Document:

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

                                                                   EXHIBIT 10.33

                     COLLABORATIVE DEVELOPMENT AND LICENSING

                                    AGREEMENT

                                      AMONG

                          SIGNAL PHARMACEUTICALS, INC.,

                                       AND

                            TANABE SEIYAKU CO., LTD.

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                                TABLE OF CONTENTS

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<S>            <C>                                                                         <C>
        1.     DEFINITIONS.................................................................  1

        2.     RESEARCH AND DEVELOPMENT COLLABORATION; RESEARCH PERIOD..................... 10

        3.     PRODUCT DEVELOPMENT. ....................................................... 22

        4.     PAYMENT..................................................................... 23

        5.     LICENSES OF TECHNOLOGY...................................................... 25

        6.     GLOBAL RELATIONSHIP......................................................... 33

        7.     ARBITRATION................................................................. 34

        8.     CONFIDENTIALITY, DISCLOSURE AND PUBLICATION................................. 34

        9.     INDEMNIFICATION............................................................. 37

        10.    INDEPENDENT CONTRACTORS..................................................... 38

        11.    NO SOLICITATION OF EMPLOYEES................................................ 38

        12.    TERM.  ..................................................................... 39

        13.    TERMINATION OF AGREEMENT.................................................... 39

        14.    PUBLIC ANNOUNCEMENT OF AGREEMENT............................................ 40

        15.    INVENTIONS AND PATENT MATTERS............................................... 41

        16.    RESEARCH EXPENSES........................................................... 46

        17.    REPRESENTATIONS AND WARRANTIES.............................................. 46

        18.    OPTION TO EXPAND TERRITORY.................................................. 48

        19.    MISCELLANEOUS............................................................... 48

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                                       i.

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                COLLABORATIVE DEVELOPMENT AND LICENSING AGREEMENT

               This Agreement is made effective as of the 31st day of March,
1996 (the "Effective Date") by and among Signal Pharmaceuticals, Inc., a
California corporation, with its principal office at 5555 Oberlin Drive, San
Diego, California, USA ("Signal") and Tanabe Seiyaku Co., Ltd., a Japanese
corporation, with its principal office at 2-10 Dosho-machi 3-chome, Chuo-ku,
Osaka 541, Japan ("Tanabe").

                                    RECITALS

               WHEREAS, the parties desire to collaborate in the discovery and
development and commercialization of therapeutic products for the prevention and
treatment of inflammation and osteoporosis.

               NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:

1.      DEFINITIONS

               1.1 "Active Development" means, with respect to any Compound,
that Tanabe is using at least such level of effort, in accordance with Tanabe's
business, legal, medical and scientific judgement and Tanabe's normal practices
and procedures, to continue the development of such Compound through preclinical
and clinical studies and other registration directed activities as Tanabe spends
on its own products in pre-clinical and clinical study with similar technical
and commercial potential.

               1.2 "Affiliates" means, with respect to any specified Person, a
Person that is controlled by, controlling or under common control with the
Person specified. For the purposes of this definition, control of a corporation
or other business entity shall mean (i) direct or indirect beneficial ownership
of greater than fifty percent (50%) of the voting stock or a greater than fifty
percent (50%) interest in the income of such corporation or other business
entity or (ii) the power to direct or cause the direction of the management of
such corporation or other business entity.

               1.3 "Agreement" means this Agreement, all exhibits and
attachments referenced herein and all amendments and modifications hereto and
thereto.

               1.4 "Chemical Lead Compound" means any Potential Compound which
(i) the applicable Research and Development Committee determines has met the
requirements set forth on Exhibit A hereto, or (ii) Tanabe has selected in
writing as a Chemical Lead Compound from a Signal Compound Library or a Joint
Compound Library, or (iii) Tanabe has selected, in its sole discretion, from a
Tanabe Compound Library for inclusion in the Collaborative Project.

<PAGE>   4

               1.5 "Chemical Modification" means any compound resulting from
process or activity (initiated after the date of this Agreement) of deriving
alternative chemical structures from a Chemical Lead Compound or a chemical
modification of a Chemical Lead Compound, e.g. development of analogs.

               1.6 "Collaborative Project" means the joint research and
development collaboration of the Parties described in Article 2 of this
Agreement, in Exhibit C and in the annual workplans prepared in coordination
with the applicable Research and Development Committees, pursuant to which the
parties shall test, evaluate and identify compounds as Potential Compounds,
shall test and evaluate Potential Compounds and chemical modifications of
Potential Compounds as potential Chemical Lead Compounds, and shall chemically
modify, test and evaluate Compounds as potential Clinical Candidates.

               1.7 "Compound" means any Chemical Lead Compound and all Chemical
Modifications thereof. A Compound shall be either a Signal Compound, a Tanabe
Compound or a Collaboration Compound.

                      1.7.1 "Signal Compound" means any Compound which is owned
        by or licensed to Signal or its Affiliates (other than from Tanabe
        pursuant to this Agreement), together with all Chemical Modifications
        thereof developed by Signal, by Tanabe, or by their Affiliates.

                      1.7.2 "Tanabe Compound" means any Compound which is owned
        by or licensed to Tanabe or its Affiliates (other than from Signal
        pursuant to this Agreement) together with all Chemical Modifications
        thereof developed by Signal, Tanabe, or by their Affiliates.

                      1.7.3 "Collaboration Compound" means a Compound which is
        neither a Signal Compound nor a Tanabe Compound but is contained in a
        Joint Compound Library, together with all Chemical Modifications thereof
        developed by Signal or Tanabe, or by their Affiliates.

               1.8 "Clinical Candidate" means a Compound which (i) Tanabe
determines meets the criteria set forth in Exhibit B or (ii) which Tanabe has
otherwise selected in writing as a Clinical Candidate.

               1.9 "IND" means an Investigational New Drug application filed
with the United States Food and Drug Administration, or an equivalent
application filed with a foreign regulatory authority.

               1.10 "Inflammation" means a localized protective response or
non-specific immune response, including but not limited to a hypersensitive
response (an "inflammatory response"), elicited by injury, invasion or
destruction of tissues, which

                                       2.

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serves to destroy, dilute, or wall off both the injurious agent and the injured
tissue. Inflammation shall include, without limitation, the following generally
recognized categories of inflammation: acute, chronic, subacute, adhesive,
atrophic, catarrhal, croupous, fibrinous, diffuse, disseminated, exudative,
fibroid, focal, granulomatous, hyperplastic, hypertrophic, interstitial,
metastatic, necrotic, obliterative, parenchymatous, pseudomembranous, purulent,
sclerosing, serous, simple, specific, toxic, traumatic, and ulcerative.
Inflammation may be manifested, without limitation, as a condition, symptom,
process or component in those diseases, disease processes, or host conditions
(collectively, "Inflammatory Diseases") in which the inflammatory response is
etiological in the health of the host and/or exacerbates (as opposed to
ameliorates) the severity of the host's disease, disease process, symptom or
condition, and in which the therapeutic goal is to directly intervene in the
host's disease, disease process, symptom or condition by reducing, controlling
or limiting the level or degree of the inflammatory response. Inflammatory
Diseases shall include, without limitation, rheumatism (including arthritis),
lupus (including discoid and systemic erythematosus, pernio and vulgaris),
glomerulonephritis, transplant rejections, allergies, asthma and autoimmune
diseases, but shall exclude osteoarthritis, multiple sclerosis, cardiovascular
disease, oncologic indications and neuro-degenerative diseases, even where such
diseases may have an inflammatory component.

               1.11 "Joint Compound Libraries" means all chemical compounds
(excluding Chemical Modifications of Tanabe Compounds or Signal Compounds) owned
jointly by the Parties or licensed jointly to the Parties during the Research
Period which they have the right to select or license for further development
and commercialization pursuant to this Agreement.

               1.12 "Joint Inflammation Committee" means the committee of two
Signal scientific representatives and one Signal business representative and two
Tanabe scientific representatives and one Tanabe business representative
appointed by such respective Party to coordinate the research and development
activities with respect to Compounds for the prevention and treatment of
Inflammation under the Collaborative Project and carry out such other duties as
are agreed to in writing by the Parties from time to time.

               1.13 "Joint Invention" has the meaning set forth in Section 15.3.

               1.14 "Joint Osteoporosis Committee" means the committee of two
Signal scientific representatives and one Signal business representative and two
Tanabe scientific representatives and one Tanabe business representative
appointed by such respective Party (with the business representatives on the
Joint Inflammation Committee and the Joint Osteoporosis Committee being for each
party the same individual) to coordinate the research and development activities
with respect to Compounds for the prevention and treatment of Osteoporosis under
the Collaborative Project and carry out such other duties as are agreed to in
writing by the Parties from time to time.

                                       3.

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               1.15 "Joint Patent" means all patents and inventors' certificates
and applications therefor throughout the world, including any renewal, division,
continuation or continuation-in-part of any such applications and any patents
issuing thereon, and any reissues, extensions, substitutions, confirmations,
registrations, revalidations, revisions and additions of or to any such patents,
to the extent that such patents, inventors' certificates and applications claim
a discovery or an invention (including any Joint Invention) that is made,
conceived or reduced to practice by one or more employees or agents from each
Party in performing the Collaborative Project, and as to which such employees or
agents would be inventors under the applicable patent laws.

               1.16 "Main Activity Compound" means (i) any compound which, with
respect to Inflammation and Osteoporosis, demonstrates, as of the Effective Date
or during the Research Period, potency in an Inflammation Pathway or an
Osteoporosis Pathway, respectively, at a level at least as high as the activity
shown for that compound in any other signaling pathway, and (ii) any analog of
any compound described in clause (i) above from the Signal Compound Libraries,
Tanabe Compound Libraries or Joint Compound Libraries, or any chemical
modification of any compound described in clause (i) above which chemical
modification is identified during the term of this Agreement, in each case which
demonstrates potency in an Inflammation Pathway or an Osteoporosis Pathway,
respectively, at a level at least as high as the activity shown for that
compound in any other signaling pathway.

               1.17 "Net Sales" means with respect to any Product, the aggregate
amount invoiced by a Party (including by its Affiliates, licensees and
sublicensees) for or on account of any sale to a non-affiliated purchaser of
such Product, less (i) normal and customary trade discounts, cash discounts,
quantity discounts, rebates and other price reduction programs to purchasers
allowed and taken; (ii) rebates to wholesalers; (iii) credits, allowances,
discounts and rebates to, and chargebacks from the account of, such purchasers
for spoiled, damaged, out-dated and returned Product; (iv) actual freight and
insurance costs incurred or accrued in transporting such Product; (v) sales,
value-added and other direct taxes (other than taxes on income); (vi) customs
duties, surcharges and other governmental charges incurred in connection with
the exportation or importation of such Product; and (vii) contributions made by
Tanabe to the Japanese Fund for Sufferers from Adverse Drug Reactions not to
exceed 1% of what would otherwise be Net Sales (the "Fund Contribution Cap");
provided that in no event shall items (i) and (ii) exceed that amount equal to
the average discount, price reduction or rebate for a similar class of Tanabe
products sold or offered to the same class of customer, such average to be
weighted according to dollar volume ("Discount Ceiling"); provided further that
the Parties agree to discuss in good faith a possible renegotiation of such Fund
Contribution Cap and the Discount Ceiling before the first Product is launched
for commercial sale in the Territory, taking into account then existing market
conditions. In the event that Tanabe shall be required with respect to a Product
to pay royalties to a third party (other than Signal or its licensors) for the
sale of such Product, then Tanabe shall be entitled to deduct the amount of any
such royalty actually paid by

                                             4.

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it from the amount that would otherwise constitute "Net Sales," provided such
aggregate deduction shall not exceed 5% of Net Sales. Any commercial use of a
Product by a Party (including its Affiliates, licensees and sublicensees) shall
be considered a sale hereunder for accounting and royalty purposes.

               Notwithstanding the foregoing, (i) with respect to a Product
which is sold in combination with one or more therapeutically active ingredients
as a combination product (a "Combination Product"), then Net Sales of such
Product shall be determined by multiplying the Net Sales of such Combination
Product by a fraction, as determined by the mutual agreement of the parties,
which represents the proportionate economic value of such Product relative to
the economic value contributed by the other therapeutically active ingredients
in such Combination Product; and (ii) with respect to a Product which is sold
together with any other products and/or services at one unit price, whether
packaged together or separately (a "Bundled Product"), then Net Sales of such
Product shall be determined by multiplying the Net Sales of such Bundled Product
by the fraction A/(A+B), where A is the average selling price of such Product if
sold separately, and B is the total average selling price of such other products
and/or such services in such Bundled Product if sold separately; provided,
however, if either the average selling price of such Product or the total
average selling price of such other products and/or such services in such
Bundled Product is not available as of such date, then Net Sales of such Product
shall be determined by multiplying the Net Sales of such Bundled Product by a
fraction, as determined by the mutual agreement of the parties, which represents
the proportionate economic value of such Product relative to the economic value
contributed by the other products and/or such services in such Bundled Product;
and (iii) with respect to a Product which is sold as a pharmaceutical product in
a Delivery System (the "Delivery System Product"), then Net Sales of such
Product shall be determined by reducing the Net Sales of such Delivery System
Product by the amount of the reasonable fully-burdened cost to Tanabe, its
Affiliate, licensee or sublicensee of such Delivery System determined in
accordance with the standard accounting practices of Tanabe, its Affiliate,
licensee or sublicensee (as applicable), consistently applied. For purposes of
this Section 1.17, "Delivery System" means, with respect to a Product, any drug
delivery system comprising the device(s), equipment, instrumentation or other
components (but not solely containers or packaging) designed to accomplish or
assist in the administration of such Product.

               1.18 "Osteoporosis" means any disease, disease process and/or
condition involving bone resorption and demineralization of bone (including
abnormal rarefaction of bone and a general reduction in the mass of bone per
unit of volume), bone formation, bone growth, calcium and phosphorus metabolism
(including calcium and phosphorus absorption and reabsorption) and deformities
such as loss of stature and pathological fractures.

               1.19   "Party(ies)" means Signal and Tanabe.

                                       5.

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               1.20 "Person" means an individual, a partnership, a joint
venture, a corporation, a trust, an estate, an unincorporated organization or
any other entity.

               1.21 "Phase III Clinical Trials" means those pivotal human
clinical trials in a particular country which are most nearly equivalent to
those described as such in the United States Federal Food, Drug, and Cosmetics
Act, as amended.

          1.22 "Potential Compound" means a compound (a) which is identified
prior to or during the term of the Research Period to have potential for the
prevention or treatment of either (i) Inflammation, [***] or (ii) Osteoporosis,
[***]; (b) which was tested, evaluated or derived by either or both Parties
pursuant to the Collaborative Project; and (c) which possesses at least the
following characteristics: (i) [***]

          1.23 "Pricing Approval" means the determination of an allowable resale
price for a Product by the applicable governmental authority in any situation in
which commercial sales of such Product are not permitted until such Pricing
Approval has been received.

          1.24 "Product" means any composition (whether in the form of drug
substance, bulk drug or final dosage form), which may be used in the prevention
or treatment of either (i) Inflammation, [***] or (ii) Osteoporosis, [***] and
that contains a Compound as an active ingredient.

               1.25 "Regulatory Approval" means the granting of all governmental
or regulatory approvals required, if any, for the sale of a Product in a given
country or jurisdiction within the Territory.

               1.26   "Research and Development Committee(s)" means the Joint
Inflammation Committee and the Joint Osteoporosis Committee.

               1.27 "Research Period" shall have the meaning given in Section
2.1.

                                       6.

                      ***Confidential Treatment Requested
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               1.28 "Rest of the World" means all of the nations of the world
other than those in the Territory.

               1.29 "Signal Compound Libraries" means all chemical compounds
owned by Signal or licensed to Signal (other than by Tanabe) as of the Effective
Date or during the Research Period which Signal has the right to select or
license for further development and commercialization pursuant to this
Agreement.

               1.30 "Signal Technical Information" shall mean either "Signal
Lead Identification Information," "Signal Compound Information," or "Signal
Product Information," each as defined below:

                      (a) "Signal Lead Identification Information" shall mean as
to each Potential Compound, the information in Signal's or its Affiliates'
possession or control which is necessary or useful to allow Tanabe to conduct
its obligations pursuant to the Collaborative Project, and which is necessary or
useful to allow the appropriate Research and Development Committee and Tanabe to
evaluate whether or not such Potential Compound satisfies the Selection Criteria
set forth on Exhibit A or otherwise is desirable for Tanabe to designate as a
Chemical Lead Compound. Such information shall include information regarding
Signal's non-proprietary and/or functional assays useful for confirming
activity, but shall exclude information regarding the design or substance of any
Signal proprietary primary or high throughput screening assays.

                      (b)    "Signal Compound Information" shall mean as to any
Compound, (i) the information in Signal's or its Affiliates' possession or
control regarding such Compound, which is necessary or useful to allow the
appropriate Research and Development Committee and Tanabe to evaluate whether or
not such Compound satisfies the Selection Criteria set forth on Exhibit B or
otherwise is desirable for Tanabe to designate as a Clinical Candidate, or which
is necessary or desirable to enable Tanabe to determine structure activity
relationship and to synthesize and evaluate Chemical Modifications thereof, and
(ii) provided that the Parties have first entered into a mutually acceptable
written agreement regarding the reciprocal sharing of additional information
(without additional charge, other than direct translation costs) regarding such
Compound, such additional information regarding such Compound as the Parties
mutually agree in writing which is in Signal's, its Affiliates' or sublicensees'
(including the Western Pharmaceutical Partner's) possession or control regarding
such Compound, and which is necessary or useful to the preclinical development
of such Compound in the Territory.

                      (c)    "Signal Product Information" shall means as to any
Compound and any Product containing such Compound, provided that the Parties
have first entered into a mutually acceptable written agreement regarding the
reciprocal sharing of information (without additional charge, other than direct
translation costs) regarding such Compound, such information regarding such
Compound as the Parties

                                       7.

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mutually agree in writing which is in Signal's, its Affiliates' or sublicensees'
(including the Western Pharmaceutical Partner's) possession or control regarding
such Compound, and which is necessary or useful to the clinical development,
regulatory approval and commercialization of such Compound in the Territory.

               1.31 "Signal Patents" means, with the exclusion of the Joint
Patent Rights, all rights of Signal in any patents and inventors' certificates
and applications therefor throughout the world, including any renewal, division,
continuation or continuation-in-part of any such applications and any patents
issuing thereon, and any reissues, extensions, substitutions, confirmations,
registrations, revalidations, revisions and additions of or to any such patents,
to the extent that such patents, inventors' certificates and applications claim
a Compound or a Product or any use or method or process of manufacture of a
specific Compound or Product.

               1.32 "Signal Screens" means any primary or high throughput assays
which are designed to test for activity in the same cell type/signaling pathway
combination as any of the assays being employed by Signal in the Collaborative
Project which assays are set forth in Exhibit C or as subsequently set forth in
an annual workplan approved by the applicable Research and Development Committee
(whether or not such assays are protected by any patent rights, trade secrets or
other intellectual property rights of Signal).

               1.33 "Tanabe Compound Libraries" means all chemical compounds
(including organic compounds and extracts of microbial metabolites) owned by
Tanabe or licensed to Tanabe (other than by Signal) as of the Effective Date or
during the Research Period which Tanabe has the right to select or license for
further development and commercialization pursuant to this Agreement.

               1.34 "Tanabe Other Screens" means any primary or high throughput
assays, other than Signal Screens, developed or in-licensed by Tanabe (excluding
animal model and functional assays).

               1.35 "Tanabe Patents" means, with the exclusion of the Joint
Patent Rights, all rights of Tanabe in any patents and inventors' certificates
and applications therefor throughout the world, including any renewal, division,
continuation or continuation-in-part of any such applications and any patents
issuing thereon, and any reissues, extensions, substitutions, confirmations,
registrations, revalidations, revisions and additions of or to any such patents,
to the extent that such patents, inventors' certificates and applications claim
a Compound or a Product or any use or method or process of manufacture of a
specific Compound or Product.

               1.36 "Tanabe Technical Information" shall mean either "Tanabe
Lead Identification Information," "Tanabe Compound Information," or "Tanabe
Product Information," each as defined below:

                                       8.

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                      (a)  "Tanabe Lead Identification Information" shall mean
as to each compound from the Tanabe Compound Libraries which Tanabe, in its sole
discretion, provides to Signal for screening under the Collaborative Project,
the information in Tanabe's or its Affiliates' possession or control which is
necessary or useful to allow Signal to conduct its obligations pursuant to the
Collaborative Project, or which is necessary or desirable to enable Signal to
determine structure activity relationship and to synthesize and evaluate
chemical modifications thereof, and which is necessary or useful to allow the
appropriate Research and Development Committee to evaluate whether or not such
Potential Compound satisfies the Selection Criteria set forth on Exhibit A.

                      (b)    "Tanabe Compound Information" shall mean as to any
Compound, (i) the information in Tanabe's or its Affiliates' possession or
control regarding such Compound, which is necessary or useful to allow the
appropriate Research and Development Committee to evaluate whether or not such
Compound satisfies the Selection Criteria set forth on Exhibit B, and (ii)
provided that the Parties have first entered into a mutually acceptable written
agreement regarding the reciprocal sharing of additional information (without
additional charge, other than direct translation costs) regarding such Compound,
such additional information regarding such Compound as the Parties mutually
agree in writing which is in Tanabe's, its Affiliates' or sublicensees'
possession or control regarding such Compound, and which is necessary or useful
to the preclinical development of such Compound in the Rest of the World.

                      (c)    "Tanabe Product Information" shall mean as to any
Compound and any Product containing such Compound, provided that the Parties
have first entered into a mutually acceptable written agreement regarding the
reciprocal sharing of information (without additional charge, other than direct
translation costs) regarding such Compound, such information regarding such
Compound as the Parties mutually agree in writing which is in Tanabe's, its
Affiliates' or sublicensees' possession or control regarding such Compound, and
which is necessary or useful to the clinical development, regulatory approval
and commercialization of such Compound in the Rest of the World.

               1.37 "Territory" means Japan, China, South Korea, Taiwan,
Thailand, Cambodia, Laos, Vietnam, Indonesia, Nepal, the Philippines, Singapore,
Malaysia, Hong Kong, Myanmar and Brunei; provided that in the event that the
option set forth in Section 18 is exercised, the "Territory" shall also include
Australia, New Zealand and other Oceania countries.

               1.38 "Use or Structure Contribution" means, with respect to
Tanabe, Signal or both, an invention or discovery made by Tanabe, Signal or
both, as applicable, regarding the composition of matter or use of any Compound
which invention or discovery is claimed in a pending patent application or
issued patent (a "Contribution

                                       9.

<PAGE>   12

Patent") in any of the following countries: United States, Japan, France,
Germany and the United Kingdom (the "Measurement Countries").

               1.39 "Western Pharmaceutical Partner(s)" means one or more
pharmaceutical companies other than Tanabe with which Signal from time to time
agrees to collaborate to develop and/or market products for the prevention or
treatment of Inflammation and/or Osteoporosis outside the Territory.

        2.     RESEARCH AND DEVELOPMENT COLLABORATION; RESEARCH PERIOD

               2.1 Research Period. Unless the Collaborative Project is sooner
terminated pursuant to Section 2.3(f), 13.4 or 13.5, the Collaborative Project
shall terminate upon the date which is four (4) years from the Effective Date in
Inflammation and Osteoporosis, respectively (the "Research Period"); provided
that the Research Period may be extended twice for periods of one (1) year each
by mutual written agreement of the Parties.

               2.2    Joint Obligations.

                      (a) Prioritization of Efforts. The Parties mutually agree
that during the term of the Research Period each of the Parties (i) shall use
its commercially reasonable efforts to carry out its responsibilities under the
Collaborative Project; (ii) shall accord the Collaborative Project at least as
high a priority as its other active research programs at similar stages with
similar technical and commercial potential; and (iii) shall cooperate with each
other in the Collaborative Project for the development of Products for the
prevention or treatment of Inflammation and Osteoporosis.

                      (b) Exchange of Technical Information During Research
Period. During the term of the Research Period, (i) Signal shall inform the
appropriate Research and Development Committee and Tanabe, to the extent it has
not already done so, of all Signal Lead Identification Information, Signal
Compound Information and Signal Product Information; (ii) Tanabe shall inform
the appropriate Research and Development Committee and Signal, to the extent it
has not already done so, of all Tanabe Lead Identification Information, Tanabe
Compound Information and Tanabe Product Information; and (iii) each Party shall
provide to the other Party, to the extent it has not already done so, summary
written reports regarding such additional information regarding Potential
Compounds, Compounds and Main Activity Compounds which is necessary or useful
for the other Party to monitor the other Party's activities and progress. Each
Party will permit access at reasonable times and with reasonable frequency to
the appropriate personnel of the other Party to accomplish such information
exchange. Each Party shall, at least at each meeting of each Research and
Development Committee, (i) provide the other party with a progress report on its
efforts and results on the Collaborative Project with respect to Inflammation
and Osteoporosis, as appropriate,

                                       10.

<PAGE>   13

and (ii) inform the other Party of any Technical Information obtained by it to
the extent and at the time required by this Section 2.2(b). Notwithstanding the
foregoing, Signal shall not be entitled to disclose Tanabe Technical Information
to any Western Pharmaceutical Partner until Tanabe and such Western
Pharmaceutical Partner have mutually agreed in writing to share such
information.

                      (c) Exchange of Technical Information After Research
Period. During the term of this Agreement, but after the expiration or
termination of the Research Period, (i) Signal shall inform Tanabe, to the
extent it has not already done so, of all Signal Compound Information and Signal
Product Information; (ii) Tanabe shall inform Signal, to the extent it has not
already done so, of all Tanabe Compound Information and Tanabe Product
Information; and (iii) each Party shall provide to the other Party, to the
extent it has not already done so, summary written reports regarding such
additional information regarding Potential Compounds, Compounds and Main
Activity Compounds which is necessary or useful for the other Party to monitor
the other Party's activities and progress. Each Party will permit access at
reasonable times and with reasonable frequency to the appropriate personnel of
the other Party to accomplish such information exchange. Notwithstanding the
foregoing, Signal shall not be entitled to disclose Tanabe Technical Information
to any Western Pharmaceutical Partner until Tanabe and such Western
Pharmaceutical Partner have mutually agreed in writing to share such
information.

               2.3    Obligations of Signal.

                      (a) Screening Efforts. Signal shall screen those compounds
which Tanabe selects in its sole discretion from Tanabe Compound Libraries, all
compounds from Signal Compound Libraries and all compounds from Joint Compound
Libraries using Signal's proprietary and non-proprietary whole-cell and enzyme
assays and carry out its other obligations as set forth in Exhibit C and the
annual workplans submitted hereunder. In performing the screening, Signal shall
use its commercially reasonable efforts to identify a primary Compound and a
back-up Compound for at least one molecular target within each of following
pathways within Inflammation: [***]; and within Osteoporosis: (i) [***]. Signal
shall allocate sufficient time, effort, equipment and facilities to the
Collaborative Project, and shall proceed diligently, to conduct its obligations
under the Collaborative Project and to accomplish the objectives thereof. Signal
shall present all results of its screening of Potential Compounds to Tanabe and
the applicable Research and Development Committee for review and for the
applicable Research and Development Committee to determine whether a Potential
Compound meets the criteria set forth in Exhibit A. When Signal discovers a
Potential Compound during the Research Period that Signal believes may meet the
Selection Criteria set forth on Exhibit A hereto or otherwise determines that a
Potential Compound may be desirable to Tanabe as a Chemical Lead Compound,
Signal shall

                                       11.

                      ***Confidential Treatment Requested
<PAGE>   14

promptly notify the applicable Research and Development Committee and present
the applicable Signal Lead Identification Information. Such Research and
Development Committee shall review the results of Signal's screening of such
Potential Compound and such other information and notify Tanabe and Signal in
writing of its determination within ninety (90) days of the receipt of such
information. If such Research and Development Committee determines that a
Potential Compound meets the criteria set forth in Exhibit A or otherwise
determines that a Potential Compound may be desirable to Tanabe as a Chemical
Lead Compound, Signal promptly shall present and supply such Potential Compound
to Tanabe in accordance with Section 2.4(d). Such presentation shall include all
Signal Lead Identification Information as reasonably necessary to verify the
Potential Compound meets the criteria set forth in Exhibit A and sufficient
quantities of drug substance to allow Tanabe to conduct studies to confirm
Signal's test results. In addition, Signal shall transfer to Tanabe Signal's
non-proprietary functional assays and shall assist Tanabe in implementing such
assays and to confirm the activity of such Potential Compounds in such assays
(provided that Tanabe shall reimburse Signal for its direct out-of-pocket costs
incurred in connection with such transfer or assistance). At the end of the
second year of the Research Period, the Parties will jointly reassess the
appropriateness of the staffing levels and will determine whether any material
changes are appropriate. If so, then the parties will in good faith determine an
adjustment for the following year.

                      (b) Visiting Tanabe Scientist. During the Research Period,
Signal shall accept at its research facilities up to [***] who shall be mutually
agreeable to the Parties for Inflammation and/or Osteoporosis projects. Tanabe
shall be responsible for all expenses relating to visas, transportation,
lodging, salaries and benefits of such Tanabe scientist and Signal shall be
responsible for expenses, including laboratory space, office space, instruments,
equipment and materials, necessary to allow such Tanabe scientist to engage in
research under the Collaborative Project on Signal's premises. The Tanabe
scientist shall, to the extent possible, be included in the activities of
Signal's research team for the Collaborative Project and shall be required to
execute all confidentiality agreements as are used from time to time by Signal.
It is acknowledged and agreed that Signal shall also be conducting research and
development activities outside the scope of the Collaborative Project and shall
be entitled to exclude the Tanabe scientist from participation in projects to
the extent required to protect the confidentiality of such non-Collaborative
Project work.

                      (c) Ongoing Screening Services. Signal shall, for a period
of one (1) year following the full completion of the Research Period (all four
years), provide to Tanabe, at Tanabe's request, ongoing screening services for
assays developed during (and not before or after) the Research Period on
compounds developed or acquired by Tanabe following the end of the Research
Period. Tanabe shall pay Signal the greater of [***] and shall owe Signal the
same (as applicable) license terms and royalty terms therein as outlined in
Sections 4.3 and 5.4.

                                       12.
                      ***Confidential Treatment Requested

<PAGE>   15

                      (d) Assistance in Chemical Modification. As and when
requested by the applicable Research and Development Committee, Signal may
conduct any in-vitro screening described on Exhibit A with respect to Chemical
Modifications or chemical modifications of compounds from the Tanabe Compound
Libraries, selected by Tanabe in its sole discretion, for the purpose of
identifying Potential Compounds or Compounds under the Collaborative Project.

                      (e) Assistance in In-Vitro Studies. As and when requested
by Tanabe, Signal shall study a compound, which originated from a Tanabe
Compound Library and the composition of matter and use of which is characterized
as a Tanabe Use or Structure Contribution, using Signal's proprietary and
non-proprietary assays to attempt to define the mechanism of action of such
compound in the Inflammation Pathways or Osteoporosis Pathways, as applicable.
The data resulting from such studies shall be owned by Tanabe.

                      (f)    Development Obligations During Research Period.

                             .1 Western Pharmaceutical Partner.  Signal shall
enter into a collaborative research and development agreement with respect to
either its Inflammation program or its Osteoporosis program not later than
August 31, 1996 (a "Minimum Partnering Transaction"). If a Minimum Partnering
Transaction has not occurred on or before August 31, 1996, then Tanabe shall
have the right to give Signal advance written notice of, and opportunity to
cure, its failure to complete a Minimum Partnering Transaction. If Signal has
failed to cure such default within such notice period, then Tanabe shall be
entitled to terminate the Collaborative Project with such termination being
effective six (6) months after the expiration, without cure, of such notice
period. The applicable notice period shall be (i) ninety (90) days or (ii)
one-hundred-eighty days in the event that Tanabe has selected at least one (1)
Chemical Lead Compound which is first identified after screening in a Signal
primary or high throughput assay on or before the date of such notice.

                             .2 Periodic Reviews.  At Tanabe's request and not
more frequently than once in every six (6)-month period, Signal shall review
with Tanabe its cash flow and headcount allocations to the Collaborative
Project. As part of such review Signal shall demonstrate to Tanabe's reasonable
satisfaction that (i) Signal has the ability over the following six (6)-month
period to fund the Inflammation program at a level of at least [***] in [***]
and [***] per year in [***] and the Osteoporosis program at a level of at least
[***] in [***] and [***] per year in [***] (or such lesser or greater amount
agreed to by the Parties and reflected in the workplan for that period); and
(ii) Signal is expending effort at an activity level in the Inflammation program
and in the Osteoporosis program consistent with the expenditure levels set forth
in clause (i) above (or such lesser or greater amount agreed to by the Parties
and reflected in the workplan for that period). If Signal defaults in its
obligations under clause (i) or (ii) above, then Tanabe shall have the right to
give

                                       13.

                      ***Confidential Treatment Requested
<PAGE>   16

Signal advance written notice of, and opportunity to cure, its defaults in its
obligations under clause (i) or (ii) above. If Signal has failed to cure such
default within such notice period, then Tanabe shall be entitled to terminate
the Collaborative Project with such termination being effective six (6) months
after the expiration, without cure, of such notice period. The applicable notice
period shall be [***].

                             .3  Commitment of FTEs.  Signal shall allocate at
least that number of research personnel (measured as full-time equivalents
("FTEs") and post-doctoral fellows ("Post-Docs")) to the Inflammation program
and the Osteoporosis program as are set forth in the following schedule
("Minimum Staffing Requirement"):

<TABLE>
<CAPTION>
        Inflammation Program      Allocated FTEs & Post-Docs
        --------------------      --------------------------
<S>                               <C>
        [***]                     [***]
</TABLE>

<TABLE>
<CAPTION>
        Osteoporosis Program      Allocated FTEs & Post-Docs
        --------------------      --------------------------
<S>                               <C>
        [***]                     [***]
</TABLE>

If the Minimum Staffing Requirement has not been met during any one year period,
then Tanabe shall have the right to give Signal advance written notice of, and
opportunity to cure, its failure to meet the Minimum Staffing Requirement. If
Signal has failed to cure such default within such notice period, then Tanabe
shall be entitled to terminate the Collaborative Project with such termination
being effective six (6) months after the expiration, without cure, of such
notice period. The applicable notice period shall be [***].

                      (g) Active Development in Inflammation and Osteoporosis.
Signal must use at least such level of efforts, in accordance with Signal's
business, legal, medical and scientific judgement and Signal's normal practices
and procedures, to continue the development of Compounds, Clinical Candidates or
Products licensed to Signal in this Agreement through pre-clinical and clinical
studies, and other registration directed activities as Signal spends on its own
products in pre-clinical and clinical study with similar technical and
commercial potential in the Rest of the World.

                                       14.

                      ***Confidential Treatment Requested
<PAGE>   17

               2.4    Obligations of Tanabe.

                      (a) Delivery of Compound Library. As soon as reasonably
feasible, but in no event later than sixty (60) days after the execution of this
Agreement, Signal shall request and Tanabe shall deliver to Signal up to [***]
organic compounds and [***] samples of [***] which shall be selected by Tanabe
in its sole discretion from Tanabe Compound Libraries in a high throughput
format reasonably necessary to enable Signal to screen, for use in Signal's
screening activities. Thereafter, Tanabe shall make available such additional
compounds from the Tanabe Compound Libraries as Tanabe determines in its sole
discretion. All compounds from Tanabe Compound Libraries provided to Signal
under this Agreement shall be and remain the sole property of Tanabe, shall
(other than Compounds) be used by Signal solely for the purpose of carrying out
its obligations under this Agreement, and shall (other than Compounds) not be
transferred to any other Person for any purpose unless agreed to by the Parties
pursuant to Section 6 of this Agreement. Tanabe may request Signal to conduct
chemical modification, structural elucidation and testing of compounds from
Tanabe Compound Libraries. Except to the extent so requested, Signal shall not
undertake any efforts to elucidate the structure of any compound from the Tanabe
Compound Libraries delivered to it by Tanabe for in-vitro testing or make any
chemical modifications thereof until such compound is designated as a Chemical
Lead Compound pursuant to Section 2.4(d) below.

                      (b) Tanabe Screening Activities. Subject to the provisions
of Sections 5.4(a)(v), (vi), (vii) and (viii) below, during the Research Period,
Tanabe shall have the right to screen any compounds in any assays whatsoever.

                      (c) Assistance in Screening Activities. As and when
requested by the applicable Research and Development Committee, Tanabe may
conduct any animal studies described on Exhibit A with respect to Potential
Compounds. Tanabe agrees that it will not, in connection with any such studies,
undertake any efforts to elucidate the structure of any Potential Compounds from
the Signal Compound Libraries delivered to it by Signal for animal testing until
such Potential Compounds are designated as Chemical Lead Compounds pursuant to
Section 2.4(d) below.

                      (d) Evaluation Obligations; Chemical Lead Compounds. The
applicable Research and Development Committee shall have a period of ninety (90)
days from the date a Potential Compound is delivered to it pursuant to Section
2.3(a), to review such Potential Compound for the purpose of confirming that
such Potential Compound meets the Selection Criteria set forth on Exhibit A
hereto. Tanabe shall have the right, within thirty (30) days after such ninety
(90) day period, to either (i) designate such Potential Compound for Active
Development as a Chemical Lead Compound or (ii) reject such Potential Compound.
Tanabe shall request samples of such Potential Compound not later than two (2)
months after first notification by Signal to the

                                       15.

                      ***Confidential Treatment Requested
<PAGE>   18

applicable Research and Development Committee of Signal's determination pursuant
to Section 2.3(a) that such Potential Compound may meet the Selection Criteria
set forth on Exhibit A hereto or that a Potential Compound otherwise may be
desirable to Tanabe as a Chemical Lead Compound (to allow Tanabe to set up its
feasibility tests). Provided that Signal has assisted Tanabe in transferring and
implementing such feasibility tests pursuant to Section 2.3(a), Tanabe shall
notify Signal in writing within thirty (30) days after receipt of the drug
substance of a Potential Compound whether it agrees with the determination of
the applicable Research and Development Committee that a Potential Compound
meets the criteria set forth in Exhibit A or that a Potential Compound otherwise
shall be designated by Tanabe as a Chemical Lead Compound. Any Potential
Compound designated by Tanabe (whether or not it meets the Selection Criteria
set forth in Exhibit A) shall thereafter be a "Chemical Lead Compound." Any
Potential Compound which is presented to Tanabe and not designated by Tanabe as
a Chemical Lead Compound shall thereafter no longer be subject to the
Collaborative Project. Prior to the designation of a Potential Compound from a
Signal Compound Library as a Chemical Lead Compound pursuant to Section 2.4(d),
Tanabe shall not engage in any attempts to elucidate the chemical structure of
such Potential Compound, make any chemical modification to such Potential
Compound, or test such Potential Compound for use outside the Inflammation
Pathways or the Osteoporosis Pathways, as applicable.

                      (e)    Development and Qualification of Chemical Lead
Compounds. Once a Potential Compound has been designated as a Chemical Lead
Compound for any of (i) with respect to Inflammation: [***], and (ii) with
respect to Osteoporosis [***], then Tanabe shall promptly conduct any chemical
modifications or studies necessary with respect to such Compound to determine
whether or not any such Compound meets the criteria for a Clinical Candidate as
set forth in Exhibit B or Tanabe otherwise desires to designate such Compound as
a Clinical Candidate. Subject to the limitations of Section 4.3, any Compound
that Tanabe designates as a Clinical Candidate shall thereafter be a "Clinical
Candidate" and such designation shall be subject to the milestone payment as
described in Section 4.3(a) below. If Tanabe files in the Territory a request
for initiation of human clinical studies of a Compound prior to designating such
Compound as a Clinical Candidate, then upon the filing in the Territory of a
request for initiation of human clinical studies for such Compound, such
Compound thereafter shall be a "Clinical Candidate" and such designation shall
be subject to the milestone payment as described in Section 4.3(a) below. All
Potential Compounds from Signal Compound Libraries provided to Tanabe under this
Agreement shall be and remain the sole property of Signal, shall (other than
Compounds) be used by Tanabe solely for the purpose of carrying out its
obligations under this Agreement and shall (other than Compounds) not be
transferred to any other Person for any purpose unless agreed to by the Parties
pursuant to this Agreement. Tanabe agrees that it will not, in connection with
any such studies, undertake any efforts to elucidate the structure of any
Potential Compounds

                                       16.

                      ***Confidential Treatment Requested
<PAGE>   19

from the Signal Compound Libraries delivered to it by Signal until such
Potential Compounds are designated as Chemical Lead Compounds pursuant to
Section 2.4(d) above.

                      All Chemical Modifications developed from (i) Signal
Compounds shall constitute Signal Compounds, (ii) Tanabe Compounds shall
constitute Tanabe Compounds, and (iii) Collaboration Compounds shall constitute
Collaboration Compounds. To the extent either Party creates a Chemical
Modification, such Party shall endeavor to provide the other Party with [***]
of each Chemical Modification and a summary report describing how such Chemical
Modification was synthesized and characterized.

                      (f) Reversion of Rights to Compounds. Notwithstanding any
other Section of this Agreement, if Tanabe "abandons its efforts" to conduct
research, pre-clinical and clinical development, application for Regulatory
Approval and commercialization of Compounds, Clinical Candidates and Products
which may be used in the prevention or treatment of Inflammation in the
Territory, then upon ninety (90) days prior written notice from Signal, the
exclusive right and license granted to Tanabe under Section 5.1 in all
Compounds, Clinical Candidates and Products which may be used in the prevention
or treatment of Inflammation in the Territory shall terminate and such exclusive
right and license granted to Tanabe under Section 5.1 shall revert to Signal.
Tanabe shall not have "abandoned its efforts" if Tanabe at any such time either
[***]

                            Notwithstanding any other Section of this Agreement,
if Tanabe "abandons its efforts" to conduct research, pre-clinical and clinical
development, application for Regulatory Approval and commercialization of
Compounds, Clinical Candidates and Products which may be used in the prevention
or treatment of Osteoporosis in the Territory, then upon ninety (90) days prior
written notice from Signal, the exclusive right and license granted to Tanabe
under Section 5.1 in all Compounds, Clinical Candidates and Products which may
be used in the prevention or treatment of Osteoporosis in the Territory shall
terminate and such exclusive right and license granted to Tanabe under Section
5.1 shall revert to Signal. Tanabe shall not have "abandoned its efforts" if
Tanabe at any such time either [***]

                      (g) Visiting Signal Scientist. During the Research Period,
Tanabe shall accept at its research facilities up to [***] who shall be mutually
agreeable to the Parties for Inflammation and/or Osteoporosis projects. Signal

                                       17.

                      ***Confidential Treatment Requested
<PAGE>   20

shall be responsible for all expenses relating to visas, transportation,
lodging, salaries and benefits of such Signal scientist and Tanabe shall be
responsible for expenses, including laboratory space, office space, instruments,
equipment and materials, necessary to allow such Signal scientist to engage in
research on Tanabe's premises under the Collaborative Project. The Signal
scientist shall, to the extent possible, be included in the activities of
Tanabe's research team for the Collaborative Project and shall be subject to all
confidentiality obligations as are imposed usually by Tanabe. It is acknowledged
and agreed that Tanabe shall also be conducting research and development
activities outside the scope of the Collaborative Project and shall be entitled
to exclude the Signal scientist from participation in projects to the extent
required to protect the confidentiality of such non-Collaborative Project work.

               2.5 Research and Development Committees. In order to effectively
coordinate and communicate their respective research and development efforts in
Inflammation and Osteoporosis: (i) Signal and Tanabe shall each promptly appoint
their representatives to the Joint Inflammation Committee and the Joint
Osteoporosis Committee; and (ii) each of Signal and Tanabe shall delegate the
powers and authority to the Joint Inflammation Committee and the Joint
Osteoporosis Committee that each Party deems desirable to allow each Research
and Development Committee to effectively coordinate and communicate the Parties'
respective efforts under the Collaborative Project in Inflammation and
Osteoporosis, respectively; provided, that neither such Research and Development
Committee shall have the power to enter into contracts or otherwise bind either
of the Parties. Without limitation, each Research and Development Committee
shall be responsible for (i) coordinating the research activities with respect
to Compounds for the treatment of Inflammation or Osteoporosis, as applicable;
(ii) working with Signal to prepare annual workplans for the testing, evaluation
and identification of Potential Compounds as potential Chemical Lead Compounds,
and the Chemical Modification, testing, evaluation and identification of
Compounds as potential Clinical Candidates; (iii) assisting Signal in preparing
annual budgets corresponding to such workplans; (iv) monitoring performance
under the Collaborative Project in relation to the annual workplans and
expenditures in relation to the corresponding budgets; and (v) reviewing the
information regarding Potential Compounds and determining whether Potential
Compounds satisfy the criteria set forth in Exhibit A. Each Party may change any
of its representatives at any time and from time to time by written notice to
the other Party prior to appointing a new representative to either Committee.
Any vacancy on a Research and Development Committee caused by death,
resignation, disability or otherwise shall be filled within thirty (30) days
following the occurrence of such vacancy.

               2.6 Meetings of the Research and Development Committees. The
Research and Development Committees shall each meet, during the term of the
Research Period, at least every six (6) months beginning as soon as possible
after the Effective Date of this Agreement, and thereafter upon request by
either Party (not to exceed four (4) meetings per year unless mutually agreed
upon), at sites which shall be

                                       18.

<PAGE>   21

designated by each of the Parties in alternating sequence, with the first
meeting to be held as soon as practicable. Meetings are expected to be held
either at the offices of Signal or Tanabe or at some other mutually agreeable
site. Each Party shall pay its own costs in attending meetings of each Research
and Development Committee. Executive officers from Signal or Tanabe may attend
such meetings at their discretion.

               Once during each year, at annual meetings during the Research
Period, the Research and Development Committees will conduct an annual review of
the actual progress of the Collaborative Project with respect to Inflammation or
Osteoporosis, as appropriate (the "Annual Review"), will review and approve the
development plans, workplans and budgets and objectives for the Collaborative
Project for the following year, and will take such mutually agreeable actions as
may be reasonable to facilitate the commercial success of the Collaborative
Project with respect to Inflammation or Osteoporosis, as appropriate.

               2.7 Procedure. A hosting Party shall designate a member to act as
Chairman of each Research and Development Committee meeting. Each such Chairman
shall be responsible for developing an agenda for the meeting to be chaired by
him or her and shall distribute such agenda no later than fourteen (14) days
prior to the scheduled meeting. The Chairman shall promptly, after each meeting,
prepare and distribute to the members minutes reflecting the discussions of the
Research and Development Committee. All meetings shall be conducted and records
kept in English.

               2.8 Dispute Resolution. In the event that a Research and
Development Committee is unable to resolve any disagreement, either Party shall
do their best efforts to resolve the dispute amicably, and shall prior to
proceeding with any dispute resolution mechanisms conduct a meeting of the
president of Signal and the Senior Executive Director of Research and
Development of Tanabe to attempt in good faith to resolve such dispute.

               2.9    Exclusivity.

                      (a)    Signal Obligations.

                             (i)  During the Research Period, Signal shall not,
and shall cause its Affiliates and (sub)licensees collaborating with Signal in
the development of Compounds, including the Western Pharmaceutical Partner, not
to, conduct any research, development or commercialization activities relating
to the discovery or use of compounds in an Inflammation Pathway(s) for the
prevention or treatment of Inflammation (to the extent, with respect to any
(sub)licensee, such collaboration involves such Inflammation Pathway(s)), or in
an Osteoporosis Pathway(s) for the prevention or treatment of Osteoporosis (to
the extent, with respect to any (sub)licensee, such collaboration involves such
Osteoporosis Pathway(s)), in the Territory, for its own benefit, or with or for
the benefit of any other Person, other than to the extent that any

                                       19.

<PAGE>   22

compounds developed for use in the respective pathways shall be licensed to
Tanabe hereunder in the Territory;

                             (ii) Following the Research Period but during the
term of this Agreement, Signal shall not, and shall cause its Affiliates and
(sub)licensees collaborating with Signal in the development of Compounds,
including the Western Pharmaceutical Partner, not to, conduct any research,
development or commercialization activities relating to the use of Main Activity
Compounds in an Inflammation Pathway(s) for the prevention or treatment of
Inflammation (to the extent, with respect to any (sub)licensee, such
collaboration involves such Inflammation Pathway(s)), or in an Osteoporosis
Pathway(s) for the prevention or treatment of Osteoporosis (to the extent, with
respect to any (sub)licensee, such collaboration involves such Osteoporosis
Pathway(s)), in the Territory, for its own benefit, or with or for the benefit
of any other Person, other than to the extent that any Main Activity Compounds
developed for use in the respective pathways shall be licensed to Tanabe
hereunder in the Territory;

                             (iii)  During the term of the Agreement and subject
to the provisions of Section 2.4(f), Signal shall not, and shall cause its
Affiliates and (sub)licensees collaborating with Signal in the development of
Compounds, including the Western Pharmaceutical Partner, not to, conduct any
research, development or commercialization activities relating to the use of (a)
Compounds, (b) Potential Compounds or (c) chemical modifications of Potential
Compounds which if they were tested during the Research Period would have been
Potential Compounds, for its own benefit, or with or for the benefit of any
other Person, other than to the extent that any compounds described in clauses
(a) through (c) above developed for use in the respective pathways shall be
licensed to Tanabe hereunder in the Territory; and

                             (iv) During the term of this Agreement, Signal
shall not, and shall cause its Affiliates and (sub)licensees collaborating with
Signal in the development of Compounds, including the Western Pharmaceutical
Partner, not to, conduct any research, development or commercialization
activities relating to the use of any Tanabe Compound other than in the
prevention or treatment of Inflammation or Osteoporosis in the Rest of the
World, for its own benefit, or with or for the benefit of any other Person,
unless such Tanabe Compound first is designated by Tanabe as a Clinical
Candidate or Signal, its Affiliate or sublicensee has [***]

                      (b)    Tanabe Obligations.

                             (i)  During the Research Period, Tanabe shall not,
and shall cause its Affiliates and (sub)licensees collaborating with Tanabe in
the development of Compounds not to, conduct any research, development or
commercialization activities relating to the discovery or use of compounds in an
Inflammation Pathway(s) for the

                                       20.

                      ***Confidential Treatment Requested
<PAGE>   23

prevention or treatment of Inflammation (to the extent, with respect to any
(sub)licensee, such collaboration involves such Inflammation Pathway(s)), or in
an Osteoporosis Pathway(s) for the prevention or treatment of Osteoporosis (to
the extent, with respect to any (sub)licensee, such collaboration involves such
Osteoporosis Pathway(s)), in the Rest of the World, for its own benefit, or with
or for the benefit of any other Person, other than to the extent that any
compounds developed for use in the respective pathways shall be licensed to
Signal hereunder in the Rest of the World;

                             (ii) Following the Research Period but during the
term of this Agreement, Tanabe shall not, and shall cause its Affiliates and
(sub)licensees collaborating with Tanabe in the development of Compounds not to,
conduct any research, development or commercialization activities relating to
the use of Main Activity Compounds in an Inflammation Pathway(s) for the
prevention or treatment of Inflammation (to the extent, with respect to any
(sub)licensee, such collaboration involves such Inflammation Pathway(s)), or in
an Osteoporosis Pathway(s) for the prevention or treatment of Osteoporosis (to
the extent, with respect to any (sub)licensee, such collaboration involves such
Osteoporosis Pathway(s)), in the Rest of the World, for its own benefit, or with
or for the benefit of any other Person, other than to the extent that any Main
Activity Compounds developed for use in the respective pathways shall be
licensed to Signal hereunder in the Rest of the World;

                             (iii) During the term of the Agreement, Tanabe
shall not, and shall cause its Affiliates and (sub)licensees collaborating with
Tanabe in the development of Compounds not to, conduct any research, development
or commercialization activities relating to the use of (a) Compounds, (b)
Potential Compounds, (c) chemical modifications of Potential Compounds which if
they were tested during the Research Period would have been Potential Compounds,
or (d) compounds identified from the Tanabe Compound Libraries which if they
were tested during the Research Period would have been Potential Compounds, for
its own benefit, or with or for the benefit of any other Person, other than to
the extent that any compounds described in clauses (a) through (d) above
developed for use in the respective pathways shall be licensed to Signal
hereunder in the Rest of the World; and

                             (iv) During the term of this Agreement, Tanabe
shall not, and shall cause its Affiliates and (sub)licensees collaborating with
Tanabe in the development of Compounds not to, conduct any research, development
or commercialization activities relating to the use of any Signal Compound other
than in the prevention or treatment of Inflammation or Osteoporosis in the
Territory, for its own benefit, or with or for the benefit of any other Person,
unless such Signal Compound first is designated by Tanabe as a Clinical
Candidate.

                                       21.

<PAGE>   24

        3.     PRODUCT DEVELOPMENT.

               3.1 Development Activities. Tanabe shall control all activities
regarding the pre-clinical and clinical development, application for Regulatory
and Pricing Approval and commercialization of all Compounds, Clinical Candidates
and Products in the Territory. Signal shall control all activities regarding the
pre-clinical and clinical development, application for Regulatory Approval and
commercialization of all Compounds, Clinical Candidates and Products in the Rest
of the World. If the parties mutually agree, Signal and Tanabe shall, in mutual
cooperation with one another, establish a development plan for each Compound,
Clinical Candidate and Product with respect to the development and regulatory
approval of such Product on a worldwide basis (the "Development Plan"). In the
event that both Parties are unable to agree on the Development Plan, Tanabe's
decisions shall control all activities regarding the pre-clinical and clinical
development, application for Regulatory and Pricing Approval and
commercialization of all Compounds, Clinical Candidates and Products in the
Territory and Signal's decisions shall control all activities regarding the
pre-clinical and clinical development, application for Regulatory and Pricing
Approval and commercialization of all Compounds, Clinical Candidates and
Products in the Rest of the World; provided that in no event will either Party
(and Signal shall similarly bind its Western Pharmaceutical Partner) knowingly
take any action that will unnecessarily impair the other Party's efforts to have
a Product achieve the relevant Regulatory Approvals. Each Party shall
immediately inform the other at such time as it receives notice of any
governmental or regulatory approvals and disapprovals for Products. Signal shall
not be entitled to share any information received pursuant to this Section 3.1
with its Western Pharmaceutical Partner until Tanabe and such Western
Pharmaceutical Partner have reached an agreement covering such exchange of
information.

               3.2 Development Efforts. Once a Clinical Candidate has been
designated by Tanabe, Tanabe shall use its good faith efforts in proceeding with
(i) the development, testing and, where applicable, manufacturing of a Product
based on such Clinical Candidate or Chemical Modification thereof, including,
without limitation, pre-clinical and clinical development, (ii) obtaining
Regulatory and Pricing Approvals in the Territory and (iii) the subsequent
manufacturing, marketing and sale of that Product in the Territory. Tanabe shall
exercise its reasonable efforts and diligence in conducting such activities with
respect to any Compound, Clinical Candidate or Product in accordance with
Tanabe's business, legal, medical and scientific judgment and Tanabe's normal
practices and procedures for compositions having similar technical and
commercial potential for similar uses.

               3.3 Inflammation Clinical Matters. Tanabe shall take all
reasonable action and bear all costs to conduct the regulatory application and
pre-clinical and clinical testing and the development of all Inflammation
Products that result from the Collaborative Project contemplated by this
Agreement within the Territory.

                                       22.

<PAGE>   25

               3.4 Osteoporosis Clinical Matters. Tanabe shall take all
reasonable action and bear all costs to conduct the regulatory application and
pre-clinical and clinical testing and the development of all Osteoporosis
Products that result from the Collaborative Project contemplated by this
Agreement within the Territory.

               3.5 Synthesized Compounds; Manufacturing. In the event Tanabe
synthesizes Compounds or Clinical Candidates, Tanabe agrees to cooperate with
Signal, based upon its manufacturing and supply capabilities, to make a
reasonable effort to make research quantities of such Compounds or Clinical
Candidates, as the case may be, available to Signal at a reasonable cost plus
shipping charges. Tanabe agrees that, during the term of this Agreement, Tanabe
will at the request of Signal negotiate in good faith with Signal with respect
to entering into a manufacturing and supply agreement pursuant to which Tanabe
would provide Signal with Signal's (but not its Western Pharmaceutical
Partner's, which shall be subject to Tanabe's agreement with such Western
Pharmaceutical Partner) requirements of each Inflammation and Osteoporosis
Compound or Product selected for development hereunder.

        4.     PAYMENT.

               4.1 Initial Payment. Within ten (10) days following execution of
this Agreement, Tanabe shall pay to Signal, in consideration of the licenses
granted by Signal to Tanabe hereunder, [***] by wire transfer of immediately
available funds to the Signal bank account set forth in Section 4.4.

               4.2 Research Funding. In consideration of Signal's research
obligations set forth in Section 2 hereof, Tanabe shall pay to Signal the
following amounts: (a) with respect to the Inflammation Program, [***] per year
of the Research Period; and (b) with respect to the Osteoporosis Program, (i)
[***] per annum for the [***] following the Effective Date [***], and (ii) [***]
per year of the Research Period for each year following [***]. The per annum
payments shall be made in two (2) equal semi-annual installments, in advance,
with the first payment being due within ten (10) days following execution of
this Agreement and subsequent payments being due and payable at each six (6)
month interval thereafter by wire transfer of immediately available funds to the
Signal bank account set forth in Section 4.4. At the end of each year, Signal
shall determine its actual spending with respect to each program on a
fully-allocated cost basis and in the event that the research funding received
from Tanabe exceeds [***] of Signal's actual expenditures in [***] of the
Research Period for Inflammation and in years [***] of the Research Period for
Osteoporosis, then Signal shall refund such excess to Tanabe within ninety (90)
days after the end of each of [***], and shall prepare and provide Tanabe with a
written report in reasonable specific detail of all expenditures by Signal (on a
fully-allocated cost basis determined in accordance with generally accepted
accounting principles consistently applied) under the Collaborative Project
during the

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<PAGE>   26
preceding one (1) year period, compared to the budgeted amounts therefor, and
itemized by program and major cost category for such reporting period. In the
event that Tanabe terminates the Research Period with respect to either
Inflammation or Osteoporosis or both prior to the completion of [***], pursuant
to Section 2.3(f), 13.4 and 13.5 hereof, then Tanabe shall continue to fund its
otherwise applicable funding obligations until the effective date of such
termination. Signal shall keep complete and accurate records in sufficient
detail to properly reflect all expenditures by Signal under the Collaborative
Project. Upon the written request of Tanabe and not more than once in each
calendar year, Signal shall permit an independent certified public accounting
firm of internationally recognized standing, selected by Tanabe and reasonably
acceptable to Signal, at Tanabe's expense, to have access during normal business
hours to such of the records of Signal as may be reasonably necessary to verify
the accuracy of the research expenditure reports hereunder for any year ending
not more than twenty-four (24) months prior to the date of such request. The
accounting firm shall disclose to Tanabe only whether the reports are correct or
not and the specific details concerning any discrepancies. No other information
shall be shared.

               4.3 Milestone Payments. Tanabe shall pay to Signal each of the
amounts set forth below, by wire transfer of immediately available funds to the
Signal bank account set forth in Section 4.4, upon the first achievement of each
of the milestones set forth below, except that if a Compound is subsequently
approved for indications other than Inflammation or Osteoporosis, the milestone
payment described in Section 4.3(d) if not previously paid with respect to such
Compound will be payable by Tanabe to Signal for such approved indication.

                      (a) Upon the [***]

                      (b) Upon the [***]

                      (c) Upon the [***]

                      (d) Upon receipt of governmental Pricing Approval for a
Product, but in no event later than the first end user sale of such Product for
any

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<PAGE>   27

[***]

Notwithstanding the foregoing, (i) Tanabe shall not be required to [***], and
(ii) the maximum aggregate amount which Tanabe shall be required to pay pursuant
to this Section 4.3 with respect to all Compounds and Products shall be [***],
and (iii) [***]

               4.4 Payment Terms. All payments under this Agreement shall be by
wire transfer of immediately available funds to the bank account set forth below
and shall be non-refundable (except as otherwise set forth herein).

                    First Interstate Bank of California #657
                                 136 2nd Avenue
                                  P.O. Box 1488
                        San Mateo, California 94401-0870
                               Routing: 122000218
                       Name: Signal Pharmaceuticals, Inc.
                           Account Number: [***]

        5.     LICENSES OF TECHNOLOGY; ROYALTIES.

               5.1 License to Tanabe.

                      (a) Subject to the terms and conditions of this Agreement
and the payment in full of any milestone obligations which are owing to Signal
as set forth in Section 4.3, Signal hereby grants to Tanabe an exclusive (even
as to Signal) license under the Signal Patents, the Joint Patents and, to the
extent required to be provided pursuant to Section 2.2 and 2.3, the Signal
Technical Information to develop, make, have made, use, sell, have sold and
import Products in the Territory.

                      (b) Subject to the terms and conditions of this Agreement,
Tanabe shall have the right to grant licenses or sublicenses to develop, make,
have made, use, sell, have sold, and import Products in the Territory, provided
that such licensees and sublicensees agree in writing to be bound by the
applicable terms, if any, of this Agreement. Tanabe shall be responsible for the
operations and activities of its licensees and sublicensees as if such
operations and activities were carried out by Tanabe. As to each sublicense of a
Signal Patent or a Joint Patent, Tanabe agrees to deliver to Signal notification
of each sublicense granted by Tanabe and termination thereof, within fifteen

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<PAGE>   28

(15) days after execution or termination, setting forth the name of the
sublicensee and the territory as to which the sublicense is effective.

               5.2    License to Signal.

                      (a) Subject to the terms and conditions of this Agreement,
Tanabe hereby grants to Signal an exclusive (even as to Tanabe), license under
the Tanabe Patents, the Joint Patents and, to the extent required to be provided
pursuant to Section 2.2, the Tanabe Technical Information, to develop, make,
have made, use, sell, have sold and import Products in the Rest of the World.

                      (b) Subject to the terms and conditions of this Agreement,
including, without limitation, Section 6.3 hereof, Signal shall have the right
to grant licenses or sublicenses to develop, manufacture, market and sell all
Products in the Rest of the World provided that such licensees and sublicensees
agree in writing to be bound by the applicable terms, if any, of this Agreement.
Signal shall be responsible for the operations and activities of its licensees
and sublicensees as if such operations and activities were carried out by
Signal. As to each sublicense of a Tanabe Patent or a Joint Patent, Signal
agrees to deliver to Tanabe notification of each sublicense granted by Signal
and termination thereof, within fifteen (15) days after execution or
termination, setting forth the name of the sublicensee and the territory as to
which the sublicense is effective.

               5.3 Improvements. Any modification or improvement to the
Compounds and/or Products (including any Tanabe Technical Information or Signal
Technical Information regarding to such modification) licensed under this
Agreement made before the termination of this Agreement shall be included in the
license(s) granted under this Section 5 without additional charge to the
licensing Party. The Parties agree to promptly disclose any such modifications
or improvements.

               5.4 Royalty Payments; Reports. Tanabe shall, (i) for a period
equaling the longer of ten (10) years from the date of the initial sale of each
Product for each indication in the Territory or the expiration of the last
Signal Patent, Joint Patent or Tanabe Patent (including in each case patents
deemed to exist as a result of a Use or Structure Contribution by Tanabe, Signal
or both Parties) which claims the use or sale of such Product in the country of
sales, pay to Signal a royalty in U.S. dollars equal to the percentages
("Royalty Rates") set forth in Exhibit D and (ii) for so long as sales of any
Product gives rise to an obligation by Signal to pay patent royalties to a Third
Party, reimburse Signal for any and all such Third-Party patent royalties
("Third-Party Royalties"), subject to Section 5.4(e) below, due by Signal
pursuant to its license ("Reimbursements"). Thereafter, [***] Tanabe shall
remain liable for all royalties payable by its Affiliates or sublicensees.

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<PAGE>   29

                      (a) The applicable Royalty Rate shall be determined on the
basis of:

                             (i)   [***]

                             (ii)  [***]

                             (iii) [***]

                             (iv)  [***]

                             (v)   [***]

                        (A)   if the applicable Research and Development
                              Committee determines that the greater
                              therapeutically relevant activity of such Compound
                              is identified in the Tanabe Other Screen, the
                              screening of such Compound shall constitute a
                              Signal Use or Structure Contribution (to the
                              extent there exists either a Signal or a Tanabe
                              Contribution Patent which claims the use of such
                              Compound); provided, however, that the applicable
                              Royalty Rate in the Territory shall be reduced by
                              [***], the applicable Royalty Rate in the Rest of
                              the World shall be increased by [***], the
                              applicable milestone credit shall be increased by
                              [***]; and

                        (B)   if the applicable Research and Development
                              Committee determines that the greater
                              therapeutically relevant activity of

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<PAGE>   30

                              such Compound is identified in the Signal Screen,
                              the screening of such Compound shall constitute a
                              Signal Use or Structure Contribution (to the
                              extent there exists either a Signal or a Tanabe
                              Contribution Patent which claims the use of such
                              Compound).

                             (vi)  If Signal demonstrates to the satisfaction of
the applicable Research and Development Committee that a Compound is Active in a
Signal Screen when screened by Signal, and Tanabe is unable to demonstrate to
the satisfaction of the applicable Research and Development Committee that such
Compound is Active in a Tanabe Other Screen when screened by Tanabe, then for
purposes of calculating the applicable Royalty Rate in the Territory and the
Rest of the World and the applicable milestone credit, the screening of such
Compound shall constitute a Signal Use or Structure Contribution (to the extent
there exists either a Signal or a Tanabe Contribution Patent which claims the
use of such Compound).

                             (vii) If Signal is unable to demonstrate to the
satisfaction of the applicable Research and Development Committee that a
Compound is Active in a Signal Screen when screened by Signal, and Tanabe
demonstrates to the satisfaction of the applicable Research and Development
Committee that such Compound is Active in a Signal Screen or a Tanabe Other
Screen when screened by Tanabe, then for purposes of calculating the applicable
Royalty Rate in the Territory and the Rest of the World and the applicable
milestone credit, the screening of such Compound shall constitute a Tanabe Use
or Structure Contribution (to the extent there exists either a Tanabe or a
Signal Contribution Patent which claims the use of such Compound).

                             (viii) For purposes of Sections 5.4(a)(v), (vi) and
(vii), "Active" means, with respect to any Compound in any Signal Screen or
Tanabe Other Screen, that such Compound exhibits at least [***]
in such Signal Screen or Tanabe Other Screen.

                             (ix) In the event the applicable claim(s) of a
Structure Patent or a Use Patent falls within the scope of the applicable
claim(s) of another Structure Patent or Use Patent, the Parties shall determine
whether any of the claims of one such patent "dominate" the claims of the other
patent(s) and the applicable Royalty Rate shall be determined on the basis of
which patents are "Dominant Patents." For purposes of this Agreement, a
"Dominant Patent" means, with respect to any Compound, a patent application or
issued patent of which the priority date is the earliest among all patent
applications or patents which claim the composition of matter (in the case of
Structure Patents) or the use (in the case of Use Patents) which would be
infringed, absent the ownership thereof or the licenses granted herein, by the
use or sale of a Product containing such Compound as an active ingredient.

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<PAGE>   31

                             (x)  In the event that a majority of the members
of the applicable Research and Development Committee is unable to agree upon any
determination or decision under Section 5.4(a)(v), (vi) or (vii) above, then the
parties first shall attempt to resolve such disagreement pursuant to Section 2.8
above, and if the parties are unable to so resolve such disagreement, such
disagreement shall be finally resolved by binding arbitration pursuant to
Article 7 below.

                      In the event the applicable claim(s) of a Structure Patent
or a Use Patent falls within the scope of the applicable claim(s) of another
Structure Patent or Use Patent, the Parties shall determine whether any of the
claims of one such patent "dominate" the claims of the other patent(s) and the
applicable Royalty Rate shall be determined on the basis of which patents are
"Dominant Patents." For purposes of this Agreement, a "Dominant Patent" means,
with respect to any Compound, a patent application or issued patent of which the
priority date is the earliest among all patent applications or patents which
claim the composition of matter (in the case of Structure Patents) or the use
(in the case of Use Patents) which would be infringed, absent the ownership
thereof or the licenses granted herein, by the use or sale of a Product
containing such Compound as an active ingredient.

                      (b) If the Compound originated from a Tanabe Compound
Library which is a "natural product library", then the applicable Royalty Rate
shall [***] unless annual Net Sales of the Product in the Territory are [***]
in which case the Royalty Rate in any such year shall not be reduced.

                      (c) A [***] Royalty Rate corresponding to [***] shall
apply as follows:

                             Annual Net Sales             Royalty Rate Tier

                                 [***]                         [***]
                                 [***]                         [***]
                                 [***]                         [***]

                      For example, if a Product contains a Compound which
originated from a compound in a Tanabe Compound Library, was screened by Signal
in its primary assays resulting in a Signal Use or Structure Contribution (and
is claimed or deemed to be claimed in a Signal Use Patent), and was chemically
modified by Tanabe resulting in a Tanabe Use or Structure Contribution (and is
claimed or deemed to be claimed in a Tanabe Structure Patent), then the Royalty
Rates applicable to sales of the Product in the Territory are 6.5% for annual
Net Sales less than $50,000,000 (Tier 1), 7.5% for annual Net Sales between
$50,000,000 and $100,000,000 (Tier 2) and 8.5% for annual Net Sales above
$100,000,000 (Tier 3). With respect to Signal's sales of the Product in

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<PAGE>   32

the Rest of the World, the applicable Royalty Rate is [***].

                      (d) Tanabe shall be entitled to credit up to the
percentage set forth on Exhibit D of its aggregate milestone payments made
pursuant to Section 4.3 above against up to [***] of any royalty
payment then due Signal (excluding from such credit any pass-throughs of Third
Party Royalties).

                      (e) Reimbursements payable by Tanabe with respect to
Third- Party Royalties in the Territory shall not exceed (i) [***]
with respect to each Product derived from a Tanabe Compound Library
or (ii) [***] of Net Sales, with respect to each Product derived from a Signal
Compound Library. Any Third Party Royalties payable with respect to a Joint
Compound Library derived Product shall be paid by the Party responsible for the
sale(s) on which a Third-Party Royalty is payable, including sales by its
Affiliates, licensees and sublicensees (other than the other Party).

                      (f) Tanabe shall provide a royalty report and, if
applicable, a royalty payment to Signal every six (6) months. The report and
payment relating to Net Sales shall be provided within sixty (60) days after the
end of March and September of each calendar year, and shall include all sales of
Products by Tanabe and its Affiliates and sublicensees.

                      (g) Tanabe shall provide Signal with a nonbinding, but
good faith estimate, quarterly forecast of its projected sales of any Product
during the upcoming calendar year not later than thirty (30) days prior to the
start of each calendar year.

                      (h) Signal shall provide to Tanabe a report detailing the
calculation of the Reimbursements, together with a copy of the agreement
providing for such Third Party royalties, within two (2) months of receiving the
Tanabe royalty report. The payment for the Reimbursements shall be due and
payable within one (1) month of receipt by Tanabe.

                      (i) Tanabe shall keep, and require any Affiliate, licensee
and sublicensee to keep, for a period of not less than seven (7) years, complete
and accurate records of all Net Sales (including all discounts, rebates, returns
and allowances) of each Product. Signal shall have the right, at Signal's sole
expense, through an independent certified public accounting firm of
internationally recognized standing, selected by Signal and reasonably
acceptable to Tanabe, and following reasonable notice, to examine such records
during regular business hours during the life of the Tanabe obligation to pay
royalties on Net Sales of each Product, Delivery Systems Product and Combination
Product; provided, however, that such examination shall not (i) be of records
for any year ending not more than twenty-four (24) months prior to the date of
such request, and (ii) take place more than once in any calendar year; and
provided, further, that, such

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<PAGE>   33

accountants shall report to Signal only as to the accuracy of the royalty
statements and payments. Copies of such reports shall be supplied to Tanabe. In
the event the report demonstrates that Tanabe has underpaid royalties, Tanabe
shall pay such royalties immediately upon request of Signal. If Tanabe has
overpaid royalties, Tanabe may deduct such overpayments from future royalties
owed to Signal. The fees charged by such accounting firm shall be paid by
Signal; provided, however, if the audit discloses that the royalties payable by
Tanabe for the audited period are more than one hundred ten percent (110%) of
the royalties actually paid for such period, then Tanabe shall pay the
reasonable fees and expenses charged by such accounting firm. Signal shall treat
all financial information subject to review under this Section 5.4(i) as
confidential, and shall cause its accounting firm to retain all such financial
information in confidence.

                      (j) Any tax paid or required to be withheld by Tanabe for
the benefit of Signal on account of royalties payable to Signal under this
Agreement shall be deductible from the amount of royalties otherwise due. Tanabe
shall secure and send to Signal proof of any such taxes withheld and paid by
Tanabe for the benefit of Signal and shall, at Signal's request, provide
reasonable assistance to Signal in recovering said taxes, if possible.

                      (k) The parties shall use all reasonable efforts to
minimize any withholding taxes required to be taken on any amounts paid
hereunder.

               5.5 Signal and its sublicensees shall, (i) for a period equalling
the longer of ten (10) years from the date of the initial sale of each Product
in the Rest of the World or the expiration of the last Signal Patent, Joint
Patent or Tanabe Patent (including in each case patents deemed to exist as a
result of a Use or Structure Contribution by Tanabe, Signal or both Parties)
which claims the use or sale of such Product in the country of sales, pay to
Tanabe a royalty in U.S. dollars equal to the percentages ("Royalty Rates") set
forth in Exhibit D and (ii) [***], reimburse Tanabe for any and all such
Third-Party patent royalties ("Third-Party Royalties"), subject to Section
5.5(b) below, due by Tanabe pursuant to its license ("Reimbursements").
Thereafter, the [***]. Signal shall remain liable for all royalties payable by
its Affiliates or sublicensees.

                      (a) The applicable Royalty Rate shall be determined on the
basis set forth in Section 5.4(a) above and on Exhibit D.

                      (b) Reimbursements payable by Signal with respect to
Third- Party Royalties in the Rest of the World (on patent applications or
patents claiming composition of matter or use licensed by Tanabe from a Third
Party) shall not exceed (i) [***] of Net Sales, with respect to each
Product derived from a Signal Compound Library or (ii) [***], with respect

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<PAGE>   34

to each Product derived from a Tanabe Compound Library. Any Third Party
Royalties payable with respect to a Joint Compound Library derived Product shall
be paid by the Party responsible for the sale(s) on which a Third-Party Royalty
is payable, including sales by its Affiliates, licensees and sublicensees (other
than the other Party).

                      (c) Signal shall provide a royalty report and, if
applicable, a royalty payment to Tanabe every six (6) months. The report and
payment relating to Net Sales shall be provided within sixty (60) days after the
end of March and September of each calendar year, and shall include all sales of
Products by Signal and its Affiliates and sublicensees.

                      (d) Signal shall provide Tanabe with a nonbinding, but
good faith estimate, quarterly forecast of its projected sales of any Product
during the upcoming calendar year not later than thirty days prior to the start
of each calendar year.

                      (e) Tanabe shall provide to Signal a report detailing the
calculation of the Reimbursements, together with a copy of the agreement
providing for such Third Party Royalties, within two (2) months of receiving the
Signal royalty report. The payment for the Reimbursements shall be due and
payable within one (1) month of receipt by Signal.

                      (f) Signal shall keep, and require any Affiliate, licensee
and sublicensee to keep, for a period of not less than seven (7) years, complete
and accurate records of all Net Sales (including all discounts, rebates, returns
and allowances) of each Product. Tanabe shall have the right, at Tanabe's sole
expense, through an independent certified public accounting firm of
internationally recognized standing, selected by Tanabe and reasonably
acceptable to Signal, and following reasonable notice, to examine such records
during regular business hours during the life of the Signal obligation to pay
royalties on Net Sales of each Product, Delivery System Product and Combination
Product; provided, however, that such examination shall not (i) be of records
for any year ending not more than twenty-four (24) months prior to the date of
such request, and (ii) take place more than once in any calendar year; and
provided, further, that, such accountants shall report to Tanabe only as to the
accuracy of the royalty statements and payments. Copies of such reports shall be
supplied to Signal. In the event the report demonstrates that Signal has
underpaid royalties, Signal shall pay such royalties immediately upon request of
Tanabe. If Signal has overpaid royalties, Signal may deduct such overpayments
from future royalties owed to Tanabe. The fees charged by such accounting firm
shall be paid by Tanabe, provided, however, if the audit discloses that the
royalties payable by Signal for the audited period are more than one hundred ten
percent (110%) of the royalties actually paid for such period, then Signal shall
pay the reasonable fees and expenses charged by such accounting firm. Tanabe
shall treat all financial information subject to review under this Section
5.5(f) as confidential, and shall cause its accounting firm to retain all such
financial information in confidence.

                                       32.

<PAGE>   35

                      (g) Any tax paid or required to be withheld by Signal for
the benefit of Tanabe on account of royalties payable to Tanabe under this
Agreement shall be deductible from the amount of royalties otherwise due. Signal
shall secure and send to Tanabe proof of any such taxes withheld and paid by
Signal for the benefit of Tanabe and shall, at Tanabe's request, provide
reasonable assistance to Tanabe in recovering said taxes, if possible.

                      (h) The parties shall use all reasonable efforts to
minimize any withholding taxes required to be taken on any amounts paid
hereunder.

        6.     GLOBAL RELATIONSHIP.

               6.1 Overall Relationship. Signal intends to enter into one or
more relationships with a Western Pharmaceutical Partner(s) to develop
therapeutic products for the prevention or treatment of Inflammation and
Osteoporosis and the Parties agree that the Collaborative Project may benefit
from the joint efforts of Signal, Tanabe and such Western Pharmaceutical
Partner(s). To this end, the Parties agree that in the event that Signal enters
into a collaborative agreement with a Western Pharmaceutical Partner and the
Western Pharmaceutical Partner and Tanabe have each chosen to develop a
therapeutic product for the prevention or treatment of Inflammation and/or
Osteoporosis containing the same Compound in development and having
substantially the same identity for marketing, sales or regulatory purposes (a
"Mutual Product"), the Parties shall consider in good faith whether it is in
their mutual best interest to enter into a global collaboration with such
Western Pharmaceutical Partner.

               6.2 Global Development Plan; Coordination. If the Parties and the
Western Pharmaceutical Partner mutually agree in writing to enter into such a
global collaboration, such a global collaboration would be on mutually
acceptable financial and other terms and conditions and evidenced by a separate
mutually acceptable definitive written agreement duly approved, executed and
delivered by Tanabe, Signal and the Western Pharmaceutical Partner. Subject to
the mutual agreement of Tanabe, Signal and the Western Pharmaceutical Partner,
such global collaboration may (i) establish a worldwide development plan for
such Mutual Product with respect to each indication, the pre-clinical and
clinical studies of such Mutual Product, to coordinate their respective
development efforts and to create and maintain a single worldwide safety
database and shall share the results of the clinical trials in order to
facilitate such development, including, when feasible, elimination of duplicate
development efforts; (ii) establish a collaborative committee to coordinate and
communicate the research, development and commercialization efforts under the
collaboration; and (iii) provide that each of Tanabe, Signal and the Western
Pharmaceutical Partner would have certain license or other rights to access
certain technical information (including without limitation Compound Information
and Product Information) of the others, on mutually acceptable license terms and
conditions, for the purpose of developing and commercializing the Mutual
Product. It is understood and agreed that Signal will use its commercially
reasonable

                                       33.

<PAGE>   36

efforts to negotiate a provision similar to that contained in Section 6.3 below,
in its definitive agreement with its Western Pharmaceutical Partner allowing
disclosure to Tanabe of pre-clinical and clinical data generated by such Western
Pharmaceutical Partner based on any Compound designated by Tanabe which is also
chosen for development by the Western Pharmaceutical Partner.

               6.3 Transfer of Information; License Obligations. Once Signal has
identified the Western Pharmaceutical Partner to Tanabe and each of Tanabe and
the Western Pharmaceutical Partner has agreed to accept reciprocity on exchanges
of Technical Information, then during the term of this Agreement, Signal, Tanabe
and the Western Pharmaceutical Partner shall make available, without charge, to
each other the applicable Signal, Tanabe or Western Pharmaceutical Partner such
Compound Information and Product Information, respectively as the three parties
mutually agree, for any Compound which is simultaneously under development by
Tanabe and by such Western Pharmaceutical Partner in whatever form is best
suited to fully deliver such information. Notwithstanding the foregoing, Tanabe,
Signal and the Western Pharmaceutical Partner shall at all times make available
to each other any information required to be disclosed by Section 9.1.

        7. ARBITRATION. All disputes arising in any way out of or related to
this Agreement, including, without limitation, its existence, validity, scope,
application, termination or breach of this Agreement and the ownership of any
inventions, the obligations of the Parties or these arbitration provisions shall
be referred to and finally resolved by arbitration at the request of either
Party in accordance with the provisions of the Commercial Rules of Arbitration
of the American Arbitration Association in force at such time, which rules are
deemed to be incorporated by reference into this Agreement.

               7.1 Arbitration Tribunal. Unless otherwise agreed to by the
parties, the arbitration tribunal shall consist of three (3) arbitrators,
including two (2) members and a chairman. Tanabe and Signal shall each appoint
one member. The chairman shall be appointed according to the American
Arbitration Association Commercial Arbitration Rules.

               7.2 Situs of Arbitration. The arbitration shall be held in Osaka,
Japan.

        8.     CONFIDENTIALITY, DISCLOSURE AND PUBLICATION.

               8.1 Prior Agreement. This Agreement supersedes but does not
invalidate or cancel any and all previous agreements and understandings, whether
oral or written, between the Parties regarding the treatment of confidential
information.

               8.2 Confidentiality. During the term of this Agreement and for
ten (10) years thereafter, each Party shall maintain in confidence all
information and materials disclosed by the other Party and marked as
confidential or which such Party knows or

                                       34.

<PAGE>   37

has reason to know are or contain trade secrets or other proprietary information
of the other, including, without limitation, information relating to the
Technical Information of the other Party, Joint Inventions and inventions of the
other Party, and the business plans of the other Party, including information
provided by either Party to the other Party prior to the Effective Date
(collectively, the "Confidential Information and Materials"), and shall not use
the Confidential Information and Materials of the other Party for any purpose
except as permitted by this Agreement or disclose the same to anyone other than
those of its Affiliates, sublicensees, employees, consultants, agents or
subcontractors as are necessary in connection with such Party's activities as
contemplated in this Agreement. Each Party shall obtain binding agreement from
any such employee, and binding written agreement from each such Affiliate,
sublicensee, consultant, agent and subcontractor, prior to disclosure, to hold
in confidence and not make use of the Confidential Information and Materials of
the other Party for any purpose other than those permitted by this Agreement.

               8.3    Exceptions.

                      (a) The obligation of confidentiality contained in this
Agreement shall not apply to the extent that: (i) either Party (the "Recipient")
is required to disclose Confidential Information or Materials of the other Party
by order or regulation of a governmental agency or a court of competent
jurisdiction, provided that the Recipient shall not make any such disclosure
(other than a filing of information or materials with the U.S. Securities and
Exchange Commission, a similar filing of information or materials with the
National Association of Securities Dealers or state securities regulators or a
filing of information or materials pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder,
as amended or an equivalent filing with a foreign applicable authority) without
first notifying the other Party and allowing the other Party a reasonable
opportunity to seek injunctive relief from (or protective order with respect to)
the obligation to make such disclosure; or (ii) the Recipient can demonstrate
that (A) the disclosed information was at the time of such disclosure to the
Recipient already in (or thereafter enters) the public domain other than as a
result of actions of the Recipient, its Affiliates, employees, sublicensees,
agents or subcontractors in violation hereof; (B) the disclosed information was
rightfully known by the Recipient or its Affiliates (as shown by its written
records) prior to the date of disclosure to the Recipient in connection with the
negotiation, execution or performance of this Agreement; or (C) the disclosed
information was received by the Recipient or its Affiliates on an unrestricted
basis from a source unrelated to any Party to this Agreement and not under a
duty of confidentiality to the other Party; or (D) the disclosed information was
independently developed by the Recipient or its Affiliates (as shown by written
records) by persons without access to or use of the Confidential Information and
Materials of the other Party; or (iii) disclosure is required to be made to a
government regulatory agency as part of such agency's product license approval
process.

                                       35.

<PAGE>   38

                      (b) In the event (i) that each of Tanabe and the Western
Pharmaceutical Partner have agreed in writing to accept reciprocity on exchanges
of Technical Information and (ii) that Signal's Western Pharmaceutical Partner
chooses to develop a Product for the prevention or treatment of Inflammation
and/or Osteoporosis based on a Compound and (iii) provided the Western
Pharmaceutical Partner agrees to be bound by the terms specified in Section 6 of
this Agreement, Signal shall have the right to disclose to the Western
Pharmaceutical Partner any applicable Compound Information and Product
Information with respect to such Compound provided to Signal by Tanabe. As a
condition to such disclosure, Signal will require its Western Pharmaceutical
Partner to enter into confidentiality provisions equivalent to those set forth
in this Section 8.

               8.4 Publications. Prior to any public disclosure or submission
for publication by or on behalf of the Parties of a manuscript or other document
describing the results of any aspect of the Collaborative Project or other
scientific or clinical activity or collaboration between Tanabe and Signal or
their Affiliates, the Party disclosing or submitting such a manuscript
("Disclosing Party") shall first send a copy of the manuscript to the applicable
Joint Inflammation Committee or the Joint Osteoporosis Committee for their
review for a period of 15 days. If such Research and Development Committee
approves such publication, the Disclosing Party shall then send the other Party
("Responding Party") a copy of the manuscript to be submitted and shall allow
the Responding Party not less than thirty (30) days from the date of receipt in
which to determine whether the manuscript contains subject matter for which
patent protection should be sought prior to publication of such manuscript for
the purpose of protecting an invention of commercial value to the Responding
Party, or whether the manuscript contains confidential information belonging to
the Responding Party or whether such disclosure implicates issues regarding
compliance with applicable securities laws. After the expiration of such thirty
(30) day period, if the Responding Party has not objected in writing, the
Disclosing Party may submit such manuscript for publication and publish or
otherwise disclose to the public such research results. If the Responding Party
believes the subject matter of the manuscript contains confidential information
or a patentable invention of commercial value to the Responding Party, then
prior to the expiration of such thirty (30) day period, the Responding Party
shall notify the Disclosing Party in writing of its determination. Upon receipt
of such written notice from the Responding Party, the Disclosing Party shall
delay public disclosure of such information or submission of the manuscript to
permit preparation and filing of a patent application on the disclosed subject
matter. The Disclosing Party shall thereafter be free to publish or disclose
such manuscript, except that the Disclosing Party may not disclose any
confidential information of the Responding Party in violation of this Section 8
without the prior written consent of the Responding Party and that no
publication of a patentable invention shall be made until a patent application
covering such invention has been filed. Determination of authorship for any
manuscript shall be in accordance with accepted scientific practice. Should any
questions on authorship arise, this will be

                      36.

<PAGE>   39

determined by good faith consultation between the members of the appropriate
Research and Development Committee.

        9. INDEMNIFICATION. Each Party shall defend, indemnify and hold the
other Party, any Affiliate of the other Party, any officer, director or employee
of such other Party or of any of its Affiliates (individually, an "Exculpated
Party") harmless from and against any damage, loss, liability or expense
(including, without limitation, reasonable attorneys' fees, settlement costs,
litigation costs and costs on appeal regardless of outcome) incurred or suffered
by any Exculpated Party arising out of any claim, demand, action or other
proceeding by any person or entity (other than an Affiliate of the Exculpated
Party) arising out of: (a) the material breach of any covenant or agreement by
such Party; (b) any material misrepresentation or breach of warranty made by
such Party pursuant to this Agreement; (c) any claim arising from the gross
negligence or intentional misconduct of any of such Party's by or on behalf of
such Party or its Affiliates, licensees, sublicensees, employees, consultants,
agents or subcontractors (other than the other Party or its Affiliates) pursuant
to its rights under this Agreement; (d) any claim of any kind whatsoever arising
from the testing, manufacture, use, sale, consumption, distribution or
advertising of any of the Compounds or Products by or on behalf of such Party or
its Affiliates, licensees, sublicensees, employees, consultants, agents or
subcontractors (other than the other Party or its Affiliates) pursuant to its
rights under this Agreement; or (e) the operations or activities of such a
Party's Affiliates, licensees or sublicensees in material contravention of the
requirements of this Agreement (and such Party shall terminate immediately any
such sublicense where a breach of its obligations by a sublicensee cannot be
readily compensated through monetary damages).

               9.1 Each Party shall notify the other immediately of any
information concerning any material adverse side effect, injury, toxicity or
sensitivity reaction, whether or not serious or unexpected (collectively, any
"adverse event"), or any unexpected incidence, and the severity thereof,
associated with the clinical uses, studies, investigations, tests and marketing
of any Product, whether or not determined to be attributable to such Product.
Without limiting the generality of the foregoing, each Party shall notify the
other Party of any event or incidence regarding any Product, which it is
required to notify or report to any governmental authority of the country in
which it sells such Product, prior to the date when it is required to give such
notice or to make such report. Each Party further shall immediately notify the
other of any information received regarding any threatened or pending action by
a governmental agency or any other third party arising out of or relating to an
alleged adverse effect or unexpected incidence regarding any Product. Upon
receipt of any such information, the Parties shall consult with each other in an
effort to arrive at a mutually acceptable procedure for taking appropriate
action; provided, however, that nothing contained herein shall be construed as
restricting either Party's right to make a timely report of such matter to any
government agency or take other action that it deems to be appropriate or
required by applicable law or regulation, including the right of a Party to
recall or withdraw such

                                      37.

<PAGE>   40

Product from marketing and selling. Signal shall cause any Western
Pharmaceutical Partner to agree in writing to be bound by the provisions of this
Section 9.1. The obligations in this Section 9.1 pertaining to Products shall
survive the expiration or termination of this Agreement.

               9.2 Either Party (the "Notifying Party") shall promptly notify
the other Party (the "Indemnifying Party") of the existence of any third party
claim, demand or other action giving rise to a claim for indemnification under
this Agreement (a "Third Party Claim") and shall give the Indemnifying Party a
reasonable opportunity to defend the same at its own expense and with its own
counsel, provided that the Notifying Party shall at all times have the right to
participate in such defense at its own expense. If, within a reasonable time
after receipt of notice of a Third Party Claim, the Indemnifying Party shall
fail to undertake to so defend, the Notifying Party shall have the right, but
not the obligation, to defend and to compromise or settle (exercising reasonable
business judgment) the Third Party Claim for the account and at the risk and
expense of the Indemnifying Party. The indemnity obligations under this Article
9 shall not apply to amounts paid in settlement of any claim, demand, action or
other proceeding if such settlement is effected without the consent of the
Indemnifying Party, which consent shall not be withheld unreasonably. The
Indemnifying Party may not settle the action or otherwise consent to an adverse
judgment in such action that diminishes the rights or interests of the
Exculpated Party without the express written consent of the Exculpated Party.
Each Party shall make available to the other at the other's expense such
information and assistance as the other shall reasonably request in connection
with the defense of a Third Party Claim.

               9.3 Notwithstanding anything to the contrary in this Agreement,
except as set forth in the first paragraph of this Article 9, neither Party
shall be liable to the other Party for any special, consequential or incidental
damages arising out of or related to this Agreement.

        10. INDEPENDENT CONTRACTORS. Both Parties shall act solely as
independent contractors and nothing in this Agreement shall be construed to give
either Party the power or authority to act for, bind or commit the other Party.
Each Party shall indemnify the other and hold it harmless against any claim
based on a representation of authority in excess of that provided herein,
subject to the provisions of Section 9.2.

        11. NO SOLICITATION OF EMPLOYEES. During the Research Period and for
[***] thereafter, neither Party shall solicit the other's employees (or
advisors and collaborators who are individuals and are identified in writing at
the time of execution of this Agreement) without the prior written approval of
the other Party. This provision will not preclude any Party from hiring any such
employees, advisors and collaborators if they independently apply for a job
without solicitation or pursuant to a general solicitation not specifically
directed at such employee, advisor or collaborator.

                                       38.

                      ***Confidential Treatment Requested
<PAGE>   41

        12. TERM. This Agreement shall become effective as of the Effective Date
first written above and, unless sooner terminated pursuant to the provisions of
Section 13 below, shall remain in full force and effect for so long as Tanabe or
Signal shall be obligated to make royalty or Reimbursement payments to the other
Party pursuant to Section 5.4 or 5.5. Upon a termination of this Agreement
pursuant to this Article 12, (a) Tanabe shall have a non-exclusive, royalty-free
license to continue to make, have made, use, and sell Products in the Territory,
and (b) Signal shall have a non-exclusive, royalty-free license to continue to
make, have made, use, and sell Products in the Rest of the World.

        13.    TERMINATION OF AGREEMENT.

               13.1 Termination by Mutual Agreement. This Agreement may be
terminated in its entirety by mutual written agreement of both Parties.

               13.2 Breach of Material Term. This Agreement may be terminated at
the option of either Party upon written notice to the other, if such other Party
is in material breach or default with respect to any material term or provision
hereof (other than any breach or default described in Section 2.3(f) hereof,
which breach or default shall be subject to the provisions of Section 2.3) and
fails to cure the same within sixty (60) days (one-hundred and twenty (120) days
if a cure would be impossible in sixty (60) days but can be accomplished within
the 120 day period) after written notice of said breach or default. Such
termination rights shall be in addition to and not in substitution of any other
remedies that may be available to the Party serving such notice against the
Party in default. Termination pursuant to this Section 13.2 shall not relieve
the Party in default from liability and damages to the other Party for breach of
this Agreement.

               13.3 Termination Upon Bankruptcy. This Agreement may be
terminated at the option of either Party upon written notice to the other, if
such other Party is adjudged bankrupt, files or has filed against it any
petition under any bankruptcy, insolvency or similar law, which petition is not
dismissed within sixty (60) days, has a receiver appointed for its business or
property or makes a general assignment for the benefit of its creditors.

               13.4 Infringement of Third Party Patents. If, as a result of any
claim, proceeding or litigation by any Third Party against Signal regarding
Signal's proprietary whole-cell and enzyme assays occurring during the term of
this Agreement, Signal or Tanabe is barred from carrying out its future material
obligations herein, Tanabe has a right to terminate the Collaborative Project.

               13.5 Termination of the Collaborative Project by Tanabe. Except
as set forth in this Section 13.5, the Collaborative Project with respect to
Inflammation or Osteoporosis or both, may be terminated prior to its four (4)
year period at Tanabe's option upon six (6) months' advance written notice to
Signal. Tanabe may not deliver

                                       39.

<PAGE>   42
such notice of termination to Signal prior to the completion of two (2) years
from the Effective Date. Tanabe further may not deliver such notice of
termination with respect to the Inflammation program if either (i) Signal has
delivered to Tanabe at least two (2) Potential Compounds, which are first
identified after screening in a Signal proprietary assay, which have been
designated as Chemical Lead Compounds for any one or more Inflammation Pathways,
or (ii) Signal has delivered to Tanabe at least one (1) Potential Compound,
which is first identified after screening in a Signal proprietary assay, which
has been designated as a Clinical Candidate for any one or more Inflammation
Pathways. Tanabe further may not deliver such notice of termination with respect
to the Osteoporosis program if either (i) Signal has delivered to Tanabe at
least two (2) Potential Compounds, which are first identified after screening in
a Signal primary or high throughput assay, which have been designated as
Chemical Lead Compounds for any one or more Osteoporosis Pathways, or (ii)
Signal has delivered to Tanabe at least one (1) Potential Compound, which is
first identified after screening in a Signal proprietary assay, which has been
designated as a Clinical Candidate for any one or more Osteoporosis Pathways.
Additionally, such termination shall not be effective during any period where
Tanabe has failed to meet its obligations pursuant to Section 2.4.

               13.6 Effect of Termination; Survival. Termination of this
Agreement for any cause shall not release a Party from any liability, which at
the time of termination has already accrued to another Party, or which
thereafter may accrue in respect of any act or omission prior to such
termination. The obligations and rights established in Sections 4 and 5 (with
respect to Compounds subject to a license to Tanabe) shall survive the
termination of this Agreement by Tanabe pursuant to Section 13.2 or 13.3. The
obligations and rights established in Sections 4 and 5 (with respect to
Compounds subject to a license to Signal) shall survive the termination of this
Agreement by Signal pursuant to Section 13.2 or 13.3. The obligations and rights
established in Sections 7, 8, 9, 11, 15 and 19 shall survive the termination of
this Agreement for any reason.

        14. PUBLIC ANNOUNCEMENT OF AGREEMENT. Except as required to comply with
federal and state securities laws or equivalent Japanese laws or any order of a
court or government agency, and except as provided below, neither Party shall
release information concerning this Agreement or the subject matter hereof to
the public, news media, or other media, without first sending the other Party by
express mail or facsimile, a copy of the information to be disclosed and
allowing the other Party a reasonable time (as soon as reasonably possible but
in no event greater than four (4) business days from the date of receipt) in
which to comment on the information. If the other Party objects to the
information to be disclosed and prior to the expiration of the four (4) business
day period, the other Party shall so notify the disclosing Party who shall then
delay public disclosure of the information and make reasonable efforts to
accommodate any request for revisions by the other Party. If no notification is
received during the four (4) business day period, the Party proposing disclosure
shall be free to disclose the information. The Parties designate the following
individuals to receive and approve announcements under this provision: Signal,
its Executive Vice President; Tanabe, its

                                       40.
<PAGE>   43

President. The Parties agree that Signal may discuss the general terms of the
Agreement with potential Western Pharmaceutical Partners and other potential
investors in Signal without disclosing any Confidential Information of Tanabe or
Tanabe Technical Information without Tanabe's prior written consent; and that
the parties will cooperate in good faith with one another to formulate a form of
announcement that Signal and Tanabe may release as soon as practicable after the
Effective Date.

        15. INVENTIONS AND PATENT MATTERS. The ownership rights and other
matters regarding discoveries and inventions (whether or not patentable) first
conceived or reduced to practice under the Collaborative Project pursuant to
this Agreement (together with all patents and other intellectual property rights
thereto) shall be as follows:

               15.1 Signal Inventions and Patent Rights. Any Compounds or
Products or other discoveries or inventions first made, conceived or reduced to
practice solely by one or more employees or agents of only Signal or its
Affiliates ("Signal Inventions"), together with all patents and other
intellectual property rights thereto, shall be owned by Signal, subject to the
licenses granted herein.

               15.2 Tanabe Inventions and Patent Rights. Any Compounds or
Products or other discoveries or inventions first made, conceived or reduced to
practice solely by one or more employees or agents of only Tanabe or its
Affiliates ("Tanabe Inventions"), together with all patents and other
intellectual property rights thereto, shall be owned by Tanabe, subject to the
licenses granted herein.

               15.3 Joint Inventions and Patent Rights. All inventions or other
discoveries first made, conceived or reduced to practice by one or more
employees or agents from each party ("Joint Inventions"), together with all
patents and other intellectual property rights thereto, shall be owned by each
party with the other party as equal, undivided property, subject to the licenses
granted herein. Each party shall promptly disclose to the other party and
applicable Research and Development Committee the conception or reduction to
practice of Joint Inventions. Signal shall control the filing, prosecution,
issuance and maintenance of Joint Patents in the Rest of the World. Tanabe shall
control the filing, prosecution, issuance and maintenance of Joint Patents in
the Territory. Each Party shall retain patent counsel reasonably acceptable to
the other Party to assist in the filing, prosecution, issuance and maintenance
of Joint Patents. Each Party shall cause to be provided to the other Party the
text of such patent applications before filing them and consider in good faith
and incorporate the other Party's reasonable requests related thereto. In all
other matters related to the filing, prosecution, issuance and maintenance of
Joint Patents, each Party shall provide to the other Party copies of any
official action or submission and shall confer with the other Party giving due
consideration to the other Party's reasonable requests.

                                       41.

<PAGE>   44

               15.4  General Provisions Relating to Prosecution and Maintenance.

                      (a) Signal shall be responsible for and shall control the
preparation, filing, prosecution and maintenance of all patents and patent
applications which claim a Signal Invention, and shall pay all costs incurred in
connection therewith. Signal shall use its good faith efforts to provide Tanabe
with an opportunity to review and comment on the text of each patent application
which constitutes a Structure Patent or a Use Patent in the Territory before
filing such application in the Territory and shall supply Tanabe with a copy of
such patent application as filed, together with notice of its filing date and
serial number and shall keep Tanabe generally informed regarding the status
thereof. Tanabe shall cooperate with Signal, execute all lawful papers and
instruments and make all rightful oaths and declarations as may be necessary in
the preparation, prosecution and maintenance of all such patent applications
which constitute a Structure Patent or a Use Patent in the Territory. Any
information provided to Tanabe under this Section 15.4(a) shall be deemed
Confidential Information and Materials of Signal. If Signal decides to abandon
or not to maintain a Signal Patent in the Territory, Signal shall first offer to
assign to Tanabe such Signal Patent without charge or obligation at least ninety
(90) days prior to the expiration of any time limit for response or payment due
date.

                      (b) Tanabe shall be responsible for and shall control the
preparation, filing, prosecution and maintenance of all patents and patent
applications which claim a Tanabe Invention, and shall pay all costs incurred in
connection therewith. Tanabe shall use its good faith efforts to provide Signal
with an opportunity to review and comment on the text of each patent application
which constitutes a Structure Patent or a Use Patent in the Rest of the World
before filing such application in the Rest of the World and shall supply Signal
with a copy of such patent application as filed, together with notice of its
filing date and serial number and shall keep Signal generally informed regarding
the status thereof. Signal shall cooperate with Tanabe, execute all lawful
papers and instruments and make all rightful oaths and declarations as may be
necessary in the preparation, prosecution and maintenance of all such patent
applications which constitute a Structure Patent or a Use Patent in the Rest of
the World. Any information provided to Signal under this Section 15.4(b) shall
be deemed Confidential Information and Materials of Tanabe. If Tanabe decides to
abandon or not to maintain a Tanabe Patent in the Rest of the World, Tanabe
shall first offer to assign to Signal such Tanabe Patent without charge or
obligation at least ninety (90) days prior to the expiration of any time limit
for response or payment due date.

                      (c) For any and all Joint Inventions, the parties shall
exert reasonable efforts in cooperation with each other, through the Research
and Development Committee or otherwise, to investigate, evaluate, and determine
to the mutual satisfaction of both parties the manner of obtaining and
protecting their respective intellectual property rights in such Joint
Inventions, including whether any patent applications are to be filed, by whom,
and where. Patent applications for Joint

                                       42.

<PAGE>   45

Inventions shall be filed initially in the United States or in Japan, unless the
appropriate Research and Development Committee determines for a compelling
business reason that the application should first be filed in another
jurisdiction. Each party shall cooperate and assist the other party in
connection with its filing, prosecution, issuance and maintenance of Joint
Patents. Each party shall keep the other party informed at regular intervals, or
upon request, of the status of all patent applications and patents with respect
to Joint Patents for which it has responsibility. Where appropriate, each party
shall sign or cause to have signed all documents relating to the patent
applications or patents for the Joint Patents and shall cause such patent
applications and patents to be assigned to Signal and Tanabe jointly. In the
event that Signal or Tanabe elect not to file, prosecute, issue or maintain a
Joint Patent, they shall each promptly provide adequate notice to the other
Party and allow the other Party, at its expense, the opportunity to proceed with
a Joint Patent. During the prosecution of patent applications filed on such
Joint Inventions, the party receiving copies of correspondence from the
respective patent office shall keep the other party timely informed of such
communications, thereby providing the other party with a reasonable opportunity
for comment. Such communication is intended to promote coordination and
consistency in the prosecution of patent applications for Joint Inventions
throughout the world.

               15.5 Payments; Disputes. With respect to Joint Patent application
filings, each Party shall bear all costs and expenses for fees or other payments
required to submit and maintain joint applications and patents in their
respective territories. In the event there is a dispute as to whether a
particular invention constitutes a Joint Invention or should be the subject of a
Signal Patent or Tanabe Patent, the issue shall be resolved by the appropriate
Research and Development Committee.

               15.6 Infringement of Signal Patents by a Third Party. If at any
time either Party hereto shall become aware of any infringement or threatened
infringement by a third party in the Territory of any or all of the Signal
Patents, Tanabe Patents or Joint Patents to which the Party having the knowledge
thereof claims an interest pursuant to the Agreement, the Party having the
knowledge thereof shall forthwith give notice thereof to the other Party. Upon
notice of any such infringement, the Parties shall promptly consult with one
another with a view toward reaching agreement on a course of action to be
pursued.

                      (a)    Signal shall take all reasonable steps to defend
Signal Patents against infringement and Tanabe shall in such event give all
reasonable assistance to Signal with respect to patent and legal questions
against reimbursement by Signal to Tanabe of all out-of-pocket costs occasioned
thereby and in case any monetary recovery is obtained, such recovery shall
belong to Signal. In addition, Tanabe shall have the right to join any suit by
Signal covering the enforcement of a Signal Patent in the Territory.

                                       43.

<PAGE>   46

                      (b) Except as provided in Section 15.6(a), (c) and (d), in
the event any monetary recovery in connection with the prosecution of such
infringement action is obtained, such monetary recovery shall be applied in the
following priority: first, to the reimbursement of Signal and Tanabe for their
out-of-pocket expenses (including attorneys' fees) in prosecuting such
infringement action; second, the balance of the monetary recovery to be shared
equally by Signal and Tanabe. If the monetary recovery is less than the
out-of-pocket expenses of Signal and Tanabe, reimbursement shall be on a
pro-rata basis, based upon cost incurred. Any expense or liability in connection
with the prosecution of such infringement action (including legal costs incurred
by the defendant(s)) shall be shared equally by Signal and Tanabe. To the extent
only one Party is permitted to bring suit, Signal and Tanabe shall consult in
good faith to determine the most appropriate Party to bring suit, with the
sharing of recoveries as set forth above, to the extent permitted by law. Any
expense or liability in connection with the defense of any counterclaim or
cross-claim action shall be borne by the Parties as determined in the court
proceeding for said counterclaim or cross-claim.

                      (c) If Signal declines to bring suit to enforce a Signal
Patent, Tanabe may, subject to the written consent of Signal which shall not be
unreasonably withheld, file an infringement action in the Territory in its name
or on behalf of Signal where necessary, at its own expense. In such case, Tanabe
shall be the sole recipient of the proceeds of any recovery, provided that
Tanabe shall indemnify Signal against any expenses or liability incurred by
Signal relating to such proceedings, excluding however any expenses or
liabilities relating to the defense by Signal of any counterclaim or cross-claim
that may be brought against Signal.

                      (d) If Signal and Tanabe, after consultation with each
other, elect not to bring suit, individually or jointly, or if Signal and/or
Tanabe, as the case may be, are/is not able to stop such infringing activities,
the Parties shall renegotiate in good faith their arrangement applicable in the
country affected by such infringement, including but not limited to, a reduction
of royalty rate payable by Tanabe to Signal.

               15.7 Infringement of Tanabe Patents by a Third Party. If at any
time either Party hereto shall become aware of any infringement or threatened
infringement by a third party in the Rest of the World of any or all of the
Signal Patents, Tanabe Patents or Joint Patents to which the Party having the
knowledge thereof claims an interest pursuant to the Agreement, the Party having
the knowledge thereof shall forthwith give notice thereof to the other Party.
Upon notice of any such infringement, the Parties shall promptly consult with
one another with a view toward reaching agreement on a course of action to be
pursued.

                      (a) Tanabe shall take all reasonable steps to defend
Tanabe Patents against infringement and Signal shall in such event give all
reasonable assistance to Tanabe with respect to patent and legal questions
against reimbursement by Tanabe to Signal of all out-of-pocket costs occasioned
thereby and in case any monetary recovery

                                       44.

<PAGE>   47

is obtained, such recovery shall belong to Tanabe. In addition, Signal shall
have the right to join any suit by Tanabe covering the enforcement of a Tanabe
Patent in the Rest of the World.

                      (b) Except as provided in Section 15.7(a), (c) and (d), in
the event any monetary recovery in connection with the prosecution of such
infringement action is obtained, such monetary recovery shall be applied in the
following priority: first, to the reimbursement of Signal and Tanabe for their
out-of-pocket expenses (including attorneys' fees) in prosecuting such
infringement action; second, the balance of the monetary recovery to be shared
equally by Signal and Tanabe. If the monetary recovery is less than the
out-of-pocket expenses of Signal and Tanabe, reimbursement shall be on a
pro-rata basis, based upon cost incurred. Any expense or liability in connection
with the prosecution of such infringement action (including legal costs incurred
by the defendant(s)) shall be shared equally by Signal and Tanabe. To the extent
only one Party is permitted to bring suit, Signal and Tanabe shall consult in
good faith to determine the most appropriate Party to bring suit, with the
sharing of recoveries as set forth above, to the extent permitted by law. Any
expense or liability in connection with the defense of any counterclaim or
cross-claim action shall be borne by the Parties as determined in the court
proceeding for said counterclaim or cross-claim.

                      (c) If Tanabe declines to bring suit to enforce a Signal
Patent, Signal may, subject to the written consent of Tanabe which shall not be
unreasonably withheld, file an infringement action in the Rest of the World in
its name or on behalf of Tanabe where necessary, at its own expense. In such
case, Signal shall be the sole recipient of the proceeds of any recovery,
provided that Signal shall indemnify Tanabe against any expenses or liability
incurred by Tanabe relating to such proceedings, excluding however any expenses
or liabilities relating to the defense by Tanabe of any counterclaim or
cross-claim that may be brought against Tanabe.

                      (d) If Signal and Tanabe, after consultation with each
other, elect not to bring suit, individually or jointly, or if Signal and/or
Tanabe, as the case may be, are/is not able to stop such infringing activities,
the Parties shall renegotiate in good faith their arrangement applicable in the
country affected by such infringement, including but not limited to, a reduction
of royalty rate payable by Tanabe to Signal.

               15.8 Alleged Infringement of Patents. In the event of dispute
concerning a third party's patent rights in the Territory, Signal and Tanabe
will proceed as follows:

                      (a) While a dispute concerning an alleged infringement of
a third party's patent rights is in progress, the Party which had a claim
brought against it by a third party (the "Defendant Party") will use its
commercially reasonable best efforts to defend against the infringement claim
and resolve the dispute; and the Defendant Party will pay all of its attorneys'
fees and expenses associated with the resolution of this dispute. Additionally,
the other Party will assist and use its commercially reasonable best

                                       45.

<PAGE>   48

efforts to help the Defendant Party resolve the dispute on favorable terms, with
the other Party to bear its own expenses.

                      (b) In the event the dispute is resolved against Signal
and Tanabe, with a finding of an infringement, then each Party shall bear its
own costs and expenses; provided the Party who made, manufactured or sold the
Product in the area where the infringement was deemed to have occurred, shall
bear the entire responsibility for all damages to the third party and shall
indemnify and hold harmless the other Party for the payment of such damages.

        16. RESEARCH EXPENSES. Except as otherwise expressly provided by this
Agreement, each Party shall bear its own internal research, development and
regulatory costs.

        17. REPRESENTATIONS AND WARRANTIES. Signal and Tanabe each represent and
warrant to the other as set forth below:

               17.1 Representations and Warranties of Signal. Signal represents
and warrants that:

                      (a) The execution, delivery and performance of this
Agreement by Signal will not, with or without notice, the passage of time or
both, result in any violation of, be in conflict with, or constitute a default
under any material contract, obligation or commitment to which Signal is a party
or by which it is bound, or to Signal's knowledge, any statute, rule or
governmental regulation applicable to Signal.

                      (b) Signal has all requisite legal and corporate power and
authority to enter into this Agreement, to grant the licenses to be granted by
Signal hereunder and to carry out and perform its obligations under the terms of
this Agreement. It has the capacity and skills required to carry out its
obligations with respect to the research and development of Compounds and
Products as contemplated by this Agreement. All corporate action on the part of
Signal, its officers and directors necessary for the grants of licenses pursuant
hereto and the performance of Signal's obligations hereunder has been taken.
This Agreement constitutes a valid and binding obligation of Signal, enforceable
in accordance with its terms, except as: (i) the enforceability hereof may be
limited by bankruptcy, insolvency, moratorium or other similar law as affecting
the enforcement of creditors' rights generally; (ii) the availability of
equitable remedies (e.g., specific performance, injunctive relief and other
equitable remedies) may be limited by equitable principles or general
applicability; (iii) to the extent the indemnification provisions contained in
this Agreement may be limited by applicable federal or state securities law; and
(iv) that no representation is made regarding the effect of laws relating to
competition, antitrust or misuse or the effect of Tanabe's or third parties'
intellectual property rights.

                                       46.

<PAGE>   49

                      (c) All employees of Signal who are expected to
participate in the Collaborative Project have signed agreements regarding
proprietary information and inventions with Signal in a form reasonably
considered by Signal and its counsel to assure Signal's title to any Joint
Inventions, Signal Technical Information or Signal Patents that may arise or be
developed by such employees hereunder. Such agreements are legal, valid and
binding obligations of Signal and its employees and are enforceable in
accordance with their terms, except as limited by applicable bankruptcy laws and
other similar laws affecting the creditors' rights and remedies generally and
except insofar as the availability of equitable remedies may be limited.

               17.2 Representations and Warranties of Tanabe. Tanabe represents
and warrants that:

                      (a) The execution, delivery and performance of this
Agreement by Tanabe will not, with or without notice, the passage of time or
both, result in any violation of, be in conflict with, or constitute a default
under any material contract, obligation or commitment to which Tanabe is a party
or by which Tanabe is bound, or to Tanabe's knowledge, any statute, rule or
governmental regulation applicable to Tanabe.

                      (b) Tanabe has all requisite legal and corporate power and
authority to enter into this Agreement, to grant the licenses to be granted by
Tanabe hereunder and to carry out and perform its obligations under the terms of
this Agreement. It has the capacity and skills required to carry out its
obligations with respect to the development and the marketing/sales of the
Products as contemplated by this Agreement. All corporate action on the part of
Tanabe and its officers and directors necessary for the grants of licenses
pursuant hereto and the performance of Tanabe's obligations hereunder has been
taken. This Agreement constitutes a valid and binding obligation of Tanabe,
enforceable in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency, moratorium or other similar law
as affecting the enforcement of creditors' rights generally, (ii) the
availability of equitable remedies (e.g., specific performance, injunctive
relief, and other equitable remedies) may be limited by equitable principles or
general applicability, (iii) to the extent the indemnification provisions
contained in this Agreement may be limited by applicable law and (iv) and that
no representation is made regarding the effect of laws relating to competition,
antitrust or misuse or the effect of Signal's or third parties' intellectual
rights.

                      (c) All employees of Tanabe who are expected to
participate in the Collaborative Project have agreements regarding proprietary
information and inventions with Tanabe in a form reasonably considered by Tanabe
and its counsel to assure Tanabe's title to any Joint Inventions or Tanabe
Technical Information that may arise or be developed by such employees
hereunder. Such agreements are legal, valid and binding obligations of Tanabe
and its employees and are enforceable in accordance with their terms, except as
limited by applicable bankruptcy laws and other similar laws

                                       47.

<PAGE>   50

affecting the creditors' rights and remedies generally and except insofar as the
availability of equitable remedies may be limited.

               17.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
SIGNAL AND TANABE MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

        18. OPTION TO EXPAND TERRITORY. If Signal's Western Pharmaceutical
Partner or its Affiliates do not have operations in Australia or New Zealand and
if the Western Pharmaceutical Partner does not require rights in Australia or
New Zealand in order for Signal to complete a research collaboration with such
Western Pharmaceutical Partner in Signal's judgment, Signal will grant to Tanabe
the exclusive option set forth below to acquire exclusive rights to
commercialize Compounds or Products in Australia, New Zealand and other Oceania
countries (the "Marketing Option") on terms and conditions to be negotiated.
Prior to entering into any agreement with a third party to grant exclusive
rights to commercialize a Compound or a Product in Australia, New Zealand and
other Oceania countries, Signal shall notify Tanabe in writing of the terms of
any such proposed agreements. Such notice shall be deemed an offer to Tanabe to
enter into agreements on the proposed terms and conditions. Tanabe shall have
thirty (30) days to accept the offer contained in such notice. Upon acceptance
by Tanabe, the parties will negotiate in good faith to draft and execute
definitive agreements within two (2) months of acceptance. Signal and Tanabe
shall negotiate in good faith with respect to the option described in this
Section 18. In the event that Signal and Tanabe are not able to negotiate an
agreement on mutually agreeable terms within two (2) months of the beginning of
negotiations with respect to the Marketing Option, Signal hereby agrees that if
Signal intends to accept any offer from a third party which is not more
favorable to it than Tanabe's last offer, Signal shall promptly notify Tanabe
and Tanabe shall have the right to enter into an agreement with Signal on the
terms and conditions of such third party offer. This right of first refusal
shall survive termination of negotiations pursuant to this Section 18 for a
period of nine (9) months.

        19.    MISCELLANEOUS.

               19.1 Successors and Assigns. This Agreement shall be binding on
the Parties hereto and their respective successors and assigns. Neither of the
Parties hereto shall be entitled to assign this Agreement or any of its rights
or obligations hereunder, including an assignment to one of its Affiliates,
without the consent of the other. If either Party is acquired or merged with
another entity, that entity shall succeed to all of the rights and obligations
of the disappearing Party; provided in the event either Party is acquired or
merged with another entity, such acquiring or successor entity shall expressly
assume in writing the due and punctual performance and observance of all
obligations under this Agreement of the Party it has acquired or with which it
has merged, with the

                                       48.

<PAGE>   51

same effect as if such entity had originally been such Party hereunder; and
further provided if such acquiring or successor entity does not so assume the
obligations of the Party it has acquired or with which it has merged, the other
Party may terminate this Agreement pursuant to Section 13 hereof.
Notwithstanding the foregoing, nothing contained in this Section 19.1 shall be
construed as preventing either Party from sublicensing its rights to any
Products granted hereunder.

               19.2 Further Assurances. Signal and Tanabe shall cooperate with
each other and execute and deliver to each other such other instruments and
documents and take such other actions as may be reasonably requested from time
to time in order to carry out, evidence and confirm the rights and intended
purposes of this Agreement.

               19.3 English Language. This Agreement is entered into in the
English language. All meetings and correspondence between the Parties are to be
in English. In the event of any dispute concerning the construction or meaning
of this Agreement, reference shall be made only to this Agreement as written in
English and not to any translation into any other language.

               19.4 Governing Law. Disputes arising out of or based upon this
Agreement shall be governed by and construed in accordance with the laws of the
State of California, United States of America, as applied to agreements among
California residents entered into and to be performed entirely within
California.

               19.5 Notices. Notices, demands or other communications required
or permitted to be given or made hereunder shall be in writing and delivered
personally or sent by private overnight mail delivery, with recorded delivery or
by legible telefax or by any other lawful means addressed to the intended
recipient at its address set forth below in this Section or to such other
address or telefax number as any Party may from time to time duly notify to the
other. Any such notice, demand or communication shall, unless contrary as
proved, be effective upon receipt. Correspondence to Signal shall be addressed
to:

               Carl F. Bobkoski
               Executive Vice President
               Signal Pharmaceuticals, Inc.
               5555 Oberlin Drive
               San Diego, CA  92121
               Telefax number:  (619) 558-7513

                                       49.

<PAGE>   52

with a copy to:

               Brobeck, Phleger & Harrison
               Two Embarcadero Place
               2200 Geng Road
               Palo Alto, CA  94303
               Attn:  J. Stephan Dolezalek
               Telefax number:  (415) 496-2736

Correspondence to Tanabe shall be addressed to:

               Tanabe Seiyaku Co., Ltd.
               2-10 Dosho-machi 3-chome
               Chuo-ku, Osaka 541, Japan
               Attn:  President
               Telefax number:  (06) 205-5509

               19.6 Entire Agreement. This Agreement, together with the
schedules, appendices and exhibits hereto, constitutes the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior representations, understandings and agreements between the Parties
regarding the subject matter hereof. Except as otherwise expressly provided no
modification, amendment or waiver of any of the provisions of this Agreement
shall be effective unless made in writing specifically referred to this
Agreement and duly signed and delivered by the Parties hereto.

               19.7 No Waiver. No failure or delay on the part of Signal or
Tanabe in exercising any right under this Agreement, irrespective of the length
of time for which such failure or delay shall continue, will operate as a waiver
of, or impair, any such right. No single or partial exercise of any such right
will preclude any other or further exercise thereof or the exercise of any other
right. No waiver of any such right will be effective unless given in a signed
writing. No waiver of any such right will be deemed a waiver of any other right
hereunder or thereunder.

               19.8 Severability. In case any provision of this Agreement shall
be invalid, illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the Parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

               19.9 Force Majeure. Neither Party shall be held liable or
responsible to the other Party nor be deemed to have defaulted under or breached
this Agreement for failure or delay in fulfilling or performing any terms of
this Agreement to the extent, and for so long as, such failure or delay is
caused by or results from fires, floods, embargoes, government regulations or
administrative guidance, prohibitions or interventions, war,

                                       50.

<PAGE>   53

acts of war (whether war be declared or not), insurrections, riots, civil
commotions, strikes, lockouts, acts of God, or any other cause beyond their
respective reasonable control, but they shall make every reasonable effort to
remove any such cause of their failure or delay as soon as possible.

               19.10 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.

                                       51.

<PAGE>   54

               IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the Effective Date written above.

                                        SIGNAL PHARMACEUTICALS, INC.

                                        By:    [SIG]
                                           -------------------------------------
                                            Name: (Illegible)
                                            Title: PRESIDENT

                                        TANABE SEIYAKU CO., LTD.

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

                  [SIGNATURE PAGE TO COLLABORATIVE DEVELOPMENT
                            AND LICENSING AGREEMENT]

                                       52.

<PAGE>   55

                                    EXHIBIT A

                 SELECTION CRITERIA FOR A CHEMICAL LEAD COMPOUND

A.      Definition

        A Chemical Lead Compound is a [***]:

        Tanabe may designate a specific compound as a Chemical Lead Compound
        even if the compound fails to meet one or more such criteria.

B.      [***]

                                       A-1

                      ***Confidential Treatment Requested
<PAGE>   56

C.      [***]
                                       A-2

                      ***Confidential Treatment Requested
<PAGE>   57

                                    EXHIBIT B

                  SELECTION CRITERIA FOR THE CLINICAL CANDIDATE

[***]
                                       B-1

                      ***Confidential Treatment Requested
<PAGE>   58

                                    EXHIBIT C

                              INFLAMMATION PROGRAM

[***]

                                       C-1

                      ***Confidential Treatment Requested
<PAGE>   59

                                   EXHIBIT D

                                    [***]

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

                                                                   EXHIBIT 10.34

                                  AMENDMENT TO
                COLLABORATIVE DEVELOPMENT AND LICENSING AGREEMENT

THIS AMENDMENT TO THE COLLABORATIVE DEVELOPMENT AND LICENSING AGREEMENT (the
"Amendment") is entered into as of March 31st, 1998 by and between SIGNAL
PHARMACEUTICALS, INC., a California corporation with its principal office at
5555 Oberlin Drive, San Diego, California USA ("Signal"), and TANABE SEIYAKU
CO., LTD., a corporation incorporated under the laws of Japan with its principal
office at 2-10 Dosho-machi 3-chome, Chuo-ku, Osaka, Japan ("Tanabe").

                                    RECITALS

        WHEREAS, Signal and Tanabe entered into that certain Collaborative
Development and Licensing Agreement dated as of March 31, 1996 (the "Agreement")
to collaborate in the discovery, development and commercialization of
therapeutic products for the prevention and treatment of inflammation and
osteoporosis (capitalized terms used but not otherwise defined in this Amendment
shall have the meanings given such terms in the Agreement); and

        WHEREAS, Signal and Tanabe wish to amend the Agreement in the manner set
forth in this Amendment and otherwise to provide for certain agreements by the
Parties as set forth herein.

                                    AGREEMENT

Now THEREFORE, in consideration of the mutual promises hereinafter set forth,
the Parties hereto agree as follows:

1.      TERMINATION OF AGREEMENT. The Parties hereby agree to terminate the
Agreement pursuant to Section 13.1 thereof, effective as of March 31, 1998 (the
"Effective Date"). Except as otherwise expressly set forth herein, following the
Effective Date, the Agreement shall be of no further force or effect.

                                       1
<PAGE>   2
2.      SELECTION OF CHEMICAL LEAD COMPOUND.

        (a)     Tanabe hereby selects one compound which was derived from the
Collaborative Project as a Chemical Lead Compound ("Selected Compound"). The
chemical structure of the Selected Compound shall be attached hereto as ANNEX A.

        (b)     Notwithstanding the provisions of Section 1.5 of the Agreement,
the term "Chemical Modification" shall mean any compound resulting from any
process or activity (initiated after the Effective Date) of deriving alternative
chemical structures from the Selected Compound or a chemical modification of the
Selected Compound, e.g. development of analogs.

3.      LICENSE TO TANABE. Subject to the terms and conditions of this Amendment
and the payment in full of all milestone and royalty obligations hereunder,
effective as of the Effective Date, Signal hereby grants to Tanabe an exclusive
(even as to Signal) license, with the right to grant sublicenses, under the
Signal Patents, the Joint Patents and the Signal Technical Information to
develop, make, have made, use, sell, have sold, offer for sale and import
Products containing a Compound which is either (i) the Selected Compound or (ii)
a Chemical Modification made by or on behalf of Tanabe or Signal of the Selected
Compound in each case, in the Territory (as defined below) ("License"). The
patent application number of the Signal Patents which cover the Selected
Compound or any Chemical Modification and which is existing at the Effective
Date shall be attached hereto as ANNEX B. For the purpose of the License, the
following terms shall have different meanings from those set forth in the
Agreement:

        (a)     Notwithstanding the provisions of Section 1.24 of the Agreement,
for purposes of this Amendment the term "Product" shall mean any composition
(whether in the form of drug substance, bulk drug or final dosage form), which
may be used in any indication whatsoever, and that contains a Compound as an
active ingredient.

        (b)     Notwithstanding the provisions of Section 1.37 of the Agreement,
for purposes of this Amendment the term "Territory" shall mean the entire world.

4.      REPORT OF RESEARCH & DEVELOPMENT OF THE SELECTED COMPOUND. Once each
calendar year, Tanabe shall provide Signal with summary report regarding the
research and development progress of the Selected Compound or any Chemical
Modifications.

                                       2
<PAGE>   3

5.      TERM OF THE LICENSE. The License shall become effective as of the
Effective Date and, unless sooner terminated pursuant to the Section 6 hereof
shall remain in full force and effect for so long as Tanabe shall be obligated
to make royalty payment to Signal pursuant to Section 5.4 of the Agreement.

6.      TERMINATION OF LICENSE BY TANABE. In case Tanabe determines that it will
not pursue the development and commercialization of the Product, the License
shall be terminated with written notice to Signal. In such case, the License
terminates and the rights to the Compound under the Signal Patents, the Joint
Patents and the Signal Technical Information shall automatically revert to
Signal.

7.      PAYMENT OBLIGATIONS AND PATENT MATTERS.

        (a)     Within one (1) week from the Effective Date, Tanabe shall pay to
Signal a nonrefundable license fee of [***] in consideration of the License
granted to Tanabe hereunder. Any tax paid or required to be withheld by Tanabe
for the benefit to Signal on account of such payment shall be deductible from
the amount otherwise due. Tanabe shall secure and send to Signal proof of any
such taxes withheld and paid by Tanabe for the benefit of Signal and shall, at
Signal's request, provide reasonable assistance to Signal in recovering said
taxes, if possible.

        (b)     The obligations and rights established in Sections 4.3, 4.4, 5.4
and 15 of the Agreement with respect to Compounds subject to the License shall
survive the termination of the Agreement. Notwithstanding the foregoing, the
following Sections 15.4(a) and 15.8(b) of the Agreement is hereby amended as
follows:

                15.4(a) Signal shall be responsible for and shall control the
preparation, filing, prosecution and maintenance of all patents and patent
applications which claim a Signal Invention, and shall pay all costs incurred in
connection therewith. Tanabe shall cooperate with Signal, execute all lawful
papers and instruments and make all rightful oaths and declarations as may be
necessary in the preparation, prosecution and maintenance of all such patent
applications which constitute a Structure Patent in the Territory. Any
information provided to Tanabe under this Section 15.4(a) shall be deemed
Confidential Information and Materials of

                                       3

                      ***Confidential Treatment Requested
<PAGE>   4
Signal. Promptly after the Effective Date, Signal shall inform Tanabe of the
list of countries which it intends to file any application for the Signal Patent
which covers the Selected Compound. Tanabe may propose additional countries to
file such Signal Patent. If Signal decides not to file the patent application
(i) proposed by Tanabe or (ii) listed by Signal, or decides to abandon or not to
maintain a Signal Patent, in any country in the Territory, Signal shall first
offer to assign to Tanabe such Signal Patent in such country without charge or
obligation at least ninety (90) days prior to the expiration of any time limit
response or payment due date. Signal shall cooperate with Tanabe in such
assignment along with the preparation, prosecution and maintenance of all such
patent and applications therefor.

                15.8(b) In the event the dispute is resolved against Tanabe,
with a finding of an infringement, then Tanabe shall bear its own costs and
expenses; provided in case (i) Tanabe is obligated to make any payment in terms
of damage, royalty or otherwise, or (ii) Signal Patent covering the Selected
Compound is held to be invalid or otherwise unenforceable by a court or other
legal or administrative tribunal from which no appeal can be taken, the Parties
shall discuss and agree in good faith as to the downward adjustment of the
royalty payments set forth in Section 5.4 of the Agreement.

        (c)     Tanabe may register, in Japan and any applicable country in the
Territory, exclusive patent license with the Japanese Patent Office and other
applicable governmental agencies in such country. Upon Tanabe's request, Signal
shall assist Tanabe in effecting such registration by executing any formal
license agreements and delivering all other necessary instruments and documents
to Tanabe which are consistent with the License granted hereunder.

        (d)     Signal represents and warrants to Tanabe that, to the best of
Signal's knowledge, it has all right, title and interest in the Signal Patents
required in order to grant the rights contemplated by the License and that there
is no existing Reimbursement necessary therefor.

8. PROVISION OF STATEMENT OF EXPENDITURE AND STUDY RESULT REPORT.
Notwithstanding the termination of the Agreement, Signal shall prepare and
provide Tanabe with a written statement in reasonable specific detail of all
expenditures by Signal for year 2 and study result report for second half-year
of year 2 of the Collaboration Project within thirty (30) days of the Effective
Date.

                                       4
<PAGE>   5

9.      OTHER REVISIONS.

        (a)     For the avoidance of doubt, all Research and Development
Committees have been dissolved. Where there is reference to "the determination
or approval of the Research and Development Committee" in the surviving clause
of the Agreement, it shall be revised to read "the agreement of the Parties".

        (b)     The bank account set forth in Section 4.5 shall be amended by
the bank account set forth below:

                Bank:         [***]

                ABA#:         [***]

                Account#:     [***]

        (c)     Correspondence of Signal (with copy to:) set forth in Section
19.5 of the Agreement shall be amended as follows:

                              Cooley Godward LLP
                              4365 Executive Drive
                              Suite 1100
                              San Diego, CA
                              92121-2128
                              FAX 619 453-3555

9.      PUBLIC ANNOUNCEMENT. Except as required to comply with federal and state
securities laws or equivalent Japanese laws or any order of a court or
government agency, and except as provided below, neither Party shall release
information concerning this Amendment, the Amendment or the subject matter
hereof or thereof to the public, news media or other media, without first
sending the other Party by express mail or facsimile a copy of the information
to be disclosed and allowing the other Party a reasonable time (as soon as
reasonably possible but in no event greater than four (4) business days from the
date of receipt) in which to comment on the information. If the other Party
objects to the information to be disclosed prior to the expiration of the four
(4) business day period, the other Party shall so notify the disclosing Party
who

                                       5

                      ***Confidential Treatment Requested
<PAGE>   6
shall then delay public disclosure of the information and make reasonable
efforts to accommodate any request for revisions by the other Party. If no
notification is received during the four (4) business day period; the Party
proposing disclosure shall be free to disclose the information. The Parties
designate the following individuals to receive and approve announcements under
this provision: Signal, its Executive Vice President; Tanabe, its President. The
Parties agree that Signal may discuss the general terms of the Amendment and the
Agreement with potential collaborative partners and other potential investors in
Signal without disclosing any Confidential Information of Tanabe or Tanabe
Technical Information without Tanabe's prior written consent; and that the
Parties will cooperate in good faith with one another to formulate a form of
announcement that Signal and Tanabe may release as soon as practicable after the
Effective Date.

10.     REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants that
it has all, requisite legal and corporate power and authority to enter into this
Amendment and to carry out and perform its obligations under the terms of this
Amendment. All corporate action on the part of each Party and its officers and
directors necessary for the performance of such Party's obligations hereunder
has been taken. This Amendment will constitute a valid and binding obligation of
each Party, enforceable in accordance with its terms, except (a) as the
enforceablility hereof may be limited by bankruptcy, insolvency, moratorium or
other similar law as affecting the enforcement of creditors' rights generally,
(b) as the availability of equitable remedies (e.g., specific performance,
injunctive relief and other equitable remedies) and (c) to the extent the
indemnification provisions contained in this Amendment may be limited by
applicable law.

11.     EFFECT OF TERMINATION; SURVIVAL. This Amendment shall not release a
Party from any liability which, as of the Effective Date, has already accrued to
another Party or which thereafter may accrue in respect of any act or omission
prior to the Effective Date. In addition to those obligations and rights that
survive termination of the Agreement in accordance with Section 4(b) hereof, the
obligations and rights established in Sections 7, 8 (excluding Section 8.4), 9
(excluding Section 9.1), 11 and 19 of the Agreement shall survive the
termination of the Agreement. In addition to the foregoing, the obligation of
confidentiality for the information relating to the Compound shall survive the
termination of the License for ten (10) years thereafter.

                                       6
<PAGE>   7
12.     GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of California, United States of America,
as applied to agreements among California residents entered into and to be
performed entirely within California,

13.     COUNTERPARTS. This Amendment 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.

IN WITNESS WHEREOF, the Parties have executed this Amendment on the day and year
first written above.

SIGNAL PHARMACEUTICALS, INC.            TANABE SEIYAKU CO., LTD.

By:  /s/ ALAN J. LEWIS                  By: /s/ TOSHIO TANAKA

Name:  Alan J. Lewis, Ph.D.             Name:  Toshio Tanaka
                                               President and
Title: President & CEO                  Title: Chief Executive Officer,
                                               Representative Director

Attachment:
ANNEX A=Chemical Structure of the Selected Compound
ANNEX B=Patent Application Number of Signal Patent

                                       7
<PAGE>   8
                                     ANNEX A

                                     [***]

                                       8

                      ***Confidential Treatment Requested
<PAGE>   9
                                     ANNEX B

[***]

                                       9

                      ***Confidential Treatment Requested

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