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                                                                   EXHIBIT 10.35

                            STOCK PURCHASE AGREEMENT

        THIS STOCK PURCHASE AGREEMENT is entered into as of March 31, 1996, by
and between Signal Pharmaceuticals, Inc., a California corporation, (the
"Company"), and Tanabe Seiyaku Co., Ltd., a Japanese corporation (the
"Investor").

        A. The Investor desires to acquire 500,000 shares of the Company's
Series D Preferred Stock, no par value per share (the "Shares") upon the terms
and conditions hereinafter described.

        B. In consideration of the mutual covenants and conditions contained
herein, the parties agree as follows:

        1.     Purchase and Sale of Shares.

               1.1       Sale and Issuance of Shares.

                      (a) The Company shall adopt and file with the Secretary of
State of California on or before the Closing (as defined below) Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit A (the
"Restated Articles").

                      (b) Subject to the terms and conditions of this Agreement,
Investor agrees to purchase at the Closing (as defined below) and the Company
agrees to sell and issue to the Investor at the Closing, the Shares at the price
of $4.00 per share for an aggregate purchase price of Two Million U.S. Dollars
(U.S.$2,000,000) (the "Purchase Price").

               1.2 Closing. The consummation of the purchase and sale of the
Shares shall take place at the offices of Brobeck Phleger & Harrison, 550 West C
Street, San Diego, California, at 4:00 p.m. (Pacific Time), on April 2, 1996, or
at such other time and place as the Company and the Investor mutually agree upon
orally or in writing (which time and place are designated as the "Closing"). At
the Closing, the Company shall deliver to the Investor a certificate
representing the Shares. In consideration of such delivery, Investor will make
payment therefor by wire transfer payable to the Company in the amount of the
Purchase Price. The date of the Closing shall be referred to as the "Closing
Date."

               1.3       Issuance of Additional Shares Upon Certain Events.

                      (a) In the event that the Company shall issue and sell
Series E Preferred Stock to a venture capital investor at a per share price of
less than $2.80 per

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share (subject to adjustment for stock splits, reverse stock splits,
recapitalizations and the like after the date hereof), then the Company shall be
obligated to issue, and the Investor shall be entitled to receive, without
payment of any additional consideration, a number of shares of fully paid,
nonassessable Series D Preferred Stock of the Company equal to the excess of (a)
the quotient obtained by dividing (i) $2,000,000 by (ii) the Reduced Purchase
Price (defined below); over (b) 500,000 (as adjusted for stock splits, reverse
stock splits, recapitalizations and the like in the same manner as outstanding
shares would be adjusted). The "Reduced Purchase Price" shall mean (a) the
product obtained by multiplying $4.00 times the Series E per share price divided
by (b) $2.80, rounded to the nearest hundredth. As an example, in the event that
the Company shall issue and sell Series E Preferred Stock to a venture capital
investor for $2.00 per share, the Investor would receive an additional 199,300
shares of Series D Preferred Stock. Such issuance shall be deemed to be
effective immediately after the closing of the sale of Series E Preferred Stock,
and duly executed certificates representing such Series D Preferred Stock shares
shall be delivered to the Investor immediately after such closing.

                      (b) In the event that the Company shall issue and sell
Series E Preferred Stock to a pharmaceutical or biotechnology company (the
"Corporate Partner") in connection with a transaction involving technology
licensing, research or development activities, the distribution or manufacture
of the Company's products or the like (a "Technology Transaction") at a per
share purchase price of less than $4.00 per share (subject to adjustment for
stock splits, reverse stock splits, recapitalizations and the like after the
date hereof), then the Company shall be obligated to issue, and the Investor
shall be entitled to receive, without payment of any additional consideration, a
number of shares of fully paid, nonassessable shares of Series D Preferred Stock
of the Company equal to the excess of (a) the quotient obtained by dividing (i)
$2,000,000 by (ii) the Corporate Partner Purchase Price (defined below); over
(b) 500,000 (as adjusted for stock splits, reverse stock spits,
recapitalizations and the like in the same manner as outstanding shares would be
adjusted). The term "Corporate Partner Purchase Price" shall mean the per share
purchase price of the Series E Preferred Stock being paid by the Corporate
Partner. As an example, in the event that the Corporate Partner Purchase Price
shall be $3.00 per share, the Investor would receive an additional 166,667 of
Series D Preferred Stock. Such issuance shall be deemed to be effective
immediately after the closing of the sale of Series E Preferred Stock, and duly
executed certificates representing such Series D Preferred Stock shares shall be
delivered to the Investor immediately after such closing.

        2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that, except as set forth on a Schedule
of Exceptions attached hereto as Exhibit B, specifically identifying the
relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:

                                       2.

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               2.1 Organization; Good Standing; Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver this Agreement
and any other agreement to which the Company is a party the execution and
delivery of which is contemplated hereby (the "Ancillary Agreements"), to issue
and sell the Series D Preferred Stock and the Common Stock issuable upon
conversion thereof (collectively, the "Securities"), and to carry out the
provisions of this Agreement, the Restated Articles and any Ancillary Agreement.
The Company is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on its business, properties, prospects or financial condition.

               2.2 Authorization. All corporate action on the part of the
Company, its officers, directors, and shareholders necessary for the
authorization, execution and delivery of this Agreement and any Ancillary
Agreement, the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance (or reservation for issuance), sale,
and delivery of the Series D Preferred Stock being sold hereunder and the Common
Stock issuable upon conversion thereof has been taken or will be taken prior to
the Closing, and this Agreement and any Ancillary Agreement constitute valid and
legally binding obligations of the Company, enforceable in accordance with their
respective terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies or (iii) as to the enforceability of Section 7.3 of this Agreement
against Investor.

               2.3 Valid Issuance of Preferred and Common Stock. The Series D
Preferred Stock that is being purchased by the Investor hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and, based in part upon the representations of the Investor in
this Agreement, will be issued in compliance with all applicable federal and
state securities laws and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon conversion of the Series
D Preferred Stock purchased under this Agreement has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Restated Articles, will be duly and validly issued, fully paid and
nonassessable, and issued in compliance with all applicable securities laws, as
presently in effect, of the United States and each of the states whose
securities laws govern the issuance of any of the Series D Preferred Stock and
will be free of restrictions on transfer other than restrictions on transfer
under this Agreement and under applicable state and federal securities laws.

                                       3.

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               2.4 Governmental Consents. No consent, approval, qualification,
order or authorization of, or filing with, any local, state or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery, or performance of this Agreement, the
offer, sale or issuance of the Series D Preferred Stock by the Company or the
issuance of Common Stock upon conversion of the Series D Preferred Stock, except
(i) the filing of the Restated Articles with the Secretary of State of the State
of California, and (ii) such filings as have been made prior to the Closing,
except that any notices of sale required to be filed with the Securities and
Exchange Commission under Regulation D of the Securities Act of 1933, as amended
(the "Securities Act"), or such post-closing filings as may be required under
applicable state securities laws, which will be timely filed within the
applicable periods therefor.

               2.5 Capitalization and Voting Rights. The authorized capital of
the Company consists, or will consist prior to the Closing, of:

                      (i) Preferred Stock. Fourteen Million, Seven Hundred
Ninety Three Thousand, Three Hundred Twenty Five (14,793,325) shares of
Preferred Stock, no par value (the "Preferred Stock"), of which Two Million, Six
Hundred Twenty Six Thousand, Eight Hundred Ninety Two (2,626,892) shares have
been designated Series A Preferred Stock, all of which are issued and
outstanding, and Two Million, Eight Hundred Seventy Five Thousand (2,875,000)
shares have been designated Series B Preferred Stock, all of which are issued
and outstanding, Eight Million, Seven Hundred Ninety One Thousand, Four Hundred
Thirty Three (8,791,433) shares have been designated Series C Preferred Stock,
all of which are issued and outstanding, and Five Hundred Thousand (500,000)
shares have been designated Series D Preferred Stock, up to all of which will be
sold pursuant to this Agreement. The rights, privileges and preferences of the
Series A, Series B, Series C and Series D Preferred Stock will be as stated in
the Restated Articles.

                      (ii) Common Stock. 20,000,000 shares of common stock
("Common Stock"), no par value, of which 1,985,574 shares are issued and
outstanding.

                      (iii) The outstanding shares of Series A, Series B, and
Series C Preferred Stock and Common Stock are owned by the stockholders and in
the numbers specified in Exhibit C hereto.

                      (iv) The outstanding shares of Series A, Series B, and
Series C Preferred Stock and Common Stock are all duly and validly authorized
and issued, fully paid and nonassessable, and have been issued in accordance
with the registration or qualification provisions of the Securities Act of 1933
and any relevant state securities laws or pursuant to valid exemptions
therefrom.

                                       4.

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                      (v) Except for (A) the conversion privileges of the Series
A, Series B, Series C and Series D Preferred Stock, (B) the rights provided in
paragraph 2.3 of an Investors' Rights Agreement by and among the Company and
certain investors, (C) currently outstanding options to purchase 1,252,500
shares of Common Stock reserved for issuance to employees, directors and
consultants pursuant to the Company's 1993 Stock Option Plan (the "Option Plan")
and options to purchase 657,426 shares of Common Stock reserved for issuance to
certain employees and consultants pursuant to the Option Plan, (D) currently
outstanding options to purchase 73,000 shares of Common Stock reserved for
issuance to certain founders pursuant to the Company's Founders Option Plan (the
"Founders Plan") and options to purchase 122,000 shares of Common Stock reserved
for issuance to certain founders pursuant to the Founders Plan and (E) the
Warrants to be issued to the Investor pursuant to this Agreement, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights and rights of first refusal) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. The Company is
not a party or subject to any agreement or understanding, and, to the best of
the Company's knowledge, there is no agreement or understanding between any
persons that affects or relates to the voting or giving of written consents with
respect to any security or the voting by a director of the Company.

               2.6 Subsidiaries. The Company does not own or control, directly
or indirectly, any interest in any other corporation, association, or other
business entity.

               2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company which questions the validity of this Agreement, or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby, or which might result, either individually or in the aggregate, in any
material adverse changes in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no action,
suit, proceeding or investigation by the Company currently pending or which the
Company intends to initiate.

               2.8 Patents and Trademarks. The Company has sufficient title and
ownership or license rights of all patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and believes it will be able to
develop such intellectual property such that it can operate its business as
proposed to be conducted without any

                                       5.
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conflict with or infringement of the rights of others. There are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his
best efforts to promote the interests of the Company or that would conflict with
the Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the Investors' Rights Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees (or people
it currently intends to hire) made prior to their employment by the Company.

               2.9 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Amended and Restated Articles of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound or, to its knowledge, of
any provision of federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event which results in the creation of any lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations or any of its assets or
properties, except that the foregoing may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies.

               2.10      Agreements; Action.

                                       6.
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                      (a) Except for agreements explicitly contemplated hereby,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates, or any affiliate
thereof.

                      (b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of, $100,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company or (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
or (iv) positions on the Scientific Advisory Board or any other consultancies,
except as set forth in the Schedule of Exceptions.

                      (c) The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights.

                      (d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.

                      (e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Amended and Restated Articles of Incorporation or Bylaws, which adversely
affects its business as now conducted or as proposed to be conducted, its
properties or its financial condition.

               2.11 Related-Party Transactions. No employee, officer, or
director of the Company or member of his or her immediate family is indebted to
the Company, nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them. To the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. No member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
material contract with the Company.

                                       7.
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               2.12 Permits. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.

               2.13 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.

               2.14 Disclosure. Except such confidential information which is
proprietary to the Company and is not material to making an investment decision
in the Company, the Company has fully provided the Investor with all the
information which the Investor has requested for deciding whether to purchase
the Series D Preferred Stock and all information which the Company believes is
reasonably necessary to enable such Investor to make such decision. Neither this
Agreement, the Investors' Rights Agreement, nor any other statements or
certificates made or delivered in connection herewith or therewith when taken
together contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.

               2.15 Registration Rights. Except as provided in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.

               2.16 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by the Investors), the Amended and
Restated Articles of Incorporation and Bylaws of the Company are in the form
previously provided to the Investors.

               2.17 Title to Property and Assets. The Company owns its property
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens which arise in the ordinary course of
business and do not materially impair the Company's ownership or use of such
property or assets. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.

                                       8.
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               2.18 Financial Statements. The Company has delivered to the
Investor its unaudited Financial Statements at December 31, 1995 (the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects. Except as set forth in the Financial Statements, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of the Financial Statements
and (ii) obligations under contracts and commitments incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, in both cases,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.

               2.19      Changes.  Since December 31, 1995 there has not been:

                      (a) any change in the assets, liabilities, financial
condition or operating results of the Company, except changes which have not
been, in the aggregate, materially adverse.

                      (b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);

                      (c) any waiver by the Company of a valuable right or of a
material debt owed to it;

                      (d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except which is not
material to the assets, properties, financial condition, operating results or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted);

                      (e) any change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;

                      (f) any material change in any compensation arrangement or
agreement with any officer of the Company; or

                      (g) to the Company's knowledge, any other event or
condition of any character which might materially and adversely affect the
assets, properties, financial condition, operating results or business of the
Company (as such business is presently conducted and as it is proposed to be
conducted).

                                       9.

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               2.20 Employee Benefit Plans. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.

               2.21 Tax Returns, Payments and Elections. The Company has filed
all tax returns and reports as required by law. These returns and reports are
true and correct in all material respects. The Company has paid all taxes and
other assessments due, except those contested by it in good faith which are
listed in the Schedule of Exceptions. The Company has not elected pursuant to
the Internal Revenue Code of 1986, as amended ("Code"), to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section 341(f)
or Section 1362(a) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets.

               2.22 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.

               2.23 Minute Books. The minute books of the Company contain a
complete summary of all meetings of directors and shareholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.

               2.24 Labor Agreements and Actions. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the will
of the Company.

               2.25 Section 83(b) Elections. To the best of the Company's
knowledge, elections and notices pursuant to Section 83(b) of the Internal
Revenue Code

                                       10.
<PAGE>   11

and any analogous provisions of applicable state tax laws have been timely filed
by all individuals who have purchased shares of the Company's Common Stock which
are subject to vesting or other risk of forfeiture.

               2.26 Real Property Holding Company. The Company is not a "United
States real property holding corporation" (as that term is defined in Treasury
Regulation Section 1.897-2(b)). If at any time in the future the Company shall
become a "United States real property holding corporation," the Company shall,
as promptly as practicable, notify each foreign Investor of such change in
status. Within 30 days after receipt of a request from a foreign Investor, the
Company shall prepare and deliver to such foreign Investor the statement
required under Treasury Regulation Section 1.897-2(h)(l)(i) and either or both
of the following documents: (i) an affidavit in conformance with the
requirements of Section 1445(b)(3) of the Code or (ii) a notarized statement,
executed by an officer having actual knowledge of the facts, that the shares of
Company stock held by such foreign Investor are of a class that is regularly
traded on an established securities market, within the meaning of Section
1445(b)(6) of the Code. If the Company is unable to provide either document
described in (i) or (ii) above, if requested, it shall promptly notify such
foreign Investor in writing of the reasons for such inability. Finally, upon the
request of a foreign Investor and without regard to whether either document
described in (i) or (ii) above has been requested, the Company shall cooperate
fully with the efforts of such foreign Investor to obtain a "qualifying
statement," within the meaning of Section 1445(b)(4) of the Code, or such other
documents as would excuse a transferee of a foreign Investor's interest from
withholding of income tax imposed pursuant to Section 1445(a) of the Code.

        3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company that:

               3.1 Authorization. This Agreement constitutes its valid and
legally binding obligation, enforceable in accordance with its terms except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies or (iii) as to the
enforceability of Section 7.3 of this Agreement against Investor.

               3.2 Organization. The Investor is a corporation duly organized
and validly existing and in good standing under the laws of Japan, with all
requisite power and authority to own its properties and conduct its business as
now being conducted.

               3.3 Purchase Entirely for Own Account. This Agreement is made
with the Investor in reliance upon representation to the Company, which by
Investor's execution of this Agreement it hereby confirms, that the Series D
Preferred Stock to be received by Investor and Common Stock issuable upon
conversion thereof will be

                                       11.
<PAGE>   12

acquired for investment for Investor's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Investor
further represents that Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. Investor represents that it has full power and authority to enter
into this Agreement.

               3.4 Disclosure of Information. Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Series D Preferred Stock. Investor further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series D Preferred
Stock. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of the
Investor to rely thereon.

               3.5 Restricted Securities. Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the United States federal securities laws inasmuch as they are being acquired
from the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Act, only in certain limited circumstances. In this
connection, the Investor represents that it is familiar with Rule 144 of the Act
promulgated by the Securities and Exchange Commission (the "SEC"), as presently
in effect, and understands the resale limitations imposed thereby and by the
Act.

               3.6 Accredited Investor. Investor is an "accredited investor"
within the meaning of paragraph (a) of Rule 501 of Regulation D promulgated by
the SEC and an "excluded purchaser" within the meaning of Section 25102(f) of
the California Corporate Securities Law of 1968, as amended, and Section
260.102.13 of the California Code of Regulations, Title 10.

               3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Series D Preferred Stock
unless:

                      (a) the disposition is made as part of a firmly
underwritten public offering of the Company's stock or

                      (b) until the transferee has agreed in writing for the
benefit of the Company to be bound by this Section 3 and Section 7 hereof, and
the (i) Investor shall have notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the circumstances
surrounding the proposed

                                       12.

<PAGE>   13

disposition, and (ii) if reasonably requested by the Company, the Investor shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of such
shares under the Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.

               3.8 Legends. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:

                      (a) "These securities have not been registered under the
Securities Act of 1933, as amended, or any State Securities law and such
securities may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of such Act."

                      (b) Any legend required by the laws of the State of
California or Delaware or any other applicable state securities law, including
any legend required by the California Department of Corporations.

               3.9 Compliance with Law. Investor is not a party to any agreement
or instrument, or subject to any charter or other corporate restriction or, to
its actual knowledge, any judgment, order, decree, law, ordinance, regulation or
other governmental restriction which would prevent or impede, or be breached or
violated by, the transactions contemplated in this Agreement.

        4.     California Commissioner of Corporations.

               4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.

        5. Conditions of Investor's Obligations at Closing. The obligations of
the Investor under this Agreement are subject to the fulfillment on or before
the Closing of each of the following conditions unless otherwise waived by the
Investor:

                                       13.
<PAGE>   14

               5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.

               5.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement and
the Ancillary Agreements that are required to be performed or complied with by
it on or before the Closing, all corporate or other proceedings in connection
with the transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and in substance to counsel for
Investor and the Investors shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request.

               5.3 Compliance Certificate. The President of the Company shall
have delivered to the Investor a certificate certifying that the conditions
specified in Sections 5.1 and 5.2 have been fulfilled and stating that there
shall have been no adverse change in the business, affairs, properties, assets
or conditions of the Company since the date of the Financial Statements.

               5.4 Qualifications. There shall not be in effect any law, rule or
regulation prohibiting or restricting the sale and issuance of the Shares or the
Common Stock issuable upon conversion thereof, or requiring any consent or
approval of any person or governmental entity which shall not have been obtained
to issue the Shares.

               5.5 Opinion of Company Counsel. Investor shall have received from
Brobeck, Phleger & Harrison LLP, Palo Alto, California, counsel for the Company,
an opinion, dated as of the Closing, in substantially the form attached hereto
as Exhibit D, which opinion is incorporated herein by this reference.

               5.6 Investor Rights. The Company and the Investor shall have
executed and delivered that certain Investor Rights Agreement of even date
herewith providing certain rights to Investor to have shares of Common Stock
registered for sale and providing for certain information rights.

               5.7 Common Stock Warrants. The Company shall have delivered to
Investor Warrants attached as Exhibit E (the "Warrants") entitling Investor to
purchase such number of shares of Common Stock (at the price at which the
Company first sells any shares of its Common Stock to the public in a registered
public offering, the "IPO Price") as equals $2,000,000 U.S. divided by such IPO
Price. Such Warrants shall be exercisable only in connection with such initial
public offering, shall expire upon completion of such offering, and shall be
subject to compliance with applicable securities laws and regulations (including
but not limited to the rules and policies of the National Association of
Securities Dealers, Inc.). The Company shall use its best efforts to

                                      14.
<PAGE>   15

include the issuance of the shares of Common Stock upon exercise of the Warrants
(the "Warrant Shares") in such initial public offering. In the event that the
inclusion of such issuance is not permitted pursuant to the Act or the rules and
regulations promulgated thereunder, the Company shall use its best efforts to
effect a registration of the issuance and/or resale of the Warrant Shares on the
earlier of (a) if Form S-3 is available to the Company for such registration, as
soon as practicable following the date on which such form is available to the
Company with respect to the registration of the issuance and/or resale of the
Warrant Shares or (b) in all other events, one (1) year following the initial
public offering.

               5.8 Collaborative Agreement. The Company and the Investor shall
have executed and delivered that certain Collaborative Development and Licensing
Agreement of even date (the "Collaborative Development and Licensing Agreement")
and made payment to the Company of the initial semi-annual installment of
research payments thereunder.

        6. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:

               6.1 Representations and Warranties. The representations and
warranties of Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.

               6.2 Payment of Purchase Price. The Investor shall have delivered
the Purchase Price specified in Section 1.

               6.3 Qualifications. There shall not be in effect any law, rule or
regulation prohibiting or restricting the sale and issuance of the Shares or the
Common Stock issuable upon conversion thereof, or requiring any consent or
approval of any person or governmental entity which shall not have been obtained
to issue the Shares.

               6.4 Investor Rights. The Company and the Investor shall have
executed and delivered that certain Investor Rights Agreement of even date
herewith providing certain rights to Investor to have shares of Common Stock
registered for sale and providing for certain information rights.

               6.5 Collaborative Agreement. The Company and the Investor shall
have executed and delivered the Collaborative Development and Licensing
Agreement and the Investor shall have paid the initial semi-annual installment
of research payments thereunder.

        7. Covenants of the Investor.

                                       15.
<PAGE>   16

               7.1 Standstill Provisions. Commencing as of the Closing and for
the period until the later of (i) six (6) months following the end of the
Research Period (as defined in the Collaborative Development and Licensing
Agreement) or (ii) the first anniversary of the consummation of the Company's
initial public offering of shares of Common Stock, registered under the Act
pursuant to a registration statement on Form S-1, Investor (including all
Affiliates or agents of Investor) shall not acquire beneficial ownership of any
shares of Common Stock of the Company, any securities convertible into or
exchangeable for Common Stock, or any other right to acquire Common Stock,
except by way of stock dividends or other distributions or offerings made
available to holders of Series D Preferred Stock (or Common Stock issued upon
conversion thereof) generally, from the Company or any other person or entity,
without the prior written consent of the Company, which consent may be withheld
in the Company's sole discretion, if such acquisition should cause Investor
(including all Affiliates of Investor) to beneficially own more than 9.99% of
the Company's outstanding voting stock (assuming the full conversion and
exercise of all convertible and exercisable securities of the Company held by
Investor and its Affiliates); provided, however, that in no event shall (i) the
original purchase of securities pursuant to this Agreement including the
Warrants described in Section 5.7, or (ii) any reduction in the outstanding
shares of the Company's capital stock (or rights or options), cause a violation
of this Section 7.1.

               7.2 Transfer Restriction. In addition to the market stand-off
agreement set forth in Section 1.15 of the Investor Rights Agreement, Investor
hereby agrees that during the time periods commencing as of the Closing until
six (6) months following the end of the Research Period (the "Restricted
Period") that neither it nor any Affiliate shall, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any of the Shares, securities purchased
pursuant to the Warrants or shares issuable upon conversion or exercise thereof
("Restricted Securities") at any time during the Restricted Period. In order to
enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Restricted Securities held by Investor or any
Affiliate (and the Restricted Securities of every other person subject to the
foregoing restriction) until the end of such period.

               7.3 Voting Agreement. Investor agrees that it shall, so long as
it holds shares of the Company's Series D Preferred Stock or the Common Stock
issued upon conversion thereof, vote such shares with respect to any proposed
merger or combination of the Company with any other entity in the same
proportion as the shares of other parties who are not themselves a party to any
such merger or combination.

        8.     Right of First Refusal.

               8.1       Right of First Refusal.

                                       16.
<PAGE>   17

                      (a) In the event that the Investor or a direct or indirect
transferee of the Investor (the "Transferring Shareholder") proposes to sell,
pledge or otherwise transfer the Series D Preferred Shares, securities purchased
in accordance with to Section 7.1 (or shares of Common Stock issued or issuable
upon conversion or exercise thereof) or any portion thereof, acquired under or
the purchase of which is contemplated by this Agreement, or any interest in such
securities to any person or entity, the Company shall have a right of first
refusal with respect to such securities ("Offered Stock"). If the Transferring
Shareholder desires to transfer Offered Stock, the Transferring Shareholder
shall give a written notice (the "Transfer Notice") to the Company describing
fully the proposed transfer, including the number of shares proposed to be
transferred, the proposed transfer price and the name and address of the
proposed transferee.

                      (b) The Company (or its assigns) shall have the
irrevocable and exclusive option (but not the obligation) for a period of thirty
(30) days from the date of receipt of the Transfer Notice to elect to purchase
all, but not less than all, of the Offered Stock at a price per share and upon
the terms specified in the Transfer Notice.

                      (c) The option of the Company to purchase shares of
Offered Stock under this Section 8 shall be exercised by giving written notice
to the Transferring Shareholder within such thirty day option period.

               8.2 Failure to Give Notice. Failure by the Company to give the
notice provided for in subsections 8.1(b) and (c), within the time periods for
the exercise of its option provided for therein shall be deemed an election not
to purchase any shares of the Offered Stock and the option given to the Company
in Section 8.1 shall be deemed to have expired.

               8.3 Non-Exercise of Right. If the Transfer Notice shall have been
duly given to the Company and the Company does not exercise the purchase option
referred to in this Section 8 to purchase the Offered Stock, then the
Transferring Shareholder shall be free to sell the Offered Stock in accordance
with this Section 8.3. The Offered Stock to be sold as contemplated by this
Section 8.3 shall be sold at not less than the price per share set forth in such
Transfer Notice and upon substantially the same terms but no less favorable to
the Transferring Shareholder than the terms set forth in the Transfer Notice
(except that the form of consideration need not be in cash so long as the value
of such consideration is equivalent to the purchase price set forth in the
Transfer Notice and not subject to forgiveness or other reduction), subject to
the purchaser of the Offered Stock agreeing in writing to be bound by the terms
of this Agreement; provided, however, that if the sale of the Offered Stock
shall not be consummated within ninety (90) days immediately following the
expiration of the Company's purchase option set forth in Section 8.1, the shares
of the Offered Stock shall

                                       17.
<PAGE>   18

again be subject to the terms and conditions of this Agreement in the same
manner as if the Transfer Notice had not been given.

               8.4 Closing, Failure to Close. In the event that the Offered
Stock is to be purchased by the Company pursuant to this Section 8, then such
purchase shall, unless the parties thereto otherwise agree, be completed at the
principal office of the Company on or before the sixtieth (60th) day following
the receipt of the Transfer Notice by the Company from the Transferring
Shareholder pursuant to Section 8.1.

               8.5 Binding Effect. The Company's right of first refusal shall
inure to the benefit of its successors and assigns and shall be binding upon any
transferee of the Offered Stock acquired pursuant to this Agreement (including
shares of Common Stock issued or issuable upon conversion of the Series D
Preferred Stock).

               8.6 Exempt Transfers. The right of first refusal shall not apply
to (i) transfers to affiliates of Investor provided the transferee agrees to be
bound by the obligations of this Agreement and the Collaborative Development and
Licensing Agreement by and between the parties dated of even date with this
Agreement is still then in full force and effect, (ii) transactions involving a
merger, reorganization or sale of all or substantially all of the business or
capital stock of the Company approved by the Company's board of directors, (iii)
the sale from time to time of any Offered Stock to the public following the
Company's initial public offering involving registered shares or pursuant to
Rule 144 or pursuant to a registered public offering, or (iv) transactions
involving a merger, reorganization or sale of all or substantially all of the
business, assets or capital stock of Investor provided the transferee agrees to
be bound by the obligations of this Agreement.

               8.7 Termination. The right of first refusal of the Company under
this Section 8 shall terminate on the earlier of (i) consummation of the
Company's initial public offering or (ii) such time as Investor and its
Affiliates in the aggregate beneficially own less than five percent (5.0%) of
the Company's Common Stock (assuming the full conversion and exercise of all
convertible and exercisable securities of the Company).

        9. Covenants of the Company.

               9.1 Subsequent Issuance of Capital Stock with Anti-dilution
Protection. In the event that (a) the Company, within the first twelve (12)
months following the Closing, shall (i) issue securities with an aggregate issue
price not greater than $10,000,000 to (ii) a Corporate Partner in connection
with a Technology Transaction (collectively, (i) and (ii) shall be known as the
"Corporate Partner Transaction") and (b) in connection with the Corporate
Partner Transaction, the Company implements contractual or charter provisions
which provide to the securities issued thereunder anti-dilution protection
against the issuance of securities subsequent to the Corporate Partner
Transaction at a price per share less than the price per share at

                                       18.
<PAGE>   19

which such securities are issued in the Corporate Partner Transaction (the
"Anti-Dilution Protection"), then the Investor shall be entitled to receive the
identical benefit afforded to the Corporate Partner in the Corporate Partner
Transaction with respect to the Anti- Dilution Protection.

               9.2 Subsequent Grant of Piggyback Registration Rights. In the
event that the Company, within the first twelve (12) months following the
Closing, shall (i) grant piggyback registration rights to (ii) a Corporate
Partner in connection with a Technology Transaction (collectively, (i) and (ii)
shall be known as the "Registration Rights Transaction"), then the Investor
shall be entitled to receive the identical benefit afforded to the Corporate
Partner in the Registration Rights Transaction with respect to the piggyback
registration rights.

        10.    Miscellaneous.

               10.1 Survival of Warranties. The warranties, representations and
covenants of the Company and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investor or the Company.

               10.2 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any of the Shares sold hereunder or any Common Stock issued upon
conversion thereof). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.

               10.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.

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

               10.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

               10.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively

                                       19.
<PAGE>   20

given upon personal delivery to the party to be notified or upon deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the following addresses or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties:

                         If to the Company:

                         Signal Pharmaceuticals, Inc.
                         5555 Oberlin Drive
                         San Diego, California 92121
                         Attn: President

                         With a Copy to:

                         J. Stephan Dolezalek, Esq.
                         Brobeck, Phleger & Harrison
                         Two Embarcadero Place
                         2200 Geng Road
                         Palo Alto, California 94303

                         If to the Investor:

                         Tanabe Seiyaku Co., Ltd.
                         2-10 Dosho-Machi 3-Chome
                         Chuo-ku, Osaka  541
                         JAPAN
                         Attn: President

               10.7 Finder's Fee. Investor represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless the Investor from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.

               10.8 Expenses. Irrespective of whether the Closing is effected,
the Company shall pay its own and Investor shall pay its own costs and expenses
with respect to the negotiation, execution, delivery and performance of this
Agreement and any Ancillary Agreements. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or the Restated
Certificate, the prevailing party

                                       20.
<PAGE>   21

shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.

               10.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.

               10.10 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.

               10.11 Aggregation of Stock. All shares of Series D Preferred
Stock held or acquired by Investor or Affiliates of Investor shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.

                                       21.

<PAGE>   22

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMPANY:                                     INVESTOR:

SIGNAL PHARMACEUTICALS, INC.,                TANABE SEIYAKU CO., LTD.,
a California corporation                     a corporation formed under the
                                             laws of Japan

By: [SIG]                                    By:  /s/ TETSUYA TOSA
    ------------------------                      ------------------------------
                                                  Tetsuya Tosa, Ph.D.
Title: President                                  Senior Executive Director
       ---------------------                      Research and Development
                                                  Representative Director

                  [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]

                                      22.<PAGE>   1
                                           *** Text Omitted and Filed Separately
                                               Confidential Treatment Requested
                                               Under 16 C.F.R. Sections 200.80,
                                               200.83 and 230.406.

                                                                   EXHIBIT 10.36

                                    AGREEMENT

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

                                  INTRODUCTION

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

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

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

        THEREFORE THE PARTIES HEREBY AGREE AS FOLLOWS:

1.      DEFINITIONS

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

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

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

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

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

                                       1.
<PAGE>   2

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

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

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

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

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

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

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

                (iii) separately itemized freight charges paid for delivery and

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

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

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

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

                                       2.

                      ***Confidential Treatment Requested
<PAGE>   3

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

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

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

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

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

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

                                       3.

                      ***Confidential Treatment Requested
<PAGE>   4

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

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

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

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

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

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

2.      EXECUTIVE COMMITTEE

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

                                       4.

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<PAGE>   5

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

3.      TARGET RESEARCH

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

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

        3.1.   RESEARCH PROGRAM

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

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

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

                                       5.

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

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

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

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

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

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

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

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

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

                                       6.

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

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

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

        3.2.   DEVELOPMENT AND COMMERCIALIZATION

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

               3.2.1. ORGANON MILESTONE PAYMENTS.

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

                      (b) [***].

                                       7.

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<PAGE>   8

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

                          (i)   [***]

                          (ii)  [***]

                          (iii) [***]

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

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

               3.2.2. THIS SECTION INTENTIONALLY LEFT BLANK

               3.2.3. ROYALTIES

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

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

                                       8.

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<PAGE>   9

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

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

                      (c) Royalties shall be paid until the later of

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

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

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

                                       9.

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<PAGE>   10

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

               3.2.4. Lead Compound Development; Abandoned Products

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

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

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

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

        3.3.   TITLE TO NEW INVENTIONS AND PATENT RIGHTS

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

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

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

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

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

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

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        3.4.   LICENSES AND OPTION RIGHTS

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

4.      PATENT ENFORCEMENTS

        4.1.   INFRINGEMENT ACTION BY A THIRD PARTY

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

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

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

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

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

        4.2.   INFRINGEMENT ACTION AGAINST A THIRD PARTY

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

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

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

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

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

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by the Royalty Offset. Any remaining recovery shall be divided equally between
the parties unless Organon elects not to bear [***] the expenses of a suit
brought by Signal, in which case Signal shall retain any remaining recovery,
unless otherwise agreed by the parties as a part of a cost recovery agreement
between the parties.

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

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

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

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

5.      INDEMNITY; NO WARRANTIES

        5.1.   ORGANON PRODUCTS

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

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

        5.2.   ABANDONED PRODUCTS

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

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

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

                                      15.
<PAGE>   16

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

6.      PAYMENTS AND ACCOUNTING

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

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

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

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

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

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

                                      16.
<PAGE>   17

7.      PUBLICITY AND PUBLICATION

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

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

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

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

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

8.      CONFIDENTIALITY

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

                                      17.
<PAGE>   18

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

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

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

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

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

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

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

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

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

                                      18.
<PAGE>   19

9.      TERM AND TERMINATION

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

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

        9.3.   Early termination.

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

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

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

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

                                      19.
<PAGE>   20

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

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

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

10.     MISCELLANEOUS

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

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

                                      20.
<PAGE>   21

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

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

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

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

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

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

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

                                      21.
<PAGE>   22

        10.10. DISPUTE RESOLUTION

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

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

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

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

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

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

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

                                      22.
<PAGE>   23

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

N.V. ORGANON                           SIGNAL PHARMACEUTICALS, INC.

By:________________________            By:_________________________________

Title:_____________________            Title:______________________________

By:________________________

Title:_____________________

                                      23.
<PAGE>   24
                                   EXHIBIT A

                                       [***]

                      ***Confidential Treatment Requested

                                      24.
<PAGE>   25
                                   EXHIBIT B

                                     [***]

                      ***Confidential Treatment Requested

                                      25.
<PAGE>   26
                                   EXHIBIT C

                                     [***]

                      ***Confidential Treatment Requested

                                      26.
<PAGE>   27
                                   EXHIBIT D

                                     [***]

                      ***Confidential Treatment Requested

                                      27.

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