<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

                                                                    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-

<PAGE>

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

                         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

<PAGE>

         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