<PAGE>   1
                                                                   EXHIBIT 10.13





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                               SECURITY AGREEMENT



                          Dated as of October 2, 1998


                                    between



                   FIRST SECURITY BANK, NATIONAL ASSOCIATION,
            not individually, but solely as the Owner Trustee under
                          the AAI Realty Trust 1998-1


                                      and


                               NationsBank, N.A.,
                  as the Agent for the Lenders and the Holders




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<PAGE>   2


                               TABLE OF CONTENTS


<TABLE>

         <S>                                                                                                        <C>
          1. Definitions.........................................................................................    2
          2. Grant of Security Interest..........................................................................    3
          3. Payment of Obligations..............................................................................    5
          4. Other Covenants.....................................................................................    6
          5. Default; Remedies...................................................................................    6
          6. Remedies Not Exclusive..............................................................................    7
          7. Performance by the Agent of the Borrower's Obligations..............................................    7
          8. Duty of the Agent...................................................................................    7
          9. Powers Coupled with an Interest.....................................................................    8
         10. Execution of Financing Statements...................................................................    8
         11. Security Agreement Under Uniform Commercial Code....................................................    8
         12. Authority of the Agent..............................................................................    9
         13. Notices.............................................................................................    9
         14. Severability........................................................................................    9
         15. Amendment in Writing; No Waivers; Cumulative Remedies...............................................    9
         16. Section Headings....................................................................................   10
         17. Successors and Assigns..............................................................................   10
         18. The Borrower's Waiver of Rights.....................................................................   10
         19. GOVERNING LAW.......................................................................................   11
         20. Obligations Are Without Recourse....................................................................   11
         21. Partial Release; Full Release.......................................................................   11
         22. Miscellaneous.......................................................................................   11
         23. Conflicts with Participation Agreement..............................................................   12
         24. LESSEE AS A PARTY...................................................................................   12
</TABLE>



                                       i
<PAGE>   3


                               SECURITY AGREEMENT


         This SECURITY AGREEMENT, dated as of October 2, 1998 (as amended,
modified, extended, supplemented, restated and/or replaced from time to time,
this "Security Agreement"), is made between FIRST SECURITY BANK, NATIONAL
ASSOCIATION, a national banking association, not individually, but solely as
Owner Trustee under the AAI Realty Trust 1998-1 (the "Borrower"), and
NationsBank, N.A., a national banking association ("Bank"), as agent for (a)
the Lenders (hereinafter defined) under the Credit Agreement dated as of
October 2, 1998 (as amended, modified, extended, supplemented, restated and/or
replaced from time to time, the "Credit Agreement") by and among the Borrower,
the lending institutions from time to time parties thereto (the "Lenders") and
Bank as the agent for the Lenders and (b) the holders of the certificates
issued pursuant to the Trust Agreement dated as of October 2, 1998 (as amended,
modified, extended, supplemented, restated and/or replaced from time to time,
the "Trust Agreement") among the holders from time to time parties thereto (the
"Holders") and the Borrower, in its individual capacity thereunder and in its
capacity as Owner Trustee thereunder. The Lenders and the Holders, together
with their successors and permitted assigns, are collectively referred to
hereinafter as the "Secured Parties." Bank, in its capacity as agent for the
Secured Parties, is referred to hereinafter as the "Agent." This Security
Agreement is accepted and agreed to by APPLIED ANALYTICAL INDUSTRIES, INC., a
Delaware corporation.

                             Preliminary Statement

         Pursuant to the Credit Agreement, the Lenders have severally agreed to
make Loans to the Borrower in an aggregate amount not to exceed $14,550,000
upon the terms and subject to the conditions set forth therein, to be evidenced
by the Notes issued by the Borrower under the Credit Agreement. Pursuant to the
Trust Agreement, the Holders have agreed to purchase the ownership interests of
the Trust created thereby in an aggregate amount not to exceed $450,000 upon
the terms and subject to the conditions set forth therein, to be evidenced by
the Certificates issued by the Borrower under the Trust Agreement. The Borrower
is, or shall be upon the date of the initial Advance with respect to each
Property, the legal and beneficial owner of such Property (except the Borrower
may have a ground leasehold interest in certain Properties pursuant to one (1)
or more Ground Leases).

         It is a condition, among others, to the obligation of the Lenders to
make their respective Loans to the Borrower under the Credit Agreement and the
Holders to make their respective Holder Advances under the Trust Agreement that
the Borrower shall have executed and delivered this Security Agreement to the
Agent, for the benefit of the Lenders and the Holders.

         NOW, THEREFORE, in consideration of the premises and to induce the
Lenders to make their respective Loans under the Credit Agreement and to induce
the Holders to make their respective Holder Advances under the Trust Agreement,
the Borrower hereby agrees with the Agent, for the benefit of the Lenders and
the Holders, as follows:



<PAGE>   4



         1.       DEFINITIONS.

         (a)      As used herein, the following terms shall have the following
         respective meanings:

                  "Accounts" shall mean all "accounts," as such term is defined
         in the Uniform Commercial Code, now owned or hereafter acquired by the
         Borrower, including without limitation (i) all accounts receivable,
         other receivables, book debts and other forms of obligations now owned
         or hereafter received or acquired by or belonging or owing to the
         Borrower, whether arising out of goods sold or leased or services
         rendered by it or from any other transaction (including without
         limitation any such obligations which may be characterized as an
         account under the Uniform Commercial Code), (ii) all of the Borrower's
         rights in, to and under all purchase orders or receipts now owned or
         hereafter acquired by it for goods or services, (iii) all of the
         Borrower's rights to any goods represented by any of the foregoing
         (including without limitation unpaid sellers' rights of rescission,
         replevin, reclamation and stoppage in transit and rights to returned,
         reclaimed or repossessed goods), (iv) all monies due or to become due
         to the Borrower under all purchase orders and contracts for the sale
         or lease of goods or the performance of services or both by the
         Borrower (whether or not yet earned by performance on the part of the
         Borrower now) or hereafter in existence, including without limitation
         the right to receive the proceeds of said purchase orders and
         contracts, and (v) all collateral security and guarantees of any kind,
         now or hereafter in existence, given by any Person with respect to any
         of the foregoing.

                  "Chattel Paper" shall mean any and all "chattel paper," as
         such term is defined in the Uniform Commercial Code, now owned or
         hereafter acquired by the Borrower, wherever located.

                  "Documents" shall mean any and all "documents", as such term
         is defined in the Uniform Commercial Code, now owned or hereafter
         acquired by the Borrower, wherever located, including without
         limitation each bill of lading, dock warrant, dock receipt, warehouse
         receipt or order for the delivery of goods, and also any other
         document which in the regular course of business or financing is
         treated as adequately evidencing that the person in possession of it
         is entitled to receive, hold and dispose of the document and the goods
         it covers.

                  "General Intangibles" shall mean any and all "general
         intangibles," as such term is defined in the Uniform Commercial Code,
         now owned or hereafter acquired by the Borrower, including without
         limitation all contracts, undertakings, or agreements in or under
         which the Borrower may now or hereafter have any right (other than any
         right evidenced by Chattel Paper, Documents or Instruments), title or
         interest, including without limitation any agreements relating to the
         terms of payment or the terms of performance of any Account.

                  "Holders" shall have the meaning specified in the first
         paragraph of this Security Agreement.


<PAGE>   5


                  "Instruments" shall mean any and all "instruments", as such
         term is defined in the Uniform Commercial Code, now owned or hereafter
         acquired by the Borrower, wherever located, including without
         limitation all certificated securities, all certificates of deposit,
         and all notes and other, without limitation, evidences of
         indebtedness, other than instruments that constitute, or are a part of
         a group of writings that constitute, Chattel Paper.

                  "Investment Property" shall mean any and all "investment
         property," as such term is defined in the Uniform Commercial Code, now
         owned or hereafter acquired by the Borrower, wherever located.

                  "Lenders" shall have the meaning specified in the first
         paragraph of this Security Agreement.

                  "Lessee" shall mean Applied Analytical Industries, Inc., a
         Delaware corporation, its successors, permitted assigns and permitted
         transferees.

                  "Obligations" shall mean any and all obligations of the
         Borrower, now existing or hereafter arising under the Credit
         Agreement, the Notes, the Trust Agreement, the Certificates and/or any
         other Operative Agreement.

                  (b)      Capitalized terms used but not otherwise defined in 
         this Security Agreement shall have the respective meanings specified 
         in the Credit Agreement or Appendix A to the Participation Agreement 
         dated as of __________, 1998 (as amended, modified, extended, 
         supplemented, restated and/or replaced from time to time in accordance
         with the applicable provisions thereof, the "Participation Agreement")
         among Lessee, the Borrower, the Holders, the Lenders and the
         NationsBank, N.A. as agent for the Lenders and respecting the Security
         Documents, as the agent for the Lenders and the Holders, to the extent
         of their interests.

                  (c)      The rules of usage set forth in Appendix A to the
         Participation Agreement shall apply to this Agreement.

         2.       GRANT OF SECURITY INTEREST.

         To secure payment of all the amounts advanced under the Credit
Agreement in connection with the Notes, all the amounts advanced or contributed
under the Trust Agreement in connection with the Certificates and all other
amounts now or hereafter owing to the Lenders, the Holders or the Agent
thereunder or under any other Operative Agreement, THE BORROWER HEREBY CONVEYS,
GRANTS, ASSIGNS, TRANSFERS, HYPOTHECATES, MORTGAGES AND SETS OVER TO THE AGENT
FOR THE BENEFIT OF THE SECURED PARTIES, A FIRST PRIORITY SECURITY INTEREST IN
AND LIEN ON THE TRUST ESTATE, WHETHER NOW EXISTING OR HEREAFTER ACQUIRED
INCLUDING WITHOUT LIMITATION THE FOLLOWING:


<PAGE>   6


                           (a)      all right, title and interest of the 
                  Borrower in and to the Operative Agreements now existing or
                  hereafter acquired by the Borrower (including without
                  limitation all rights to payment and indemnity rights of the
                  Borrower under the Participation Agreement) (all of the
                  foregoing in this paragraph (a) being referred to as the
                  "Rights in Operative Agreements");

                           (b)      all right, title and interest of the 
                  Borrower in and to all of the Equipment;

                           (c)      all right, title and interest of the
                  Borrower in and to all of the Fixtures;

                           (d)      all the estate, right, title, claim or 
                  demand whatsoever of the Borrower, in possession or
                  expectancy, in and to each Property, Fixture or Equipment or
                  any part thereof;

                           (e)      all right, title and interest of the 
                  Borrower in and to all substitutes, modifications and
                  replacements of, and all additions, accessions and
                  improvements to, the Fixtures and Equipment, subsequently
                  acquired or leased by the Borrower or constructed, assembled
                  or placed by the Borrower on any Property, immediately upon
                  such acquisition, lease, construction, assembling or
                  placement, and in each such case, without any further
                  conveyance, assignment or other act by the Borrower;

                           (f)      all right, title and interest of the 
                  Borrower in, to and under books and records relating to or
                  used in connection with the operation of one (1) or more
                  Properties or any part thereof; all rights of the Borrower to
                  the payment of money and all property; and all rights in and
                  to any causes of action or choses in action now or hereafter
                  existing in favor of the Borrower and all rights to any
                  recoveries therefrom;

                           (g)      all right, title and interest of the 
                  Borrower in and to all unearned premiums under insurance
                  policies now held or subsequently obtained by the Lessee
                  relating to one (1) or more Properties and the Borrower's
                  interest in and to all proceeds of any insurance policies
                  maintained by or for the benefit of the Borrower, including
                  without limitation any right to collect and receive such
                  proceeds; and all awards and other compensation, including
                  without limitation the interest payable thereon and any right
                  to collect and receive the same, made to the present or any
                  subsequent owner of any Property for the taking by eminent
                  domain, condemnation or otherwise, of all or any part of any
                  Property or any easement or other right therein;

                           (h)      all right, title and interest of the 
                  Borrower in and to (i) all consents, licenses, certificates
                  and other governmental approvals relating to construction,


<PAGE>   7


                  completion, use or operation of any Property or any part
                  thereof and (ii) all Plans and Specifications relating to any
                  Property;

                           (i)      all right, title and interest of the 
                  Borrower in and to all Rent and all other rents, payments,
                  purchase prices, receipts, revenues, issues and profits
                  payable under the Lease or pursuant to any other lease with
                  respect to any Property;

                           (j)      all right, title and interest of the 
                  Borrower in and to all Instruments and Documents;

                           (k)      all right, title and interest of the 
                  Borrower in and to all General Intangibles;

                           (l)      all right, title and interest of the 
                  Borrower in and to all Chattel Paper (including without
                  limitation all rights under the Lease) and each Ground Lease;

                           (m)      all right, title and interest of the 
                  Borrower in and to all money, cash or cash equivalent and
                  bank accounts;

                           (n)      all right, title and interest of the 
                  Borrower in and to all Accounts;

                           (o)      all right, title and interest of the 
                  Borrower in and to all proceeds of letters of credit issued
                  in favor of the Borrower in connection with any Property; and

                           (p)      all right, title and interest of the 
                  Borrower in and to all proceeds, both cash and noncash, of
                  any of the foregoing.

         (All of the foregoing property and rights and interests now owned or
held or subsequently acquired by the Borrower and described in the foregoing
clauses (a) through (p) are collectively referred to as the "Trust Property").

         TO HAVE AND TO HOLD the Trust Property and the rights and privileges
hereby granted unto the Agent (for the benefit of the Lenders and the Holders)
its successors and assigns for the uses and purposes set forth, until all of
the obligations of the Borrower under the Operative Agreements are paid in
full; provided, that EXCLUDED from the Trust Property at all times and in all
respects shall be all Excepted Payments.

         3.       PAYMENT OF OBLIGATIONS.

         The Borrower shall pay all Obligations in accordance with the terms of
the Credit Agreement, the Notes, the Trust Agreement, the Certificates and the
other Operative Agreements 


<PAGE>   8


and perform each term to be performed by it under the Credit Agreement, the
Notes, the Trust Agreement, the Certificates and the other Operative
Agreements.

         4.       OTHER COVENANTS.

         At any time and from time to time, upon the written request of the
Agent, and at the expense of the Borrower (with funds provided by the Lessee
for such purpose), the Borrower will promptly and duly execute and deliver such
further instruments and documents and take such further actions as the Agent
reasonably may request for the purposes of obtaining or preserving the full
benefits of this Security Agreement and of the rights and powers granted by
this Security Agreement.

         5.       DEFAULT; REMEDIES.

                  (a)      If a Credit Agreement Event of Default has occurred
         and is continuing:

                           (i)      the Agent, in addition to all other 
                  remedies available at law or in equity, shall have the right
                  forthwith to enter upon any Property (or any other place
                  where any component of any Property is located at such time)
                  without charge, and take possession of all or any portion of
                  the Trust Property, and to re-let the Trust Property and
                  receive the rents, issues and profits thereof, to make
                  repairs and to apply said rentals and profits, after payment
                  of all necessary or proper charges and expenses, on account
                  of the amounts hereby secured (subject to the Excepted
                  Payments); and

                           (ii)     the Agent, shall, as a matter of right, be
                  entitled to the appointment of a receiver for the Trust
                  Property, and the Borrower hereby consents to such
                  appointment and waives notice of any application therefor.

                  (b)      If a Credit Agreement Event of Default has occurred 
         and is continuing, the Agent may proceed by an action at law, suit in
         equity or other appropriate proceeding, to protect and enforce its
         rights, whether for the foreclosure of the Lien of this Security
         Agreement, or for the specific performance of any agreement contained
         herein or for an injunction against the violation of any of the terms
         hereof. The proceeds of any sale of any of the Trust Property shall be
         applied pursuant to Section 8.7 of the Participation Agreement. In
         addition, the Agent may proceed under Section 11 hereof.

                  (c)      The Borrower hereby waives the benefit of all
         appraisement, valuation, stay, extension and redemption laws now or
         hereafter in force and all rights of marshalling in the event of any
         sale of the Trust Property or any portion thereof or interest therein.


<PAGE>   9


         6.       REMEDIES NOT EXCLUSIVE.

         The Agent shall be entitled to enforce payment of the indebtedness and
performance of the Obligations and to exercise all rights and powers under this
Security Agreement or under any of the other Operative Agreements or other
agreements or any laws now or hereafter in force, notwithstanding some or all
of the Obligations may now or hereafter be otherwise secured, whether by deed
of trust, mortgage, security agreement, pledge, Lien, assignment or otherwise.
Neither the acceptance of this Security Agreement nor its enforcement, shall
prejudice or in any manner affect the Agent's right to realize upon or enforce
any other security now or hereafter held by the Agent, it being agreed that the
Agent shall be entitled to enforce this Security Agreement and any other
security now or hereafter held by the Agent in such order and manner as the
Agent may determine in its absolute discretion. No remedy conferred hereunder
or under any other Operative Agreement upon or reserved to the Agent is
intended to be exclusive of any other remedy herein or therein or by law
provided or permitted, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or thereunder or now or hereafter existing
at law or in equity or by statute. Every power or remedy given by any of the
Operative Agreements to the Agent or to which it may otherwise be entitled, may
be exercised, concurrently or independently, from time to time and as often as
may be deemed expedient by the Agent. In no event shall the Agent, in the
exercise of the remedies provided in this Security Agreement (including without
limitation in connection with the assignment of Rents to the Agent, or the
appointment of a receiver and the entry of such receiver onto all or any part
of the Land), be deemed a "mortgagee in possession" or a "pledgee in
possession", and the Agent shall not in any way be made liable for any act,
either of commission or omission, in connection with the exercise of such
remedies.

         7.       PERFORMANCE BY THE AGENT OF THE BORROWER'S OBLIGATIONS.

         If the Borrower fails to perform or comply with any of its agreements
contained herein the Agent, at its option, but without any obligation so to do,
may perform or comply, or otherwise cause performance or compliance, with such
agreement. The expenses of the Agent incurred in connection with actions
undertaken as provided in this Section 7, together with interest thereon at a
rate per annum equal to the Overdue Rate, from the date of payment by the Agent
to the date reimbursed by the Borrower, shall be payable by the Borrower (with
funds provided by the Lessee for such purpose) to the Agent on demand and
constitutes part of the Obligations secured hereby.

         8.       DUTY OF THE AGENT.

         The Agent's sole duty with respect to the custody, safekeeping and
physical preservation of any Trust Property in its possession, under Section
9-207 of the Uniform Commercial Code or otherwise, shall be to deal with it in
the same manner as the Agent deals with similar property for its own account.
Neither the Agent, any Lender, any Holder nor any of their respective
directors, officers, employees, shareholders, partners or agents shall be
liable for failure to demand, collect or realize upon any of the Trust Property
or for any delay in doing so or shall be under any obligation to sell or
otherwise dispose of any Trust Property upon the request of the Borrower or 


<PAGE>   10


any other Person or to take any other action whatsoever with regard to the
Trust Property or any part thereof.

         9.       POWERS COUPLED WITH AN INTEREST.

         All powers, authorizations and agencies contained in this Security
Agreement are coupled with an interest and are irrevocable until this Security
Agreement is terminated and the Liens created hereby are released.

         10.      EXECUTION OF FINANCING STATEMENTS.

         Pursuant to Section 9-402 of the Uniform Commercial Code, the Borrower
authorizes the Agent at the expense of the Borrower (such amounts to be paid
with funds provided by the Lessee for such purpose) to file financing
statements with respect to the Trust Property under this Security Agreement
without the signature of the Borrower in such form and in such filing offices
as the Agent reasonably determines appropriate to perfect the security
interests of the Agent under this Security Agreement. A carbon, photographic or
other reproduction of this Security Agreement shall be sufficient as a
financing statement for filing in any jurisdiction. For purposes of such
financing statement, the Borrower shall be deemed to be the debtor, and the
Agent shall be deemed to be the secured party. The address of the Borrower is
79 South Main Street, Salt Lake City, Utah 84111, Attention: Val T. Orton, Vice
President, and the address of the Agent is NationsBank, N.A., 101 North Tryon
Street, Independence Center, 15th Floor, NC1-001-15-04, Attention: Agency
Services.

         11.      SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE.

                  (a)      It is the intention of the parties hereto that this
         Security Agreement as it relates to matters of the grant, perfection
         and priority of security interests the subject hereof, shall
         constitute a security agreement within the meaning of the Uniform
         Commercial Code of the States in which the Trust Property is located.
         If a Credit Agreement Event of Default shall occur, then in addition
         to having any other right or remedy available at law or in equity, the
         Agent may proceed under the applicable Uniform Commercial Code and
         exercise such rights and remedies as may be provided to a secured
         party by such Uniform Commercial Code with respect to all or any
         portion of the Trust Property which is personal property (including
         without limitation taking possession of and selling such property). If
         the Agent shall elect to proceed under the Uniform Commercial Code,
         then fifteen (15) days' notice of sale of the personal property shall
         be deemed reasonable notice and the reasonable expenses of retaking,
         holding, preparing for sale, selling and the like incurred by the
         Agent shall include, but not be limited to, attorneys' fees and legal
         expenses. At the Agent's request, the Borrower shall assemble such
         personal property and make it available to the Agent at a place
         designated by the Agent which is reasonably convenient to both
         parties.

                  (b)      The Borrower, upon request by the Agent from time to
         time, shall execute, acknowledge and deliver to the Agent one (1) or
         more separate security agreements, in 


<PAGE>   11


         form satisfactory to the Agent, covering all or any part of the Trust
         Property and will further execute, acknowledge and deliver, or cause
         to be executed, acknowledged and delivered, any financing statement,
         affidavit, continuation statement or certificate or other document as
         the Agent may request in order to perfect, preserve, maintain,
         continue or extend the security interest under, and the priority of
         the Liens granted by, this Security Agreement and such security
         instrument. The Borrower further agrees to pay to the Agent (with
         funds provided by the Lessee for such purpose) on demand all costs and
         expenses incurred by the Agent in connection with the preparation,
         execution, recording, filing and re-filing of any such document and
         all reasonable costs and expenses of any record searches for financing
         statements the Agent shall reasonably require. The filing of any
         financing or continuation statements in the records relating to
         personal property or chattels shall not be construed as in any way
         impairing the right of the Agent to proceed against any property
         encumbered by this Security Agreement.

         12.      AUTHORITY OF THE AGENT.

         The Borrower acknowledges that the rights and responsibilities of the
Agent under this Security Agreement with respect to any action taken by the
Agent or the exercise or non-exercise by the Agent of any option, voting right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Security Agreement shall be governed by the Credit
Agreement and Section 8.6 of the Participation Agreement and by such other
agreements with respect thereto as may exist from time to time (until such time
as all amounts due and owing to the Secured Parties and the Agent under the
Operative Agreements have been paid in full), but the Agent shall be
conclusively presumed to be acting as agent for the Secured Parties with full
and valid authority so to act or refrain from acting, and the Borrower shall be
under no obligation, or entitlement, to make any inquiry respecting such
authority.

         13.      NOTICES.

         All notices required or permitted to be given under this Security
Agreement shall be in writing and delivered as provided in Section 12.2 of the
Participation Agreement.

         14.      SEVERABILITY.

         Any provision of this Security Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.

         15.      AMENDMENT IN WRITING; NO WAIVERS; CUMULATIVE REMEDIES.

                  (a)      None of the terms or provisions of this Security
         Agreement may be waived, amended, supplemented or otherwise modified
         except in accordance with the terms of Section 12.4 of the
         Participation Agreement.


<PAGE>   12


                  (b)      No failure to exercise, nor any delay in exercising,
         on the part of the Agent, any right, power or privilege hereunder
         shall operate as a waiver thereof. No single or partial exercise of
         any right, power or privilege hereunder shall preclude any other or
         further exercise thereof or the exercise of any other right, power or
         privilege. A waiver by the Agent of any right or remedy hereunder on
         any one (1) occasion shall not be construed as a bar to any right or
         remedy which the Agent would otherwise have on any future occasion.

                  (c)      The rights and remedies herein provided are 
         cumulative, may be exercised singly or concurrently and are not
         exclusive of any other rights or remedies provided by law.

         16.      SECTION HEADINGS.

         The section headings used in this Security Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.

         17.      SUCCESSORS AND ASSIGNS.

         This Security Agreement shall be binding upon the successors of the
Borrower, and the Borrower shall not assign any of its rights or obligations
hereunder or with respect to any of the Trust Property without the prior
written consent of the Agent. This Security Agreement shall inure to the
benefit of the Agent, the Lenders, the Holders and their respective successors
and assigns, in accordance with their respective interest herein.

         18.      THE BORROWER'S WAIVER OF RIGHTS.

         Except as otherwise set forth herein, to the fullest extent permitted
by law, the Borrower waives the benefit of all laws now existing or that may
subsequently be enacted providing for (a) any appraisement before sale of any
portion of the Trust Property, (b) any extension of the time for the
enforcement of the collection of the indebtedness or the creation or extension
of a period of redemption from any sale made in collecting such debt and (c)
exemption of any portion of the Trust Property from attachment, levy or sale
under execution or exemption from civil process. Except as otherwise set forth
herein, to the fullest extent the Borrower may do so, the Borrower agrees that
the Borrower will not at any time insist upon, plead, claim or take the benefit
or advantage of any law now or hereafter in force providing for any
appraisement, valuation, stay, exemption, extension or redemption, or requiring
foreclosure of this Security Agreement before exercising any other remedy
granted hereunder and the Borrower, for the Borrower and its successors and
assigns, and for any and all Persons ever claiming any interest in the Trust
Property, to the extent permitted by law, hereby waives and releases all rights
of redemption, valuation, appraisement, stay of execution, notice of election
to mature or declare due the whole of the Obligations and marshalling in the
event of foreclosure of the Liens hereby created.


<PAGE>   13


         19.      GOVERNING LAW.

         EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 11(a) HEREOF, THIS
SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF North Carolina.

         20.      OBLIGATIONS ARE WITHOUT RECOURSE.

The provisions of the Participation Agreement relating to limitations on
liability are hereby incorporated by reference herein, Mutatis Mutandis.

         21.      PARTIAL RELEASE; FULL RELEASE.

         The Agent may release for such consideration as it may require any
portion of the Trust Property without (as to the remainder of the Trust
Property) in any way impairing or affecting the Lien, security interest and
priority herein provided for the Agent compared to any other Lien holder or
secured party. Further, the Agent shall execute and deliver to the Borrower
such documents and instruments as may be required to release the Lien and
security interest created by this Security Agreement with respect to the
Properties as provided in Section 8.8 of the Participation Agreement or to
grant the easements and permit the other matters provided for in Section 8.5 of
the Participation Agreement.

         22.      MISCELLANEOUS.

                  (a)      This Security Agreement is one (1) of the documents
         which create Liens and security interests that secure payment and
         performance of the Obligations. The Agent, at its election, may
         commence or consolidate in a single action all proceedings to realize
         upon all such Liens and security interests. The Borrower hereby waives
         (i) any objections to the commencement or continuation of an action to
         foreclose the Lien of this Security Agreement or exercise of any other
         remedies hereunder based on any action being prosecuted or any
         judgment entered with respect to the Obligations or any Liens or
         security interests that secure payment and performance of the
         Obligations and (ii) any objections to the commencement of,
         continuation of, or entry of a judgment in any such other action based
         on any action or judgment connected to this Security Agreement. In
         case of a foreclosure sale, the Trust Property may be sold, at the
         Agent's election, in one (1) parcel or in more than one (1) parcel and
         the Agent is specifically empowered (without being required to do so,
         and in its sole and absolute discretion) to cause successive sales of
         portions of the Trust Property to be held.

                  (b)      This Security Agreement may not be amended, waived,
         discharged or terminated except in accordance with Section 12.4 of the
         Participation Agreement. Upon the prior written consent of the
         Majority Secured Parties and unless such matter is a Unanimous Vote
         Matter, the Agent may release any portion of the Trust Property or any
         other security, and grant such extensions and indulgences in relation
         to the Obligations 


<PAGE>   14


         secured hereby without in any manner affecting the priority of the
         Lien hereof on any part of the Trust Property.

                  (c)      THE PROVISIONS OF THE PARTICIPATION AGREEMENT 
         RELATING TO SUBMISSION TO JURISDICTION, VENUE AND ARBITRATION ARE
         HEREBY INCORPORATED BY REFERENCE HEREIN, MUTATIS MUTANDIS.

         23.      CONFLICTS WITH PARTICIPATION AGREEMENT.

         Notwithstanding any other provision hereof, in the event of any
conflict between the terms of this Security Agreement and the Participation
Agreement, the terms of the Participation Agreement shall govern.

         24.      LESSEE AS A PARTY.

         LESSEE HAS EXECUTED THIS SECURITY AGREEMENT FOR THE PURPOSE OF
SUBJECTING TO THE SECURITY INTERESTS GRANTED HEREUNDER ALL OF ITS RIGHT, TITLE,
ESTATE AND INTEREST, IF ANY, IN AND TO THE TRUST PROPERTY TO SECURE ITS
OBLIGATIONS UNDER THE OPERATIVE AGREEMENTS. ACCORDINGLY, LESSEE HEREBY GRANTS
TO THE AGENT (FOR THE BENEFIT OF THE LENDERS AND THE HOLDERS) A SECURITY
INTEREST IN AND TO ALL OF ITS RIGHT, TITLE, ESTATE AND INTEREST, IF ANY, IN AND
TO THE TRUST PROPERTY (TO THE EXTENT LESSEE HAS ANY RIGHT, TITLE OR INTEREST
THEREIN AND WITHOUT REGARD TO ANY LANGUAGE IN SECTION 2 OR THE DEFINITION OF
"TRUST PROPERTY' OR ANY DEFINITION OF ANY ITEM CONSTITUTING THE TRUST PROPERTY
WHICH OTHERWISE WOULD LIMIT THE TRUST PROPERTY TO THE RIGHT, TITLE AND INTEREST
OF THE BORROWER THEREIN) TO SECURE ITS OBLIGATIONS UNDER THE OPERATIVE
AGREEMENTS. LESSEE ACKNOWLEDGES AND AGREES THAT, UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT, THE AGENT SHALL HAVE THE RIGHT TO EXERCISE ANY OR ALL OF ITS
REMEDIES HEREUNDER AS AGAINST ANY SUCH RIGHT, TITLE, ESTATE OR INTEREST OF
LESSEE IN OR TO THE TRUST PROPERTY.


<PAGE>   15



         IN WITNESS WHEREOF, each of the undersigned have caused the Security
Agreement to be duly executed and delivered as of the date first above written.


                               FIRST SECURITY BANK, NATIONAL 
                               ASSOCIATION, not individually, but solely As the
                               Owner Trustee under the AAI Realty Trust 1998-1



                               By:                                
                                  ---------------------------------------------
                               Name:                              
                                    -------------------------------------------
                               Title:                                   
                                     ------------------------------------------


                               NationsBank, N.A., as the Agent for 
                               the Lenders and the Holders


                               By:                                
                                  ---------------------------------------------
                               Name:                              
                                    -------------------------------------------
                               Title:                                   
                                     ------------------------------------------



Accepted and Agreed to:

APPLIED ANALYTICAL INDUSTRIES, INC.


By:                                
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Name:                              
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Title:                                   
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By:                                
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Name:                              
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Title:                                   
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