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                                           *** Text Omitted and Filed Separately
                                               Confidential Treatment Requested
                                               Under 16 C.F.R. Sections 200.80,
                                               200.83 and 230.406.

                                                                   EXHIBIT 10.36

                                    AGREEMENT

        THIS AGREEMENT is made this ____ day of July, 1996 (the "Effective
Date") between N.V. ORGANON, Molenstraat 110, P.O. Box 20, 5340 BH Oss, the
Netherlands (hereinafter referred to as "Organon") and SIGNAL PHARMACEUTICALS,
5555 Oberlin Drive, San Diego, California 92121, USA (hereinafter referred to as
"Signal").

                                  INTRODUCTION

        A. Signal has considerable experience in making biological assays useful
for screening compounds:

        B. Organon has experience in medicinal chemistry and has certain
proprietary technology regarding the optimization of lead compounds arising from
screening in assay systems.

        C. Organon wishes to retain the services of Signal to assist Organon in
the discovery and development of new assays for the targets which are selected
as provided below.

        THEREFORE THE PARTIES HEREBY AGREE AS FOLLOWS:

1.      DEFINITIONS

        1.1. "Affiliate" means in the case of each party any entity that
directly or indirectly controls, is controlled by, or is under common control
with that party. For such purpose the terms "control" means ownership or control
of at least 50% of the voting interest in the entity in question.

        1.2. "Compound Patent" means a patent or patent application claiming an
invention or discovery specific to a Lead Compound and a genus of compounds
reasonably expected to have the same or similar activity, which Lead Compound or
genus of compounds result from the use of a Research Assay.

        1.3. "Development Compound" means a compound which has undergone
preclinical animal studies, formulation and production work necessary to
commence formal animal toxicology studies, and is selected for formal animal
toxicology studies in preparation for the submission of an U.S. IND or an
equivalent foreign filing.

        1.4. "Executive Committee" means the committee to be established
pursuant to Article 2 hereof.

        1.5. "FTE" means the full time equivalent effort, for one year, of one
person who participates directly in the research and development activities
contemplated under


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this Agreement. Such participation includes, without limitation, production of
chemical, biological and/or other materials or reagents provided for use under
this Agreement (and the resupply thereof if shelf stock is provided, as
reasonably determined by Signal).

        1.6. "Gene/gen products Patents" means a patent or patent application
claiming an invention or discovery specific to [***], having been identified
under the Target Research.

        1.7. "Lead Compound" will have the meaning assigned in Section 3.2.

        1.8. "Library" means a library or mixture of compounds, including the
compounds contained or proposed to be contained therein.

        1.9. "Net Sales" means the total revenue from commercial sales received
by a party hereto, its Affiliates and/or licensees from the sale of an Organon
Product to independent third parties less the following amounts:

                (i) discounts, including cash discounts, trade allowances or
rebates actually allowed or granted and taken,

                (ii) credits or allowances actually granted upon claims or
returns, regardless of the party requesting the return,

                (iii) separately itemized freight charges paid for delivery and

                (iv) taxes or other governmental charges levied on or measured
by the invoiced amount, whether absorbed by the billing party or the billed
party.

        1.10. "Organon Compound" means a compound selected from an Organon
Library, Organon internal development or otherwise from a third party source
other than Signal engaged by Organon to provide compounds.

        1.11. "Organon Library" means a Library designed and/or synthesized or
acquired by Organon (alone or with third parties)

        1.12. "Organon Product" means any product in the Target Research Field
which contains one or more active compounds (i) selected by use of a Research
Assay (ii) derived from one or more compounds so selected or (iii) significantly
altered or advanced to the next stage of development by use of a Research Assay
(a "Selected Compound"). Organon shall inform Signal about all compounds
identified as having biological activity in any Research Assays and whether such
compounds are Selected



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Compounds or were selected by Organon through other means prior to running such
compounds in a Research Assay. If such compounds were selected by Organon
through other means prior to running such compounds in a Research Assay, Organon
will provide Signal access to its lab journals and demonstrate to Signal's
reasonable satisfaction that such compounds were selected by Organon through
other means prior to running such compounds in a Research Assay. All Organon
Products, containing the same active compound, or a compound which is derived
from the active compound (such as a different salt, ester, crystal form or the
like), regardless of other differences, such as dose, dosage form, indication
and the like shall be considered a single Organon Product, as the case may be,
unless such Organon Product also contains another active compound that is
selected by use of a Research Assay or is derived from such a compound. Organon
Product shall exclude any compound that was already "in active development" by
Organon before screening such compound in a Research Assay or was already
selected by Organon prior to screening with the Research Assays as described
above, except as set forth below. The compound will be deemed to be in "active
development" after (i) toxicology studies have been finished, and/or (ii)
efficacious results in an animal model have been obtained, and/or (iii)
efficacious results in at least two in vitro models have been obtained.
Notwithstanding the foregoing, such a compound shall be an Organon Product if
the compound's development is significantly altered by the results of screening
the compound in a Research Assay.

        1.13. "Research Assay" means an assay based on [***].

        1.14. "Research Assay Patent" means a patent or patent application
claiming a Research Assay.

        1.15. "Research Committee" means a team to be established for the
purposes of the Target Research pursuant to Section 3.1.2 hereof.

        1.16. "Research Plan" shall mean the research activities to be conducted
by the parties pursuant to the Target Research. The initial Research Plan is
attached as Exhibit A which may be amended from time to time upon the mutual
agreements of the parties.

        1.17. "Research Term" shall mean the term of the Target Research
referenced in Article 3.

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        1.18. "Signal Compound" means a compound selected from a Signal Library,
Signal internal development or otherwise from a third party source engaged by
Signal to provide compounds.

        1.19. "Signal Library" means a Library designed and/or synthesized or
acquired by Signal (alone or with third parties).

        1.20. "Signal Technology" means all inventions, know-how, trade secrets,
and other proprietary information (whether patented or not), which are owned by
Signal as of the Effective Date or developed during the Research Term, as to
which Signal has the right to grant to Organon a license hereunder, and
consisting of methods and materials for the production and/or use of biological
assays. Signal Technology shall not include any inventions covered by any
Research Assay Patent, Gene/gen product Patent or Compound Patent.

        1.21. "Signal Technology Patents" means all patents and patent
applications (including provisionals, divisionals, continuations, continuations
in part, reissues, re-examinations, substitutions, additions and any extensions
to such patents) claiming Signal Technology. Signal Technology Patents shall not
include any Research Assay Patent, Gene/gen product Patent or Compound Patent.

        1.22. "Target Research" means the research and development program
directed toward the Target Research Field conducted by the parties pursuant to
Article 3 of this Agreement.

        1.23. "Target Research Field" means [***], for human therapeutic and/or
diagnostic use; provided, however, the Target Research shall exclude [***].

2.      EXECUTIVE COMMITTEE

        2.1. The parties will establish an Executive Committee for the purposes
of developing, reviewing and monitoring research plans, research budgets and
changes thereto, and supervising the Target Research within the parameters
established in this Agreement. The Executive Committee shall have such even
number of members as the parties shall agree, half of the members being
appointed by each party, with each of Signal and Organon having one vote. In the
event of deadlock on any issue, such issue shall be referred for decision to a
senior officer designated by each party, which officer shall have the
appropriate responsibility and authority to represent and bind such party with
respect to such issue or dispute. During the Research Term, the Executive


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Committee shall meet not less than twice per year, and the location of such
meetings shall alternate between San Diego and Oss, all unless otherwise agreed
by the parties.

3.      TARGET RESEARCH

        The Target Research shall commence upon the Effective Date and shall
continue for three years thereafter, extendible for up to two additional years
under substantially the same FTE funding and other terms as are set forth
herein, with mutual consent. If the milestone described in Exhibit B is not met
within 8 months after the Effective Date Organon at its sole discretion may
forthwith terminate the Target Research by written notice effective as of the
first anniversary of the Effective Date. If the milestone described in Exhibit C
is not met within 18 months after the Effective Date Organon at its sole
discretion may terminate the Target Research effective as of the second
anniversary of the Effective Date. For purposes of this Agreement, the "Research
Term" shall be the period from the Effective Date until the Target Research
expires or is terminated pursuant to this Article 3. Under the Target Research
Signal shall use reasonable efforts to deliver up to [***] Research Assays to
Organon.

        If Organon elects to terminate the Target Research (a) at the end of the
first year as provided above or (b) prior to receiving the [***] and paying the
first milestone under Section 3.2.1(a), whichever is earlier, then this
Agreement and all licenses granted hereunder shall terminate, except that the
provisions listed in Section 9.3(b) shall survive. Otherwise, this Agreement
shall survive termination or expiration of the Target Research.

        3.1.   RESEARCH PROGRAM

               3.1.1. The parties agree to execute the Research Plan subject to
the following:

                      (a) Signal agrees that, during the Research Term, Signal
shall collaborate exclusively with Organon within the Target Research Field.

                      (b) Signal will not actively participate with third
parties in the design of new Research Assays, for use within the Target Research
Field, during the Research Term or for one year after termination of the Target
Research by Organon pursuant to Section 3 above. If the Target Research
continues for the full three year term, Signal will refrain from such activities
for one year after the end of the Research Term, provided, however, if any
milestone payments pursuant to Sections 3.2.1(b) or 3.2.1(c) are made during
such four-year period, then Signal will refrain from such activities for five
years after the end of the Research Term, and if any royalties are paid under
Section

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3.2.3 during such five-year period, then Signal will refrain from such
activities for the term of this Agreement.

                      (c) Organon shall, at its discretion, provide access to
its proprietary technologies and know-how, as may be useful in connection with
the Target Research. For clarity of understanding, Signal shall not have the
right to utilize such technologies and know-how other than in connection with
the Target Research.

               3.1.2. The Target Research shall be implemented by the Research
Committee which shall be comprised of an equal number of members, but not more
than four, from each party.

               Membership of the Research Committee will be determined according
to the needs of the particular project. The leaders of the Research Committee
shall be nominated by the Executive Committee. In the event of deadlock on any
matter the Research Committee shall refer such matter to the Executive
Committee.

               The Research Committee shall meet as often as may be required for
the purposes of the Target Research but in any event not less than four times
per year, again unless otherwise agreed by the parties. Written reports of such
meetings and of the status of the individual projects shall be submitted to the
Executive Committee. Unless otherwise agreed, meetings shall alternate between
the relevant sites of Signal and Organon.

               3.1.3. In consideration of the exclusive rights given to it
Organon shall pay, within five (5) days after the Effective Date, to Signal a
fee of One Million Dollars (U.S. $1,000,000).

        3.1.4. In addition, Organon shall pay Signal's fully-burdened costs per
year per FTE actively engaged in the Target Research. The initial rate shall be
[***] per FTE per year, this amount to be increased annually, effective January
1 of each calendar year, commencing January 1, 1998, based on increases in the
United States Consumer Price Index for all Urban Consumers, all items not
seasonally adjusted (sources Bureau of Labor Statistics) for the previous
calendar year. This payment also compensates Signal for all ordinary travel
expenses incurred by such FTE's in attending meetings or the Research Committee
and/or Executive Committee.

               Unless otherwise agreed in writing, Signal shall make available,
on average, the FTEs as set forth in Exhibit D. Such FTEs shall include a
balanced group of Ph.D. or equivalent, scientists and other technical support
personnel.

               The annual cost of such FTEs shall be due and payable in equal
quarterly installments in advance, on the following schedule. The first such
payment shall be due



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and payable upon the Effective Date, and shall cover the FTE cost from such date
through the end of the then current quarterly period, on a prorated basis.
Thereafter, for the remainder of the Target Research, FTE payments for each
quarterly period shall be due and payable on each January 15, April 15th, July
15th and September 15th in U.S. dollars by bank wire transfer. Signal shall
submit corresponding invoices to Organon no later than forty-five (45) days
before the date upon which payment is due, with the last payment also being
prorated. Such payments shall be subject to reconciliation in accordance with
Section 3.1.5 herein.

               3.1.5. Signal will keep records of the time spent by its FTEs on
the Target Research, Organon shall have the right to have these records audited,
in the same manner as is set forth in Section 6.4. Signal will report the level
of FTE effort to Organon on a quarterly basis. During the course of the Target
Research, Signal will notify Organon if it becomes apparent that the level of
effort at Signal is expected to deviate from the level required under Section
3.1.4.

               If the level of effort is less than an average, on an annual
basis, of the number of FTE's required pursuant to Section 3.1.4, Organon will
be entitled to additional FTE effort in subsequent quarterly periods, such that
the required annual average is restored. Conversely, if the average annual level
of effort by Signal exceeds the number of FTE's required and funded pursuant to
Section 3.1.4, Signal will be entitled to reduce the FTE effort in subsequent
quarterly periods, such that the required annual average is restored. At the end
of the Target Research the parties will restore any such imbalance between
actual and funded FTE's either through appropriate payments or refunds, or
through the extension of the Target Research until the balance is restored, as
mutually agreed to by the parties.

        3.2.   DEVELOPMENT AND COMMERCIALIZATION

        The provisions of this Section 3.2 shall apply to all compounds (the
"Lead Compounds") which result from the use of Research Assays.

               3.2.1. ORGANON MILESTONE PAYMENTS.

                      (a) Organon shall pay Signal [***].

                      (b) [***].

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                      (c) For Development Compounds, the following milestone
payments shall be made by Organon to Signal.

                          (i)   [***]

                          (ii)  [***]

                          (iii) [***]

                          For clarity of understanding the milestones referred
to in Section 3.2.1(c) shall each be payable only once for each compound; such
that the maximum aggregate milestone payments for a single compound will be
[***].

                      (d) If more than one Organon Product is commercialized
originating from the same selection criteria and Research Assay(s) as a back-up
to another Organon Product for which milestones have already been paid, and
which is approved for the same therapeutic indication as such Organon product,
Organon shall pay Signal retroactively the payments under Section 3.2.1(b) and
(c) upon the date of first commercial sale of each such second or further
Organon Product.

               3.2.2. THIS SECTION INTENTIONALLY LEFT BLANK

               3.2.3. ROYALTIES

               As a further compensation for providing the Research Assays to
Organon, on each Organon Product Organon shall pay the following royalties to
Signal:

                      (a) For each Organon Product which contains an Organon
Compound, or an analog, derivative or homolog of an Organon Compound and not an
analog, derivative or homolog of a Signal Compound, Organon shall pay to Signal
royalties on Net Sales made by Organon, its Affiliates or licensees, at the rate
of [***] of Net Sales if aggregate annualized worldwide Net Sales for the
Organon Product do not exceed [***], at the rate of [***] if aggregate
annualized worldwide Net Sales for the Organon Product are greater than [***]
and do not exceed [***], and [***] of Net Sales if aggregate annualized
worldwide Net Sales for the Organon Product exceed [***].




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        For each Organon Product which contains a Signal Compound, or an analog,
derivative or homolog of a Signal Compound, Organon shall pay to Signal
royalties on Net Sales made by Organon, its Affiliates or licensees, at the rate
of [***] of Net Sales if aggregate annualized worldwide Net Sales for the
Organon Product does not exceed [***], at the rate of [***] if aggregate
annualized worldwide Net Sales for such Organon Product are greater than [***]
and do not exceed [***], and [***] of Net Sales if aggregate annualized
worldwide Net Sales for such Organon Product exceed [***].

                      (b) In addition to the royalties set forth above, Organon
shall pay to Signal all royalties owed by Signal, pursuant to its agreements
with third parties, for the use of Signal Compounds, Compound Patents, Signal
Technology, Signal Technology Patents, Research Assay Patents or Gene/gen
product Patents in the Target Research or otherwise under this Agreement.
Notwithstanding the foregoing, Signal shall notify the Research Committee before
using in the Target Research, any Signal Technology or invention covered by
Signal Technology Patents, Research Assay Patents or Gene/gen product Patents
(but not Signal Compounds or Compound Patents) which is subject to such a
royalty obligation to a third party. If the Research Committee elects to make
use of such technology or inventions, Organon shall pay such royalties as
provided above. If the Research Committee elects not to make use of such
technology or invention, no such royalties shall be owed by Organon and neither
party shall apply such technology or invention to the Target Research. As of the
date of this Agreement, Signal has no agreements with third parties pertaining
to the use of Signal Compounds, Compound Patents, Signal Technology, Signal
Technology Patents, Research Assay Patents or Gene/gen product Patents under
which royalties will be due for the use of such compounds, technology or patents
in the manner contemplated under this Agreement.

                      (c) Royalties shall be paid until the later of

                          (i)  the expiration or disclaimer of the last Research
Assay Patent Genes/Receptor Patent Compound Patent, a Signal Technology Patent
that covers the relevant Organon Product or the manufacture or use thereof for
an approved indication on a country by country basis or

                          (ii) ten (10) years from the first commercial
launch in each country.

                          Each party acknowledges and agrees that the Signal
Technology generally, and the Research Assays in particular, constitute highly
valuable materials and information, as reflected for example in the payments to
be made by Organon under Section 3.2.1(a), as well as those to be made under
Sections 3.1.3 and 3.1.4. Signal has made every effort to retain such materials
and information in



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confidence. Irrespective of whether the Research Assays, for example, are
covered by Research Assay Patents, access to such assays will provide Organon
with substantial competitive advantage in the discovery and development of
products in the Target Research Field. In order to induce Signal to make such
assays available to Organon, in addition to other payments provided in this
Agreement, Organon agrees to pay, even if no Research Assay Patents or other
patents cover such Organon Product, (i) royalties on Net Sales in North America
at the rate set forth above for [***] from commercial launch of each Organon
Product in each North American country, and (ii) a royalty of [***] on Net Sales
in each other country for [***] from commercial launch of each Organon Product
in each such country.

               3.2.4. Lead Compound Development; Abandoned Products

                      (a) Organon agrees to use commercially reasonable
diligence to develop and commercialize Lead Compounds for development and
commercialization as an Organon Product. Organon will keep Signal informed of
the progress of its development of products under this Section 3.2, at each
meeting of the Executive Committee during the Research Term, and not less
frequently than once per year thereafter.

                      (b) If at any time Organon has conducted no significant
development activity with regard to a particular Signal Compound for a period of
twelve months, Signal will have the right to develop and commercialize products
incorporating such Signal Compound ("Abandoned Products"), subject to the
following. Signal shall not develop or commercialize any Abandoned Product so
long as Organon is developing an Organon Product with demonstrated activity in
the same Research Assay (or set of Research Assays) as the Abandoned Product
demonstrates activity in. Signal may not commence development of any Abandoned
Product until the first anniversary of the conclusion of the Target Research.


                      (c) For the one year period commencing on the date Signal
first obtains the right to develop an Abandoned Product, Organon shall have the
following right of first negotiation to re-acquire rights to such Abandoned
Product. Upon notice by either party during such one year period, the parties
shall negotiate in good faith for up to sixty (60) days to reach a Term Sheet
providing for Organon to re-acquire such rights. If a Term Sheet can be agreed
upon, the parties shall negotiate in good faith for up to sixty (60) additional
days to reach a definitive agreement. If no definitive agreement is executed
within such time period, Signal shall be free to pursue such Abandoned Product
alone or with third parties subject only to royalties at the following rates:
[***] of Net Sales if aggregate annualized worldwide Net Sales for the Abandoned
Product do not exceed [***], [***] of Net Sales if aggregate annualized
worldwide Net Sales for the Abandoned Product are greater than [***] and do not
exceed [***],



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and [***] of Net Sales if aggregate annualized worldwide Net Sales for the
Abandoned Product exceed [***], which shall be paid in accordance with the
mechanisms set forth in Sections 3.2.3(c) and Section 6 with respect to Organon
Products.

        3.3.   TITLE TO NEW INVENTIONS AND PATENT RIGHTS

               3.3.1. Inventions and discoveries made by inventors employed by
Signal shall be owned by Signal, Inventions and discoveries made by inventors
employed by Organon shall be owned by Organon. Inventions and discoveries made
by both inventors employed by Signal as inventors employed by Organon shall be
jointly owned.

               Each party shall provide the other party with any and all
available information and documentation needed to prepare, file, prosecute,
re-examine patent applications. Both parties shall refrain from any action that
might endanger possible patent rights arising from the Target Research.

               3.3.2. PATENT COMMITTEE. The parties shall form a joint Patent
Committee to review the preparation and prosecution of patents arising from the
Target Research. The Patent Committee shall include a patent attorney designated
by each party and the chemistry program head designated by each party. All
patent applications arising from the Target Research shall be evaluated in
accordance with the following process:

                      (a) The designated patent attorneys from each party shall
advise the Executive Committee on inventorship issues related to patents arising
from the Target Research.

                      (b) Unless otherwise agreed, patents and patent
applications owned by one party shall be drafted, filed, prosecuted and
maintained by the party that owns the patent rights, as provided in Section
3.3.1 at that party's expense. The Patent Committee shall decide which party
will draft and prosecute joint patents in consultation with the other party: the
expenses for the drafting and prosecution of such patent shall be shared equally
between the parties. In all cases, each party shall keep the other party
informed as to the status and progress of all relevant patents and patent
applications; and shall draft, file, prosecute and maintain joint patents and
patent applications in consultation with the other party.

                      (c) If there is a dispute between Signal and Organon
related to patents arising from the Target Research, including, without
limitation, issues regarding patent claims, the scope of patent claims; and
inventorship, the parties shall refer the matter to an independent patent
attorney acceptable to both parties for resolution.


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        3.4.   LICENSES AND OPTION RIGHTS

        Subject to the terms and conditions of this Agreement, Signal hereby
grants to Organon a world-wide non-exclusive license, during the Research Term
only under the Signal Technology within the Target Research Field to conduct
research in accordance with the Research Plan. Subject to the terms of this
Agreement, Signal hereby grants to Organon a world-wide exclusive license, for
the period following the end of the Research Term until this Agreement expires
or is terminated, to use the Signal Compounds and under the Research Assay
Patents, Gene/gen product Patents and Compound Patents to research, develop,
make, have made, use and sell Organon Products; provided, however, that any
compound from any source that is useful for the [***] shall be specifically
excluded from the scope of the foregoing license. If, however, a compound has
been selected in the Target Research Field that potentially is useful for the
[***], the parties shall negotiate in good faith, together with any of Signal's
licensee(s) in such field, a possible extension of the foregoing license with
regard to such compound. Subject to the terms of this Agreement, Signal hereby
grants to Organon a world-wide non-exclusive license, for the period following
the end of the Research Term until this Agreement expires or is terminated, to
use the Signal Technology and Signal Technology Patents for any purpose in the
Target Research Field. Organon shall have the right to grant sublicenses under
its exclusive license rights, with the prior written consent of Signal, not to
be unreasonably withheld; provided that such consent shall not be required for
sublicenses to Organon's Affiliates.

4.      PATENT ENFORCEMENTS

        4.1.   INFRINGEMENT ACTION BY A THIRD PARTY

               4.1.1. NOTICE. Each party shall promptly notify the other party
if any legal proceedings are commenced against any party or any purchaser of a
Organon Product, claiming that the manufacture, use or sale of such Organon
Product is an infringement of a third party's patent or other intellectual
property rights.

               4.1.2. DEFENSE OF CLAIMS INVOLVING ORGANON PRODUCT. Organon shall
have the right, and to the extent required by Section 5.1, the obligation to
assume and solely manage the defense of any such infringement claim relating to
the Organon Product in its own name or in the name of Signal, if necessary, in
such event.

                          (i) Signal shall take all appropriate or necessary
actions to assist in the defense of such action or claim

                          (ii) Organon shall bear all costs and expenses
associated with such action or claim (including, without limitation, legal fees
and expenses).




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                          (iii) Organon shall not settle any such claim in any
manner which adversely affects Signal without Signal's prior written consent.

        4.2.   INFRINGEMENT ACTION AGAINST A THIRD PARTY

               4.2.1. NOTICE. Each party shall promptly notify the other party
if it becomes aware of any infringement of any Signal Patents or Organon Patents
by any third party.

               4.2.2. MAINTENANCE OF LAWSUITS INVOLVING SIGNAL PATENTS. Signal
shall have the first right (but not the obligation) to file and maintain
lawsuits for infringement of any Signal Patents by any third party, in its own
name or in the name of Organon, if necessary. If Signal exercises its right to
file and maintain such a lawsuit, Signal shall promptly notify Organon thereof
and Organon shall have the right to join Signal in such action. Within 30 days
of the date of such notice,

        (i) Organon shall exercise or waive its right to join Signal in such
action; and

        (ii) representatives of Signal and Organon shall meet and confer
(whether or not Organon joins Signal in such action) to allocate between the
parties (a) the costs incurred in maintaining such an action and (b) any
monetary recovery in connection with any such infringement.

        Organon shall give Signal all reasonable assistance and cooperate in any
such proceedings filed by Signal, including the entry into additional agreements
necessary to perfect Signal's right to bring or maintain such lawsuits. If
Signal does not exercise its rights to enforce a patent covering Organon Product
within 90 days after the date of such notice of infringement under Section
4.2.1, Organon shall have the right to file and maintain such infringement
action at its own cost and expense, provided that the third party product which
is the subject of such infringement action is a competing product with respect
to the Organon Product. [***] of the costs incurred by Organon in maintaining
such infringement action shall be credited against Organon's royalty obligation
with respect to sales of Organon Product in such country pending the conclusion
of such infringement action, provided that such credit shall not exceed [***] of
the royalty otherwise payable by Organon in any quarter (the "Royalty Offset").
Any monetary recovery in connection with any such infringement action shall
first be applied to reimburse the party bringing such suit for all costs and
expenses incurred by such party, both internal and external, including
attorney's fees and expenses (excluding any amounts funded out of the Royalty
Offset). In the event that Signal declines to file and maintain a lawsuit for
infringement of Signal Patents and Organon assumes the maintenance of such
claim, then any sums withheld by Organon by virtue of the Royalty Offset shall
be reimbursed to Signal pro rata with Organon's recovery of its costs and
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by the Royalty Offset. Any remaining recovery shall be divided equally between
the parties unless Organon elects not to bear [***] the expenses of a suit
brought by Signal, in which case Signal shall retain any remaining recovery,
unless otherwise agreed by the parties as a part of a cost recovery agreement
between the parties.

               4.2.3. MAINTENANCE OF CLAIMS INVOLVING ORGANON PATENTS. Organon
shall have the first right (but not the obligation) to file and maintain
lawsuits for infringement of any Organon Patents by any third party in its own
name or in the name of Signal, if necessary. If Organon exercises its right to
file and maintain such a lawsuit, and the infringer is developing or marketing a
product that would compete with an Abandoned Product which Signal is developing
or commercializing, then Organon shall promptly notify Signal thereof and Signal
shall have the right to join Organon in such an action. Within 30 days of the
date of such notice

        (i) Signal shall exercise or waive its right to join Organon in such
action; and

        (ii) representatives of Signal and Organon shall meet and confer
(whether or not Signal joins Organon in such action) to allocate between the
parties (a) the costs incurred in maintaining such an action and (b) any
monetary recovery in connection with any such infringement. In any case, Signal
shall give such Organon all reasonable assistance and cooperation in any such
proceedings filed by Organon, including the entry into additional agreements
necessary to perfect Organon's right to bring or maintain such lawsuits. If
Organon does not exercise its right to enforce an Organon Patent within 90 days
after the date of such notice of infringement under Section 4.2.1, then Signal
shall have the right to file and maintain such infringement action at its own
cost and expense, provided that the third party product which is the subject of
such infringement action is a competing product with respect to the Abandoned
Product which Signal is developing or commercializing. [***] of the costs
incurred by Signal in maintaining such infringement action shall be credited
against Signal's royalty obligations with respect to sales of such Abandoned
Product in such country pending the conclusion of such infringement action,
provided that such credit shall not exceed [***] of the royalty otherwise
payable by Organon in any quarter (the "Royalty Offset"). Any monetary recovery
in connection with any such infringement action first will be applied to
reimburse the party bringing such suit for all costs and expenses incurred by
such party, both internal and external, including attorneys' fees and expenses
(excluding any amounts funded out of the Royalty Offset). In the event that
Organon declines to file and maintain a lawsuit for infringement of such an
Organon Patent, and Signal assumes the maintenance of such claim, then any sums
withheld by Signal by virtue of the Royalty Offset shall be reimbursed to
Organon pro rata with Signal's recovery of its costs and expenses which were not
covered by the Royalty Offset. Any remaining recovery shall be divided equally
between the parties unless Signal elects not to bear [***] the expenses of a
suit brought by Organon, in which case Organon shall retain any remaining



                                      14.


                      ***Confidential Treatment Requested
<PAGE>   15


recovery, unless otherwise agreed by the parties as a part of a cost recovery
agreement between the parties

5.      INDEMNITY; NO WARRANTIES

        5.1.   ORGANON PRODUCTS

               5.1.1. Organon agrees to indemnify, defend and hold harmless
Signal, and its respective officers, directors, shareholders, and employees from
and against all claims, losses, costs, damages and liability of any kind,
including without limitation attorneys fees, (collectively "Liabilities")
arising in connection with the development, manufacture, use or sale of Organon
Products, except for Liabilities arising as a result of breach by Signal of its
obligations under this Agreement, or any manufacturing, marketing or other
agreement between the parties with respect to the product in question. Signal
shall not make any admission of liability nor take any other action which could
prejudice the defense of such claim or lawsuit by Organon.

               5.1.2. Signal shall promptly notify Organon of receipt of any
claim or lawsuit subject to Section 5.1.1 and shall cooperate with Organon in
connection with the investigation and defense of such claim or lawsuit. Organon
shall have the right to control the defense, with counsel of its choice,
provided that the indemnified party shall have the right to be represented by
advisory counsel at its own expense.

        5.2.   ABANDONED PRODUCTS

               5.2.1. Signal agrees to indemnify, defend and hold harmless
Organon, and its respective officers, directors, shareholders, and employees
from and against all Liabilities arising in connection with the development,
manufacture, use or sale of Abandoned Products, except for Liabilities arising
as a result of breach by Organon of its obligations under this Agreement, or any
manufacturing, marketing or other agreement between the parties with respect to
the product in question. Organon shall not make any admission of liability nor
take any other action which could prejudice the defense of such claim or lawsuit
by Signal.

               5.2.2. Organon shall promptly notify Signal of receipt of any
claim or lawsuit subject to Section 5.2.1 and shall cooperate with Signal in
connection with the investigation and defense of such claim or lawsuit. Signal
shall have the right to control the defense, with counsel of its choice,
provided that the indemnified party shall have the right to be represented by
advisory counsel at its own expense.

        5.3. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, NEITHER PARTY MAKES
ANY, AND EACH PARTY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF



                                      15.
<PAGE>   16

MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY
LIBRARIES OR OTHER BIOLOGICAL OR CHEMICAL MATERIALS OR INFORMATION PROVIDED TO
THE OTHER PARTY PURSUANT TO THIS AGREEMENT OR THE PATENTABILITY OR FREEDOM FROM
INFRINGEMENT OF ANY OF THE FOREGOING.

6.      PAYMENTS AND ACCOUNTING

        6.1. All payments hereunder shall be made in U.S. Dollars.

        6.2. Organon shall keep true and correct accounts of sales of all
products in respect of which royalties are payable to Signal pursuant to this
Agreement, and the calculation of Net Sales and royalties with respect thereto,
and shall deliver to Signal written statements thereof in such form as both
shall agree upon within sixty (60) days following the end of each calendar
quarter and at the same time shall pay to Signal the amount of such royalties
shown to be due.

        6.3. All royalties shall be earned in the local currency of the country
where the applicable Net Sales are made, but shall be converted for payment into
U.S. Dollars, in accordance with the standard procedures used by the Organon in
converting currencies of world-wide product sales for its products generally.

             If royalties cannot be remitted from a country, the parties will
work together to arrive at an equitable solution for paying such royalties to
Signal. Unless the parties mutually agree to the contrary, such obligation shall
be satisfied if royalty payments are paid to an account of the party in the
country in question.

             Any withholding or other tax that Organon is required by law to
withhold and pay on behalf of Signal with respect to the royalties payable to
Signal under this Agreement shall be deducted from said royalties and paid
contemporaneously with the remittance to Signal; provided, however, that in
regard to any tax so deducted, Organon shall furnish Signal with proper evidence
of the taxes paid on its behalf.

        6.4. Signal shall have the right to have an independent certified public
accountant of its own selection and at its own expense, except one to whom
Organon may have reasonable objection, examine the relevant books and records of
account of Organon during reasonable business hours, to determine whether
appropriate accounting and payment have been made hereunder. Said independent
certified public accountant shall treat as confidential, and shall not disclose
to Signal any other information not pertaining to the royalty amounts payable
under this Agreement. Such examination can be undertaken at any time within two
years after the date on which such royalty amounts were due and payable.




                                      16.
<PAGE>   17

7.      PUBLICITY AND PUBLICATION

        7.1. The parties will mutually agree on a press release to be issued
upon execution of this Agreement. Neither party shall make any subsequent public
announcement concerning the terms of this Agreement not previously made public
without the prior written approval of the other party with regard to the form,
content and precise timing of such announcement, except such as may be required
to be made by either party in order to comply with applicable law, regulations
or court orders. Such consent shall not be unreasonably withheld or delayed by
the other party. Prior to any such public announcement, the party wishing to
make the announcement will submit a draft of the proposed announcement of the
other party in sufficient time to enable the other party to consider and comment
thereon. Nothing in this section shall preclude disclosures by either party to
third parties under confidentiality restrictions in order to carry out the
purposes of this Agreement or to define the scope of rights which may be granted
to a third party without violating this Agreement.

        7.2. PUBLICATIONS. Neither party will publish or publicly disclose
results arising from the Target Research without the prior consent of the other
party, which consent shall not be unreasonably withheld. With respect to any
proposed publication or public disclosure of such results, the following shall
apply:

               7.2.1. The Research Committee shall review any proposed
publication with respect to the content, authorship, acknowledgment, and shall
either approve release of the publication, or propose revisions to the
publication. Any disputes relating to the contents or authorship of any
publication(s) prepared by Signal and Organon scientists participating in the
Target Research shall be referred to the Executive Committee for resolution.

               7.2.2. The proposed publication shall be reviewed by the patent
departments and any other departments of Organon and Signal in accordance with
their customary procedures.

               7.2.3. At such time as the proposed publication has been reviewed
and approved by the Research Committee and the patent and/or other departments
of Organon and Signal, the publication may be submitted for publishing.

8.      CONFIDENTIALITY

        8.1. Except as specifically authorized under the terms of this Agreement
each party shall, for the term of this Agreement and for five (5) years after
its termination for any reason whatsoever, treat any proprietary information
disclosed to it by the other party as strictly confidential, and shall not
disclose such proprietary information to third parties or use it for purposes
other than those authorized therein.



                                      17.
<PAGE>   18

               Except as set forth in the exceptions hereinafter any
information, data or material, including without limitation, software,
technology, business plans or information, communicated to the other which is
identified as confidential, or which the other party has reason to believe is
confidential, will be deemed and treated as Proprietary Information.

               Proprietary Information also includes proprietary chemical,
physical or biological materials, identified as confidential, exchanged pursuant
to this Agreement. Access to such Proprietary Information will be limited to
those employees or consultants of the party receiving such information or of
such party's Affiliates or sublicensees, who reasonably require such information
in order to carry out activities authorized pursuant to this Agreement. Such
employees or consultants will be advised of the confidential nature of the
Proprietary Information and the related confidentiality undertaking.

               Proprietary Information shall not include, and the above
confidentiality undertaking shall in no event restrict or impair each party's
right to use or disclose any information which:

                      (a) at the time of disclosure is in the public domain or
thereafter becomes part of the public through no fault of the party receiving
such information;

                      (b) the party receiving such information can conclusively
establish that it was in its possession prior to the time of disclosure;

                      (c) is independently made available to the party receiving
such information by a third party who is not thereby in violation of a
confidential relationship with the other party; or

                      (d) the receiving party can establish was independently
developed without use of the Proprietary Information of the other party.

               The receiving party shall not be restricted from disclosing such
information as is required to be disclosed by law, regulation, or court or
governmental order, provided that the receiving party reasonably notifies the
disclosing party prior to such disclosure of such requirement.

               Upon termination of this Agreement, and provided the Proprietary
Information is still of a confidential nature, the party recipient of the
Proprietary Information will upon request from the disclosing party either
return any such information or destroy the same.




                                      18.
<PAGE>   19

9.      TERM AND TERMINATION

        9.1. The Research Term shall be as set forth in Article 3.

        9.2. Unless terminated earlier under Section 9.3, this Agreement shall
continue in full force and effect until the expiration of all milestone and
royalty obligations or Organon under Article 3. Upon expiration of this
Agreement under this Section 9.2, Organon shall have fully paid-up licenses,
respectively, under Section 3.4.1, and the provisions identified in Section
9.3(a) shall survive expiration hereof.

        9.3.   Early termination.

                      (a) In the event of material breach of this Agreement by
either party, the matter shall be submitted for resolution to the chief
executive officers of each party. If, 30 days after submission to the respective
chief executive officers, no resolution is achieved, then the non-breaching
party may send written notice of the alleged default to the breaching party. If
the material breach is not cured with sixty (60) days following receipt of such
notice, the non-breaching party may terminate this Agreement immediately upon
written notice to the breaching party.

                      (b) The parties acknowledge that under this Agreement,
each party holds a complex series of ongoing technology rights and licenses,
development rights and obligations, and economic rights and obligations; the
breach of which may not be adequately compensated in monetary damages alone. The
parties therefore agree that each may be entitled to remedies in the nature of
specific performance of the obligations of the other.

                      (c) In all cases of early termination or expiration of
this Agreement, the following provisions shall survive, together with any other
obligations of either party which have accrued as of the effective date of
termination or expiration: Articles 5, 7, 8, 9 and 10 and Section 6.4.

        9.4. All licenses granted under this Agreement and deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to
"intellectual property" as defined in Section 101 of such Code. The parties
agree that Organon may fully exercise all of its rights and elections under the
Bankruptcy code. The parties further agree that, in the event Organon elects to
retain its rights as a licensee under such Code, Organon shall be entitled to
complete access to any technology licensed to it hereunder and all embodiments
of such technology. Such embodiments of the technology shall be delivered to
Organon not later than:


                                      19.
<PAGE>   20

                      (a) the commencement of bankruptcy proceedings against
Signal, upon written request, unless Signal elects to perform its obligations
under the Agreement, or

                      (b) if not delivered under (a) above, upon the rejection
of this Agreement by or on behalf of Signal, upon written request by Organon.

        9.5. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR LOST
PROFITS OR ANY CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES TO THE OTHER PARTY,
HOWEVER CAUSED, IN CONNECTION WITH THIS AGREEMENT, PROVIDED THAT NOTHING IN THIS
SECTION 9.5 SHALL LIMIT THE INDEMNIFICATION OBLIGATIONS OF EITHER PARTY PURSUANT
TO ARTICLE 5 AS TO CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES TO THIRD
PARTIES FOR WHICH THE INDEMNITEES MAY BE LIABLE.

10.     MISCELLANEOUS

        10.1. Neither party shall have the right to assign its rights or
obligations under this Agreement to any third party, other than an Affiliate of
such party, or a successor in a change of control by way of merger, acquisition
or otherwise, without the prior written consent of the other party, which
consent shall not be unreasonably withheld. The foregoing notwithstanding,
Organon's prior written consent shall be required during the period beginning
with the Effective Date and ending on the date that is one year following the
Research Term, with regard to assignment under this Agreement to a successor to
Signal which is a direct competitor with Organon. If Organon withholds consent
to an assignment to such a direct competitor, Signal shall have the right to
terminate the Target Research and Organon shall retain all rights as if the
Target Research Program had continued for the full term. This Agreement shall be
binding on, and inure to the benefit of, the permitted successors and assigns of
the parties. All permitted sublicenses and/or assignments by either party of any
of its rights under this Agreement shall be subject to all of the terms and
conditions of this Agreement, which shall be binding on the sublicensees and/or
assignees.

        10.2. The parties hereto are independent contractors. Nothing contained
herein shall constitute either party the agent of the other party for any
purpose whatsoever, or constitute the parties as partners or joint venturers.
Employees of each party remain employees of said party and shall be considered
at no time agents of or render a fiduciary duty to the other party. Neither
party hereto shall have any implied right or authority to assume or create any
obligations on behalf of or in the name of the other party or to bind the other
party to any other contract, agreement or undertaking with any third party.


                                      20.
<PAGE>   21

        10.3. No amendment, waiver of modification of this Agreement shall be
valid or binding on either party unless made in writing and signed by both
parties. The failure of either party to enforce any provision of this Agreement
at any time shall not be construed as a present or future waiver of such or any
other provision of this Agreement. The express waiver by either party of any
provision or requirement hereunder shall not operate as a future waiver of such
or any other provision or requirement.

        10.4. In the event that any provision in this Agreement shall be held to
be unlawful or invalid in any jurisdiction, the meaning of such provision shall
be construed to the greatest extent possible so as to render it enforceable. If
no such construction can render such provision enforceable, it shall be severed,
and the remainder of the Agreement shall remain in full force and effect, only
to the extent that such remainder is consistent with the intentions of the
parties as evidenced by this Agreement as a whole. The parties shall use best
efforts to negotiate in good faith a reasonable substitute, valid and
enforceable provision effective in such jurisdiction.

        10.5. Any notice required or permitted to be given by either party under
this Agreement shall be in writing, addressed, in the case of Signal, to its
Chief Executive Officer, with copy to its General Counsel, and in the case of
Organon, to its President with copy to its General Counsel, at the respective
addresses of the parties shown in the first paragraph of this Agreement, or such
other address as may from time to time be indicated in a notice given under this
Section 10.5. All notices shall be sent by certified or registered first class
mail, telefax confirmed by certified or registered first class mail, or personal
delivery, and shall be effective on receipt at the address referenced above.

        10.6. Neither party will be deemed in breach of this Agreement as a
result of default, delay or failure to perform by such party which is due to
causes beyond the reasonable control of such party, including without
limitation, fire, earthquake, act of God, severe weather, act of war, strikes,
lockouts or other labor disputes, riots, civil disturbances, actions or
inactions of governmental authorities (except in response to a breach by such
party), or epidemics. In the event of any such force majeure, the party affected
shall promptly notify the other party, shall use all reasonable efforts to
overcome such force majeure, and shall keep the other party informed with
respect thereto.

        10.7. All headings and captions used in this Agreement are for
convenience only, and are not intended to have substantive effect.

        10.8. This Agreement may be executed by the parties in one or more
identical counterparts, all of which together shall constitute this Agreement.

        10.9. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.



                                      21.
<PAGE>   22

        10.10. DISPUTE RESOLUTION

               10.10.1. All disputes of all types under this Agreement shall be
referred to the Executive Committee for resolution. The Executive Committee
shall use all reasonable efforts to resolve such matters within thirty (30) days
after such referral, including referral of questions to outside independent
experts where the Executive Committee deems appropriate.

               10.10.2. If the Executive Committee is unable to resolve such
dispute the dispute shall be referred to the Chief Executive Officers ("CEOs")
of the parties for resolution.

               10.10.3. In the event the CEOs are not able to resolve such
dispute within thirty (30) days after the matter is referred to them, the
following shall apply:

                      (a) Prior to entering into binding arbitration in
accordance with the provisions of Section 10.10.3(b) below, the parties shall
enter into non-binding mediation. The mediation shall be conducted by an
independent mediator acceptable to both parties. Either party may serve upon the
other party a written demand for mediation. Such mediation shall commence within
thirty (30) days of the other party's receipt of such demand, unless otherwise
agreed in writing by the parties. Each party shall make available to the
mediation an authorized representative with the capacity to bind such party, and
the mediation shall be conducted as deemed appropriate by the mediator.

                      (b) In the event that the dispute cannot be resolved by
the mediation mechanism referenced in Section 10.10.3(a) the dispute shall be
referred to arbitration in accordance with the rules then prevailing of the
Center for Public Resources ("CPR") 680 Fifth Avenue, New York, New York 10019
unless otherwise mutually agreed. The arbitration shall be conducted in New York
City, New York. Unless otherwise agreed by the parties the arbitration panel
shall consist of arbitrator selected in accordance with the CFR rules.

                      This section 10.10.3 shall not limit the rights of any
party to seek in court of competent jurisdiction interim relief and only such
interim relief, as may be needed to maintain the status quo or otherwise protect
the subject matter of the dispute until the arbitrators have been appointed and
shall have had an opportunity to act.

        10.11. This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all previous agreement,
understandings and negotiations, whether oral or written, with respect to such
subject matter. All information exchanged pursuant to the Confidentiality
Agreement dated _________, 199_ shall be governed by Article 8.



                                      22.
<PAGE>   23

        Executed and effective as of the date first set forth above.

N.V. ORGANON                           SIGNAL PHARMACEUTICALS, INC.



By:________________________            By:_________________________________

Title:_____________________            Title:______________________________

By:________________________

Title:_____________________



                                      23.
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                                   EXHIBIT A

                                       [***]





                      ***Confidential Treatment Requested



                                      24.
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                                   EXHIBIT B

                                     [***]





                      ***Confidential Treatment Requested


                                      25.
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                                   EXHIBIT C

                                     [***]





                      ***Confidential Treatment Requested



                                      26.
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                                   EXHIBIT D

                                     [***]





                      ***Confidential Treatment Requested


                                      27.