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Exhibit 10.125 CYGNUS, INC. Security Agreement This SECURITY AGREEMENT (this Agreement), effective as of November 3,
2003, is made by and between Cygnus, Inc., a Delaware corporation with
principal offices at 400 Penobscot Drive, Redwood City, California 94063 (the
Company), and Sanofi~Synthelabo, a corporation incorporated pursuant to the
laws of France, having its principal place of business at 174, avenue de
France, 75635 Paris Cedex 13, France (Subordinate Secured Party). The
Company is sometimes hereinafter referred to as the Grantor. Terms that are
defined in the Uniform Commercial Code (the UCC) as in effect from time to
time in the State of California and used herein shall have the meanings given
to them in the UCC. RECITALS WHEREAS, the Company and each of Deam Convertible Arbitrage Fund, Ltd.,
Halifax Fund, L.P., Lancer Securities Cayman, Ltd., Palladin Partners I, L.P.,
and Palladin Overseas Fund Limited (collectively, the Senior Secured Parties)
entered into that certain Security Agreement dated as of August 21, 2002 (as
amended, restated or otherwise modified from time to time, the First Priority
Security Agreement), pursuant to which the Company granted to the Senior
Secured Parties a security interest in all of the Companys assets (other than
U.S. patents and patent applications then existing or thereafter arising) to
secure the Companys obligations under that certain Convertible Debenture and
Warrant Purchase Agreement dated as of June 29, 1999, as amended, between the
Company and the Senior Secured Parties (as amended and as hereinafter amended,
restated or otherwise modified from time to time, the Purchase Agreement),
and the various Debentures issued by the Company in connection with the
Purchase Agreement; and WHEREAS, a Final Award was issued against the Company and in favor of the
Subordinate Secured Party by the International Chamber of Commerce (ICC) on
December 11, 1997 relating to a dispute between Cygnus, Inc. and Sanofi~Synthelabo; and WHEREAS, under Section (3)(I)(C)(2) and (3)(II)(A) of the Final Award,
certain royalty payments are due to be paid for the years 2003, 2004, and 2005;
and WHEREAS, the Company and the Subordinate Secured Party entered into an
Amendment To The Final Arbitration Award dated as of November 3, 2003 (the
Amended Final Award), pursuant to which the timing of these certain royalty
payments are extended; and WHEREAS, in consideration of the Subordinate Secured Partys acceptance of
the Amended Final Award, the Company has agreed to grant to the Subordinated
Secured Party a subordinate security interest in all of the Companys assets
(other than U.S. patents and patent applications then existing or thereafter
arising) to secure the Companys obligations under the Amended Final Award (the
Obligations), upon the terms and subject to the conditions set forth herein.




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AGREEMENT NOW THEREFORE, in consideration of the foregoing, the Grantor hereby
agrees with the Subordinate Secured Party as follows: 1. Grant of Security Interest.To secure the Companys full and timely
performance of the Obligations under the Amended Final Award the Grantor hereby
grants to the Subordinate Secured Party a continuing lien on and subordinate
security interest (the Subordinate Security Interest) in all of Grantors
right, title and interest in and to the property described in Attachment 1
hereto, whether now owned or hereafter acquired (collectively and severally,
the Collateral), which Attachment 1 is incorporated herein by this reference. 2. Representations and Warranties.The Grantor represents and warrants to
the Subordinate Secured Party as follows: (a) Authorization and Enforcement.The Grantor has (i) the corporate
power and authority to execute, deliver and perform the terms and provisions of
this Agreement and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of this Agreement, and (ii) has duly
executed and delivered this Agreement. This Agreement constitutes the legal,
valid and binding obligation of the Grantor, enforceable against the Grantor in
accordance with its terms. (b) No Conflicts.Neither the execution, delivery or performance by the
Grantor of this Agreement, nor the compliance by it with the terms and
provisions hereof and thereof, (i) will contravene any provision of any
applicable law, statute, rule or regulation, or any applicable order, writ,
injunction or decree of any court or governmental instrumentality the failure
of which to comply with could reasonably be expected to result in a material
adverse effect upon its business, assets, operations or financial condition or
the ability of the Grantor to perform its obligations hereunder (a Material
Adverse Effect); (ii) to the best of the Grantors current, actual knowledge,
will conflict with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of the Grantor pursuant to the terms of any
material indenture, mortgage, deed of trust, loan agreement, or any other
material agreement or contract or other instrument to which the Grantor is a
party or by which it or any of its property or assets are bound; or (iii) will
violate any provision of the charter or bylaws of the Grantor. (c) Consents; Approvals.No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made), or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to authorize,
or is required in connection with, (i) the execution, delivery and performance
of this Agreement; or (ii) the legality, validity, binding effect or
enforceability of this Agreement, in each the failure of which to obtain could
reasonably be expected to result in a Material Adverse Effect. (d) Validity of Liens.This Agreement creates a valid Lien (as defined
below) in the Collateral, securing the Obligations, and all other actions to be
taken by the Grantor necessary to grant such security interest have been duly
taken. For purposes of this Agreement, the term Lien shall mean, with
respect to any property and assets of any kind, whether real, personal,
tangible or - 2 -




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intangible, any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, tax lien, financing
statement, charge, easement (other than any easement not impairing usefulness)
encumbrance, preference, priority, or other security agreement or preferential
arrangement of any kind or nature on or with respect to such property
(including without limitation any conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing). (e) Fair Value.The Grantor acknowledges that it has received fair and
reasonably equivalent value from the Subordinate Secured Party in exchange for
the grant to them of the Lien hereunder. (f) Subsidiaries.As of the date of this Agreement, the Grantor does not
have any Subsidiaries that hold a material portion of the combined assets of
the Grantor and its Subsidiaries. In the event the Grantor intends to transfer
all or a material portion of its assets (other than Inventory to be sold) in
one or a series of transactions to any existing or future Subsidiary, the
Grantor shall first cause such Subsidiary or Subsidiaries to execute and
deliver to the Subordinate Secured Party (i) a guaranty agreement in form and
substance reasonably satisfactory to the Subordinate Secured Party; and (ii) a
security agreement in substantially the form of this Agreement such that the
Obligations of the Grantor to the Subordinate Secured Party are also secured by
a subordinate Lien on such Subsidiarys or Subsidiaries assets (other than
Excluded Intellectual Property). For purposes hereof, the phrase material
portion of the combined assets shall mean assets with an aggregate value equal
to or greater than 15% of the combined assets of the Grantor and its
Subsidiaries. 3. Event of Default; the Subordinate Secured Partys Appointment as
Attorney-in-Fact. (a) Event of Default.For purposes of this Agreement, the occurrence of
any one of the following events (each, an Event of Default) shall constitute
a default hereunder: (i) the Grantor fails to perform its obligations under
this Agreement in any material respect; or (ii) an Event of Default occurs
under the Amended Final Award. (b) Powers.Upon the occurrence and during the continuation of an Event
of Default, the Subordinate Secured Party shall have the following rights and
remedies; provided, however, that in no event shall Subordinate Secured Party
exercise any of the following rights and remedies without first obtaining the
prior written consent of the Senior Secured Parties (which consent may be given
or withheld in the sole discretion of the Senior Secured Parties): (i) The Subordinate Secured Party may exercise in respect of the
Collateral, and in addition to other rights and remedies it may otherwise
have, the rights and remedies of a secured party under the UCC and also
may (A) require the Grantor to, and the Grantor hereby agrees that it
will at its own expense and upon request of such Subordinate Secured
Party forthwith, assemble all or part of the Collateral as directed by
such Subordinate Secured Party and make it available such Subordinate
Secured Party at a place that is reasonably convenient to both parties to
be designated by such Subordinate Secured Party; and (B) upon ten (10)
days (or such longer period shall be required by law) prior written
notice, sell the Collateral or any part thereof, in one or more parcels
at public or private sale, for cash, on credit or for future delivery,
and at such price or prices and upon - 3 -




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such other terms as such Subordinate Secured Party may determine
(provided that all aspects of any such sale are commercially reasonable).
Such Subordinate Secured Party shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. Such
Subordinate Secured Party may adjourn any public or private sale from
time to time by announcement at the time and placed fixed therefor, and
such sale may, without further notices, be made at the time and place to
which it was so adjourned. (ii) Any cash held by any Subordinate Secured Party as Collateral
and all cash proceeds received by any Subordinate Secured Party in
respect of any sale of, collection from, or other realization upon, all
or any part of the Collateral shall be applied in whole or in part the
Subordinate Secured Party against, all or any part of the Obligations in
the following order: (A) reasonable costs and expenses incurred by the
Subordinate Secured Party in connection with collection of the
Obligations and enforcement of this Agreement; (B) unpaid interest due
and owing by the Grantor; (C) unpaid principal due and owing by the
Grantor as of such date; and (D) any other outstanding Obligations. Any
surplus of such cash or cash proceeds held by the Subordinate Secured
Party and remaining after the payment in full of all of the Obligations
shall be paid over to the Grantor or to such person as may be lawfully
entitled to receive such surplus. (iii) In the event that the proceeds of any such collection or
realization are insufficient to pay all amounts to which the Subordinate
Secured Party are legally entitled, the Grantor shall be liable for the
deficiency, together with interest thereon at the rate equal to the lower
of the Citibank Prime Rate per annum plus 8% or the highest rate
permitted by law, together with the reasonable costs of collection. (iv) The Grantor will within ten (10) business days after written
request, such request including supporting documentation, pay to the
Subordinate Secured Party the amount of any and all reasonable costs and
expenses, including the reasonable fees and disbursements of the
Subordinate Secured Partys external counsel, which the Subordinate
Secured Party may incur in connection with (i) the sale of, collection
from, or other realization upon, any Collateral, (ii) the exercise or
enforcement of any of the rights of the Subordinate Secured Party
hereunder after an Event of Default has occurred and is continuing, or
(iii) the failure by the Grantor to perform or observe any of the
provisions hereof. (v) The Grantor hereby irrevocably makes, constitutes, and appoints
each Subordinate Secured Party (and all of the Subordinate Secured
Partys general partners, officers, employees, or agents designated by
the Subordinate Secured Party) as its true and lawful attorney, with
power to: (A) sign the Grantors name on any of the documents described
hereunder or on any other similar documents to be executed, recorded, or
filed in order to perfect or continue perfection of the Subordinate
Secured Partys security interest in the Collateral (but only after
providing written notice to the Grantor of such obligations and if the
Grantor does not fulfill its obligations within ten (10) business days);
(B) at any time that an Event of Default has occurred and is continuing,
execute, sign and endorse the Grantors name on any invoice or bill of
lading relating to any Account, drafts against Account debtors, schedules
and assignments of Accounts, verifications of Accounts, and notices to
Account debtors; (C) send requests for verification of Accounts; (D) at
any time that any Event of Default has occurred and is continuing,
execute, sign and endorse the - 4 -




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Grantors name on any checks, notices, instruments, acceptances,
money orders, drafts, warrants or other item of payment or security that
may come into any Subordinate Secured Partys possession; (E) at any time
that an Event of Default has occurred and is continuing, demand, collect,
receive, receipt for, sue and recover all sums of money or other property
which may now or hereafter become due, owing or payable from the
Collateral; (F) at any time that any Event of Default has occurred and is
continuing, file any claim or claims or, following an Event of Default,
take any action or institute or take part in any proceedings, either in
its own name or in the name of the Grantor, or otherwise, which in the
discretion of the Subordinate Secured Party may seem to be necessary; (G)
at any time that an Event of Default has occurred and following
acceleration of the Obligations, direct the account debtors and other
persons sending mail to the Grantor to send all mail relating to the
Collateral to the Subordinate Secured Party; (H) at any time that an
Event of Default has occurred and is continuing, make, settle, and adjust
all claims under the Grantors policies of insurance and make all
determinations and decisions with respect to such policies of insurance;
and (G) at any time that an Event of Default has occurred and following
acceleration of the Obligations, settle and adjust disputes and claims
respecting the Accounts directly with account debtors, for reasonable
amounts and upon reasonable terms, and any Subordinate Secured Party may
cause to be executed and delivered any documents and releases which such
Subordinate Secured Party reasonably determines to be necessary. The
appointment of the Subordinate Secured Party as the Grantors attorney,
and each and every one of the Subordinate Secured Partys rights and
powers, is coupled with an interest, is irrevocable and shall remain in
full force and effect until all of the Obligations have been fully repaid
and performed and the Subordinate Secured Party renounce such
appointment. (c) No Duty on the Subordinate Secured Partys Part.The powers conferred
on the Subordinate Secured Party by this Section 3 are solely to protect the
Subordinate Secured Partys interests in the Collateral and shall not impose
any duty upon them to exercise any such powers. The Subordinate Secured Party
shall be accountable only for amounts that they actually receive as a result of
the exercise of such powers, and neither the Subordinate Secured Party nor any
of their officers, directors, employees or agents shall, in the absence of
willful misconduct or gross negligence, be responsible to the Grantor for any
act or failure to act pursuant to this Section 3. 4. Termination of Security Interest.Upon satisfaction of the
Obligations, the security interest granted herein shall terminate and all
rights to the Collateral shall revert to the Grantor. Upon any such
termination, the Subordinate Secured Party shall authenticate and deliver to
the Grantor such documents as the Grantor may reasonably request to evidence
such termination. 5. Miscellaneous. (a) Amendments and Waivers.Any term of this Agreement may be amended
with the written consent of the parties or their respective successors and
assigns. Any amendment or waiver effected in accordance with this Section 5
shall be binding upon the parties and their respective successors and assigns. (b) Transfer; Successors and Assigns. The terms and conditions of this
Agreement shall be binding upon the Grantor and its successors and assigns, as
well as all persons - 5 -




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who become bound as a debtor to this Agreement and inure to the benefit of
the Subordinate Secured Party and their successors and assigns. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. (c) Governing Law.This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law. (d) Counterparts.This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument. (e) Titles and Subtitles.The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. (f) Notices.Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile,
confirmed by registered or certified letter, to the party to be notified at
such partys address or facsimile number as set forth below or as subsequently
modified by written notice. (g) Payments Free of Taxes, Etc.All payments made by the Grantor under
this Agreement shall be made by the Grantor free and clear of and without
deduction for any and all present and future taxes, levies, charges, deductions
and withholdings. In addition, the Grantor shall pay upon demand any stamp or
other taxes, levies or charges of any jurisdiction with respect to the
execution, delivery, registration, performance and enforcement of this
Agreement. Upon request by the Subordinate Secured Party, the Grantor shall
furnish evidence satisfactory to the Subordinate Secured Party that all
requisite authorizations and approvals by, and notices to and filings with,
governmental authorities and regulatory bodies have been obtained and made and
that all requisite taxes, levies and charges have been paid. (h) Severability.If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall
be excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms. (i) Entire Agreement.This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto concerning such subject matter are
expressly canceled. This Agreement was drafted with the joint participation of
the respective parties hereto and shall be construed neither against nor in
favor of any party, but rather - 6 -




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in accordance with the fair meaning hereof. The existence of any prior
drafts of this Agreement shall not be used as evidence of the parties intent
with respect to the scope of this Security Agreement or otherwise. (j) Effective Date.It is a condition precedent to the effectiveness of
this Agreement that Subordinate Secured Party shall have executed and delivered
to the Company the Amended Final Award, and in the event Subordinate Secured
Party shall have not executed and delivered the Amended Final Award, the grant
of the Lien in favor of Subordinate Secured Party set forth herein shall be
null and void. [Signature Page Follows] - 7 -




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The Grantor and the Subordinate Secured Party have caused this Agreement
to be duly executed and delivered as of the date first above written. COMPANY:
CYGNUS, INC.By:
    /s/ John C HodgmanPrint Name:
    John C HodgmanTitle:
    Chairman, President & CEODate:
    November 3, 2003Address:
    400 Penobscot Drive
Redwood City, CA  94063
United StatesFax:
    (650) 599-3913SUBORDINATE SECURED PARTY:
SANOFI~SYNTHELABOBy:
    /s/ Jean Claude LeroyPrint Name:
    Jean Claude LeroyTitle:
    Senior Vice President StrategyDate:
    November 7, 2003Address:
    174, avenue de France
75632 Paris
Cedex 13
FranceFax:
    (33) 01 53 77 40 85By:
    /s/ Jean-Pierre KerjouanPrint Name:
    Jean-Pierre KerjouanTitle:
    Senior Vice PresidentDate:




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ATTACHMENT 1 TO SECURITY AGREEMENT All personal property of Grantor and all other assets of Grantor,
including, but not limited to, all right, title and interest of Grantor,
whether now owned or hereafter acquired, in and to the following, in each case
howsoever the interest of the Grantor therein may arise or appear (whether by
ownership, security interest, claim or otherwise): (i) accounts, contract rights, and all other forms of obligations owing to
the Grantor from any source (Accounts); (ii) all of the books and records of the Grantor, including ledgers,
records indicating, summarizing, or evidencing the assets or liabilities of the
Grantor, or the Collateral, all information relating to the Grantors business
operations or financial condition, all computer programs, disc or tape files,
printouts, runs or other computer prepared information, and any equipment
containing such information (the Grantors Books); (iii) all of the Grantors present and hereafter acquired equipment,
wherever located, and all attachments, accessories, accessions, replacements,
substitutions, additions and improvements to any of the foregoing, wherever
located (Equipment); (iv) all of Grantors present and hereafter acquired general intangibles
and other personal property (including, but not limited to, contract rights,
rights arising under common law, statutes or regulations, choses or things in
action, goodwill, patents (with the exception of Excluded Intellectual Property
defined below), trade names, trademarks, service marks, copyrights, blueprints,
drawings, purchase orders, customer lists, monies due under any royalty or
licensing agreements, infringements, claims, computer programs, discs or tapes,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims, as well as all cash collateral that is hypothecated to secure letters
of credit or bonding obligations (with the exception of a Certificate of
Deposit held by Silicon Valley Bank as security for a letter of credit issued
to secure Softech equipment covered by a lease in which Silicon Valley Bank is
the lessor) (General Intangibles)); (v) all present and future inventory in which the Grantor has any
interest, and all of the present and future raw materials of the Grantor, work
in process, finished goods, and packing and shipping material, wherever
located, any documents of title representing any of the above (Inventory); (vi) all of the negotiable collateral of the Grantor, including all of
the Grantors present and future letters of credit, notes, drafts, instruments,
certificated securities (including the shares of stock of any subsidiary),
documents, personal property leases (where the Grantor is the lessor), chattel
paper and the books and records of the Grantor relating to any of the foregoing
(Negotiable Collateral); (vii) any money or other assets of the Grantor which hereafter come into
the possession, custody or control of the Grantor; (viii) the stock of each of the Companys Subsidiaries that is owned,
directly or indirectly, by the Company or the Grantor; and




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(ix) the proceeds and products, whether tangible or intangible, of any of
the foregoing including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Equipment, General Intangibles,
Inventory, Negotiable Collateral, money, deposit accounts or other tangible or
intangible, real or personal, property resulting from the sale, exchange,
collection or other disposition of the Collateral, or any portion thereof or
interest therein, and the proceeds thereof. Notwithstanding anything to the contrary contained in the foregoing or
elsewhere in this Agreement, the reference to patents in the description of
General Intangibles set forth in clause (iv) above shall not include any U.S.
patents or patent applications now existing or hereinafter created (the
Excluded Intellectual Property), and the Excluded Intellectual Property shall
not be included in Collateral hereunder. The Subordinate Secured Party
acknowledge and agree that they have no rights created hereunder or in any of
the Transaction Documents in the Excluded Intellectual Property.