##### 



Exhibit 10.126 GRANT OF SECURITY INTEREST
(PATENTS) THIS GRANT OF SECURITY INTEREST (this Grant), dated as of January 18,
2004 is entered into by and between CYGNUS, INC., a Delaware corporation (the
Company), and SANOFI~SYNTHELABO, a corporation incorporated pursuant to the
laws of France (the Subordinate Secured Party). RECITALS 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 the Company and the Secured
Party; and WHEREAS, under Section (3)(I)(C)(2) and (3)(II)(A) of the Final Award,
certain royalty payments were scheduled to be paid to the Subordinate Secured
Party by the Company 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 were extended; and WHEREAS, in consideration of the Subordinate Secured Partys acceptance of
the Amended Final Award, the Company agreed that in the event that the Sales,
Marketing and Distribution Agreement between the Company and Sankyo Pharma Inc.
(Sankyo Pharma) was terminated or held to be null and void the Company would
grant to the Subordinate Secured Party a subordinate security interest in all
of the Companys U.S. patents and U.S. patent applications to further secure
the Companys obligations to the Subordinate Secured Party under the Amended
Final Award (the Obligations); and WHEREAS, pursuant to that certain Agreement for Global Resolution and
Mutual Release of All Claims entered into between the Company and Sankyo Pharma
on December 23, 2003, the Company and Sankyo Pharma agreed to terminate the
Sales, Marketing and Distribution Agreement; and WHEREAS, the Company desires to grant to the Subordinate Secured Party a
subordinate security interest in all of the Companys U.S. patents and patent
applications to secure the Obligations, upon the terms and subject to the
conditions set forth herein. AGREEMENT NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the Company and the Subordinate Secured Party hereby agree
as follows: 1. Grant of Security Interest.The Company owns the letters patent of the
United States more particularly described on Schedule 1 annexed hereto and made
a part hereof (collectively, the Existing Patents). To further secure the
Companys full and timely performance of the Obligations, the Company hereby
grants to the Subordinate Secured Party a continuing subordinate lien on and
subordinate security interest (the Subordinate Security Interest) in the




---



##### 



following (collectively, the Collateral): (a) The Existing Patents; (b) All U.S. patents and U.S. patent applications hereinafter created; and (c) All proceeds and products, whether tangible or intangible, of any of
the foregoing. 2. Subordinated Security Interest. The security interest created in favor
of the Subordinate Secured Party pursuant to Section 1 above is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in favor of any security interest now existing or hereafter arising in favor of
the holders of the Senior Indebtedness (collectively, the Senior Secured
Party). For purposes of this Grant, the term Senior Indebtedness shall mean
the principal of and unpaid interest and premium, if any, on (a) indebtedness
of the Company or with respect to which the Company is a guarantor, whether
outstanding on the date hereof or hereafter created, to one or more financial
institutions, investors or other persons or entities designated by the Company
from time to time, and (ii) indebtedness resulting from any deferrals, renewals
or extensions of, or any debentures, notes or other evidence of indebtedness
issued in exchange for or in the refinancing with another creditor of, such
Senior Indebtedness or any indebtedness resulting from such initial or any
additional exchanges or refinancings. Upon the request of the Company, the
Subordinate Secured Party hereby agrees to enter into a subordination
agreement, in form and substance satisfactory to the Company and the Senior
Secured Party, setting forth the relative priority in the Collateral of their
respective security interests. The Subordinate Secured Party agrees that, so long as any Senior
Indebtedness shall remain undischarged, it will not foreclose upon or otherwise
pursue any remedy with respect to (whether upon the occurrence of an Event of
Default or otherwise), the whole or any part of the Collateral, whether by
judicial action, power of sale or otherwise. Should any payment from the
proceeds of any Collateral be received by the Subordinate Secured Party prior
to the satisfaction in full of the Senior Indebtedness, the Subordinate Secured
Party shall immediately deliver the same to the Senior Secured Party in the
form received (except for endorsement or assignment by the Subordinate Secured
Party where required by the Senior Secured Party), for application on the
Senior Indebtedness (whether or not then due and in such order of maturity as
the Senior Secured Party elects) and, until so delivered, the same shall be
held in trust by the Subordinate Secured Party as the property of the Senior
Secured Party. In addition, upon any receivership, insolvency, assignment for the benefit
of creditors, bankruptcy, reorganization, or arrangement with creditors
(whether or not pursuant to bankruptcy or other insolvency laws), sale of all
or substantially all of the assets, dissolution, liquidation, or any other
marshaling of the assets and liabilities of the Company, (i) no amount shall be
paid by the Company from proceeds of the Collateral, whether in cash or
property in respect of the principal of or interest on the Obligations at the
time outstanding, unless and until the full amount of any Senior Indebtedness
then outstanding shall be paid in full, and (ii) no claim or proof of claim
shall be filed with the Company by or on behalf of the Subordinate Secured
Party which shall assert any right to receive any payments from proceeds of the
Collateral in respect of the principal of and interest on the Obligations
except subject to the payment in full all of the Senior Indebtedness then
outstanding. -2-




---



##### 



The relative priorities of the Senior Secured Party and the Subordinate
Secured Party in the Collateral as set forth in this Grant control irrespective
of the time, method or order of attachment or perfection of the liens and
security interests acquired by the parties in the Collateral and irrespective
of the priorities as would otherwise be determined by reference to the Uniform
Commercial Code or other applicable laws. 3. Representations and Warranties.The Company represents and warrants to
the Subordinate Secured Party as follows: (a) Authorization and Enforcement.The Company has (i) the corporate
power and authority to execute, deliver and perform the terms and provisions of
this Grant and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of this Grant, and (ii) has duly
executed and delivered this Grant. This Grant constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms. (b) No Conflicts.Neither the execution, delivery or performance by the
Company of this Grant, 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 Company to perform its obligations hereunder (a Material Adverse Effect);
(ii) to the best of the Company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 Company 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 Company 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 Company. (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 Grant; or (ii) the legality, validity, binding effect or enforceability
of this Grant, in each the failure of which to obtain could reasonably be
expected to result in a Material Adverse Effect. (d) Accuracy of Schedule 1; Validity of Liens.Schedule 1 (as updated by
the Company on an annual basis on or before each anniversary of this Grant)
contains a true and complete list of all of the Companys U.S. Patents. This
Grant creates a valid lien in the Collateral, securing the Obligations, and all
other actions to be taken by the Company necessary to grant such security
interest have been duly taken.. (e) Fair Value.The Company 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. -3-




---



##### 



4. Event of Default; Powers. (a) Event of Default.For purposes of this Grant, the occurrence of any
one of the following events (each, an Event of Default) shall constitute a
default hereunder: (i) the Company fails to perform its obligations under this
Grant 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 all of the rights and
remedies (as applicable) set forth in that certain Security Agreement, dated as
of November 3, 2003, by and between the Company and the Subordinate Secured
Party; provided, however, that in no event shall the Subordinate Secured Party
exercise any of such rights and remedies without first obtaining the prior
written consent of the Senior Secured Party (which consent may be given or
withheld in the sole discretion of the Senior Secured Party). (c) No Duty on the Subordinate Secured Partys Part.The powers conferred
on the Subordinate Secured Party by this Section 4 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 Company for any
act or failure to act pursuant to this Section 4. 5. 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 Company. Upon any such
termination, the Subordinate Secured Party shall authenticate, file and record
at its own expense on behalf of the Company such documents, instruments and
agreements as may be necessary or that the Company may reasonably request to
terminate and release the lien granted hereunder. 6. Miscellaneous. (a) Amendments and Waivers.Any term of this Grant 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 6 shall be
binding upon the parties and their respective successors and assigns. (b) Transfer; Successors and Assigns. The terms and conditions of this
Grant shall be binding upon the Company, the Subordinate Secured Party and
their respective successors and assigns. Nothing in this Grant, express or
implied, is intended to confer upon any party (other than the parties hereto,
the Senior Secured Party or their respective successors and assigns) any
rights, remedies, obligations or liabilities under or by reason of this Grant,
except as expressly provided in this Grant. (c) Governing Law.This Grant 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. -4-




---



##### 



(d) Counterparts.This Grant 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 Grant are
used for convenience only and are not to be considered in construing or
interpreting this Grant. (f) Notices.Any notice required or permitted by this Grant 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 Company under
this Grant shall be made by the Company free and clear of and without deduction
for any and all present and future taxes, levies, charges, deductions and
withholdings. In addition, the Company 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 Grant.
Upon request by the Subordinate Secured Party, the Company 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 Grant 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 Grant, (ii) the balance of the Grant shall be interpreted
as if such provision were so excluded and (iii) the balance of the Grant shall
be enforceable in accordance with its terms. (i) Costs and Expenses.Subordinate Secured Party acknowledges and agrees
that all costs and expenses incurred by Subordinate Secured Party to perfect
and maintain the subordinate lien granted hereunder (including, without
limitation, filing and recordation fees), and to terminate and release such
lien in accordance with Section 5, shall be for the sole account of Subordinate
Secured Party. (j) Entire Agreement.This Grant, 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 Grant 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 in accordance with the fair meaning hereof. The
existence of any prior drafts of this Grant shall not be used as evidence of
the parties intent with respect to the scope of this Grant or otherwise. -5-




---



##### 



The Company and the Subordinate Secured Party have caused this Grant 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:
    
    January 18, 2004Address:
    
    400 Penobscot Drive
Redwood City, CA 94063
United StatesFax:
    
    (650) 599-3913SUBORDINATE SECURED PARTY:SANOFI SYNTHELABOBy:
    
    /s/ J C LeroyPrint Name:
    J C LeroyTitle:
    
    Senior Vice President StrategyDate:
    
    Feb 10, 2004Address:
    
    174, avenue de France
75632 Paris Cedex 13
FranceFax:
    
    33 1 53 77 41 09By:
    
    /s/ M H LaimayPrint Name:
    M H LaimayTitle:
    
    Senior Vice President Chief Financial OfficerDate:
    
    Feb 11, 2004




---



##### 



SCHEDULE 1 TO GRANT OF SECURITY INTEREST UNITED STATES PATENTS AND PATENT APPLICATIONS U.S. 5,735,273, Chemical Signal-Impermeable Mask, issued April 7, 1998 U.S. 5,771,890, Device and Method for Sampling of Substances Using Alternating
Polarity, issued June 30, 1998 U.S. 5,827,183, Method of Measuring Chemical Concentration Iontophoretically
Using Impermeable Mask, issued October 27, 1998 U.S. 5,954,685, Electrochemical Sensor with Dual Purpose Electrode, issued
September 21, 1999 U.S. 5,989,409, Method for Glucose Sensing, issued November 23, 1999 U.S. 6,023,629, Method of Sampling Substances Using Alternating Polarity of
Iontophoretic Current, issued February 8, 2000 U.S. 6,141,573, Chemical Signal-Impermeable Mask, issued October 31, 2000 U.S. 6,144,869, Monitoring of Physiological Analytes, issued November 7, 2000 U.S. 6,180,416, Method and Device for Predicting Physiological Values, issued
January 30, 2001 U.S. 6,201,979, Chemical Signal-Impermeable Mask, issued March 13, 2001 U.S. 6,233,471, Signal Processing for Measurement of Physiological Analysis,
issued May 15, 2001 U.S. 6,272,364, Method and Device for Predicting Physiological Values, issued
August 7, 2001 U.S. 6,298,254, Device for Sampling Substances Using Alternating Polarity of
Iontophoretic Current, issued October 2, 2001 U.S. 6,299,578, Methods for Monitoring a Physiological Analyte, issued
October 9, 2001 U.S. 6,309,351, Methods for Monitoring a Physiological Analyte, issued
October 30, 2001 U.S. 6,326,160, Microprocessors for Use in a Device for Predicting
Physiological Values, issued December 4, 2001 U.S. 6,341,232, Methods for Producing Collection Assemblies, Laminates, and
AutoSensor Assemblies for Use in Transdermal Sampling Systems, issued January
22, 2002 U.S. 6,356,776, Device for Monitoring Physiological Analytes, issued March
12, 2002 U.S. 6,370,410, Method of Producing an Assembly for Use in a Monitoring
Device, issued April 9, 2002 7




---



##### 



U.S. 6,391,643, Kit and Method for Quality Control Testing of a Iontophoretic
Sampling System, issued May 21, 2002 U.S. 6,393,318, Collection Assemblies, Laminates, and AutoSensor Assemblies
for Use in Transdermal Sampling Systems, issued May 21, 2002 U.S. 6,398,562, Device and Methods for the Application of Mechanical Force to
a Gel/Sensor Assembly, issued June 4, 2002 U.S. 6,438,414, Collection Assembles, Laminates, and AutoSensor Assemblies for
Use in Transdermal Sampling Systems, issued August 20, 2003 U.S. 6,529,755, Chemical Signal-Impermeable Mask, issued March 4, 2003 U.S. 6,546,269, Method and Device for Predicting Physiological Values, issued
April 8, 2003 U.S. 6,553,244, Analyte Monitoring Device Alarm Augmentation System, issued
April 22, 2003 U.S. 6,561,978, Devices and Methods for Frequent Measurement of an Analyte
Present in a Biological System, issued May 13, 2003 U.S. 6,587,705, Biosensor, Iontophoretic Sampling System, and Methods of Use
Thereof, issued July 1, 2003 U.S. 6,594,514, Device for Monitoring of Physiological Analytes, issued July
15, 2003 U.S. 6,595,919, Device for Signal Processing for Measurement of Physiological
Analytes, issued July 22, 2003 U.S. 6,615,078, Methods and Devices for Removing Interfering Species, issued
September 2, 2003 U.S. 6,633,772, Formulation and Manipulation of Databases of Analyte and
Associated Values, issued October 14, 2003 U.S. 6,653,091, Method and Device for Predicting Physiological Values, issued
November 25, 2003 U.S. Design Patent 437,603, Device for the Application of Mechanical Force to
a Gel/Sensor Assembly, issued February 13, 2001 U.S. Design Patent 438,807, Cover for Quality Control Testing of an
Iontophoretic Sampling System, issued March 13, 2001 8