<PAGE>   1

                                                                   EXHIBIT 10.47

                                          ***  Text Omitted and Filed Separately
                                               Confidential Treatment Requested
                                               Under 17 CFR Sections 200.80,
                                               200.83 and 230.406




                  COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

                                     BETWEEN

                           AXYS PHARMACEUTICALS, INC.

                                       AND

                          SIGNAL PHARMACEUTICALS, INC.

<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>            <C>                                                                        <C>
ARTICLE 1      DEFINITIONS..................................................................1
        1.1    "Active Compound"............................................................1
        1.2    "Affiliate"..................................................................2
        1.3    "Availability Pool"..........................................................2
        1.4    "Axys Know-How"..............................................................2
        1.5    "Axys Patents"...............................................................2
        1.6    "Back-Up Compound"...........................................................2
        1.7    "Collaboration Compound".....................................................3
        1.8    "Commercialization Budget"...................................................3
        1.9    "Commercialization Plan".....................................................3
        1.10   "Confidential Information"...................................................3
        1.11   "Control"....................................................................3
        1.12   "Effective Date".............................................................3
        1.13   "Fair Market Value"..........................................................3
        1.14   "FDA"........................................................................3
        1.15   "Field"......................................................................3
        1.16   "First Commercial Sale"......................................................3
        1.17   "FTE"........................................................................3
        1.18   "IND"........................................................................4
        1.19   "Information"................................................................4
        1.20   "Joint Know-How".............................................................4
        1.21   "Joint Patents"..............................................................4
        1.22   "Joint Research Committee" or "JRC"..........................................4
        1.23   "Joint Development Committee" or "JRC".......................................4
        1.24   "Know-How"...................................................................4
        1.25   "Licensed Product"...........................................................4
        1.26   "Major Pharmaceutical Market"................................................4
        1.27   "Materials"..................................................................4
        1.28   "NDA"........................................................................4
        1.29   "Net Sales"..................................................................5
        1.30   "Option".....................................................................5
        1.31   "Option".....................................................................5
        1.32   "Patent Right"...............................................................5
        1.33   "Person".....................................................................5
        1.34   "Phase I"....................................................................5
        1.35   "Phase II"...................................................................5
        1.36   "Phase III"..................................................................6
        1.37   "Product Development Plan"...................................................6
        1.38   "Profits or Losses"..........................................................6
        1.39   "Regulatory Approval"........................................................6
        1.40   "Research"...................................................................6
        1.41   "Research Plan"..............................................................6
        1.42   "Research Technology"........................................................6
        1.43   "Research Term"..............................................................6
</TABLE>

                                        i

<PAGE>   3

<TABLE>
<S>            <C>                                                                        <C>
        1.44   "Retained Compound"..........................................................6
        1.45   "Retained Product"...........................................................6
        1.46   "Reversion Compound".........................................................6
        1.47   "Reversion Product"..........................................................6
        1.47   "Signal Designee"............................................................7
        1.48   "Signal ER Beta Selective Compounds".........................................7
        1.49   "Signal Know-How"............................................................7
        1.50   "Signal Patents".............................................................7
        1.52   "Sublicensee"................................................................7
        1.53   "Territory"..................................................................7
        1.54   "Third Party"................................................................7
        1.55   "Valid Claim"................................................................7
ARTICLE 2      RESEARCH.....................................................................7
        2.1    Collaborative Research.......................................................7
        2.2    Conduct of the Research......................................................8
        2.3    Signal Research Efforts......................................................8
        2.4    Research Funding.............................................................9
        2.5    Research Information and Reports.............................................9
        2.6    Identification of Active Compounds...........................................9
        2.7    Treatment for Commercial or Scientific Impracticability......................9
        2.8    Material Transfer...........................................................10
        2.9    Liability...................................................................10
        2.10   Subcontractors..............................................................10
ARTICLE 3      LICENSES....................................................................11
        3.1    Research and Commercialization License to Axys..............................11
        3.2    Commercialization License Option to Signal..................................12
        3.3    Commercialization License for Retained Compounds and Retained Products
               to Signal...................................................................13
        3.4    Negative Covenants..........................................................13
ARTICLE 4      MANAGEMENT OF THE COLLABORATION.............................................14
        4.1    Creation and Structure of the Joint Research Committee......................14
        4.2    Creation and Structure of the Joint Development Committee...................16
ARTICLE 5      PRODUCT DEVELOPMENT, commercialization and option...........................19
        5.1    Selection of Compounds and Diligence........................................19
        5.2    Development Information and Reporting.......................................20
        5.3    Commercialization Activities................................................21
        5.4    Profit-Share Option.........................................................22
        5.5    Diagnostics; Animals........................................................23
ARTICLE 6      MILESTONES, ROYALTIES AND OTHER PAYMENTS....................................24
        6.1    Research and Milestone Payments.............................................24
        6.2    Payments for Sales Inside the Territory.....................................24
        6.3    Payments for Sales Outside the Territory....................................24
        6.4    Term of Royalty Obligation..................................................25
        6.5    Timing of Payment; Reporting Obligations....................................25
        6.6    Third Party Licenses........................................................25
        6.7    Mode of Payment.............................................................26
</TABLE>

                                       ii

<PAGE>   4

<TABLE>
<S>            <C>                                                                        <C>
        6.8    Obligation to Pay Royalties.................................................26
        6.9    Records Retention...........................................................26
        6.10   Audits......................................................................26
        6.11   Taxes.......................................................................27
ARTICLE 7      INVENTIONS AND PATENTS......................................................27
        7.1    Title to Inventions.........................................................27
        7.2    Rights to Other Compounds...................................................27
        7.3    Patent Prosecution..........................................................28
        7.4    Enforcement of Patents......................................................30
        7.5    Third Party Patent Rights...................................................31
ARTICLE 8      CONFIDENTIALITY.............................................................31
        8.1    Confidentiality Obligations.................................................31
        8.2    Publications................................................................32
        8.3    Press Releases..............................................................33
ARTICLE 9      INDEMNIFICATION.............................................................33
        9.1    Indemnification by Axys.....................................................33
        9.2    Indemnification by Signal...................................................34
        9.3    Notification of Claims; Conditions to Indemnification Obligations...........34
ARTICLE 10     TERMINATION AND EXPIRATION..................................................34
        10.1   Term and Termination........................................................34
        10.2   Termination of the Agreement upon Material Breach...........................35
        10.3   Consequences of Termination.................................................35
        10.4   Accrued Rights; Surviving Obligations.......................................36
        10.5   Rights in Bankruptcy........................................................36
ARTICLE 11     MISCELLANEOUS PROVISIONS....................................................36
        11.1   Relationship of the Parties.................................................36
        11.2   Assignments.................................................................37
        11.3   Representations and Warranties..............................................37
        11.4   Additional Representations and Warranties of Signal.........................38
        11.5   Disclaimer of Warranties....................................................38
        11.6   Further Actions.............................................................38
        11.7   Force Majeure...............................................................38
        11.8   No Trademark Rights.........................................................38
        11.9   Entire Agreement of the Parties; Amendments.................................38
        11.10  Captions....................................................................39
        11.11  Applicable Law..............................................................39
        11.12  Disputes....................................................................39
        11.13  Notices and Deliveries......................................................39
        11.14  No Consequential Damages....................................................40
        11.15  Non-Solicitation............................................................40
        11.16  Waiver......................................................................41
        11.17  Compliance with Law.........................................................41
        11.18  Severability................................................................41
        11.19  Counterparts................................................................41
</TABLE>

                                      iii

<PAGE>   5

                  COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

        This Collaborative Research and License Agreement (this "Agreement") is
made and entered into effective as of October 15, 1999, by and between Axys
Pharmaceuticals, Inc., a Delaware corporation having its principal place of
business at 180 Kimball Way, South San Francisco, CA 94080 ("Axys"), and Signal
Pharmaceuticals, Inc., a California corporation having a place of business at
5555 Oberlin Drive, San Diego, CA 92121 ("Signal"). Axys and Signal may be
referred to herein as a "Party" or, collectively, as "Parties."

                                    RECITALS

        WHEREAS, Signal and its Affiliates possess proprietary technology and
know-how related to selective estrogen receptor modulators ("SERMs"); and

        WHEREAS, Axys and its Affiliates are engaged in the research,
development and marketing of products for the treatment of, among other things,
diseases within the field of cancer; and

        WHEREAS, Axys and Signal desire to collaborate in the discovery,
development and commercialization of SERMs for use in the prevention, and/or
treatment of certain human diseases as identified below.

        NOW, THEREFORE, in consideration of the various promises and
undertakings set forth herein, the Parties agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

        Unless otherwise specifically provided herein, the following terms will
have the following meanings:

        1.1 "ACTIVE COMPOUND" means any compound that:

                (a) meets those criteria for ER Beta receptor potency and
selectivity set forth in Schedule 1.1(a) hereto; and

                (b) satisfies one or more of the following:

                        (i) is Controlled by Signal as of the Effective Date,
including without limitation, [***]; or

                        (ii) is discovered or identified, by or on behalf of
either Party, to meet the criteria of Section 1.1(a) in the course of the
Research conducted under this Agreement or is discovered or identified by or on
behalf of Axys to meet the criteria of Section 1.1(a) in the course of Axys'
continuation of the Research during the license period set forth in Section
3.1(a)(ii); or


*** Confidential Treatment Requested
<PAGE>   6

                        (iii) is acquired (including, without limitation, the
acquisition of rights thereto) during the Research Term by either Party from a
Third Party, on an absolute or contingent basis (such as rights under an
option), and is determined to meet the criteria of Section 1.1(a); or

                        (iv) is generically described within a claim describing
a genus of compounds the utility of which is given as estrogen receptor
modulation, as defined in any pending or issued claim of any unexpired Axys
Patent, Signal Patent or Joint Patent filed in the United States or Japan or as
a European Patent Application, or as a Patent Cooperation Treaty ("PCT")
application designating the United States and the contracting states of the
European Patent Convention, and as to which at least one member of such genus
meets the requirements of Section 1.1(a) and either Section 1.1(b)(i),
1.1(b)(ii) or 1.1(b)(iii); provided that such compound is synthesized and
assayed within [***] after the end of the Research Term.

        1.2 "AFFILIATE" with respect to either Party, will mean any Person
controlling, controlled by, or under common control with such Party. For the
purposes of this Section 1.2 only, "control" will refer to (a) the possession,
directly or indirectly, of the power to direct the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, or (b) the ownership, directly or indirectly, of at least 50% (or, if
less, the maximum ownership interest permitted by law) of the voting securities
or other ownership interest of a Person.

        1.3 "AVAILABILITY POOL" will have the meaning assigned to such term in
Section 5.1(a).

        1.4 "AXYS KNOW-HOW" means all Information Controlled by Axys at any time
during the Research Term or during the license period set forth in Section
3.1(a)(ii) that is necessary or useful for the identification, development,
synthesis, assaying, manufacture, use or sale of Active Compounds and Licensed
Products, but excluding the Axys Patents, any Joint Patents and any Information
that Axys is restricted from disclosing due to confidentiality obligations to
any Third Party.

        1.5 "AXYS PATENTS" means all Patent Rights that are Controlled by Axys
that claim (i) Active Compounds or Licensed Products, (ii) the manufacture or
use of Active Compounds or Licensed Products, or (iii) methods or materials used
for discovering, identifying, or assaying for, Active Compounds or Licensed
Products, in each case where such Patent Rights claim inventions made prior to
the Effective Date or during the Research Term or during the license period set
forth in Section 3.1(a)(ii), but excluding any Joint Patents.

        1.6 "BACK-UP COMPOUND" means any Active Compound that has been selected
by the JRC as a back-up compound with respect to a particular Collaboration
Compound, as provided in Section 5.1, together with any salt, solvate or prodrug
of such selected back-up compound.

***CONFIDENTIAL TREATMENT REQUESTED

                                       2
<PAGE>   7

        1.7 "COLLABORATION COMPOUND" means any Active Compound that has been
selected by the JRC for further development and commercialization as a
Collaboration Compound, as provided in Section 5.1, together with any salt,
solvate or prodrug of such selected compound.

        1.8 "COMMERCIALIZATION BUDGET" will have the meaning ascribed to such
term in Section 5.3(b).

        1.9 "COMMERCIALIZATION PLAN" will have the meaning ascribed to such term
in Section 5.3(b).

        1.10 "CONFIDENTIAL INFORMATION" means a Party's confidential
information, inventions, know-how, data and materials relating to the Research
or Axys' continuation of the Research during the license period set forth in
Section 3.1(a)(ii), or the Active Compounds or Licensed Products, including
without limitation research, technical, clinical development, manufacturing,
marketing, financial, personnel and other business information and plans, which,
if disclosed in written, graphic or electronic form, is marked or otherwise
designated as "confidential" or "proprietary" and, if disclosed orally, is
summarized and designated as "confidential" or "proprietary" in a writing
provided to the receiving Party not later than sixty (60) days after such
disclosure. All information presented at the JRC or JDC meetings will be
rebuttably presumed to be Confidential Information, regardless of whether it
would otherwise qualify as such pursuant to the preceding sentence.

        1.11 "CONTROL" means, with respect to an item of Information or an
intellectual property right, possession of the ability, whether by ownership or
license, to grant a license or sublicense as provided for herein under such item
or right without violating the terms of any agreement or other arrangements with
any Third Party.

        1.12 "EFFECTIVE DATE" means the effective date of this Agreement as set
forth in the first paragraph hereof.

        1.13 "FAIR MARKET VALUE" means the cash consideration which a willing
seller would realize from an unaffiliated, unrelated and willing buyer in an
arm's length sale of an identical item sold in the same quantity and at the same
time and place of the transaction.

        1.14 "FDA" means the United States Food and Drug Administration, or the
successor federal agency thereto.

        1.15 "FIELD" means any and all uses of Active Compounds for the
prevention and treatment of human cancers.

        1.16 "FIRST COMMERCIAL SALE" means, with respect to any Licensed
Product, Reversion Product or Retained Product in any country, the first sale
for use or consumption by the general public of such Licensed Product, Reversion
Product or Retained Product in such country after all Regulatory Approvals have
been obtained in such country.

        1.17 "FTE" means a full-time scientific person dedicated by Signal to
the Research, or in the case of less than a full-time dedicated scientific
person, a full-time, equivalent scientific


                                       3
<PAGE>   8

person year, based upon a total of forty-seven (47) weeks (i.e., one thousand
eight hundred eighty (1,880) hours) per year of scientific work on or directly
related to the Research. Scientific work on or directly related to the Research
to be performed by a Party's employees may include, without limitation, and to
the extent consistent with the Party's past practices, experimental laboratory
work, recording and writing up results, reviewing literature and references,
holding scientific discussions, attending appropriate meetings, seminars and
symposia, managing and directing scientific staff, and carrying out management
duties related to the Research, including attendance at JRC meetings.

        1.18 "IND" means an investigational new drug application filed with the
FDA for approval to commence human clinical trials, or the equivalent in other
countries or regulatory jurisdictions.

        1.19 "INFORMATION" means any data, results, information, know-how, trade
secrets, techniques, methods, development, material, or compositions of matter
of any type or kind.

        1.20 "JOINT KNOW-HOW" means all Research Technology that is made jointly
by employees or agents of Axys and by employees or agents of Signal during the
Research Term or during the license period set forth in Section 3.1(a)(ii), but
excluding the Joint Patents.

        1.21 "JOINT PATENTS" means all Patent Rights that claim or cover
inventions within the Research Technology that are made jointly by employees or
agents of Axys and by employees or agents of Signal during the Research Term or
during the license period set forth in Section 3.1(a)(ii) and name as inventors
one or more employees or agents of Axys together with one or more employees or
agents of Signal.

        1.22 "JOINT RESEARCH COMMITTEE" or "JRC" means that committee to be
formed pursuant to Section 4.1.

        1.23 "JOINT DEVELOPMENT COMMITTEE" or "JDC" means that committee to be
formed pursuant to Section 4.2.

        1.24 "KNOW-HOW" means Axys Know-How and/or Signal Know-How.

        1.25 "LICENSED PRODUCT" means any product, including any formulation
thereof, containing or comprising a Collaboration Compound.

        1.26 "MAJOR PHARMACEUTICAL MARKET" means each of the United States, the
countries of the European Union and Japan.

        1.27 "MATERIALS" will have the meaning assigned to such term in Section
2.8.

        1.28 "NDA" means a New Drug Application and all supplements filed
pursuant to the requirements of the FDA, including all documents, data and other
information concerning products which are necessary for or included in FDA
approval to market a Licensed Product in the United States.


                                       4
<PAGE>   9

        1.29 "NET SALES" means the gross amounts received by Axys or any of its
Affiliates or Sublicensees from all sales by Axys or any of its Affiliates or
Sublicensees to Third Parties, of any Licensed Product, as reflected in the
books and records of Axys or its Affiliates or Sublicensees, as applicable,
maintained in accordance with the accounting principles used by the applicable
entity consistently applied across all of its products, less the following
deductions with respect to such sale, to the extent included in the amounts
invoiced or subsequently actually allowed and taken: (i) all trade, cash and
quantity credits, discounts, refunds or rebates or retroactive price reductions;
(ii) allowances or credits for returns or rejected product; (iii) handling fees
and restocking expenses; (iv) freight, transportation, postage and insurance
paid by Axys or any of its Affiliates or Sublicensees; (v) sales taxes, tariffs,
duties and other governmental charges (including value added tax) actually paid
in connection with the sale (but excluding what are commonly known as income
taxes), and (vi) reasonable and customary accrual-basis deductions from such
gross amounts consistent with Axys' or its Affiliate's or Sublicensee's
accounting policy, as the case may be, for governmental chargebacks or rebates
(including without limitation Medicaid rebates). A "sale" will not include
transfers or dispositions for charitable or promotional purposes or for
preclinical, clinical, regulatory or governmental purposes prior to receiving
marketing approval. In the event a Licensed Product is sold in the form of a
combination product containing one or more active ingredients which are
themselves not Licensed Products, the Net Sales will be calculated by
multiplying the sales price of such combination product by the fraction A/(A+B)
where A is the invoice price or Fair Market Value, whichever is greater, of the
Licensed Product and B is the total invoice price or Fair Market Value,
whichever is greater, of the other product(s).

        1.30 "OPTION" will have the meaning ascribed to such term in Section
5.4.

        1.31 "OPTION PERIOD" will have the meaning ascribed to such term in
Section 5.4.

        1.32 "PATENT RIGHT" means (i) an issued and existing letters patent,
including any extensions, supplemental protection certificates, registrations,
confirmations, reissues, reexaminations or renewals thereof, (ii) pending
applications, including any continuation, divisional, or continuation-in-part
application thereof, for any of the foregoing, and (iii) all counterparts to any
of the foregoing issued by or filed in any country or other jurisdiction.

        1.33 "PERSON" means any natural person, corporation, firm, business
trust, joint venture, association, organization, company, limited liability
company, partnership or other business entity, or any government or agency or
political subdivision thereof.

        1.34 "PHASE I" means that portion of the clinical development program
which generally provides for the first introduction into humans of a product
with the primary purpose of determining safety, metabolism and pharmacokinetic
properties and clinical pharmacology of the product.

        1.35 "PHASE II" means that portion of the clinical development program
which provides for the initial trials of a product in a limited number of
patients with the primary purpose of determining safety, dosing range and
efficacy in the proposed therapeutic indication.


                                       5
<PAGE>   10

        1.36 "PHASE III" means that portion of the clinical development program
which provides for the pivotal trials of a product on sufficient numbers of
patients to establish the safety and efficacy of a product for the desired label
claims and indications.

        1.37 "PRODUCT DEVELOPMENT PLAN" will have the meaning ascribed to such
term in Section 5.4.

        1.38 "PROFIT OR LOSS" will have the meaning ascribed to such term in
Exhibit A.

        1.39 "REGULATORY APPROVAL" means any and all approvals (including price
and reimbursement approvals), licenses, registrations, or authorizations of any
federal, national, state, provincial or local regulatory agency, department,
bureau or other government entity, necessary for the manufacture, use, storage,
import, transport and sale of a Licensed Product, Reversion Product or Retained
Product in a country.

        1.40 "RESEARCH" means the collaborative research program undertaken by
the Parties pursuant to this Agreement to discover, identify, synthesize and
evaluate Active Compounds for use in the Field during the Research Term.

        1.41 "RESEARCH PLAN" means the specific plan for conducting the
Research, as described in Section 2.1, which will be attached hereto as Exhibit
B, as such plan may be amended or revised from time-to-time by the JRC.

        1.42 "RESEARCH TECHNOLOGY" means all tangible and intangible know-how,
trade secrets, inventions (whether or not patentable), discoveries,
developments, data, clinical and preclinical results, information, and physical,
chemical or biological materials, and any replication of or any part of any of
the foregoing, that was made by employees or agents of Axys and/or Signal,
either alone or jointly, during the course of and in the conduct of the Research
during the Research Term or by employees or agents of Axys or jointly by
employees or agents of Axys and Signal during the course of and in the conduct
of Axys' continuation of the Research during the license period set forth in
Section 3.1(a)(ii).

        1.43 "RESEARCH TERM" means the period commencing on the Effective Date
and terminating upon the second anniversary of the Effective Date (or the third
anniversary of the Effective Date if Axys exercises the extension option set
forth in Section 2.2(a)) or such earlier date as of which this Agreement is
terminated pursuant to Section 10.2.

        1.44 "RETAINED COMPOUND" will have the meaning ascribed to such term in
Section 3.3(a).

        1.45 "RETAINED PRODUCT" will have the meaning ascribed to such term in
Section 3.3(a).

        1.46 "REVERSION COMPOUND" will have the meaning ascribed to such term in
Section 3.2(a).

        1.47 "REVERSION PRODUCT" will have the meaning ascribed to such term in
Section 3.2(a).


                                       6
<PAGE>   11

        1.48 "SIGNAL DESIGNEE" will have the meaning ascribed to such term in
Section 4.1(e).

        1.49 "SIGNAL ER BETA SELECTIVE COMPOUNDS" means all Signal-Controlled
compounds during the Research Term which are active modulators of the ER Beta
receptor.

        1.50 "SIGNAL KNOW-HOW" means all Information Controlled by Signal at any
time during the Research Term that is necessary or useful for the
identification, development, synthesis, assaying, manufacture, use or sale of
Active Compounds and Licensed Products, but excluding the Signal Patents, any
Joint Patents and any Information that Signal is restricted from disclosing due
to confidentiality obligations to a Third Party.

        1.51 "SIGNAL PATENTS" means all Patent Rights that are Controlled by
Signal that claim (i) Active Compounds or Licensed Products, (ii) the
manufacture or use of Active Compounds or Licensed Products or (iii) methods or
materials useful for discovering, identifying, or assaying for, Active Compounds
or Licensed Products, in each case where such Patent Rights claim inventions
made prior to the Effective Date or during the Research Term, but excluding any
Joint Patents.

        1.52 "SUBLICENSEE" means a Person other than an Affiliate of Axys to
which Axys has granted sublicense rights under the licenses granted Axys
hereunder, which rights include at least the rights to make and sell Licensed
Products. Third Parties that are permitted only to distribute and resell
finished Licensed Products or that manufacture or finish Licensed Products for
supply to Axys or any of its Affiliates are not "Sublicensees."

        1.53 "TERRITORY" means the United States and its territories and other
countries in which Axys sells Licensed Products directly or through any of its
Affiliate.

        1.54 "THIRD PARTY" means any Person other than Axys, Signal or
Affiliates of either of them, or any Sublicensee.

        1.55 "VALID CLAIM" means a claim of an issued and unexpired patent which
has not been revoked or held unenforceable or invalid by a decision of a court
or governmental agency of competent jurisdiction from which no appeal can be
taken or, after mutual consultation and agreement, an appeal is not taken within
the time allowed for appeal, and which has not been disclaimed, denied or
admitted to be invalid or unenforceable through reissue or disclaimer or
otherwise.

                                    ARTICLE 2

                                    RESEARCH

        2.1 COLLABORATIVE RESEARCH. Within thirty (30) days following the
Effective Date, the Parties will mutually agree upon a written Research Plan
which will be generally consistent with the research plans discussed previously
by the Parties and will be attached hereto as Exhibit B and thereby become
incorporated into this Agreement. As promptly as practicable thereafter, subject
to the terms and conditions herein, the Parties will each use commercially
reasonable diligent efforts to conduct the Research on a collaborative basis,
with the goal of discovering, identifying, synthesizing and performing
preclinical research on Active Compounds and with the


                                       7
<PAGE>   12

further goal of identifying and selecting certain Active Compounds that are
suitable for development as Collaboration Compounds and for commercialization as
Licensed Products for use in the Field. Subject to Section 2.3 and other
applicable provisions, the Parties will conduct the Research as generally
specified in the Research Plan (as amended or revised by the JRC from
time-to-time). The Research Plan, among other things, will specify the
scientific direction and research milestones, and allocate Research
responsibilities and resources between the Parties in a manner consistent with
this Agreement.

        2.2 CONDUCT OF THE RESEARCH.

                (a) The Research will be managed and directed by the JRC, as
provided in Article 4 hereof. Axys will have the option, but not the obligation,
in its sole discretion, to extend the Research Term for an additional one (1)
year period subject to its continuation of the funding provided for in Section
2.4. Axys will exercise such option, if at all, by giving Signal written notice
not less than ninety (90) days prior to the second anniversary of the Effective
Date. Thereafter, the Research Term may be extended by the Parties for an
additional year upon the written agreement of the Parties.

                (b) During the course of the Research, each Party will disclose
to the other the Know-How and patent applications of such Party included in such
Party's Patents as the other Party reasonably needs to conduct its obligations
and assigned tasks under the Research Plan. All work conducted by either Party
in the course of the Research, or by Axys during the license period set forth in
Section 3.1(a)(ii) in the course of its continuation of the Research, will be
completely and accurately recorded, in sufficient detail and in good scientific
manner, in separate laboratory notebooks distinct from other work being
conducted by the Parties. On reasonable notice, and at reasonable intervals,
each Party will have the right to inspect and copy all such records of the other
Party reflecting Research Technology, to the extent reasonably required to carry
out its respective obligations and to exercise its respective rights hereunder.
Notwithstanding Section 1.10, all such records will constitute Confidential
Information of the Party creating such records. The Parties acknowledge and
agree that neither Party guarantees the success of the Research tasks undertaken
hereunder.

                (c) In order to protect the Parties' patent rights in any
inventions conceived or reduced to practice during or as a result of the
Research, each Party agrees to maintain a policy which requires its employees to
record and maintain all data and information developed during the Research in
such a manner as to enable the Parties to use such records to establish the
earliest date of invention and/or diligence to reduction to practice. At a
minimum, the policy will require such individuals to record all inventions
generated by them in standard laboratory notebooks which are dated and
corroborated by non-inventors on a regular, contemporaneous basis.

        2.3 SIGNAL RESEARCH EFFORTS. Signal agrees to commit the resources set
forth in this Section 2.3 to perform its obligations under the Research Plan. In
conducting the Research, Signal will be responsible for the tasks allocated to
it under the Research Plan. In the performance of such work, Signal will
maintain and utilize scientific staff, laboratories, offices and other
facilities consistent with such undertaking and will use personnel with
sufficient skills and experience as are required to accomplish efficiently and
expeditiously the objectives of the Research as set forth in the Research Plan
in good scientific manner and in compliance in all


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material respects with all requirements of applicable laws, rules and
regulations, and all other requirements of applicable good laboratory practices.
Signal will commit [***] ([***]) FTEs [***] ([***]) of whom will be chemists
except as otherwise agreed to by the JRC), or such greater number of FTEs as
will be specified from time-to-time in the Research Plan and as will be
necessary to conducting Signal's obligations under the Research Plan, subject to
Axys' fulfillment of its payment obligations with respect to any such additional
FTEs under Section 2.4.

        2.4 RESEARCH FUNDING. Axys will support Signal's efforts under the
Research for two (2) years, and for any extension of the Research Term, by
paying Signal an amount per year per Signal FTE (the "FTE Reimbursement Rate"),
as provided in the Research Plan. The FTE Reimbursement Rate will be equal to
$[***] per FTE per year. The amounts due Signal under this Section 2.4 will be
payable in equal installments on a quarterly basis, on the first day of each
January, April, July and October of each year during the Research Term (except
that the first payment will be due on the Effective Date, and such payment will
be pro rata based on the remaining portion of the then current calendar
quarter). Axys will be solely responsible for supporting the costs of Axys'
Research efforts as Axys determines to be appropriate and consistent with the
Research Plan, as well as its preclinical development efforts hereunder.

        2.5 RESEARCH INFORMATION AND REPORTS. Subject to restrictions imposed by
a Party's confidentiality obligations to any Third Party, each Party will also
disclose at any time on or before the end of the Research Term and (in the case
of Axys) during the license period set forth in Section 3.1(a)(ii), any Know-How
learned, acquired or discovered by such Party reasonably promptly after such
Know-How is learned, acquired or discovered to the extent reasonably useful to
the other Party for conducting its tasks under the Research. Further, each Party
will disclose to the other all Research Technology discovered, invented, or
acquired by such Party during the Research Term and (in the case of Axys) during
the license period set forth in Section 3.1(a)(ii), including, without
limitation, information regarding Active Compounds, Collaboration Compounds or
Back-Up Compounds, activities of Active Compounds, Collaboration Compounds or
Back-Up Compounds, derivatives thereof, and results of in vitro and in vivo
studies. Nothing herein will require either Party to disclose information
received from a Third Party which remains subject to confidentiality obligations
to such Third Party.

        2.6 IDENTIFICATION OF ACTIVE COMPOUNDS. Each Party will inform the other
Party's members on the JRC in writing as promptly as practicable upon the
Party's discovery, synthesis, acquisition or identification of Active Compounds
during the Research Term and (in the case of Axys) during the license period set
forth in Section 3.1(a)(ii). The notifying Party will include in such notices
the structure of such Active Compounds and the assay information showing the
required functional criteria as provided in Section 1.1(a).

        2.7 TREATMENT FOR COMMERCIAL OR SCIENTIFIC IMPRACTICABILITY. If, during
the Research Term, the JRC determines that (a) the then current Research Plan is
not expected to lead to or result in Collaboration Compounds or that it would be
commercially or scientifically impractical, imprudent or inadvisable to continue
with the then current Research Plan, or (b) a Patent Right owned by a Third
Party is either granted or published in a Major Pharmaceutical Market and such
Patent Right (a "Blocking Patent") claims (i) methods of treating cancer using a
compound that is a Signal ER Beta Selective Compound, or (ii) the composition of
matter of a

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<PAGE>   14

substantial number of the compounds identified by Axys and/or Signal as Active
Compounds as of the date the Parties become aware of such Patent Right (each, a
"Blocking Claim"), and (c) there is no reasonable revision that could be made to
such Research Plan so that the Research can continue in a productive manner
consistent with the objectives of the Research and this Agreement, then upon
such determination, the Parties will meet and confer to discuss the continuation
of research during the remainder of the Research Term on a substitute oncology
program to be mutually agreed to by the Parties. The terms and conditions of
such research and appropriate revisions to the Research Plan will be negotiated
by the Parties in good faith for a reasonable period not to exceed ninety (90)
days; [***].

        2.8 MATERIAL TRANSFER. In order to facilitate the Research, either Party
may provide to the other Party certain biological materials or chemical
compounds including, but not limited to Active Compounds, receptors, reagents
and screens (collectively, "Materials") Controlled by the supplying Party (other
than under this Agreement) for use by the other Party in furtherance of the
Research. Except as otherwise provided under this Agreement, all such Materials
delivered to the other Party will remain the sole property of the supplying
Party, will be used only in furtherance of the Research (or, in the case of
Axys, in furtherance of its continuation of the Research during the license
period set forth in Section 3.1(a)(ii)) and solely under the control of the
other Party, will not be used or delivered to or for the benefit of any Third
Party without the prior written consent of the supplying Party, and will not be
used in research or testing involving human subjects. The Materials supplied
under this Section 2.8 must be used with prudence and appropriate caution in any
experimental work, since not all of their characteristics may be known. EXCEPT
AS EXPRESSLY SET FORTH IN SECTION 11.3 HEREOF, THE MATERIALS ARE PROVIDED "AS
IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY
PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE MATERIALS WILL NOT
INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY.

        2.9 LIABILITY. In connection with the conduct of the Research or, in the
case of Axys, in connection with the conduct of its continuation of the Research
during the license period set forth in Section 3.1(a)(ii), each Party will be
responsible for, and hereby assumes, any and all risks of personal injury or
property damage attributable to the negligent acts or omissions of that Party
and its directors, officers, employees and agents.

        2.10 SUBCONTRACTORS. Axys and Signal may perform some of their
obligations under the Research Plan or (in the case of Axys) in connection with
Axys' continuation of the Research during the license period set forth in
Section 3.1(a)(ii) through one or more subcontractors; provided that (i) none of
the rights of either Party hereunder are diminished or otherwise adversely
affected as a result of such subcontracting, and (ii) the subcontractor
undertakes in writing obligations of confidentiality and non-use regarding
Confidential Information which are substantially the same as those undertaken by
the Parties pursuant to Article 8 hereof. In the event either Party performs one
or more of its obligations under the Research Plan or (in the case of Axys) in
connection with Axys' continuation of the Research during the license period set

*** Confidential Treatment Requested

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<PAGE>   15

forth in Section 3.1(a)(ii) through a subcontractor, then such Party will at all
times be responsible for the performance and payment of such subcontractor.

                                    ARTICLE 3

                                    LICENSES

        3.1 RESEARCH AND COMMERCIALIZATION LICENSE TO AXYS.

                (a) Subject to the other provisions of this Agreement, Signal
hereby grants Axys and any Affiliate subsequently designated in writing by Axys
to Signal pursuant hereto (i) during the Research Term an exclusive (except with
regard to Signal) worldwide, paid up right and license (without the right to
sublicense) under the Signal Patents and the Signal Know-How and under Signal's
rights in the Joint Know-How and Joint Patents solely to conduct the Research
and to discover, synthesize and, in connection with the Research, make and use
Active Compounds for use in the Field, and (ii) commencing at the expiration of
the Research Term and for a period of [***] thereafter, a non-exclusive,
worldwide, paid up right and license (without the right to sublicense) under the
Signal Patents and Signal Know-How and under Signal's rights in the Joint
Know-How and Joint Patents solely to discover, synthesize, and, in connection
with Axys' activities under this Agreement, make and use Active Compounds for
use in the Field; provided, however, that neither Axys nor any designated
Affiliate may conduct any development (other than preclinical development
activities which precede the initiation of IND-enabling studies) or
commercialization activities with respect to any Active Compound discovered,
synthesized, made or used by Axys or such designated Affiliate under this
Section 3.1(a)(ii) unless such Active Compound is first selected as a
Collaboration Compound in accordance herewith; and provided, further, that the
manufacture, use, sale and import of any Licensed Product containing or
comprising any such Collaboration Compound will be subject to all provisions of
this Agreement relating to Licensed Products.

                (b) Subject to the other provisions of this Agreement
(including, without limitation, Section 5.1 hereof), Signal hereby grants to
Axys and any Affiliate of Axys subsequently designated in writing by Axys to
Signal pursuant hereto an exclusive (including with regard to Signal),
worldwide, royalty-bearing right and license, with the right to sublicense,
under the Signal Patents and the Signal Know-How and under Signal's rights in
the Joint Know-How and Joint Patents, solely to conduct development on, and to
make, have made and use for such purpose, Collaboration Compounds and Back-Up
Compounds for use in the Field and to make, have made, import, use, sell and
offer for sale Licensed Products for use in the Field; provided, however, that
neither Axys nor any designated Affiliate will be permitted to sublicense the
foregoing right and license in [***] to any Sublicensee prior to the earlier of
(i) [***], or (ii) [***]. For the avoidance of doubt, it is understood that
Axys' and its designated Affiliates' right to sell Licensed Products will
include the right to sell such Licensed Products under the foregoing license
through distributors. Without limiting any other provision of this Agreement, in
no event will Axys have any right under the Signal Patents, the Signal Know-How
or Signal's rights in the Joint Patents or Joint Know-How to develop, make, have
made, import, use, sell or offer for sale

***CONFIDENTIAL TREATMENT REQUESTED

                                       11
<PAGE>   16

any products containing or comprising analogs or derivatives (other than salts,
solvates and prodrugs) of Collaboration Compounds or Back-Up Compounds, unless
any such analog or derivative itself has been selected as a Collaboration
Compound or Back-Up Compound.

        3.2 COMMERCIALIZATION LICENSE OPTION FOR REVERSION COMPOUNDS AND
REVERSION PRODUCTS TO SIGNAL.

                (a) Subject to the other provisions of this Agreement, in the
event that (i) any Collaboration Compound or Back-Up Compound ceases to be
included in the Availability Pool pursuant to Section 5.1(a), then, in any such
case, Axys hereby grants to Signal, subject to the terms and conditions hereof,
an exclusive option (the "License Option") during the [***] period following
each determination pursuant to such Section (the "License Option Period"), to
obtain an exclusive (including with regard to Axys), worldwide, royalty-bearing
right and license, with the right to sublicense, under the Axys Patents and the
Axys Know-How and under Axys' rights in the Joint Patents and Joint Know-How
solely (x) to conduct development on, and to make, have made and use for such
purpose, such former Collaboration Compound or Back-Up Compound, as the case may
be (each, a "Reversion Compound"), for use outside of the Field and (y) to make,
have made, import, use, sell and offer for sale pharmaceutical products
containing or comprising such Reversion Compound (each, a "Reversion Product"),
for use outside of the Field; provided, however, that [***]. Each License Option
will be exercisable by written notice from Signal to Axys during the applicable
License Option Period, and any such license will become effective automatically
upon Axys' receipt of written notice of exercise from Signal. Notwithstanding
any contrary provision of the first sentence of this Section 3.2(a), the rights
granted to Signal under the License Option will not include any right or license
to use or reference any pre-clinical or clinical data Controlled by Axys for any
purpose, including without limitation, submission of such data to a government
agency for Regulatory Approval, except as otherwise agreed in writing by Axys.

                (b) If Signal exercises a License Option under this Section 3.2,
Signal will pay to Axys royalties equal to [***] percent ([***]%) of the net
sales of the applicable Reversion Products. For purposes of this Section 3.2
only, net sales will have the meaning set forth in Section 1.29, except that all
references to Axys in such definition will be changed to Signal. Signal's
royalty obligations under this Section 3.2(b) as to a particular Reversion
Product will terminate on the same basis as Axys' royalty obligations terminate
as provided in Section 6.4. All royalty payments under this Section 3.2(b) will
be made on the terms set forth in Sections 6.5, 6.6, 6.7, 6.8, 6.9 and 6.11 as
though such sections referred to Signal instead of Axys and will be subject to
Axys' right to audit Signal on terms equivalent to those set forth in Section
6.10.

                (c) For the avoidance of doubt, if Signal does not exercise any
License Option under this Section 3.2 with respect to a former Collaboration
Compound or Back-Up Compound and conducts development and commercialization
activities with respect to such compound without practicing, using or infringing
the Axys Patents or the Axys Know-How or any of Axys' rights in the Joint
Patents and Joint Know-How, Signal will not be obligated to make any royalty
payments to Axys with respect to sales of pharmaceutical products containing or
comprising such compound.

***CONFIDENTIAL TREATMENT REQUESTED


                                       12
<PAGE>   17

        3.3 COMMERCIALIZATION LICENSE FOR RETAINED COMPOUNDS AND RETAINED
PRODUCTS TO SIGNAL.

                (a) For the avoidance of doubt, Signal will at all times retain,
subject to the provisions of Section 3.4, the exclusive right to develop and
commercialize without any payment to Axys, Signal-Controlled Active Compounds
and pharmaceutical products containing or comprising Signal-Controlled Active
Compounds (excluding Active Compounds that are then also Collaboration Compounds
or Back-Up Compounds) (each, a "Retained Compound") for use outside of the
Field. Subject to the provisions of Section 3.4, Axys hereby grants to Signal an
exclusive (including with regard to Axys), worldwide, royalty-bearing right and
license, with the right to sublicense, under the Axys Patents and the Axys
Know-How and Axys' interest in the Joint Patents and Joint Know-How solely to
conduct development on, and to make, have made and use for such purpose, each
Axys-Controlled and jointly-Controlled Active Compound (excluding Active
Compounds that are then also Collaboration Compounds or Back-Up Compounds) for
use outside of the Field and to make, have made, import, use, sell and offer for
sale pharmaceutical products containing or comprising such Axys-Controlled or
jointly-Controlled Active Compound (each, a "Retained Product") for use outside
of the Field; provided, however, that to the extent Signal has exercised its
License Option pursuant to Section 3.2 with respect to a former Collaboration
Compound or Back-Up Compound, Signal will be obligated to make royalty payments
to Axys with respect to sales of the applicable Reversion Product in accordance
with Section 3.2.

                (b) Except in cases in which Signal pays Axys royalties under
Section 3.2, Signal will pay to Axys royalties equal to [***] percent ([***]%)
of the net sales of the applicable Retained Product. For purposes of this
Section 3.3(b) only, net sales will have the meaning set forth in Section 1.29,
except that all references to Axys in such definition will be changed to Signal.
Signal's royalty obligations under this Section 3.3(b) as to a particular
Retained Product will terminate on the same basis as Axys' royalty obligations
terminate as provided in Section 6.4. All royalty payments under this Section
3.3(b) will be made on the terms set forth in Sections 6.5, 6.6, 6.7, 6.8, 6.9
and 6.11 as though such sections referred to Signal instead of Axys and will be
subject to Axys' right to audit Signal on terms equivalent to those set forth in
Section 6.10.

        3.4 NEGATIVE COVENANTS.

                (a) Signal covenants to Axys that neither Signal nor any
Affiliate of Signal will develop or commercialize or license any Third Party to
develop or commercialize (i) any Active Compound for use in the Field, or (ii)
any Collaboration Compound or Back-Up Compound (in each case, as long as it
remains such) for any use or purpose. [***]

                (b) Signal covenants to Axys that neither Signal nor any
Affiliate or Sublicensee of Signal will research, develop or commercialize, or
license any Third Party to research, develop or commercialize any compound or
product whose primary mode of action is

***CONFIDENTIAL TREATMENT REQUESTED


                                       13
<PAGE>   18
[***] for use in the Field during the Research Term and thereafter for so long
as [***].

                (c) Except as expressly provided in Section 3.2(a), Signal will
not actively facilitate or encourage the off-label use in the Field of any
Active Compound (including any Collaboration Compound or Back-Up Compound)
removed from the Availability Pool by the JRC pursuant to Section 5.1(a). Axys
will not actively facilitate or encourage the off-label use outside the Field of
any Active Compound (including any Collaboration Compound or Back-Up Compound).

                                    ARTICLE 4

                         MANAGEMENT OF THE COLLABORATION

        4.1 CREATION AND STRUCTURE OF THE JOINT RESEARCH COMMITTEE.

                (a) CREATION OF JRC. Within ten (10) days of the Effective Date,
the Parties will create a Joint Research Committee of six (6) persons to
facilitate the research collaboration called for herein. The JRC will consist of
an equal number of representatives nominated by each Party, as listed in the
Research Plan. Members of the JRC may be represented at any meeting by a
designee appointed by such member for such meeting. Each Party will be free to
change its representatives on notice to the other or to send a substitute
representative to any JRC meeting.

                (b) REGULAR MEETINGS. Axys will call the meetings of the JRC and
chair such meetings. The JRC will meet in person at least once every three (3)
months during the Research Term and thereafter as reasonably requested by either
of the Parties until (i) the expiration or termination of Axys' license under
Section 3.1(a)(ii), or (ii) such later date as the Parties may agree if Signal
has exercised the Option and the Parties are continuing the Research.
Thereafter, the JRC will cease to exist. Meetings will alternate between the
offices of Axys and Signal. A JRC member of the Party hosting the meeting will
serve as Secretary of that meeting. Each Party will disclose to the other
proposed agenda items in advance of each meeting of the JRC. The Secretary of
the meeting will prepare and distribute to all members of the JRC minutes of the
meeting sufficiently in advance of the next meeting to allow adequate review and
comment prior to the meeting. Such minutes will provide a description in
reasonable detail of the discussions had at the meeting and a list of any
actions, decisions or determinations approved by the JRC. Minutes of each JRC
meeting will be approved or disapproved, and revised as necessary, at the next
meeting. Final minutes of each meeting will be distributed to the members of the
JRC. The JRC may also convene, or be polled or consulted from time-to-time by
means of telecommunications, video conferencing or written correspondence, as
deemed necessary or appropriate.

                (c) RESPONSIBILITIES OF THE JRC DURING THE RESEARCH TERM. During
the Research Term, the JRC will be the primary vehicle for interaction between
the Parties with respect to the Research. Without limiting the foregoing, during
the Research Term, the JRC will be responsible for: (i) reviewing, approving and
amending the Research Plan; (ii) directing, managing and monitoring the progress
of the Research; (iii) determining from time-to-time the


***CONFIDENTIAL TREATMENT REQUESTED


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<PAGE>   19

appropriate number of Signal FTEs who will be chemists; (iv) identifying and
selecting the specific Active Compounds to become or to cease as Collaboration
Compounds or Back-Up Compounds as contemplated in Section 5.1(a); (v)
determining in good faith from time-to-time as promptly as practicable the
composition and scope of the Availability Pool pursuant to Section 5.1(a); and
(vi) reviewing and commenting upon (but not approving) the patent filing
strategies of the Parties as provided in Article 7. The Research Plan will
contain the specific research objectives to be achieved, the specific
responsibilities of the Parties, and the timeline for the Research.

                (d) RESPONSIBILITIES OF THE JRC AFTER THE RESEARCH TERM. After
the Research Term, the JRC will continue to exist primarily as a vehicle to
inform Signal about, and to obtain Signal's input regarding, Axys' continuation
of the Research subject to the other provisions of this Section 4.1(d). After
the end of the Research Term, the JRC will cease to manage and direct the
Research or any continuation of the Research by Axys as permitted hereunder,
and, except as provided hereinafter, the JRC shall no longer have the
responsibilities and decision-making authority otherwise provided for in this
Agreement; provided, however, that in the event that Signal exercises the Option
and the Parties agree to a further continuation of the Research thereafter, the
JRC will again be responsible for managing and directing the continuation of the
Research to the same extent it is responsible for managing and directing the
Research during the Research Term. During the period that the JRC does not have
responsibility for managing and directing any continuation of the Research, Axys
will be responsible for managing and directing any continuation of the Research
it deems appropriate subject to the following provisions:

                        (i) In the event Axys decides to continue the Research
as permitted hereunder, Axys will do so in good faith with the same goals as set
forth in Section 2.1.

                        (ii) While the Parties acknowledge that the JRC will not
be managing and directing Axys' continuation of the Research during this period,
the Parties intend that the collaborative and consultative nature of the
Research should continue. In connection with any continuation of the Research by
Axys, Axys will make a reasonable, good faith effort to keep Signal
appropriately informed of, solicit Signal's input and advice about, and give due
consideration to Signal's comments on, its continuation of the Research.

                        (iii) In addition, at the JRC meetings during the period
described in this Section 4.1(d), the Parties will continue to review and
comment upon (but not approve) the patent filing strategies of the Parties as
provided in Article 7.

                        (iv) During any continuation of the Research by Axys,
the Parties anticipate that additional Active Compounds may be synthesized by
Axys' employees or agents who are continuing the Research and that, as provided
herein, such Active Compounds will become part of the Availability Pool. In
recognition of both Parties' interests in appropriately retaining and releasing
Active Compounds from the Availability Pool, the JRC will continue, after the
end of the Research Term, to determine (as provided in Section 4.1(e)) in good
faith from time to time as promptly as practicable the composition and scope of
the Availability Pool.

                (e) DECISIONS OF THE JRC. At least four (4) members of the JRC
will constitute a quorum for any meeting of the JRC; provided, that there are at
least two (2) members


                                       15
<PAGE>   20

present from each Party. All decisions of the JRC will be made by the unanimous
vote of all JRC members participating in the meeting. In the event that the
members of the JRC cannot agree with respect to a particular issue (other than
any disagreement over matters described in Section 4.1(c)(iii)), such issue will
be referred to Axys' Chief Technical Officer and Signal's Chief Scientific
Officer who will discuss such issue in good faith (each party giving due
consideration to the other) and who will make a reasonable good faith effort to
reach agreement thereon within the ten (10) day period after such JRC meeting.
In the event such persons are unable to reach an agreement on such issue, it
will be referred to the Chief Executive Officer of Axys and Harry F. Hixson (or
such other member of the Board of Directors of Signal as Signal may designate by
written notice to Axys or, if the Chief Executive Officer of Axys is no longer a
member of the Board of Directors of Signal, the Chief Executive Officer of
Signal) (the "Signal Designee") for resolution pursuant to Section 11.12.

                (f) EXPENSES. Each Party will be responsible for all travel and
related costs for its representatives to attend meetings of, and otherwise
participate on, the JRC.

        4.2 CREATION AND STRUCTURE OF THE JOINT DEVELOPMENT COMMITTEE.

                (a) CREATION OF JDC. If Signal exercises the Option pursuant to
Section 5.4, then within ten (10) days thereafter the Parties will create a
Joint Development Committee (the "JDC") with the purpose of providing direction,
as provided herein, in the subsequent development through Regulatory Approval of
Licensed Products, including without limitation, pre-clinical research, if any,
and clinical research. The JDC will be composed of three (3) representatives
appointed by each of Axys and Signal. Such representatives will include
individuals with expertise and responsibilities in the areas of preclinical
development and clinical development and other relevant areas of expertise.
Either Party may replace any or all of its representatives at any time upon
written notice to the other Party.

                (b) REGULAR MEETING. The JDC will meet at least once each
calendar quarter, or more frequently, as agreed by the Parties until the First
Commercial Sale of the last Licensed Product being developed by Axys. Axys will
call the meetings of the JDC and will chair such meetings. At least four (4)
members of the JDC will constitute a quorum for any meeting of the JDC;
provided, that there are at least two (2) members present from each Party. Each
representative will have one (1) vote on all matters within the JDC's purview.
On matters requiring the approval of the JDC, such approval will be by the
unanimous vote of all JDC members participating in the meeting.

                (c) ROLE OF JDC. The Parties acknowledge that the JDC is
intended to fulfill a different role than the role of the JRC and that in the
event that both research and development are occurring, both the JDC and the JRC
may exist. The Parties further acknowledge that two significant reasons for the
different JDC role are the fact that (i) Signal will have effectively accepted
Axys' Product Development Plan by its decision to exercise the Option and (ii)
Axys has responsibility as contemplated in Section 5.1(b) for the further
development and Regulatory Approval of Collaboration Compounds and Back-Up
Compounds and the commercialization of Licensed Products even after the JDC is
formed.


                                       16
<PAGE>   21

                (d) INTERACTIONS OF THE JDC AND AXYS. The Parties anticipate
that Axys, as the Party performing on a day-to-day basis the development
activities and the Regulatory Approval activities and planning and implementing
on a day-to-day basis the commercialization activities, will possess
substantially all of the knowledge, information and documentation pertaining to
its development, Regulatory Approval and commercialization plans, activities and
results. The Parties acknowledge that they do not intend that the JDC
micro-manage the development or Regulatory Approval activities of Axys with
respect to Collaboration Compounds and Back-Up Compounds. The Parties also
recognize that Axys' development, Regulatory Approval and (to the extent
relevant) commercialization plans for Collaboration Compounds and Back-Up
Compounds will change, will be defined and refined and will evolve from
quarter-to-quarter. As part of the interaction process with the JDC, Axys will
update the JDC at the quarterly JDC meetings, or more often as required, on
important development plans, Regulatory Approval and (to the extent relevant to
the development process) commercialization plans, activities and results. In
addition, Axys will (where practicable) include Signal's JDC personnel in its
significant internal discussions of important development plans and Regulatory
Approval and (to the extent relevant to the development process)
commercialization issues. Axys' Chief Medical Officer will also make himself
reasonably available to meet with Signal's Chief Medical Officer or appropriate
designee at mutually convenient times to discuss Axys' development, Regulatory
Approval and (to the extent relevant to the development process)
commercialization plans, activities and results. In its updates, reports and
plans, Axys will provide the JDC to the extent practicable with information
comparable to that relied on by Axys for its own internal decision-making and
all such updates, reports and plans will be in such form and will contain such
detail as the JDC may reasonably require in order to fulfill its purposes.

                (e) THE PRODUCT DEVELOPMENT PLAN PROCESS. At the quarterly JDC
meetings (which, upon agreement of the Parties, may be part of Axys' internal
development review meetings) the Parties anticipate that Axys will present the
significant updates, revisions and modifications to its Product Development Plan
for a Collaboration Compound. The Product Development Plan and any update,
revision or modification thereto will be consistent with generally accepted
development practices in the industry for development of similar products. Axys'
presentations will include the rationale for such significant revisions or
modifications, as well as timing and cost implications and other meaningful
information. The JDC will review such updates, revisions and modifications and
will provide Axys with input, advice and guidance with respect thereto and with
additional revisions and modifications as deemed appropriate. To the extent that
the revisions and modifications being proposed are in the nature of further
definition or refinement to a Product Development Plan and JDC approval thereof
is not required hereunder, Axys will give due consideration to input and advice
from JDC personnel and other Signal personnel who interact with Axys in its
development activities and the Product Development Plan will then be further
defined and refined in accordance therewith and based upon Axys' best
developmental decision-making. In addition, from time-to-time Axys may request
approval of the JDC for certain proposed modifications to a Product Development
Plan. Following such approval, all references in this Agreement to such Product
Development Plan will thereafter be deemed to be references to the Product
Development Plan as modified with the JDC's approval. Notwithstanding the
foregoing, any proposed revision which (i) [***], or (ii) [***], or (iii) [***].


***CONFIDENTIAL TREATMENT REQUESTED

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<PAGE>   22

[***] (each a "Major Change") will require the express approval of the JDC.

                (f) MAJOR CHANGE DISPUTE RESOLUTION. In the event the JDC cannot
reach agreement on a Major Change, Axys' Chief Medical Officer and Signal's
Chief Medical Officer or appropriate designee will discuss such disagreement in
good faith (each party giving due consideration to the other) and will make a
reasonable good faith effort to reach agreement thereon within the ten (10) day
period after such JDC meeting. In the event the Parties are unable to resolve
their differences, such disagreement will be referred to the Chief Executive
Officer of Axys and the Signal Designee for resolution pursuant to Section
11.12.

                (g) ADDITIONAL INDICATIONS. Although the Product Development
Plan may anticipate more than one indication, the Parties anticipate that the
Product Development Plan (as initially presented to Signal) will be very
specific for the first indication to be pursued in Phase III clinical trials and
relatively less specific for any additional indication. The Parties also
anticipate that the portions of the Product Development Plan addressing
additional indications will be updated, revised and modified from time-to-time
as part of the evolutionary process of the Product Development Plan. The Parties
further contemplate that, prior to initiating further clinical trials for any
additional indication (which are not on-going when Signal exercises the Option
or which are not scheduled at such time for commencement in the near term), Axys
will prepare and present to the JDC a specific trial plan and budget for each
subsequent further clinical trial for an additional indication. As such
additional indication is a part of the overall Product Development Plan, the
process as set forth in Section 4.2(e) and (f) will govern all proposed
revisions or modifications to the Product Development Plan.

                (h) ADDITIONAL COMPOUNDS.


                        (i) In the event that, after Signal exercises the
Option, Axys desires to engage in any additional research or clinical
development with respect to any additional Collaboration Compound (such as a
Back-Up Compound or a second generation compound), Axys will prepare and present
to the JDC (and the JRC to the extent additional research is contemplated) an
initial Product Development Plan for such additional Collaboration Compound. The
JDC (and, if applicable, the JRC) will review, revise and approve such Product
Development Plan or additional research (as the case may be) for such additional
Collaboration Compound in good faith. Any disagreements with respect to approval
of such proposed Product Development Plan will be resolved in the manner that
disagreements over Major Changes are resolved under Section 4.2(f). Following
approval of such Product Development Plan, updates, revisions and modifications
will be governed by Sections 4.2(e), (f) and (g).

                        (ii) The Parties agree that fundraising constraints
should not affect their decision-making regarding the development of additional
Collaboration Compounds. Accordingly, in the event that a Party has a good faith
concern about its fundraising ability for a second Collaboration Compound, the
Parties will meet in good faith to achieve a mutually satisfactory resolution
for continued research and development and achieving the risk-return objectives
contemplated herein. Towards that end, and subject to Axys' financial ability to
do so, the following will be offered by Axys: In the event that, prior to
commercialization of the first Licensed Product, Signal indicates its inability
to fund its share of the research and

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                                       18
<PAGE>   23
development of a second Collaboration Compound as contemplated in the Product
Development Plan, then Axys would fund [***] of the research and development
costs of such second Collaboration Compound, provided that [***] of such
research and development costs (plus interest at the reference rate for the Bank
of America or any successor rate thereto) would be fully credited against
amounts due Signal hereunder with respect to the commercialization of the first
Licensed Product. In the event that the first Collaboration Compound does not
receive Regulatory Approval or ceases to be marketed before Axys has been repaid
in full by Signal, Signal would have the option to either (A) repay all amounts
due to Axys (plus interest) within a reasonable period of time (not to exceed
six (6) months) and to reaffirm its agreement to pay equally for the research
and development of any additional Collaboration Compound thereafter or (B)
revert prospectively to the status and rights it would have had if the Option
had never been exercised, including without limitation, the right to receive a
royalty and other amounts as set forth in Section 6.2 and 6.3, with respect to
such additional Collaboration Compound and any future Collaboration Compounds to
be developed and commercialized hereunder. In such later case, Axys would
forgive all amounts owed by Signal (including accrued interest) with respect to
such second Collaboration Compound.

                                    ARTICLE 5

                PRODUCT DEVELOPMENT, commercialization and option


        5.1 SELECTION OF COMPOUNDS AND DILIGENCE.

                (a) Upon the determination that a compound satisfies the
criteria for an Active Compound, then such Active Compound will become part of a
pool of Active Compounds for potential further development and commercialization
by Axys in accordance with the terms of this Agreement (the "Availability
Pool"). Active Compounds identified by Axys, if any, during the license period
set forth in Section 3.1(a)(ii), if any, will also be added to the Availability
Pool. From time-to-time the JRC will determine in good faith which of the Active
Compounds in the Availability Pool (including Collaboration Compounds and
Back-Up Compounds) are no longer viable candidates for further development and
commercialization for use in the Field (which determination will be noted in the
minutes of the applicable JRC meeting) and thereafter such Active Compounds will
no longer be considered to be part of the Availability Pool. Based on criteria
established by the JRC, the JRC will decide as promptly as practicable which
Active Compounds in the Availability Pool will be further optimized during the
Research and which of such Active Compounds should be deemed to be a
Collaboration Compound and which should be deemed to be Back-Up Compounds for
such Collaboration Compound. The Parties anticipate that there may be more than
one Collaboration Compound from time-to-time. The Collaboration Compounds and
Back-up Compounds identified as such at a particular JRC meeting shall be noted
in the minutes of that JRC meeting. After selection by the JRC as a
Collaboration Compound or Back-Up Compound, as the case may be, Axys will
perform such further preclinical development as agreed by the JRC on such
Collaboration Compounds and/or Back-Up Compounds in order to advance a
Collaboration Compound to the point of commencement of IND-enabling studies;
provided however, that Axys will have no obligation to, but may choose to, move
more than [***] into preclinical development at a time. Based on criteria
established by the JRC, the JRC may recommend to Axys the commencement

***CONFIDENTIAL TREATMENT REQUESTED

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<PAGE>   24

of IND-enabling studies for one or more Collaboration Compounds. Axys will
determine, using its good faith judgment, which Collaboration Compound(s) will
commence IND-enabling studies.

                (b) Subject to Section 4.2, if applicable, once a Collaboration
Compound is selected by Axys for IND-enabling studies, Axys will be solely
responsible for directing the development of, and will have the sole right to
carry out the development of, such Collaboration Compound through Axys' final
stage of preclinical development (IND-enabling studies), and all phases of
clinical trials, and to make all applications for and obtain all Regulatory
Approvals on a worldwide basis. In connection with its development
responsibilities hereunder, Axys will act in good faith, using its best
developmental decision-making and in a manner consistent with generally accepted
development practices in the industry for the development of similar products.
Axys will use commercially reasonable and diligent efforts to pursue the
preclinical and clinical development and commercialization of [***]
Collaboration Compounds, taking into account Axys' prioritization of multiple
Collaboration Compounds from time-to-time, in [***] in a time frame determined
in good faith by Axys under all the circumstances; provided, however, that Axys
will be entitled at any time (without breaching this Agreement) to determine not
to pursue further development or commercialization of any Collaboration Compound
or Back-Up Compounds. In addition, in the event that Axys determines not to
pursue further development or commercialization of any Collaboration Compounds
or Back-Up Compounds, then Axys will provide Signal with written notice of such
determination and, effective upon Signal's receipt of such notice, all such
compounds will cease to be Collaboration Compounds and Back-Up Compounds, as the
case may be. If Signal believes that Axys has failed to satisfy its diligence
obligations hereunder in any material respect Signal may give Axys written
notice specifying in detail the basis for Signal's belief that Axys has not met
its diligence obligations. Within ninety (90) days following Axys' receipt of
any such notice from Signal, Axys will provide Signal with a written response
specifying as applicable, in reasonable detail, how it has begun to use
commercially reasonable and diligent efforts and/or the basis of Axys' belief
that it is in compliance with its diligence obligations hereunder. In the event
of a dispute between the Parties with respect to whether Axys is using its
commercially reasonable and diligent efforts as provided herein, such dispute
will be referred to the Chief Executive Officer of Axys and the Signal Designee
for resolution pursuant to Section 11.12.

                (c) Axys will be solely responsible for all costs and expenses
incurred by Axys in connection with its preclinical and clinical development and
regulatory efforts with respect to Active Compounds, Collaboration Compounds and
Back-Up Compound except as otherwise provided herein in the event that Signal
exercises the Option pursuant to Section 5.4.

        5.2 DEVELOPMENT INFORMATION AND REPORTING. Commencing upon the
initiation of IND-enabling studies for a Collaboration Compound, Axys will keep
Signal appropriately informed about, and to solicit Signal's input and advice
about, and give due consideration to Signal's comments on, Axys' subsequent
preclinical and clinical development of such Collaboration Compound. Without
limiting the generality of the foregoing, Axys will inform appropriate Signal
personnel of important development, Regulatory Approval and (to the extent
relevant to the development process) commercialization plans, activities and
results, including without limitation, by providing Signal with drafts of the
Product Development Plan prior to its


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<PAGE>   25

presentation to Signal under Section 5.4. In addition, Axys will (where
practicable) include appropriate Signal personnel in significant internal
discussion of important development plans and Regulatory Approval and (to the
extent relevant to the development process) commercialization issues. Axys'
Chief Medical Officer will also make himself reasonably available to meet with
Signal's Chief Medical Officer or appropriate designee at mutually convenient
times to discuss Axys' development, Regulatory Approval and (to the extent
relevant to the development process) commercialization plans, activities and
results. At least once every six (6) months, Axys' development personnel will
meet with Signal development personnel, which meeting may (upon the agreement of
the Parties) be part of Axys' internal development review meetings, to present
and discuss significant updates, revisions and modifications to Axys'
development plans for Collaboration Compounds. Axys' presentations will include
the rationale for such significant revisions and modifications and supporting
documentation similar to that relied on by Axys for its own internal
decision-making.

        5.3 COMMERCIALIZATION ACTIVITIES.

                (a) GOOD FAITH COMMERCIALIZATION. The Parties anticipate that in
connection with Axys' commercialization of Licensed Products in the Territory,
Axys will engage in various activities involving, among other things, planning,
annual budgeting, commercial manufacturing or subcontracting, marketing, sales
and distribution of Licensed Products. Axys will conduct its commercialization
activities (including without limitation development of its Commercialization
Plans) in good faith, using its best commercialization decision-making and in a
manner consistent with generally accepted commercialization practices in the
industry for commercialization of similar products.

                (b) COMMERCIALIZATION PLAN. The Parties further anticipate that
Axys will develop commercialization plans (each a "Commercialization Plan") for
each Licensed Product for the Territory, which will generally encompass, among
other things, (i) demographics, market dynamics and market strategies in the
Territory, estimated country launch dates in the Territory, a sales and expense
forecast in the Territory, manufacturing plans and expected product profile
based upon the development plan; (ii) a marketing plan (including pricing
strategies pertaining to discounts, and samples) for the Territory; and (iii) a
commercialization budget (containing the annual and quarterly forecasts),
including launch plan and launch budget ("Commercialization Budget") for each
Licensed Product for the Territory. The Parties acknowledge that
Commercialization Plans and Commercialization Budgets are not static and are not
guarantees and that each will be revised and updated by Axys from time-to-time.

                (c) AXYS-SIGNAL INTERACTIONS. Once Axys has begun internal
planning for commercialization for a Licensed Product, the following will apply.
Axys will regularly update Signal on important commercialization activities and
results. In addition, Axys will (where practicable) include appropriate Signal
personnel in discussions of important commercialization issues. The Axys officer
or other employee responsible for commercialization of a Licensed Product will
make himself reasonably available to meet with his counterpart at Signal at
mutually convenient times to discuss Axys' commercialization plans, activities
and results. On a semi-annual basis, appropriate Axys and Signal personnel will
meet for one (1) day during which meeting Axys will update Signal on its then
current Commercialization Plans and Commercialization Budgets (which will have
been provided to Signal no less than ten (10)


                                       21
<PAGE>   26

business days prior to such meeting date) and will receive any input and advice
from Signal with respect thereto. The scheduling of such meeting will be
mutually agreed by the Parties, taking into account each Party's annual
budgeting timetable. Axys' commercialization presentations will include the
rationale for significant revisions or modifications, as well as timing and cost
implications and other meaningful information. Axys will give due consideration
to the input and advice of Signal in connection with its commercialization
plans, activities and results. In its updates, reports and presentations, Axys
will provide Signal to the extent practicable with information comparable in
form and substance to that relied on by Axys for its own decision-making.
Notwithstanding the other provisions of this Section 5.3(c), in the event that
Signal does not exercise the Option, Axys' obligations to inform Signal of its
commercialization activities will be limited to presentation, on a semi-annual
basis, of a written report describing its commercialization activities during
the prior six (6) months, delivery to Signal of its Commercialization Budget
when approved internally by Axys, and a one (1) day meeting (no more than once
every six (6) months) at which appropriate Axys and Signal personnel will
discuss ongoing commercialization activities.

        5.4 PROFIT-SHARE OPTION. Signal will have the one-time option to elect
to share equally with Axys in the Profits or Losses (as defined in Exhibit A)
from sales of Licensed Products in the Territory (the "Option") pursuant to the
terms and conditions provided in Exhibit A, in lieu of the payments provided for
in Sections 6.2 and 6.3. Signal will have the right to exercise the Option only
by written notice to Axys during a [***] period (the "Option Period") after
[***]. Prior to the start of the Option Period, Axys will make available to
Signal at Axys' offices (to the extent not previously provided) all relevant
information pertaining to Axys' decision and will make its Chief Medical Officer
available at a mutually agreeable time to present and discuss Axys' rationale
for its decision as well as its product development plan (the "Product
Development Plan") for such Collaboration Compound, including (among other
things) a reasonably specific description of the [***] for such Collaboration
Compound, a reasonably detailed budget for such [***], the identification of any
other indication for such Collaboration Compound which Axys then intends in good
faith to pursue, the projected cost through the conclusion of Phase III clinical
trial for such other indication and an overall Product Development Plan budget.
The Option Period will commence on the date Signal begins its review of such
information, but in no event later than five (5) business days after receipt by
Signal of written notice from Axys of [***] and that all such information is
available at Axys' offices for Signal's review. If Signal exercises the Option
as provided herein the following will apply, subject to Section 4.2:

                (a) With respect to such Collaboration Compound, the Parties
will share equally in all subsequent development and pre-market launch costs,
including without limitation, those pertaining to such [***] incurred prior to
the end of Signal's [***] decision period.

                (b) With respect to any additional Collaboration Compounds and
Back-Up Compounds for which Axys pursues further development, the Parties will
share equally all subsequent research, development and pre-market launch costs
for any such additional Collaboration Compounds and Back-Up Compounds under this
Agreement, including without


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                                       22
<PAGE>   27

limitation, those pertaining to commitments made or arising during Signal's
[***] decision period.

                (c) Subject to Section 6.10, Signal will pay to Axys on a
quarterly basis its share of all such documented costs within sixty (60) days of
Signal's receipt from Axys of a reasonably detailed invoice of such costs for
such quarter. Without limiting Axys' obligations under Section 5.3(a), Axys will
provide Signal with reasonably prompt written notice in the event that Axys
becomes aware that actual costs for a quarter will exceed forecasted costs for
such quarter (as provided to the JDC) by [***] or more, together with an
explanation of the reason(s) for such variance.

                (d) The Parties will share equally in Profits or Losses from
sales of Licensed Products, calculated on a product-by-product basis, in the
Territory as provided in Exhibit A and from applicable royalties included in
Profits or Losses in accordance with Section 5.4(e)(i).

                (e) Axys will pay to Signal the following amounts from payments
received from its Sublicensee(s) with respect to Licensed Products, or
sublicensed rights related thereto:

                        (i) With respect to any royalties received, such
royalties will be treated as if they were Net Sales and Signal will be deemed to
have been paid with respect thereto through the sharing in Profits or Losses in
the Territory as provided in Exhibit A.

                        (ii) [***] percent ([***]%) of non-royalty payments to
Axys or its designated Affiliates.

                        (iii) [***] percent ([***]%) of any premium paid for
equity taken in Axys or its designated Affiliates contemporaneously with the
sublicense or pursuant to terms set forth in such sublicense if and to the
extent that the stock premium is a substitute for other non-royalty payments
that would have been made as part of the sublicensing of a Licensed Product.

        5.5 DIAGNOSTICS; ANIMALS. Nothing in this Agreement will be construed as
granting to either Party any rights with respect to the use or commercialization
of Active Compounds as diagnostics or of Active Compounds for use in animals.
The Parties will negotiate commercially reasonable terms and conditions for
rights to commercialize diagnostics involving Active Compounds and for rights to
Active Compounds for use in animals within six (6) months of the Effective Date
and any such rights and obligations pertaining to Active Compounds for use in
animals may be assigned by Axys to Akkadix Corporation and assumed by Akkadix
Corporation.

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                                       23
<PAGE>   28

                                    ARTICLE 6

                    MILESTONES, ROYALTIES AND OTHER PAYMENTS

        6.1 RESEARCH AND MILESTONE PAYMENTS.

                In consideration of the licenses granted to Axys, Axys will make
an initial payment of two million dollars ($2,000,000) within five (5) business
days of the Effective Date. Axys will make the following additional payments to
Signal within thirty (30) days after the occurrence of each of the listed
Milestone Events:

<TABLE>
<CAPTION>
        MILESTONE EVENT              PAYMENT AMOUNT
        ---------------              --------------
<S>                                  <C>
        [***]                        $[***]
        [***]                        $[***]
</TABLE>

        As used in this Section 6.1, the following definition applies:

        [***]

        6.2 PAYMENTS FOR SALES INSIDE THE TERRITORY. Subject to the terms and
conditions of this Agreement, if Signal does not exercise the Option pursuant to
Section 5.4, Axys will pay to Signal royalties equal to [***] percent ([***]%)
of the Net Sales of Licensed Products in the Territory; provided, however, that
if Axys desires to sublicense its rights in [***] after the Option Period has
expired, but finds it commercially unpalatable to do so in light of the [***]
percent ([***]%) royalty obligation to Signal, the Parties will discuss in good
faith and seek to agree on an appropriate adjustment to such royalty rate or
another mutually agreeable solution.

        6.3 PAYMENTS FOR SALES OUTSIDE THE TERRITORY. If Signal does not
exercise the Option pursuant to Section 5.4, in addition to the royalty payable
pursuant to Section 6.2 in the Territory, Axys will pay to Signal the following
to the extent such amounts are actually received from its Sublicensee(s) with
respect to Licensed Products, or sublicensed rights related thereto, outside the
Territory.

                (a) [***] percent ([***]%) of royalty payments to Axys or its
designated Affiliates for sales of Licensed Products outside the Territory;

                (b) [***] percent ([***]%) of non-royalty payments to Axys or
its designated Affiliates in connection with the sale of Licensed Products, or
sublicensed rights related thereto outside the Territory;

                (c) [***] percent ([***]%) of any premium paid for equity taken
in Axys or its designated Affiliates contemporaneously with the sublicense or
pursuant to terms set forth in such sublicense if and to the extent that the
stock premium is a substitute for other non-royalty payments that would have
been made as part of the sublicensing of a Licensed Product outside the
Territory.

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        6.4 TERM OF ROYALTY OBLIGATION. The royalty obligations to Signal under
Section 6.2 as to a particular Licensed Product will terminate, on a
country-by-country basis, on the later of (a) the expiration date in such
country of the last to expire of issued Axys Patents, Signal Patents or Joint
Patents in such country that contains at least one Valid Claim that claims the
composition of matter or use of the Collaboration Compound contained in such
Licensed Product or of a pharmaceutical preparation containing such
Collaboration Compound; or (b) ten (10) years from the date of First Commercial
Sale in such country; provided, however, that if there is a competing product
sold in such country, the royalty obligation on Net Sales of Licensed Product
under Section 6.2 will be [***] percent ([***]%) during any full quarter that
such competing product is sold. For purposes of this Section 6.4, "competing
product" will mean any product that contains a compound identical to the
Collaboration Compound comprising or contained in such Licensed Product.

        6.5 TIMING OF PAYMENT; REPORTING OBLIGATIONS. Running royalties will be
payable on a quarterly basis, within sixty (60) days after the end of each
calendar quarter, based upon the Net Sales during each calendar quarter,
commencing with the calendar quarter in which the First Commercial Sale of a
Licensed Product is made. All other payments to Signal hereunder (excluding
payments pursuant to Section 6.1) will be payable on a quarterly basis, within
sixty (60) days after the end of each calendar quarter, with respect to amounts
received by Axys during such calendar quarter that trigger payment obligations
hereunder. Each payment hereunder will be accompanied by a report of Net Sales
of Licensed Products, royalty and non-royalty payments to Axys or its designated
Affiliates for Licensed Products and premiums on equity in Axys or its
designated Affiliates in sufficient detail to permit confirmation of the
accuracy of the payment made to Signal, including, without limitation, the
quantities of Licensed Products sold, the gross sales and Net Sales of Licensed
Products, royalty and non-royalty payments payable, the method used to calculate
royalty payments and the exchange rates used. Royalties and other payments
hereunder will be calculated in accordance with U.S. generally accepted
accounting principles consistently applied and with the terms of this Article 6.

        6.6 THIRD PARTY LICENSES.

                (a) In the event Signal does not exercise the Option, if an
unexpired Third Party patent(s) claiming a Collaboration Compound, or its
manufacture or its use in the Field, exist(s) in a country where a Licensed
Product containing such Collaboration Compound is being manufactured, used or
sold, and if it should prove in Axys' bona fide, good faith judgment impractical
or impossible for it or its Affiliates to continue the manufacture, use or sale
of such Licensed Product in such country without obtaining a royalty-bearing
patent license from such Third Party under such patent, then Axys may elect in
its discretion to either:

                        (i) terminate its license rights hereunder with respect
to such Licensed Product in such country upon sixty (60) days written notice to
Signal, whereupon Axys and its Affiliates will have no further license rights in
such country regarding such Licensed Product; or

                        (ii) obtain a license from such Third Party under such
patent (a "Third Party License"), in which case [***] percent ([***]%) of the
royalties paid by Axys or its Affiliates under such Third Party License with
respect to the sale of the Licensed Product in such country will be credited
against the royalty payments to be paid by Axys to Signal with respect

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                                       25
<PAGE>   30

to the sale of the Licensed Product in such country under Section 6.2; provided,
however, that the effective royalty rate under Section 6.2 during any calendar
quarter will not be reduced below [***] percent ([***]%) of Net Sales of
Licensed Products.

        6.7 MODE OF PAYMENT. All payments to Signal hereunder will be made by
deposit of United States Dollars in the requisite amount to such bank account as
Signal may from time to time designate by notice to Axys. Payments will be free
and clear of any taxes (other than withholding and other taxes imposed on
Signal), fees or charges, to the extent applicable. With respect to sales
outside the United States, payments will be calculated based on currency
exchange rates for the last calendar quarter for which remittance is made for
royalties. For each quarter and each currency, such exchange rate will equal the
arithmetic average of the daily exchange rates (obtained as described below)
during the calendar quarter; each daily exchange rate will be obtained from the
Reuters Daily Rate Report or The Wall Street Journal, Eastern U.S. Edition, or,
if not so available, as otherwise agreed by the Parties.

        6.8 OBLIGATION TO PAY ROYALTIES. Axys' obligation to pay royalties to
Signal under this Article 6 is imposed only once with respect to the same unit
of Licensed Product regardless of the number of Axys Patents, Signal Patents, or
Joint Patents pertaining thereto.

        6.9 RECORDS RETENTION. For three (3) years after each sale of each
Licensed Product, Axys will keep (and will ensure that its Affiliates and
Sublicensees will keep) records of such sale in sufficient detail to confirm the
accuracy of the royalty and other payment calculations hereunder.

        6.10 AUDITS.

                (a) Upon the written request of Signal, and not more than once
in each calendar year, Axys will permit an independent certified public
accounting firm of nationally recognized standing selected by Signal, and
reasonably acceptable to Axys, at Signal's expense, to have access during normal
business hours, and upon reasonable prior written notice, to such of the records
of Axys as may be reasonably necessary to verify the accuracy of the reports
under Section 6.5 for the prior calendar year only. The accounting firm will
disclose to Signal and Axys only whether the reports are correct or incorrect
and the specific details concerning any discrepancies. No other information will
be provided to Signal.

                (b) If such accounting firm concludes that additional royalties
or other payments were owed during such period, Axys will pay the additional
royalties or other payments, with interest from the date originally due at the
prime rate, as published in The Wall Street Journal (Eastern U.S. Edition) on
the last business day preceding such date, within thirty (30) days after the
date Signal delivers to Axys such accounting firm's written report, subject to
the provisions of Section 6.10(e). If the amount of the underpayment is greater
than [***] of the total amount owed, then Axys will in addition reimburse Signal
for its reasonable costs related to such audit.

                (c) Axys will include in each sublicense granted by it pursuant
to this Agreement a provision requiring the Sublicensee to make reports to Axys,
to keep and maintain

***CONFIDENTIAL TREATMENT REQUESTED

                                       26
<PAGE>   31

records of sales made, pursuant to such sublicense and to grant access to such
records by Signal's independent accountant to the same extent required by Axys
under this Agreement.

                (d) Signal will treat all information subject to review under
this Section 6.10 or under any sublicense agreement in accordance with the
confidentiality provisions of Article 8 of this Agreement, and will cause its
accounting firm to enter into an acceptable confidentiality agreement with Axys
and each Sublicensee, if any, obligating such firm to retain all such financial
information in confidence pursuant to such confidentiality agreement.

                (e) If Axys in good faith disputes the conclusion of the
accounting firm under subsection (b) above that Axys owes additional royalties
or other payments, or any specific aspect of the conclusion, then Axys will
inform Signal by written notice within sixty (60) days of receiving a copy of
the audit containing such conclusion, specifying in detail the reasons for Axys'
disputing such conclusion. The Parties will promptly thereafter meet and
negotiate in good faith a resolution to such dispute. In the event that the
Parties are unable to resolve such dispute within sixty (60) days after such
Axys notice, the matter will be resolved in a manner consistent with the
procedures set forth in Section 11.12, and interest will be payable on any
additional royalties or other payments determined to be due in the same manner
as provided for in Section 6.10(b).

        6.11 TAXES. The Party receiving royalties and other payments under this
Agreement will pay any and all taxes levied on account of such payment. If any
taxes are required to be withheld by the paying Party, it will (a) deduct such
taxes from the remitting payment, (b) timely pay the taxes to the proper taxing
authority, and (c) send proof of payment to the other Party and certify its
receipt by the taxing authority within sixty (60) days following such payment.

                                    ARTICLE 7

                             INVENTIONS AND PATENTS

        7.1 TITLE TO INVENTIONS. Each Party will own and retain all right, title
and interest in and to all Research Technology made solely by such Party's
and/or, to the extent permitted hereunder, any of its Affiliates' employee(s) or
agent(s) and all intellectual property rights in such Research Technology. The
Parties will jointly own any Research Technology made jointly by the Parties'
employees or agents. Inventorship by Axys or Signal employee(s) or agent(s) and
inventorship in cases of Joint Patents will be determined by the applicable laws
of the country or jurisdiction in which the particular Patent Right is sought.
In the event that there is a dispute between the Parties as to which Party will
own any Research Technology, the JRC, or JDC as applicable, will establish a
procedure to resolve such dispute, which may include engaging a Third Party
patent attorney completely unaffiliated and independent of the Parties and
jointly selected by the Parties, as an expert to resolve such dispute.

        7.2 RIGHTS TO OTHER COMPOUNDS. The Parties expect that each of them will
make compounds from its library available for testing for purposes of this
Agreement and that additional compounds may be invented and/or synthesized in
the course of the Research. With respect to such compounds, the Parties agree as
follows:


                                       27
<PAGE>   32

                (a) Pre-existing compounds which are tested in the Research and
are determined, under the provisions of Section 1.1, not to be Active Compounds
will not be subject to this Agreement;

                (b) Except as provided otherwise in this Agreement, compounds
that are owned by a Party, either solely or jointly with the other Party, as
determined under the provisions of Section 7.1, will remain the solely or
jointly owned property of such Party. All such compounds that are determined
under the provisions of Section 1.1 not to be Active Compounds will not be
subject to this Agreement; and

                (c) No implied license under any Patent Rights is granted under
this Section 7.2.

        7.3 PATENT PROSECUTION. The Parties expect that patent applications will
be filed and maintained as required to secure suitable Patent Rights covering
inventions within the Research Technology or covering any Active Compound(s)
Controlled by Signal as of the Effective Date or otherwise applicable to the
Field. The Parties agree as follows with respect to the filing and prosecution
of such applications.

                (a) AXYS PATENTS. Axys will be responsible for obtaining,
prosecuting and/or maintaining throughout the world Patent Rights covering
Research Technology solely owned by Axys. Axys will bear all costs for filing,
prosecuting and/or maintaining Axys Patents throughout the world.

                (b) SIGNAL PATENTS. Signal will be responsible, with the input
of Axys, for obtaining, prosecuting and/or maintaining throughout the world
Patent Rights covering Research Technology solely owned by Signal or covering
any Active Compound(s) Controlled by Signal as of the Effective Date; provided
however, Signal will pursue such Patent Rights covering Collaboration Compounds
as a priority in its prosecution and maintenance strategy. Signal will bear all
costs for filing, prosecuting and/or maintaining Signal Patents throughout the
world. Signal will provide Axys with all material correspondence related
thereto, and Signal will use reasonable efforts to solicit Axys' advice and
review of the nature and content of such Patent Rights and important prosecution
matters in reasonably sufficient time prior to filing thereof, and Signal will
take into account and implement Axys' reasonable comments related thereto.

                (c) JOINT PATENTS. The JRC will determine which Party will be
responsible for obtaining, prosecuting and/or maintaining throughout the world
Patent Rights covering Research Technology jointly owned by Axys and Signal.
Axys and Signal will share equally the costs for filing, prosecuting and/or
maintaining Joint Patents throughout the world. Notwithstanding the above,
either Party may decline to file, prosecute and/or maintain any Joint Patent(s)
or may decline to pay its share of the costs for filing, prosecuting and/or
maintaining any Joint Patent(s), in which case the other Party may undertake the
responsibility for filing, prosecuting and/or maintaining such Joint Patents at
its own expense and the declining party will assign to the other party all its
right, title and interest to any such Joint Patent(s) and upon such assignment
such Joint Patent(s) will become Signal Patent(s) or Axys Patent(s), as the case
may be.


                                       28
<PAGE>   33

                (d) PATENT APPLICATIONS. The Party responsible for obtaining
Patent Rights covering any Research Technology or Signal in the case of Patent
Rights covering any Active Compound(s) Controlled by Signal as of the Effective
Date will file a United States provisional application covering such Research
Technology or Active Compounds under 37 CFR Section 1.53(c) and will thereafter
within one (1) year file a corresponding non-provisional application for a
United States patent under 37 CFR Section 1.53(b) and a corresponding PCT
International Application designating all countries, including without
limitation, the United States, and, at the discretion of the Party responsible
for obtaining the Patent Rights or at the request of the other Party,
corresponding foreign applications in countries which are not PCT members and
which are designated in Exhibit C (as modified from time-to-time by the written
agreement of the Parties), each claiming priority to the initial United States
provisional application. PCT International Applications will enter the national
phase in each designated country at the discretion of the Party responsible for
obtaining the Patent Rights or at the request of the other Party. The
specification of each provisional patent application filed under this Section
7.3(d) will contain, in addition to all other requirements under 37 CFR Section
1.53, a description pursuant to 37 CFR Section 1.71 and at least one (1) claim
pursuant to 37 CFR Section 1.75. Notwithstanding the foregoing, the Parties
(acting through their JRC or JDC representatives), may agree to an alternative
means of protecting such Research Technology.

                (e) EXISTING SIGNAL PATENT APPLICATION. Within thirty (30) days
of the Effective Date, Signal will (i) [***], and (ii) prior to [***], file a
corresponding nonprovisional application for a United States patent under 37 CFR
Section 1.53(b) and a corresponding PCT International Application designating
all countries, including without limitation, the United States, and, at the
discretion of Signal or at the request of Axys, corresponding foreign
applications in countries which are not PCT members and which are designated in
Exhibit C (as modified from time-to-time by the written agreement of the
Parties, each claiming priority to such provisional application. Thereafter, the
PCT International Application will enter the national phase each designated
country at the discretion of the Party responsible for obtaining the Patent
Rights or at the request of the other Party.

                (f) PATENT TERM EXTENSIONS. The Party who is the owner of record
of a United States patent covering a Licensed Product which is eligible for the
extension of the patent term under 35 USC Sections 6 and/or 156 will file, or
cause to be filed, an application under Chapter 1, Subpart F, of Title 37 of the
CFR for the extension of the term of such patent.

                (g) COOPERATION. Each Party will regularly provide the other
Party with copies of all patent applications filed hereunder and other material
submissions and correspondence with the patent offices, in sufficient time to
allow for review and comment by the other Party. In addition, such filing Party
will provide the other Party and its patent counsel with an opportunity to
consult with the Party and its patent counsel regarding the filing and contents
of any such application, amendment, submission or response, and the advice and
suggestions of the other Party and its patent counsel will be taken into
reasonable consideration by such Party and its legal counsel in connection with
such filing. Each Party will also provide the other Party with copies of any
patentability search reports made by patent counsel with respect to inventions
in the Research Technology, including patents located, a copy of each patent
application, and each patent that issues thereon.

***CONFIDENTIAL TREATMENT REQUESTED

                                       29
<PAGE>   34

                (h) ELECTION NOT TO PROSECUTE. If the Party responsible for
obtaining, prosecution and/or maintaining Patent Rights under this Section 7.3
elects not to file for or continue to prosecute and/or maintain such Patent
Rights covering Research Technology or any Active Compound(s) Controlled by
Signal as of the Effective Date in any country (such Party being referred to
herein as the "Non-Filing Party"), then, to the extent such Axys Patent, Signal
Patent or Joint Patent claims an invention made in connection with the Research,
it will notify the other Party promptly in writing and in good time to enable
the other Party to meet any applicable deadlines. With respect to Axys Patents,
Signal Patents or Joint Patents scheduled for international filing with respect
to such country, the Non-Filing Party will notify the other Party in writing at
least sixty (60) days before the date required for the convention year filing of
such Axys Patent, Signal Patent or Joint Patent application or any other
deadline date by which an action must be taken to establish or preserve an Axys
Patent, Signal Patent or Joint Patent right in such country. The other Party
will then have the right, but not the obligation, to pursue the filing or
support the continued prosecution or maintenance of such Axys Patent, Signal
Patent or Joint Patent, at its expense in such country. If the other Party does
so elect to pursue such filing or continue such support, then it will notify the
Non-Filing Party of such election, and the Non-Filing Party will (i) reasonably
cooperate with the other Party in this regard, and (ii) promptly release or
assign, as the case may be, to the other Party, without consideration, all
right, title and interest in such Axys Patent, Signal Patent or Joint Patent in
such country. For the avoidance of doubt, in the event that the other Party
supports a patent application that the Non-Filing Party declines to support,
then such patent applications and patents that may result therefrom will be
considered an Axys Patent (in the case Signal is the Non-Filing Party) or an
Signal Patent (in the case Axys is the Non-Filing Party), as applicable, for
purposes of this Agreement.

        7.4 ENFORCEMENT OF PATENTS.

                (a) If either Party considers that any Axys Patent, Signal
Patent or Joint Patent claiming an Active Compound or Licensed Product, or the
manufacture or use thereof, is being infringed by a Third Party's activities in
the Field (a "Field Infringement"), it will notify the other Party and provide
it with any evidence of such infringement which is reasonably available. Subject
to any limitations in the license agreements between Axys and Third Party
licensors covering Axys Patents that are licensed to Axys, Axys will have the
first opportunity at its own expense to attempt to remove such infringement by
commercially appropriate steps, including filing an infringement suit or taking
other similar action. If required by law for Signal to prosecute such suit, Axys
will join such suit as a party, at Axys' own expense. In the event Axys fails to
take commercially appropriate steps with respect to an infringement that is
likely to have a material adverse effect on the sale of Licensed Products within
six (6) months following notice of such infringement, Signal will have the right
to do so at its expense; provided that if Axys has commenced negotiations with
an alleged infringer of the patent for discontinuance of such infringement
within such six-month period, Axys will have an additional six (6) months to
conclude its negotiations before Signal may bring suit for such infringement.

                (b) The Party not enforcing the applicable Patent Rights will
provide reasonable assistance to the other Party, including providing access to
relevant documents and other evidence and making its employees available,
subject to the enforcing Party's reimbursement of any out-of-pocket expenses
incurred by the non-enforcing Party.


                                       30
<PAGE>   35

                (c) Any amounts recovered by Axys pursuant to Section 7.4(a),
whether by settlement or judgment, will be allocated in the following order: (i)
to reimburse Signal and Axys for their reasonable out-of-pocket expenses in
making such recovery (which amounts will be allocated pro rata if insufficient
to cover the totality of such expenses); and (ii) the remainder will be retained
by Axys, with such remainder being deemed "Net Sales" of Licensed Product to be
shared as provided in Exhibit A or for which Axys will pay Signal a royalty
under Section 6.2, as the case may be; provided that if the Field Infringement
activity on which such recovery is based included actions outside the Field,
then the Parties will reasonably agree on an appropriate allocation of such
recovery between activities in the Field (which allocation will be deemed Net
Sales to be shared as provided in Exhibit A or for which Axys will pay Signal a
royalty, as applicable) and activities outside the Field (which allocation will
be deemed net sales for which Signal will pay Axys a royalty under Section
3.2(b) or 3.3(b), as applicable, if applicable). Any amounts recovered by Signal
pursuant to actions under Section 7.4(a) will be allocated in the following
order: (i) to reimburse Axys and Signal for their reasonable out-of-pocket
expenses in making such recovery (which amounts will be allocated pro rata if
insufficient to cover the totality of such expenses); and (ii) the remainder
will be divided [***] percent ([***]%) to Axys and [***] percent ([***]%) to
Signal; provided that if the Field Infringement activity on which such recovery
is based included actions outside the Field, then the Parties will reasonably
agree on an appropriate allocation of such recovery between activities in the
Field (which will be divided [***] percent ([***]%) to Axys and [***] percent
([***]%) to Signal) and activities outside the Field (which allocation will be
deemed net sales for which Signal will pay Axys a royalty under Section 3.2(b)
or 3.3(b), as applicable, if applicable).

                (d) Except for Third Party infringement activities within the
Field covered by the provisions of Section 7.4(a), each Party will retain the
sole and exclusive right to enforce its Patent Rights against all infringers at
its sole cost and expense.

        7.5 THIRD PARTY PATENT RIGHTS. If any warning letter or other notice of
infringement is received by a Party, or action, suit or proceeding is brought
against a Party alleging infringement of a Patent Right of any Third Party in
the manufacture, use or sale of a Licensed Product or in conducting the
Research, the Parties will promptly discuss the best way to respond.

                                    ARTICLE 8

                                 CONFIDENTIALITY

        8.1 CONFIDENTIALITY OBLIGATIONS. Each Party agrees that, for the term of
this Agreement and for five (5) years thereafter, such Party will keep, and will
ensure that its officers, directors, employees and agents keep, completely
confidential and will not publish or otherwise disclose and will not use for any
purpose except as permitted hereunder any Confidential Information furnished to
it by the other Party pursuant to this Agreement (including, without limitation,
Know-How of the disclosing Party). The foregoing obligations will not apply to
any information to the extent that it can be established by such receiving Party
that such information:

                (a) was already known to the receiving Party as evidenced by its
written records, other than under an obligation of confidentiality, at the time
of disclosure;

***CONFIDENTIAL TREATMENT REQUESTED


                                       31
<PAGE>   36

                (b) was generally available to the public or was otherwise part
of the public domain at the time of its disclosure to the receiving Party;

                (c) became generally available to the public or otherwise
becomes part of the public domain after its disclosure and other than through
any act or omission of the receiving Party in breach of this Agreement;

                (d) was subsequently lawfully disclosed to the receiving Party
by a Third Party other than in contravention of a confidentiality obligation of
such Third Party to the disclosing Party; or

                (e) was developed or discovered by employees of the receiving
Party or its Affiliates who had no access to the Confidential Information of the
disclosing Party.

                Each Party will obtain written agreements from each of its
employees and consultants who perform substantial work on the Research, which
agreements will obligate such persons to similar obligations of confidentiality
and to assign to such Party all inventions made by such persons during the
course of performing the Research. Each Party may disclose the other's
Confidential Information to the extent such disclosure is reasonably necessary
in filing or prosecuting patent applications, prosecuting or defending
litigation, advising investors and the investment community of the results of
the Research and/or development activities hereunder (subject to reasonable
prior written notice of, and good faith consultation about, such disclosure to
the other Party), complying with applicable governmental regulations, making a
permitted sublicense of its rights hereunder or conducting clinical trials or
otherwise in performing its obligations or exercising its rights hereunder,
provided that if a Party is required to make any such disclosure of the other
Party's Confidential Information, it will give reasonable advance notice to that
other Party of such disclosure requirement, will cooperate with the other Party
in its efforts to secure confidential treatment of such Information prior to its
disclosure, and, save to the extent inappropriate in the case of patent
applications, will use all reasonable efforts to secure confidential treatment
of such information prior to its disclosure (whether through protective orders
or confidentiality agreements or otherwise).

        8.2 PUBLICATIONS.

                (a) Neither Party or its Affiliates will publish or present the
results of the Research or of development studies carried out on any Licensed
Product, Collaboration Compound until after completion of Phase I clinical
development with respect thereto. Subject to the foregoing and the restrictions
provided below, either Party may publish or present the results of the Research
or of development studies carried out on such Licensed Product or Collaboration
Compound, subject to the prior review by the other Party for patentability and
protection of such other Party's Confidential Information. Each Party will
provide to the other Party the opportunity to review any proposed abstracts,
manuscripts or summaries of presentations which cover the results of the
Research or of pre-Phase III clinical development of such Licensed Product or
Collaboration Compound. Each Party will designate a person who will be
responsible for reviewing such publications. Such designated person will respond
in writing promptly and in no event later than thirty (30) days, or such shorter
period as circumstances may reasonably require, after receipt of the proposed
material with any specific statements of concern


                                       32
<PAGE>   37

based upon the need to seek patent protection or concern regarding competitive
disadvantage arising from the proposal. Excepts in cases involving clinical
papers, in the event of concern, the submitting Party agrees not to submit such
publication or to make such presentation that contains such information until
the other Party is given a reasonable period of time (not to exceed ninety (90)
days) to seek patent protection for any material in such publication or
presentation which it believes is patentable or to resolve any other issues.
This Section 8.2 will cease to apply with respect to any Collaboration Compound
upon the commercial launch of a Licensed Product containing such Collaboration
Compound as an active ingredient. Furthermore, with respect to any proposed
abstracts, manuscripts or summaries of presentations by investigators or other
Third Parties, such materials will be subject to review under this Section
8.2(a) to the extent that Signal or Axys (as the case may be) has the right to
do so.

                (b) Each Party also agrees to delete from any such proposed
publication any Confidential Information of the other Party upon its reasonable
request.

                (c) To the extent appropriate and within the Party's control, in
any publication permitted under this Section 8.2, each Party will acknowledge
its collaboration with the other Party under this Agreement.

        8.3 PRESS RELEASES. Except to the extent required by law or as otherwise
permitted in accordance with this Section 8.3, neither Party will make any
public announcements concerning this Agreement or the terms hereof without the
prior written consent of the other, which will not be unreasonably withheld or
delayed. Notwithstanding the foregoing, the Parties intend to issue a joint
press release announcing the execution of this Agreement and agree that each
Party may desire or be required to issue subsequent press releases relating to
the Agreement or activities thereunder, and the Parties agree to consult with
each other reasonably and in good faith with respect to the text and timing of
such press releases prior to the issuance thereof, provided that a Party may not
unreasonably withhold consent to such releases, and that either Party may issue
such press releases as it determines, based on advice of counsel, are reasonably
necessary to comply with laws or regulations or for appropriate market
disclosure.


                                    ARTICLE 9

                                 INDEMNIFICATION

        9.1 INDEMNIFICATION BY AXYS. Axys will indemnify, defend and hold Signal
and its agents, employees, officers and directors (the "Signal Indemnitees")
harmless from and against any and all liability, damage, loss, cost or expense
(including reasonable attorneys' fees) arising out of Third Party claims or
suits related to (a) Axys' performance of its obligations under this Agreement;
or (b) breach by Axys of its representations and warranties set forth in Section
11.3; provided, however, that Axys' obligations pursuant to this Section 9.1
will not apply to the extent such claims or suits result from the negligence or
willful misconduct of any of the Signal Indemnitees. Notwithstanding the
foregoing, Axys will have no obligation to indemnify the Signal Indemnitees with
respect to claims arising out of breach by Signal of its representations and
warranties set forth in Sections 11.3 or 11.4.


                                       33
<PAGE>   38

        9.2 INDEMNIFICATION BY SIGNAL. Signal will indemnify, defend and hold
Axys and its Affiliates and each of their respective agents, employees, officers
and directors (the "Signal Indemnitees") harmless from and against any and all
liability, damage, loss, cost or expense (including reasonable attorney's fees)
arising out of Third Party claims or suits related to (a) Signal's performance
of its obligations under this Agreement; or (b) breach by Axys of its
representations and warranties set forth in Sections 11.3 or 11.4; provided,
however, that Signal's obligations pursuant to this Section 9.2 will not apply
to the extent that such claims or suits result from the negligence or willful
misconduct of any of the Axys Indemnitees. Notwithstanding the foregoing, Axys
will have no obligation to indemnify the Axys Indemnitees with respect to claims
arising out of a breach by Axys of its representations and warranties set forth
in Section 11.3.

        9.3 NOTIFICATION OF CLAIMS; CONDITIONS TO INDEMNIFICATION OBLIGATIONS.
As a condition to a Party's right to receive indemnification under this Article
9, it will (i) promptly notify the other Party as soon as it becomes aware of a
claim or action for which indemnification may be sought pursuant hereto, (ii)
cooperate with the indemnifying Party in the defense of such claim or suit, and
(iii) permit the indemnifying Party to control the defense of such claim or
suit, including without limitation the right to select defense counsel. In no
event, however, may the indemnifying Party compromise or settle any claim or
suit in a manner which admits fault or negligence on the part of the indemnified
Party without the prior written consent of the indemnified Party. The
indemnifying Party will have no liability under this Article 9 with respect to
claims or suits settled or compromised without its prior written consent.


                                   ARTICLE 10

                           TERMINATION AND EXPIRATION

        10.1 TERM AND TERMINATION. This Agreement will commence upon the
Effective Date and, unless earlier terminated as provided herein, will expire on
the expiration of all royalty and other payment obligations herein.

                (a) Upon the expiration, pursuant to Section 6.4, of Axys'
royalty obligations with respect to a particular Licensed Product, the licenses
granted to Axys and its Affiliates under Article 3 with respect to such Licensed
Product will expire, and Axys and its Affiliates will automatically thereafter
be granted a non-exclusive, fully paid-up license under the Signal Know-How and
Signal Patents to make, have made, use, import, sell and offer for sale such
Licensed Product for use in the Field worldwide.

                (b) If Signal exercises the Option pursuant to Section 5.4 and
Axys is selling Licensed Products directly or through an Affiliate in the
Territory, the Parties will share the Profits and Losses provided for in Exhibit
A for such time as the sale of Licensed Products on a country-by-country basis
in the Territory continues; provided, however, that if Signal exercises the
Option and Axys subsequently determines to cease selling a Licensed Product in
any country in the Territory in which either it or its Affiliate previously sold
Licensed Products, then Signal will have the first right of negotiation to
obtain the exclusive right to commercialize such Licensed Product in such
country on commercially reasonable terms to be agreed upon in good faith by the
Parties. In the event that the Parties are unable to agree on such terms, or
Signal


                                       34
<PAGE>   39

does not wish to obtain such right, then Axys will be free to sublicense such
right to a Third Party in the Territory, and the Parties will share equally all
royalty payments, non-royalty payments and equity premiums received by Axys in
connection with such sublicense.

        10.2 TERMINATION OF THE AGREEMENT UPON MATERIAL BREACH.

        Failure by a Party to comply with any of its material obligations
contained herein will entitle the Party not in default to give to the Party in
default notice specifying the nature of the default, requiring it to make good
or otherwise cure such default, and stating its intention to terminate if such
default is not cured. If such default is not cured within ninety (90) days after
the receipt of such notice (or, if such default cannot be cured within such
ninety (90) day period, if the Party in default does not commence and diligently
continue actions to cure such default), the Party not in default will be
entitled, without prejudice to any of its other rights conferred on it by this
Agreement, and in addition to any other remedies available to it by law or in
equity, to terminate this Agreement; provided, however, that such right to
terminate will be stayed in the event that, during such ninety (90) day period,
the Party alleged to have been in default will have initiated dispute resolution
in accordance with Section 11.12 with respect to the alleged default, which stay
will last so long as the initiating Party diligently and in good faith
cooperates in the prompt resolution of such dispute resolution proceedings.

        10.3 CONSEQUENCES OF TERMINATION.

                (a) Upon termination of this Agreement (but not upon expiration
of its term under Section 10.1), (i) each Party will promptly return all
relevant records and materials in its possession or control containing or
comprising the other Party's Know-How or other Confidential Information and to
which the former Party does not retain rights hereunder (except one copy of
which may be retained in a Party's confidential files in its legal department
for archival purposes); (ii) all licenses granted by each Party to the other
under Article 3 will terminate except as provided in Section 10.3(b) or 10.3(c);
(iii) all rights in any Active Compounds (including any Collaboration Compounds)
owned by a Party will revert to such Party except as provided in Section 10.3(b)
or 10.3(c); and (iv) any and all claims and payment obligations that accrued
prior to the date of such termination will survive such termination.

                (b) In the event Axys terminates this Agreement pursuant to
Section 10.2, Signal covenants that Signal will not develop or sell any Active
Compound for any use in the Field, and will not license any Third Party or any
Affiliate to do so, and all licenses from Signal to Axys that are in effect
immediately prior to such termination under Section 3.1 will remain in full
force and effect following such termination for so long as Axys complies with
its obligations hereunder.

                (c) In the event Signal terminates this Agreement pursuant to
Section 10.2, all licenses from Axys to Signal that are in effect immediately
prior to such termination under Section 3.2 and the license from Axys to Signal
under Section 3.3 will remain in full force and effect following such
termination for so long as Signal complies with its obligations hereunder.


                                       35
<PAGE>   40

                (d) The right of a Party to terminate this Agreement, as herein
above provided, will not be affected in any way by its waiver or failure to take
action with respect to any prior default.

        10.4 ACCRUED RIGHTS; SURVIVING OBLIGATIONS.

                (a) Termination, relinquishment or expiration of this Agreement
for any reason will be without prejudice to any rights which will have accrued
to the benefit of a Party prior to such termination, or expiration. Such
termination, relinquishment or expiration will not relieve a Party from
obligations which are expressly indicated to survive termination or expiration
of this Agreement.

                (b) Without limiting the foregoing, Sections 2.8 (last sentence
only), 2.9, 6.5, 6.7, 6.9, 6.10, 6.11, 7.1, 7.3(c), 8.1, 10.3, 10.4 and 10.5 and
Articles 9 and 11 of this Agreement will survive the expiration or termination
of this Agreement for any reason (except as expressly provided in Section 10.3).

                (c) Upon any termination of this Agreement as regards any
particular Licensed Product, Axys and its Affiliates and Sublicensees will be
entitled, during the next [***], to sell any inventory of the Licensed Product
which remains on hand as of the date of the termination, so long as Axys pays to
Signal the royalties or other amounts payable with respect to said subsequent
sales in accordance with the terms and conditions set forth in this Agreement.

        10.5 RIGHTS IN BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by Signal or Axys are, and will otherwise be deemed
to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of
right to "intellectual property" as defined under Section 101 of the U.S.
Bankruptcy Code. The Parties agree that the Parties, as licensees of such rights
under this Agreement, will retain and may fully exercise all of their rights and
elections under the U.S. Bankruptcy Code. The Parties further agree that, in the
event of the commencement of a bankruptcy proceeding by or against either Party
under the U.S. Bankruptcy Code, the Party hereto which is not a party to such
proceeding will be entitled to a complete duplicate of (or complete access to,
as appropriate) any such intellectual property and all embodiments of such
intellectual property, and same, if not already in their possession, will be
promptly delivered to them (i) upon any such commencement of a bankruptcy
proceeding upon their written request therefor, unless the Party subject to such
proceeding elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, following the rejection of
this Agreement by or on behalf of the Party subject to such proceeding upon
written request therefor by the non-subject Party.

                                   ARTICLE 11

                            MISCELLANEOUS PROVISIONS


        11.1 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended
or will be deemed to constitute a partnership, agency or employer-employee
relationship between the Parties. Neither Party will incur any debts or make any
commitments for the other.

***CONFIDENTIAL TREATMENT REQUESTED

                                       36
<PAGE>   41

        11.2 ASSIGNMENTS. Except as expressly provided herein, neither this
Agreement nor any interest hereunder will be assignable, nor any other
obligation delegable, by a Party without the prior written consent of the other;
provided, however, that a Party may assign this Agreement without consent to any
Affiliate or to any successor in interest by way of merger or sale of all or
substantially all of its assets in a manner such that the assignor will remain
liable and responsible for the performance and observance of all such Party's
duties and obligations hereunder, except that no intellectual property of any
Third Party acquiror of such Party will be included in the licenses granted
hereunder. This Agreement will be binding upon the successors and permitted
assigns of the Parties. Any assignment not in accordance with this Section 11.2
will be void.

        11.3 REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants
to the other Party that, as of the date of this Agreement:

                (a) Such Party is duly organized and validly existing under the
laws of the state of its incorporation and has full corporate power and
authority to enter into this Agreement and to carry out the provisions hereof;

                (b) Such Party has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the performance its
obligations under this Agreement;

                (c) This Agreement is a legal and valid obligation of such
Party, binding upon such Party and enforceable against such Party in accordance
with the terms of this Agreement. The execution, delivery and performance of
this Agreement by such Party does not conflict with any agreement, instrument or
understanding, oral or written, to which such Party is a party or by which such
Party may be bound, and does not violate any law or regulation of any court,
governmental body or administrative or other agency having authority over such
Party. All consents, approvals and authorizations from all governmental
authorities or other Third Parties required to be obtained by such Party in
connection with this Agreement have been obtained;

                (d) It has the full and exclusive right, power and authority to
enter into this Agreement, to perform the Research and to grant the licenses
granted under Article 3 hereof;

                (e) There are no agreements between such Party and any Third
Parties which would preclude or otherwise limit such Party's ability to conduct
its tasks and obligations under the Research Plan or otherwise fulfill its
obligations under this Agreement;

                (f) All individuals who will perform any activities on its
behalf in connection with the Research have assigned to it or its Affiliates the
whole of their rights in any intellectual property conceived or reduced to
practice by them as a result of the Research, and no Third Party will have any
rights to any such intellectual property; and

                (g) With respect to any Material provided by it to the other
Party, it has the full right to provide such Material and [***]

***CONFIDENTIAL TREATMENT REQUESTED


                                       37
<PAGE>   42

        11.4 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SIGNAL. Signal
represents, warrants and covenants (as the case may be) to Axys that:

                (a) To Signal's knowledge without any duty of investigation, the
Signal Patents existing as of the Effective Date are patentable and/or not
invalid or unenforceable, in whole or in part;

                (b) To Signal's knowledge as of the Effective Date without any
duty of investigation, Axys' and its Affiliate's practice of the Signal Patents
and Signal Know-How as permitted herein will not infringe any intellectual
property rights of any Third Party; and

                (c) To Signal's knowledge without any duty of investigation, the
inception, development and reduction to practice of the Signal Patents existing
as of the Effective Date, and the Signal Know-How existing as of the Effective
Date, has not constituted or involved the misappropriation of trade secrets of
any Third Party.

        11.5 DISCLAIMER OF WARRANTIES. THE PARTIES EXPRESSLY DISCLAIM ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF THIRD
PARTY RIGHTS, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.

        11.6 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments and to do all such other acts as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.

        11.7 FORCE MAJEURE. Neither Party will be liable to the other for
failure or delay in the performance of any of its obligations under this
Agreement for the time and to the extent such failure or delay is caused by
earthquake, riot, civil commotion, war, strike, flood, governmental acts or
restrictions or any other reason which is beyond the control of the respective
Party. The Party affected by force majeure will provide the other Party with
full particulars thereof as soon as it becomes aware of the same (including its
best estimate of the likely extent and duration of the interference with its
activities), and will use commercially reasonable efforts to overcome the
difficulties created thereby and to resume performance of its obligations as
soon as practicable. If the performance of any obligation under this Agreement
is delayed owing to a force majeure for any continuous period of more than six
(6) months, the Parties hereto will consult with respect to an equitable
solution, including the possibility of the mutual termination of this Agreement.

        11.8 NO TRADEMARK RIGHTS. No right, express or implied, is granted by
this Agreement to a Party to use in any manner the name or any other trade name
or trademark of a Party in connection with the performance of this Agreement.

        11.9 ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement and the
exhibits hereto constitute and contain the entire understanding and agreement of
the Parties respecting the subject matter hereof and cancel and supersede any
and all prior negotiations, correspondence, understandings and agreements
between the Parties, whether oral or written, regarding such subject matter. No
waiver, modification or amendment of any provision of this


                                       38
<PAGE>   43

Agreement will be valid or effective unless made in writing and signed by a duly
authorized officer of each Party.

        11.10 CAPTIONS. The captions to this Agreement are for convenience only,
and are to be of no force or effect in construing or interpreting any of the
provisions of this Agreement

        11.11 APPLICABLE LAW. This Agreement will be governed by and interpreted
in accordance with the laws of the State of California, USA, applicable to
contracts entered into and to be performed wholly within the State of
California, excluding conflict of laws principles.

        11.12 DISPUTES. In the event of any controversy or claim arising out of,
relating to or in connection with any provision of this Agreement, including
without limitation then calculations specified in Exhibit A hereto, or the
rights or obligations of the Parties hereunder, the Parties will try to settle
their differences amicably between themselves as contemplated herein. To the
extent not provided for herein, either Party may initiate such informal dispute
resolution by sending written notice of the dispute to the other Party, and
within ten (10) days after such notice.

                (a) The Chief Executive Officer of Axys and the Signal Designee,
will meet for discussion and resolution. If such personnel are unable to resolve
such dispute within thirty (30) days of initiating such negotiations, the
Parties agree to settle any unresolved controversy or claim arising out of,
relating to or in connection with this Agreement (except as to any issue
relating to the ownership of intellectual property of either Party) in San
Francisco, California by binding arbitration under the American Arbitration
Association in accordance with its Commercial Arbitration Rules as modified by
this Section, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. Within fifteen (15) days after
the commencement of arbitration, each Party will select one (1) person to act as
arbitrator, and the two (2) selected by the Parties will select a third
arbitrator within ten (10) days of their appointment. The Parties agree that in
cases in which this Agreement explicitly provides that their disagreement will
be settled by this Section, the arbitration method to be employed will be
"baseball-style arbitration." This means that each Party will submit in writing
to the Panel and the other Party at an appropriate time its final, detailed
proposed resolution of the dispute. The panel will have the right to ask for and
receive (at the same time as the other Party) clarification of a Party's
proposed resolution. In its arbitration award, the panel will be limited to
choosing, without material modification, one of the two proposed resolutions,
together with an award of reasonable attorneys' fees to the prevailing Party.
The arbitrators will have no authority to award punitive damages or any other
damages not measured by the prevailing Party's actual damages, and may not, in
any event, make any ruling, finding or award that does not conform to the terms
and conditions of this Agreement. Neither Party nor the arbitrators may disclose
the existence, content, or results of any arbitration hereunder without the
prior written consent of both Parties.

        11.13 NOTICES AND DELIVERIES. Any notice, request, delivery, approval or
consent required or permitted to be given under this Agreement will be in
writing and will be deemed to have been sufficiently given if delivered in
person, transmitted by telecopier (receipt verified) or by express courier
service (signature required) or five (5) days after it was sent by registered
letter, return receipt requested (or its equivalent), to the Party to which it
is directed at its address


                                       39
<PAGE>   44

or facsimile number shown below or such other address or facsimile number as
such Party will have last given by notice to the other Parties.

        If to Signal, addressed to:

                      Signal Pharmaceuticals, Inc.
                      5555 Oberlin Drive
                      San Diego, CA  92121
                      Attn.: Chief Executive Officer
                      Telecopier: (858) 558-7513

               and to

                      Cooley Godward LLP
                      4365 Executive Drive, Suite 1100
                      San Diego, CA  92121
                      Attn.: L. Kay Chandler, Esq.
                      Telecopier: (858) 453-3555

        If to Axys, addressed to:

                      Axys Pharmaceuticals, Inc.
                      180 Kimball Way
                      South San Francisco, CA U.S. 94080
                      Attn.: CEO
                      Telecopier: (650) 829-1067


               and to:

                      Axys Pharmaceuticals, Inc.
                      180 Kimball Way
                      South San Francisco, CA 94080
                      Attn: General Counsel
                      Telecopier: (650) 829-1067

        11.14 NO CONSEQUENTIAL DAMAGES. IN NO EVENT WILL EITHER PARTY OR ANY OF
ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES
FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT,
WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, including, but not
limited to, loss of profits or revenue, or claims of customers of any of them or
other Third Parties for such or other damages.

        11.15 NON-SOLICITATION. During the Research Term, and for a period of
[***] thereafter, neither Party will solicit, induce, encourage or attempt to
induce or encourage any employee of the other Party to terminate his or her
employment with such other Party or to breach any other obligation to such other
Party.

***CONFIDENTIAL TREATMENT REQUESTED

                                       40
<PAGE>   45

        11.16 WAIVER. A waiver by either Party of any of the terms and
conditions of this Agreement in any instance will not be deemed or construed to
be a waiver of such term or condition for the future, or of any subsequent
breach hereof. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement will be cumulative and none of them will be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either Party.

        11.17 COMPLIANCE WITH LAW. Nothing in this Agreement will be deemed to
permit a Party to export, re-export or otherwise transfer any Licensed Product
sold under this Agreement without compliance with applicable laws.

        11.18 SEVERABILITY. When possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement. The Parties will make a good faith effort to replace the invalid or
unenforceable provision with a valid one which in its economic effect is most
consistent with the invalid or unenforceable provision.

        11.19 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, any one of which need not contain the signature of more
than one Party but all such counterparts taken together will constitute one and
the same agreement.


                                       41
<PAGE>   46

        IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written, each copy of which will for all purposes be deemed to be an
original.


AXYS PHARMACEUTICALS, INC.                  SIGNAL PHARMACEUTICALS, INC.



By: /s/ WILLIAM J. NEWELL                   By: /s/ ALAN LEWIS
   --------------------------------            --------------------------------

Name: William J. Newell                     Name: Alan Lewis
     ------------------------------              ------------------------------

Title: Senior Vice President and            Title: President & CEO
       General Counsel                            -----------------------------
      -----------------------------


                                       42
<PAGE>   47

                                    EXHIBIT A

                            SHARING OF PROFIT OR LOSS
                   FOR THE AXYS/SIGNAL COLLABORATIVE AGREEMENT


        This Exhibit A to the Collaborative Research and License Agreement (the
"Agreement") dated as of October 15, 1999, between Axys Pharmaceuticals, Inc.
("Axys"), and Signal Pharmaceuticals, Inc. ("Signal"), addresses the accounting
policies and procedures to be followed in determining Profits or Losses. Terms
not defined in this Exhibit will have the meanings set forth in the Agreement.

        For purposes of this Exhibit only, the accounting for Axys' sales of
each Licensed Product in the Territory, together with certain related costs and
expenses, and the receipt of any applicable royalties and non-royalty payments
for such Licensed Product, will be referred to as AxSignal. AxSignal is not
intended to be and is not a legal entity and has been defined for identification
purposes only.

1. CALCULATION OF PROFIT OR LOSS

        The Profit or Loss for each Licensed Product will be determined on a
product-by-product basis and will be equal to: (i) Sublicense Revenues outside
the Territory plus Net Sales (as defined below) in the Territory, less (ii)
Allowable Costs and Expenses (each as defined below), plus or minus (iii) Net
Interest Income of a Party in connection with the development, manufacturing,
marketing or selling of such Licensed Product, plus or minus (iv) Other
Non-Operating and Extraordinary Gains (Losses) incurred by a Party in connection
with the development, manufacturing, marketing or selling of Licensed Products,
all as more fully described below. All calculations hereunder will be made
using, and all defined and undefined terms will be construed in accordance with,
U.S. generally accepted accounting principles, consistently applied, and
consistent with generally accepted methods for activity-based project costing
for similar products in similar industries. Without limiting the foregoing, no
cost item subject to sharing by the Parties hereunder will be included more than
once in calculating Profit or Loss. The Parties anticipate that Signal will not
incur expenses which are included in the Profit or Loss calculation unless Axys
and Signal have agreed that Signal will incur such expenses.

2. FREQUENCY OF REPORTING

        The fiscal year of AxSignal will be a twelve (12) month period ending on
December 31 or such portion thereof as will be applicable. AxSignal's first,
second, third and fourth quarters will end on March 31, June 30, September 30
and December 31, respectively.

        Reporting by Axys for AxSignal revenues and expenses will be performed
as follows:

<TABLE>
<CAPTION>
   Reporting Event           Frequency              Timing of Submission
   ---------------           ---------              --------------------
<S>                          <C>                    <C>
       Actuals               Quarterly              45 days following the end
                                                    of each quarter
</TABLE>


                                       1.
<PAGE>   48

<TABLE>
<S>                          <C>                    <C>
       Adjustment            Annual                 60 days following Axys'
                                                    fiscal year end
</TABLE>

        In addition, Axys will provide Signal with Axys' internal, unaudited
financial statements for AxSignal for each of the first two (2) months of each
quarter promptly after each such financial statement is distributed internally
at Axys.

        Axys will be responsible for the preparation of reports, calculation of
the Profit or Loss to be shared and determination of the cash settlement between
the Parties. Axys will provide to Signal, by the submission dates shown above, a
statement showing the AxSignal results for the preceding calendar quarter and
year-to-date in the format set forth in Schedule A-1 hereto, comparing quarterly
and year to date results to revenue forecasts and expense budgets, calculating
the Profit or Loss as provided in subsection A.1 above and Schedule A-1 hereto,
and determining the cash settlement required. To the extent any year-end
adjustments to AxSignal are determined in good faith by Axys to be appropriate,
an appropriate adjustment to Profit or Loss for the applicable year will be made
and an appropriate payment will be made by the applicable Party within thirty
(30) days following receipt of the report describing such adjustment; provided,
however, that in the event of a dispute between the Parties with respect to
whether any such adjustment or any other adjustment requested by Signal is
appropriate, such dispute will be referred to the Chief Executive Officer of
Axys and the Signal Designee for resolution pursuant to Section 11.12 of the
Agreement. Any such adjustment payment will be without interest if such amount
is less than the lesser of (a) [***] percent ([***]%) of Profits or Losses for
such year or (b) $[***] and will bear interest at the rate set forth in Section
6.10(b) of the Agreement if such amount is greater than or equal to the lesser
of (x) [***] percent ([***]%) of Profits or Losses for such year or (y) $[***].

3. DEFINITIONS.

        As a supplement to the definitions provided in Article 1 of the
Agreement, the following accounting terms will be further specified as follows.
As used herein, the term "operating unit" will mean the standard operating unit
in which a profit and loss statement is prepared for management accounting
purposes in the Party's normal accounting procedures, consistently applied
within and across its operating units.

(a) "ALLOCABLE OVERHEAD" means (for any particular cost item) a Party's internal
allocation, based on direct project headcount or other generally accepted
activity-based accounting methods, of indirect overhead costs incurred by a
Party or any of its operating units to support and carry out the activities of
the specific business function, such as development, manufacturing, and sales
and marketing, with respect to a Licensed Product for the Territory, which
indirect costs may include but are not limited to: indirect labor costs;
occupancy costs; repair and maintenance costs; office supplies and service
costs; equipment costs; insurance costs; and outside professional and other
service costs. Such overhead will exclude any indirect costs associated with any
excess or unused capacity not directly related to a Licensed Product for the
Territory. Furthermore, overhead costs of a Party or operating units that are
not engaged in the development, manufacturing, marketing or selling of a
Licensed Product in the Territory will not be recoverable as Allocable Overhead
or otherwise, except as provided herein.

(b) "ALLOWABLE COSTS AND EXPENSES" means those costs and expenses incurred by
the Parties or for their account that are specifically attributable or related
to the research (to the

***CONFIDENTIAL TREATMENT REQUESTED


                                       2.
<PAGE>   49

extent consistent with the terms of the Agreement), development, manufacturing,
marketing or selling of a Licensed Product in the Territory, and consisting of:
(i) Cost of Goods Sold, (ii) Development Expenses, (iii) Sales and Marketing
Expenses and (iv) General and Administrative Expenses.

(c) "COST OF GOODS SOLD" means the manufactured cost of a Licensed Product
shipped in final therapeutic form, calculated on a fully burdened basis (i.e.,
including Allocable Overhead specifically attributable thereto). The "cost of a
Licensed Product shipped in final therapeutic form" will mean the cost of
Licensed Product shipped in bulk form plus the cost of final manufacturing. The
"cost of a Licensed Product shipped in bulk form" means the standard unit cost
of Licensed Product in bulk form calculated in accordance with the customary
cost accounting methods, consistently applied, of the Party performing the work.
Standard unit cost generally consists of direct material, direct labor and
Allocable Overhead specifically attributable to the Licensed Product at
standard. The cost of final manufacturing will be calculated in accordance with
customary cost accounting methods, consistently applied, of the Party performing
the work. Final manufacturing costs generally consist of direct material, direct
labor and Allocable Overhead directly attributable to the Licensed Product at
standard.

        Direct material costs will include, but not be limited to, the costs
incurred in purchasing raw materials and finished goods, including (without
limitation) freight, sales and excise taxes imposed thereon and customs duty and
charges levied by government authorities, and all costs of packaging components.

        Direct labor will include, but not be limited to, the cost of employees
engaged in direct manufacturing activities who are directly employed in Licensed
Product manufacturing and packaging for the Territory.

        Allocable Overhead included in Cost of Goods Sold will include, but not
be limited to, other indirect costs associated with the operating unit(s)
manufacturing a Licensed Product for the Territory. Such Allocable Overhead will
include, but not be limited to, expenses associated with: warehousing of a
Licensed Product in the Territory; quality assurance, manufacturing and
engineering associated with the operating unit(s) manufacturing a Licensed
Product for the Territory; and depreciation, repairs and maintenance, insurance
and property taxes associated with the plant(s) manufacturing Licensed Products
for the Territory. Allocable Overhead will not include costs associated with
capacity not incorporated into standard unit costs. Standard unit costs will
exclude costs associated with excess or unused capacity not directly related to
Licensed Products for the Territory.

        Costs of Goods Sold will also include, but not be limited to, (i)
manufacturing variances and other attributable costs not in standard (but
excluding capacity not incorporated into standard manufacturing unit costs) such
as, but not limited to, material price variances, labor hour variances, material
usage variances, excess and obsolescence, inventory reserves and batches that do
not conform to specification, and (ii) actual Third Party royalty expenses.

        Third Party royalty expenses will include, but not be limited to,
royalties or other compensation payable to a Third Party possessing or having a
license under patents and/or other technology rights relating to the
manufacture, sale, use, offer for sale or import of a Licensed Product for the
Territory, subject to the provisions of Section 6.6 of the Agreement.


                                       3.
<PAGE>   50

(d) "DEVELOPMENT EXPENSES" means the expenses incurred by a Party or for its
account that are attributable to the development of a Licensed Product for the
Territory, calculated on a fully burdened basis (i.e., including Allocable
Overhead specifically attributable thereto). Without limiting the generality of
the foregoing, "Development Expenses" will mean amounts paid by a Party to third
parties involved in the development of a Licensed Product for the Territory, and
all internal costs (calculated on a full-time equivalent basis) incurred by a
Party in connection with development of a Licensed Product for the Territory.
Development Expenses will include, but are not limited to, the following costs
incurred for the development of a Licensed Product for the Territory: the costs
of modifying and optimizing a prospective Licensed Product, including its
chemical structure and formulation, to achieve product development goals
regarding efficacy, safety, dosing and route of administration; the cost of
studies on the toxicological, pharmacokinetic, metabolic or clinical aspects of
a prospective Licensed Product conducted internally or by individual
investigators or consultants necessary or desirable for the purpose of obtaining
and/or maintaining Regulatory Approval of a Licensed Product in a country of the
Territory; costs (and related fees) for preparing, submitting, reviewing or
developing data or information for the purpose of submission to a governmental
authority to obtain and/or maintain Regulatory Approval of a Licensed Product in
a country of the Territory; and manufacturing process development and scale-up
for a Licensed Product in bulk and finished form for the Territory for purposes
of conducting preclinical and clinical studies necessary to obtain and/or
maintain Regulatory Approval of Licensed Products in a country of the Territory.
In addition, Development Expenses include, but are not limited to, the following
development costs incurred by the Parties in support of or for extension of the
applicable Licensed Product in the Territory after the First Commercial Sale:
Phase IV clinical trials; ongoing product development (e.g., new formulations
and routes of administration); ongoing product support; ongoing medical affairs;
and fees and expenses of outside consultants and counsel in respect of
regulatory affairs.

(e) "SALES AND MARKETING EXPENSES" means the costs which are incurred by a Party
or for its account attributable to the distribution, sale, promotion and
marketing of a Licensed Product in the Territory, calculated on a fully burdened
basis (i.e., including Allocable Overhead specifically attributable thereto).
Sales and Marketing Expenses will mean the sum of Selling Expenses, Marketing
Management, Market and Consumer Research, Advertising, Trade Promotion, Consumer
Promotion, Education Expenses and Freight and Transportation-Out, each of which
is specified below. The costs of activities which promote a Party's business as
a whole without being product specific (such as corporate image advertising) are
specifically excluded from Sales and Marketing Expenses. To the extent multiple
products are involved and some of such products are not a Licensed Product, then
such allowances will be allocated on a pro rata basis based upon net sales of
each respective product by such operating unit during the most recent quarter.

        (i) "ADVERTISING" will include, but not be limited to, all media costs
associated with Licensed Product advertising in the Territory as follows:
production expense/artwork including set up; design and art work for an
advertisement; the cost of securing print space, air time, etc. in newspapers,
magazines, trade journals, television, radio, billboards, etc.

        (ii) "CONSUMER PROMOTION" will include, but not be limited to, the
expenses associated with programs to promote a Licensed Product in the Territory
directly to the prescriber or end user. This category will include, but not be
limited to, expenses associated with promoting products directly to the
professional community such as professional samples, professional literature,
promotional material costs, patient aids and detailing aids. To the extent
multiple products are involved and some of such products are not the applicable
Licensed Product, then such allowances will be allocated on a pro rata basis
based upon net sales of each respective product by such operating unit during
the most recent quarter.


                                       4.
<PAGE>   51

        (iii) "EDUCATION" will include, but not be limited to, expenses
associated with professional education with respect to a Licensed Product in the
Territory through any means not covered above, including, but not limited to,
articles appearing in journals, newspapers, magazines or other media; seminars,
scientific exhibits, and conventions; and symposia, advisory boards and opinion
leader development activities.

        (iv) "FREIGHT AND TRANSPORTATION-OUT" will include (to the extent not
already recovered in the calculation of Net Sales), but not limited to, the
portion of distribution costs relating to moving Licensed Product goods in the
Territory from a warehouse to the customer as follows: outbound transportation
costs; costs of moving goods from a manufacturing point to a warehouse at
another location from which it is ultimately to be distributed to a customer;
the costs of the traffic department where there is a separate department that
has responsibility for administration of freight costs.

        (v) "MARKET AND CONSUMER RESEARCH" will include, but not be limited to,
compensation and departmental expenses for market and consumer research
personnel and payments to Third Parties related to conducting and monitoring
professional and consumer appraisals of existing, new or proposed Licensed
Products in the Territory, such as market share services (e.g., IMS data),
special research testing and focus groups.

        (vi) "MARKETING MANAGEMENT" will include, but not be limited to, product
management and sales promotion management compensation and departmental
expenses. This will include, but not be limited to, costs associated with
developing overall sales and marketing strategies (e.g., product line or
customer segment), as well as planning and programs for Licensed Products in the
Territory. In addition, payments to Third Parties in connection with trademark
selection, filing, prosecution and enforcement in the Territory will be included
in this category.

        (vii) "SELLING EXPENSES" will include, but not be limited to, the
following costs directly associated with the efforts of field sales
representatives with respect to Licensed Products in the Territory: field sales
force; field sales offices; home offices; staffs directly involved in the
management of and the performance of the selling functions; and payments to
Third Parties under contract sales and marketing agreements. The costs of
detailing sales calls will be allocated on a weighted average basis based on the
proportionate time and effort given to the detailing of Licensed Products versus
product other than a Licensed Product at an accounting charge rate consistently
applied within and across a Party's or a Third Party's operating units and which
is no less favorable than the internal charge rate used by such Party or such
Third Party for its own internal cost accounting purposes for products other
than the Licensed Product (excluding internal profit margins and markups).

        (viii) "TRADE PROMOTION" will include, but not be limited to, the
allowances given to retailers, brokers, distributors, hospital buying groups,
etc. for purchasing, promoting, and distribution of Licensed Products in the
Territory. This will include, but not be limited to, purchasing, advertising,
new distribution, and display allowances as well as free goods, wholesale
allowances and reasonable field sales samples.

(f) "GENERAL AND ADMINISTRATIVE EXPENSES" means a Party's customary allocation,
based on direct project headcount or other generally accepted activity-based
accounting methods, of the costs of the following corporate general and
administrative functions of such Party or any of its operating units incurred to
support or facilitate the development, manufacturing, marketing or selling of
Licensed Products in the Territory: finance and accounting; purchasing and
receiving; management information systems; facilities; human resources;
executive management; and legal, patent and trademark. Such costs include, but
not limited to, the costs of employees performing such functions, the direct
costs of supporting such individuals in the performance of their jobs


                                       5.
<PAGE>   52

(e.g., travel, floor space, computers and other supplies and telephones) and the
actual cost of outside services (e.g., consulting and audit services). General
and administrative expenses of a Party or operating unit that are incurred in
the development, manufacturing, marketing or selling of a Licensed Product
outside the Territory will be excluded from General and Administrative Expenses.
In view of the manner in which General and Administrative Expenses are
calculated, administration expenses will be excluded from the definition of each
of the other cost items that make up Allowable Costs and Expenses.

        Notwithstanding any other provision of this Agreement, commencing as of
[***] total General and Administrative Expenses will not exceed [***] percent
([***]%) of Net Sales of such Licensed Product in the Territory in any quarter,
except as otherwise agreed in writing by the Parties.

(g) "NET INTEREST INCOME" means interest income less interest expense and
adjusted for realized gains and losses from the sale of investments.

(h) For purposes of calculating Profit or Loss only, "NET SALES" will have the
meaning ascribed to it in Section 1.29 of the Agreement.

(i) "OTHER NON-OPERATING AND EXTRAORDINARY GAINS (LOSSES)" means gains or losses
incurred either from secondary or auxiliary activities of AxSignal, outside the
ordinary and primary course of business, or unusual and infrequent gains and
losses of material amounts.

(j) "PROFIT OR LOSS" will have the meaning ascribed to it in subsection A.1
above.

(k) "SUBLICENSE REVENUES" means the amounts received by Axys or its Affiliates
described in Section 5.4(e)(i) of the Agreement.

(l) "TERRITORY" shall have the meaning ascribed to it in Section 1.53 of the
Agreement.

4. FOREIGN EXCHANGE

        The functional currency for accounting for Profit or Loss will be U.S.
Dollars.

        The statement of Profit or Loss will be translated into U.S. Dollars
using, for each currency, the arithmetic average of the daily exchange rates
(obtained as described below) during the reporting period; each daily exchange
rate will be obtained from the Reuters Daily Rate Report or The Wall Street
Journal, Eastern U.S. Edition, or, if not so available, as otherwise agreed to
by the Parties.

5. REPORTING OF SIGNAL COSTS

        To the extent that, at Axys' written request, Signal or a Third Party
with whom Signal has contracted incurs Allowable Costs and Expenses, Signal will
promptly provide Axys with a reasonably detailed written invoice for such
Allowable Costs and Expenses, and such Allowable Costs and Expenses will be
accounted for in the fiscal quarter in which such invoice is received by Axys.

***CONFIDENTIAL TREATMENT REQUESTED


                                       6.
<PAGE>   53

6. AUDITS

(a) Signal will have the right to request that an independent public accounting
firm perform an audit of Axys' books of accounts for the sole purpose of
verifying compliance with this Exhibit A. Such audits will be conducted at the
expense of Signal; provided, however, that if the audit results in an adjustment
exceeding the lesser of (i) [***] of Losses or Profits or (ii) [***] in any
quarter, the reasonable cost of the audit will be borne by Axys. Any disputes
with regard to the foregoing will be resolved in accordance with Section 11.12
of the Agreement. Audit results will be shared with both Parties. Audits are
limited to the same time periods as provided in Section 6.10(a).

(b) Axys will have the right to request that an independent public accounting
firm perform an audit of Signal's books of accounts for the sole purpose of
verifying invoices for Signal's Allowable Costs and Expenses submitted to Axys
hereunder. Such audits will be conducted at the expense of Axys; provided,
however, that if the audit results in an adjustment of greater than [***] of
Signal's Allowable Costs and Expenses in any period, the reasonable cost of the
audit will be borne by Signal. Audit results will be shared with both Parties.
Audits are limited to the same time periods as provided in Section 6.10(a).

7. PAYMENTS BETWEEN THE PARTIES

        Balancing payments between the Parties will be made as necessary based
on Profit or Loss, adjusted for non-cash items other than those provided for in
Section A.11 below, including reasonable working capital allocations that
reflect differences between recognized cash flows and recognized revenues with
respect to a Licensed Product. Payments will be made quarterly, within
forty-five (45) days following the end of each quarter (or, with respect to
Signal, if later, thirty (30) days following receipt of the applicable report
from Axys), based on actual results within the time periods set forth in A.2
above subject to adjustment as provided for herein.

8. SHARING OF PROFITS AND LOSSES

        As provided in the Agreement, the Parties share equally (50%/50%) the
Profit or Loss for each quarterly period.

9. START OF OPERATIONS

        Operation of AxSignal will be deemed to have commenced on the date
Signal gives timely written notice to Axys that it has exercised the Option
pursuant to Section 5.3.

10. EXPENSES PERTAINING TO SALES OF A LICENSED PRODUCT IN THE TERRITORY AND
OUTSIDE THE TERRITORY

(a) In the event an expense is of sole benefit or utility to the research (to
the extent chargeable to Profit or Loss for a Licensed Product under the
Agreement), development or commercialization of a Licensed Product in the
Territory, then 100% of such expense will be charged to AxSignal.

(b) In the event an expense is of sole benefit or utility to the research (to
the extent chargeable to Profit or Loss for a Licensed Profit under the
Agreement), development or commercialization of a Licensed Product outside of
the Territory, then Signal's equal share of the Profit or Loss for such Licensed
Product will be reduced by [***] percent ([***]%) of such expense.

***CONFIDENTIAL TREATMENT REQUESTED


                                       7.
<PAGE>   54

(c) In the event an expense is of benefit or utility to the research (to the
extent chargeable to Profit or Loss for a Licensed Product under the Agreement),
development or commercialization of a Licensed Product both in and outside of
the Territory, then such expense will be allocated in good faith to AxSignal,
Axys and Signal consistent with Section A.10(a) and (b) based on Axys' standard
accounting convention (consistently applied) for the allocation of such
expenses.

11. CAPITAL INVESTMENTS BY AXYS

        Notwithstanding anything to the contrary in the Agreement or herein, all
capital investments required to be made in connection with a Licensed Product
(such as a capital investment in a manufacturing facility) are to be borne by
Axys initially and recouped through an appropriate depreciation charge to
AxSignal.


                                       8.
<PAGE>   55

                                  SCHEDULE A-1

                   PROFIT AND LOSS FINANCIAL STATEMENT FORMAT

<TABLE>
<CAPTION>
                                                 Axys       Signal    Total
                                                 ----       ------    -----
<S>                                              <C>        <C>       <C>
REVENUES
Sublicense Revenues:
    Royalty Payments
    Non-Royalty Payments
Total Sublicense Revenues

Gross Product Sales
Less:
    Trade, Cash & Quantity Credits/Discounts
    Allowance for Returns/Rejections
    Handling Fees/Restocking Expenses
    Freight & Transportation-In
    Taxes & Duties
    Governmental Chargebacks/Rebates
Total Net Product Sales

Total Revenues

Cost of Goods Sold:
    Standard Direct Material Cost
    Standard Direct Labor Costs
    Manufacturing Variances
    Third Party Royalty Expenses
    Allocable Overhead
Total Cost of Goods Sold

Gross Profit

OPERATING EXPENSES
Development Expenses:
    Product Development
    Pre-Clinical Pharmacology & Toxicology
    Clinical Trials
    Regulatory Affairs
    Other Contract R&D
    Allocable Overhead
Total Development Expenses

Sales and Marketing Expenses:
    Selling Expenses
    Marketing Management
    Market & Consumer Research
    Advertising
    Trade Promotion
    Consumer Promotion
    Education
    Freight & Transportation-Out
    Allocable Overhead
Total Sales and Marketing Expenses
</TABLE>

<PAGE>   56

<TABLE>
<CAPTION>
                                                 Axys       Signal    Total
                                                 ----       ------    -----
<S>                                              <C>        <C>       <C>
General and Administrative Expenses:
    Finance & Accounting
    Purchasing & Receiving
    Management Information Systems
    Occupancy
    Human Resources
    Executive Management
    Legal & Patent
Total General and Administrative Expenses

Operating Profit (Loss)

Interest Income (Expense)-Net

Other Non-Operating and Extraordinary Gains
    (Losses) Net (with attendant schedule)

Profit (Loss)

Adjustments for Non-Cash Items
    (with attendant schedule)

Adjustments per Section A.10(b) and (c)

Balancing Receipt (Payment) Pursuant to A.7
</TABLE>


                                       2.
<PAGE>   57

                                    EXHIBIT B

                                  RESEARCH PLAN

                                      [***]


***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   58

                                    EXHIBIT C

                            NON-PCT MEMBER COUNTRIES

        Exhibit C will be mutually agreed to by the Parties within ten (10)
business days of the Effective Date and attached hereto as a substitute for this
Exhibit C.

<PAGE>   59

                                    EXHIBIT C

        The PCT countries in which foreign patent applications may be filed
pursuant to Section 7.3 are set forth below.

<TABLE>
<CAPTION>
CLASS A                           CLASS B                         CLASS C
<S>                               <C>                             <C>
Australia                         Australia                       Australia
Canada                            Canada                          Canada
China                             China                           China
Europe                            Europe                          Europe
Japan                             Japan                           Japan
New Zealand                       New Zealand                     New Zealand
Norway                            Norway                          Norway
                                  Czech Republic                  Czech Republic
                                  Finland                         Finland
                                  Hong Kong                       Hong Kong
                                  Mexico                          Mexico
                                  Poland                          Poland
                                  Russia                          Russia
                                  South Korea                     South Korea
                                  Ukraine                         Ukraine
                                                                  Belarus
                                                                  Estonia
                                                                  Singapore
                                                                  Slovenia
                                                                  Turkey
</TABLE>


        The non-PCT countries in which foreign patent applications may be filed
pursuant to Section 7.3 are set forth below.

<TABLE>
<CAPTION>
CLASS A                           CLASS B                         CLASS C
<S>                               <C>                             <C>
Argentina                         Argentina                       Argentina
Taiwan                            Taiwan                          Taiwan
                                  Chile                           Chile
                                  Columbia                        Columbia
                                  Ecuador                         Ecuador
                                                                  Pakistan
                                                                  Venezuela
</TABLE>


        The JRC will decide from time to time which of Class A, Class B or Class
C is the most appropriate with respect to a particular patent, which decision
will be memorialized in the minutes of the applicable JRC meeting.


                                       1.
<PAGE>   60

                                 SCHEDULE 1.1(a)

                    ER BETA POTENCY AND SELECTIVITY CRITERIA

        For purposes of this Agreement, a compound will be considered ER
Beta-potent and selective if such compound has:

        (a) [***]; and

        (b) [***].




***CONFIDENTIAL TREATMENT REQUESTED


                                       1.