Document:

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                                                                   EXHIBIT 10.16

                  SECOND AMENDMENT TO NOTE DATED JUNE 14, 1994

This Second Amendment (the "Second Amendment") to the Promissory Note (the
"Note") dated June 14, 1994, as amended on May 14, 1998 (the "First Amendment"),
executed by Alan J. Lewis ("Maker") in favor of Signal Pharmaceuticals, Inc.
(the "Company") in the amount of $250,000.000, a copy of which is attached
hereto as Exhibit A, is made as of October 27, 1999. Capitalized terms used but
not otherwise defined in this Second Amendment shall have the meanings given
such terms in the Note.

The Maker hereby agrees that, effective as of the date hereof, the Note shall be
amended as follows:

1.      The second paragraph of the Note is hereby amended to read in its
        entirety as follows:

               "Beginning on (i) a date eight (8) years from the date of this
               note (the "Repayment Commencement Date") or (ii) the date Maker's
               employment with the Company is terminated for any reason
               whatsoever, interest shall accrue, during each calendar month or
               any portion thereof for which this note remains outstanding, at
               the per annum rate equal to 7.52% (the minimum rate of interest
               required, as of the execution date of this note, to avoid the
               imputation or imposition of interest under the Internal Revenue
               Code).
               Accrued interest shall be compounded annually."

2.      The fourth paragraph of the Note (formerly the fifth paragraph prior to
        the First Amendment) is hereby amended to read in its entirety as
        follows:

               "The entire unpaid principal, together with accrued interest,
               shall be amortized over the five (5) years following the
               Repayment Commencement Date, with monthly payments commencing
               July 14, 2002."

Except as specifically amended by this Second Amendment, the terms and
conditions of the First Amendment and Note shall remain in full force and
effect.

                                       /s/ ALAN J. LEWIS
                                       -----------------------------------------
                                       ALAN J. LEWIS, MAKER

Agreed to and accepted this 27th day of October, 1999:

SIGNAL PHARMACEUTICALS, INC.

By: /s/ BRADLEY B. GORDON
    ----------------------------------------------
    Bradley B. Gordon
    Chief Financial Officer and Corporate Secretary

EXHIBIT A - First Amendment and Note Secured by Security Agreement dated June
14, 1994

                   FIRST AMENDMENT TO NOTE DATED JUNE 14, 1994

This First Amendment (the "First Amendment") to the Promissory Note (the "Note")
dated June 14, 1994 executed by Alan J. Lewis ("Maker") in favor of Signal
Pharmaceuticals, Inc. (the "Company") in the amount of $250,000.000, a copy of
which is attached hereto as Exhibit A, is made as of May 14, 1998. Capitalized
terms used but not otherwise defined in this First Amendment shall have the
meanings given such terms in the Note.

The Maker hereby agrees that, effective as of the date hereof, the Note shall be
amended as follows:

1.      The fourth paragraph of the Note is hereby deleted in its entirety.

2.      The fifth paragraph of the Note is hereby amended to read in its
        entirety as follows:

        "The entire unpaid principal, together with accrued interest, shall be
        amortized over the five (5) years following the Repayment Commencement
        Date, with monthly payments commencing July 14, 1999."

Except as specifically amended by this First Amendment, the terms and conditions
of the Note shall remain in full force and effect.

                                            /s/ ALAN J. LEWIS
                                            ------------------------------------
                                            ALAN J. LEWIS, MAKER

Agreed to and accepted this 14th day of May, 1998:

SIGNAL PHARMACEUTICALS, INC.

By: /s/ BRADLEY B. GORDON
   ---------------------------------------
    Bradley B. Gordon
    Chief Financial Officer and Corporate Secretary

EXHIBIT A - Note Secured by Security Agreement dated June 14, 1994

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                       NOTE SECURED BY SECURITY AGREEMENT

$250,000.00                                                        June 14, 1994
                                                           San Diego, California

        FOR VALUE RECEIVED, the undersigned Maker promises to pay to Signal
Pharmaceuticals, Inc. (the "Company"), at its principal offices at 5555 Oberlin
Drive, San Diego, California 92121 or order the principal sum of Two Hundred
Fifty Thousand dollars ($ 250,000.00), together with accrued interest on the
unpaid principal balance.

        Beginning on (i) a date five (5) years from the date of this note (the
"Repayment Commencement Date") or (ii) the date Maker's employment with the
Company is terminated for any reason whatsoever, interest shall accrue, during
each calendar month or any portion thereof for which this note remains
outstanding, at the per annum rate equal to 7.52% (the minimum rate of interest
required, as of the execution date of this note, to avoid the imputation or
imposition of interest under the Internal Revenue Code). Accrued interest shall
be compounded annually.

        The proceeds of the loan evidenced by this note shall be applied solely
to the purchase of Maker's principal residence in Rancho Santa Fe, California.

        If, at any time, the Company consummates an Initial Public Offering (an
"IPO"), all unpaid principal and accrued interest shall become payable in one
lump sum sixty (60) days after shares of the Company's Common Stock sufficient
to pay such principal and interest may be sold by Maker in the public market
without restriction imposed by the Company, the Company's underwriters or
federal or state securities laws; provided, however, that failure to make such
payment shall not be deemed a default under this note until a date one year and
one day after the closing of an IPO.

        Subject to the foregoing paragraph, in the event that the Company shall
not have closed an IPO on or before the Repayment Commencement Date, then the
entire unpaid principal, together with accrued interest, shall become payable
and shall be amortized over the period of five (5) years following the Repayment
Commencement Date.

        Payment shall be made in lawful tender of the United States and shall be
credited first to the accrued interest then due and payable and the remainder
applied to principal. Prepayment of principal, together with accrued interest,
may be made at any time without penalty.

<PAGE>   3

        The entire unpaid principal sum of this note, together with accrued and
unpaid interest to date, shall at the election of the holder of this note become
immediately due and payable upon one or more of the following events:

        1.     the death of the Maker;

        2.     six (6) months after any termination of the employment of the
Maker with the Company for any reason whatsoever;

        3.     the disposition of all or substantially all of the assets or
fifty percent (50%) or more of the outstanding voting stock of the Company by
means of sale, merger, reorganization or liquidation; or

        4.     the insolvency of the Maker, the commission of any act of
bankruptcy by the Maker, the execution by the Maker of a general assignment for
the benefit of creditors, the filing by or against the Maker of any petition in
bankruptcy or any petition for relief under the provisions of the federal
bankruptcy act or any other state or federal law for the relief of debtors and
the continuation of such petition without dismissal for a period of fifteen (15)
days or more, or the appointment of a receiver or trustee to take possession of
the property or assets of the Maker.

        The benefits of the interest arrangements under this note are not
transferable by Maker and are conditioned on the future performance of
substantial services by the Maker.

        For purposes of applying the provisions of this note, the Maker shall be
considered to remain in the employ of the Company for so long as the Maker
renders services as a full-time employee of the Company or one or more of its
50%-or-more owned (directly or indirectly) subsidiaries.

        The Maker certifies that he reasonably expects to be entitled to and
will itemize deductions for Federal income tax purposes for each year the note
is outstanding.

        Payment of this note is secured by a Security Agreement executed on this
date by the Maker, but the Maker shall remain personally liable for payment of
this note and assets of the Maker, other than the collateral under the Security
Agreement, may be applied to the satisfaction of the Maker's obligations
hereunder, it being understood by the Maker that no action shall be taken
against Maker personally until the Company has used its best efforts to collect
on this note or to obtain satisfaction of Maker's obligations hereunder pursuant
to the Security Agreement. If action is instituted to collect this note, the
Maker promises to pay all costs and expenses, including reasonable attorneys'
fees, incurred in connection with such action.

                                       2.

<PAGE>   4

        The Maker hereby waives notice of default, presentment or demand for
payment, protest or notice of nonpayment or dishonor and all other notices or
demands relative to this instrument.

        This note shall be construed in accordance with the laws of the State of
California.

                                        /s/  ALAN J. LEWIS, MAKER
                                        ----------------------------------------
                                        Alan J. Lewis, Maker

                                       3.<PAGE>   1
                                                                   EXHIBIT 10.17

                               SECURITY AGREEMENT

        THIS SECURITY AGREEMENT (the "Agreement") is made and dated this 14th
day of June 1994, by and between SIGNAL PHARMACEUTICALS, INC. ("Secured Party")
and Alan J. Lewis ("Borrower").

                                    RECITALS

        A.      In order to allow Borrower to purchase a residence, Secured
Party has accepted the promissory note of Borrower in the amount of two hundred
fifty thousand dollars ($250,000), dated concurrently herewith (the "Note"),
pursuant to which Secured Party has agreed to lend $250,000 to Borrower on the
terms and subject to the conditions set forth therein. All terms not otherwise
defined herein are used with the same meaning as set forth in the Note.

        B.      As security for the payment and performance of its obligations
to Secured Party under the Note and under this Security Agreement, it is the
intent of Borrower to grant to Secured Party and to create a security interest
in certain property of Borrower, as hereinafter provided.

                                    AGREEMENT

        NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Secured Party and Borrower hereby agree as follows:

        1.      Stock Pledge. As security for payment and performance of the
obligations of Borrower to Secured Party described in Paragraph 2 below
(collectively and severally, the "Obligations"), Borrower hereby assigns and
pledges to Secured Party all shares of the Common Stock of Signal
Pharmaceuticals, Inc. now or hereafter owned by Borrower (the "Pledged Shares").
Borrower shall deliver the Pledged Shares and a duly endorsed collateral stock
power relating to the Pledged Shares to Secured Party and Secured Party hereby
acknowledges receipt of the Pledged Shares and the endorsed collateral stock
power. Secured Party shall hold the Pledged Shares as security for repayment of
the Note in full.

        (a)     During the term of this pledge, all cash dividends paid in
respect of the Pledged Shares shall be delivered to Secured Party and applied to
payment of the Note and all stock dividends shall be delivered to and held by
Secured Party as though they were Pledged Shares (hereafter, collectively, the
"Shares").

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        (b)     During the term of this pledge, Borrower shall have all voting
rights, if any, with respect to the Pledged Shares or any other shares held by
Secured Party pursuant to this Agreement on all matters on which such shares may
from time to time be voted.

        (c)     Upon payment in full of the indebtedness evidenced by the Note,
Secured Party shall surrender the Pledged Shares to Borrower. Upon payment in
part of the indebtedness evidenced by the Note, and upon consent of Secured
Party to be given or withheld in the exercise of Secured Party's absolute
discretion, Secured Party shall surrender such Pledged Shares to Borrower as
Secured Party authorizes.

        2.      Obligations. The Obligations of Borrower secured by this
Security Agreement shall consist of the debt, obligations and liabilities of
Borrower to Secured Party arising out of, connected with or related to the Note
and this Security Agreement and all amendments or extensions or renewals of the
Note, and/or this Security Agreement, whether now existing or hereafter arising,
voluntary or involuntary, whether or not jointly owed with others, direct or
indirect, absolute or contingent, liquidated or unliquidated, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred.

        3.      Additional Representations and Warranties. Borrower hereby
represents and warrants that except as heretofore disclosed to Secured Party in
writing, Borrower is the owner of the Shares and such other property as to which
Borrower may grant Secured Party a security interest pursuant to Paragraph 7
hereof (hereafter, collectively, the "Collateral") (or, in the case of
after-acquired Collateral, at the time Borrower acquires rights in the
Collateral, will be the owner thereof) and that, no other person has (or, in the
case of after-acquired Collateral, at the time Borrower acquires rights therein,
will have) any right, title, claim or interest (by way of security interest or
other lien or charge or otherwise) in, against or to the Collateral.

        4.      Covenants of Borrower. Borrower hereby agrees (a) to do all acts
that may be necessary to maintain, preserve and protect the Collateral and
Secured Party's interest in the Collateral; (b) not to use or permit any
Collateral to be used unlawfully or in violation of any provision of this
Security Agreement, or any applicable statute, regulation or ordinance or any
policy of insurance covering the Collateral; (c) to pay promptly when due all
taxes, assessments, charges, encumbrances and liens now or hereafter imposed
upon or affecting any Collateral; (d) to procure, execute and deliver from time
to time any endorsements, assignments, financing statements and other writing
deemed necessary or appropriate by Secured Party to perfect, maintain and
protect its security interest hereunder and the priority thereof and to deliver
promptly to Secured Party all originals of Collateral or proceeds consisting of
chattel paper or instruments; (e) to appear in and defend any action or
proceeding which may affect its title to or Secured Party's interest in the
Collateral; (f) if Secured Party gives value to enable Borrower to acquire
rights in or the use of any Collateral, to use such value for such purpose; (g)
to keep separate, accurate and

                                       2.
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complete records of the Collateral and to provide Secured Party with such
records and such other reports and information relating to the Collateral as
Secured Party may request from time to time; and (h) not to surrender or lose
possession of (other than to Secured Party), sell, encumber, lease, rent, or
otherwise dispose of or transfer any Collateral or right or interest therein,
and, notwithstanding any provision of the Agreement, to keep the Collateral free
of all levies and security interests or other liens or charges except those
approved in writing by Secured Party.

        5.      Authorized Action By Secured Party. Borrower hereby irrevocably
appoints Secured Party as its attorney-in-fact to do (but Secured Party shall
not be obligated to and shall incur no liability to Borrower or any third party
for failure so to do) any act which Borrower is obligated by this Security
Agreement to do, and to exercise such rights and powers as Borrower might
exercise with respect to the Collateral, including, without limitation, the
right to (a) collect by legal proceedings or otherwise and endorse, receive and
receipt for all dividends, interest, payments, proceeds and other sums and
property now or hereafter payable on or on account of the Collateral; (b) enter
into any extension, reorganization, deposit, merger, consolidation or other
agreement pertaining to, or deposit, surrender, accept, hold or apply other
property in exchange for the Collateral; (c) insure, process and preserve the
Collateral; (d) transfer the Collateral to its own or its nominee's name; and
(e) make any compromise or settlement, and take any action it deems advisable,
with respect to the Collateral. Borrower agrees to reimburse Secured Party upon
demand for any costs and expenses, including, without limitation, attorneys'
fees, Secured Party may incur while acting as Borrower's attorney-in-fact
hereunder, all of which costs and expenses are included in the Obligations
secured hereby. It is further agreed and understood between the parties hereto
that such care as Secured Party gives to the safekeeping of its own property of
like kind shall constitute reasonable care of the Collateral when in Secured
Party's possession; provided, however, that Secured Party shall not be required
to make any presentment, demand or protest, or give any notice and need not take
any action to preserve any rights against any prior party or any other person in
connection with the Obligations or with respect to the Collateral.

        6.      Default and Remedies. The occurrence of one or more of the
following events shall constitute an event of default under this Agreement: (a)
failure of Borrower to pay when due under the Note principal or accrued
interest; (b) the occurrence of any event of default specified in the Note; (c)
the failure of Borrower to perform any obligation imposed upon Borrower by
reason of this Agreement; or (d) the breach of any warranty of the Borrower
contained in this Agreement. Upon the occurrence of any such event of default,
Secured Party may, at its option, and without notice to or demand on Borrower
and in addition to all rights and remedies available to Secured Party under the
Agreement, declare the Note to become immediately due and payable and do any of
the following: (a) transfer record ownership of the Shares to itself and
receive, endorse and give receipt for, or collect by legal proceedings or
otherwise, dividends or other distributions made or paid with respect to the
Shares; (b) sell, lease or otherwise dispose of any Collateral at one or more
public or private sales, whether or not such Collateral is present

                                       3.
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at the place of sale, for cash or credit or future delivery, on such terms and
in such manner as Secured Party may determine; and (c) apply any proceeds
realized from the disposition of the Collateral pursuant to the power of sale
hereby granted to Secured Party first to the payment of expenses incurred by
Secured Party in connection with the disposition, and the balance to the payment
of the Note. Any surplus proceeds shall be paid over to the Borrower.

        7.      Deemed Insecure. In the event and at such time as Secured Party
reasonably deems the security interest in the Shares granted pursuant to
Paragraph 2 of this Agreement to be insufficient to secure payment and
performance of the Obligations, Secured Party may, pursuant to the terms of this
Agreement, require Borrower and Borrower hereby agrees (a) to grant Secured
Party a security interest in such additional property as Secured Party in its
sole discretion may designate; and (b) to procure, execute and deliver any
endorsements, assignments, financing statements and any other writing or
instrument deemed necessary and appropriate by Secured Party to perfect,
maintain and protect its security interest in such additional property and the
priority thereof. Such additional property shall be considered Collateral for
all purposes of this Agreement.

        8.      Cumulative Rights. The rights, powers and remedies of Secured
Party under this Security Agreement shall be in addition to all rights, powers
and remedies given to Secured Party by virtue of any statute or rule of law, the
Note or any other agreement, all of which rights, powers and remedies shall be
cumulative and may be exercised successively or concurrently without impairing
Secured Party's security interest in the Collateral.

        9.      Waiver. Any forbearance or failure to delay by Secured Party in
exercising any right, power or remedy shall not preclude the further exercise
thereof and every right, power or remedy of Secured Party shall continue in full
force and effect until such right, power or remedy is specifically waived in a
writing executed by Secured Party. Borrower waives any right to require Secured
Party to proceed against any person or to exhaust any Collateral or to pursue
any remedy in Secured Party's power.

        10.     Setoff. Borrower agrees that Secured Party may exercise its
rights of setoff with respect to the Obligations in the same manner as if the
Obligations were unsecured.

        11.     Binding Upon Successors. All rights of Secured Party under this
Security Agreement shall inure to the benefit of its successors and assigns, and
all obligations of Borrower shall bind its heirs, executors, administrators,
successors and assigns.

        12.     Entire Agreement: Severability. This Security Agreement contains
the entire security agreement between Secured Party and Borrower. If any of the
provisions of this Security Agreement shall be held invalid or unenforceable,
this Security Agreement

                                       4.
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shall be construed as if not containing those provisions and the rights and
obligations of the parties hereto shall be construed and enforced accordingly.

        13.     References. The singular includes the plural. If more than one
executes this Security Agreement, the term Borrower shall be deemed to refer to
each of the undersigned as well as to all of them and their obligations and
agreements hereunder shall be joint and several. If any of the undersigned is a
married person, recourse may be had against his or her separate property for the
Obligations.

        14.     Choice of Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of California, and, where
applicable and except as otherwise defined herein, terms used herein shall have
the meanings given them in the California Uniform Commercial Code.

        15.     Notice. Any written notice, consent or other communication
provided for in this Security Agreement shall be delivered or sent by registered
U.S. mail, with postage prepaid, to the following addresses:

        Secured Party:    Signal Pharmaceuticals, Inc.
                          5555 Oberlin Drive
                          San Diego, California 92121

       with a copy to:    J. Stephan Dolezalek
                          Brobeck, Phleger & Harrison
                          Two Embarcadero Place
                          2200 Geng Road
                          Palo Alto, California 94303

             Borrower:    Alan J. Lewis
                          c/o Signal Pharmaceuticals, Inc.
                          5555 Oberlin Drive
                          San Diego, California 92121

        Such addresses may be changed by written notice given as provided
        herein.

                                         /s/ ALAN J. LEWIS
                                        ----------------------------------------
                                        Borrower

                                       5.

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