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                                           *** Text Omitted and Filed Separately
                                               Confidential Treatment Requested
                                               Under 17 C.F.R. Sections 200.80,
                                               200.83 and 230.406.

                                                                Exhibit 10.38

                           EXCLUSIVE LICENSE AGREEMENT

        This Agreement, effective as of October 1996 (the "Effective Date"), is
between the University of Massachusetts ("University"), a public institution of
higher education of the Commonwealth of Massachusetts, and Signal
Pharmaceuticals, Inc. ("Company"), a Delaware Corporation.

                                    RECITALS

        WHEREAS, University is the owner by assignment of the inventions claimed
in the United States Patent Application listed on Exhibit A;

        WHEREAS, Company desires to obtain an exclusive license in the field of
drug discovery under the rights of University in any patent rights claiming such
inventions; and

        WHEREAS, University is willing to grant Company such an exclusive
license on the terms and conditions set forth in this Agreement.

        NOW, THEREFORE, University and Company hereby agree as follows:

1.      Definitions.

        1.1.    "Affiliate" shall mean any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by Company. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least fifty percent (50%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
fifty percent (50%) or greater interest in the net assets or profits of a
partnership or other business organization without voting securities.

        1.2.    "Confidential Information" shall mean any confidential or
proprietary information furnished by one party (the "Disclosing Party") to the
other party (the "Receiving Party") in connection with this Agreement, provided
that such information is specifically designated as confidential. Such
Confidential Information shall include, without limitation, any diligence
reports furnished to University under Section 3.1. and royalty reports
furnished to University under Section 5.1.

        1.3.    "Field" shall mean use of the [***] proteins and genetic
sequences for drug discovery applications.

        1.4.    "Licensed Product" shall mean any product that cannot be
developed, manufactured, used, or sold without infringing one or more claims
under the Patent Rights. Licensed Products include, without limitation,
pharmaceutical compounds identified through use of an [***] screen.


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        1.5.    "Net Sales" shall mean the gross amount billed or invoiced on
sales by Company and its Affiliates and Sublicensees of Licensed Products, less
the following: (i) customary trade, quantity, or other cash reduction programs
or cash discounts and commissions to non-affiliated brokers or agents to the
extent actually allowed and taken; (ii) amounts repaid or credited by reason of
rejection or return; (iii) to the extent separately stated on purchase orders,
invoices, or other documents of sale, any taxes or other governmental charges
levied on the production, sale, transportation, delivery, or use of a Licensed
Product which is paid by or on behalf of Company; (iv) outbound transportation
costs prepaid or allowed and costs of insurance in transit; and (v) customs
duties, surcharges, and other governmental charges incurred in connection with
the exportation or importation of Licensed Products.

        In any transfers of Licensed Products between Company and an Affiliate
or Sublicensee, Net Sales shall be calculated based on the final sale of the
Licensed Product to an independent third party only, and the transfers between
Company and an Affiliate or Sublicensee shall be excluded from the calculation
of net sales. In the event that Company or an Affiliate or Sublicensee receives
non-monetary consideration for any Licensed Products, Net Sales shall be
calculated based on the fair market value of such consideration. In the event
that Company or its Affiliates or Sublicensees use or dispose of a Licensed
Product in the provision of a commercial service, the Licensed Product shall be
considered sold and the Net Sales shall be calculated based on the sales price
of the Licensed Product to an independent third party during the same Royalty
Period or, in the absence of such sales, on the fair market value of the
Licensed Product as determined by the parties in good faith.

        1.6.    "Patent Rights" shall mean the U.S. patent application listed on
Exhibit A, and any divisional, continuation, or continuation-in-part of such
patent applications to the extent the claims are directed to [***], as
well as any patent issued thereon and any reissue or extension of such patent,
and any foreign counterparts to such patents and patent applications. Exhibit A
shall be periodically amended to include any additional Patent Rights that may
arise; however, the failure to timely amend this Agreement shall not result in a
change of the definition of Patent Right in the preceding sentence.

        1.7.    "Related Technology" shall mean any know-how, technical
information, research and development information, test results, and data
necessary for the effective exercise of the Patent Rights which has been
developed in the laboratory of [***] as of the Effective Date and
which is owned by University.

        1.8.    "Royalty Period" shall mean the partial calendar quarter
commencing on the date on which the first Licensed Product is sold or used and
every complete or partial calendar quarter thereafter during which either (i)
this Agreement remains in effect or (ii) Company has the right to complete and
sell work-in-progress and inventory of Licensed Products pursuant to Section
8.4.

        1.9.    "Sublicense Income" shall mean any payments that Company
receives from a Sublicensee in consideration of the sublicense of the rights
granted Company under Section 2.1. with respect to the Patent Rights, including
without limitation license initiation fees, license


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maintenance fees, payments in excess of fair market value which are made in
consideration for the issuance of equity securities of Company, and payments
committed to the development of Licensed Products, but excluding royalty and
milestone payments.

        1.10.   "Sublicensee" shall mean any permitted sublicensee of the rights
granted Company under this Agreement, as further described in Section 2.2.

        1.11.   "Term" shall mean the term of this Agreement as further defined
in Section 8.1. below.

2.      Grant of Rights.

        2.1.    License Grant.

                (a)     Patent Rights. Subject to the terms of this Agreement,
University hereby grants to Company and its Affiliates an exclusive, worldwide,
royalty-bearing license (with the right to sublicense) under its commercial
rights in the Patent Rights to develop, make, have made, use, and sell Licensed
Products in the Field.

                (b)     Related Technology. Subject to the terms of this
Agreement, University hereby grants to Company and its Affiliates a
non-exclusive, worldwide, royalty-bearing license (with the right to sublicense)
under its commercial rights in the Related Technology to develop, make, have
made, use, and sell Licensed Products in the Field.

        2.2.    Sublicenses. Company shall have the right to grant sublicenses
of its rights under Section 2.1. with the consent of University, which consent
shall not be unreasonably withheld or delayed. All sublicense agreements
executed by Company pursuant to this Article 2 shall expressly bind the
Sublicensee to the terms of this Agreement and shall provide for the automatic
assignment of such agreement to University if this Agreement is terminated as
described in Article 8 below. Company shall promptly furnish University with a
fully executed copy of any such sublicense agreement.

        2.3     Retained Rights.

                (a)     University. University retains the right to make and use
Licensed Products for academic research and academic patient care, without
payment of compensation to Company. University may license its retained rights
under this Section to research collaborators of University faculty members,
post-doctoral fellows, and students. Notwithstanding the above retention of
rights, the University does not retain any right to make, use, or sublicense any
third party the right to use the license or sublicense for commercial
applications in the Field.

                (b)     Federal Government. To the extent that any invention
claimed in the Patent Rights has been partially funded by the federal
government, this Agreement and the grant of any rights in such Patent Rights are
subject to and governed by federal law as set forth in 35 U.S.C. Sections
201-211, and the regulations promulgated thereunder, as amended, or any
successor statutes


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or regulations. Company acknowledges that these statutes and regulations reserve
to the federal government a royalty-free, non-exclusive, non-transferable
license to practice any government funded invention claimed in any Patent
Rights. If any term of this Agreement fails to conform with such laws and
regulations, the relevant term shall be deemed an invalid provision and modified
in accordance with Section 10.10.

The inventions claimed in the Patent Rights and the Related Technology were
conceived or reduced to practice by [***], an employee of the [***] and a
faculty member of University, and were assigned to University by [***] in
accordance with the Collaboration Agreement between [***] and University dated
November 16, 1990, as amended (the "Collaboration Agreement"). Pursuant to the
Collaboration Agreement, University is required to grant [***] a paid-up,
non-exclusive, irrevocable license to use the Patent Rights and the Related
Technology for [***] noncommercial purposes, but of this Exclusive License
Agreement to the contrary, Company acknowledges that [***] shall have the [***]
License.

3.      Company Obligations Relating to Commercialization.

        3.1.    Diligence Requirements. Company shall use diligent efforts, or
shall require its Affiliates and Sublicensees to use diligent efforts, to
develop Licensed Products and to introduce Licensed Products into the commercial
market; thereafter, Company or its Affiliates or Sublicensees shall make
Licensed Products reasonably available to the public. Company shall have
conclusively satisfied its obligations under this Section 3.1. if Company or an
Affiliate or Sublicensee fulfills the following obligations:

                (1)     Within sixty (60) days after the Effective Date, Company
        shall furnish University with a written summary of the research and
        development plans under which Company intends to develop Licensed
        Products.

                (2)     Within sixty (60) days after each anniversary of the
        Effective Date, Company shall furnish University with a written summary
        of the progress of its efforts during the prior year to develop and
        commercialize Licensed Products, including research and development
        efforts, efforts to obtain regulatory approval, and marketing efforts.

                (3)     [***]

                (4)     [***]

In the event that University reasonably determines that the diligence
obligations of Company under this Section 3.1. have not been fulfilled by
Company or by an Affiliate or Sublicensee, University shall furnish Company with
written notice of such determination. Within sixty (60) days after receipt of
such notice, Company shall either (i) fulfill the relevant obligation or (ii)
negotiate with University a mutually acceptable schedule of revised diligence
obligations, failing


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which University shall have the right, immediately upon written notice to
Company, to terminate this Agreement or to grant additional license to third
parties under its rights in the Patent Rights. So long as at least one of the
Company or its Affiliates or Sublicensees continues to meet the diligence
requirements set forth above, the University shall not have any termination
rights under this Section 3.1.

        3.2.    Indemnification.

                (a)     Indemnity. Company shall indemnify, defend, and hold
harmless University and its trustees, officers, faculty, students, employees,
and agents and their respective successors, heirs and assigns (the
"Indemnitees"), against any liability, damage, loss, or expense (including
reasonable attorneys fees and expenses of litigation) incurred by or imposed
upon any of the Indemnitees in connection with any third-party claims, suits,
actions, demands or judgments arising out of any theory of liability (including
without limitation actions in the form of tort, warranty, or strict liability
and regardless of whether such action has any factual basis) concerning any
Licensed Product, process, or service that is made, used, or sold pursuant to
any right or license granted under this Agreement; provided, however, that such
indemnification shall not apply to any liability, damage, loss, or expense to
the extent directly attributable to (i) the negligent activities or intentional
misconduct of the Indemnitees or (ii) the settlement of a claim, suit, action,
or demand by Indemnitees without the prior written approval of Company. Company
also shall indemnify, defend, and hold harmless [***] and its trustees,
officers, employees, and agents, and their respective successors, heirs and
assigns (the "[***] Indemnitees"), from and against any claim, liability, cost,
expense, damage deficiency, loss, or obligation (including, without limitation,
reasonable attorney's fees and costs), based upon, arising out of, or otherwise
relating to any actions taken or omissions made in connection with or pursuant
to this Exclusive License Agreement The [***] Indemnitees agree to provide
Company with prompt written notice of any claim, suite action, demand or
judgment for which indemnification is sought under this Agreement. Company
agrees that any sublicense shall agree to provide Institute with the same
indemnity provided by Company herein.

                (b)     Procedures. The Indemnitees agree to provide Company
with prompt written notice of any claim, suit, action, demand, or judgment for
which indemnification is sought under this Agreement. Company agrees, at its
own expense, to provide attorneys reasonably acceptable to University to defend
against any such claim. The Indemnitees shall cooperate fully with Company in
such defense and will permit Company to conduct and control such defense and the
disposition of such claim, suit, or action (including all decisions relative to
litigation, appeal, and settlement); provided, however, that any Indemnitee
shall have the right to retain its own counsel, at the expense of Company, if
representation of such Indemnitee by the counsel retained by Company would be
inappropriate because of actual or potential differences in the interests of
such Indemnitee and any other party represented by such counsel. Company agrees
to keep University informed of the progress in the defense and disposition of
such claim and to consult with University with regard to any proposed settlement
The failure to deliver a written notice to Company within a reasonable time
after the commencement of such claim, suit, or action, if prejudicial to
Company's ability to defend such action, shall relieve Company of any liability
to


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the Indemnitees under Section 3.2, but the omission to deliver shall not relieve
Company of any liability that it may have to the Indemnitees other than under
this Section 3.2.

                (c)     Insurance. Effective as of such time as a Licensed
Product enters human clinical trials, Company shall maintain insurance or
self-insurance that is reasonably adequate to fulfill any potential obligation
to the Indemnitees, but in any event not less than one million dollars
($1,000,000) for injuries to any one person arising out of a single occurrence
and five million dollars ($5,000,000) for injuries to all persons arising out of
a single occurrence. Company shall provide University, upon request, with
written evidence of such insurance or self-insurance. Company shall continue to
maintain such insurance or self-insurance after the expiration or termination of
this Agreement during any period in which Company or any Affiliate or
Sublicensee continues to make, use, or sell a product that was a Licensed
Product under this Agreement and thereafter for a period of five (5) years.
Until such time as a Licensed Product enters human clinical trials, Company
shall maintain insurance or self-insurance in such amount as Company customarily
maintains covering similar activities, and shall maintain such insurance so long
as Company customarily carries such insurance coverage, or until a Licensed
Product enters human clinical trials.

        3.3.    Use of University Name. In accordance with Section 7.3., Company
and its Affiliates and Sublicensees shall not use the name "University of
Massachusetts" or any variation of that name in connection with the marketing or
sale of any Licensed Products.

        3.4.    Marking of Licensed Products. To the extent commercially
feasible and consistent with prevailing business practices Company shall mark,
and shall cause its Affiliates and Sublicensees to mark, all Licensed Products
that are manufactured or sold under this Agreement with the number of each
issued patent under the Patent Rights that applies to such Licensed Product.

        3.5.    Compliance with Law. Company shall comply with, and shall
require its Affiliates and Sublicensees comply with, all local, state, federal,
and international laws and regulations relating to the development, manufacture,
use, and sale of Licensed Products. Company expressly agrees to comply with the
following:

                (i)     Company or its Affiliates or Sublicensees shall obtain
        all necessary approvals from the United States Food & Drug
        Administration and any similar governmental authorities of any foreign
        jurisdiction in which Company or an Affiliate or Sublicensee intends to
        make, use, or sell Licensed Products.

                (ii)    Company and its Affiliates and Sublicensees shall comply
        with all United States laws and regulations controlling the export of
        certain commodities and technical data, including without limitation all
        Export Administration Regulations of the United States Department of
        Commerce. Among other things, these laws and regulations prohibit, or
        require a license for, the export of certain types of commodities and
        technical data to specified countries. Company hereby gives written
        assurance that it will comply with, and will require its Affiliates and
        Sublicensees to comply with, all United States


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        export control laws and regulations, and that it will indemnify, defend,
        and hold University harmless (in accordance with Section 3.2.) for the
        consequences of any such violation.

                (iii)   To the extent that any invention claimed in the Patent
        Rights has been partially funded by the United States government, and
        only to the extent required by applicable laws and regulations, Company
        agrees that any Licensed Products used or sold in the United States will
        be manufactured substantially in the United States or its territories.
        Current law provides that if domestic manufacture is not commercially
        feasible under the circumstances, University may seek a waiver of this
        requirement from the relevant federal agency on behalf of Company.

4.      Consideration for Grant of Rights.

        4.1.    License Fee. In partial consideration of the rights granted
Company under this Agreement, Company shall pay to University, within thirty
(30) days after the Effective Date, a license fee of [***]. In addition, Company
shall reimburse University for all expenses incurred by University as of the
Effective Date in connection with the Patent Rights. These license fee payments
are nonrefundable and are not creditable against any other payments due to
University under this Agreement

        4.2.    Equity. In partial consideration of the license granted Company
under this Agreement, Company shall issue to University a total of [***] shares
of Common Stock of Company, under the terms of the Common Stock Purchase
Agreement dated as of the Effective Date between Company and University (the
"Common Stock Purchase Agreement").

        4.3.    Milestone Payments. Company shall pay University the following
milestone payments within thirty (30) days after the occurrence of each event
with respect to each Licensed Product for each indication:

<TABLE>
<CAPTION>
                           Milestone                                   Payment
                           ---------                                   -------

<S>                                                                   <C>
        [***]

</TABLE>


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        * With respect to these milestones, only one payment is required per
        indication regardless of the number of Licensed Products that trigger
        the milestone within a [***] period, provided that each such
        Licensed Product is a derivative or analogue of a single precursor
        chemical entity.

These milestone payments are nonrefundable and are not creditable against any
other payments due to University under this Agreement. Company shall pay
University such amounts regardless of who achieves the milestone, whether
Company or an Affiliate or Sublicensee.

        4.4     Royalties.

                (a)     Base Royalty. In partial consideration of the rights
granted Company under this Agreement, Company shall pay to University the
following royalties on Net Sales of Licensed Products by Company and its
Affiliates and Sublicensees:

        [***]

If both royalty rates could apply to sales of a Licensed Product, only the
higher royalty rate shall apply (i.e., the [***] rate will apply rather than a
[***] rate).

                (b)     No Multiple Royalties. No multiple royalties shall be
payable because a particular Licensed Product or its manufacture, use, or sale
are or shall be covered by more than one patent application or patent included
within the Patent Rights.

        4.5.    Minimum Royalty. In each calendar year during the Term,
University shall receive the following minimum royalty payments:

<TABLE>
<S>                                                     <C>
                [***]
</TABLE>

If the actual royalty payments to University in any calendar year are less than
the minimum royalty payment required for that year, Company shall have the right
to pay University the difference between the actual royalty payment and the
minimum royalty payment in full satisfaction of its obligations under this
Section, provided such minimum payment is made to University within sixty (60)
days after the conclusion of the calendar year. Waiver of any minimum royalty
payment by University shall not be construed as a waiver of any subsequent
minimum royalty payment.


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          4.6.    Sublicense Income. Company shall pay University a total of
[***] of all Sublicense Income. Such amounts shall be due and payable within
sixty (60) days after Company receives the relevant payment from the
Sublicensee. Company has stated that Company intends to license the Patent
Rights together with patent rights licensed by Company from third parties so
that in one license agreement Company would sublicense rights to multiple
targets comprising one "signaling pathway." In such event, and if Company must
pay a royalty to such third-party licensors, the percentage of Sublicense Income
payable to University shall be reduced by (i) [***] in the case of one such
third- party licensor and (ii) [***] in the case of more than one such
third-party licensor.

          4.7.    Sales Bonus. Company shall pay University one-time bonuses in
the amount of [***] in the event that cumulative worldwide gross sales of
Licensed Products by Company and its Affiliates and Sublicensees exceeds [***]
and an additional [***] in the event that cumulative worldwide gross sales of
Licensed Products by Company and its Affiliates and Sublicensees exceeds [***].
Such amount shall be due and payable within sixty (60) days after the conclusion
of the Royalty Period in which such revenue milestone is achieved.

5.      Royalty Reports; Payments; Records.

          5.1.    Reports and Payments. Within sixty (60) days after the
conclusion of each Royalty Period, Company shall deliver to University a report
containing the following information:

               (i)     the number of Licensed Products sold to independent third
          parties in each country, and the number of Licensed Products used by
          Company and its Affiliates and Sublicensees to provide commercial
          services in each country;

               (ii)    the gross sales price for each Licensed Product by
          Company and its Affiliates during the applicable Royalty Period in
          each country;

               (iii)   calculation of Net Sales for the applicable Royalty
          Period in each country, including a listing of applicable deductions;

               (iv)    total royalty payable on Net Sales in U.S. dollars,
          together with the exchange rates used for conversion; and

               (v)     withholding taxes, if any, required by law to be deducted
          as a payment by University in respect of such Net Sales.

All such reports shall be considered Company Confidential Information. If no
royalties are due to University for any Royalty Period, the report shall so
state. Concurrent with this report, Company shall remit to University any
payment due for the applicable Royalty Period.




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        5.2.    Payments in U.S. Dollar. All payments due under this Agreement
shall be payable in United States dollars. Conversion of foreign currency to
U.S. dollars shall be made at the conversion rate existing in the United States
(as reported in the Wall Street Journal) on the last working day of the calendar
quarter preceding the applicable Royalty Period. Such payments shall be without
deduction of exchange, collection, or other charges.

        5.3.    Payments in Other Currencies. If by law, regulation, or fiscal
policy of a particular country, conversion into United States dollars or
transfer of funds of a convertible currency to the United States is restricted
or forbidden, Company shall give University prompt written notice of such
restriction, which notice shall satisfy the sixty-day payment deadline described
in Section 5.1. Company shall pay any amounts due University through whatever
lawful methods University reasonably designates; provided, however, that if
University fails to designate such payment method within thirty (30) days after
University is notified of the restriction, Company may deposit such payment in
local currency to the credit of University in a recognized banking institution
selected by Company and identified by written notice to University, and such
deposit shall fulfill all obligations of Company to University with respect to
such payment

        5.4.    Records. Company shall maintain, and shall require its
Affiliates and Sublicensees to maintain, complete and accurate records of
Licensed Products that are made, used, or sold under this Agreement and any
amounts payable to University in relation to such Licensed Products, which
records shall contain sufficient information to permit University to confirm the
accuracy of any reports delivered to University under Section 5.1. The relevant
party shall retain such records relating to a given Royalty Period for at least
three (3) years after the conclusion of that Royalty Period, during which time
University shall have the right, at its expense, to cause its internal
accountants or an independent, certified public accountant to inspect such
records during normal business hours for the sole purpose of verifying any
reports and payments delivered under this Agreement. Such accountant shall not
disclose to University any information other than information relating to
accuracy of reports and payments delivered under this Agreement. The parties
shall reconcile any underpayment or overpayment within thirty (30) days after
the accountant delivers the results of the audit. In the event that any audit
performed under this Section reveals an underpayment in excess of ten percent
(10%) in any Royalty Period, Company shall bear the full cost of such audit;
however, Company shall have the right to review and verify the audit results
prior to being required to pay the cost of the audit. University may exercise
its rights under this Section only once every year and only with reasonable
prior notice to Company.

        5.5.    Late Payments. Any payments by Company that are not paid on or
before the date such payments are due under this Agreement shall bear interest,
to the extent permitted by law, at two percentage points above the Prime Rate of
interest as reported in the Wall Street Journal on the date payment is due, with
interest calculated based on the number of days that payment is delinquent.

        5.6.    Method of Payment. All payments under this Agreement should be
made in the name of the "University of Massachusetts" and sent to the address
identified below. Each payment should reference this Agreement and identify the
obligation under this Agreement that the payment satisfies.


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        5.7     Withholding and Similar Taxes. Royalty payments and other
payments due to University under this Agreement shall not be reduced by reason
of any withholding or similar taxes applicable to such payments to University.

6.      Patents and Infringement.

        6.1.    Responsibility for Patent Rights. University shall have primary
responsibility, at the expense of Company, for the preparation, filing,
prosecution, and maintenance of all Patent Rights, using patent counsel
reasonably acceptable to Company. University shall consult with Company as to
the preparation, filing, prosecution, and maintenance of all such Patent Rights
reasonably prior to any deadline or action with the U.S. Patent & Trademark
Office or any foreign patent office and shall furnish Company with copies of all
relevant documents reasonably in advance of such consultation.

        6.2.    Payment of Expenses. Within thirty (30) days after University
invoices Company, Company shall reimburse University for all reasonable
patent-related expenses incurred by University pursuant to Section 6.1. Company
may elect, upon sixty (60) days written notice to University, to cease payment
of the expenses associated with obtaining or maintaining patent protection for
one or more Patent Rights in one or more countries. In such event, Company shall
lose all rights under this Agreement with respect to such Patent Rights in such
countries, but Company shall retain rights in all other countries in which
Company has not elected to cease payment of patent-related expenses.

        6.3.    Abandonment. In the event that University desires to abandon any
patent or patent application within the Patent Rights, University shall provide
Company with reasonable prior written notice of such intended or decline of
responsibility, and Company shall have the right, at its expense, to prepare,
file, prosecute, and maintain the relevant Patent Rights.

        6.4.    Infringement

                (a)     Notification of Infringement Each party agrees to
provide written notice to the other party promptly after becoming aware of any
infringement of the Patent Rights.

                (b)     Company Right to Prosecute. So long as the license
granted Company under Section 2.1.(a) remains exclusive (subject to the retained
rights under Section 2.3), Company shall have the right, under its own control
and at its own expense, to prosecute any third party infringement of the Patent
Rights in the Field or, together with other licensees of the Patent Rights in
other fields, to defend the Patent Rights in any declaratory judgment action
brought by a third party which alleges invalidity, unenforceability, or
non-infringement of the Patent Rights. Prior to commencing any such action,
Company shall consult with University and shall consider the views of University
regarding the advisability of the proposed action and its effect on the public
interest. Company shall not enter into any settlement, consent judgment, or
other Voluntary final disposition of any infringement action under this
Subsection without the prior


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<PAGE>   12
written consent of University, which consent shall not be unreasonably withheld
or delayed. Any recovery obtained in an action under this Subsection shall be
distributed as follows: (i) each party shall be reimbursed for any expenses
incurred in the action (including the amount of any royalty payments withheld
from University as described below), (ii) as to ordinary damages, Company shall
receive an amount equal to its lost profits or a reasonable royalty on the
infringing sales (whichever measure of damages the court shall have applied),
less a reasonable approximation of the royalties that Company would have paid to
University if Company had sold the infringing products and services rather than
the infringer, and (iii) as to special or punitive damages, the parties shall
share equally in any award. Company may offset a total of fifty percent (50%) of
any expenses incurred under this Subsection against any royalty payments due to
University under this Agreement, provided that in no event shall the royalty
payments under Section 4.4., when aggregated with any other offsets and credits
allowed under this Agreement, be reduced by more than fifty percent (50%) in any
Royalty Period.

                (c)     University as Indispensable Party. University shall
permit any action under this Section to be brought in its name if required by
law, provided that Company shall hold University harmless from, and if necessary
indemnify University against any costs, expenses, or liability that University
may incur in connection with such action.

                (d)     University Right to Prosecute. In the event that Company
fails to initiate an infringement action within a reasonable time after it first
becomes aware of the basis for such action, or to answer a declaratory judgment
action within a reasonable time after such action is filed, University shall
have the right to prosecute such infringement or answer such declaratory
judgment action, under its sole control and at its sole expense, and any
recovery obtained shall be given to University.

                (e)     Cooperation. Each party agrees to cooperate fully in any
action under this Section 6.4. which is controlled by the other party, provided
that the controlling party reimburses the cooperating party promptly for any
costs and expenses incurred by the cooperating party in connection with
providing such assistance.

7.      Confidential Information; Publications; Publicity.

        7.1.    Confidential Information.

                (a)     Designation. Confidential Information that is disclosed
in writing shall be marked with a legend indicating its confidential status
(such as "Confidential" or "Proprietary"). Confidential Information that is
disclosed orally or visually shall be documented in a written notice prepared by
the Disclosing Party and delivered to the Receiving Party within thirty (30)
days of the date of disclosure; such notice shall summarize the Confidential
Information disclosed to the Receiving Party and reference the time and place of
disclosure.

                (b)     Obligations. For a period of five (5) years after
disclosure of any portion of Confidential Information, the Receiving Party shall
(i) maintain such Confidential Information in strict confidence, except that the
Receiving Party may disclose or permit the disclosure of any


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<PAGE>   13
Confidential Information to its directors, officers, employees, consultants, and
advisors who are obligated to maintain the confidential nature of such
Confidential Information and who need to know such Confidential Information for
the purposes of this Agreement; (ii) use such Confidential Information solely
for the purposes of this Agreement; and (iii) allow its trustees or directors,
officers, employees, consultants, and advisors to reproduce the Confidential
Information only to the extent necessary for the purposes of this Agreement,
with all such reproductions being considered Confidential Information.

                (c)     Exceptions. The obligations of the Receiving Party under
Subsection 7.1.(b) above shall not apply to the extent that the Receiving Party
can demonstrate that certain Confidential Information (i) was in the public
domain prior to the time of its disclosure under this Agreement; (ii) entered
the public domain after the time of its disclosure under this Agreement through
means other than an unauthorized disclosure resulting from an act or omission by
the Receiving Party; (iii) was independently developed or discovered by the
Receiving Party without use of the Confidential Information; (iv) is or was
disclosed to the Receiving Party at any time, whether prior to or after the time
of its disclosure under this Agreement, by a third party having no fiduciary
relationship with the Disclosing Party and having no obligation of
confidentiality with respect to such Confidential Information; or (v) is
required to be disclosed to comply with applicable laws or regulations, or with
a court or administrative order, provided that the Disclosing Party receives
reasonable prior written notice of such disclosure.

                (d)     Ownership and Return. The Receiving Party acknowledges
that the Disclosing Party (or any third party entrusting its own information to
the Disclosing Party) claims ownership of its Confidential Information in the
possession of the Receiving Party. Upon the expiration or termination of this
Agreement, and at the request of the Disclosing Party, the Receiving Party shall
return to the Disclosing Party all originals, copies, and summaries of
documents, materials, and other tangible manifestations of Confidential
Information in the possession or control of the Receiving Party, except that the
Receiving Party may retain one copy of the Confidential Information in the
possession of its legal counsel solely for the purpose of monitoring its
obligations under this Agreement.

        7.2.    Publications. University and its employees will be free to
publicly disclose (through journals, lectures, or otherwise) the results of any
research in the Field or relating to the subject matter of the Patent Rights,
except as otherwise provided by written agreement between University and Company
(e.g., a sponsored research agreement).

        7.3.    Publicity Restrictions. Company shall not use the name of
University or any of its trustees, officers, faculty, students, employees, or
agents, or any adaptation of such names, or any terms of this Agreement in any
promotional material or other public announcement or disclosure without the
prior written consent of University. The foregoing notwithstanding, Company
shall have the right to disclose such information without the consent of
University in any prospectus, offering memorandum, or other document or filing
required by applicable securities laws or other applicable law or regulation,
provided that Company shall have given University at least ten (1O) days prior
written notice of the proposed text for the purpose of


                                       13
<PAGE>   14
giving University the opportunity to comment on such text. Company and its
Affiliates and Sublicensees shall not use the name, likeness, or logos of the
[***] in any press release, general publication, advertising, marketing,
promotional or sales literature without prior written consent from an authorized
official of the [***].

8.      Term and Termination.

        8.1.    Term. This Agreement shall commence on the Effective Date and
shall remain in effect until (i) the expiration of all issued patents within the
Patent Rights or (ii) for a period of ten (1O) years after the Effective Date if
no such patents have issued within that ten-year period, unless earlier
terminated in accordance with the provisions of this Agreement.

        8.2.    Termination for Default. In the event that either party commits
a material breach of its obligations under this Agreement and fails to cure that
breach within sixty (60) days after receiving written notice thereof, the other
party may terminate this Agreement immediately upon written notice to the party
in breach. If the alleged breach involves nonpayment of any amounts due
University under this Agreement, Company shall be entitled to the sixty-day cure
period only with respect to the first such breach, with the cure period for each
subsequent breach shortened as follows: thirty days for the second breach,
fifteen days for the third breach, and termination immediately upon written
notice to Company, without any cure period, for any subsequent breach.

        8.3.    Force Majeure. Neither party will be responsible for delays
resulting from causes beyond the reasonable control of such party, including
without limitation fire, explosion, flood, war, strike, or riot, provided that
the nonperforming party uses commercially reasonable efforts to avoid or remove
such causes of nonperformance and continues performance under this Agreement
with reasonable dispatch whenever such causes are removed.

        8.4.    Effect of Termination. The following provisions shall survive
the expiration or termination of this Agreement Articles 1 and 9; Sections 3.2.,
3.5., 5.1. (obligation to provide final report and payment), 5.4., 6.2., 7.1.,
7.3., 8.4., and 10.8. Upon the early termination of this Agreement, Company and
its Affiliates and Sublicensees may complete and sell any work-in progress and
inventory of Licensed Products that exist as of the effective date of
termination, provided that (i) Company is current in payment of all amounts due
University under this Agreement and not in dispute, (ii) Company pays University
the applicable royalty on such sales of Licensed Products in accordance with the
terms and conditions of this Agreement, and (iii) Company and its Affiliates and
Sublicensees shall complete and sell all work-in-progress and inventory of
Licensed Products within six (6) months after the effective date of termination.




                                       14

                      ***Confidential Treatment Requested
<PAGE>   15
9.      Dispute Resolution.

        9.1.    Procedures Mandatory. The parties agree that any dispute arising
out of or relating to this Agreement shall be resolved solely by means of the
procedures set forth in this Article, and that such procedures constitute
legally binding obligations that are an essential provision of this Agreement;
provided, however, that all procedures and deadlines specified in this Article
may be modified by written agreement of the parties. If either party fails to
observe the procedures of this Article, as modified by their written agreement,
the other party may bring an action for specific performance in any court of
competent jurisdiction.

        9.2.    Dispute Resolution Procedures.

                (a)     Negotiation. In the event of any dispute arising out of
or relating to this Agreement, the affected party shall notify the other party,
and the parties shall attempt in good faith to resolve the matter within ten
(10) days after the date of such notice (the "Notice Date"). Any disputes not
resolved by good faith discussions shall be referred to senior executives of
each party, who shall meet at a mutually acceptable time and location within
thirty (30) days after the Notice Date and attempt to negotiate a settlement.

                (b)     Mediation. If the matter remains unresolved within sixty
(60) days after the Notice Date, or if the senior executives fail to meet within
thirty (30) days after the Notice Date, either party may initiate mediation upon
written notice to the other party, whereupon both parties shall be obligated to
engage in a mediation proceeding under the then current Center for Public
Resources ("CPR") Model Procedure for Mediation of Business Disputes, except
that specific provisions of this Section shall override inconsistent provisions
of the CPR Model Procedure. The mediator will be selected from the CPR Panels of
Neutrals. If the parties cannot agree upon the selection of a mediator within
ninety (90) days after the Notice Date, then upon the request of either party,
the CPR shall appoint the mediator. The parties shall attempt to resolve the
dispute through mediation until one of the following occurs: (i) the parties
reach a written settlement; (ii) the mediator notifies the parties in writing
that they have reached an impasse; (iii) the parties agree in writing that they
have reached an impasse; or (iv) the parties have not reached a settlement
within one hundred and twenty (120) days after the Notice Date.

                (c)     Trial Without Jury. If the parties fail to resolve the
dispute through mediation, or if neither party elects to initiate mediation,
each party shall have the right to pursue any other remedies legally available
to resolve the dispute, provided, however, that the parties expressly waive any
right to a jury trial in any legal proceeding under this Section.

        9.3.    Preservation of Rights Pending Resolution,

                (a)     Performance to Continua. Each party shall continue to
perform its obligations under this Agreement pending final resolution of any
dispute arising out or relating to this Agreement; provided, however, that a
party may suspend performance of its obligations during any period in which the
other party fails or refuses to perform its obligations.


                                       15
<PAGE>   16
                (b)     Provisional Remedies. Although the procedures specified
in this Article are the sole and exclusive procedures for the resolution of
disputes arising out of relating to this Agreement, either party may seek a
preliminary injunction or other provisional equitable relief if, in its
reasonable judgment, such action is necessary to avoid irreparable harm to
itself or to preserve its rights under this Agreement

                (c)     Statute of Limitations. The parties agree that all
applicable statutes of limitation and time-based defenses (such as estoppel and
laches) shall be tolled while the procedures set forth in Subsections 9.2.(a)
and 9.2(b) are pending. The parties shall take any actions necessary to
effectuate this result.

10.     Miscellaneous.

        10.1.   Representations and Warranties. University represents and
warrants that its employees have assigned to University their entire right,
title, and interest in the Patent Rights and that it has authority to grant the
rights and licenses set forth in this Agreement. UNIVERSITY MAKES NO OTHER
WARRANTIES CONCERNING THE PATENT RIGHTS AND RELATED TECHNOLOGY, INCLUDING
WITHOUT LIMITATION ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. Specifically, University makes no warranty or
representation (i) regarding the validity or scope of the Patent Rights, (ii)
that the exploitation the Patent Rights or any Licensed Product will not
infringe any patents or other intellectual property rights of a third party, and
(iii) that any third party is not currently infringing or will not infringe the
Patent Rights.

        10.2.   Tax-Exempt Status. Company acknowledges that University, as a
public institution of the Commonwealth of Massachusetts, holds the status of an
exempt organization under the United States Internal Revenue Code. Company also
acknowledges that certain facilities in which the licensed inventions were
developed may have been financed through offerings of tax-exempt bonds. If the
Internal Revenue Service determines, or if counsel to University reasonably
determines, that any term of this Agreement jeopardizes the tax-exempt status of
University or the bonds used to finance University facilities, the relevant term
shall be deemed an invalid provision and modified in accordance with
Section 1O.1O.

        10.3.   Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.

        10.4.   Headings. All headings are for convenience only and shall not
affect the meaning of any provision of this Agreement.

        10.5.   Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective permitted successors and
assigns.

        10.6.   Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party, except that Company may
assign this Agreement to an


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<PAGE>   17
affiliate or to a successor in connection with the merger, consolidation, or
sale of all or substantially all of its assets or that portion of its business
to which this Agreement relates.

        10.7.   Amendment and Waiver, This Agreement may be amended,
supplemented, or otherwise modified only by means of a written instrument signed
by both parties. Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waive any rights or fail to act in any other instance, whether or
not similar.

        10.8.   Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts irrespective of
any conflicts of law principles.

        10.9.   Notice. Any notices required or permitted under this Agreement
shall be in writing, shall specifically refer to this Agreement, and shall be
sent by hand, recognized national overnight courier, confirmed facsimile
transmission, confirmed electronic mail, or registered or certified mail,
postage prepaid, return receipt requested, to the following addresses or
facsimile numbers of the parties:

        If to University:

        Office of Commercial Ventures and Intellectual Property
        University of Massachusetts
        55 Lake Avenue North
        Worcester, MA 01605
        Attention:  Joseph F.X. McGuirl
                    Executive Director

        Tel: (508) 856-1626
        Fax: (508) 856-5004


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<PAGE>   18
        If to Company:

        Signal Pharmaceuticals, Inc.
        5555 Oberlin Drive
        San Diego, CA 92121

        Attention:  Alan J. Lewis, Ph.D.
                    President and Chief Executive Officer

        Tel: (619) 558-7500
        Fax: (619) 558-7513

All notices under this Agreement shall be deemed effective upon receipt. A party
may change its contact information immediately upon written notice to the other
party in the manner provided in this Section.

        10.10.  Severability. In the event that any provision of this Agreement
shall be held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect any other provision of this Agreement, and the
parties shall negotiate in good faith to modify the Agreement to preserve (to
the extent possible) their original intent If the parties fail to reach a
modified agreement within sixty (60) days after the relevant provision is held
invalid or unenforceable, then the dispute shall be resolved in accordance with
the procedures set forth in Article 9. While the dispute is pending resolution,
this Agreement shall be construed as if such provision were deleted by agreement
of the parties.

        10.11.  Entire Agreement. Except for the Common Stock Purchase
Agreement, this Agreement constitutes the entire agreement between the parties
with respect to its subject matter and supersedes all prior agreements or
understandings between the parties relating to its subject matter.

        IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.


UNIVERSITY OF MASSACHUSETTS             SIGNAL PHARMACEUTICALS, INC.




By: /s/ JOSEPH F.X. MCGUIRL             By: /s/ ALAN J. LEWIS, PH.D.
   -------------------------------         ---------------------------------
   Joseph F.X. McGuirl                     Alan J. Lewis, Ph.D.
   Executive Director, CVIP                President and Chief Executive Officer


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                                    EXHIBIT A
                              List of Patent Rights

[***]







                      ***Confidential Treatment Requested