<PAGE>   1
                                             * Text Omitted and Filed Separately
                                               Confidential Treatment Requested
                                               Under 17 C.F.R. Sections 200.80,
                                               200.83 and 230.406.

                                                                   EXHIBIT 10.42






                  RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT

                            Dated November 25, 1997

                                 by and between

                          SIGNAL PHARMACEUTICALS, INC.

                                      and

                               ARES TRADING S.A.

<PAGE>   2
                  RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
                  -------------------------------------------

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                                                PAGE

<S>              <C>                                                                            <C>
ARTICLE I        DEFINITIONS .............................................................       1
                 -----------

                 1.01    Affiliate .......................................................       2
                 1.02    ARES Know-How ...................................................       2
                 1.03    ARES Patents ....................................................       2
                 1.04    Business Day ....................................................       2
                 1.05    Effective Date ..................................................       2
                 1.06    Facilities ......................................................       3
                 1.07    FDA .............................................................       3
                 1.08    Field ...........................................................       3
                 1.09    Initial Term ....................................................       3
                 1.10    Joint Know-How ..................................................       3
                 1.11    Joint Patents ...................................................       3
                 1.12    Joint Research Committee ........................................       3
                 1.13    Licensed Product ................................................       4
                 1.14    Net Sales .......................................................       4
                 1.15    NF-kB ...........................................................       4
                 1.16    Protocol ........................................................       5
                 1.17    Research ........................................................       5
                 1.18    SIGNAL Know-How .................................................       5
                 1.19    SIGNAL Patents ..................................................       5
                 1.20    SIGNAL Technology ...............................................       5
                 1.21    Subsequent Term .................................................       6
                 1.22    Tanabe ..........................................................       6
                 1.23    Term ............................................................       6
                 1.24    Territory .......................................................       6
                 1.25    Valid Claim .....................................................       6

ARTICLE II       RESEARCH ................................................................       6
                 --------

                 2.01    Joint Research Committee ........................................       6
                         2.01.01 Purpose .................................................       6
                         2.01.02 Membership ..............................................       7
                         2.01.03 Schedule ................................................       7
                         2.01.04 Procedures ..............................................       7
                 2.02    Performance of the Research .....................................       7
                 2.03    Performance Standard ............................................       8
                         2.03.01 SIGNAL ..................................................       8
                         2.03.02 ARES ....................................................       8

</TABLE>
                                       i
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<TABLE>
<CAPTION>
                                                                                                PAGE

<S>              <C>                                                                            <C>
                 2.04    Commitment of Research Personnel ................................       8
                 2.05    Exclusive Relationship ..........................................       8
                         2.05.01 SIGNAL ..................................................       8
                         2.05.02 Tanabe Agreement ........................................       9
                 2.06    Facilities ......................................................       9
                 2.07    Records .........................................................      10
                 2.08    Audit ...........................................................      10
                 2.09    Research by ARES ................................................      10
                 2.10    Term of the Research ............................................      10
                 2.11    Research Funding ................................................      11
                 2.12    Materials .......................................................      12
                         2.12.01 ARES Materials ..........................................      12
                         2.12.02 SIGNAL Materials ........................................      12
                 2.13    Ownership of SIGNAL Technology ..................................      13
                         2.13.01 No Ownership by SIGNAL Employees ........................      13
                         2.13.02 SIGNAL Know-How and SIGNAL Patents ......................      13
                         2.13.03 Joint Know-How and Joint Patents........................       13
                 2.14    License of ARES Know-How and ARES Patents .......................      14

ARTICLE III      LICENSE .................................................................      14
                 -------

                 3.01    Grant of License ................................................      14
                 3.02    Disclosure of SIGNAL Know-How and Joint Know-How ................      15
                 3.03    License Fees ....................................................      15
                         3.03.01 New Target or Indication ................................      15
                         3.03.02 Other Licensed Products .................................      16
                         3.03.03 New Dosage or Formulation of Licensed Product ...........      17
                 3.04    Equity Investment ...............................................      17
                 3.05    Ongoing Royalty .................................................      17
                 3.06    Deduction for ARES Discovery ....................................      18
                 3.07    Adverse Patents .................................................      18
                 3.08    Reimbursement to SIGNAL .........................................      18
                 3.09    Single Royalty ..................................................      19
                 3.10    Taxes Withheld ..................................................      19
                 3.11    Report of Royalties .............................................      19
                 3.12    Payment of Royalties ............................................      19
                 3.13    Interest on Payments ............................................      20
                 3.14    Records .........................................................      20
                 3.15    Reversion of Rights to Signal ...................................      20
                         3.15.01 Exercise of Reversion Option ............................      20
                         3.15.02 SIGNAL Obligation to Make Payment .......................      21
                         3.15.03 ARES Grant of License ...................................      22

</TABLE>
                                       ii
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<TABLE>
<CAPTION>
                                                                                                PAGE

<S>              <C>                                                                            <C>
ARTICLE IV       ADDITIONAL RIGHTS .......................................................      22
                 -----------------

                 4.01    Co-Promotion ....................................................      22
                         4.01.01 Exercise of Option ......................................      22
                         4.01.02 Royalty Calculations ....................................      24
                 4.02    Supply of Licensed Products and/or
                 4.03    Combination Products ............................................      24

ARTICLE V        PATENT PROSECUTION AND ENFORCEMENT ......................................      25
                 ----------------------------------

                 5.01    Prosecution and Maintenance by SIGNAL ...........................      25
                 5.02    Prosecution and Maintenance by ARES .............................      25
                 5.03    Prosecution of Infringement or Patent Defense
                         by SIGNAL .......................................................      26
                 5.04    Participation in Prosecution of Infringement
                         or Patent Defense by ARES .......................................      26
                 5.05    Prosecution of Infringement or Patent Defense
                         by ARES .........................................................      27

ARTICLE VI       TERM AND TERMINATION ....................................................      28
                 --------------------

                 6.01    Term ............................................................      28
                 6.02    Termination by ARES .............................................      28
                 6.03    Termination for Breach ..........................................      28
                 6.04    Termination upon ARES' Bankruptcy ...............................      29
                 6.05    No Termination upon SIGNAL's Bankruptcy .........................      29
                 6.06    Effect of Termination ...........................................      29
                 6.07    Cumulative Rights and Remedies ..................................      30

ARTICLE VII      REPRESENTATIONS, WARRANTIES AND
                 ------------------------------
                 INDEMNIFICATION .........................................................      30
                 ---------------

                 7.01    SIGNAL Representations ..........................................      30
                 7.02    ARES Representations ............................................      32
                 7.03    SIGNAL Indemnification ..........................................      32
                 7.04    ARES Indemnification ............................................      33
                 7.05    Disclaimer of Warranties ........................................      34

ARTICLE VIII     GENERAL PROVISIONS ......................................................      35
                 ------------------

                 8.01    No Waiver .......................................................      35
                 8.02    Force Majeure ...................................................      35
                 8.03    Notices .........................................................      35
</TABLE>


                                      iii
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<TABLE>
<CAPTION>
                                                                                                PAGE

<S>              <C>                                                                            <C>
                 8.04    Independent Contractors .........................................      36
                 8.05    Assignment ......................................................      37
                         8.05.01 General .................................................      37
                         8.05.02 Acquisition or Merger ...................................      37
                 8.06    No Sale or Other Disposal of SIGNAL Technology ..................      38
                 8.07    Reference to Patents ............................................      38
                 8.08    No Third-Party Beneficiary ......................................      38
                 8.09    Publicity .......................................................      38
                 8.10    Confidential Information ........................................      39
                 8.11    Publication .....................................................      40
                 8.12    Counterparts ....................................................      41
                 8.13    No Strict Construction ..........................................      41
                 8.14    Governing Law ...................................................      41
                 8.15    Dispute Resolution ..............................................      41
                         8.15.01 Negotiation .............................................      41
                         8.15.02 Arbitration .............................................      42
                 8.16    Cooperation .....................................................      43
                 8.17    Integration .....................................................      43

EXHIBIT A        ARES Know-How ...........................................................      45

EXHIBIT B        ARES Patents  ...........................................................      46

EXHIBIT C        Protocol ................................................................      47

EXHIBIT D        SIGNAL Know-How .........................................................      48

EXHIBIT E        SIGNAL Patents ..........................................................      49

EXHIBIT F        SIGNAL Third-Party Agreements ...........................................      50

EXHIBIT G        Third-Party Rights in SIGNAL Know-How and
                 SIGNAL Patents ..........................................................      51

</TABLE>


                                       iv
<PAGE>   6
                   RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT

      THIS RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT (the "Agreement")
effective as of the ___ day of November 1997 by and between ARES TRADING S.A., a
Swiss company with its principal place of business at Chateau de Vaumarcus, 2028
Vaumarcus, Switzerland (hereinafter "ARES"), and SIGNAL PHARMACEUTICALS, INC. a
California corporation with a principal place of business at 5555 Oberlin Drive,
San Diego, California 92121, U.S.A. (hereinafter "SIGNAL") (ARES and SIGNAL are
sometimes hereinafter referred to collectively as the "Parties" or individually
as a "Party");

                                 WITNESSETH:

      WHEREAS, ARES in conjunction with its affiliates and/or agents desires to
perform and have performed research within the field of the modulation of
nuclear factor kappa B; and

      WHEREAS, SIGNAL in conjunction with its agents, consultants and/or
academic collaborators is willing to perform and to collaborate with ARES in the
performance of such research; and

      WHEREAS, in connection with such research collaboration, ARES wishes to
obtain an exclusive license within the Territory (as defined herein) to develop,
make, have made, import, use, and sell Licensed Products (as also defined
herein); and

      WHEREAS, SIGNAL is willing to grant such a license to ARES;

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the Parties hereto have agreed as follows:

                                    ARTICLE I

                                   DEFINITIONS

      As used in this Agreement, each term listed below shall have the meaning
that is given after it:

<PAGE>   7

      Section 1.01. Affiliate. Any corporation, firm, partnership or other
entity that controls, is controlled by or is under common control with the Party
in question. For this purpose, "control" shall mean the ownership, whether
direct or indirect, of fifty percent (50%) or more of the equity having the
power to vote on or otherwise direct the affairs of the entity.

      Section 1.02. ARES Know-How. Any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, in which ARES or its Affiliates have any
right, title or interest that is necessary or useful for the research,
discovery, development, manufacture, use, import or sale of products within the
Field, including without limitation any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, set forth on Exhibit A hereto or obtained,
developed, made, conceived or first reduced to practice in connection with the
Research solely by ARES, its Affiliates and/or agents, but excluding any Joint
Know-How.

      Section 1.03. ARES Patents. (i) Patents (including the inventor's
certificates) that include one or more Valid Claims, including without
limitation any substitution, extension (including supplemental protection
certificate), registration, confirmation, reissue, continuation, divisional,
continuation-in-part, reexamination, renewal or the like thereof or thereto,
(ii) pending applications for patents, including without limitation any
continuation, divisional or continuation-in-part thereof, and any provisional
applications with respect thereto, that, in each case, are listed in Exhibit B
to this Agreement or claim any ARES Know-How, and (iii) any foreign counterparts
of any of the foregoing.

      Section 1.04. Business Day. Any day other than a Saturday, Sunday or other
day on which the principal commercial banks located in Vaumarcus, Switzerland or
San Diego, California are not open for business during normal banking hours.

      Section 1.05. Effective Date. November ___, 1997.


                                     - 2 -
<PAGE>   8

      Section 1.06. Facilities. A Party's research facilities and the research
facilities of any of such Party's agents, Affiliates, consultants and/or
academic collaborators who collaborate in the performance of the Research.

      Section 1.07. FDA. The United States Food and Drug Administration.

      Section 1.08. Field. The modulation of NF-(kappa)B, [***]

      Section 1.09. Initial Term. The period beginning on the Effective Date and
ending three (3) years thereafter, unless sooner terminated in accordance with
the terms and conditions of Article VI.

      Section 1.10. Joint Know-How. Any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, obtained, developed, made, conceived or
first reduced to practice in connection with the Research jointly by ARES, its
Affiliates and/or agents and SIGNAL, its agents, consultants and/or academic
collaborators.

      Section 1.11. Joint Patents. (i) Patents (including the inventor's
certificates) that include one or more Valid Claims, including without
limitation any substitution, extension (including supplemental protection
certificate), registration, confirmation, reissue, continuation, divisional,
continuation-in-part, reexamination, renewal or the like thereof or thereto,
(ii) pending applications for patents, including without limitation any
continuation, divisional or continuation-in-part thereof, and any provisional
applications with respect thereto, that, in each case, claim any Joint Know-How,
and (iii) any foreign counterparts of any of the foregoing.

      Section 1.12. Joint Research Committee. A committee established by the
Parties for the purpose of defining and overseeing the implementation of the
Research.


                                     - 3 -


                      ***Confidential Treatment Requested
<PAGE>   9

      Section 1.13. Licensed Product. A product, the development, manufacture,
import, use, or sale of which (i) but for the license granted in this Agreement,
would infringe one or more Valid Claims of a SIGNAL Patent or Joint Patent
licensed hereunder, or (ii) utilizes the SIGNAL Know-How or Joint Know-How
licensed hereunder.

      Section 1.14. Net Sales. The amount received for a sale of the Licensed
Product or Combination Product (as defined below), as applicable, to third
parties by ARES, its Affiliates or sublicensees, less: (i) trade, cash and
quantity discounts, rebates or reimbursements, if any, actually allowed or paid;
(ii) returns, allowances and adjustments actually granted to customers; (iii)
freight, insurance and other transportation charges actually accrued or paid;
and (iv) taxes (other than taxes on ARES' income), duties or other governmental
charges on sales or use actually absorbed by ARES or its Affiliates or
sublicensees with respect to the sale of such Licensed Product or Combination
Product. If the Licensed Product is sold in combination with other ingredients,
products, devices, equipment or components (a "Combination Product"), Net Sales
for any such Combination Product shall be computed by multiplying what would
otherwise be the Net Sales of such Combination Product by the Combination
Allocation Fraction (as defined below) attributable to such Combination Product.
The "Combination Allocation Fraction" as used herein shall be a fraction, the
numerator of which shall be the fair market value of the Licensed Product
included in the Combination Product and the denominator of which shall be the
fair market value of such Licensed Product plus the fair market value of the
ingredients, products, equipment or components of such Combination Product that
are not Licensed Product. If no market price exists, fair market value shall be
determined in good faith by ARES and SIGNAL. Sales among ARES and its Affiliates
or sublicensees shall be disregarded and only final sales to unrelated third
parties shall be included in Net Sales.

      Section 1.15. NF-(kappa)B. Nuclear factor kappa B.


                                     - 4 -
<PAGE>   10

      Section 1.16. Protocol. A protocol for a research project established from
time to time by the Joint Research Committee in accordance with Section 2.01
hereof and the sample protocol set forth as Exhibit C to this Agreement.

      Section 1.17. Research. Research performed pursuant to the Protocols by
SIGNAL, its agents, consultants and/or academic collaborators, either alone or
in collaboration with ARES, its Affiliates and/or agents, relating to the Field.

      Section 1.18. SIGNAL Know-How. Any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, in which SIGNAL has any right, title or
interest that is necessary or useful for the research, discovery, development,
manufacture, use, import or sale of products within the Field, including without
limitation any invention, discovery, formula, design, process, know-how, data,
composition, matter, device or any improvement thereof, whether patentable or
not, set forth on Exhibit D hereto or obtained, developed, made, conceived or
first reduced to practice in connection with the Research solely by SIGNAL, its
agents, consultants and/or academic collaborators, but excluding any Joint
Know-How.

      Section 1.19. SIGNAL Patents. (i) Patents (including the inventor's
certificates) that include one or more Valid Claims, including without
limitation any substitution, extension (including supplemental protection
certificate), registration, confirmation, reissue, continuation, divisional,
continuation-in-part, reexamination, renewal or the like thereof or thereto,
(ii) pending applications for patents, including without limitation any
continuation, divisional or continuation-in-part thereof, and any provisional
applications with respect thereto, that, in each case, are listed in Exhibit E
to this Agreement or claim any SIGNAL Know-How, and (iii) any foreign
counterparts of any of the foregoing.

      Section 1.20. SIGNAL Technology. SIGNAL Patents and SIGNAL Know-How and
SIGNAL's right, title and interest in, to and under Joint Patents and Joint
Know-How, collectively.


                                     - 5 -
<PAGE>   11

      Section 1.21. Subsequent Term. The period beginning upon the expiration of
the Initial Term and continuing until the expiration of the Term.

      Section 1.22. Tanabe. Tanabe Seiyaku Co., Ltd.

      Section 1.23. Term. As defined in Section 6.01 hereof.

      Section 1.24. Territory. All countries of the world, with the exception of
Japan, China, South Korea, Taiwan, Thailand, Cambodia, Laos, Vietnam, Indonesia,
Nepal, the Philippines, Singapore, Malaysia, Hong Kong, Myanmar and Brunei.

      Section 1.25. Valid Claim. A claim of an issued patent which claim has not
lapsed, been canceled or become abandoned and has not been declared invalid by
an unreversed and unappealable decision or judgment of a court or other
appropriate body of competent jurisdiction, and that has not been admitted to be
invalid or unenforceable through reissue or disclaimer.

                                   ARTICLE II

                                    RESEARCH

      Section 2.01. Joint Research Committee.

                  2.01.01. Purpose. The Joint Research Committee shall establish
written Protocols for the performance of the Research, including schedules
therefor and interim and final reporting obligations with respect thereto, and
allocate responsibility for performance of the Research between the Parties,
with the expectation that the Research shall principally be performed by SIGNAL,
its agents, consultants and/or academic collaborators. The Joint Research
Committee shall review the performance of the Research pursuant to the Protocols
and, if necessary, approve amendments to a Protocol or terminate the Research
being performed pursuant to a Protocol. Upon the completion or earlier
termination of the Research being performed pursuant to a Protocol, the Joint
Research Committee shall analyze the results of such Research.


                                     - 6 -
<PAGE>   12

                  2.01.02. Membership. The Joint Research Committee shall
initially comprise three (3) representatives appointed by ARES and three (3)
representatives appointed by SIGNAL but the composition of the Joint Research
Committee may be modified from time to time upon the mutual written agreement of
the Parties. One representative of each Party shall be designated as the contact
person for that Party. Each Party shall have the right to change its
representatives to the Joint Research Committee or its contact person at any
time upon notice to the other Party.

                  2.01.03. Schedule. The Joint Research Committee shall meet
within thirty (30) days of the Effective Date, and thereafter at least quarterly
or more frequently as requested by either Party. The contact person for each
Party shall agree upon the time and place of each meeting.

                  2.01.04. Procedures. A meeting of the Joint Research Committee
may be held only if a quorum of at least two (2) representatives of each Party
is present. All decisions of the Joint Research Committee must be made by the
unanimous consent of the representatives of both Parties present at a meeting.
The proceedings of the meetings of the Joint Research Committee shall be
summarized in minutes signed by the contact person of each Party or his/her
designee.

      Section 2.02. Performance of the Research. SIGNAL agrees to use its
commercially reasonable and diligent efforts consistent with prevailing
practices within the pharmaceutical and biotechnology industries to perform, and
as necessary to cause its agents, consultants and/or academic collaborators to
perform, the Research. SIGNAL shall accord the Research at least as high a
priority as it accords its other active research programs for which it receives
comparable funding. SIGNAL shall cooperate with ARES in the performance of the
Research as required by the relevant Protocols.


                                     - 7 -
<PAGE>   13

      Section 2.03. Performance Standard.

                  2.03.01. SIGNAL. SIGNAL represents and warrants that it has
the experience, capability and resources, including but not limited to
sufficient qualified personnel, including its agents, consultants and/or
academic collaborators, to perform the Research in accordance with the terms and
conditions of this Agreement. SIGNAL agrees to perform and to have performed the
Research in accordance with such terms and conditions and in conformity with
generally accepted standards of good laboratory practice and with all applicable
federal, state and local laws, guidelines, rules and regulations including
without limitation the United States Food, Drug and Cosmetic Act and guidelines,
rules and regulations promulgated by the FDA.

                  2.03.02. ARES. ARES represents and warrants that it and its
Affiliates have the experience, capability and resources, including but not
limited to sufficient qualified personnel, to perform the preclinical, clinical
and regulatory activities contemplated by this Agreement. ARES agrees to perform
and to have performed such activities in conformity with generally accepted
standards of good laboratory practice and good clinical practice and with all
applicable federal, state and local laws, guidelines, rules and regulations
including without limitation the United States Food, Drug and Cosmetic Act and
guidelines, rules and regulations promulgated by the FDA.

      Section 2.04. Commitment of Research Personnel. SIGNAL shall allocate to
the Research a total of [***] research personnel (measured as full-time
equivalents) and post-doctoral fellows combined. SIGNAL shall also allocate any
additional research personnel to the Research as SIGNAL believes in good faith
are required from time to time to comply with Sections 2.02 and 2.03 hereof.

      Section 2.05. Exclusive Relationship.

                  2.05.01. SIGNAL. ARES acknowledges and agrees that SIGNAL and
Tanabe have entered into a Collaborative Development and Licensing Agreement
dated March


                                     - 8 -


                      ***Confidential Treatment Requested
<PAGE>   14

31, 1996, as amended to date (the "Tanabe Agreement"), pursuant to which SIGNAL
has granted certain exclusive rights to Tanabe within the Field, as set forth in
the Tanabe Agreement, for those countries specifically excluded from the
definition of the Territory in Section 1.24 hereof. Except for its obligations
under the Tanabe Agreement, SIGNAL represents and warrants that it shall not
perform any research relating to the Field other than the Research.

                  2.05.02. Tanabe Agreement. ARES acknowledges and agrees that,
in accordance with the terms of the Tanabe Agreement, once each of Tanabe and
ARES has agreed to accept reciprocity on exchanges of Signal Technical
Information and Tanabe Technical Information (as defined in the Tanabe
Agreement), then during the term of the Tanabe Agreement, SIGNAL, Tanabe and
ARES shall make available to each other such Signal Compound Information, Tanabe
Compound Information, Signal Product Information and Tanabe Product Information
(as defined in the Tanabe Agreement) as the three parties may mutually agree for
any Compound (as defined in the Tanabe Agreement) that is under development by
Tanabe and ARES in whatever form is best suited fully to deliver such
information. Unless and until Tanabe and ARES have so agreed to accept
reciprocity on exchanges of information, SIGNAL shall not disclose to Tanabe any
ARES Know-How or ARES Patents. In addition ARES hereby agrees to be bound by the
provisions of Section 9.1 of the Tanabe Agreement, and SIGNAL hereby agrees to
immediately notify ARES of, and consult with ARES regarding, any information it
receives from, or provides to, Tanabe pursuant to Section 9.1 of the Tanabe
Agreement.

      Section 2.06. Facilities. SIGNAL shall perform the Research and shall
cause the Research to be performed at the Facilities of SIGNAL, its agents,
consultants and/or academic collaborators, that SIGNAL represents and warrants
are adequate to perform the Research. SIGNAL has taken, or shall take, all
standard precautions consistent with pharmaceutical and biotechnology industry
practices to ensure that such Facilities are protected by security systems


                                     - 9 -
<PAGE>   15

that will maintain the confidentiality and prevent the loss of records and
information obtained or developed pursuant to this Agreement.

      Section 2.07. Records. In conformity with standard pharmaceutical and
biotechnology industry practices and the terms and conditions of this Agreement,
SIGNAL shall prepare and maintain, and shall cause to be prepared and
maintained, complete and accurate written records, accounts, notes, reports and
data with respect to all laboratory work conducted in the performance of the
Research, and upon ARES' request shall send legible copies of the aforesaid to
ARES.

      Section 2.08. Audit. SIGNAL shall notify ARES of any request for an audit
of the Facilities or records pertaining to the Research sufficiently in advance
of such audit to allow a representative of ARES to be present during such audit.

      Section 2.09. Research by ARES. To the extent that the Joint Research
Committee or the Parties agree, whether in connection with one or more Protocols
or otherwise, that any of the Research is to be performed by ARES, its
Affiliates and/or agents or at the Facilities of ARES, its Affiliates and/or
agents, ARES shall be obligated to fulfill the same requirements and meet the
same standards as are required of SIGNAL in Sections 2.02, 2.06, 2.07 and 2.08
hereof.

      Section 2.10. Term of the Research. Unless at least six (6) months prior
to the expiration of the Initial Term, or at least six (6) months prior to the
expiration of any subsequent three-year period during the Subsequent Term, ARES
gives SIGNAL notice of its decision to terminate the Research, the Research
shall continue for an additional three-year period, subject to termination of
the Agreement pursuant to Article VI. Upon termination of the Research, ARES
shall have no right, title and interest in, to and under any invention,
discovery, formula, design, process, know-how, data, composition, matter,
device, or product, or any improvement thereof, whether patentable or not,
obtained, developed, made, conceived or first reduced to practice by SIGNAL, its
agents, consultants and/or collaborators (including Tanabe) following
termination of the Research, and the only rights of ARES hereunder shall be
rights to (i) ARES Know-How and


                                     - 10 -
<PAGE>   16
ARES Patents and (ii) SIGNAL Technology obtained, developed, made, conceived or
first reduced to practice prior to such termination.

      Section 2.11. Research Funding. As full compensation for SIGNAL's, its
agents', consultants' and academic collaborators' performance of the Research
during the Initial Term, ARES shall pay, or cause to be paid, to SIGNAL
Nine Million United States Dollars (U.S. $9,000,000) which shall be due and
payable in accordance with the following schedule:

   (i) One Million United States Dollars (U.S. $1,000,000) upon execution and
       delivery of this Agreement;

  (ii) One Million United States Dollars (U.S. $1,000,000) four months after
       the Effective Date;

 (iii) One Million United States Dollars (U.S. $1,000,000) eight (8) months
       after the Effective Date;

  (iv) One Million United States Dollars (U.S. $1,000,000) one (1) year
       after the Effective Date;

   (v) One Million United States Dollars (U.S. $1,000,000) sixteen (16) months
       after the Effective Date;

  (vi) One Million United States Dollars (U.S. $1,000,000) twenty (20) months
       after the Effective Date;

 (vii) One Million United States Dollars (U.S. $1,000,000) two (2) years
       after the Effective Date;

(viii) One Million United States Dollars (U.S. $1,000,000) twenty-eight (28)
       months after the Effective Date;

  (ix) One Million United States Dollars (U.S. $1,000,000) thirty-two (32)
       months after the Effective Date.


In the event the Research continues for any three-year period during the
Subsequent Term, then as full compensation for SIGNAL's, its agents',
consultants' and academic collaborators'


                                     - 11 -
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performance of the Research during such three-year period, ARES shall pay, or
cause to be paid, to SIGNAL the amount paid during the prior three-year period
adjusted to reflect the percentage increase for the prior three-year period in
the Consumer Price Index of the Bureau of Labor Statistics of the United States
Department of Labor. [***] of such adjusted amount shall be due and payable at
the start of such three-year period and thereafter at [***] intervals.

      Section 2.12. Materials.

                  2.12.01. ARES Materials. To the extent required to do so
pursuant to any Protocol, ARES shall make available to SIGNAL quantities of
proprietary ARES materials sufficient to carry out the applicable Research,
which materials shall be used for no other purpose, it being understood that
SIGNAL shall take reasonable care to handle, store and use these materials so as
to avoid loss, contamination and waste. All materials so furnished shall be
deemed to be ARES "Confidential Information" subject to the obligations set
forth in Section 8.10 hereof and SIGNAL shall return any unused ARES materials
at the conclusion of the relevant Research or the earlier termination of this
Agreement, unless written authorization to destroy such materials is given by
ARES. SIGNAL shall account for all materials not returned.

                  2.12.02. SIGNAL Materials. To the extent required to do so
pursuant to any Protocol, SIGNAL shall make available to ARES quantities of
proprietary SIGNAL materials sufficient to carry out the applicable Research,
which materials shall be used for no other purpose, it being understood that
ARES shall take reasonable care to handle, store and use these materials so as
to avoid loss, contamination and waste. All materials so furnished shall be
deemed to be SIGNAL "Confidential Information" subject to the obligations set
forth in Section 8.10 hereof and ARES shall return any unused SIGNAL materials
at the conclusion of the relevant Research or the earlier termination of this
Agreement, unless written authorization to destroy such materials is given by
SIGNAL. ARES shall account for all materials not returned.


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      Section 2.13. Ownership of SIGNAL Technology.

                  2.13.01. No Ownership by SIGNAL Employees. All employees of
SIGNAL who are expected to perform the Research have signed agreements regarding
proprietary information and inventions with SIGNAL in a form reasonably
considered by SIGNAL and its counsel to assure SIGNAL's right, title and
interest in, to and under the SIGNAL Technology in accordance with Subsections
2.13.02 and 2.13.03 below.

                  2.13.02. SIGNAL Know-How and SIGNAL Patents. All right, title
and interest in, to and under all SIGNAL Know-How and SIGNAL Patents obtained,
developed, made, conceived or first reduced to practice in connection with the
Research shall be owned by or licensed to SIGNAL. SIGNAL shall enter into
customary agreements with its agents, consultants and/or academic collaborators
that provide that all of such agents', consultants' and/or academic
collaborators' right, title and interest in, to and under such SIGNAL Know-How
and SIGNAL Patents shall be assigned or licensed exclusively to SIGNAL, unless
SIGNAL and ARES agree in writing (including as reflected in the signed minutes
of meetings of the Joint Research Committee) that such exclusivity is not
required to protect SIGNAL's competitive position with respect to the
performance of the Research and ARES' competitive position with respect to the
development, manufacture, import, use, and sale of Licensed Products and
Combination Products. SIGNAL's right, title and interest in, to and under such
SIGNAL Know-How and SIGNAL Patents shall be licensed to ARES pursuant to Section
3.01 hereof.

                  2.13.03. Joint Know-How and Joint Patents. All right, title
and interest in, to and under all Joint Know-How and Joint Patents shall be
owned jointly and equally by SIGNAL and ARES, each with an undivided one-half
interest. SIGNAL shall enter into customary agreements with its agents,
consultants and academic collaborators that provide that all of such agents',
consultants' and academic collaborators' right, title and interest in, to and
under such Joint Know-How and Joint Patents shall be assigned or licensed
exclusively to SIGNAL, unless SIGNAL and ARES agree in writing (including as
reflected in the signed


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<PAGE>   19
minutes of meetings of the Joint Research Committee) that such exclusivity is
not required to protect SIGNAL's competitive position with respect to the
performance of the Research and ARES' competitive position with respect to the
development, manufacture, import, use, and sale of Licensed Products and
Combination Products. SIGNAL's right, title and interest in, to and under such
Joint Know-How and Joint Patents shall be licensed to ARES pursuant to Section
3.01 hereof.

      Section 2.14. License of ARES Know-How and ARES Patents. ARES hereby
grants to SIGNAL, and SIGNAL hereby accepts, [ *** ] solely for the purpose of
conducting the Research pursuant to this Agreement. Such license shall be valid
for the term of the Research as set forth in Section 2.10 hereof.

                                   ARTICLE III

                                     LICENSE

      Section 3.01. Grant of License. SIGNAL hereby grants to ARES, and ARES
hereby accepts, an exclusive license under the SIGNAL Technology, valid for the
Term and with the right to grant sublicenses, to develop, make, have made,
import, use, and sell Licensed Products and Combination Products within the
Territory. ARES shall notify any sublicensee of the SIGNAL Technology of all
rights and obligations of ARES hereunder licensed to such sublicensee. For the
avoidance of doubt, except in connection with Sections 2.09 and 6.05 and
Subsection 8.05.02 hereof, and other than with respect to inventions,
discoveries, formulas, designs, processes, know-how, data, compositions, matter,
devices, or any improvements thereof, whether patentable or not, obtained,
developed, made, conceived or first reduced to practice in connection with the
Research, the foregoing is not intended to grant ARES a license to the SIGNAL
Technology for research purposes.


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      Section 3.02. Disclosure of SIGNAL Know-How and Joint Know-How. Following
the execution and delivery of this Agreement and as appropriate from time to
time thereafter during the Term, SIGNAL shall disclose to ARES the SIGNAL
Know-How and the Joint Know-How pursuant to a program and in a form (e.g.
writings, visual representations, computer software, models or instruction) as
shall best facilitate the use of such SIGNAL Know-How and Joint Know-How by
ARES.

      Section 3.03. License Fees. In addition to the royalties that shall be
payable under Sections 3.05 and 4.01 hereof, the purchase of SIGNAL Series F
Preferred Stock by ARES' Affiliate pursuant to Section 3.04 hereof, and in
consideration of the grant of the exclusive license set forth in Section 3.01
hereof, ARES shall pay SIGNAL the following license fees on a Licensed Product
by Licensed Product basis.

                  3.03.01 New Target or Indication. For each Licensed Product
for which no license fee has yet been paid and that is either (A) [***] or
(B) [***], its Affiliates or sublicensees then within thirty (30) days of the
corresponding event, ARES shall pay, or cause to be paid, to SIGNAL the
following nonrefundable license fees:

                        (i) [***]

                        (ii) [***]

                        (iii) [***]


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                        (iv) [***]

                        (v) [***]

ARES shall promptly notify SIGNAL of the occurrence of any event described
above.

                  3.03.02 Other Licensed Products. For each Licensed Product
being developed by ARES, its Affiliates or sublicensees for which no license fee
has yet been paid and that is not subject to Subsection 3.03.01 above, ARES
shall pay, or cause to be paid, to SIGNAL the following nonrefundable license
fees:

                        (i) [***]

                        (ii) [***]

                        (iii) [***]


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ARES shall promptly notify SIGNAL of the occurrence of any event described
above.

                  3.03.03. New Dosage or Formulation of Licensed Products. For
the avoidance of doubt, if a license fee has been paid pursuant to this Section
3.03 with respect to any Licensed Product, then no additional license fee shall
be payable hereunder with respect to any new dosage, presentation or formulation
of such Licensed Product (including any inclusion of such Licensed Product in a
Combination Product).

      Section 3.04. Equity Investment. On or before December 1, 1997, ARES'
Affiliate, Ares-Serono S.A., shall purchase 2,722,513 shares of the Series F
Preferred Stock of SIGNAL for total consideration of Eight Million Two Hundred
Thousand United States Dollars and Seventy-Two United States Cents (U.S.
$8,200,000.72) pursuant to a stock purchase agreement that shall be executed
and delivered simultaneously herewith.

      Section 3.05. Ongoing Royalty. Subject to the provisions of this Article
III, ARES shall during the Term pay or cause to be paid to SIGNAL royalties on
Net Sales of Licensed Products or Combination Products at the following rates:

                  (i) [***] of total annual Net Sales of Licensed
Products and Combination Products at or below [***];

                  (ii) [***] of total annual Net Sales of Licensed
Products and Combination Products above [***];

                  (iii) [***] of total annual Net Sales of Licensed
Products and Combination Products above [***]; and

                  (iv) [***] of total annual Net Sales of
Licensed Products and Combination Products above [***];


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provided, however, that upon the expiration or invalidation of the last
remaining Valid Claim of a SIGNAL Patent or Joint Patent in effect in a country
that covers such Licensed Product or Combination Product, royalties payable for
such country with respect to such Licensed Product or Combination Product shall
be reduced by [***]

      Section 3.06. [***] ARES may [***] hereof, [***] of total annual Net Sales
for any Licensed Product or Combination Product whose primary pharmacological
activity is the modulation of an intracellular molecule [***].

      Section 3.07. Adverse Patents. ARES may deduct from up to [***] of the
royalties due SIGNAL for any Licensed Product or Combination Product under
Sections 3.05 and 4.01 hereof (following any deduction made pursuant to Section
3.06 hereof) an amount equal to [***] royalties paid to third parties by ARES,
its Affiliates and/or sublicensees in order to develop, manufacture, import, use
or sell such Licensed Product or Combination Product pursuant to agreements that
may be entered into in good faith after the Effective Date with parties owning
or controlling a patent that, but for such agreements, would bar the
development, manufacture, import, use or sale of such Licensed Product or
Combination Product.

      Section 3.08. Reimbursement to SIGNAL. In addition to the royalties due
SIGNAL under Sections 3.05 and 4.01 hereof, ARES shall during the Term
reimburse, or cause to be reimbursed, SIGNAL for royalties paid to third parties
by SIGNAL pursuant to agreements in existence on the Effective Date with respect
to the development, manufacture, import, use or sale of a Licensed Product or
Combination Product, as set forth on Exhibit F hereto, or agreements
subsequently approved in writing by the Parties; provided, however, in no event
shall such reimbursement exceed [***] of the total annual Net Sales of such
Licensed Product or Combination Product.


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      Section 3.09. Single Royalty. Nothing herein contained shall obligate
ARES, its Affiliates and/or sublicensees to pay or cause to be paid to SIGNAL
more than one royalty on any unit of Licensed Product or Combination Product.

      Section 3.10. Taxes Withheld. Any and all taxes that are levied on
royalties accruing under this Agreement in a country in which provision is made
in the law or by regulation for withholding may be deducted by the payor from
such royalties and paid to the proper taxing authority and evidence of such
payment shall be secured and sent to SIGNAL within one (1) month of such
payment. The Parties shall do all such lawful acts and things and sign all such
lawful deeds and documents as either Party may reasonably request from the other
Party to enable ARES, its Affiliates and/or sublicensees to take advantage of
any applicable legal provision or any double taxation treaties with the object
of paying the sums due to SIGNAL hereunder without withholding any tax.

      Section 3.11. Report of Royalties. Within sixty (60) days of the end of
each calendar quarter during the Term (including the sixty (60) day period
following the end of the calendar quarter in which the Term terminates), ARES
shall deliver to SIGNAL a written report showing its computation of royalties
due under this Agreement on Net Sales during such calendar quarter. All such Net
Sales shall be segmented by each report according to sales by ARES, its
Affiliates and/or sublicensees as well as on a country by country basis,
including the rates of exchange used to convert such royalties into United
States dollars from the currency in which the sales were made. The rate of
exchange to be used in any such conversion shall be the rate reported in the
Wall Street Journal for the purchase of United States dollars with such currency
on the last Business Day of the quarter for which the report is being prepared.

      Section 3.12. Payment of Royalties. Royalties shall be payable hereunder
by ARES on behalf of itself, its Affiliates and/or sublicensees, whichever shall
have effected the sales on which a royalty is due. Simultaneous with the
delivery of the report described in Section 3.11


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<PAGE>   25

hereof ARES shall pay or cause to be paid to SIGNAL at such place as SIGNAL may
from time to time designate all royalties earned in the preceding calendar
quarter.

      Section 3.13. Interest on Payments. In the event that any payment due
pursuant to this Agreement, including research payments, license fees and
royalties, is not made when due, the payment shall accrue interest from the date
due until paid at the rate of one percent (1%) per month; provided, however,
that in no event shall such rate exceed the maximum legal annual interest rate.
The payment of such interest shall not limit SIGNAL's right to exercise any
other rights it may have as a consequence of the lateness of any payment.

      Section 3.14. Records. ARES shall keep or cause to be kept accurate
records in sufficient detail to enable the royalties payable hereunder to be
determined. During the Term and for a period of two years following the
termination of this Agreement, upon the request of SIGNAL (but not more
frequently than once in each calendar year) an independent public accountant
selected by SIGNAL and approved by ARES shall be allowed access, during ordinary
business hours, to such records pertaining to the preceding two (2) calendar
years solely to verify the accuracy of royalty payments made or payable
hereunder. SIGNAL and ARES shall mutually determine a general strategy for such
audit in advance of its conduct. Said accountant shall not disclose to SIGNAL
any information except that which should properly be contained in a royalty
report required under this Agreement. SIGNAL shall bear the full cost of such
audit unless such audit reveals an under-reporting of royalties in excess of
five percent (5%) of the amount due under this Agreement, in which case the full
cost of the audit shall be borne by ARES.

      Section 3.15. Reversion of Rights to SIGNAL.

                  3.15.01. Exercise of Reversion Option. In the event ARES, its
Affiliates and/or sublicensees cease to pursue development or commercialization
of at least one Licensed Product or Combination Product at any time when ARES is
no longer providing research funding to SIGNAL pursuant to Section 2.11 hereof,
ARES shall immediately notify SIGNAL and,


                                     - 20 -
<PAGE>   26

SIGNAL may exercise an option, on a product by product basis, to obtain a
reversion of all right, title and interest granted to ARES hereunder with
respect to any potential Licensed Product or Combination Product. SIGNAL shall
exercise such option by providing ARES ninety (90) days prior notice of such
intended reversion of rights, specifying the potential Licensed Product or
Combination Product that is the subject of such reversion. Such reversion of
rights shall become effective at the end of such notice period, unless during
such notice period (i) ARES can demonstrate that ARES, its Affiliates and/or
sublicensees are diligently pursuing the development or commercialization of at
least one Licensed Product or Combination Product or (ii) ARES provides to
SIGNAL a reasonably detailed written plan for commercially reasonable
development and commercialization of such Licensed Product or Combination
Product and takes affirmative steps to begin implementation of such plan.

                  3.15.02. SIGNAL Obligation to Make Payments. For each Licensed
Product or Combination Product for which rights have reverted to SIGNAL pursuant
to Subsection 3.15.01 hereof, SIGNAL shall pay to ARES [***] of the amount or
fair market value, as applicable, of any and all consideration received by
SIGNAL with respect to such Licensed Product or Combination Product (other than
payments received for equity at fair market value or payments received to
support further research and development of such Licensed Product or Combination
Product so long as such payments do not exceed SIGNAL's cost of conducting such
further research and development), whether such consideration is in cash,
payment in kind, exchange or other form, until the total amount of such payments
to ARES equals [***] of the following amount: [***]

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                  3.15.03. ARES Patents ARES Grant of License. To the extent
necessary to permit SIGNAL to develop, make, have made, import, use, and sell
Licensed Products or Combination Products within the Territory following a
reversion of rights pursuant to Subsection 3.15.01 hereof, ARES shall grant
SIGNAL a nonexclusive royalty-free license valid for the Term under the ARES
Know-How and ARES Patents pursuant to an agreement to be negotiated in good
faith between the Parties; provided, however, that in addition to the payments
due ARES under Subsection 3.15.02 hereof, SIGNAL shall reimburse ARES for
royalties paid to third parties by ARES or its Affiliates with respect to the
development, manufacture, import, use or sale of such Licensed Products or
Combination Products.

                                   ARTICLE IV

                                ADDITIONAL RIGHTS

      Section 4.01. Co-Promotion.

                  4.01.01. Exercise of Option. Within thirty (30) days following
notice from ARES to SIGNAL of submission by ARES or its Affiliates of a New Drug
Application (NDA) or equivalent for a Licensed Product or Combination Product in
the United States, SIGNAL shall have the right by notice to ARES to exercise its
option to participate with ARES or its Affiliates in promoting such Licensed
Product or Combination Product in the United States; provided, however, that
SIGNAL can demonstrate concurrently with such option exercise that it can commit
to making a material investment in, and contribution to, promotion of such
Licensed Product or Combination Product. Upon SIGNAL's exercise of such option
on these terms and conditions, ARES in its sole discretion shall within sixty
(60) days of such option exercise select one of the following two alternatives:

                        (i) [***]


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                                     [***]

                        (ii) ARES may agree to negotiate in good faith with
SIGNAL a co-promotion agreement for such Licensed Product or Combination Product
in the United States containing customary terms and conditions. The period for
such negotiation shall begin upon SIGNAL's exercise of its option and end six
months thereafter. , [***] such co-promotion agreement shall also provide for
defined standards for promotional diligence sufficient to ensure that SIGNAL
makes a material investment in, and contribution to, promotion of such Licensed
Product or Combination Product. In addition the co-promotion agreement shall, to
the extent necessary, [***] to permit SIGNAL to fulfill its co-promotion
obligations with respect to Licensed Products or Combination Products and shall,
in any event, reflect the following terms and conditions with respect to
royalties and allocation of Net Sales for each such Licensed Product or
Combination Product:

                              (A) SIGNAL shall receive a royalty of [***] of
such Net Sales;

                              (B) [***] of such Net Sales shall then be
allocated to ARES;

                              (C) a portion of the remainder of such Net
Sales shall then be allocated to the Party that has manufactured, or contracted
to have manufactured (including pursuant to Section 4.02 hereof), such Licensed
Product or Combination Product, the amount of such allocation to equal such
Party's direct costs associated with the manufacture of the Licensed Product or
Combination Product;

                              (D) [***] of Net Sales remaining after the
allocations set forth in Subsections 4.01.01(ii)(A), (B) and (C) above shall be
divided by the


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Parties in proportion to their respective direct costs associated with the
co-promotion of such Licensed Product or Combination Product; and

                              (E) [***] of Net Sales remaining after the
allocations set forth in Subsections 4.01.01(ii)(A), (B) and (C) above shall be

allocated to ARES until an amount has been recouped equal to the total of [***]
and thereafter any remaining amount shall be allocated in accordance with the
terms and conditions of Subsection 4.01.01(ii)(D) above.

                  4.01.02. Royalty Calculations. The royalties and allocation of
Net Sales set forth in Subsection 4.01.01 above shall be in lieu of the
royalties set forth in Section 3.05 hereof with respect to Net Sales of Licensed
Products or Combination Products for the United States. Net Sales for the United
States subject to royalty calculations pursuant to Subsection 4.01.01 shall also
not be used in computing total annual Net Sales of Licensed Products and
Combination Products pursuant to Section 3.05. Upon the expiration or
invalidation of the last Valid Claim of a Patent in effect in the United States
that covers a Licensed Product or Combination Product, royalties payable for the
United States pursuant to Subsection 4.01.01 (i) and (ii)(A) above shall be
[***]

     Section 4.02. Supply of Licensed Products and/or Combination Products. At
the request and option of [***] the Parties agree to negotiate in good faith a
supply agreement pursuant to which [***] for sale upon such reasonable terms and
conditions as the Parties shall mutually agree; provided, however, if the
Parties have entered into a co-promotion agreement pursuant to Subsection
4.01.01 (ii) hereof, then such supply agreement shall provide for [***]


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[***]

                                    ARTICLE V

                       PATENT PROSECUTION AND ENFORCEMENT

      Section 5.01. Prosecution and Maintenance by SIGNAL. SIGNAL shall
prosecute and maintain the SIGNAL Patents and Joint Patents in the Territory in
accordance with reasonable commercial standards and reasonable principles of
intellectual property protection. All applications for SIGNAL Patents shall be
filed in the name of SIGNAL and all applications for Joint Patents shall be
filed in the name of ARES or its Affiliates and SIGNAL. SIGNAL shall keep ARES
currently advised of all steps that will be taken in the prosecution of the
SIGNAL Patents and Joint Patents. SIGNAL shall furnish ARES with copies of all
substantive communications between SIGNAL and applicable patent offices
regarding the SIGNAL Patents and Joint Patents. SIGNAL shall provide draft
applications for SIGNAL Patents and Joint Patents to ARES sufficiently in
advance of filing for ARES to have the opportunity to comment thereon. ARES
shall provide all reasonable cooperation to SIGNAL at SIGNAL's cost and expense
in connection with SIGNAL's prosecution and maintenance of the SIGNAL Patents
and Joint Patents including without limitation signing all documents necessary
to prosecute and maintain the SIGNAL Patents and Joint Patents. SIGNAL shall
bear the cost of prosecuting and maintaining the SIGNAL Patents and Joint
Patents in force and of filing all applications for SIGNAL Patents and Joint
Patents.

      Section 5.02. Prosecution and Maintenance by ARES. If SIGNAL does not
fulfill its obligations to prosecute and maintain the SIGNAL Patents and Joint
Patents in the Territory pursuant to Section 5.01 above, then SIGNAL shall so
advise ARES in time to enable ARES to fulfill these obligations. ARES shall
deduct all reasonable cost and expense it incurs in so doing from the royalties
due SIGNAL pursuant to Sections 3.05 and 4.01 hereof. SIGNAL shall provide all
reasonable cooperation to ARES at SIGNAL's cost and expense in connection with


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ARES' prosecution and maintenance of the SIGNAL Patents and Joint Patents,
including without limitation signing and delivering to ARES, within ten (10)
days of ARES' request therefor, all documents necessary for ARES to prosecute
and maintain the SIGNAL Patents and Joint Patents in the name of SIGNAL.

      Section 5.03. Prosecution of Infringement or Patent Defense by SIGNAL. If
either Party learns of (i) any infringement or potential infringement of a
SIGNAL Patents or Joint Patent by a third party in the Territory and/or (ii) any
claim by a third party that a SIGNAL Patent or Joint Patent is invalid in the
Territory, it shall promptly notify the other Party. SIGNAL shall have the right
to prosecute such infringement or to defend against such claim (an "Action").
SIGNAL shall keep ARES informed of, and shall from time to time consult with
ARES regarding, the status of any such Action and shall provide ARES with copies
of all documents filed in, and all written communications relating to, such
Action. ARES shall provide all reasonable cooperation to SIGNAL in connection
with such Action, and SIGNAL shall reimburse ARES for its out-of-pocket expenses
incurred in rendering such cooperation. In the event SIGNAL obtains any recovery
from such Action or the compromise or settlement thereof, the total amount of
such recovery shall first be used to reimburse SIGNAL for its reasonable
expenses incurred in connection with such Action and the balance of such
recovery shall be allocated [***] to SIGNAL and [***] to ARES.

      Section 5.04. Participation in Prosecution of Infringement or Patent
Defense by ARES. In the event ARES wishes do so, ARES shall have the right to
participate and be represented in an Action by its own counsel at its own
expense, but may not take any steps to direct such Action nor to compromise or
settle such Action, as SIGNAL shall have the primary responsibility for
directing such Action. SIGNAL agrees that it shall not compromise or settle any
Action in which ARES has exercised its right to participate without ARES' prior
written consent, which consent shall not unreasonably be withheld. In the event
SIGNAL and ARES obtain any recovery from such Action or the compromise or
settlement thereof, the total amount of such


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recovery shall first be used to reimburse the Parties pro-rata, based on costs
incurred, for their reasonable expenses incurred in connection with such Action
and the balance of such recovery shall be shared equally between the Parties.

      Section 5.05. Prosecution of Infringement or Patent Defense by ARES. If
within ninety (90) days from the date on which SIGNAL is notified or otherwise
becomes aware of an infringement or potential infringement of a SIGNAL Patent or
Joint Patent in the Territory or a claim that a SIGNAL Patent or Joint Patent is
invalid in the Territory, either (i) the infringement has not been terminated or
the claim has not been withdrawn or (ii) SIGNAL has not initiated an Action
against such third party, SIGNAL shall, upon request of ARES, grant ARES the
right to initiate an Action against such third party at its own cost and
expense, provided, however, that ARES shall be entitled to deduct such cost and
expense from up to [***] of the royalties due SIGNAL thereafter pursuant to
Sections 3.05 and 4.01 hereof. Notwithstanding the ninety (90) day period
established in the previous sentence, in the event that SIGNAL has not
instituted a summary proceeding with respect to an infringement or potential
infringement of a SIGNAL Patent or Joint Patent and the right to institute such
a summary proceeding shall lapse within two weeks, ARES may institute such a
summary proceeding. ARES shall keep SIGNAL informed of, and shall from time to
time consult with SIGNAL regarding, the status of any such Action or summary
proceeding and shall provide SIGNAL with copies of all documents filed in, and
all written communications relating to, such Action or summary proceeding.
SIGNAL agrees, in the event that ARES cannot prosecute such Action or summary
proceeding in its own name, to sign and deliver to ARES, within ten (10) days of
ARES' request therefor, all documents necessary for ARES to prosecute such
Action or summary proceeding in the name of SIGNAL, but ARES shall control the
prosecution of any such Action or summary proceeding. SIGNAL shall have the
right to participate and be represented in such Action or summary proceeding by
its own counsel at its own expense. SIGNAL shall provide all reasonable
cooperation to ARES in connection with such Action or summary proceeding, and
ARES shall


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reimburse SIGNAL for its out-of-pocket expenses incurred in rendering such
cooperation. ARES may not compromise or settle such Action or summary proceeding
without SIGNAL's prior written consent, which consent shall not unreasonably be
withheld. In the event ARES obtains any recovery from such Action or the
compromise or settlement thereof, the total amount of such recovery shall first
be used to reimburse ARES for any costs and expense not deducted from royalty
payments due hereunder, then to reimburse SIGNAL for any cost and expense so
deducted, [***]
                                   ARTICLE VI

                              TERM AND TERMINATION

      Section 6.01. Term. The license granted under Article III hereof shall
continue in force in each country from the Effective Date until (i) the
expiration or invalidation of the last Valid Claim of a SIGNAL Patent or Joint
Patent in effect in such country covering a Licensed Product or Combination
Product, or (ii) ten years from the first commercial sale of a Licensed Product
or Combination Product by ARES, its Affiliates or sublicensees in such country
following the receipt of marketing approval therein, whichever shall last occur,
and this Agreement shall terminate upon the expiration or invalidation of the
last of such Valid Claims or the termination of the last of such ten-year
periods, unless the Agreement is terminated at an earlier date pursuant to
Sections 6.02, 6.03 or 6.04 hereof.

      Section 6.02. Termination by ARES: ARES may terminate this Agreement
effective at any time after the end of the Initial Term by giving six (6) months
prior notice to SIGNAL.

      Section 6.03. Termination for Breach. Either Party may terminate this
Agreement sixty (60) days after giving the other Party notice of breach of any
material provision of this Agreement (including without limitation the
representations and warranties set forth in Article VII hereof) by the other
Party, unless such breach is cured within the period of such notice.


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      Section 6.04. Termination upon ARES' Bankruptcy. SIGNAL may terminate this
Agreement if an insolvency proceeding is instituted by or against ARES, ARES
makes an assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, commences a proceeding for the
appointment of a receiver, trustee, liquidator or conservator of itself or of
the whole or any substantial part of its property, or files a petition seeking
reorganization, composition, liquidation, dissolution or similar arrangement
under any present or future statute, law or regulation.

      Section 6.05. No Termination upon SIGNAL's Bankruptcy. All rights and
licenses granted under or pursuant to this Agreement by SIGNAL to ARES are, and
shall otherwise be deemed to be, for purposes of Section 365(n) of the United
States Bankruptcy Code (the "Bankruptcy Code"), licenses of rights to
"intellectual property" as defined under Section 101(56) of the Bankruptcy Code.
The Parties agree that ARES, as a licensee of such rights under this Agreement,
shall retain and may fully exercise all of its rights and elections under the
Bankruptcy Code. The Parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against SIGNAL under the
Bankruptcy Code, ARES shall be entitled to a complete duplicate of (or complete
access to, as appropriate) any such intellectual property and all embodiment of
such intellectual property, and the same, if not already in its possession,
shall be promptly delivered to ARES (i) upon any such commencement of a
bankruptcy proceeding upon written request therefor by ARES, unless SIGNAL
elects to continue to perform all of its obligations under this Agreement, or
(ii) if not delivered under (i) above, upon the rejection of this Agreement by
or on behalf of SIGNAL, upon written request therefor by ARES.

      Section. 6.06. Effect of Termination. If this Agreement is not terminated
at an earlier date by ARES pursuant to Sections 6.02 or 6.03 hereof or by SIGNAL
pursuant to Sections 6.03 or 6.04 hereof, then upon its termination in
accordance with Section 6.01 hereof ARES shall have an irrevocable, fully
paid-up license within the Territory under the SIGNAL Technology to


                                     - 29 -
<PAGE>   35

develop, make, have made, import, use, and sell any Licensed Products or
Combination Products to which ARES had any right, title or interest prior to the
termination of this Agreement. If this Agreement is terminated by ARES pursuant
to Sections 6.02 or 6.03 hereof or by SIGNAL pursuant to Sections 6.03 or 6.04
hereof, then upon its termination all rights and obligations of the Parties
hereunder, including without limitation the rights and obligations with respect
to the licenses granted under Article III hereof, shall terminate.
Notwithstanding the foregoing, termination of this Agreement shall not release
either Party from its obligations accrued prior to the effective date of
termination nor deprive either Party from any rights that this Agreement
provides shall survive termination.

      Section 6.07. Cumulative Rights and Remedies. Any right to terminate this
Agreement shall be in addition to and not in lieu of all other rights or
remedies that the Party giving notice of termination may have at law or in
equity or otherwise, including without limitation rights under the United States
Bankruptcy Code.

                                   ARTICLE VII

                 REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION

      Section 7.01. SIGNAL Representations. SIGNAL represents and warrants to
ARES as follows:

                  (i) SIGNAL has the right, power and authority to enter into
this Agreement and to perform the Research and grant ARES a license under the
SIGNAL Technology in accordance with the terms and conditions of this Agreement;

                  (ii) all requisite corporate action has been taken to
authorize SIGNAL's execution, delivery and performance of this Agreement;

                  (iii) SIGNAL has all right, title and interest in, to and
under the SIGNAL Technology, which, with the exception of rights granted to
Tanabe, is free and clear of any liens, charges, encumbrances or rights of
others to possession or use;


                                     - 30 -
<PAGE>   36

                  (iv) with the exception of rights granted to Tanabe, SIGNAL
has not previously licensed, assigned, transferred, or otherwise conveyed any
right, title or interest in, to or under the SIGNAL Technology to any third
party;

                  (v) all third parties who have or had any right, title and
interest in, to and under the SIGNAL Know-How and SIGNAL Patents, as identified
on Exhibit G, have assigned or licensed such right, title and interest to SIGNAL
under the terms and conditions set forth on Exhibit G;

                  (vi) to the best of SIGNAL's knowledge after due inquiry, the
practice and use of the SIGNAL Technology pursuant to the terms and conditions
of this Agreement shall not infringe any patent, copyright, trademark, or other
proprietary or property rights of any third parties;

                  (vii) to the best of SIGNAL's knowledge after due inquiry, no
third party has filed, pursued or maintained or threatened to file, pursue or
maintain any claim, lawsuit, charge, complaint or other action alleging that the
SIGNAL Technology infringes any patent, copyright or trademark or other
proprietary or property rights of any third parties;

                  (viii) there are no suits, proceedings, arbitrations, claims
or counterclaims or governmental investigations pending or asserted in writing
to SIGNAL, and to the best of SIGNAL's knowledge, there are no suits,
proceedings, arbitrations, claims or counterclaims or governmental
investigations threatened against SIGNAL that would give any third party the
right to enjoin or rescind the transactions contemplated by this Agreement or
would otherwise prevent SIGNAL from complying with the terms and conditions of
this Agreement;

                  (ix) execution and delivery of this Agreement and performance
hereunder does not breach, violate, contravene or constitute a default under any
contracts, arrangements or commitments to which SIGNAL is a party or by which it
is bound; and

                  (x) no warranty or representation by SIGNAL in this Agreement
and no other agreement, exhibit, or instrument required to be delivered by
SIGNAL to ARES pursuant


                                     - 31 -
<PAGE>   37

to this Agreement contains or will contain any untrue statement of material fact
or omit to state a material fact required in order to make such warranty,
representation, other agreement, exhibit or instrument not misleading.

      Section 7.02. ARES Representations. ARES represents and warrants to SIGNAL
as follows:

                  (i) ARES has the right, power and authority to enter into this
Agreement;

                  (ii) all requisite corporate action has been taken to
authorize ARES' execution, delivery and performance of this Agreement;

                  (iii) there are no suits, proceedings, arbitrations, claims or
counterclaims or governmental investigations pending or asserted in writing to
ARES, and to the best of ARES' knowledge, there are no suits, proceedings,
arbitrations, claims or counterclaims or governmental investigations threatened
against ARES that would give any third party the right to enjoin or rescind the
transactions contemplated by this Agreement or would otherwise prevent ARES from
complying with the terms and conditions of this Agreement;

                  (iv) execution and delivery of this Agreement and performance
hereunder does not breach, violate, contravene or constitute a default under any
contracts, arrangements or commitments to which ARES is a party or by which it
is bound; and

                  (v) no warranty or representation by ARES in this Agreement
and no other agreement, exhibit or instrument required to be delivered by ARES
to SIGNAL pursuant to this Agreement contains or will contain any untrue
statement of material fact or omit to state a material fact required in order to
make such warranty, representation, other agreement, exhibit or instrument not
misleading.

      Section. 7.03. SIGNAL Indemnification. SIGNAL shall defend, indemnify and
hold harmless ARES, its Affiliates and sublicensees, their officers, agents and
employees (each individually a "SIGNAL Indemnified Party," and collectively the
"SIGNAL Indemnified Parties"), from and against any and all liabilities, losses,
damages, actions, claims, costs or


                                     - 32 -
<PAGE>   38

expenses suffered or incurred by the SIGNAL Indemnified Parties (including
reasonable attorneys' fees) (individually a "SIGNAL Liability," and collectively
the "SIGNAL Liabilities") that arise from (i) personal injury or property damage
to third parties resulting from a breach of this Agreement by SIGNAL (including
without limitation a breach of SIGNAL's representations and warranties in
Section 7.01 hereof); or (ii) the enforcement by a SIGNAL Indemnified Party of
its rights under this Section 7.03; provided, however, that SIGNAL shall have no
obligation to defend, indemnify, and hold harmless hereunder to the extent a
SIGNAL Liability arises from the negligence or willful misconduct of a SIGNAL
Indemnified Party or from the negligence, failure to comply with instructions
regarding use of a Licensed Product or Combination Product or other wrongdoing
of any user of the Licensed Product or Combination Product. ARES shall promptly
notify SIGNAL of any claim or action giving rise to SIGNAL Liabilities subject
to the provisions of this Section 7.03. SIGNAL shall have the right to defend
any such claim or action, at its cost and expense, and shall keep ARES informed
of developments in any such claim or action. ARES shall cause the SIGNAL
Indemnified Parties to cooperate with SIGNAL in the defense of any such claim or
action. SIGNAL shall not settle or compromise any such claim or action in a
manner that imposes any restrictions or obligations on a SIGNAL Indemnified
Party or grants any rights to Licensed Products or Combination Products, or to
SIGNAL Technology necessary or useful to develop, make, have made, import, use,
and sell Licensed Products or Combination Products, without ARES' prior written
consent. The indemnification rights of any SIGNAL Indemnified Party contained
herein are in addition to and not in lieu of all other rights that such SIGNAL
Indemnified Party may have at law or in equity or otherwise and shall survive
the termination of this Agreement.

      Section 7.04. ARES Indemnification. ARES shall defend, indemnify and hold
harmless SIGNAL, its officers, agents and employees (each individually a "ARES
Indemnified Party," and collectively the "ARES Indemnified Parties"), from and
against any and all liabilities, losses, damages, actions, claims, costs or
expenses suffered or incurred by the ARES Indemnified


                                     - 33 -
<PAGE>   39

Parties (including reasonable attorneys' fees) (individually a "ARES Liability,"
and collectively the "ARES Liabilities") that arise from (i) personal injury or
property damage to third parties resulting from (A) a breach of this Agreement
by ARES (including without limitation a breach of ARES' representations and
warranties in Section 7.02 hereof) or (B) ARES', its Affiliates' or
sublicensees' development, manufacture, import, use or sale of Licensed Products
or Combination Products pursuant to this Agreement; or (ii) the enforcement by
an ARES Indemnified Party of its rights under this Section 7.04; provided,
however, that ARES shall have no obligation to defend, indemnify, and hold
harmless hereunder to the extent an ARES Liability arises from the negligence or
willful misconduct of an ARES Indemnified Party or from the negligence, failure
to comply with instructions regarding use of a Licensed Product or Combination
Product or other wrongdoing of any user of the Licensed Product or Combination
Product. SIGNAL shall promptly notify ARES of any claim or action giving rise to
ARES Liabilities subject to the provisions of this Section 7.04. ARES shall have
the right to defend any such claim or action, at its cost and expense, and shall
keep SIGNAL informed of developments in any such claim or action. SIGNAL shall
cause the ARES Indemnified Parties to cooperate with ARES in the defense of any
such claim or action. ARES shall not settle or compromise any such claim or
action in a manner that imposes any restrictions or obligations on an ARES
Indemnified Party. The indemnification rights of any ARES Indemnified Party
contained herein are in addition to and not in lieu of all other rights that
such ARES Indemnified Party may have at law or in equity or otherwise and shall
survive the termination of this Agreement.

      Section 7.05. Disclaimer of Warranties. Neither Party guarantees the
safety or usefulness of any Licensed Product or Combination Product. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR
WARRANTY TO THE OTHER PARTY OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.


                                     - 34 -
<PAGE>   40

                                  ARTICLE VIII

                               GENERAL PROVISIONS

      Section 8.01. No Waiver. No failure on the part of either Party to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise by either Party of any right
preclude any other future exercise thereof or the exercise of any other right.

      Section 8.02. Force Majeure. Neither Party shall lose any rights hereunder
or be liable to the other Party for damages or losses on account of failure of
performance by the defaulting Party to the extent the failure is occasioned by
government action, war, fire, explosion, flood, strike, lockout, embargo, act of
God, or any other similar cause beyond the reasonable control of the defaulting
Party; provided, however, the Party claiming force majeure shall promptly notify
the other Party of the existence of such force majeure, shall use its best
efforts to avoid or remedy such force majeure and shall continue performance
hereunder with the utmost dispatch whenever such force majeure is avoided or
remedied.

      Section 8.03. Notices. All notices, reports, requests or demands required
or permitted under this Agreement shall be sent by air courier or by facsimile,
with confirmed transmission, properly addressed to the respective Parties as
follows:

            If to SIGNAL:

                  SIGNAL PHARMACEUTICALS, INC.
                  5555 Oberlin Drive
                  San Diego, California 92121
                  U.S.A.
                  Attention:  President and Chief Executive Officer
                  Telephone:  619-558-7500
                  Facsimile:  619-558-7513


                                     - 35 -
<PAGE>   41

            With a copy to:
                  COOLEY GODWARD LLP
                  4365 Executive Drive
                  Suite 1100
                  San Diego, California 92121
                  U.S.A.
                  Attention:  Frederick T. Muto
                  Telephone:  619-550-6000
                  Facsimile:  619-453-3555

            If to ARES:
                  ARES TRADING S.A.
                  Chateau de Vaumarcus
                  2028 Vaumarcus
                  Switzerland
                  Attn.:      General Manager
                  Telephone:  41-38-55-3231
                  Facsimile:  41-38-55-3208

            With a copy to:

                  ARES-SERONO INTERNATIONAL S.A.
                  15 bis, chemin des Mines
                  1202 Geneva
                  Switzerland
                  Attention:  General Counsel
                  Telephone:  41-22-738-8000
                  Facsimile:  41-22-739-3070

or to such addresses or addresses as the Parties hereto may designate for such
purposes during the Term. Notices shall be deemed to have been sufficiently
given or made: (i) if by facsimile with confirmed transmission, when performed,
and (ii) if by air courier, three (3) days after delivery to the air courier
company.

      Section 8.04. Independent Contractors. No agency, partnership or joint
venture is hereby established; each Party shall act hereunder as an independent
contractor. Neither SIGNAL nor ARES shall enter into, or incur, or hold itself
out to third parties as having authority to enter into or incur on behalf of the
other Party any contractual obligations, expenses or liabilities whatsoever.


                                     - 36 -
<PAGE>   42

      Section 8.05. Assignment.

                  8.05.01. General. This Agreement shall be binding upon the
Parties and their respective permitted successors and assigns. This Agreement
may be assigned by either Party in whole or in part to its Affiliates. Except as
otherwise set forth in Subsection 8.05.02 hereof, this Agreement may be
otherwise assigned by either Party in whole or in part only with the prior
written consent of the other Party.

                  8.05.02. Acquisition or Merger. If either Party (or
substantially all its assets) is acquired by or merged with a third party or if
either Party acquires a third party (or substantially all its assets), the
entity that results from that transaction (the "Combined Entity") shall succeed
to all of the rights and obligations of the affected Party under this Agreement
with the same effect as if the Combined Entity had originally been a Party
hereunder. Notwithstanding the foregoing, upon such succession of the Combined
Entity to the rights and obligations hereunder, the Parties may agree to
terminate this Agreement or the other Party may elect to terminate this
Agreement (including upon commission by the Combined Entity of a material breach
of the Agreement following such succession), with the following result:

                        (i) if the terminating Party is SIGNAL, then to the
extent necessary to develop, manufacture, import, use or sell Licensed Products
or Combination Products in existence prior to such termination, SIGNAL shall be
granted an irrevocable, fully paid-up, nonexclusive license within the Territory
under the ARES Know-How and ARES Patents; provided, however, that SIGNAL shall
reimburse ARES for royalties paid to third parties by ARES or its Affiliates
with respect to the development, manufacture, import, use or sale of such
Licensed Products or Combination Products; and

                        (ii) if the terminating Party is ARES, ARES shall be
granted an irrevocable, fully paid-up, exclusive license, with the right to
grant sublicenses, within the Territory under the SIGNAL Technology to develop,
make, have made, import, use, and sell any Licensed Products or Combination
Products to which ARES had any right, title or interest prior


                                     - 37 -
<PAGE>   43

to such termination. ARES shall also be entitled to a complete duplicate of (A)
all records, notes, reports and data with respect to all laboratory work
performed in the conduct of the Research and (B) all biological and chemical
materials used in connection with the Research prior to such termination and the
same, if not already in its possession, shall be promptly delivered to ARES upon
such termination. Notwithstanding the foregoing, termination of this Agreement
shall not release either Party, or the Combined Entity of which it is a part,
from any obligations accrued prior to the effective date of termination nor
deprive either Party, or such Combined Entity, from any rights that this
Agreement provides shall survive termination.

      Section 8.06. No Sale or Other Disposal of SIGNAL Technology. Without
ARES' prior written consent, SIGNAL shall not sell, transfer, assign, or
otherwise dispose of, or purport to sell, transfer, assign or otherwise dispose
of, any right, title or interest in, to and under SIGNAL Technology that is
necessary or useful to develop, make, have made, import, use, and sell Licensed
Products or Combination Products; provided, however, that ARES acknowledges
that, prior to the date hereof, SIGNAL has granted certain rights in the SIGNAL
Technology to Tanabe.

      Section 8.07. Reference to Patents. ARES shall mark or cause to be marked
the Licensed Products and Combination Products developed, made, imported, used
or sold pursuant to this Agreement with such references to the SIGNAL Patents or
Joint Patents as are required by the applicable laws of the territories in which
such Licensed Products or Combination Products are developed, made, imported
used and sold.

      Section 8.08. No Third-Party Beneficiary. Nothing in this Agreement,
express or implied, is intended to confer on any person other than the Parties
hereto, or their respective permitted successors and assigns, any benefits,
rights or remedies.

      Section 8.09. Publicity. Neither Party may use in any manner the other
Party's name or insignia, or any contraction, abbreviation or adaptation
thereof, without the express written


                                     - 38 -
<PAGE>   44

consent of the other Party. Neither Party may publicly disclose or issue press
releases concerning the existence of this Agreement or the terms and conditions
hereof except with the express written consent of the other Party, which consent
shall not unreasonably be withheld. Notwithstanding the foregoing, either Party
shall have the right to disclose information concerning this Agreement in any
prospectus, offering memorandum or other document or filing to the extent
required by applicable securities laws but only after providing the other Party
reasonable notice of such intended disclosure and consulting with the other
Party to determine the reasonable nature and scope of such intended disclosure.

      Section 8.10. Confidential Information. For the purpose of this Agreement,
the term "Confidential Information" shall mean any information disclosed by
either Party to the other pursuant to this Agreement in tangible form clearly
marked "secret," "confidential" or "proprietary" or, if disclosed otherwise,
summarized or described in tangible form and clearly marked as above within
thirty (30) days of the initial disclosure. Each Party shall hold Confidential
Information it has received in confidence during the Term and for a period of
five (5) years thereafter and shall not disclose such Confidential Information
to third parties without the consent of the disclosing Party, other than
Confidential Information that:

                  (i) was known to the receiving Party prior to disclosure by
the disclosing Party as evidenced by the receiving Party's prior written
records;

                  (ii) is disclosed to the receiving Party by a third party,
except if such disclosure is made on a confidential basis or in violation of a
confidentiality obligation to the disclosing Party or its Affiliates;

                  (iii) is or becomes public knowledge other than by the
receiving Party's breach of this confidentiality obligation;

                  (iv) the receiving Party must disclose to government
authorities for the purpose of seeking marketing approval of Licensed Products
or Combination Products pursuant to this Agreement;


                                     - 39 -
<PAGE>   45

                  (v) the receiving Party must disclose to individuals who have
a need to know to effectuate the development and commercialization of Licensed
Products or Combination Products pursuant to this Agreement, provided each such
individual is bound by a confidentiality obligation comparable to the obligation
set forth in this Section 8.10;

                  (vi) the receiving Party independently develops or discovers
without use of or reference to the Confidential Information; or

                  (vii) the receiving Party must disclose, pursuant to a
requirement of law, provided the receiving Party has given the disclosing Party
prompt notice of such fact, so the disclosing Party may obtain a protective
order or other appropriate remedy concerning any such disclosure and/or waive
compliance with the confidentiality obligations of this Section 8.10. The
receiving Party shall fully cooperate with the disclosing Party in connection
with the disclosing Party's efforts to obtain any such order or other remedy. If
any such order or other remedy does not fully preclude disclosure, or the
disclosing Party waives such compliance, the receiving Party shall make such
disclosure, but only to the extent such disclosure is legally required, and
shall use its best efforts to have confidential treatment accorded to the
disclosed Confidential Information. Each Party may disclose Confidential
Information only to those of its employees, agents, Affiliates, consultants and
academic collaborators who are bound by confidentiality obligations comparable
to the obligation set forth in this Section 8.10. All Confidential Information
shall be returned to the disclosing Party by the receiving Party upon request by
the disclosing Party upon the termination of this Agreement, with the exception
of a single copy to be retained by the receiving Party in a confidential file
for the purpose of determining compliance with this confidentiality obligation.
This obligation shall survive termination of this Agreement.

      Section 8.11. Publication. Any manuscript, abstract or other publication
or presentation prepared by or on behalf of either Party and relating to the
SIGNAL Technology must be submitted to the other Party for review and approval
at least thirty (30) Business Days prior to


                                     - 40 -
<PAGE>   46

submission for publication or public release, which approval shall not
unreasonably be withheld. Publication or public release of any such manuscript,
abstract or other publication or presentation is subject to the confidentiality
and nondisclosure obligations set forth in Section 8.10 hereof.

      Section 8.12. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed an
original of this Agreement.

      Section 8.13. No Strict Construction. This Agreement has been prepared
jointly and shall not be strictly construed against either Party.

      Section 8.14. Governing Law. The form, execution, validity, construction
and effect of this Agreement shall be determined in accordance with the laws of
the Commonwealth of Massachusetts and the United States of America, regardless
of the choice of law principles of those or any other jurisdictions.

      Section 8.15. Dispute Resolution. Any disputes, questions or claims raised
by a Party and arising out of or in connection with this Agreement that cannot
be settled by negotiation between the Parties within fifteen (15) days after
notice thereof shall be resolved in accordance with the terms and conditions set
forth in this Section 8.15. The Parties agree that any such dispute, question or
claim shall be resolved solely by application of the procedures set forth in
this Section 8.15. These procedures, however, may be modified by written
agreement of the Parties with respect to any particular dispute, question or
claim that may arise under this Agreement.

                  8.15.01. Negotiation. The procedures of this Section 8.15
shall be initiated by a notice (the "Dispute Notice") given by one Party (for
purposes of this Section 8.15, the "Claimant") to the other Party. The Dispute
Notice shall be accompanied by (i) a statement of the Claimant describing the
dispute, question or claim in reasonable detail, and (ii) documentation
supporting the Claimant's position with respect to the dispute, question or
claim, if applicable. Within twenty (20) days after receipt by the other Party
(for purposes of this


                                     - 41 -
<PAGE>   47

Section 8.15, the "Respondent") of the Dispute Notice and accompanying
materials, if any, the chief executive officers of the Parties in question, or
other members of senior management of such Parties, each with full authority
from the chief executive officer to settle the dispute, shall meet (the
"Management Meeting") in a mutually agreeable location to resolve the dispute.
If the Parties cannot agree on a time or location for the Management Meeting,
(i) the Meeting shall be held at 10:00 A.M., local time, on the twentieth (20th)
day after the Respondent's receipt of the Dispute Notice, (ii) the location of
such Meeting shall be in a first-class hotel suite identified and paid for by
the Claimant in Boston, Massachusetts. If the senior management representative
of either Party intends to be accompanied at the Management Meeting by counsel,
the other Party shall be given at least four (4) days notice of such intention
and may also be accompanied by counsel. All negotiations pursuant to this
Subsection 8.15.1 shall be confidential and treated as compromise and settlement
negotiations and shall not be admissible in any arbitration or other proceeding.

                  8.15.02. Arbitration. If the Parties are unable to resolve the
dispute, question or claim within thirty (30) days following the day of the
Management Meeting, the dispute, question or claim shall be finally settled by
arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of International Disputes (and the Center for
Public Resources shall serve, if necessary, as the "Neutral Organization") by
three arbitrators appointed in accordance with such Rules who shall be impartial
and disinterested individuals who do not have a direct or indirect interest in
either Party or the subject matter of the arbitration. The Parties agree that
notices served in the manner provided herein shall be valid for such
arbitration. Any such arbitration shall be conducted in English and shall be
held in Boston, Massachusetts. The arbitrators shall apply the substantive law
that the Parties have chosen as the governing law pursuant to Section 8.14
hereof. Pending the issuance of the arbitrators' decision, the Parties shall
continue to operate under the Agreement as it existed on the date the Dispute
Notice was given; provided, however, that the arbitrators' decision shall be
retroactive to such


                                     - 42 -
<PAGE>   48

date. The costs of the arbitration (including without limitation the fees and
expenses of the arbitrators, attorneys and experts, the travel and other
expenses of witnesses, as well as the fees and expenses in any collateral
actions, such as actions for enforcement) shall be borne in their entirety by
the nonprevailing Party in the arbitration. The Parties hereby exclude any right
of appeal to any court on the merits of the dispute, question or claim. Judgment
on the award may be entered in any court having jurisdiction over the award or
any of the Parties or their assets The award may grant any relief appropriate
under the applicable law, including without limitation declaratory relief and/or
specific performance.

      Section 8.16. Cooperation. Both Parties shall cooperate in good faith and
take all necessary steps at the request of either Party to ensure that this
Agreement is enforceable in accordance with its terms.

      Section 8.17. Integration. This Agreement, together with the Exhibits
hereto, constitutes the entire agreement between the Parties hereto relating to
the subject matter hereof and supersedes all prior and contemporaneous
negotiations, agreements, representations, understandings and commitments with
respect thereto, including without limitation the Letter between the Parties
dated September 9, 1997. No terms or provisions of this Agreement shall be
varied, extended or modified by any prior or subsequent statement, conduct or
act of either of the Parties, except by a written instrument specifically
referring to and executed in the same manner as this Agreement.


                                     - 43 -
<PAGE>   49
      IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.

               "SIGNAL"                                   "ARES"
     SIGNAL PHARMACEUTICALS, INC.                     ARES TRADING S.A.

By:                                     By:    /s/ ERNESTO BERTARELLI
       ----------------------------            ---------------------------------
Name:                                   Name:  ERNESTO BERTARELLI
       ----------------------------            ---------------------------------
Title:                                  Title: DIRECTOR
       ----------------------------            ---------------------------------


                                     - 44 -
<PAGE>   50

      IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.

               "SIGNAL"                                   "ARES"
     SIGNAL PHARMACEUTICALS, INC.                     ARES TRADING S.A.

By:    /s/ ALAN J. LEWIS                By:
       ----------------------------            ---------------------------------
Name:  ALAN J. LEWIS                    Name:
       ----------------------------            ---------------------------------
Title: PRESIDENT / CEO                  Title:
       ----------------------------            ---------------------------------


                                     - 44 -
<PAGE>   51
                                    EXHIBIT A

                                  ARES Know-How


                                     - 45 -
<PAGE>   52

                                    EXHIBIT B

                                  ARES Patents


[***]


*  World Intellectual Property Organization country codes




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<PAGE>   53

                                    EXHIBIT C

                                    Protocol

Description of
Research Project:

Responsible Party
(SIGNAL, ARES, or Joint):

Methodology (including milestones):

Personnel (including
Consultants and Academic Collaborators):

Materials:

Reports (Interim and Final):

Schedule (including Completion Date):

Budget:



                                     - 47 -

<PAGE>   54

                                    EXHIBIT D

                                 SIGNAL Know-How


                                     [***]


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<PAGE>   55
                                   EXHIBIT E

                                 SIGNAL Patents


                                     [***]

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<PAGE>   56
                                   EXHIBIT F

                         SIGNAL Third-Party Agreements



                                     [***]


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<PAGE>   57
                                   EXHIBIT G

            Third-Party Rights in SIGNAL Know-How and SIGNAL Patents


                                     [***]


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