:                  85%
                                                        ________________________

III. TREASURY DESK INVESTMENT SUMMARY:

*        Government Securities:
                                                        ________________________
         Commercial Paper:
                                                        ________________________
         Citizens Certificate of Deposits:
                                                        ________________________
         Treasury Bills:
                                                        ________________________
         Total (Equals #3):
                                                        ________________________



                                                                       EXHIBIT C

                           ARIAD PHARMACEUTICALS, INC.
                                ARIAD CORPORATION
                          ARIAD GENE THERAPEUTICS, INC.
                               SUMMARY CASH REPORT



FINANCIAL INSTITUTION                INVESTMENTS                                         ($000S)
- ---------------------                -----------
                                                                            
[Name of Institution]                [Type of Investment]                                  ($)
- ------------------------------------------------------------------------------------------------------
  Institution Total                                                                     ($) Total

[Name of Institution]                [Type of Investment]                                  ($)
  Institution Total                                                                     ($) Total

                                                                                       ---------------
                                                                                  Total:    ($)

EX-10.2

                                                                    EXHIBIT 10.2

                                    TERM NOTE

$7,500,000.00                                                     March 12, 2003

         FOR VALUE RECEIVED, the undersigned, ARIAD PHARMACEUTICALS, INC., a
Delaware corporation, ARIAD CORPORATION, a Delaware corporation, and ARIAD GENE
THERAPEUTICS, INC., a Delaware corporation (hereinafter sometimes referred to
collectively as the "BORROWERS and each singly as a BORROWER"), HEREBY
UNCONDITIONALLY PROMISES TO PAY TO THE ORDER OF CITIZENS BANK OF MASSACHUSETTS,
a Massachusetts bank (the "LENDER") at the office of the Lender, located at 28
State Street, Boston, Massachusetts 02109 (or such other place as the holder
hereof may specify in writing), in lawful money of the United States of America
and in immediately available funds, the principal amount of SEVEN MILLION FIVE
HUNDRED THOUSAND AND 00/100 DOLLARS ($7,500,000.00) (the "LOAN"). The Borrowers
jointly and severally agree to pay the principal amount of the Loan in the
amounts and on the dates specified in subsection 2.5 of the Credit Agreement,
dated of even date herewith (as the same may be amended, modified, supplemented,
extended or restated from time to time, the "CREDIT AGREEMENT") by and between
the Lender and the Borrowers. The Borrowers further agree to pay interest on the
unpaid principal balance of the Loan from time to time outstanding from the
Closing Date until paid, at the rates and at the times provided in the Credit
Agreement.

         This Note is issued pursuant to the Credit Agreement, and the holder
hereof is entitled to, and shall have, all of the benefits of the Credit
Agreement, and all other agreements, instruments, guarantees and other documents
executed and delivered in connection therewith and herewith. All capitalized
terms not defined herein but defined in the Credit Agreement shall have the
meanings given to such terms in the Credit Agreement.

         This Note is secured as provided in the Security Documents. Reference
is hereby made to the Security Documents for a description of the properties and
assets in which a security interest has been granted, the nature and extent of
the security, the terms and conditions upon which the security interests were
granted and the rights of the holder of this Note in respect thereof.

         Upon the occurrence and during the continuance of any one or more of
the Events of Default, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable, all as provided
in the Credit Agreement.

         All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.

         This Note shall be binding upon the Borrowers and their successors and
assigns, and shall inure to the benefit of the Lender and its successors,
assigns, endorsees and transferees.

         All of the obligations and liabilities of the Borrowers under the Note
are joint and several.

         EACH BORROWER AND THE LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
NOTE, ANY OF THE OTHER FINANCING DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED

                                     - 1 -



                                                                    EXHIBIT 10.2

HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS
AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.

         This Note and the other Financing Documents are executed and delivered
under seal and shall be construed in accordance with and governed by the laws of
The Commonwealth of Massachusetts, without giving effect to the conflict of law
provisions thereof. Each Borrower submits itself to the non-exclusive
jurisdiction of the Courts of The Commonwealth of Massachusetts for all purposes
with respect to the Financing Documents and such Borrower's relationship with
the Lender.

         IN WITNESS WHEREOF, the undersigned has executed this Note under its
seal as of the date first written above.

WITNESS TO ALL:                         ARIAD PHARMACEUTICALS, INC.

       /s/ Andrew Levine                By:   /s/ Edward M. Fitzgerald
- ---------------------------                -------------------------------------
Name: Andrew Levine                        Name: Edward M. Fitzgerald
                                            Title: Chief Financial Officer

                                        ARIAD CORPORATION

                                        By:   /s/ Edward M. Fitzgerald
                                           -------------------------------------
                                           Name: Edward M. Fitzgerald
                                            Title: Chief Financial Officer

                                        ARIAD GENE THERAPEUTICS, INC.

                                        By:   /s/ Harvey Berger
                                           -------------------------------------
                                           Name: Harvey J. Berger, M.D.
                                            Title: Chief Executive Officer

                                      - 2 -



                                                                    EXHIBIT 10.2

STATE OF NEW YORK

COUNTY OF NEW YORK, ss.

         On this 12th day of March, 2003, appeared before me the above-named
Edward M. Fitzgerald, Chief Financial Officer of ARIAD Pharmaceuticals, Inc.,
who proved to me on the basis of satisfactory evidence to be the individual
whose name is subscribed to the within instrument, and acknowledged the
foregoing instrument to be his free act and deed and the free act and deed of
ARIAD Pharmaceuticals, Inc.

                                        /s/ Nyisha Shakur
                                        ----------------------------------------
                                        Notary Public
                                        My Commission Expires: May 7, 2006

STATE OF NEW YORK

COUNTY OF NEW YORK, ss.

         On this 12th day of March, 2003, appeared before me the above-named
Edward M. Fitzgerald, Chief Financial Officer of ARIAD Corporation, who proved
to me on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within instrument, and acknowledged the foregoing instrument
to be his free act and deed and the free act and deed of ARIAD Corporation.

                                        /s/ Nyisha Shakur
                                        ----------------------------------------
                                        Notary Public
                                        My Commission Expires: May 7, 2006

STATE OF NEW YORK

COUNTY OF NEW YORK, ss.

         On this 12th day of March, 2003, appeared before me the above-named
Harvey J. Berger, M.D., Chief Executive Officer of ARIAD Gene Therapeutics,
Inc., who proved to me on the basis of satisfactory evidence to be the
individual whose name is subscribed to the within instrument, and acknowledged
the foregoing instrument to be his free act and deed and the free act and deed
of ARIAD Gene Therapeutics, Inc..

                                        /s/ Nyisha Shakur
                                        ----------------------------------------
                                        Notary Public
                                        My Commission Expires: May 7, 2006

                                      - 3 -

EX-10.3

                                                                    Exhibit 10.3

                         SECURITY AGREEMENT - ALL ASSETS

         This SECURITY AGREEMENT - ALL ASSETS (this "AGREEMENT") is made as of
March 12, 2003, by and between ARIAD PHARMACEUTICALS, INC., a Delaware
Corporation (the "BORROWER") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts
Bank (the "LENDER").

         All capitalized terms not defined herein but defined in the Credit
Agreement, dated of even date herewith (as the same may be amended, modified,
supplemented, extended or restated, from time to time, the "CREDIT AGREEMENT")
by and among the Borrower, ARIAD CORPORATION, a Delaware corporation and ARIAD
GENE THERAPEUTICS, INC., a Delaware corporation (the "CO-BORROWERS"), and the
Lender, shall have the meanings given to such terms in the Credit Agreement.

                             Preliminary Statements:

         WHEREAS, the Borrower and the Co-Borrowers have requested that the
Lender enter into the Credit Agreement and to make certain Loans to or for the
benefit of the Borrower and Co-Borrowers, as provided for therein; and

         WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and to the obligation of the Lender to make such Loans that the
Borrower enter into this Agreement;

         NOW, THEREFORE, in order to induce the Lender to enter into the Credit
Agreement and to make such Loans to or for the benefit of the Borrower and the
Co-Borrowers, and in consideration thereof and in consideration of the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower hereby
agrees with the Lender as follows:

SECTION 1.        DEFINITIONS; USE OF TERMS.

         1.1      Definitions. As used in this Agreement, the following terms
shall have the meanings given to such terms in the Uniform Commercial Code in
effect in The Commonwealth of Massachusetts on the date hereof: "COMMERCIAL TORT
CLAIMS," "DEPOSIT ACCOUNTS," "DOCUMENTS," "FARM PRODUCTS," "FIXTURES," "GOODS,"
"HEALTH-CARE-INSURANCE RECEIVABLES," "INSTRUMENTS," "PAYMENT INTANGIBLE,"
"SOFTWARE," "STATE" and "SUPPORTING OBLIGATIONS." The following terms shall have
the meanings given to such terms as set forth below:

                  "ACCOUNTS": all "accounts" as that term is defined in the UCC,
         and to the extent not included in such definition, shall also mean and
         include any right to payment of a monetary obligation, whether or not
         earned by performance, (a) for property that has been or is to be sold,
         leased, licensed, assigned, or otherwise disposed of, (b) for services
         rendered or to be rendered, (c) for a policy of insurance issued or to
         be issued, (d) for a secondary obligation incurred or to be incurred,
         (e) for energy provided or to be provided, (f) for the use or hire of a
         vessel under a charter or other contract, (g) arising out of the use of
         a credit or charge card or information contained on or for use with the
         card, or (h) as winnings in a lottery or other game of change operated
         or sponsored by a State,

                                      -1-



                                                                    Exhibit 10.3

         governmental unit of a State, or person licensed or authorized to
         operate the game by a State or governmental unit of a State (including
         without limitation, (i) all Health-Care-Insurance Receivables and other
         accounts receivable, and (ii) all debts, and other forms of obligations
         or indebtedness whether now owned or hereafter acquired).

                  "CAPITAL STOCK": any and all shares, interests, participations
         or other equivalents (however designated) of capital stock of a
         corporation, any and all equivalent ownership or membership interests
         in a Person (other than a corporation) and any and all warrants or
         options to purchase any of the foregoing.

                  "CHATTEL PAPER": all "chattel paper" as that term is defined
         in the UCC, and to the extent not included in such definition, shall
         also mean and include any record that evidences both a monetary
         obligation and a security interest in specific Goods, any security
         interest in specific Goods and Software used in the Goods, any security
         interest in specific Goods and license of Software used in the Goods,
         any lease of specific Goods, or any lease of specific Goods and license
         of Software used in the Goods (including without limitation, all
         electronic chattel paper (as defined in the UCC) and all tangible
         chattel paper (as defined in the UCC)).

                  "CONTRACT": with respect to an Account, any agreement relating
         to the terms of payment or the terms of performance thereof, including,
         without limitation, (a) all rights of the Borrower to receive moneys
         due and to become due to it thereunder or in connection therewith, (b)
         all rights of the Borrower to damages arising out of, or for, breach or
         default in respect thereof and (c) all rights of the Borrower to
         perform and to exercise all remedies thereunder.

                  "EQUIPMENT": all "equipment" as that term is defined in the
         UCC, and to the extent not included in such definition, shall also mean
         and include all machinery, furniture and motor vehicles.

                  "GENERAL INTANGIBLES": all "general intangibles" as that term
         is defined in the UCC, and to the extent not included in such
         definition, shall also mean and include any Payment Intangibles,
         Software, franchise agreements or rights to know-how, any trade
         secrets, product or service development ideas and designs, advertising
         commercials, renderings, strategies and plans, blueprints,
         architectural drawings, site location, personnel and franchisee
         information, proprietary information, contracts with distributors, and
         any similar items, all interest rate, foreign currency or similar
         agreements and general intangibles attributable to the Capital Stock of
         each Subsidiary, provided however, such definition shall not include
         any Intellectual Property.

                  "GOVERNMENTAL AUTHORITY": any nation or government, any state
         or other political subdivision thereof and any entity exercising
         executive, legislative, judicial, regulatory or administrative
         functions of or pertaining to government.

                  "INTELLECTUAL PROPERTY": means (a) any and all Copyrights, (b)
         any and all trade secrets, and any and all intellectual property rights
         in computer software and computer software products now or hereafter
         existing, created, acquired or held; (c) any and all

                                      -2-



                                                                    Exhibit 10.3

         Patents; (d) any and all Trademarks; (e) any and all claims for damages
         by way of past, present and future infringements of any of the rights
         included above, with the right, but not the obligation, to sue for and
         collect such damages for said use or infringement of the intellectual
         property rights identified above; (f) any and all licenses or other
         rights to use any of the Copyrights, Patents, or Trademarks and all
         license fees and royalties arising from such use to the extent
         permitted by such license or rights; (g) any and all amendments,
         extensions, renewals and extensions of any of the Copyrights,
         Trademarks, or Patents; (h) any and all proprietary biological
         materials, including without limitation, cell lines, DNA, RNA,
         plasmids, and vectors; (i) any and all licenses granting the Borrower
         the right to use any Copyrights, Patents, Trademarks, trade secrets,
         computer software, or biological materials of third parties; and (j)
         any and all proceeds and products of the foregoing, including without
         limitation, all payments under insurance or any indemnity or warranty
         payable in respect of any of the foregoing.

                  "INVENTORY": all "inventory" as that term is defined in the
         UCC, and to the extent not included in such definition, shall also mean
         and include all raw materials and other materials and supplies,
         work-in-process and finished goods and any products made or processed
         therefrom and all substances, if any, commingled therewith or added
         thereto.

                  "INVESTMENT PROPERTY": all "investment property", as that term
         is defined in the UCC, and to the extent not included in such
         definition, shall also mean and include all stock (with the exception
         of stock in any Domestic Subsidiary), bonds, debentures, securities,
         treasury bills, certificates of deposit, mutual or money market fund
         shares, bills, notes (including, without limitation, all Pledged
         Notes), evidences of indebtedness or other obligations issued by any
         Person (including, without limitation, federal government of the United
         States or any agency thereof), whether in registered, bearer or other
         form, and whether certificated or uncertificated, in book-entry or
         other form.

                  "ISSUERS": (a) the Persons identified in Section 4 of the
         Master Disclosure Schedule attached hereto as the issuers of the
         Pledged Notes and (b) any other issuer of any Investment Property.

                  "LIEN": any mortgage, pledge, hypothecation, assignment,
         deposit arrangement, encumbrance, lien (statutory or other), charge or
         other security interest or any preference, priority or other security
         agreement or preferential arrangement of any kind or nature whatsoever
         (including, without limitation, any conditional sale or other title
         retention agreement and any capitalized lease having substantially the
         same economic effect as any of the foregoing).

                  "MASTER DISCLOSURE SCHEDULE": the Master Disclosure Schedule
         attached hereto and incorporated herein by reference.

                  "PLEDGED NOTES": all promissory notes listed in Section 3 of
         the Master Disclosure Schedule attached hereto, and, if requested by
         the Lender, any other promissory note issued to or held by the Borrower
         (other than promissory notes issued in

                                      -3-



                                                                    Exhibit 10.3

         connection with extensions of trade credit by the Borrower in the
         ordinary course of business).

                  "PROCEEDS": all "proceeds," as that term is defined in the
         UCC, and to the extent not included in such definition, shall also mean
         and include (a) any and all proceeds of any insurance, indemnity,
         warranty, guaranty or letter of credit payable to the Borrower, from
         time to time with respect to any of the Collateral, (b) all payments
         (in any form whatsoever) paid or payable to the Borrower from time to
         time in connection with any taking of all or any part of the Collateral
         by any Governmental Authority or any Person acting under color of
         Governmental Authority, (c) all judgments in favor of the Borrower in
         respect of the Collateral, (d) all dividends or other income from the
         Investment Property, collections thereon or distributions or payments
         with respect thereto and (e) all other amounts from time to time paid
         or payable or received or receivable under or in connection with any of
         the Collateral.

                  "SECURITIES ACT": the Securities Act of 1933, as amended from
         time to time.

                  "SUBSIDIARY": means any corporation or other entity of which a
         majority of the outstanding ownership interests entitled to vote for
         the election of directors or other governing body (otherwise than as
         the result of a default) is owned by Borrower directly or indirectly
         through Subsidiaries.

                  "UCC": the Uniform Commercial Code as from time to time in
         effect in The Commonwealth of Massachusetts; provided, however, that if
         by reason of mandatory provisions of law, the perfection or the effect
         of perfection or non-perfection of the security interest in any
         Collateral or the availability of any remedy hereunder is governed by
         the Uniform Commercial Code as in effect on or after the date hereof in
         any other jurisdiction, then the term "UCC" shall mean the Uniform
         Commercial Code as in effect in such other jurisdiction for purposes of
         the provisions hereof relating to such perfection or effect of
         perfection or non-perfection or availability of such remedy.

         1.2      Use of Terms; Exhibits and Schedules. The use of the singular
of terms which are defined in the plural shall mean and refer to any one of
them; and pronouns used herein shall be deemed to include the singular and the
plural and all genders. The use of the connective "or" is not intended to be
exclusive; the term "may not" is intended to be prohibitive and not permissive;
use of "includes" and "including" is intended to be interpreted as expansive and
amplifying and not as limiting in any way. All exhibits and schedules to this
Agreement are incorporated herein.

SECTION 2.        GRANT OF SECURITY INTEREST.

         As security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations, the Borrower hereby grants and otherwise pledges to the Lender a
continuing security interest in all of the present and future rights, title and
interests of the Borrower in and to the following property, and each item
thereof, all whether now or hereafter existing, or owned or acquired by the
Borrower, or now or hereafter arising or due or to become due, wherever such
property may be located, together with all

                                      -4-



                                                                    Exhibit 10.3

substitutions for, replacements of, additions to, accessions to, and products,
Proceeds and records of any and all of the following (collectively, the
"COLLATERAL"):

         (a)      all Accounts;

         (b)      all Inventory;

         (c)      all Equipment;

         (d)      all Fixtures;

         (e)      all Contracts;

         (f)      all Chattel Paper;

         (g)      all Documents;

         (h)      all Instruments;

         (i)      all Investment Property;

         (j)      all Deposit Accounts;

         (k)      all General Intangibles;

         (l)      all Supporting Obligations;

         (m)      all Commercial Tort Claims; and

         (n)      all other items of tangible and intangible personal property
                  of any and every kind and description which are not otherwise
                  described herein, excluding Intellectual Property and Capital
                  Stock in a Domestic Subsidiary.

SECTION 3.        GENERAL REPRESENTATIONS AND WARRANTIES.

         The Borrower hereby represents and warrants as follows:

         3.1      Power and Authority. The Borrower has the power and authority
and the legal right to execute and deliver, to perform its obligations under,
and to grant the Lien on the Collateral pursuant to, this Agreement and has
taken all necessary actions to authorize its execution, delivery and performance
of, and grant of the Lien on the Collateral pursuant to, this Agreement.

         3.2      Master Disclosure Schedule. All of the information contained
in the Master Disclosure Schedule attached hereto is true, correct and complete.

         3.3      Name; Chief Executive Office.

                                      -5-



                                                                    Exhibit 10.3

                  (a)      The name of the Borrower set forth in the first
         paragraph of this Agreement is the true, correct and complete legal
         name of the Borrower, and the Borrower has not done business under, or
         used, any other name, except as otherwise described in Section 1.2 of
         the Master Disclosure Schedule attached hereto.

                  (b)      The chief executive office and principal place of
         business of the Borrower is located at the address listed in Section
         2.1 of the Master Disclosure Schedule attached hereto.

                  (c)      All of the Inventory and Equipment of the Borrower
         (other than mobile vehicles) is kept at the locations listed in Section
         2.2 of the Master Disclosure Schedule attached hereto.

         3.4      Title; No Other Liens. Except for (a) the Lien granted to the
Lender pursuant to this Agreement and (b) the Permitted Liens, the Borrower owns
each item of the Collateral free and clear of any and all Liens or claims of
others. No security agreement, financing statement or other public notice with
respect to all or any part of the Collateral is on file or of record in any
public office, except such as may have been filed in favor of the Lender,
pursuant to this Agreement or as may be permitted pursuant to the Credit
Agreement.

         3.5      Perfected Liens. Upon the completion of filing of financing
statements at the Delaware Secretary of State, the Liens granted by the Borrower
pursuant to this Agreement will constitute perfected Liens on the Collateral
(other than the Pledged Notes) in which a security interest may be perfected by
the filing of financing statements pursuant to Article 9 of the Uniform
Commercial Code as in effect in each relevant jurisdiction in favor of the
Lender which are enforceable as such against all creditors of and purchasers
from the Borrower, except in each case as enforceability is affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether involved in a proceeding in equity or at law) and
an implied covenant of good faith and fair dealing.

         3.6      Accounts, etc. No amount payable to the Borrower under or in
connection with any Account, Contract or License, or any Investment Property,
Deposit Accounts or General Intangibles, in excess of Twenty Thousand and 00/100
Dollars ($20,000.00) is evidenced by any Instrument or Chattel Paper which has
not been delivered to the Lender. The amount represented by the Borrower to the
Lender from time to time as owing by each account debtor or by all account
debtors in respect of the Accounts will at such time be the correct amount
actually owing by such account debtor or debtors thereunder in all material
respects, subject to adjustments in the ordinary course of business.

         3.7      Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.

         3.8      Investment Property.

                  (a)      To the best knowledge of the Borrower, each of the
         Pledged Notes pledged by the Borrower hereunder constitutes a valid and
         legally enforceable obligation of the other obligor in respect thereof
         or parties thereto, enforceable in accordance with

                                      -6-



                                                                    Exhibit 10.3

         its terms, except as enforceability may be limited by bankruptcy,
         insolvency, reorganization, moratorium or similar laws affecting the
         enforcement of creditors' rights generally.

                  (b)      The Borrower is the record and beneficial owner of,
         and has good and marketable title to, the Investment Property pledged
         by it hereunder, free of any and all Liens or options in favor of, or
         claims of, any other Person, except for the Lien created by this
         Agreement and Permitted Liens.

SECTION 4.        GENERAL COVENANTS.

         The Borrower hereby covenants and agrees as follows:

         4.1      Changes in Name and Locations. The Borrower will not (a)
change its name, identity, organizational structure, jurisdiction of
organization, chief executive office or place where its business records are
kept, (b) move any tangible Collateral to a location other than those set forth
in the Master Disclosure Schedule attached hereto, or (c) merge into or
consolidate with any other entity, unless in each case it shall have given the
Lender at least thirty (30) days prior written notice thereof and all filings
and other actions to maintain the perfection of the security interest granted
hereby shall have been made.

         4.2      Maintenance of Records. The Borrower will keep and maintain at
its own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Accounts, Contracts and Licenses. The Borrower will,
upon request of the Lender, mark its books and records pertaining to the
Collateral to evidence this Agreement and the security interests granted hereby.

         4.3      Right of Inspection. Lender may inspect the property and
records of the Borrower in accordance with Section 5.6 of the Credit Agreement.

         4.4      Payment of Taxes and Other Amounts. The Borrower will pay
promptly when due all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of its income or profits therefrom, as
well as all claims of any kind (including, without limitation, claims for labor,
materials and supplies) against or with respect to the Collateral which have a
reasonable likelihood of adverse determination, except that no such charge need
be paid if (a) the validity or amount thereof is being contested in good faith,
(b) such contest does not involve any material danger of the sale, forfeiture or
loss of any material portion of the Collateral or any interest therein and (c)
such charge is adequately reserved against the Borrower's books in accordance
with GAAP or if the failure to pay such charge would not have a Material Adverse
Effect.

         4.5      Maintenance and Use of Properties. The Borrower will
safeguard, protect and preserve the Collateral for the benefit of the Lender,
will keep the Collateral free from any Lien (other than the Permitted Liens and
Liens in favor of the Lender), will keep all tangible property constituting part
of the Collateral in good working order and repair, will preserve all beneficial
contract rights, will take commercially reasonable steps to collect all
Accounts, and will not waste or destroy the Collateral or any part thereof; and
the Borrower will, consistent with good business practices, otherwise preserve,
maintain and protect its rights and keep its properties and

                                      -7-



                                                                    Exhibit 10.3

assets in good repair, working order and condition, and capable of
identification, and make (or cause to be made) all needful and proper repairs or
renewals, additions and improvements thereto and replacements thereof, and shall
use its assets only in the ordinary course of business and in compliance with
all applicable law.

         4.6      Notices and Reports Pertaining to Collateral. The Borrower
will (a) promptly notify the Lender of any Lien (except for Liens in favor of
the Lender and Permitted Liens) asserted against the Collateral and of any
information received by the Borrower relating to the Collateral (including the
Accounts, the account debtors or other persons obligated in connection
therewith) that may in any way materially adversely affect the value of the
Collateral or the rights and remedies of the Lender with respect thereto; (b)
promptly notify the Lender when it obtains knowledge of actual or threatened
bankruptcy or other insolvency proceeding of any material account debtor or
issuer of Securities; (c) notify the Lender of any return or adjustment,
rejection, repossession, or loss or damage of or to merchandise represented by
Accounts or constituting Inventory if material in amount and of any credit,
adjustment or dispute arising in connection with the goods or services
represented by Accounts or constituting Inventory if material in amount; and (d)
notify the Lender of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or, with respect to any material portion of the Collateral, on the
Liens created hereunder.

         The Borrower authorizes the Lender to destroy all invoices, delivery
receipts, reports and other types of documents (other than documents
constituting Collateral) and records submitted to the Lender in connection with
the transactions contemplated herein at any time subsequent to twelve (12)
months from the time such items are delivered to the Lender.

         4.7      Liens on Collateral. The Borrower will defend the Collateral
against, and will take such other action as is necessary to remove, any Lien or
claim on or to the Collateral, other than the Liens created hereby and the
Permitted Liens, and will defend the right, title and interest of the Lender in
and to any of the Collateral against the claims and demands of all Persons
whomsoever.

         4.8      Maintenance of Insurance.

                  (a)      The Borrower will maintain insurance, at all times,
         with financially sound and reputable companies as are reasonably
         satisfactory to the Lender, in such amounts and against such risks as
         are customarily insured against by businesses operating in a similar
         line of business in a similar area, and consistent with sound business
         practice, in no event less than the lesser of (i) the full insurable
         replacement cost value of all of the Borrower's tangible personal
         property (and, in any case, the amount necessary to avoid any
         coinsurance or contributions by the Borrower) or (ii) the total
         aggregate outstanding principal indebtedness owing by the Borrower to
         the Lender, including casualty insurance covering the Collateral and
         other property of the Borrower against the hazards of fire, flood,
         sprinkler leakage, burglary, theft, pilferage, loss in transit, those
         hazards covered by extended coverage, and such other coverages as the
         Lender may reasonably require, all such insurance to be in such form,
         for such periods and with such companies as shall be reasonably
         acceptable to the Lender. All premiums thereon shall be paid by the
         Borrower and if the Borrower fails to do so, the Lender may at its
         option (but without

                                      -8-



                                                                    Exhibit 10.3

         obligation) procure such insurance and charge the cost to the
         Borrower's account, provided, however, that any such payment by the
         Lender shall not constitute satisfaction of the Borrower's obligations
         with respect to payment hereunder, or a waiver by the Lender of any
         Event of Default with respect to such non-payment.

                  (b)      All such insurance policies shall provide, in form
         and substance satisfactory to the Lender, that: (i) any loss thereunder
         shall be payable to the Lender as loss payee (first to the Lender and
         then to the Borrower, as their interests may appear); (ii) any such
         payment to the Lender shall be made by an instrument to the Lender
         alone and not to the Borrower and the Lender jointly; and (iii) no
         cancellation or modification of such policy shall be effective without
         at least thirty (30) days prior written notice to the Lender. If any
         insurance losses are paid by check, draft or other instrument payable
         to the Borrower and the Lender jointly, the Lender may endorse the
         Borrower's name thereon and do such other things as the Lender may deem
         advisable to reduce the same to cash. All loss recoveries received by
         the Lender upon any such insurance shall be applied to the Obligations,
         whether or not matured, in such order as the Lender in its sole
         discretion may determine. Any surplus shall be paid by the Lender to
         the Borrower or applied as may be otherwise required by law.

                  (c)      Certificates of insurance of, and upon request of the
         Lender, the original policies of, all such casualty insurance policies
         and endorsements thereto, shall be delivered to the Lender; and, upon
         request, satisfactory evidence of general liability, products
         liability, workers' compensation and other insurance coverage, in form
         and substance satisfactory to the Lender, shall be furnished to the
         Lender, in each case within three (3) business days of each Lender's
         request therefor. The Borrower shall advise the Lender of each claim
         made by the Borrower under any policy of insurance which covers the
         Collateral and will permit the Lender, at the Lender's option in each
         instance, to participate in the adjustment of each such claim.

         4.9      Maintenance of Perfected Liens; Further Documentation. At any
time and from time to time, upon the written request of the Lender, and at the
sole expense of the Borrower, the Borrower will promptly and duly execute and
deliver such further instruments and documents and take such further action as
the Lender may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted
(including, without limitation, (a) obtaining governmental and other third party
consents and approvals, including without limitation any consent of any licensor
or lessor; (b) obtaining waivers from mortgagees and landlords; and (c) in the
case of Investment Property, and any other relevant Collateral, taken action
necessary to enable the Lender to obtain "control" (within the meaning of the
applicable Uniform Commercial Code) with respect thereto). The Borrower also
hereby authorizes the Lender to file (after written notice to the Borrower) any
such financing or continuation statement without the signature of the Borrower
to the extent permitted by applicable law, provided, however, that any failure
to give any such notice shall not affect the validity or effectiveness of any
such filing. A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement for filing in any jurisdiction.

         4.10     Costs and Expenses. Except as otherwise provided in the Credit
Agreement, the Borrower agrees to pay (a) the reasonable costs of producing and
reproducing this Agreement,

                                      -9-



                                                                    Exhibit 10.3

the other Financing Documents and the other agreements and instruments mentioned
herein, (b) any taxes (including any interest and penalties in respect thereto)
payable by the Lender (other than taxes based upon the Lender's net income) on
or with respect to the transactions contemplated by this Agreement (the Borrower
hereby agreeing to indemnify the Lender with respect thereto), (c) the
reasonable fees, expenses and disbursements of outside counsel to the Lender
incurred in connection with the preparation, administration or interpretation of
the Financing Documents and other instruments mentioned herein, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) all
reasonable out-of-pocket expenses (including without limitation reasonable
attorneys' fees and costs of outside legal counsel, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and
charges) incurred by the Lender in connection with (i) the enforcement of or
preservation of rights under any of the Financing Documents against the Borrower
or the administration thereof after demand is made by the Lender to the Borrower
for payment in full of the Obligations and (ii) any litigation, proceeding or
dispute whether arising hereunder or otherwise, in any way related to the
Lender's relationship with the Borrower and (e) all reasonable fees, expenses
and disbursements of the Lender incurred in connection with UCC searches, UCC
filings or mortgage recordings. The covenants contained in this subsection shall
survive payment or satisfaction in full of all other Obligations

         4.11     Negative Pledge on Intellectual Property. The Borrower shall
not create, incur, assume or suffer to exist any Lien upon the Intellectual
Property of the Borrower whether now owned or hereafter acquired, except for
encumbrances which may be deemed to arise from licensing, sublicensing or other
sharing arrangements permitted under subsection 6.7(d) of the Credit Agreement.

SECTION 5.        SPECIFIC COVENANTS REGARDING CERTAIN COLLATERAL.

         The Borrower hereby covenants and agrees as follows:

         5.1      Accounts.

                  (a)      Collection on Accounts and Proceeds. The Borrower
         shall enforce, compromise and collect amounts owing on its Accounts;
         provided, however, the right of the Borrower hereunder to enforce,
         compromise and collect amounts owing on such Accounts may at the option
         of the Lender be terminated upon the occurrence and during the
         continuance of any Event of Default. If any Accounts of the Borrower
         are at any time evidenced by promissory notes, trade acceptances or
         other Instruments for the payment of money, the Borrower will promptly
         deliver the same to the Lender appropriately endorsed to the Lender's
         order and, regardless of dishonor, protest, notice of protest and all
         other notices with respect thereto. After an Event of Default has
         occurred and is continuing and the Borrower has received notice thereof
         from the Lender, any Proceeds collected by the Borrower (whether
         consisting of checks, notes, drafts, bills of exchange, money orders,
         commercial paper of any kind whatsoever, or other documents received in
         payment of any Account or in payment for any Inventory or otherwise),
         shall be promptly turned over by the Borrower to the Lender, in
         precisely the form received, except for its endorsement when required,
         and until so turned over, shall be deemed to be held in trust

                                      -10-



                                                                    Exhibit 10.3

         by the Borrower for and as the Lender's property, and shall be held
         separately from the Borrower's other funds.

                  (b)      Limitations on Discounts and Compromises of Accounts.
         Other than in the ordinary course of business as generally conducted by
         the Borrower over a period of time, the Borrower will not compromise,
         compound or settle the Accounts for less than the full amount thereof,
         or release, wholly or partially, any Person liable for the payment
         thereof, except in each case as permitted under the Credit Agreement.

                  (c)      Notice to Account Debtors. At any time after the
         occurrence and during the continuance of an Event of Default, the
         Borrower shall, at the request of the Lender, notify its account
         debtors, and the Lender itself may notify such account debtors
         directly, of the security interest of the Lender in any Account and
         that payment thereof is to be made directly to the Lender. At any time
         after the occurrence and during the continuance of an Event of Default,
         the Lender may communicate with account debtors to verify with them to
         its satisfaction the existence, amount and terms of any Account.

                  (d)      Information on Accounts. The Borrower shall furnish
         to the Lender from time to time, and upon request, a list and
         description of all Accounts created or acquired by the Borrower,
         together with copies of shipping or delivery receipts for all goods and
         services sold or otherwise provided, and any other information or
         documents which the Lender reasonably may request from time to time
         related to the Borrower's Accounts.

         5.2      Inventory.

                  (a)      Pricing, Credit Terms and Accounts. So long as no
         Event of Default has occurred and is continuing, the Borrower may sell
         items of Inventory: (a) for cash in amounts not less than the
         Borrower's published, usual or customary prices, less only usual and
         customary discounts for volume sales or prompt payment; or (b) on
         credit terms usual and customary in the business conducted by the
         Borrower, at prices which conform to the above terms, and under such
         circumstances as give rise to Accounts subject to this Agreement.

                  (b)      Notice to Landlords, Warehousemen and Agents. If any
         Inventory is in the possession or control of any landlords,
         warehousemen or agents, the Borrower shall notify them of the Lender's
         security interest therein, and at the Lender's request, instruct them
         to hold the same for the Lender's account and subject to the Lender's
         instructions. The Lender shall enjoy all of the rights and remedies of
         a secured party in the Inventory and shall be subrogated to all
         guaranties and security now or which may in the future be held by the
         Borrower. The Lender shall not be liable in any manner for exercising
         or refusing or failing to exercise any such rights.

         5.3      Contracts with Governmental Authorities. None of the account
debtors or other Persons obligated on any of the Collateral is a Governmental
Authority covered by the Federal Assignment of Claims Act or like federal, state
or local statute or rule in respect of such Collateral.

                                      -11-



                                                                    Exhibit 10.3

         5.4      Chattel Paper. Unless an Event of Default shall have occurred
and be continuing, the Borrower shall be entitled to retain possession of all
Collateral consisting of Chattel Paper, and shall hold all such Chattel Paper in
trust for the Lender. If the Lender has made demand for payment in full of the
Obligations, then upon the request of the Lender, such Chattel Paper shall be
immediately delivered to the Lender, to be held as Collateral pursuant to this
Agreement. The Borrower shall not permit any other Person (other than a
Borrower) to possess any such Collateral at any time.

         5.5      Equipment - Certificates of Title. The Borrower shall deliver
to the Lender, upon request, the originals of all certificates of title
pertaining to any Equipment for which such certificates are or should be issued
under applicable law, together with a duly completed and executed application to
add the Lender as a lienholder on each such certificate. The Borrower covenants
and agrees that it will promptly deliver to the Lender, upon request, all
certificates of title relating to any Equipment hereafter acquired, together
with duly completed and executed applications to add the Lender as a lienholder
therewith (in form and content satisfactory for filing with the appropriate
office), and that the Borrower shall not seek to obtain any certificate of title
for any Equipment currently lacking such a certificate, and it shall not attempt
to recertify or obtain a new certificate for any Equipment currently evidenced
by a certificate of title (whether in The Commonwealth of Massachusetts or any
other jurisdiction) without first notifying the Lender, and only if the original
of such certificate of title is or will be delivered to the Lender upon issuance
thereof and does or will properly name the Lender as first lienholder thereon
(subject only to any Permitted Liens), in each case duly perfecting the Lender's
security interest granted under this Agreement.

         5.6      Investment Property.

                  (a)      If the Borrower shall become entitled to receive or
         shall receive any stock certificate (including, without limitation, any
         certificate representing a stock dividend or a distribution in
         connection with any reclassification, increase or reduction of capital
         or any certificate issued in connection with any reorganization),
         option or rights in respect of the Capital Stock of any Issuer or any
         other Investment Property, the Borrower shall accept the same as the
         agent of the Lender, hold the same in trust for the Lender and promptly
         deliver (or cause to be delivered) the same to the Lender in the exact
         form received, duly indorsed by the Borrower to the Lender, if
         required, together with an undated stock power covering such
         certificate duly executed in blank by the Borrower and with, if the
         Lender so requests, signature guaranteed, to be held by the Lender,
         subject to the terms hereof, as additional collateral security for the
         Obligations.

                  (b)      Without the prior written consent of the Lender, the
         Borrower will not (i) sell, assign, transfer, exchange, or otherwise
         dispose of, or grant any option with respect to, the Investment
         Property or Proceeds thereof (except pursuant to a transaction
         expressly permitted by the Credit Agreement) or (ii) create, incur or
         permit to exist any Lien or option in favor of, or any claim of any
         Person with respect to, any of the Investment Property or Proceeds
         thereof, or any interest therein, except for the Lien provided for by
         this Agreement and Permitted Liens.

                                      -12-



                                                                    Exhibit 10.3

                  (c)      Unless an Event of Default shall have occurred and be
         continuing, the Borrower shall be permitted to receive all payments
         made in respect of the Pledged Notes, and to exercise all voting and
         corporate rights with respect to the Investment Property; provided,
         however, that the Borrower agrees that it shall not vote in any way
         that would be inconsistent with or result in any violation of any
         provision of the Credit Agreement, the Note, the Security Documents or
         any of the other Financing Documents.

                  (d)      If an Event of Default shall occur and be continuing,
         then (i) the Lender shall have the right to receive any and all cash
         dividends, payments or other Proceeds paid in respect of the Investment
         Property and make application thereof to the Obligations in such order
         as the Lender may determine, and (ii) any or all of the Investment
         Property may be registered in the name of the Lender or its nominee,
         and, subject to the terms of this Agreement, the Lender or its nominee
         may thereafter exercise (A) all voting, corporate and other rights
         pertaining to such Investment Property at any meeting of shareholders
         of the relevant Issuer or Issuers or otherwise and (B) any and all
         rights of conversion, exchange and subscription and any other rights,
         privileges or options pertaining to such Investment Property as if it
         were the absolute owner thereof (including, without limitation, the
         right to exchange at its discretion any and all of the Investment
         Property upon the merger, consolidation, reorganization,
         recapitalization or other fundamental change in the corporate structure
         of any Issuer, or upon the exercise by the Borrower or the Lender of
         any right, privilege or option pertaining to such Investment Property,
         and in connection therewith, the right to deposit and deliver any and
         all of the Investment Property with any committee, depositary, transfer
         agent, registrar or other designated agency upon such terms and
         conditions as the Lender may determine), all without liability except
         to account for property actually received by it, and except for its
         gross negligence or willful misconduct, but the Lender shall have no
         duty to the Borrower to exercise any such right, privilege or option
         and shall not be responsible for any failure to do so or delay in so
         doing.

                  (e)      The Borrower hereby authorizes and instructs each
         Issuer of any Investment Property pledged by the Borrower hereunder to
         comply with any instruction received by it from the Lender in writing
         that (i) states that an Event of Default has occurred and is continuing
         and (ii) is otherwise in accordance with the terms of this Agreement,
         without any other or further instructions from the Borrower, and the
         Borrower agrees that each Issuer shall be fully protected in so
         complying, to the extent such instruction is in compliance with
         applicable law.

                  (f)      The rights of the Lender hereunder shall not be
         conditioned or contingent upon the pursuit by the Lender of any right
         or remedy against any other Person which may be or become liable in
         respect of all or any part of the Obligations or against any collateral
         security thereof, guarantee therefore or right of offset with respect
         thereto. The Lender shall not be liable for any failure to demand,
         collect or realize upon all or any part of the Collateral or for any
         delay in doing so, nor shall the Lender be under any obligation to sell
         or otherwise dispose of any Collateral upon the request of the Borrower
         or any other Person or to take any other action whatsoever with regard
         to the Collateral or any part thereof. The Lender agrees to release
         promptly to the Borrower any dividends, cash, securities, instruments
         and other property paid, payable or otherwise distributed in

                                      -13-



                                                                    Exhibit 10.3

         respect of the Collateral which it may receive under subsection 5.6(d)
         hereof if, prior to the occurrence of an acceleration of any of the
         Obligations, all Defaults and Events of Default have been waived or are
         no longer continuing.

SECTION 6.        POWER OF ATTORNEY.

         6.1      Appointment and Powers. The Borrower hereby irrevocably
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
coupled with an interest, with full power of substitution (in each case at the
sole risk, cost and expense of the Borrower but for the benefit of the Lender)
to do the following:

                  (a)      at any time or times (whether or not an Event of
         Default has occurred), (i) to file and record without the Borrower's
         signature, or to sign the Borrower's name to and file and record,
         financing statements and any other instruments (including applications
         to name the Lender as lienholder on any motor vehicle or other
         certificates of title), and (ii) to take such other actions as the
         Lender may deem necessary in order to perfect or maintain the
         perfection or priority of the Lender's security interest in the
         Collateral or any portion thereof; and

                  (b)      after an Event of Default has occurred and is
         continuing, in addition to the actions described above, (i) to protect
         the Lender's security interest in the Collateral or any portion
         thereof; (ii) to receive and open the Borrower's mail, remove therefrom
         and hold or apply any Collateral and dispose of such mail or turn over
         such mail (other than such Collateral) to the Borrower or any trustee
         in bankruptcy, receiver, assignee for benefit of creditors or other
         legal representatives to whom the Lender determines to be the
         appropriate recipient thereof; (iii) to endorse the name of the
         Borrower in favor of the Lender upon any and all checks, drafts, notes,
         money orders, acceptances and other items, Instruments and forms of
         payment, and to sign and endorse the name of the Borrower on, and
         receive as secured party, any of the Collateral; (iv) to sign the
         Borrower's name to any invoices, schedules, freight or express
         receipts, bills of lading, and other Documents or writings of a similar
         or different nature, relating to the Collateral; (v) to sign the name
         of the Borrower on any schedules and assignments of Accounts, and on
         notices of assignment, financing statements and other public records
         relating to the Collateral, and on any notice to the Borrower's account
         debtors for verification of the Accounts; (vi) to prosecute, defend,
         compromise or release any action relating to the Collateral; (vii) to
         notify the post office authorities to change the address for delivery
         of the Borrower's mail to an address designated by the Lender, and to
         sign change of address forms therefor; (viii) to sign the Borrower's
         name in proofs of = claim in bankruptcies of account debtors, notices
         of lien, claims of mechanics liens, or assignments or releases of any
         Liens securing the Accounts; (ix) to take any such actions as may be
         necessary to obtain payment of any letter of credit of which the
         Borrower is a beneficiary; (x) to repair, manufacture, assemble,
         complete, package, deliver, alter or supply goods, if any, necessary to
         fulfill in whole or in part the purchase order of any customer of the
         Borrower; (xi) to notify any Persons of the rights and interests of the
         Lender, of the applicable Events of Default and of any matter relating
         to Collateral; (xii) to take any and all other actions (including,
         without limitation, the right to sue in the name of the Borrower or the
         Lender to collect upon any and all Collateral and to settle, adjust or

                                      -14-



                                                                    Exhibit 10.3

         compromise any and all claims with respect to Collateral including
         insurance claims) as the Lender shall deem necessary or expedient to
         convert the Collateral into cash; and (xiii) otherwise to exercise any
         rights or remedies of the Lender hereunder or under any of the
         Financing Documents, or otherwise under agreement or applicable law,
         including the UCC.

         6.2      Ratification and Indemnification Under Power of Attorney. In
connection with all powers of attorney set forth in this Agreement, the Lender
shall have full power to exercise such powers as fully and effectually as the
Borrower might or could do; the Borrower agrees that the Lender shall not be
obligated to exercise any of the powers authorized herein, and shall be free to
exercise or refrain from exercising any of such powers at any time or times in
its absolute discretion, and, if the Lender elects to exercise any of such
powers, it shall not be accountable for more than it actually receives as a
result of such exercise of power, and shall not be responsible to the Borrower
except for the Lender's negligence, bad faith or willful misconduct; and all
powers conferred upon the Lender by this Agreement, being coupled with an
interest, shall be irrevocable until such time as all Obligations have been paid
(without being subject to or susceptible of recovery by any Person) or performed
and the Lender's agreement, if any, to make advances has terminated.

         6.3      Performance By Lender of Borrower's Obligations. If the
Borrower fails to perform or comply with any of its agreements contained herein
and the Lender, as provided for by the terms of this Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with any
agreement, the expense of the Lender incurred in connection with such
performance or compliance, together with interest thereon at the Late Rate,
shall be payable by the Borrower to the Lender on demand and shall constitute
Obligations secured hereby.

SECTION 7.        REMEDIES.

         7.1      General Remedies. In addition to and without in any way
limiting any other rights and remedies available to the Lender under this
Agreement prior to an Event of Default, or any other rights and remedies
available to the Lender (whether prior to or after an Event of Default) under
any of the other Financing Documents or under applicable law or in equity, upon
and during the continuance of an Event of Default:

                  (a)      the Lender may decline to honor the credit of the
         Borrower or may refuse to make further advances to the Borrower;

                  (b)      the Lender may collect the Accounts with or without
         taking possession of the Collateral;

                  (c)      the Lender shall be entitled to immediate possession
         of the Collateral or any portion or portions thereof and may, so far as
         the Borrower can give authority therefor, enter upon the Borrower's
         premises to take possession thereof; may require the Borrower to
         assemble the Collateral and make it available to the Lender at a place
         to be designated by the Lender which is reasonably convenient to both
         parties; or may require the Borrower to deliver all Records relating to
         the Collateral to the Lender;

                                      -15-



                                                                    Exhibit 10.3

                  (d)      the Lender may enter upon, occupy, and use any
         premises owned or occupied by the Borrower (or by any agent of the
         Borrower at which Collateral is located), and may exclude the Borrower
         from such premises or portion thereof as may have been so entered upon,
         occupied, or used by the Lender; the Lender shall not be required to
         remove any of the Collateral from any such premises upon the Lender's
         taking possession thereof, and may render any Collateral unusable to
         the Borrower; and in no event shall the Lender be liable to the
         Borrower for use or occupancy by the Lender of any premises pursuant to
         this Agreement except for claims arising out of the Lender's
         negligence, bad faith or willful misconduct, nor for any charge (such
         as wages for the Borrower's employees and utilities) incurred in
         connection with the Lender's exercise of the Lender's rights and
         remedies;

                  (e)      the Lender may take such steps as it deems necessary
         to protect the Lender's interest in, and to preserve the Collateral,
         and the Borrower agrees to cooperate fully with all of the Lender's
         efforts and to take such actions as the Lender shall direct, all to
         preserve the Collateral;

                  (f)      the Lender shall have the rights and remedies of a
         secured party under the UCC and other applicable laws, the choice and
         manner of exercise of any right or remedy being in the Lender's sole
         discretion; and, pursuant thereto, the Lender shall have the right to
         foreclose the security interest granted in any Collateral by any
         available judicial procedure and to take possession of and sell any or
         all of the Collateral with or without judicial process; the Lender may
         lease or otherwise dispose of the Collateral, or may sell the
         Collateral, or any part thereof, at public or private sales, at any
         time or place (including the Borrower's premises), in one or more
         sales, at such price or prices, and upon such terms, either for cash,
         credit or future delivery, as the Lender may elect, and, except as to
         that part of the Collateral which is perishable or threatens to decline
         speedily in value, or is of the type customarily sold on a recognized
         market, the Lender shall give the Borrower reasonable notification of
         such sale or sales, it being agreed that, in all events, reasonable
         notification means written notice mailed to the Borrower at least ten
         (10) days prior to each such public sale or at least ten (10) days
         prior to the date after which any such private sales or other intended
         dispositions may be made; at any public sale the Lender may (but shall
         have no obligation to) bid for and become the purchaser of any
         Collateral; the Borrower hereby waives any and all rights it may have
         to judicial hearing in advance of the enforcement of any of the
         Lender's rights hereunder, including the Lender's right to take
         immediate possession of the Collateral; and the Lender may do any of
         the foregoing or otherwise deal with the Collateral in its then
         condition, or following such preparation as the Lender deems advisable,
         with or without taking possession thereof;

                  (g)      the Lender shall have the right to apply to the
         Obligations any deposits or other sums at any time credited by or due
         from the Lender to the Borrower; and

                  (h)      the Lender may treat any or all of the Financing
         Documents as being in default and may exercise any rights and remedies
         thereunder as it shall deem appropriate.

                                      -16-



                                                                    Exhibit 10.3

         7.2      No Duty of Preservation; Joint Property. The Lender may at all
times proceed directly against the Borrower, or against any other Person
responsible for any Obligations, to enforce the payment of the Obligations, and
the Lender shall not be required to take any action of any kind to preserve,
collect upon or protect the rights of the Lender or of any other Person in any
Collateral, except as specifically required by the UCC. Without limiting the
generality of the foregoing, the Lender shall not be required to take any action
to preserve rights against prior parties in the cases of Instruments or Chattel
Paper, and the Lender may co-mingle any items of Collateral with other property
and shall not be required to keep any Collateral identifiable. In the event any
Collateral, including any Deposit Account, is held in joint or common names, the
Lender may deal with such Collateral or any Deposit Account, for all purposes
hereunder and under any or all of the Financing Documents, as if belonging to
any one, and no more than one, of such joint or common owners.

         7.3      Remedies Not Exclusive. The enumeration of rights and remedies
in the Financing Documents is not intended to be exclusive, and they shall be in
addition to and not by way of limitation of such others as the Lender may have
under the UCC, other applicable law, and any and all other Documents,
Instruments, agreements or other writings between or among the Borrower, the
Lender or other Persons. The Lender shall, in its sole discretion, determine its
choice of rights and remedies and the order in which they shall be exercised,
and which Collateral, if any, is to be proceeded against and in which order. The
exercise of any right or remedy against the Borrower, any other Person or any or
all Collateral shall not preclude the exercise of others or the exercise thereof
against the Borrower, any other Persons or any other Collateral, all of which
shall be cumulative. No act, failure or delay by the Lender shall constitute a
waiver of any of its rights and remedies. No single or partial waiver by the
Lender of any provision of the Financing Documents, or of any breach or default
thereunder, or of any right or remedy which the Lender may have shall operate as
a waiver of any other provision, breach, default, right or remedy or of the same
one on a future occasion.

         7.4      Deficiency. The Borrower shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations and the reasonable fees and
disbursements of any attorneys employed by the Lender to collect such
deficiency.

         7.5      Requirement of Law. Notwithstanding any provision contained in
this Agreement to the contrary, the exercise of remedies or any power of
attorney granted hereunder with respect to Collateral is subject to any
applicable Requirement of Law of any Governmental Authority. No action will be
taken by the Lender hereunder if such action will result in a violation of any
applicable Requirement of Law of any Government Authority by the Borrower.

SECTION 8.        MISCELLANEOUS.

         8.1      Survival of Covenants; Binding Effect. All agreements,
representations, covenants and warranties made by the Borrower in this
Agreement, the other Financing Documents, or in any certificate or other
document delivered to the Lender in connection herewith shall survive the
termination of this Agreement and survive the execution and delivery of this
Agreement, and shall remain in full force and effect until all Obligations to
the Lender been paid in full and satisfied, and the security interest, Lien and
rights granted to the Lender in

                                      -17-



                                                                    Exhibit 10.3

any Collateral and its rights and remedies hereunder and under the other
Financing Documents shall continue in full force and effect, notwithstanding the
fact that Loans may, from time to time, be in a zero or credit position, until
all Obligations have been satisfied. All the terms and provisions of this
Agreement and the other Financing Documents shall be binding upon, inure to the
benefit of and be enforceable by and against the parties hereto and their
respective successors and assigns.

         8.2      Prior Discussions; Amendments in Writing; Counterparts; Filing
As Financing Statement. This Agreement and all other Financing Documents
incorporate all discussions and negotiations between the Borrower and the
Lender, either express or implied, concerning the matters included herein and
therein, any custom, usage or other writing to the contrary notwithstanding. No
such discussions or negotiations shall limit, modify, or otherwise affect the
provisions of the Financing Documents. This Agreement may be amended or modified
only in writing signed by the parties hereto, and in the case of the Lender
signed by a duly authorized officer thereof. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but such
counterparts together shall constitute one and the same instrument. Any proof of
this Agreement shall require production of only one such counterpart. A carbon,
photographic or other reproduction of this Agreement or of any financing
statement executed to perfect the security interest created herein may be filed
as a financing statement under the UCC (or under the Uniform Commercial Code in
effect in any jurisdiction outside Massachusetts).

         8.3      General Indemnification. The Borrower shall, and does hereby,
indemnify and save the Lender harmless from (and agrees to defend the Lender
from) any and all liabilities, damages, costs, losses and expenses (including
court costs and attorney's reasonable fees of outside counsel and expenses) that
the Lender may sustain or incur by reason of, relating to or arising out of the
preparation of this Agreement, the defending or protecting of any Collateral or
the priority of the Lender's interest therein, or in collecting or enforcing the
Obligations, or in enforcing any of the Lender's rights or remedies, or in the
prosecution or defense of any action or proceeding concerning any matter growing
out of or connected with this Agreement, any of the other Financing Documents,
the Obligations, the Collateral, or on account of the Lender's relationship with
the Borrower, or any other Person responsible for any of the Obligations (each
of which may be defended, compromised, settled or pursued by the Lender with
counsel of the Lender's selection, at the expense of the Borrower) except for
such claims which have been determined by a court of competent jurisdiction to
have arisen out of the Lender's actual bad faith, willful misconduct or gross
negligence. The within indemnification shall survive termination of this
Agreement. The Borrower's obligations under this subsection constitute part of
the Obligations secured by the security interest created by this Agreement.

         8.4      Destruction of Documents; Receipt of Copy. This Agreement and
all other Financing Documents may be reproduced by the Lender by any
photographic, photostatic, microfilm, or similar process, and the Lender may
destroy the original from which any document was so reproduced. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business). The Borrower acknowledges receipt of a true, correct and complete
copy or counterpart of this Agreement.

                                      -18-



                                                                    Exhibit 10.3

         8.5      Notices. All notices required or permitted hereunder shall be
in writing and delivered in accordance with the provisions of the Credit
Agreement.

         8.6      Application of Proceeds. Subject to the provisions of the
Credit Agreement, the Lender shall apply (or change any application previously
made of) the proceeds of any collection, sale or other disposition of the
Collateral, or of any other payments received hereunder, toward the Obligations
in such order and manner as the Lender, in its sole discretion, shall determine,
any statute (the application of which may be waived or modified by agreement),
customs or practices to the contrary notwithstanding. The Borrower shall remain
liable to the Lender for any deficiency remaining following such application.

         8.7      Severability. If any provision of this Agreement or any of the
other Financing Documents, or any portion of such provision, or the application
thereof to any Person or circumstance, shall to any extent be prohibited or held
invalid or unenforceable, the remainder of this Agreement and the other
Financing Documents or the remainder of such provision and the application
thereof to other Persons or circumstances (other than those as to which it is
prohibited or held invalid or unenforceable) shall not be affected thereby, and
each term and provision hereof and of the other Financing Documents shall be
valid and enforced to the fullest extent permitted by law. To the extent
permitted by law, the parties hereto waive any provision of law which renders
any such provision or the application thereof to any Person or circumstance
prohibited, invalid or unenforceable in any respect.

         8.8      Headings. Headings appearing in this Agreement are intended
for convenience only and do not constitute, and shall not be interpreted to be,
a part of this Agreement.

         8.9      WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER FINANCING DOCUMENTS OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY
CLAIMS.

         8.10     Governing Law; Jurisdiction. This Agreement and the other
Financing Documents are executed and delivered under seal and shall be construed
in accordance with and governed by the laws of The Commonwealth of
Massachusetts, without giving effect to the conflict of law provisions thereof.
Each of the Lender and the Borrower submits itself to the non-exclusive
jurisdiction of the courts of The Commonwealth of Massachusetts for all purposes
with respect to the Financing Documents and the Borrower's relationship with the
Lender.

            [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]

                                      -19-



                                                                    Exhibit 10.3

         IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered under their seals as of the date first above
written.

WITNESS:                                ARIAD PHARMACEUTICALS, INC.

         /s/ Andrew Levine              By:   /s/ Edward M. Fitzgerald
- ------------------------------------       -------------------------------------
Name: Andrew Levine                        Name:  Edward M. Fitzgerald
                                           Title: Chief Financial Officer
                                                 Its duly authorized officer

WITNESS:                                CITIZENS BANK OF MASSACHUSETTS

         /s/ Todd H. Whilton            By:   /s/ Scott Haskell
- ------------------------------------       -------------------------------------
Name: Todd H. Whilton                      Name:  Scott Haskell
                                           Title: Vice President
                                                 Its duly authorized officer

                                      -20-



                                                                    Exhibit 10.3

                          COMMONWEALTH OF MASSACHUSETTS

______________ County, ss.                                       March ___, 2003

         Then personally appeared the above-named _____________________ as
__________________ of ARIAD Pharmaceuticals, Inc., and acknowledged the
foregoing instrument to be his/her free act and deed and the free act and deed
of ARIAD Pharmaceuticals, Inc., before me.

                                        ________________________________________
                                        Notary Public
                                        My commission expires:
                                        [AFFIX NOTARIAL SEAL]

                          COMMONWEALTH OF MASSACHUSETTS

Suffolk County, ss.                                               March 14, 2003

         Then personally appeared the above-named Scott Haskell as Vice
President of Citizens Bank, and acknowledged the foregoing instrument to be his
free act and deed and the free act and deed of Citizens Bank, before me.

                                              /s/ Todd H. Whilton
                                        ---------------------------------
                                        Notary Public
                                        My commission expires: 1/30/09
                                        [AFFIX NOTARIAL SEAL]

STATE OF NEW YORK

COUNTY OF NEW YORK, ss.

         On this 12th day of March, 2003, appeared before me the above-named
Edward M. Fitzgerald, Chief Financial Officer of ARIAD Pharmaceuticals, Inc.,
who proved to me on the basis of satisfactory evidence to be the individual
whose name is subscribed to the within instrument, and acknowledged the
foregoing instrument to be his free act and deed and the free act and deed of
ARIAD Pharmaceuticals, Inc.

                                        /s/ Nyisha Shakur
                                        ---------------------------------
                                        Notary Public
                                        My Commission Expires: May 7, 2006

                                      -21-



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

                         SECURITY AGREEMENT - ALL ASSETS

                                 by and between

                         CITIZENS BANK OF MASSACHUSETTS
                                 (the "LENDER")

                                       and

                           ARIAD PHARMACEUTICALS, INC.
                                (the "BORROWER")

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

1.   Name of Borrower.

         1.1.     The exact corporate name of the Borrower as it appears on its
organizational documents and its taxpayer identification number and its
organizations identification number are as follows:

ARIAD Pharmaceuticals, Inc.            Federal Tax Identification No. 22-3106987

         1.2.     The following is a list of all other names (including trade
names or similar appellations) used by the Borrower or any other business or
organization to which the Borrower became the successor by merger,
consolidation, acquisition, change in form, nature or jurisdiction of
organization or otherwise, at any time during the past five (5) years:

         None

         1.3.     The following is the state (or jurisdiction) of organization
(or formation) of the Borrower:

         Delaware

2.   Locations.

         2.1.     The chief executive office and principal place of business of
the Borrower is located at the following address:

         26 Landsdowne Street
         Cambridge, Massachusetts 02139

         2.2.     The following is a list of all of the other locations in which
the Borrower maintains any books or records relating to any of the Collateral
consisting of Accounts, Chattel Paper, General Intangibles or mobile goods:



         None

         2.3.     The following are all of the other places of business of the
Borrower:

         None

         2.4.     The following are all other locations where any of the
Collateral consisting of Inventory or Equipment is located:

         None

3.   The following is a summary of all of the Pledged Notes:



                     Borrower *      Principal Amount        Date
                     ----------      ----------------        ----
                                               
Promissory Note   Laurie A. Allen    $      75,000.00   July 24, 2002

Promissory Note   Joseph Snodgrass   $      20,000.00   March 8, 2002

Promissory Note   Charles Purtell    $      15,000.00   January 5, 2002


     * All borrowers are current employees of the Company.

EX-10.4

                                                                    EXHIBIT 10.4

                         SECURITY AGREEMENT - ALL ASSETS

         This SECURITY AGREEMENT - ALL ASSETS (this "AGREEMENT") is made as of
March 12, 2003, by and between ARIAD CORPORATION, a Delaware Corporation (the
"BORROWER") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts Bank (the
"LENDER").

         All capitalized terms not defined herein but defined in the Credit
Agreement, dated of even date herewith (as the same may be amended, modified,
supplemented, extended or restated, from time to time, the "CREDIT AGREEMENT")
by and among the Borrower, ARIAD PHARMACEUTICALS, INC., a Delaware corporation
and ARIAD GENE THERAPEUTICS, INC., a Delaware corporation (the "CO-BORROWERS"),
and the Lender, shall have the meanings given to such terms in the Credit
Agreement.

                             Preliminary Statements:

         WHEREAS, the Borrower and the Co-Borrowers have requested that the
Lender enter into the Credit Agreement and to make certain Loans to or for the
benefit of the Borrower and Co-Borrowers, as provided for therein; and

         WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and to the obligation of the Lender to make such Loans that the
Borrower enter into this Agreement;

         NOW, THEREFORE, in order to induce the Lender to enter into the Credit
Agreement and to make such Loans to or for the benefit of the Borrower and the
Co-Borrowers, and in consideration thereof and in consideration of the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower hereby
agrees with the Lender as follows:

SECTION 1.        DEFINITIONS; USE OF TERMS.

         1.1      Definitions. As used in this Agreement, the following terms
shall have the meanings given to such terms in the Uniform Commercial Code in
effect in The Commonwealth of Massachusetts on the date hereof: "COMMERCIAL TORT
CLAIMS," "DEPOSIT ACCOUNTS," "DOCUMENTS," "FARM PRODUCTS," "FIXTURES," "GOODS,"
"HEALTH-CARE-INSURANCE RECEIVABLES," "INSTRUMENTS," "PAYMENT INTANGIBLE,"
"SOFTWARE," "STATE" and "SUPPORTING OBLIGATIONS." The following terms shall have
the meanings given to such terms as set forth below:

                  "ACCOUNTS": all "accounts" as that term is defined in the UCC,
         and to the extent not included in such definition, shall also mean and
         include any right to payment of a monetary obligation, whether or not
         earned by performance, (a) for property that has been or is to be sold,
         leased, licensed, assigned, or otherwise disposed of, (b) for services
         rendered or to be rendered, (c) for a policy of insurance issued or to
         be issued, (d) for a secondary obligation incurred or to be incurred,
         (e) for energy provided or to be provided, (f) for the use or hire of a
         vessel under a charter or other contract, (g) arising out of the use of
         a credit or charge card or information contained on or for use with the
         card, or (h) as winnings in a lottery or other game of change operated
         or sponsored by a State,

                                      -1-



                                                                    EXHIBIT 10.4

         governmental unit of a State, or person licensed or authorized to
         operate the game by a State or governmental unit of a State (including
         without limitation, (i) all Health-Care-Insurance Receivables and other
         accounts receivable, and (ii) all debts, and other forms of obligations
         or indebtedness whether now owned or hereafter acquired).

                  "CAPITAL STOCK": any and all shares, interests, participations
         or other equivalents (however designated) of capital stock of a
         corporation, any and all equivalent ownership or membership interests
         in a Person (other than a corporation) and any and all warrants or
         options to purchase any of the foregoing.

                  "CHATTEL PAPER": all "chattel paper" as that term is defined
         in the UCC, and to the extent not included in such definition, shall
         also mean and include any record that evidences both a monetary
         obligation and a security interest in specific Goods, any security
         interest in specific Goods and Software used in the Goods, any security
         interest in specific Goods and license of Software used in the Goods,
         any lease of specific Goods, or any lease of specific Goods and license
         of Software used in the Goods (including without limitation, all
         electronic chattel paper (as defined in the UCC) and all tangible
         chattel paper (as defined in the UCC)).

                  "CONTRACT": with respect to an Account, any agreement relating
         to the terms of payment or the terms of performance thereof, including,
         without limitation, (a) all rights of the Borrower to receive moneys
         due and to become due to it thereunder or in connection therewith, (b)
         all rights of the Borrower to damages arising out of, or for, breach or
         default in respect thereof and (c) all rights of the Borrower to
         perform and to exercise all remedies thereunder.

                  "EQUIPMENT": all "equipment" as that term is defined in the
         UCC, and to the extent not included in such definition, shall also mean
         and include all machinery, furniture and motor vehicles.

                  "GENERAL INTANGIBLES": all "general intangibles" as that term
         is defined in the UCC, and to the extent not included in such
         definition, shall also mean and include any Payment Intangibles,
         Software, franchise agreements or rights to know-how, any trade
         secrets, product or service development ideas and designs, advertising
         commercials, renderings, strategies and plans, blueprints,
         architectural drawings, site location, personnel and franchisee
         information, proprietary information, contracts with distributors, and
         any similar items, all interest rate, foreign currency or similar
         agreements and general intangibles attributable to the Capital Stock of
         each Subsidiary, provided however, such definition shall not include
         any Intellectual Property.

                  "GOVERNMENTAL AUTHORITY": any nation or government, any state
         or other political subdivision thereof and any entity exercising
         executive, legislative, judicial, regulatory or administrative
         functions of or pertaining to government.

                  "INTELLECTUAL PROPERTY": means (a) any and all Copyrights, (b)
         any and all trade secrets, and any and all intellectual property rights
         in computer software and computer software products now or hereafter
         existing, created, acquired or held; (c) any and all

                                      -2-



                                                                    EXHIBIT 10.4

         Patents; (d) any and all Trademarks; (e) any and all claims for damages
         by way of past, present and future infringements of any of the rights
         included above, with the right, but not the obligation, to sue for and
         collect such damages for said use or infringement of the intellectual
         property rights identified above; (f) any and all licenses or other
         rights to use any of the Copyrights, Patents, or Trademarks and all
         license fees and royalties arising from such use to the extent
         permitted by such license or rights; (g) any and all amendments,
         extensions, renewals and extensions of any of the Copyrights,
         Trademarks, or Patents; (h) any and all proprietary biological
         materials, including without limitation, cell lines, DNA, RNA,
         plasmids, and vectors; (i) any and all licenses granting the Borrower
         the right to use any Copyrights, Patents, Trademarks, trade secrets,
         computer software, or biological materials of third parties; and (j)
         any and all proceeds and products of the foregoing, including without
         limitation, all payments under insurance or any indemnity or warranty
         payable in respect of any of the foregoing.

                  "INVENTORY": all "inventory" as that term is defined in the
         UCC, and to the extent not included in such definition, shall also mean
         and include all raw materials and other materials and supplies,
         work-in-process and finished goods and any products made or processed
         therefrom and all substances, if any, commingled therewith or added
         thereto.

                  "INVESTMENT PROPERTY": all "investment property", as that term
         is defined in the UCC, and to the extent not included in such
         definition, shall also mean and include all stock (with the exception
         of stock in any Domestic Subsidiary), bonds, debentures, securities,
         treasury bills, certificates of deposit, mutual or money market fund
         shares, bills, notes (including, without limitation, all Pledged
         Notes), evidences of indebtedness or other obligations issued by any
         Person (including, without limitation, federal government of the United
         States or any agency thereof), whether in registered, bearer or other
         form, and whether certificated or uncertificated, in book-entry or
         other form.

                  "ISSUERS": (a) the Persons identified in Section 4 of the
         Master Disclosure Schedule attached hereto as the issuers of the
         Pledged Notes and (b) any other issuer of any Investment Property.

                  "LIEN": any mortgage, pledge, hypothecation, assignment,
         deposit arrangement, encumbrance, lien (statutory or other), charge or
         other security interest or any preference, priority or other security
         agreement or preferential arrangement of any kind or nature whatsoever
         (including, without limitation, any conditional sale or other title
         retention agreement and any capitalized lease having substantially the
         same economic effect as any of the foregoing).

                  "MASTER DISCLOSURE SCHEDULE": the Master Disclosure Schedule
         attached hereto and incorporated herein by reference.

                  "PLEDGED NOTES": all promissory notes listed in Section 3 of
         the Master Disclosure Schedule attached hereto, and, if requested by
         the Lender, any other promissory note issued to or held by the Borrower
         (other than promissory notes issued in

                                      -3-



                                                                    EXHIBIT 10.4

         connection with extensions of trade credit by the Borrower in the
         ordinary course of business).

                  "PROCEEDS": all "proceeds," as that term is defined in the
         UCC, and to the extent not included in such definition, shall also mean
         and include (a) any and all proceeds of any insurance, indemnity,
         warranty, guaranty or letter of credit payable to the Borrower, from
         time to time with respect to any of the Collateral, (b) all payments
         (in any form whatsoever) paid or payable to the Borrower from time to
         time in connection with any taking of all or any part of the Collateral
         by any Governmental Authority or any Person acting under color of
         Governmental Authority, (c) all judgments in favor of the Borrower in
         respect of the Collateral, (d) all dividends or other income from the
         Investment Property, collections thereon or distributions or payments
         with respect thereto and (e) all other amounts from time to time paid
         or payable or received or receivable under or in connection with any of
         the Collateral.

                  "SECURITIES ACT": the Securities Act of 1933, as amended from
         time to time.

                  "SUBSIDIARY": means any corporation or other entity of which a
         majority of the outstanding ownership interests entitled to vote for
         the election of directors or other governing body (otherwise than as
         the result of a default) is owned by Borrower directly or indirectly
         through Subsidiaries.

                  "UCC": the Uniform Commercial Code as from time to time in
         effect in The Commonwealth of Massachusetts; provided, however, that if
         by reason of mandatory provisions of law, the perfection or the effect
         of perfection or non-perfection of the security interest in any
         Collateral or the availability of any remedy hereunder is governed by
         the Uniform Commercial Code as in effect on or after the date hereof in
         any other jurisdiction, then the term "UCC" shall mean the Uniform
         Commercial Code as in effect in such other jurisdiction for purposes of
         the provisions hereof relating to such perfection or effect of
         perfection or non-perfection or availability of such remedy.

         1.2      Use of Terms; Exhibits and Schedules. The use of the singular
of terms which are defined in the plural shall mean and refer to any one of
them; and pronouns used herein shall be deemed to include the singular and the
plural and all genders. The use of the connective "or" is not intended to be
exclusive; the term "may not" is intended to be prohibitive and not permissive;
use of "includes" and "including" is intended to be interpreted as expansive and
amplifying and not as limiting in any way. All exhibits and schedules to this
Agreement are incorporated herein.

SECTION 2.        GRANT OF SECURITY INTEREST.

         As security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations, the Borrower hereby grants and otherwise pledges to the Lender a
continuing security interest in all of the present and future rights, title and
interests of the Borrower in and to the following property, and each item
thereof, all whether now or hereafter existing, or owned or acquired by the
Borrower, or now or hereafter arising or due or to become due, wherever such
property may be located, together with all

                                      -4-



                                                                    EXHIBIT 10.4

substitutions for, replacements of, additions to, accessions to, and products,
Proceeds and records of any and all of the following (collectively, the
"COLLATERAL"):

         (a)      all Accounts;

         (b)      all Inventory;

         (c)      all Equipment;

         (d)      all Fixtures;

         (e)      all Contracts;

         (f)      all Chattel Paper;

         (g)      all Documents;

         (h)      all Instruments;

         (i)      all Investment Property;

         (j)      all Deposit Accounts;

         (k)      all General Intangibles;

         (l)      all Supporting Obligations;

         (m)      all Commercial Tort Claims; and

         (n)      all other items of tangible and intangible personal property
                  of any and every kind and description which are not otherwise
                  described herein, excluding Intellectual Property and Capital
                  Stock in a Domestic Subsidiary.

SECTION 3.        GENERAL REPRESENTATIONS AND WARRANTIES.

         The Borrower hereby represents and warrants as follows:

         3.1      Power and Authority. The Borrower has the power and authority
and the legal right to execute and deliver, to perform its obligations under,
and to grant the Lien on the Collateral pursuant to, this Agreement and has
taken all necessary actions to authorize its execution, delivery and performance
of, and grant of the Lien on the Collateral pursuant to, this Agreement.

         3.2      Master Disclosure Schedule. All of the information contained
in the Master Disclosure Schedule attached hereto is true, correct and complete.

         3.3      Name; Chief Executive Office.

                                      -5-



                                                                    EXHIBIT 10.4

                  (a)      The name of the Borrower set forth in the first
         paragraph of this Agreement is the true, correct and complete legal
         name of the Borrower, and the Borrower has not done business under, or
         used, any other name, except as otherwise described in Section 1.2 of
         the Master Disclosure Schedule attached hereto.

                  (b)      The chief executive office and principal place of
         business of the Borrower is located at the address listed in Section
         2.1 of the Master Disclosure Schedule attached hereto.

                  (c)      All of the Inventory and Equipment of the Borrower
         (other than mobile vehicles) is kept at the locations listed in Section
         2.2 of the Master Disclosure Schedule attached hereto.

         3.4      Title; No Other Liens. Except for (a) the Lien granted to the
Lender pursuant to this Agreement and (b) the Permitted Liens, the Borrower owns
each item of the Collateral free and clear of any and all Liens or claims of
others. No security agreement, financing statement or other public notice with
respect to all or any part of the Collateral is on file or of record in any
public office, except such as may have been filed in favor of the Lender,
pursuant to this Agreement or as may be permitted pursuant to the Credit
Agreement.

         3.5      Perfected Liens. Upon the completion of filing of financing
statements at the Delaware Secretary of State, the Liens granted by the Borrower
pursuant to this Agreement will constitute perfected Liens on the Collateral
(other than the Pledged Notes) in which a security interest may be perfected by
the filing of financing statements pursuant to Article 9 of the Uniform
Commercial Code as in effect in each relevant jurisdiction in favor of the
Lender which are enforceable as such against all creditors of and purchasers
from the Borrower, except in each case as enforceability is affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether involved in a proceeding in equity or at law) and
an implied covenant of good faith and fair dealing.

         3.6      Accounts, etc. No amount payable to the Borrower under or in
connection with any Account, Contract or License, or any Investment Property,
Deposit Accounts or General Intangibles, in excess of Twenty Thousand and 00/100
Dollars ($20,000.00) is evidenced by any Instrument or Chattel Paper which has
not been delivered to the Lender. The amount represented by the Borrower to the
Lender from time to time as owing by each account debtor or by all account
debtors in respect of the Accounts will at such time be the correct amount
actually owing by such account debtor or debtors thereunder in all material
respects, subject to adjustments in the ordinary course of business.

         3.7      Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.

         3.8      Investment Property.

                  (a)      To the best knowledge of the Borrower, each of the
         Pledged Notes pledged by the Borrower hereunder constitutes a valid and
         legally enforceable obligation of the other obligor in respect thereof
         or parties thereto, enforceable in accordance with

                                      -6-



                                                                    EXHIBIT 10.4

         its terms, except as enforceability may be limited by bankruptcy,
         insolvency, reorganization, moratorium or similar laws affecting the
         enforcement of creditors' rights generally.

                  (b)      The Borrower is the record and beneficial owner of,
         and has good and marketable title to, the Investment Property pledged
         by it hereunder, free of any and all Liens or options in favor of, or
         claims of, any other Person, except for the Lien created by this
         Agreement and Permitted Liens.

SECTION 4.        GENERAL COVENANTS.

         The Borrower hereby covenants and agrees as follows:

         4.1      Changes in Name and Locations. The Borrower will not (a)
change its name, identity, organizational structure, jurisdiction of
organization, chief executive office or place where its business records are
kept, (b) move any tangible Collateral to a location other than those set forth
in the Master Disclosure Schedule attached hereto, or (c) merge into or
consolidate with any other entity, unless in each case it shall have given the
Lender at least thirty (30) days prior written notice thereof and all filings
and other actions to maintain the perfection of the security interest granted
hereby shall have been made.

         4.2      Maintenance of Records. The Borrower will keep and maintain at
its own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Accounts, Contracts and Licenses. The Borrower will,
upon request of the Lender, mark its books and records pertaining to the
Collateral to evidence this Agreement and the security interests granted hereby.

         4.3      Right of Inspection. Lender may inspect the property and
records of the Borrower in accordance with Section 5.6 of the Credit Agreement.

         4.4      Payment of Taxes and Other Amounts. The Borrower will pay
promptly when due all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of its income or profits therefrom, as
well as all claims of any kind (including, without limitation, claims for labor,
materials and supplies) against or with respect to the Collateral which have a
reasonable likelihood of adverse determination, except that no such charge need
be paid if (a) the validity or amount thereof is being contested in good faith,
(b) such contest does not involve any material danger of the sale, forfeiture or
loss of any material portion of the Collateral or any interest therein and (c)
such charge is adequately reserved against the Borrower's books in accordance
with GAAP or if the failure to pay such charge would not have a Material Adverse
Effect.

         4.5      Maintenance and Use of Properties. The Borrower will
safeguard, protect and preserve the Collateral for the benefit of the Lender,
will keep the Collateral free from any Lien (other than the Permitted Liens and
Liens in favor of the Lender), will keep all tangible property constituting part
of the Collateral in good working order and repair, will preserve all beneficial
contract rights, will take commercially reasonable steps to collect all
Accounts, and will not waste or destroy the Collateral or any part thereof; and
the Borrower will, consistent with good business practices, otherwise preserve,
maintain and protect its rights and keep its properties and

                                      -7-



                                                                    EXHIBIT 10.4

assets in good repair, working order and condition, and capable of
identification, and make (or cause to be made) all needful and proper repairs or
renewals, additions and improvements thereto and replacements thereof, and shall
use its assets only in the ordinary course of business and in compliance with
all applicable law.

         4.6      Notices and Reports Pertaining to Collateral. The Borrower
will (a) promptly notify the Lender of any Lien (except for Liens in favor of
the Lender and Permitted Liens) asserted against the Collateral and of any
information received by the Borrower relating to the Collateral (including the
Accounts, the account debtors or other persons obligated in connection
therewith) that may in any way materially adversely affect the value of the
Collateral or the rights and remedies of the Lender with respect thereto; (b)
promptly notify the Lender when it obtains knowledge of actual or threatened
bankruptcy or other insolvency proceeding of any material account debtor or
issuer of Securities; (c) notify the Lender of any return or adjustment,
rejection, repossession, or loss or damage of or to merchandise represented by
Accounts or constituting Inventory if material in amount and of any credit,
adjustment or dispute arising in connection with the goods or services
represented by Accounts or constituting Inventory if material in amount; and (d)
notify the Lender of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or, with respect to any material portion of the Collateral, on the
Liens created hereunder.

         The Borrower authorizes the Lender to destroy all invoices, delivery
receipts, reports and other types of documents (other than documents
constituting Collateral) and records submitted to the Lender in connection with
the transactions contemplated herein at any time subsequent to twelve (12)
months from the time such items are delivered to the Lender.

         4.7      Liens on Collateral. The Borrower will defend the Collateral
against, and will take such other action as is necessary to remove, any Lien or
claim on or to the Collateral, other than the Liens created hereby and the
Permitted Liens, and will defend the right, title and interest of the Lender in
and to any of the Collateral against the claims and demands of all Persons
whomsoever.

         4.8      Maintenance of Insurance.

                  (a)      The Borrower will maintain insurance, at all times,
         with financially sound and reputable companies as are reasonably
         satisfactory to the Lender, in such amounts and against such risks as
         are customarily insured against by businesses operating in a similar
         line of business in a similar area, and consistent with sound business
         practice, in no event less than the lesser of (i) the full insurable
         replacement cost value of all of the Borrower's tangible personal
         property (and, in any case, the amount necessary to avoid any
         coinsurance or contributions by the Borrower) or (ii) the total
         aggregate outstanding principal indebtedness owing by the Borrower to
         the Lender, including casualty insurance covering the Collateral and
         other property of the Borrower against the hazards of fire, flood,
         sprinkler leakage, burglary, theft, pilferage, loss in transit, those
         hazards covered by extended coverage, and such other coverages as the
         Lender may reasonably require, all such insurance to be in such form,
         for such periods and with such companies as shall be reasonably
         acceptable to the Lender. All premiums thereon shall be paid by the
         Borrower and if the Borrower fails to do so, the Lender may at its
         option (but without

                                      -8-



                                                                    EXHIBIT 10.4

         obligation) procure such insurance and charge the cost to the
         Borrower's account, provided, however, that any such payment by the
         Lender shall not constitute satisfaction of the Borrower's obligations
         with respect to payment hereunder, or a waiver by the Lender of any
         Event of Default with respect to such non-payment.

                  (b)      All such insurance policies shall provide, in form
         and substance satisfactory to the Lender, that: (i) any loss thereunder
         shall be payable to the Lender as loss payee (first to the Lender and
         then to the Borrower, as their interests may appear); (ii) any such
         payment to the Lender shall be made by an instrument to the Lender
         alone and not to the Borrower and the Lender jointly; and (iii) no
         cancellation or modification of such policy shall be effective without
         at least thirty (30) days prior written notice to the Lender. If any
         insurance losses are paid by check, draft or other instrument payable
         to the Borrower and the Lender jointly, the Lender may endorse the
         Borrower's name thereon and do such other things as the Lender may deem
         advisable to reduce the same to cash. All loss recoveries received by
         the Lender upon any such insurance shall be applied to the Obligations,
         whether or not matured, in such order as the Lender in its sole
         discretion may determine. Any surplus shall be paid by the Lender to
         the Borrower or applied as may be otherwise required by law.

                  (c)      Certificates of insurance of, and upon request of the
         Lender, the original policies of, all such casualty insurance policies
         and endorsements thereto, shall be delivered to the Lender; and, upon
         request, satisfactory evidence of general liability, products
         liability, workers' compensation and other insurance coverage, in form
         and substance satisfactory to the Lender, shall be furnished to the
         Lender, in each case within three (3) business days of each Lender's
         request therefor. The Borrower shall advise the Lender of each claim
         made by the Borrower under any policy of insurance which covers the
         Collateral and will permit the Lender, at the Lender's option in each
         instance, to participate in the adjustment of each such claim.

         4.9      Maintenance of Perfected Liens; Further Documentation. At any
time and from time to time, upon the written request of the Lender, and at the
sole expense of the Borrower, the Borrower will promptly and duly execute and
deliver such further instruments and documents and take such further action as
the Lender may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted
(including, without limitation, (a) obtaining governmental and other third party
consents and approvals, including without limitation any consent of any licensor
or lessor; (b) obtaining waivers from mortgagees and landlords; and (c) in the
case of Investment Property, and any other relevant Collateral, taken action
necessary to enable the Lender to obtain "control" (within the meaning of the
applicable Uniform Commercial Code) with respect thereto). The Borrower also
hereby authorizes the Lender to file (after written notice to the Borrower) any
such financing or continuation statement without the signature of the Borrower
to the extent permitted by applicable law, provided, however, that any failure
to give any such notice shall not affect the validity or effectiveness of any
such filing. A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement for filing in any jurisdiction.

         4.10     Costs and Expenses. Except as otherwise provided in the Credit
Agreement, the Borrower agrees to pay (a) the reasonable costs of producing and
reproducing this Agreement,

                                      -9-



                                                                    EXHIBIT 10.4

the other Financing Documents and the other agreements and instruments mentioned
herein, (b) any taxes (including any interest and penalties in respect thereto)
payable by the Lender (other than taxes based upon the Lender's net income) on
or with respect to the transactions contemplated by this Agreement (the Borrower
hereby agreeing to indemnify the Lender with respect thereto), (c) the
reasonable fees, expenses and disbursements of outside counsel to the Lender
incurred in connection with the preparation, administration or interpretation of
the Financing Documents and other instruments mentioned herein, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) all
reasonable out-of-pocket expenses (including without limitation reasonable
attorneys' fees and costs of outside legal counsel, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and
charges) incurred by the Lender in connection with (i) the enforcement of or
preservation of rights under any of the Financing Documents against the Borrower
or the administration thereof after demand is made by the Lender to the Borrower
for payment in full of the Obligations and (ii) any litigation, proceeding or
dispute whether arising hereunder or otherwise, in any way related to the
Lender's relationship with the Borrower and (e) all reasonable fees, expenses
and disbursements of the Lender incurred in connection with UCC searches, UCC
filings or mortgage recordings. The covenants contained in this subsection shall
survive payment or satisfaction in full of all other Obligations

         4.11     Negative Pledge on Intellectual Property. The Borrower shall
not create, incur, assume or suffer to exist any Lien upon the Intellectual
Property of the Borrower whether now owned or hereafter acquired, except for
encumbrances which may be deemed to arise from licensing, sublicensing or other
sharing arrangements permitted under subsection 6.7(d) of the Credit Agreement.

SECTION 5.        SPECIFIC COVENANTS REGARDING CERTAIN COLLATERAL.

         The Borrower hereby covenants and agrees as follows:

         5.1      Accounts.

                  (a)      Collection on Accounts and Proceeds. The Borrower
         shall enforce, compromise and collect amounts owing on its Accounts;
         provided, however, the right of the Borrower hereunder to enforce,
         compromise and collect amounts owing on such Accounts may at the option
         of the Lender be terminated upon the occurrence and during the
         continuance of any Event of Default. If any Accounts of the Borrower
         are at any time evidenced by promissory notes, trade acceptances or
         other Instruments for the payment of money, the Borrower will promptly
         deliver the same to the Lender appropriately endorsed to the Lender's
         order and, regardless of dishonor, protest, notice of protest and all
         other notices with respect thereto. After an Event of Default has
         occurred and is continuing and the Borrower has received notice thereof
         from the Lender, any Proceeds collected by the Borrower (whether
         consisting of checks, notes, drafts, bills of exchange, money orders,
         commercial paper of any kind whatsoever, or other documents received in
         payment of any Account or in payment for any Inventory or otherwise),
         shall be promptly turned over by the Borrower to the Lender, in
         precisely the form received, except for its endorsement when required,
         and until so turned over, shall be deemed to be held in trust

                                      -10-



                                                                    EXHIBIT 10.4

         by the Borrower for and as the Lender's property, and shall be held
         separately from the Borrower's other funds.

                  (b)      Limitations on Discounts and Compromises of Accounts.
         Other than in the ordinary course of business as generally conducted by
         the Borrower over a period of time, the Borrower will not compromise,
         compound or settle the Accounts for less than the full amount thereof,
         or release, wholly or partially, any Person liable for the payment
         thereof, except in each case as permitted under the Credit Agreement.

                  (c)      Notice to Account Debtors. At any time after the
         occurrence and during the continuance of an Event of Default, the
         Borrower shall, at the request of the Lender, notify its account
         debtors, and the Lender itself may notify such account debtors
         directly, of the security interest of the Lender in any Account and
         that payment thereof is to be made directly to the Lender. At any time
         after the occurrence and during the continuance of an Event of Default,
         the Lender may communicate with account debtors to verify with them to
         its satisfaction the existence, amount and terms of any Account.

                  (d)      Information on Accounts. The Borrower shall furnish
         to the Lender from time to time, and upon request, a list and
         description of all Accounts created or acquired by the Borrower,
         together with copies of shipping or delivery receipts for all goods and
         services sold or otherwise provided, and any other information or
         documents which the Lender reasonably may request from time to time
         related to the Borrower's Accounts.

         5.2      Inventory.

                  (a)      Pricing, Credit Terms and Accounts. So long as no
         Event of Default has occurred and is continuing, the Borrower may sell
         items of Inventory: (a) for cash in amounts not less than the
         Borrower's published, usual or customary prices, less only usual and
         customary discounts for volume sales or prompt payment; or (b) on
         credit terms usual and customary in the business conducted by the
         Borrower, at prices which conform to the above terms, and under such
         circumstances as give rise to Accounts subject to this Agreement.

                  (b)      Notice to Landlords, Warehousemen and Agents. If any
         Inventory is in the possession or control of any landlords,
         warehousemen or agents, the Borrower shall notify them of the Lender's
         security interest therein, and at the Lender's request, instruct them
         to hold the same for the Lender's account and subject to the Lender's
         instructions. The Lender shall enjoy all of the rights and remedies of
         a secured party in the Inventory and shall be subrogated to all
         guaranties and security now or which may in the future be held by the
         Borrower. The Lender shall not be liable in any manner for exercising
         or refusing or failing to exercise any such rights.

         5.3      Contracts with Governmental Authorities. None of the account
debtors or other Persons obligated on any of the Collateral is a Governmental
Authority covered by the Federal Assignment of Claims Act or like federal, state
or local statute or rule in respect of such Collateral.

                                      -11-



                                                                    EXHIBIT 10.4

         5.4      Chattel Paper. Unless an Event of Default shall have occurred
and be continuing, the Borrower shall be entitled to retain possession of all
Collateral consisting of Chattel Paper, and shall hold all such Chattel Paper in
trust for the Lender. If the Lender has made demand for payment in full of the
Obligations, then upon the request of the Lender, such Chattel Paper shall be
immediately delivered to the Lender, to be held as Collateral pursuant to this
Agreement. The Borrower shall not permit any other Person (other than a
Borrower) to possess any such Collateral at any time.

         5.5      Equipment - Certificates of Title. The Borrower shall deliver
to the Lender, upon request, the originals of all certificates of title
pertaining to any Equipment for which such certificates are or should be issued
under applicable law, together with a duly completed and executed application to
add the Lender as a lienholder on each such certificate. The Borrower covenants
and agrees that it will promptly deliver to the Lender, upon request, all
certificates of title relating to any Equipment hereafter acquired, together
with duly completed and executed applications to add the Lender as a lienholder
therewith (in form and content satisfactory for filing with the appropriate
office), and that the Borrower shall not seek to obtain any certificate of title
for any Equipment currently lacking such a certificate, and it shall not attempt
to recertify or obtain a new certificate for any Equipment currently evidenced
by a certificate of title (whether in The Commonwealth of Massachusetts or any
other jurisdiction) without first notifying the Lender, and only if the original
of such certificate of title is or will be delivered to the Lender upon issuance
thereof and does or will properly name the Lender as first lienholder thereon
(subject only to any Permitted Liens), in each case duly perfecting the Lender's
security interest granted under this Agreement.

         5.6      Investment Property.

                  (a)      If the Borrower shall become entitled to receive or
         shall receive any stock certificate (including, without limitation, any
         certificate representing a stock dividend or a distribution in
         connection with any reclassification, increase or reduction of capital
         or any certificate issued in connection with any reorganization),
         option or rights in respect of the Capital Stock of any Issuer or any
         other Investment Property, the Borrower shall accept the same as the
         agent of the Lender, hold the same in trust for the Lender and promptly
         deliver (or cause to be delivered) the same to the Lender in the exact
         form received, duly indorsed by the Borrower to the Lender, if
         required, together with an undated stock power covering such
         certificate duly executed in blank by the Borrower and with, if the
         Lender so requests, signature guaranteed, to be held by the Lender,
         subject to the terms hereof, as additional collateral security for the
         Obligations.

                  (b)      Without the prior written consent of the Lender, the
         Borrower will not (i) sell, assign, transfer, exchange, or otherwise
         dispose of, or grant any option with respect to, the Investment
         Property or Proceeds thereof (except pursuant to a transaction
         expressly permitted by the Credit Agreement) or (ii) create, incur or
         permit to exist any Lien or option in favor of, or any claim of any
         Person with respect to, any of the Investment Property or Proceeds
         thereof, or any interest therein, except for the Lien provided for by
         this Agreement and Permitted Liens.

                                      -12-



                                                                    EXHIBIT 10.4

                  (c)      Unless an Event of Default shall have occurred and be
         continuing, the Borrower shall be permitted to receive all payments
         made in respect of the Pledged Notes, and to exercise all voting and
         corporate rights with respect to the Investment Property; provided,
         however, that the Borrower agrees that it shall not vote in any way
         that would be inconsistent with or result in any violation of any
         provision of the Credit Agreement, the Note, the Security Documents or
         any of the other Financing Documents.

                  (d)      If an Event of Default shall occur and be continuing,
         then (i) the Lender shall have the right to receive any and all cash
         dividends, payments or other Proceeds paid in respect of the Investment
         Property and make application thereof to the Obligations in such order
         as the Lender may determine, and (ii) any or all of the Investment
         Property may be registered in the name of the Lender or its nominee,
         and, subject to the terms of this Agreement, the Lender or its nominee
         may thereafter exercise (A) all voting, corporate and other rights
         pertaining to such Investment Property at any meeting of shareholders
         of the relevant Issuer or Issuers or otherwise and (B) any and all
         rights of conversion, exchange and subscription and any other rights,
         privileges or options pertaining to such Investment Property as if it
         were the absolute owner thereof (including, without limitation, the
         right to exchange at its discretion any and all of the Investment
         Property upon the merger, consolidation, reorganization,
         recapitalization or other fundamental change in the corporate structure
         of any Issuer, or upon the exercise by the Borrower or the Lender of
         any right, privilege or option pertaining to such Investment Property,
         and in connection therewith, the right to deposit and deliver any and
         all of the Investment Property with any committee, depositary, transfer
         agent, registrar or other designated agency upon such terms and
         conditions as the Lender may determine), all without liability except
         to account for property actually received by it, and except for its
         gross negligence or willful misconduct, but the Lender shall have no
         duty to the Borrower to exercise any such right, privilege or option
         and shall not be responsible for any failure to do so or delay in so
         doing.

                  (e)      The Borrower hereby authorizes and instructs each
         Issuer of any Investment Property pledged by the Borrower hereunder to
         comply with any instruction received by it from the Lender in writing
         that (i) states that an Event of Default has occurred and is continuing
         and (ii) is otherwise in accordance with the terms of this Agreement,
         without any other or further instructions from the Borrower, and the
         Borrower agrees that each Issuer shall be fully protected in so
         complying, to the extent such instruction is in compliance with
         applicable law.

                  (f)      The rights of the Lender hereunder shall not be
         conditioned or contingent upon the pursuit by the Lender of any right
         or remedy against any other Person which may be or become liable in
         respect of all or any part of the Obligations or against any collateral
         security thereof, guarantee therefore or right of offset with respect
         thereto. The Lender shall not be liable for any failure to demand,
         collect or realize upon all or any part of the Collateral or for any
         delay in doing so, nor shall the Lender be under any obligation to sell
         or otherwise dispose of any Collateral upon the request of the Borrower
         or any other Person or to take any other action whatsoever with regard
         to the Collateral or any part thereof. The Lender agrees to release
         promptly to the Borrower any dividends, cash, securities, instruments
         and other property paid, payable or otherwise distributed in

                                      -13-



                                                                    EXHIBIT 10.4

         respect of the Collateral which it may receive under subsection 5.6(d)
         hereof if, prior to the occurrence of an acceleration of any of the
         Obligations, all Defaults and Events of Default have been waived or are
         no longer continuing.

SECTION 6.        POWER OF ATTORNEY.

         6.1      Appointment and Powers. The Borrower hereby irrevocably
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
coupled with an interest, with full power of substitution (in each case at the
sole risk, cost and expense of the Borrower but for the benefit of the Lender)
to do the following:

                  (a)      at any time or times (whether or not an Event of
         Default has occurred), (i) to file and record without the Borrower's
         signature, or to sign the Borrower's name to and file and record,
         financing statements and any other instruments (including applications
         to name the Lender as lienholder on any motor vehicle or other
         certificates of title), and (ii) to take such other actions as the
         Lender may deem necessary in order to perfect or maintain the
         perfection or priority of the Lender's security interest in the
         Collateral or any portion thereof; and

                  (b)      after an Event of Default has occurred and is
         continuing, in addition to the actions described above, (i) to protect
         the Lender's security interest in the Collateral or any portion
         thereof; (ii) to receive and open the Borrower's mail, remove therefrom
         and hold or apply any Collateral and dispose of such mail or turn over
         such mail (other than such Collateral) to the Borrower or any trustee
         in bankruptcy, receiver, assignee for benefit of creditors or other
         legal representatives to whom the Lender determines to be the
         appropriate recipient thereof; (iii) to endorse the name of the
         Borrower in favor of the Lender upon any and all checks, drafts, notes,
         money orders, acceptances and other items, Instruments and forms of
         payment, and to sign and endorse the name of the Borrower on, and
         receive as secured party, any of the Collateral; (iv) to sign the
         Borrower's name to any invoices, schedules, freight or express
         receipts, bills of lading, and other Documents or writings of a similar
         or different nature, relating to the Collateral; (v) to sign the name
         of the Borrower on any schedules and assignments of Accounts, and on
         notices of assignment, financing statements and other public records
         relating to the Collateral, and on any notice to the Borrower's account
         debtors for verification of the Accounts; (vi) to prosecute, defend,
         compromise or release any action relating to the Collateral; (vii) to
         notify the post office authorities to change the address for delivery
         of the Borrower's mail to an address designated by the Lender, and to
         sign change of address forms therefor; (viii) to sign the Borrower's
         name in proofs of = claim in bankruptcies of account debtors, notices
         of lien, claims of mechanics liens, or assignments or releases of any
         Liens securing the Accounts; (ix) to take any such actions as may be
         necessary to obtain payment of any letter of credit of which the
         Borrower is a beneficiary; (x) to repair, manufacture, assemble,
         complete, package, deliver, alter or supply goods, if any, necessary to
         fulfill in whole or in part the purchase order of any customer of the
         Borrower; (xi) to notify any Persons of the rights and interests of the
         Lender, of the applicable Events of Default and of any matter relating
         to Collateral; (xii) to take any and all other actions (including,
         without limitation, the right to sue in the name of the Borrower or the
         Lender to collect upon any and all Collateral and to settle, adjust or

                                      -14-



                                                                    EXHIBIT 10.4

         compromise any and all claims with respect to Collateral including
         insurance claims) as the Lender shall deem necessary or expedient to
         convert the Collateral into cash; and (xiii) otherwise to exercise any
         rights or remedies of the Lender hereunder or under any of the
         Financing Documents, or otherwise under agreement or applicable law,
         including the UCC.

         6.2      Ratification and Indemnification Under Power of Attorney. In
connection with all powers of attorney set forth in this Agreement, the Lender
shall have full power to exercise such powers as fully and effectually as the
Borrower might or could do; the Borrower agrees that the Lender shall not be
obligated to exercise any of the powers authorized herein, and shall be free to
exercise or refrain from exercising any of such powers at any time or times in
its absolute discretion, and, if the Lender elects to exercise any of such
powers, it shall not be accountable for more than it actually receives as a
result of such exercise of power, and shall not be responsible to the Borrower
except for the Lender's negligence, bad faith or willful misconduct; and all
powers conferred upon the Lender by this Agreement, being coupled with an
interest, shall be irrevocable until such time as all Obligations have been paid
(without being subject to or susceptible of recovery by any Person) or performed
and the Lender's agreement, if any, to make advances has terminated.

         6.3      Performance By Lender of Borrower's Obligations. If the
Borrower fails to perform or comply with any of its agreements contained herein
and the Lender, as provided for by the terms of this Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with any
agreement, the expense of the Lender incurred in connection with such
performance or compliance, together with interest thereon at the Late Rate,
shall be payable by the Borrower to the Lender on demand and shall constitute
Obligations secured hereby.

SECTION 7.        REMEDIES.

         7.1      General Remedies. In addition to and without in any way
limiting any other rights and remedies available to the Lender under this
Agreement prior to an Event of Default, or any other rights and remedies
available to the Lender (whether prior to or after an Event of Default) under
any of the other Financing Documents or under applicable law or in equity, upon
and during the continuance of an Event of Default:

                  (a)      the Lender may decline to honor the credit of the
         Borrower or may refuse to make further advances to the Borrower;

                  (b)      the Lender may collect the Accounts with or without
         taking possession of the Collateral;

                  (c)      the Lender shall be entitled to immediate possession
         of the Collateral or any portion or portions thereof and may, so far as
         the Borrower can give authority therefor, enter upon the Borrower's
         premises to take possession thereof; may require the Borrower to
         assemble the Collateral and make it available to the Lender at a place
         to be designated by the Lender which is reasonably convenient to both
         parties; or may require the Borrower to deliver all Records relating to
         the Collateral to the Lender;

                                      -15-



                                                                    EXHIBIT 10.4

                  (d)      the Lender may enter upon, occupy, and use any
         premises owned or occupied by the Borrower (or by any agent of the
         Borrower at which Collateral is located), and may exclude the Borrower
         from such premises or portion thereof as may have been so entered upon,
         occupied, or used by the Lender; the Lender shall not be required to
         remove any of the Collateral from any such premises upon the Lender's
         taking possession thereof, and may render any Collateral unusable to
         the Borrower; and in no event shall the Lender be liable to the
         Borrower for use or occupancy by the Lender of any premises pursuant to
         this Agreement except for claims arising out of the Lender's
         negligence, bad faith or willful misconduct, nor for any charge (such
         as wages for the Borrower's employees and utilities) incurred in
         connection with the Lender's exercise of the Lender's rights and
         remedies;

                  (e)      the Lender may take such steps as it deems necessary
         to protect the Lender's interest in, and to preserve the Collateral,
         and the Borrower agrees to cooperate fully with all of the Lender's
         efforts and to take such actions as the Lender shall direct, all to
         preserve the Collateral;

                  (f)      the Lender shall have the rights and remedies of a
         secured party under the UCC and other applicable laws, the choice and
         manner of exercise of any right or remedy being in the Lender's sole
         discretion; and, pursuant thereto, the Lender shall have the right to
         foreclose the security interest granted in any Collateral by any
         available judicial procedure and to take possession of and sell any or
         all of the Collateral with or without judicial process; the Lender may
         lease or otherwise dispose of the Collateral, or may sell the
         Collateral, or any part thereof, at public or private sales, at any
         time or place (including the Borrower's premises), in one or more
         sales, at such price or prices, and upon such terms, either for cash,
         credit or future delivery, as the Lender may elect, and, except as to
         that part of the Collateral which is perishable or threatens to decline
         speedily in value, or is of the type customarily sold on a recognized
         market, the Lender shall give the Borrower reasonable notification of
         such sale or sales, it being agreed that, in all events, reasonable
         notification means written notice mailed to the Borrower at least ten
         (10) days prior to each such public sale or at least ten (10) days
         prior to the date after which any such private sales or other intended
         dispositions may be made; at any public sale the Lender may (but shall
         have no obligation to) bid for and become the purchaser of any
         Collateral; the Borrower hereby waives any and all rights it may have
         to judicial hearing in advance of the enforcement of any of the
         Lender's rights hereunder, including the Lender's right to take
         immediate possession of the Collateral; and the Lender may do any of
         the foregoing or otherwise deal with the Collateral in its then
         condition, or following such preparation as the Lender deems advisable,
         with or without taking possession thereof;

                  (g)      the Lender shall have the right to apply to the
         Obligations any deposits or other sums at any time credited by or due
         from the Lender to the Borrower; and

                  (h)      the Lender may treat any or all of the Financing
         Documents as being in default and may exercise any rights and remedies
         thereunder as it shall deem appropriate.

                                      -16-



                                                                    EXHIBIT 10.4

         7.2      No Duty of Preservation; Joint Property. The Lender may at all
times proceed directly against the Borrower, or against any other Person
responsible for any Obligations, to enforce the payment of the Obligations, and
the Lender shall not be required to take any action of any kind to preserve,
collect upon or protect the rights of the Lender or of any other Person in any
Collateral, except as specifically required by the UCC. Without limiting the
generality of the foregoing, the Lender shall not be required to take any action
to preserve rights against prior parties in the cases of Instruments or Chattel
Paper, and the Lender may co-mingle any items of Collateral with other property
and shall not be required to keep any Collateral identifiable. In the event any
Collateral, including any Deposit Account, is held in joint or common names, the
Lender may deal with such Collateral or any Deposit Account, for all purposes
hereunder and under any or all of the Financing Documents, as if belonging to
any one, and no more than one, of such joint or common owners.

         7.3      Remedies Not Exclusive. The enumeration of rights and remedies
in the Financing Documents is not intended to be exclusive, and they shall be in
addition to and not by way of limitation of such others as the Lender may have
under the UCC, other applicable law, and any and all other Documents,
Instruments, agreements or other writings between or among the Borrower, the
Lender or other Persons. The Lender shall, in its sole discretion, determine its
choice of rights and remedies and the order in which they shall be exercised,
and which Collateral, if any, is to be proceeded against and in which order. The
exercise of any right or remedy against the Borrower, any other Person or any or
all Collateral shall not preclude the exercise of others or the exercise thereof
against the Borrower, any other Persons or any other Collateral, all of which
shall be cumulative. No act, failure or delay by the Lender shall constitute a
waiver of any of its rights and remedies. No single or partial waiver by the
Lender of any provision of the Financing Documents, or of any breach or default
thereunder, or of any right or remedy which the Lender may have shall operate as
a waiver of any other provision, breach, default, right or remedy or of the same
one on a future occasion.

         7.4      Deficiency. The Borrower shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations and the reasonable fees and
disbursements of any attorneys employed by the Lender to collect such
deficiency.

         7.5      Requirement of Law. Notwithstanding any provision contained in
this Agreement to the contrary, the exercise of remedies or any power of
attorney granted hereunder with respect to Collateral is subject to any
applicable Requirement of Law of any Governmental Authority. No action will be
taken by the Lender hereunder if such action will result in a violation of any
applicable Requirement of Law of any Government Authority by the Borrower.

SECTION 8.        MISCELLANEOUS.

         8.1      Survival of Covenants; Binding Effect. All agreements,
representations, covenants and warranties made by the Borrower in this
Agreement, the other Financing Documents, or in any certificate or other
document delivered to the Lender in connection herewith shall survive the
termination of this Agreement and survive the execution and delivery of this
Agreement, and shall remain in full force and effect until all Obligations to
the Lender been paid in full and satisfied, and the security interest, Lien and
rights granted to the Lender in

                                      -17-



                                                                    EXHIBIT 10.4

any Collateral and its rights and remedies hereunder and under the other
Financing Documents shall continue in full force and effect, notwithstanding the
fact that Loans may, from time to time, be in a zero or credit position, until
all Obligations have been satisfied. All the terms and provisions of this
Agreement and the other Financing Documents shall be binding upon, inure to the
benefit of and be enforceable by and against the parties hereto and their
respective successors and assigns.

         8.2      Prior Discussions; Amendments in Writing; Counterparts; Filing
As Financing Statement. This Agreement and all other Financing Documents
incorporate all discussions and negotiations between the Borrower and the
Lender, either express or implied, concerning the matters included herein and
therein, any custom, usage or other writing to the contrary notwithstanding. No
such discussions or negotiations shall limit, modify, or otherwise affect the
provisions of the Financing Documents. This Agreement may be amended or modified
only in writing signed by the parties hereto, and in the case of the Lender
signed by a duly authorized officer thereof. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but such
counterparts together shall constitute one and the same instrument. Any proof of
this Agreement shall require production of only one such counterpart. A carbon,
photographic or other reproduction of this Agreement or of any financing
statement executed to perfect the security interest created herein may be filed
as a financing statement under the UCC (or under the Uniform Commercial Code in
effect in any jurisdiction outside Massachusetts).

         8.3      General Indemnification. The Borrower shall, and does hereby,
indemnify and save the Lender harmless from (and agrees to defend the Lender
from) any and all liabilities, damages, costs, losses and expenses (including
court costs and attorney's reasonable fees of outside counsel and expenses) that
the Lender may sustain or incur by reason of, relating to or arising out of the
preparation of this Agreement, the defending or protecting of any Collateral or
the priority of the Lender's interest therein, or in collecting or enforcing the
Obligations, or in enforcing any of the Lender's rights or remedies, or in the
prosecution or defense of any action or proceeding concerning any matter growing
out of or connected with this Agreement, any of the other Financing Documents,
the Obligations, the Collateral, or on account of the Lender's relationship with
the Borrower, or any other Person responsible for any of the Obligations (each
of which may be defended, compromised, settled or pursued by the Lender with
counsel of the Lender's selection, at the expense of the Borrower) except for
such claims which have been determined by a court of competent jurisdiction to
have arisen out of the Lender's actual bad faith, willful misconduct or gross
negligence. The within indemnification shall survive termination of this
Agreement. The Borrower's obligations under this subsection constitute part of
the Obligations secured by the security interest created by this Agreement.

         8.4      Destruction of Documents; Receipt of Copy. This Agreement and
all other Financing Documents may be reproduced by the Lender by any
photographic, photostatic, microfilm, or similar process, and the Lender may
destroy the original from which any document was so reproduced. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business). The Borrower acknowledges receipt of a true, correct and complete
copy or counterpart of this Agreement.

                                      -18-



                                                                    EXHIBIT 10.4

         8.5      Notices. All notices required or permitted hereunder shall be
in writing and delivered in accordance with the provisions of the Credit
Agreement.

         8.6      Application of Proceeds. Subject to the provisions of the
Credit Agreement, the Lender shall apply (or change any application previously
made of) the proceeds of any collection, sale or other disposition of the
Collateral, or of any other payments received hereunder, toward the Obligations
in such order and manner as the Lender, in its sole discretion, shall determine,
any statute (the application of which may be waived or modified by agreement),
customs or practices to the contrary notwithstanding. The Borrower shall remain
liable to the Lender for any deficiency remaining following such application.

         8.7      Severability. If any provision of this Agreement or any of the
other Financing Documents, or any portion of such provision, or the application
thereof to any Person or circumstance, shall to any extent be prohibited or held
invalid or unenforceable, the remainder of this Agreement and the other
Financing Documents or the remainder of such provision and the application
thereof to other Persons or circumstances (other than those as to which it is
prohibited or held invalid or unenforceable) shall not be affected thereby, and
each term and provision hereof and of the other Financing Documents shall be
valid and enforced to the fullest extent permitted by law. To the extent
permitted by law, the parties hereto waive any provision of law which renders
any such provision or the application thereof to any Person or circumstance
prohibited, invalid or unenforceable in any respect.

         8.8      Headings. Headings appearing in this Agreement are intended
for convenience only and do not constitute, and shall not be interpreted to be,
a part of this Agreement.

         8.9      WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER FINANCING DOCUMENTS OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY
CLAIMS.

         8.10     Governing Law; Jurisdiction. This Agreement and the other
Financing Documents are executed and delivered under seal and shall be construed
in accordance with and governed by the laws of The Commonwealth of
Massachusetts, without giving effect to the conflict of law provisions thereof.
Each of the Lender and the Borrower submits itself to the non-exclusive
jurisdiction of the courts of The Commonwealth of Massachusetts for all purposes
with respect to the Financing Documents and the Borrower's relationship with the
Lender.

            [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]

                                      -19-



                                                                    EXHIBIT 10.4

         IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered under their seals as of the date first above
written.

WITNESS:                                ARIAD CORPORATION

      /s/ Andrew Levine                 By:   /s/ Edward M. Fitzgerald
- ---------------------------                -------------------------------------
Name: Andrew Levine                        Name:  Edward M. Fitzgerald
                                           Title: Chief Financial Officer
                                                 Its duly authorized officer

WITNESS:                                CITIZENS BANK OF MASSACHUSETTS

       /s/ Todd H. Whilton              By:   /s/ Scott Haskell
- ---------------------------                -------------------------------------
Name:   Todd H. Whilton                    Name:  Scott Haskell
                                           Title: Vice President
                                                 Its duly authorized officer

                                      -20-



                                                                    EXHIBIT 10.4

                          COMMONWEALTH OF MASSACHUSETTS

______________ County, ss.                                       March ___, 2003

         Then personally appeared the above-named _____________________ as
__________________ of ARIAD Corporation, and acknowledged the foregoing
instrument to be his/her free act and deed and the free act and deed of ARIAD
Pharmaceuticals, Inc., before me.

                                        ________________________________________
                                        Notary Public
                                        My commission expires:
                                        [AFFIX NOTARIAL SEAL]

                          COMMONWEALTH OF MASSACHUSETTS

Suffolk County, ss.                                               March 14, 2003

         Then personally appeared the above-named Scott Haskell as Vice
President of Citizens Bank, and acknowledged the foregoing instrument to be his
free act and deed and the free act and deed of Citizens Bank, before me.

                                              /s/ Todd H. Whilton
                                        ----------------------------------------
                                        Notary Public
                                        My commission expires:  1/30/09
                                        [AFFIX NOTARIAL SEAL]

STATE OF NEW YORK

COUNTY OF NEW YORK, ss.

         On this 12th day of March, 2003, appeared before me the above-named
Edward M. Fitzgerald, Chief Financial Officer of ARIAD Corporation, who proved
to me on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within instrument, and acknowledged the foregoing instrument
to be his free act and deed and the free act and deed of ARIAD Corporation.

                                        /s/ Nyisha Shakur
                                        ----------------------------------------
                                        Notary Public
                                        My Commission Expires: May 7, 2006

                                      -21-



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

                         SECURITY AGREEMENT - ALL ASSETS

                                 by and between

                         CITIZENS BANK OF MASSACHUSETTS
                                 (the "LENDER")

                                       and

                                ARIAD CORPORATION
                                (the "BORROWER")

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

1.   Name of Borrower.

         1.1.     The exact corporate name of the Borrower as it appears on its
organizational documents and its taxpayer identification number and its
organizations identification number are as follows:

ARIAD Corporation                      Federal Tax Identification No. 04-3150252

         1.2.     The following is a list of all other names (including trade
names or similar appellations) used by the Borrower or any other business or
organization to which the Borrower became the successor by merger,
consolidation, acquisition, change in form, nature or jurisdiction of
organization or otherwise, at any time during the past five (5) years:

         None

         1.3.     The following is the state (or jurisdiction) of organization
(or formation) of the Borrower:

         Delaware

2.   Locations.

         2.1.     The chief executive office and principal place of business of
the Borrower is located at the following address:

         26 Landsdowne Street
         Cambridge, Massachusetts 02139



         2.2.     The following is a list of all of the other locations in which
the Borrower maintains any books or records relating to any of the Collateral
consisting of Accounts, Chattel Paper, General Intangibles or mobile goods:

         None

         2.3.     The following are all of the other places of business of the
Borrower:

         None

         2.4.     The following are all other locations where any of the
Collateral consisting of Inventory or Equipment is located:

         None

3.   The following is a summary of all of the Pledged Notes:

         None

EX-10.5

                                                                    Exhibit 10.5

                         SECURITY AGREEMENT - ALL ASSETS

         This SECURITY AGREEMENT - ALL ASSETS (this "AGREEMENT") is made as of
March 12, 2003, by and between ARIAD GENE THERAPEUTICS, INC., a Delaware
Corporation (the "BORROWER") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts
Bank (the "LENDER").

         All capitalized terms not defined herein but defined in the Credit
Agreement, dated of even date herewith (as the same may be amended, modified,
supplemented, extended or restated, from time to time, the "CREDIT AGREEMENT")
by and among the Borrower, ARIAD PHARMACEUTICALS, INC., a Delaware corporation
and ARIAD CORPORATION, a Delaware corporation (the "CO-BORROWERS"), and the
Lender, shall have the meanings given to such terms in the Credit Agreement.

                             Preliminary Statements:

         WHEREAS, the Borrower and the Co-Borrowers have requested that the
Lender enter into the Credit Agreement and to make certain Loans to or for the
benefit of the Borrower and Co-Borrowers, as provided for therein; and

         WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and to the obligation of the Lender to make such Loans that the
Borrower enter into this Agreement;

         NOW, THEREFORE, in order to induce the Lender to enter into the Credit
Agreement and to make such Loans to or for the benefit of the Borrower and the
Co-Borrowers, and in consideration thereof and in consideration of the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower hereby
agrees with the Lender as follows:

SECTION 1.        DEFINITIONS; USE OF TERMS.

         1.1      Definitions. As used in this Agreement, the following terms
shall have the meanings given to such terms in the Uniform Commercial Code in
effect in The Commonwealth of Massachusetts on the date hereof: "COMMERCIAL TORT
CLAIMS," "DEPOSIT ACCOUNTS," "DOCUMENTS," "FARM PRODUCTS," "FIXTURES," "GOODS,"
"HEALTH-CARE-INSURANCE RECEIVABLES," "INSTRUMENTS," "PAYMENT INTANGIBLE,"
"SOFTWARE," "STATE" and "SUPPORTING OBLIGATIONS." The following terms shall have
the meanings given to such terms as set forth below:

                  "ACCOUNTS": all "accounts" as that term is defined in the UCC,
         and to the extent not included in such definition, shall also mean and
         include any right to payment of a monetary obligation, whether or not
         earned by performance, (a) for property that has been or is to be sold,
         leased, licensed, assigned, or otherwise disposed of, (b) for services
         rendered or to be rendered, (c) for a policy of insurance issued or to
         be issued, (d) for a secondary obligation incurred or to be incurred,
         (e) for energy provided or to be provided, (f) for the use or hire of a
         vessel under a charter or other contract, (g) arising out of the use of
         a credit or charge card or information contained on or for use with the
         card, or (h) as winnings in a lottery or other game of change operated
         or sponsored by a State,

                                       -1-


                                                                    Exhibit 10.5

         governmental unit of a State, or person licensed or authorized to
         operate the game by a State or governmental unit of a State (including
         without limitation, (i) all Health-Care-Insurance Receivables and other
         accounts receivable, and (ii) all debts, and other forms of obligations
         or indebtedness whether now owned or hereafter acquired).

                  "CAPITAL STOCK": any and all shares, interests, participations
         or other equivalents (however designated) of capital stock of a
         corporation, any and all equivalent ownership or membership interests
         in a Person (other than a corporation) and any and all warrants or
         options to purchase any of the foregoing.

                  "CHATTEL PAPER": all "chattel paper" as that term is defined
         in the UCC, and to the extent not included in such definition, shall
         also mean and include any record that evidences both a monetary
         obligation and a security interest in specific Goods, any security
         interest in specific Goods and Software used in the Goods, any security
         interest in specific Goods and license of Software used in the Goods,
         any lease of specific Goods, or any lease of specific Goods and license
         of Software used in the Goods (including without limitation, all
         electronic chattel paper (as defined in the UCC) and all tangible
         chattel paper (as defined in the UCC)).

                  "CONTRACT": with respect to an Account, any agreement relating
         to the terms of payment or the terms of performance thereof, including,
         without limitation, (a) all rights of the Borrower to receive moneys
         due and to become due to it thereunder or in connection therewith, (b)
         all rights of the Borrower to damages arising out of, or for, breach or
         default in respect thereof and (c) all rights of the Borrower to
         perform and to exercise all remedies thereunder.

                  "EQUIPMENT": all "equipment" as that term is defined in the
         UCC, and to the extent not included in such definition, shall also mean
         and include all machinery, furniture and motor vehicles.

                  "GENERAL INTANGIBLES": all "general intangibles" as that term
         is defined in the UCC, and to the extent not included in such
         definition, shall also mean and include any Payment Intangibles,
         Software, franchise agreements or rights to know-how, any trade
         secrets, product or service development ideas and designs, advertising
         commercials, renderings, strategies and plans, blueprints,
         architectural drawings, site location, personnel and franchisee
         information, proprietary information, contracts with distributors, and
         any similar items, all interest rate, foreign currency or similar
         agreements and general intangibles attributable to the Capital Stock of
         each Subsidiary, provided however, such definition shall not include
         any Intellectual Property.

                  "GOVERNMENTAL AUTHORITY": any nation or government, any state
         or other political subdivision thereof and any entity exercising
         executive, legislative, judicial, regulatory or administrative
         functions of or pertaining to government.

                  "INTELLECTUAL PROPERTY": means (a) any and all Copyrights, (b)
         any and all trade secrets, and any and all intellectual property rights
         in computer software and computer software products now or hereafter
         existing, created, acquired or held; (c) any and all

                                       -2-


                                                                    Exhibit 10.5

         Patents; (d) any and all Trademarks; (e) any and all claims for damages
         by way of past, present and future infringements of any of the rights
         included above, with the right, but not the obligation, to sue for and
         collect such damages for said use or infringement of the intellectual
         property rights identified above; (f) any and all licenses or other
         rights to use any of the Copyrights, Patents, or Trademarks and all
         license fees and royalties arising from such use to the extent
         permitted by such license or rights; (g) any and all amendments,
         extensions, renewals and extensions of any of the Copyrights,
         Trademarks, or Patents; (h) any and all proprietary biological
         materials, including without limitation, cell lines, DNA, RNA,
         plasmids, and vectors; (i) any and all licenses granting the Borrower
         the right to use any Copyrights, Patents, Trademarks, trade secrets,
         computer software, or biological materials of third parties; and (j)
         any and all proceeds and products of the foregoing, including without
         limitation, all payments under insurance or any indemnity or warranty
         payable in respect of any of the foregoing.

                  "INVENTORY": all "inventory" as that term is defined in the
         UCC, and to the extent not included in such definition, shall also mean
         and include all raw materials and other materials and supplies,
         work-in-process and finished goods and any products made or processed
         therefrom and all substances, if any, commingled therewith or added
         thereto.

                  "INVESTMENT PROPERTY": all "investment property", as that term
         is defined in the UCC, and to the extent not included in such
         definition, shall also mean and include all stock (with the exception
         of stock in any Domestic Subsidiary), bonds, debentures, securities,
         treasury bills, certificates of deposit, mutual or money market fund
         shares, bills, notes (including, without limitation, all Pledged
         Notes), evidences of indebtedness or other obligations issued by any
         Person (including, without limitation, federal government of the United
         States or any agency thereof), whether in registered, bearer or other
         form, and whether certificated or uncertificated, in book-entry or
         other form.

                  "ISSUERS": (a) the Persons identified in Section 4 of the
         Master Disclosure Schedule attached hereto as the issuers of the
         Pledged Notes and (b) any other issuer of any Investment Property.

                  "LIEN": any mortgage, pledge, hypothecation, assignment,
         deposit arrangement, encumbrance, lien (statutory or other), charge or
         other security interest or any preference, priority or other security
         agreement or preferential arrangement of any kind or nature whatsoever
         (including, without limitation, any conditional sale or other title
         retention agreement and any capitalized lease having substantially the
         same economic effect as any of the foregoing).

                  "MASTER DISCLOSURE SCHEDULE": the Master Disclosure Schedule
         attached hereto and incorporated herein by reference.

                  "PLEDGED NOTES": all promissory notes listed in Section 3 of
         the Master Disclosure Schedule attached hereto, and, if requested by
         the Lender, any other promissory note issued to or held by the Borrower
         (other than promissory notes issued in

                                       -3-


                                                                    Exhibit 10.5

         connection with extensions of trade credit by the Borrower in the
         ordinary course of business).

                  "PROCEEDS": all "proceeds," as that term is defined in the
         UCC, and to the extent not included in such definition, shall also mean
         and include (a) any and all proceeds of any insurance, indemnity,
         warranty, guaranty or letter of credit payable to the Borrower, from
         time to time with respect to any of the Collateral, (b) all payments
         (in any form whatsoever) paid or payable to the Borrower from time to
         time in connection with any taking of all or any part of the Collateral
         by any Governmental Authority or any Person acting under color of
         Governmental Authority, (c) all judgments in favor of the Borrower in
         respect of the Collateral, (d) all dividends or other income from the
         Investment Property, collections thereon or distributions or payments
         with respect thereto and (e) all other amounts from time to time paid
         or payable or received or receivable under or in connection with any of
         the Collateral.

                  "SECURITIES ACT": the Securities Act of 1933, as amended from
         time to time.

                  "SUBSIDIARY": means any corporation or other entity of which a
         majority of the outstanding ownership interests entitled to vote for
         the election of directors or other governing body (otherwise than as
         the result of a default) is owned by Borrower directly or indirectly
         through Subsidiaries.

                  "UCC": the Uniform Commercial Code as from time to time in
         effect in The Commonwealth of Massachusetts; provided, however, that if
         by reason of mandatory provisions of law, the perfection or the effect
         of perfection or non-perfection of the security interest in any
         Collateral or the availability of any remedy hereunder is governed by
         the Uniform Commercial Code as in effect on or after the date hereof in
         any other jurisdiction, then the term "UCC" shall mean the Uniform
         Commercial Code as in effect in such other jurisdiction for purposes of
         the provisions hereof relating to such perfection or effect of
         perfection or non-perfection or availability of such remedy.

         1.2      Use of Terms; Exhibits and Schedules. The use of the singular
of terms which are defined in the plural shall mean and refer to any one of
them; and pronouns used herein shall be deemed to include the singular and the
plural and all genders. The use of the connective "or" is not intended to be
exclusive; the term "may not" is intended to be prohibitive and not permissive;
use of "includes" and "including" is intended to be interpreted as expansive and
amplifying and not as limiting in any way. All exhibits and schedules to this
Agreement are incorporated herein.

SECTION 2.        GRANT OF SECURITY INTEREST.

         As security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations, the Borrower hereby grants and otherwise pledges to the Lender a
continuing security interest in all of the present and future rights, title and
interests of the Borrower in and to the following property, and each item
thereof, all whether now or hereafter existing, or owned or acquired by the
Borrower, or now or hereafter arising or due or to become due, wherever such
property may be located, together with all

                                       -4-


                                                                    Exhibit 10.5

substitutions for, replacements of, additions to, accessions to, and products,
Proceeds and records of any and all of the following (collectively, the
"COLLATERAL"):

                  (a)      all Accounts;

                  (b)      all Inventory;

                  (c)      all Equipment;

                  (d)      all Fixtures;

                  (e)      all Contracts;

                  (f)      all Chattel Paper;

                  (g)      all Documents;

                  (h)      all Instruments;

                  (i)      all Investment Property;

                  (j)      all Deposit Accounts;

                  (k)      all General Intangibles;

                  (l)      all Supporting Obligations;

                  (m)      all Commercial Tort Claims; and

                  (n)      all other items of tangible and intangible personal
                           property of any and every kind and description which
                           are not otherwise described herein, excluding
                           Intellectual Property and Capital Stock in a Domestic
                           Subsidiary.

SECTION 3.        GENERAL REPRESENTATIONS AND WARRANTIES.

         The Borrower hereby represents and warrants as follows:

         3.1      Power and Authority. The Borrower has the power and authority
and the legal right to execute and deliver, to perform its obligations under,
and to grant the Lien on the Collateral pursuant to, this Agreement and has
taken all necessary actions to authorize its execution, delivery and performance
of, and grant of the Lien on the Collateral pursuant to, this Agreement.

         3.2      Master Disclosure Schedule. All of the information contained
in the Master Disclosure Schedule attached hereto is true, correct and complete.

         3.3      Name; Chief Executive Office.

                                       -5-


                                                                    Exhibit 10.5

                  (a)      The name of the Borrower set forth in the first
         paragraph of this Agreement is the true, correct and complete legal
         name of the Borrower, and the Borrower has not done business under, or
         used, any other name, except as otherwise described in Section 1.2 of
         the Master Disclosure Schedule attached hereto.

                  (b)      The chief executive office and principal place of
         business of the Borrower is located at the address listed in Section
         2.1 of the Master Disclosure Schedule attached hereto.

                  (c)      All of the Inventory and Equipment of the Borrower
         (other than mobile vehicles) is kept at the locations listed in Section
         2.2 of the Master Disclosure Schedule attached hereto.

         3.4      Title; No Other Liens. Except for (a) the Lien granted to the
Lender pursuant to this Agreement and (b) the Permitted Liens, the Borrower owns
each item of the Collateral free and clear of any and all Liens or claims of
others. No security agreement, financing statement or other public notice with
respect to all or any part of the Collateral is on file or of record in any
public office, except such as may have been filed in favor of the Lender,
pursuant to this Agreement or as may be permitted pursuant to the Credit
Agreement.

         3.5      Perfected Liens. Upon the completion of filing of financing
statements at the Delaware Secretary of State, the Liens granted by the Borrower
pursuant to this Agreement will constitute perfected Liens on the Collateral
(other than the Pledged Notes) in which a security interest may be perfected by
the filing of financing statements pursuant to Article 9 of the Uniform
Commercial Code as in effect in each relevant jurisdiction in favor of the
Lender which are enforceable as such against all creditors of and purchasers
from the Borrower, except in each case as enforceability is affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether involved in a proceeding in equity or at law) and
an implied covenant of good faith and fair dealing.

         3.6      Accounts, etc. No amount payable to the Borrower under or in
connection with any Account, Contract or License, or any Investment Property,
Deposit Accounts or General Intangibles, in excess of Twenty Thousand and 00/100
Dollars ($20,000.00) is evidenced by any Instrument or Chattel Paper which has
not been delivered to the Lender. The amount represented by the Borrower to the
Lender from time to time as owing by each account debtor or by all account
debtors in respect of the Accounts will at such time be the correct amount
actually owing by such account debtor or debtors thereunder in all material
respects, subject to adjustments in the ordinary course of business.

         3.7      Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.

         3.8      Investment Property.

                  (a)      To the best knowledge of the Borrower, each of the
         Pledged Notes pledged by the Borrower hereunder constitutes a valid and
         legally enforceable obligation of the other obligor in respect thereof
         or parties thereto, enforceable in accordance with

                                       -6-


                                                                    Exhibit 10.5

         its terms, except as enforceability may be limited by bankruptcy,
         insolvency, reorganization, moratorium or similar laws affecting the
         enforcement of creditors' rights generally.

                  (b)      The Borrower is the record and beneficial owner of,
         and has good and marketable title to, the Investment Property pledged
         by it hereunder, free of any and all Liens or options in favor of, or
         claims of, any other Person, except for the Lien created by this
         Agreement and Permitted Liens.

SECTION 4.        GENERAL COVENANTS.

         The Borrower hereby covenants and agrees as follows:

         4.1      Changes in Name and Locations. The Borrower will not (a)
change its name, identity, organizational structure, jurisdiction of
organization, chief executive office or place where its business records are
kept, (b) move any tangible Collateral to a location other than those set forth
in the Master Disclosure Schedule attached hereto, or (c) merge into or
consolidate with any other entity, unless in each case it shall have given the
Lender at least thirty (30) days prior written notice thereof and all filings
and other actions to maintain the perfection of the security interest granted
hereby shall have been made.

         4.2      Maintenance of Records. The Borrower will keep and maintain at
its own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Accounts, Contracts and Licenses. The Borrower will,
upon request of the Lender, mark its books and records pertaining to the
Collateral to evidence this Agreement and the security interests granted hereby.

         4.3      Right of Inspection. Lender may inspect the property and
records of the Borrower in accordance with Section 5.6 of the Credit Agreement.

         4.4      Payment of Taxes and Other Amounts. The Borrower will pay
promptly when due all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of its income or profits therefrom, as
well as all claims of any kind (including, without limitation, claims for labor,
materials and supplies) against or with respect to the Collateral which have a
reasonable likelihood of adverse determination, except that no such charge need
be paid if (a) the validity or amount thereof is being contested in good faith,
(b) such contest does not involve any material danger of the sale, forfeiture or
loss of any material portion of the Collateral or any interest therein and (c)
such charge is adequately reserved against the Borrower's books in accordance
with GAAP or if the failure to pay such charge would not have a Material Adverse
Effect.

         4.5      Maintenance and Use of Properties. The Borrower will
safeguard, protect and preserve the Collateral for the benefit of the Lender,
will keep the Collateral free from any Lien (other than the Permitted Liens and
Liens in favor of the Lender), will keep all tangible property constituting part
of the Collateral in good working order and repair, will preserve all beneficial
contract rights, will take commercially reasonable steps to collect all
Accounts, and will not waste or destroy the Collateral or any part thereof; and
the Borrower will, consistent with good business practices, otherwise preserve,
maintain and protect its rights and keep its properties and

                                       -7-


                                                                    Exhibit 10.5

assets in good repair, working order and condition, and capable of
identification, and make (or cause to be made) all needful and proper repairs or
renewals, additions and improvements thereto and replacements thereof, and shall
use its assets only in the ordinary course of business and in compliance with
all applicable law.

         4.6      Notices and Reports Pertaining to Collateral. The Borrower
will (a) promptly notify the Lender of any Lien (except for Liens in favor of
the Lender and Permitted Liens) asserted against the Collateral and of any
information received by the Borrower relating to the Collateral (including the
Accounts, the account debtors or other persons obligated in connection
therewith) that may in any way materially adversely affect the value of the
Collateral or the rights and remedies of the Lender with respect thereto; (b)
promptly notify the Lender when it obtains knowledge of actual or threatened
bankruptcy or other insolvency proceeding of any material account debtor or
issuer of Securities; (c) notify the Lender of any return or adjustment,
rejection, repossession, or loss or damage of or to merchandise represented by
Accounts or constituting Inventory if material in amount and of any credit,
adjustment or dispute arising in connection with the goods or services
represented by Accounts or constituting Inventory if material in amount; and (d)
notify the Lender of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or, with respect to any material portion of the Collateral, on the
Liens created hereunder.

         The Borrower authorizes the Lender to destroy all invoices, delivery
receipts, reports and other types of documents (other than documents
constituting Collateral) and records submitted to the Lender in connection with
the transactions contemplated herein at any time subsequent to twelve (12)
months from the time such items are delivered to the Lender.

         4.7      Liens on Collateral. The Borrower will defend the Collateral
against, and will take such other action as is necessary to remove, any Lien or
claim on or to the Collateral, other than the Liens created hereby and the
Permitted Liens, and will defend the right, title and interest of the Lender in
and to any of the Collateral against the claims and demands of all Persons
whomsoever.

         4.8      Maintenance of Insurance.

                  (a)      The Borrower will maintain insurance, at all times,
         with financially sound and reputable companies as are reasonably
         satisfactory to the Lender, in such amounts and against such risks as
         are customarily insured against by businesses operating in a similar
         line of business in a similar area, and consistent with sound business
         practice, in no event less than the lesser of (i) the full insurable
         replacement cost value of all of the Borrower's tangible personal
         property (and, in any case, the amount necessary to avoid any
         coinsurance or contributions by the Borrower) or (ii) the total
         aggregate outstanding principal indebtedness owing by the Borrower to
         the Lender, including casualty insurance covering the Collateral and
         other property of the Borrower against the hazards of fire, flood,
         sprinkler leakage, burglary, theft, pilferage, loss in transit, those
         hazards covered by extended coverage, and such other coverages as the
         Lender may reasonably require, all such insurance to be in such form,
         for such periods and with such companies as shall be reasonably
         acceptable to the Lender. All premiums thereon shall be paid by the
         Borrower and if the Borrower fails to do so, the Lender may at its
         option (but without

                                       -8-


                                                                    Exhibit 10.5

         obligation) procure such insurance and charge the cost to the
         Borrower's account, provided, however, that any such payment by the
         Lender shall not constitute satisfaction of the Borrower's obligations
         with respect to payment hereunder, or a waiver by the Lender of any
         Event of Default with respect to such non-payment.

                  (b)      All such insurance policies shall provide, in form
         and substance satisfactory to the Lender, that: (i) any loss thereunder
         shall be payable to the Lender as loss payee (first to the Lender and
         then to the Borrower, as their interests may appear); (ii) any such
         payment to the Lender shall be made by an instrument to the Lender
         alone and not to the Borrower and the Lender jointly; and (iii) no
         cancellation or modification of such policy shall be effective without
         at least thirty (30) days prior written notice to the Lender. If any
         insurance losses are paid by check, draft or other instrument payable
         to the Borrower and the Lender jointly, the Lender may endorse the
         Borrower's name thereon and do such other things as the Lender may deem
         advisable to reduce the same to cash. All loss recoveries received by
         the Lender upon any such insurance shall be applied to the Obligations,
         whether or not matured, in such order as the Lender in its sole
         discretion may determine. Any surplus shall be paid by the Lender to
         the Borrower or applied as may be otherwise required by law.

                  (c)      Certificates of insurance of, and upon request of the
         Lender, the original policies of, all such casualty insurance policies
         and endorsements thereto, shall be delivered to the Lender; and, upon
         request, satisfactory evidence of general liability, products
         liability, workers' compensation and other insurance coverage, in form
         and substance satisfactory to the Lender, shall be furnished to the
         Lender, in each case within three (3) business days of each Lender's
         request therefor. The Borrower shall advise the Lender of each claim
         made by the Borrower under any policy of insurance which covers the
         Collateral and will permit the Lender, at the Lender's option in each
         instance, to participate in the adjustment of each such claim.

         4.9      Maintenance of Perfected Liens; Further Documentation. At any
time and from time to time, upon the written request of the Lender, and at the
sole expense of the Borrower, the Borrower will promptly and duly execute and
deliver such further instruments and documents and take such further action as
the Lender may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted
(including, without limitation, (a) obtaining governmental and other third party
consents and approvals, including without limitation any consent of any licensor
or lessor; (b) obtaining waivers from mortgagees and landlords; and (c) in the
case of Investment Property, and any other relevant Collateral, taken action
necessary to enable the Lender to obtain "control" (within the meaning of the
applicable Uniform Commercial Code) with respect thereto). The Borrower also
hereby authorizes the Lender to file (after written notice to the Borrower) any
such financing or continuation statement without the signature of the Borrower
to the extent permitted by applicable law, provided, however, that any failure
to give any such notice shall not affect the validity or effectiveness of any
such filing. A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement for filing in any jurisdiction.

         4.10     Costs and Expenses. Except as otherwise provided in the Credit
Agreement, the Borrower agrees to pay (a) the reasonable costs of producing and
reproducing this Agreement,

                                       -9-


                                                                    Exhibit 10.5

the other Financing Documents and the other agreements and instruments mentioned
herein, (b) any taxes (including any interest and penalties in respect thereto)
payable by the Lender (other than taxes based upon the Lender's net income) on
or with respect to the transactions contemplated by this Agreement (the Borrower
hereby agreeing to indemnify the Lender with respect thereto), (c) the
reasonable fees, expenses and disbursements of outside counsel to the Lender
incurred in connection with the preparation, administration or interpretation of
the Financing Documents and other instruments mentioned herein, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) all
reasonable out-of-pocket expenses (including without limitation reasonable
attorneys' fees and costs of outside legal counsel, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and
charges) incurred by the Lender in connection with (i) the enforcement of or
preservation of rights under any of the Financing Documents against the Borrower
or the administration thereof after demand is made by the Lender to the Borrower
for payment in full of the Obligations and (ii) any litigation, proceeding or
dispute whether arising hereunder or otherwise, in any way related to the
Lender's relationship with the Borrower and (e) all reasonable fees, expenses
and disbursements of the Lender incurred in connection with UCC searches, UCC
filings or mortgage recordings. The covenants contained in this subsection shall
survive payment or satisfaction in full of all other Obligations

         4.11     Negative Pledge on Intellectual Property. The Borrower shall
not create, incur, assume or suffer to exist any Lien upon the Intellectual
Property of the Borrower whether now owned or hereafter acquired, except for
encumbrances which may be deemed to arise from licensing, sublicensing or other
sharing arrangements permitted under subsection 6.7(d) of the Credit Agreement.

SECTION 5.        SPECIFIC COVENANTS REGARDING CERTAIN COLLATERAL.

         The Borrower hereby covenants and agrees as follows:

         5.1      Accounts.

                  (a)      Collection on Accounts and Proceeds. The Borrower
         shall enforce, compromise and collect amounts owing on its Accounts;
         provided, however, the right of the Borrower hereunder to enforce,
         compromise and collect amounts owing on such Accounts may at the option
         of the Lender be terminated upon the occurrence and during the
         continuance of any Event of Default. If any Accounts of the Borrower
         are at any time evidenced by promissory notes, trade acceptances or
         other Instruments for the payment of money, the Borrower will promptly
         deliver the same to the Lender appropriately endorsed to the Lender's
         order and, regardless of dishonor, protest, notice of protest and all
         other notices with respect thereto. After an Event of Default has
         occurred and is continuing and the Borrower has received notice thereof
         from the Lender, any Proceeds collected by the Borrower (whether
         consisting of checks, notes, drafts, bills of exchange, money orders,
         commercial paper of any kind whatsoever, or other documents received in
         payment of any Account or in payment for any Inventory or otherwise),
         shall be promptly turned over by the Borrower to the Lender, in
         precisely the form received, except for its endorsement when required,
         and until so turned over, shall be deemed to be held in trust

                                      -10-


                                                                    Exhibit 10.5

         by the Borrower for and as the Lender's property, and shall be held
         separately from the Borrower's other funds.

                  (b)      Limitations on Discounts and Compromises of Accounts.
         Other than in the ordinary course of business as generally conducted by
         the Borrower over a period of time, the Borrower will not compromise,
         compound or settle the Accounts for less than the full amount thereof,
         or release, wholly or partially, any Person liable for the payment
         thereof, except in each case as permitted under the Credit Agreement.

                  (c)      Notice to Account Debtors. At any time after the
         occurrence and during the continuance of an Event of Default, the
         Borrower shall, at the request of the Lender, notify its account
         debtors, and the Lender itself may notify such account debtors
         directly, of the security interest of the Lender in any Account and
         that payment thereof is to be made directly to the Lender. At any time
         after the occurrence and during the continuance of an Event of Default,
         the Lender may communicate with account debtors to verify with them to
         its satisfaction the existence, amount and terms of any Account.

                  (d)      Information on Accounts. The Borrower shall furnish
         to the Lender from time to time, and upon request, a list and
         description of all Accounts created or acquired by the Borrower,
         together with copies of shipping or delivery receipts for all goods and
         services sold or otherwise provided, and any other information or
         documents which the Lender reasonably may request from time to time
         related to the Borrower's Accounts.

         5.2      Inventory.

                  (a)      Pricing, Credit Terms and Accounts. So long as no
         Event of Default has occurred and is continuing, the Borrower may sell
         items of Inventory: (a) for cash in amounts not less than the
         Borrower's published, usual or customary prices, less only usual and
         customary discounts for volume sales or prompt payment; or (b) on
         credit terms usual and customary in the business conducted by the
         Borrower, at prices which conform to the above terms, and under such
         circumstances as give rise to Accounts subject to this Agreement.

                  (b)      Notice to Landlords, Warehousemen and Agents. If any
         Inventory is in the possession or control of any landlords,
         warehousemen or agents, the Borrower shall notify them of the Lender's
         security interest therein, and at the Lender's request, instruct them
         to hold the same for the Lender's account and subject to the Lender's
         instructions. The Lender shall enjoy all of the rights and remedies of
         a secured party in the Inventory and shall be subrogated to all
         guaranties and security now or which may in the future be held by the
         Borrower. The Lender shall not be liable in any manner for exercising
         or refusing or failing to exercise any such rights.

         5.3      Contracts with Governmental Authorities. None of the account
debtors or other Persons obligated on any of the Collateral is a Governmental
Authority covered by the Federal Assignment of Claims Act or like federal, state
or local statute or rule in respect of such Collateral.

                                      -11-


                                                                    Exhibit 10.5

         5.4      Chattel Paper. Unless an Event of Default shall have occurred
and be continuing, the Borrower shall be entitled to retain possession of all
Collateral consisting of Chattel Paper, and shall hold all such Chattel Paper in
trust for the Lender. If the Lender has made demand for payment in full of the
Obligations, then upon the request of the Lender, such Chattel Paper shall be
immediately delivered to the Lender, to be held as Collateral pursuant to this
Agreement. The Borrower shall not permit any other Person (other than a
Borrower) to possess any such Collateral at any time.

         5.5      Equipment - Certificates of Title. The Borrower shall deliver
to the Lender, upon request, the originals of all certificates of title
pertaining to any Equipment for which such certificates are or should be issued
under applicable law, together with a duly completed and executed application to
add the Lender as a lienholder on each such certificate. The Borrower covenants
and agrees that it will promptly deliver to the Lender, upon request, all
certificates of title relating to any Equipment hereafter acquired, together
with duly completed and executed applications to add the Lender as a lienholder
therewith (in form and content satisfactory for filing with the appropriate
office), and that the Borrower shall not seek to obtain any certificate of title
for any Equipment currently lacking such a certificate, and it shall not attempt
to recertify or obtain a new certificate for any Equipment currently evidenced
by a certificate of title (whether in The Commonwealth of Massachusetts or any
other jurisdiction) without first notifying the Lender, and only if the original
of such certificate of title is or will be delivered to the Lender upon issuance
thereof and does or will properly name the Lender as first lienholder thereon
(subject only to any Permitted Liens), in each case duly perfecting the Lender's
security interest granted under this Agreement.

         5.6      Investment Property.

                  (a)      If the Borrower shall become entitled to receive or
         shall receive any stock certificate (including, without limitation, any
         certificate representing a stock dividend or a distribution in
         connection with any reclassification, increase or reduction of capital
         or any certificate issued in connection with any reorganization),
         option or rights in respect of the Capital Stock of any Issuer or any
         other Investment Property, the Borrower shall accept the same as the
         agent of the Lender, hold the same in trust for the Lender and promptly
         deliver (or cause to be delivered) the same to the Lender in the exact
         form received, duly indorsed by the Borrower to the Lender, if
         required, together with an undated stock power covering such
         certificate duly executed in blank by the Borrower and with, if the
         Lender so requests, signature guaranteed, to be held by the Lender,
         subject to the terms hereof, as additional collateral security for the
         Obligations.

                  (b)      Without the prior written consent of the Lender, the
         Borrower will not (i) sell, assign, transfer, exchange, or otherwise
         dispose of, or grant any option with respect to, the Investment
         Property or Proceeds thereof (except pursuant to a transaction
         expressly permitted by the Credit Agreement) or (ii) create, incur or
         permit to exist any Lien or option in favor of, or any claim of any
         Person with respect to, any of the Investment Property or Proceeds
         thereof, or any interest therein, except for the Lien provided for by
         this Agreement and Permitted Liens.

                                      -12-


                                                                    Exhibit 10.5

                  (c)      Unless an Event of Default shall have occurred and be
         continuing, the Borrower shall be permitted to receive all payments
         made in respect of the Pledged Notes, and to exercise all voting and
         corporate rights with respect to the Investment Property; provided,
         however, that the Borrower agrees that it shall not vote in any way
         that would be inconsistent with or result in any violation of any
         provision of the Credit Agreement, the Note, the Security Documents or
         any of the other Financing Documents.

                  (d)      If an Event of Default shall occur and be continuing,
         then (i) the Lender shall have the right to receive any and all cash
         dividends, payments or other Proceeds paid in respect of the Investment
         Property and make application thereof to the Obligations in such order
         as the Lender may determine, and (ii) any or all of the Investment
         Property may be registered in the name of the Lender or its nominee,
         and, subject to the terms of this Agreement, the Lender or its nominee
         may thereafter exercise (A) all voting, corporate and other rights
         pertaining to such Investment Property at any meeting of shareholders
         of the relevant Issuer or Issuers or otherwise and (B) any and all
         rights of conversion, exchange and subscription and any other rights,
         privileges or options pertaining to such Investment Property as if it
         were the absolute owner thereof (including, without limitation, the
         right to exchange at its discretion any and all of the Investment
         Property upon the merger, consolidation, reorganization,
         recapitalization or other fundamental change in the corporate structure
         of any Issuer, or upon the exercise by the Borrower or the Lender of
         any right, privilege or option pertaining to such Investment Property,
         and in connection therewith, the right to deposit and deliver any and
         all of the Investment Property with any committee, depositary, transfer
         agent, registrar or other designated agency upon such terms and
         conditions as the Lender may determine), all without liability except
         to account for property actually received by it, and except for its
         gross negligence or willful misconduct, but the Lender shall have no
         duty to the Borrower to exercise any such right, privilege or option
         and shall not be responsible for any failure to do so or delay in so
         doing.

                  (e)      The Borrower hereby authorizes and instructs each
         Issuer of any Investment Property pledged by the Borrower hereunder to
         comply with any instruction received by it from the Lender in writing
         that (i) states that an Event of Default has occurred and is continuing
         and (ii) is otherwise in accordance with the terms of this Agreement,
         without any other or further instructions from the Borrower, and the
         Borrower agrees that each Issuer shall be fully protected in so
         complying, to the extent such instruction is in compliance with
         applicable law.

                  (f)      The rights of the Lender hereunder shall not be
         conditioned or contingent upon the pursuit by the Lender of any right
         or remedy against any other Person which may be or become liable in
         respect of all or any part of the Obligations or against any collateral
         security thereof, guarantee therefore or right of offset with respect
         thereto. The Lender shall not be liable for any failure to demand,
         collect or realize upon all or any part of the Collateral or for any
         delay in doing so, nor shall the Lender be under any obligation to sell
         or otherwise dispose of any Collateral upon the request of the Borrower
         or any other Person or to take any other action whatsoever with regard
         to the Collateral or any part thereof. The Lender agrees to release
         promptly to the Borrower any dividends, cash, securities, instruments
         and other property paid, payable or otherwise distributed in

                                      -13-


                                                                    Exhibit 10.5

         respect of the Collateral which it may receive under subsection 5.6(d)
         hereof if, prior to the occurrence of an acceleration of any of the
         Obligations, all Defaults and Events of Default have been waived or are
         no longer continuing.

SECTION 6.        POWER OF ATTORNEY.

         6.1      Appointment and Powers. The Borrower hereby irrevocably
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
coupled with an interest, with full power of substitution (in each case at the
sole risk, cost and expense of the Borrower but for the benefit of the Lender)
to do the following:

                  (a)      at any time or times (whether or not an Event of
         Default has occurred), (i) to file and record without the Borrower's
         signature, or to sign the Borrower's name to and file and record,
         financing statements and any other instruments (including applications
         to name the Lender as lienholder on any motor vehicle or other
         certificates of title), and (ii) to take such other actions as the
         Lender may deem necessary in order to perfect or maintain the
         perfection or priority of the Lender's security interest in the
         Collateral or any portion thereof; and

                  (b)      after an Event of Default has occurred and is
         continuing, in addition to the actions described above, (i) to protect
         the Lender's security interest in the Collateral or any portion
         thereof; (ii) to receive and open the Borrower's mail, remove therefrom
         and hold or apply any Collateral and dispose of such mail or turn over
         such mail (other than such Collateral) to the Borrower or any trustee
         in bankruptcy, receiver, assignee for benefit of creditors or other
         legal representatives to whom the Lender determines to be the
         appropriate recipient thereof; (iii) to endorse the name of the
         Borrower in favor of the Lender upon any and all checks, drafts, notes,
         money orders, acceptances and other items, Instruments and forms of
         payment, and to sign and endorse the name of the Borrower on, and
         receive as secured party, any of the Collateral; (iv) to sign the
         Borrower's name to any invoices, schedules, freight or express
         receipts, bills of lading, and other Documents or writings of a similar
         or different nature, relating to the Collateral; (v) to sign the name
         of the Borrower on any schedules and assignments of Accounts, and on
         notices of assignment, financing statements and other public records
         relating to the Collateral, and on any notice to the Borrower's account
         debtors for verification of the Accounts; (vi) to prosecute, defend,
         compromise or release any action relating to the Collateral; (vii) to
         notify the post office authorities to change the address for delivery
         of the Borrower's mail to an address designated by the Lender, and to
         sign change of address forms therefor; (viii) to sign the Borrower's
         name in proofs of claim in bankruptcies of account debtors, notices of
         lien, claims = of mechanics liens, or assignments or releases of any
         Liens securing the Accounts; (ix) to take any such actions as may be
         necessary to obtain payment of any letter of credit of which the
         Borrower is a beneficiary; (x) to repair, manufacture, assemble,
         complete, package, deliver, alter or supply goods, if any, necessary to
         fulfill in whole or in part the purchase order of any customer of the
         Borrower; (xi) to notify any Persons of the rights and interests of the
         Lender, of the applicable Events of Default and of any matter relating
         to Collateral; (xii) to take any and all other actions (including,
         without limitation, the right to sue in the name of the Borrower or the
         Lender to collect upon any and all Collateral and to settle, adjust or

                                      -14-


                                                                    Exhibit 10.5

         compromise any and all claims with respect to Collateral including
         insurance claims) as the Lender shall deem necessary or expedient to
         convert the Collateral into cash; and (xiii) otherwise to exercise any
         rights or remedies of the Lender hereunder or under any of the
         Financing Documents, or otherwise under agreement or applicable law,
         including the UCC.

                  6.2      Ratification and Indemnification Under Power of
Attorney. In connection with all powers of attorney set forth in this Agreement,
the Lender shall have full power to exercise such powers as fully and
effectually as the Borrower might or could do; the Borrower agrees that the
Lender shall not be obligated to exercise any of the powers authorized herein,
and shall be free to exercise or refrain from exercising any of such powers at
any time or times in its absolute discretion, and, if the Lender elects to
exercise any of such powers, it shall not be accountable for more than it
actually receives as a result of such exercise of power, and shall not be
responsible to the Borrower except for the Lender's negligence, bad faith or
willful misconduct; and all powers conferred upon the Lender by this Agreement,
being coupled with an interest, shall be irrevocable until such time as all
Obligations have been paid (without being subject to or susceptible of recovery
by any Person) or performed and the Lender's agreement, if any, to make advances
has terminated.

                  6.3      Performance By Lender of Borrower's Obligations. If
the Borrower fails to perform or comply with any of its agreements contained
herein and the Lender, as provided for by the terms of this Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with any
agreement, the expense of the Lender incurred in connection with such
performance or compliance, together with interest thereon at the Late Rate,
shall be payable by the Borrower to the Lender on demand and shall constitute
Obligations secured hereby.

SECTION 7.        REMEDIES.

                  7.1      General Remedies. In addition to and without in any
way limiting any other rights and remedies available to the Lender under this
Agreement prior to an Event of Default, or any other rights and remedies
available to the Lender (whether prior to or after an Event of Default) under
any of the other Financing Documents or under applicable law or in equity, upon
and during the continuance of an Event of Default:

                  (a)      the Lender may decline to honor the credit of the
         Borrower or may refuse to make further advances to the Borrower;

                  (b)      the Lender may collect the Accounts with or without
         taking possession of the Collateral;

                  (c)      the Lender shall be entitled to immediate possession
         of the Collateral or any portion or portions thereof and may, so far as
         the Borrower can give authority therefor, enter upon the Borrower's
         premises to take possession thereof; may require the Borrower to
         assemble the Collateral and make it available to the Lender at a place
         to be designated by the Lender which is reasonably convenient to both
         parties; or may require the Borrower to deliver all Records relating to
         the Collateral to the Lender;

                                      -15-


                                                                    Exhibit 10.5

                  (d)      the Lender may enter upon, occupy, and use any
         premises owned or occupied by the Borrower (or by any agent of the
         Borrower at which Collateral is located), and may exclude the Borrower
         from such premises or portion thereof as may have been so entered upon,
         occupied, or used by the Lender; the Lender shall not be required to
         remove any of the Collateral from any such premises upon the Lender's
         taking possession thereof, and may render any Collateral unusable to
         the Borrower; and in no event shall the Lender be liable to the
         Borrower for use or occupancy by the Lender of any premises pursuant to
         this Agreement except for claims arising out of the Lender's
         negligence, bad faith or willful misconduct, nor for any charge (such
         as wages for the Borrower's employees and utilities) incurred in
         connection with the Lender's exercise of the Lender's rights and
         remedies;

                  (e)      the Lender may take such steps as it deems necessary
         to protect the Lender's interest in, and to preserve the Collateral,
         and the Borrower agrees to cooperate fully with all of the Lender's
         efforts and to take such actions as the Lender shall direct, all to
         preserve the Collateral;

                  (f)      the Lender shall have the rights and remedies of a
         secured party under the UCC and other applicable laws, the choice and
         manner of exercise of any right or remedy being in the Lender's sole
         discretion; and, pursuant thereto, the Lender shall have the right to
         foreclose the security interest granted in any Collateral by any
         available judicial procedure and to take possession of and sell any or
         all of the Collateral with or without judicial process; the Lender may
         lease or otherwise dispose of the Collateral, or may sell the
         Collateral, or any part thereof, at public or private sales, at any
         time or place (including the Borrower's premises), in one or more
         sales, at such price or prices, and upon such terms, either for cash,
         credit or future delivery, as the Lender may elect, and, except as to
         that part of the Collateral which is perishable or threatens to decline
         speedily in value, or is of the type customarily sold on a recognized
         market, the Lender shall give the Borrower reasonable notification of
         such sale or sales, it being agreed that, in all events, reasonable
         notification means written notice mailed to the Borrower at least ten
         (10) days prior to each such public sale or at least ten (10) days
         prior to the date after which any such private sales or other intended
         dispositions may be made; at any public sale the Lender may (but shall
         have no obligation to) bid for and become the purchaser of any
         Collateral; the Borrower hereby waives any and all rights it may have
         to judicial hearing in advance of the enforcement of any of the
         Lender's rights hereunder, including the Lender's right to take
         immediate possession of the Collateral; and the Lender may do any of
         the foregoing or otherwise deal with the Collateral in its then
         condition, or following such preparation as the Lender deems advisable,
         with or without taking possession thereof;

                  (g)      the Lender shall have the right to apply to the
         Obligations any deposits or other sums at any time credited by or due
         from the Lender to the Borrower; and

                  (h)      the Lender may treat any or all of the Financing
         Documents as being in default and may exercise any rights and remedies
         thereunder as it shall deem appropriate.

                                      -16-


                                                                    Exhibit 10.5

         7.2      No Duty of Preservation; Joint Property. The Lender may at all
times proceed directly against the Borrower, or against any other Person
responsible for any Obligations, to enforce the payment of the Obligations, and
the Lender shall not be required to take any action of any kind to preserve,
collect upon or protect the rights of the Lender or of any other Person in any
Collateral, except as specifically required by the UCC. Without limiting the
generality of the foregoing, the Lender shall not be required to take any action
to preserve rights against prior parties in the cases of Instruments or Chattel
Paper, and the Lender may co-mingle any items of Collateral with other property
and shall not be required to keep any Collateral identifiable. In the event any
Collateral, including any Deposit Account, is held in joint or common names, the
Lender may deal with such Collateral or any Deposit Account, for all purposes
hereunder and under any or all of the Financing Documents, as if belonging to
any one, and no more than one, of such joint or common owners.

         7.3      Remedies Not Exclusive. The enumeration of rights and remedies
in the Financing Documents is not intended to be exclusive, and they shall be in
addition to and not by way of limitation of such others as the Lender may have
under the UCC, other applicable law, and any and all other Documents,
Instruments, agreements or other writings between or among the Borrower, the
Lender or other Persons. The Lender shall, in its sole discretion, determine its
choice of rights and remedies and the order in which they shall be exercised,
and which Collateral, if any, is to be proceeded against and in which order. The
exercise of any right or remedy against the Borrower, any other Person or any or
all Collateral shall not preclude the exercise of others or the exercise thereof
against the Borrower, any other Persons or any other Collateral, all of which
shall be cumulative. No act, failure or delay by the Lender shall constitute a
waiver of any of its rights and remedies. No single or partial waiver by the
Lender of any provision of the Financing Documents, or of any breach or default
thereunder, or of any right or remedy which the Lender may have shall operate as
a waiver of any other provision, breach, default, right or remedy or of the same
one on a future occasion.

         7.4      Deficiency. The Borrower shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations and the reasonable fees and
disbursements of any attorneys employed by the Lender to collect such
deficiency.

         7.5      Requirement of Law. Notwithstanding any provision contained in
this Agreement to the contrary, the exercise of remedies or any power of
attorney granted hereunder with respect to Collateral is subject to any
applicable Requirement of Law of any Governmental Authority. No action will be
taken by the Lender hereunder if such action will result in a violation of any
applicable Requirement of Law of any Government Authority by the Borrower.

SECTION 8.        MISCELLANEOUS.

         8.1      Survival of Covenants; Binding Effect. All agreements,
representations, covenants and warranties made by the Borrower in this
Agreement, the other Financing Documents, or in any certificate or other
document delivered to the Lender in connection herewith shall survive the
termination of this Agreement and survive the execution and delivery of this
Agreement, and shall remain in full force and effect until all Obligations to
the Lender been paid in full and satisfied, and the security interest, Lien and
rights granted to the Lender in

                                      -17-


                                                                    Exhibit 10.5

any Collateral and its rights and remedies hereunder and under the other
Financing Documents shall continue in full force and effect, notwithstanding the
fact that Loans may , from time to time, be in a zero or credit position, until
all Obligations have been satisfied. All the terms and provisions of this
Agreement and the other Financing Documents shall be binding upon, inure to the
benefit of and be enforceable by and against the parties hereto and their
respective successors and assigns.

         8.2      Prior Discussions; Amendments in Writing; Counterparts; Filing
As Financing Statement. This Agreement and all other Financing Documents
incorporate all discussions and negotiations between the Borrower and the
Lender, either express or implied, concerning the matters included herein and
therein, any custom, usage or other writing to the contrary notwithstanding. No
such discussions or negotiations shall limit, modify, or otherwise affect the
provisions of the Financing Documents. This Agreement may be amended or modified
only in writing signed by the parties hereto, and in the case of the Lender
signed by a duly authorized officer thereof. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but such
counterparts together shall constitute one and the same instrument. Any proof of
this Agreement shall require production of only one such counterpart. A carbon,
photographic or other reproduction of this Agreement or of any financing
statement executed to perfect the security interest created herein may be filed
as a financing statement under the UCC (or under the Uniform Commercial Code in
effect in any jurisdiction outside Massachusetts).

         8.3      General Indemnification. The Borrower shall, and does hereby,
indemnify and save the Lender harmless from (and agrees to defend the Lender
from) any and all liabilities, damages, costs, losses and expenses (including
court costs and attorney's reasonable fees of outside counsel and expenses) that
the Lender may sustain or incur by reason of, relating to or arising out of the
preparation of this Agreement, the defending or protecting of any Collateral or
the priority of the Lender's interest therein, or in collecting or enforcing the
Obligations, or in enforcing any of the Lender's rights or remedies, or in the
prosecution or defense of any action or proceeding concerning any matter growing
out of or connected with this Agreement, any of the other Financing Documents,
the Obligations, the Collateral, or on account of the Lender's relationship with
the Borrower, or any other Person responsible for any of the Obligations (each
of which may be defended, compromised, settled or pursued by the Lender with
counsel of the Lender's selection, at the expense of the Borrower) except for
such claims which have been determined by a court of competent jurisdiction to
have arisen out of the Lender's actual bad faith, willful misconduct or gross
negligence. The within indemnification shall survive termination of this
Agreement. The Borrower's obligations under this subsection constitute part of
the Obligations secured by the security interest created by this Agreement.

         8.4      Destruction of Documents; Receipt of Copy. This Agreement and
all other Financing Documents may be reproduced by the Lender by any
photographic, photostatic, microfilm, or similar process, and the Lender may
destroy the original from which any document was so reproduced. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business). The Borrower acknowledges receipt of a true, correct and complete
copy or counterpart of this Agreement.

                                      -18-


                                                                    Exhibit 10.5

         8.5      Notices. All notices required or permitted hereunder shall be
in writing and delivered in accordance with the provisions of the Credit
Agreement.

         8.6      Application of Proceeds. Subject to the provisions of the
Credit Agreement, the Lender shall apply (or change any application previously
made of) the proceeds of any collection, sale or other disposition of the
Collateral, or of any other payments received hereunder, toward the Obligations
in such order and manner as the Lender, in its sole discretion, shall determine,
any statute (the application of which may be waived or modified by agreement),
customs or practices to the contrary notwithstanding. The Borrower shall remain
liable to the Lender for any deficiency remaining following such application.

         8.7      Severability. If any provision of this Agreement or any of the
other Financing Documents, or any portion of such provision, or the application
thereof to any Person or circumstance, shall to any extent be prohibited or held
invalid or unenforceable, the remainder of this Agreement and the other
Financing Documents or the remainder of such provision and the application
thereof to other Persons or circumstances (other than those as to which it is
prohibited or held invalid or unenforceable) shall not be affected thereby, and
each term and provision hereof and of the other Financing Documents shall be
valid and enforced to the fullest extent permitted by law. To the extent
permitted by law, the parties hereto waive any provision of law which renders
any such provision or the application thereof to any Person or circumstance
prohibited, invalid or unenforceable in any respect.

         8.8      Headings. Headings appearing in this Agreement are intended
for convenience only and do not constitute, and shall not be interpreted to be,
a part of this Agreement.

         8.9      WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER FINANCING DOCUMENTS OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY
CLAIMS.

         8.10     Governing Law; Jurisdiction. This Agreement and the other
Financing Documents are executed and delivered under seal and shall be construed
in accordance with and governed by the laws of The Commonwealth of
Massachusetts, without giving effect to the conflict of law provisions thereof.
Each of the Lender and the Borrower submits itself to the non-exclusive
jurisdiction of the courts of The Commonwealth of Massachusetts for all purposes
with respect to the Financing Documents and the Borrower's relationship with the
Lender.

            [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]

                                      -19-


                                                                    Exhibit 10.5

         IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered under their seals as of the date first above
written.

WITNESS:                                ARIAD GENE THERAPEUTICS, INC.

      /s/ Andrew Levine                 By:      /s/ Harvey Berger
- ---------------------------------           ------------------------------------
Name: Andrew Levine                         Name: Harvey J. Berger, M.D.
                                            Title: Chief Executive Officer
                                                  Its duly authorized officer

WITNESS:                                CITIZENS BANK OF MASSACHUSETTS

      /s/ Todd H. Whilton               By:      /s/ Scott Haskell
- ---------------------------------           ------------------------------------
Name: Todd H. Whilton                       Name:  Scott Haskell
                                            Title: Vice President
                                                  Its duly authorized officer

                                      -20-


                                                                    Exhibit 10.5

                          COMMONWEALTH OF MASSACHUSETTS

______________ County, ss.                                       March ___, 2003

         Then personally appeared the above-named _____________________ as
__________________ of ARIAD Gene Therapeutics, Inc., and acknowledged the
foregoing instrument to be his/her free act and deed and the free act and deed
of ARIAD Gene Therapeutics, Inc., before me.

                                        ________________________________________
                                        Notary Public
                                        My commission expires:
                                        [AFFIX NOTARIAL SEAL]

                          COMMONWEALTH OF MASSACHUSETTS

Suffolk County, ss.                                               March 14, 2003

         Then personally appeared the above-named Scott Haskell as Vice
President of Citizens Bank, and acknowledged the foregoing instrument to be his
free act and deed and the free act and deed of Citizens Bank, before me.

                                               /s/ Todd H. Whilton
                                        ----------------------------------------
                                        Notary Public
                                        My commission expires: 1/30/09
                                        [AFFIX NOTARIAL SEAL]

STATE OF NEW YORK

COUNTY OF NEW YORK, ss.

         On this 12th day of March, 2003, appeared before me the above-named
Harvey J. Berger, M.D., Chief Executive Officer of ARIAD Gene Therapeutics,
Inc., who proved to me on the basis of satisfactory evidence to be the
individual whose name is subscribed to the within instrument, and acknowledged
the foregoing instrument to be his free act and deed and the free act and deed
of ARIAD Therapeutics, Inc.

                                        /s/ Nyisha Shakur
                                        ----------------------------------------
                                        Notary Public
                                        My Commission Expires: May 7, 2006

                                      -21-


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

                         SECURITY AGREEMENT - ALL ASSETS

                                 by and between

                         CITIZENS BANK OF MASSACHUSETTS
                                 (the "LENDER")

                                       and

                          ARIAD GENE THERAPEUTICS, INC.
                                (the "BORROWER")

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

1.       Name of Borrower.

         1.1.     The exact corporate name of the Borrower as it appears on its
organizational documents and its taxpayer identification number and its
organizations identification number are as follows:

ARIAD Gene Therapeutics, Inc.          Federal Tax Identification No. 04-3216824

         1.2.     The following is a list of all other names (including trade
names or similar appellations) used by the Borrower or any other business or
organization to which the Borrower became the successor by merger,
consolidation, acquisition, change in form, nature or jurisdiction of
organization or otherwise, at any time during the past five (5) years:

         None

         1.3.     The following is the state (or jurisdiction) of organization
(or formation) of the Borrower:

         Delaware

2.       Locations.

         2.1.     The chief executive office and principal place of business of
the Borrower is located at the following address:

         26 Landsdowne Street
         Cambridge, Massachusetts 02139

         2.2.     The following is a list of all of the other locations in which
the Borrower maintains any books or records relating to any of the Collateral
consisting of Accounts, Chattel Paper, General Intangibles or mobile goods:



         None

         2.3.     The following are all of the other places of business of the
Borrower:

         None

         2.4.     The following are all other locations where any of the
Collateral consisting of Inventory or Equipment is located:

         None

3.       The following is a summary of all of the Pledged Notes:

         None

EX-99.1

                                                                    Exhibit 99.1

                                 CERTIFICATIONS

CHIEF EXECUTIVE OFFICER

         I, Harvey J. Berger, M.D., certify that:

         1. I have reviewed this quarterly report on Form 10-Q of ARIAD
Pharmaceuticals, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

         c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

         6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

                                 /s/ Harvey J. Berger, M.D.
                                 --------------------------
                                 Harvey J. Berger, M.D.
                                 Chairman, Chief Executive Officer and President

     Date: May 13, 2003

EX-99.2

                                                                    Exhibit 99.2

                                 CERTIFICATIONS

CHIEF FINANCIAL OFFICER

         I, Edward M. Fitzgerald, certify that:

         1. I have reviewed this quarterly report on Form 10-Q of ARIAD
Pharmaceuticals, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

         c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

         6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

                               /s/ Edward M. Fitzgerald
                               -------------------------
                               Edward M. Fitzgerald
                               Senior Vice President and Chief Financial Officer
                               (Principal financial officer and
Date: May 13, 2003             chief accounting officer)

EX-99.3

                                                                    Exhibit 99.3

            PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
        (SUBSECTIONS (A) AND (B) OF SECTION 1350, CHAPTER 63 OF TITLE 18,
                              UNITED STATES CODE)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code), each of the
undersigned officers of ARIAD Pharmaceuticals, Inc., a Delaware corporation (the
Company"), does hereby certify, to such officer's knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (the
"Form 10-Q") of the Company fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained
in the Form 10-Q fairly presents, in all material respects, the financial
condition and results of operations of the Company.

Date: May 13, 2003             /s/ Harvey J. Berger, M.D.
                               --------------------------------
                               Harvey J. Berger, M.D.
                               Chairman, Chief Executive Officer and President

Date: May 13, 2003             /s/ Edward M. Fitzgerald
                               ---------------------------------
                               Edward M. Fitzgerald
                               Senior Vice President and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter
63 of title 18, United States code) and is not being filed as a separate
disclosure document.

A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.