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 10.31

                                LICENSE AGREEMENT

                                     BETWEEN
                          SIGNAL PHARMACEUTICALS, INC.
                                       AND
                   THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
                               Case No. SD97-026

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                           EXCLUSIVE LICENSE AGREEMENT

        This agreement ("Agreement") is made this 18th day of February, 1998
("Effective Date") by and between Signal Pharmaceuticals, Inc., a California
corporation having a principal place of business at 5555 Oberlin Drive, San
Diego, California 92121 ("LICENSEE") and The Regents Of The University of
California, a California corporation having its statewide administrative offices
at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 ("THE
REGENTS"), represented by its San Diego campus having an address at University
of California, San Diego, Technology Transfer Office, Mailcode 0910, 9500 Gilman
Drive, La Jolla, California 92093-0910 ("UCSD")

                                    RECITALS

        Whereas, certain inventions, generally characterized as [***]
("Invention"), Case No. SD97-026, were made in the course of research at UCSD by
[***] ("Inventors") and are covered by Regents' Patent Rights as defined below;

        Whereas, U.S. Patent Application, Serial No. [***] was filed in the
United States Patent and Trademark Office by the Inventors on [***]
and such application is included within Regents' Patent Rights;

        Whereas, the Inventors are employees of UCSD and as such are under an
obligation to assign their rights to the Invention to THE REGENTS;

        Whereas, the development of the Invention was sponsored by Department of
Health and Human Services and as a consequence this license is subject to
overriding obligations to the Federal Government under 35 U.S.C. Sections
200-212 and applicable regulations;

        Whereas, LICENSEE and THE REGENTS executed a secrecy agreement,
identified as U.C. Control No. 97-20-0108 and effective on April 17, 1997
("Secrecy Agreement") under which LICENSEE evaluated the Invention;

        Whereas, LICENSEE and THE REGENTS executed a letter agreement,
identified as U.C. Control No. 97-30-0130 and effective on June 10, 1997
("Letter Agreement"), under which THE REGENTS and LICENSEE have negotiated the
grant of license under Regents' Patent Rights;

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                                                                    Page 2 of 25

Exclusive License Agreement
Case No. SD97-026

        Whereas, LICENSEE is a "small business concern" as defined in 37 CFR
Section 121-12(a);

        Whereas, THE REGENTS is desirous that the Invention be developed and
utilized to the fullest possible extent so that its benefits can be enjoyed by
the general public;

        Whereas, LICENSEE is desirous of obtaining certain rights from THE
REGENTS for commercial development, use, and sale of the Invention, and THE
REGENTS is willing to grant such rights;

        Whereas, LICENSEE desires to issue common stock of LICENSEE to THE
REGENTS under the agreement appended hereto in Appendix A ("Shareholder's
Agreement") as partial consideration for such rights; and

        Whereas, both parties recognize and agree that royalties due hereunder
shall be paid on both pending patent applications and issued patents.

        Now, Therefore, the parties agree:

                             ARTICLE 1. DEFINITIONS.

        1.1 "Affiliate" means any corporation or other business entity in which
LICENSEE owns or controls, directly or indirectly, at least fifty percent (50%)
of the outstanding stock or other voting rights entitled to elect directors, or
in which LICENSEE is owned or controlled directly or indirectly by at least 50%
of the outstanding stock or other voting rights entitled to elect directors; but
in any country where the local law does not permit foreign equity participation
of at least 50%, then an "Affiliate" includes any company in which LICENSEE owns
or controls or is owned or controlled by, directly or indirectly, the maximum
percentage of outstanding stock or voting rights permitted by local law.

        1.2 "Licensed Method" means any method that is covered by Regents'
Patent Rights, the use of which would constitute, but for the license granted to
LICENSEE under this Agreement, an infringement of any pending or issued claim
within Regents' Patent Rights.

        1.3 "Licensed Product" means any material that is either

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Exclusive License Agreement                                        Page 3 of 25
Case No. SD97-026

covered by Regents' Patent Rights, that is identified or produced by the
Licensed Method, or that the use of which would constitute, but for the license
granted to LICENSEE under this Agreement, an infringement of any pending or
issued claim within Regents' Patent Rights.

        1.4 "Net Sales" means the total of the gross invoice prices of Licensed
Products sold by LICENSEE, an Affiliate, or a sublicensee of LICENSEE, less the
sum of the following actual and customary deductions where applicable: cash,
trade, or quantity discounts, including chargebacks; sales, use, tariff,
import/export duties or other excise taxes imposed on particular sales;
transportation charges and allowances; credits to customers because of
rejections or returns; or bad debts. For purposes of calculating Net Sales,
transfers to an Affiliate or sublicensee for end use by the Affiliate or
sublicensee shall be treated as sales at list price.

        1.5 "Regents' Patent Rights" means any of the following: the U.S. patent
application, serial number [***], entitled [***] disclosing and claiming the
Invention, filed by Inventors and assigned to THE REGENTS; and continuing
applications thereof including divisions, substitutions, and
continuations-in-part (but only to extent the claims thereof are enabled by
disclosure of the parent application); any patents issuing on said applications
including reissues, reexaminations and extensions; and any corresponding foreign
applications or patents.

                                ARTICLE 2. GRANT.

        2.1 Subject to the limitations set forth in this Agreement, THE REGENTS
grants to LICENSEE a world-wide license under Regents' Patent Rights to make,
have made, use, sell, have sold, offer for sale and import Licensed Products and
to practice Licensed Methods.

        2.2 Except as otherwise provided in this Agreement, the license granted
in Paragraph 2.1 hereof shall be exclusive for the life of the Agreement.

        2.3 The license granted in Paragraph 2.1 hereof is subject to all the
applicable provisions of any license to the United

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Exclusive License Agreement                                         Page 4 of 25
Case No. SD97-026

States Government executed by THE REGENTS and is subject to the overriding
obligations to the U.S. Government under 35 U.S.C. Sections 200-212 and
applicable governmental implementing regulations.

        2.4 The license granted in Paragraph 2.1 hereof is for all fields of
use.

        2.5 THE REGENTS reserves the right to use the Invention and associated
technology for educational and research purposes.

                             ARTICLE 3. SUBLICENSES.

        3.1 THE REGENTS also grants to LICENSEE the right to issue sublicenses
to third parties to make, have made, use, sell, have sold, offer for sale and
import Licensed Products and to practice Licensed Methods, as long as LICENSEE
has current exclusive rights thereto under this Agreement. To the extent
applicable, sublicenses shall include all of the rights of and obligations due
to THE REGENTS (and, if applicable, the United States Government) that are
contained in this Agreement.

        3.2 LICENSEE shall promptly provide THE REGENTS with a copy of each
sublicense issued; collect and guarantee payment of all payments due THE REGENTS
from sublicensees; and summarize and deliver all reports due THE REGENTS from
sublicensees.

        3.3 In the event that the license granted in this Agreement is
terminated, THE REGENTS shall assume any sublicenses granted by LICENSEE
hereunder, and THE REGENTS shall be held only to the obligations of THE REGENTS
under this Agreement.

                          ARTICLE 4. LICENSE-ISSUE FEE.

        4.1 Within seven days after the Effective Date, LICENSEE shall pay to
THE REGENTS [***], and issue to THE REGENTS [***] shares of LICENSEE's common
stock (collectively, the "License Issue Fee") in accordance with the
Shareholder's Agreement and in the manner provided in paragraph 7.1 hereof.

        4.2 The License-Issue Fee payable by LICENSEE as specified in paragraph
4.1 hereinabove is non-refundable, non-cancelable,

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Exclusive License Agreement                                         Page 5 of 25
No. SD971-0426

and is not an advance against royalties.

                         ARTICLE 5. MILESTONE PAYMENTS.

        5.1 Within thirty (30) days following (i) [***] (ii) [***], whichever
occurs first, LICENSEE shall pay to THE REGENTS [***] shares of LICENSEE's
common stock in accordance with the Shareholder's Agreement and in the manner
provided in paragraph 7.1 hereof.

        5.2 Within thirty (30) days following the date LICENSEE [***], LICENSEE
shall pay to THE REGENTS [***] and issue to THE REGENTS [***] shares of
LICENSEE's common stock in accordance with the Shareholder's Agreement and in
the manner provided in paragraph 7.1 hereof.

        5.3 Within thirty (30) days following the date LICENSEE [***], LICENSEE
shall pay to THE REGENTS [***] and issue to THE REGENTS [***] shares of
LICENSEE's common stock in accordance with the Shareholder's Agreement and in
the manner provided in paragraph 7.1 hereof.

        5.4 The milestone payments specified in paragraphs 5.1, 5.2 and 5.3
hereinabove are non-refundable and are not an advance against earned royalties.

                              ARTICLE 6. ROYALTIES.

        6.1 Earned Royalties. LICENSEE shall also pay to THE REGENTS an earned
royalty of one percent (1.0%) of the Net Sales, except that in any given
calendar quarter in which the Net Sales

                      ***Confidential Treatment Requested
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Case No. SD97-026

total less than [***] the earned royalty payable by LICENSEE to THE REGENTS
shall be [***] of such Net Sales.

                            ARTICLE 7. PAYMENT TERMS.

        7.1 Stock Payments. The parties understand that THE REGENTS' Patent
Policy (effective November 18, 1985) provides that the Inventors as a group are
entitled to forty-two and one-half percent (42.5%) of net royalties and fees,
whether in the form of cash or equity, received by THE REGENTS for licensing of
the Invention to LICENSEE. The parties further understand that THE REGENTS'
Policy on Accepting Equity When Licensing University Technology (effective
February 16, 1996) provides that each of the Inventors may elect to: (i)
directly receive his or her share of such equity, or (ii) have THE REGENTS
accept his or her share of the equity. Accordingly, with respect to any payment
in the form of equity due to THE REGENTS under this Agreement, THE REGENTS shall
provide written notice to LICENSEE, within thirty (30) days after the execution
of this Agreement by both parties, of the manner in which THE REGENTS would like
any equity payments due under this Agreement distributed.

        7.2 Cash Payments. All monies due THE REGENTS are payable in United
States dollars, all checks for such monies shall be made payable to "The Regents
of the University of California", referencing THE REGENTS' taxpayer
identification number, 95-6006144, and such checks shall be delivered to THE
REGENTS pursuant to Article 20 (NOTICES). When Licensed Products are sold for
monies other than United States dollars, LICENSEE shall first determine the
earned royalty in the currency of the country in which Licensed Products were
sold and then convert the amount into equivalent United States funds, using the
exchange rate quoted in the Wall Street Journal on the last business day of the
applicable reporting period.

        7.3 Royalties shall accrue in each country for the duration of Regents'
Patent Rights in that country and are payable to THE REGENTS when Licensed
Products are invoiced, or if not invoiced, when delivered to a third party. For
earned royalties accruing on sale for cash (or the equivalent thereof) outside
the United States, LICENSEE may delay payment of earned royalties until it
actually receives payment from its customer, provided that such

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Exclusive License Agreement                                         Page 7 of 25
Case No. SD97-026

delay does not exceed three (3) months from the date of invoice.

        7.4 Paragraphs 1.3, 1.4 and 1.6 define Licensed Methods, Licensed
Products and Regents' Patent Rights so that royalties shall be payable on
products and methods covered by pending applications and issued patents,
provided that no earned royalties shall be payable under Regents' Patent Rights
on pending claims once the claims are no longer pending due to abandoning
prosecution thereof or that are pending more than thirty (30) years from the
Effective Date. In no event shall any royalty be due under Regents' Patent
Rights after the expiration of the last-to-expire patent licensed hereunder
which covers LICENSEE's activities.

        7.5 LICENSEE shall pay earned royalties quarterly on or before February
28, May 31, August 31 and November 30 of each calendar year. Each such payment
shall be for earned royalties accrued within LICENSEE's most recently completed
calendar quarter.

        7.6 Royalties earned on sales occurring in any country outside the
United States may not be reduced by any taxes, fees, or other charges imposed by
the government of such country on the payment of royalty income. LICENSEE is
also responsible for all bank transfer charges. Notwithstanding this, all
payments made by LICENSEE in fulfillment of THE REGENTS' tax liability in any
particular country shall be credited against earned royalties or fees due THE
REGENTS for that country.

        7.7 If at any time legal restrictions prevent the prompt remittance of
part or all royalties by LICENSEE with respect to any country where a Licensed
Product is sold, LICENSEE shall have the right and option to make such payments
by depositing the amount thereof in local currency to THE REGENTS' account, if
any, in a bank or other depository in such country. THE REGENTS will use
reasonable efforts to transfer the monies held in the account specified in this
Paragraph 7.7 to the United States. If after one (1) year from the date of the
first deposit into that account, there are still legal restrictions that prevent
THE REGENTS from transferring the monies, THE REGENTS shall transfer the
impounded funds back to LICENSEE, and LICENSEE shall convert the amount owed to
THE REGENTS into United States funds and shall pay THE REGENTS directly from its
U.S. source of funds for the amount impounded. LICENSEE shall then pay all
future royalties

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Exclusive License Agreement                                         Page 8 of 25
Case No. SD97-026

due to THE REGENTS with respect to Net Sales in such country from its U.S.
source of funds so long as the legal restrictions described in this Paragraph
7.7 still apply.

        7.8 In the event that any patent or patent claim within The Regents'
Patent Rights is held invalid in a final decision by a patent office from which
no appeal or additional patent prosecution has been or can been taken, or by a
court of competent jurisdiction and last resort and from which no appeal has
been or can be taken, all obligation to pay royalties based on that patent or
claim or any claim patentably indistinct therefrom shall cease as of the date of
such final decision. LICENSEE shall not, however, be relieved from paying any
royalties that accrued before such final decision or that are based on another
patent or claim not involved in such final decision.

        7.9 No royalties may be collected or paid on Licensed Products sold to
the account of the U.S. Government or any agency thereof as provided for in the
license to the U.S. Government.

        7.10 In the event royalty payments, rebillings or fees payable in cash
are not received by THE REGENTS when due, LICENSEE shall pay to THE REGENTS
interest charges at a rate of ten (10) percent per annum. Such interest shall be
calculated from the date payment was due until actually received by THE REGENTS.

                            ARTICLE 8. DUE DILIGENCE.

        8.1 Upon execution of this Agreement, LICENSEE shall diligently proceed
with the development, manufacture and sale of Licensed Products and shall
earnestly and diligently endeavor to market the same within a reasonable time
after execution of this Agreement.

        8.2 LICENSEE shall endeavor to obtain all necessary governmental
approvals for the manufacture, use and sale of Licensed Products.

        8.3 LICENSEE shall:

               (a) [***]

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Exclusive License Agreement                                         Page 9 of 25
Case No. SD97-026

               (b) [***]

               (c) [***]

               (d) [***]

               (d) reasonably fill the market demand for Licensed Products
following commencement of marketing at any time during the exclusive period of
this Agreement.

        8.4 In addition to the obligations set forth above, LICENSEE shall spend
not less than [***] during [***] of this Agreement for the development of
Licensed Products. LICENSEE may, at its sole option, fund the research of [***]
and credit the amount of such funding actually paid to UCSD against its
obligation under this paragraph.

        8.5 Subject to paragraphs 8.1, 8.2 and 8.6 hereof, if LICENSEE believes
that it will be unable to perform any of its obligations under paragraphs 8.3 or
8.4 hereinabove, LICENSEE shall deliver notice to THE REGENTS of its belief in
its prospective inability to perform and reasons therefor, at least three (3)
months before the date when such obligation or obligations to perform comes due.
This notice shall be subject to Article 20 (NOTICES). Upon receipt of such
notice, LICENSEE and THE REGENTS shall negotiate in good faith and for a period
not to exceed three (3) months from the date of such notice ("Renegotiation
Period") to re-establish a date or dates for performance of such obligation or
obligations, which date or dates the parties consider reasonable under the
then-current circumstances, and to establish what consideration, if any, THE
REGENTS shall be entitled to in consideration for such re-established date or
dates. If LICENSEE and THE REGENTS are unable to mutually agree within the
Renegotiation Period to a reestablished date or dates for performance by
LICENSEE and/or consideration for THE REGENTS, then THE REGENTS shall have the

                      *** Confidential Treatment Requested
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Case No. SD97-026

right and option to either terminate this Agreement or reduce LICENSEE's
exclusive license to a nonexclusive license. This right, if exercised by THE
REGENTS, shall supersede the rights granted in Article 2 (GRANT).

        8.6 Notwithstanding any other provision of this Article 8, LICENSEE
shall be entitled to exercise its prudent and reasonable business judgment in
the manner in which LICENSEE proceeds to meet its obligations under paragraphs
8.1, 8.2, 8.3 and 8.4 hereinabove.

                    ARTICLE 9. PROGRESS AND ROYALTY REPORTS.

        9.1    Progress Reports.

               (a) Beginning February 28, 1998 and semi-annually thereafter,
LICENSEE shall submit to THE REGENTS a progress report covering LICENSEE's (and
any Affiliate's or sublicensee's) activities related to the development and
testing of all Licensed Products and the obtaining of the governmental approvals
necessary for marketing. Progress reports shall be made for each Licensed
Product until the first commercial sale of that Licensed Product occurs in the
United States. These progress reports shall be considered "Confidential
Information" for all purposes of Article 28 (SECRECY) hereof and shall be
subject to the terms thereof.

               (b) Progress reports submitted under this paragraph should
include, but are not limited to, the following topics:

                      (1) summary of work completed;

                      (2) summary of work in progress;

                      (3) current schedule of anticipated events or milestones;

                      (4)market plans for introduction of Licensed Products; and

                      (5) a summary of resources (dollar value) spent in the
reporting period.

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Exclusive License Agreement                                        Page 11 of 25
Case No. SD97-026

               (c) LICENSEE shall report to THE REGENTS, in its immediately
subsequent progress report, the date of first commercial sale of a Licensed
Product in each country.

        9.2 Royalty Reports. After the first commercial sale of a Licensed
Product anywhere in the world, LICENSEE shall make quarterly royalty reports to
THE REGENTS on or before each February 28, May 31, August 31 and November 30 of
each year. Each royalty report shall cover LICENSEE's most recently completed
calendar quarter and shall show:

                (a) the gross sales and Net Sales of Licensed Products sold
during the most recently completed calendar quarter;

                (b) the number of each type of Licensed Product sold;

                (c) the royalties, in U.S. dollars, payable with respect to
sales of Licensed Products;

                (d) the method used to calculate the royalty; and

                (e) the exchange rates used.

If no sales of Licensed Products have been made during any reporting period, a
statement to this effect is required.

                         ARTICLE 10. BOOKS AND RECORDS.

        10.1 LICENSEE shall keep accurate books and records showing all Licensed
Products manufactured, used, and/or sold under the terms of this Agreement.
Books and records must be preserved for at least five (5) years from the date of
the royalty payment to which they pertain.

      10.2 Books and records shall be open to inspection by representatives or
agents of THE REGENTS at reasonable times. THE REGENTS shall bear the fees and
expenses of examination; but if an error in royalties of more than ten percent
(10%) of the total royalties due for any year is discovered in any examination,
then LICENSEE shall bear the fees and expenses of that examination.

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Case No. SD97-026

                       ARTICLE 11. TERM OF THE AGREEMENT.

        11.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement shall be
in force from the Effective Date and shall remain in effect for the life of the
last-to-expire issued patent licensed under this Agreement; or if no patent in
the Regents' Patent Rights issues, until the date of abandonment of the last
patent application in the Regents' Patent Rights.

        11.2 Any termination of this Agreement shall not affect the rights and
obligations set forth in the following Articles:

                (a) Article 10 (BOOKS AND RECORDS);

                (b) Article 13 (DISPOSITIONS OF LICENSED PRODUCT ON HAND UPON
TERMINATION);

                (c) Article 14 (USE OF NAMES AND TRADEMARKS);

                (d) Article 19 (INDEMNIFICATION);

                (e) Article 23 (FAILURE TO PERFORM);

                (f) Article 28 (SECRECY); and

                (g) Article 29 (DISPUTE RESOLUTION).

                            ARTICLE 12. TERMINATION.

        12.1 Termination by The Regents. If LICENSEE fails to perform or
violates any term of this Agreement, then THE REGENTS may give written notice of
default ("Notice of Default") to LICENSEE. If LICENSEE fails to repair the
default within ninety (90) days of the effective date of Notice of Default, THE
REGENTS may terminate this Agreement and the licenses herein by a second written
notice ("Notice of Termination") to LICENSEE. If a Notice of Termination is sent
to LICENSEE, this Agreement shall automatically terminate on the effective date
of that notice. Termination shall not relieve LICENSEE of its obligation to pay
any fees owing at the time of termination and shall not impair any accrued right
of THE REGENTS. These notices are subject to

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Case No. SD97-026

Article 20 (Notices).

        12.2 Termination by Licensee.

               (a) LICENSEE has the right at any time to terminate this
Agreement in whole or as to any portion of Regents' Patent Rights by giving
notice in writing to THE REGENTS. Notice of termination shall be subject to
Article 20 (NOTICES), and termination of this Agreement shall be effective
ninety (90) days from the effective date of notice.

               (b) Any termination under the above paragraph does not relieve
LICENSEE of any obligation or liability accrued under this Agreement prior to
termination or rescind any payment made to THE REGENTS or anything done by
LICENSEE prior to the time termination becomes effective. Termination does not
affect in any manner any rights of THE REGENTS arising under this Agreement
prior to termination.

                  ARTICLE 13. DISPOSITION OF LICENSED PRODUCTS
                            ON HAND UPON TERMINATION.

        13.1 Upon termination of this Agreement, LICENSEE is entitled to dispose
of all previously made or partially made Licensed Products, but no more, within
a period of one hundred and twenty (120) days provided that the sale of those
Licensed Products is subject to the terms of this Agreement, including but not
limited to the rendering of reports and payment of royalties required under this
Agreement.

                    ARTICLE 14. USE OF NAMES AND TRADEMARKS.

        14.1 Nothing contained in this Agreement confers any right to use in
advertising, publicity, or other promotional activities any name, trade name,
trademark, or other designation of either party hereto (including contraction,
abbreviation or simulation of any of the foregoing). Unless required by law, the
use by LICENSEE of the name, "The Regents Of The University Of California" or
the name of any campus of the University Of California is prohibited.

          14.2 THE REGENTS may disclose to the Inventors the terms and

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Exclusive License Agreement                                        Page 14 of 25
Case No. SD97-026

conditions of this Agreement upon their request. If such disclosure is made, THE
REGENTS shall require that the Inventors not disclose any such terms or
conditions to others.

        14.3 If a third party inquires whether a license to Regents' Patent
Rights is available, THE REGENTS may disclose the existence of this Agreement
and the extent of the grant in Article 2 to such third party, but shall not
disclose the name of LICENSEE or any other term of this Agreement, except where
THE REGENTS are required to disclose such information under either the
California Public Records Act or other requirement of applicable law.

                          ARTICLE 15. LIMITED WARRANTY.

        15.1 THE REGENTS warrants to LICENSEE that it has the lawful right to
grant this license.

        15.2 This license and the associated Invention are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY
THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY PATENT OR
OTHER PROPRIETARY RIGHT.

        15.3 IN NO EVENT MAY THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF
THE INVENTION OR LICENSED PRODUCTS.

        15.4 Nothing in this Agreement shall be construed as:

                (a) a warranty or representation by THE REGENTS as to the
validity or scope of any Regents' Patent Rights;

                (b) a warranty or representation that anything made, used, sold
or otherwise disposed of under any license granted in this Agreement is or will
be free from infringement of patents of third parties;

                (c) an obligation to bring or prosecute actions or suits against
third parties for patent infringement except as provided in Article 18 (PATENT
INFRINGEMENT);

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               (d) conferring by implication, estoppel or otherwise any license
or rights under any patents of THE REGENTS other than Regents' Patent Rights as
defined in this Agreement, regardless of whether those patents are dominant or
subordinate to Regent's Patent Rights; or

               (e) an obligation to furnish any know-how not provided in
Regents' Patent Rights.

                 ARTICLE 16. PATENT PROSECUTION AND MAINTENANCE.

        16.1 Provided that LICENSEE has paid patent costs as provided for in
Paragraph 16.5, THE REGENTS shall diligently prosecute and maintain the United
States and foreign patents comprising Regents' Patent Rights using counsel of
its choice, and THE REGENTS shall provide LICENSEE with copies of all relevant
documentation so that LICENSEE may be informed of the continuing prosecution and
LICENSEE agrees to keep this documentation confidential. The Regents' counsel
shall take instructions only from THE REGENTS, and all patents and patent
applications under this Agreement shall be assigned solely to THE REGENTS.

        16.2 THE REGENTS shall use all reasonable efforts to amend any patent
application to include claims reasonably requested by LICENSEE to protect the
products contemplated to be sold under this Agreement.

        16.3 LICENSEE shall apply for an extension of the term of any patent
included within Regents' Patent Rights if appropriate under the Drug Price
Competition and Patent Term Restoration Act of 1984 and/or European, Japanese
and other foreign counterparts of this law. LICENSEE shall prepare all documents
for such application, and THE REGENTS agrees to execute such documents and to
take any other additional action as LICENSEE reasonably requests in connection
therewith.

        16.4 In the event THE REGENTS as represented by the licensing associate
at UCSD responsible for the administration of the license granted in this
Agreement receives notice pertaining to infringement or potential infringement
of any issued patent within Regents' Patent Rights pursuant to the Drug Price
Competition Act and Patent Term Restoration Act of 1984 (and/or

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Case No. SD97-026

European and Japanese counterparts of such law), THE REGENTS shall notify
LICENSEE within thirty (30) days after receipt of such notice.

        16.5 LICENSEE shall bear the costs of preparing, filing, prosecuting and
maintaining all United States and foreign patent applications contemplated by
this Agreement. Costs billed to THE REGENTS by THE REGENTS' counsel shall be
rebilled to LICENSEE and shall be due within 30 days of rebilling by THE
REGENTS. These costs include patent prosecution costs for the Invention incurred
by THE REGENTS prior to the execution of this Agreement and any patent
prosecution costs that may be incurred with respect to the Invention for
patentability opinions, re-examination, re-issue, interferences, or inventorship
determinations. Prior costs shall be due on execution of this Agreement and
billing by THE REGENTS. Such prior costs will be approximately
twenty-two thousand U.S. dollars ($22,000).

        16.6 LICENSEE may request THE REGENTS to obtain patent protection on the
Invention in foreign countries if available and if it so desires. LICENSEE shall
notify THE REGENTS of its decision to obtain or maintain foreign patents not
less than sixty (60) days prior to the deadline for any payment, filing, or
action to be taken in connection therewith. This notice concerning foreign
filing shall be in writing, shall identify the countries desired, and shall
reaffirm LICENSEE's obligation to underwrite the costs thereof. The absence of
such a notice from LICENSEE to THE REGENTS shall be considered an election not
to obtain or maintain foreign rights.

        16.7 LICENSEE's obligation to underwrite and to pay patent prosecution
costs shall continue for so long as this Agreement remains in effect; provided,
however, that LICENSEE may terminate its obligations with respect to any given
patent application or patent upon three (3) months' written notice to THE
REGENTS. THE REGENTS shall use reasonable efforts to curtail patent costs when
such a notice is received from LICENSEE. THE REGENTS may continue prosecution
and/or maintenance of such applications or patent(s) at its sole discretion and
expense; provided, however, that LICENSEE shall have no further right or
licenses thereunder. Non-payment of patent costs may be deemed by THE REGENTS as
an election by LICENSEE not to maintain applications) or Patents).

         16.8     THE REGENTS may file, prosecute or maintain patent

<PAGE>   18

Exclusive License Agreement                                        Page 17 of 25
Case No. SD97-026

applications and/or patents arising therefrom at its own expense in any country
in which LICENSEE has not elected to file, prosecute, or maintain such patent
applications or patents in accordance with this Article, and those applications
and resultant patents shall not be subject to this Agreement.

                           ARTICLE 17. PATENT MARKING.

      17.1 LICENSEE shall mark all Licensed Products made, used or sold under
the terms of this Agreement, or their containers, in accordance with the
applicable patent marking laws.

                        ARTICLE 18. PATENT INFRINGEMENT.

      18.1 If LICENSEE learns of the substantial infringement of any patent
licensed under this Agreement, LICENSEE shall call THE REGENTS' attention
thereto in writing within thirty (30) days after so learning and provide THE
REGENTS with reasonable evidence of such infringement. Neither party shall
notify a third party of the infringement of any of Regents' Patent Rights
without first obtaining consent of the other party, which consent shall not be
unreasonably denied. Both parties shall use reasonable efforts in cooperation
with each other to terminate infringement without litigation.

      18.2 LICENSEE may request that THE REGENTS take legal action against the
infringement of Regents' Patent Rights. Such request shall be made in writing
and shall include reasonable evidence of such infringement and damages to
LICENSEE. If the infringing activity has not abated within ninety (90) days
following the effective date of request, THE REGENTS then shall have the right
to:

               (a)    commence suit on its own account, or

               (b)    refuse to participate in the suit;

and THE REGENTS shall give notice of its election in writing to LICENSEE by the
end of the one-hundredth (100th) day after receiving notice of such request from
LICENSEE. LICENSEE may thereafter bring suit for patent infringement, at its own
expense, if and only if THE REGENTS elects not to commence suit

<PAGE>   19

Exclusive License Agreement                                        Page 18 of 25
Case No. SD97-026

and if the infringement occurred during the period and in a jurisdiction where
LICENSEE had exclusive rights under this Agreement. If, however, LICENSEE elects
to bring suit in accordance with this paragraph, THE REGENTS may thereafter join
that suit at its own expense.

        18.3 Such legal action as is decided on shall be at the expense of the
party bringing suit and all recoveries recovered thereby shall belong to the
party bringing suit; provided, however, that legal action brought jointly by THE
REGENTS and LICENSEE and fully participated in by both shall be at the joint
expense of the parties and all recoveries shall be shared jointly by them in
proportion to the share of expense paid by each party. If LICENSEE pays all
legal expenses, it shall have the right to offset one half of its out-of-pocket
legal expense, to the extent they exceed any recoveries recovered by LICENSEE in
such legal action, against any earned royalties payable under Paragraph 6.1;
provided, however, that earned royalties payble under Paragraph 6.1 shall not be
reduced in any given quarter by more than [***]. Any unused credit may be
carried forward until LICENSEE has received full credit for its creditable legal
expenses.

        18.4 Each party shall cooperate with the other in litigation proceedings
instituted hereunder but at the expense of the party bringing suit. Litigation
shall be controlled by the party bringing the suit, except that THE REGENTS may
be represented by counsel of its choice in any suit brought by LICENSEE.

                          ARTICLE 19. INDEMNIFICATION.

        19.1 LICENSEE shall indemnify, hold harmless and defend THE REGENTS, its
officers, employees, and agents; the sponsors of the research that led to the
Invention; and the Inventors of the patents and patent applications in Regents'
Patent Rights and their employers against any and all claims, suits, losses,
damage, costs, fees, and expenses resulting from or arising out of exercise of
this license or any sublicense. This indemnification will include, but not be
limited to, any product liability.

        19.2 LICENSEE, at its sole cost and expense, shall insure its activities
in connection with the work under this Agreement

                      *** Confidential Treatment Requested
<PAGE>   20

Exclusive License Agreement                                        Page 19 of 25
Case No. SD97-026

and obtain, keep in force and maintain insurance as follows, beginning with the
date that Licensed Products or Licensed Methods are to used on or by third
parties are first manufactured:

               (a) Comprehensive or commercial form general liability insurance
(contractual liability included) with limits as follows!

                      (1) Each Occurrence, $1,000,000,

                      (2) Products/Completed Operations Aggregate, $5,000,000,

                      (3) Personal and Advertising Injury, $1,000,000, and

                      (4) General Aggregate (commercial form only), $5,000,000;
and

               (b) The coverage and limits referred to under the above do not in
any way limit the liability of LICENSEE. LICENSEE shall furnish THE REGENTS with
certificates of insurance showing compliance with all requirements. Such
certificates shall:

                        (1) provide for thirty (30) day advance written notice
                to THE REGENTS of any modification,

                        (2) indicate that THE REGENTS has been endorsed as an
                additional insured under the coverage referred to above, and

                        (3) include a provision that the coverage shall be
                primary and shall not participate with nor shall be excess over
                any valid and collectable insurance or program of self-insurance
                carried or maintained by THE REGENTS.

        19.3 THE REGENTS shall within a reasonable time notify LICENSEE in
writing of any claim or suit brought against THE REGENTS in respect of which THE
REGENTS intends to invoke the provisions of this Article. LICENSEE shall keep
THE REGENTS informed on a current basis of its defense of any claims under this
Article.

<PAGE>   21

Exclusive License Agreement                                        Page 20 of 25
Case No. SD97-026

                              ARTICLE 20. NOTICES.

        20.1 Any notice or payment required to be given to either party shall be
deemed to have been properly given and effective:

               (a)    on the date of delivery if delivered in person, or

               (b) five (5) days after mailing if mailed by first-class
certified mail, postage paid, to the respective addresses given below, or to
such other address as is designated by written notice given to the other party.

In the case of LICENSEE:

        Signal Pharmaceuticals, Inc.
        5555 Oberlin Drive
        San Diego, California 92121
        Attention:   Chief Executive Officer

In the case of THE REGENTS:

        University of California, San Diego
        Technology Transfer Office, Mailcode 0910
        9500 Gilman Drive
        La Jolla, CA 92093-0910
        Attention: Director

                           ARTICLE 21. ASSIGNABILITY.

        21.1 This Agreement may be assigned by THE REGENTS, but shall be
personal to LICENSEE and assignable by LICENSEE only with the written consent of
THE REGENTS, which consent shall not be unreasonably withheld.

                             ARTICLE 22. NO WAIVER.

        22.1 No waiver by either party of any breach or default of any of the
covenants or agreements set forth in this Agreement shall be deemed a waiver as
to any subsequent and/or similar breach or default.

<PAGE>   22

Exclusive License Agreement                                        Page 21 of 25
Case No. SD97-026

                         ARTICLE 23. FAILURE TO PERFORM.

        23.1 In the event of a failure of performance due under this Agreement
and if it becomes necessary for either party to undertake legal action against
the other on account thereof, then the prevailing party shall be entitled to
reasonable attorneys' fees in addition to costs and necessary disbursements.

                           ARTICLE 24. GOVERNING LAWS.

        24.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any
patent or patent application shall be governed by the applicable laws of the
country of the patent or patent application.

               ARTICLE 25. PREFERENCE FOR UNITED STATES INDUSTRY.

        25.1 Because this Agreement grants the exclusive right to use or sell
the Invention in the United States, LICENSEE agrees that any products sold in
the U.S. embodying this Invention or produced through the use thereof shall be
manufactured substantially in the United States.

                ARTICLE 26. GOVERNMENT APPROVAL OR REGISTRATION.

        26.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, LICENSEE shall assume all legal obligations to do so. Licensee shall
notify THE REGENTS if it becomes aware that this Agreement is subject to a
United States or foreign government reporting or approval requirement. Licensee
shall make all necessary filings and pay all costs including fees, penalties,
and all other out-of-pocket costs associated with such reporting or approval
process.

                        ARTICLE 27. EXPORT CONTROL LAWS.

        27.1 LICENSEE shall observe all applicable United States and foreign
laws with respect to the transfer of Licensed Products

<PAGE>   23

Exclusive License Agreement                                        Page 22 of 25
Case No. SD97-026

and related technical data to foreign countries, including, without limitation,
the International Traffic in Arms Regulations (ITAR) and the Export
Administration Regulations.

                              ARTICLE 28. SECRECY.

        28.1 "Confidential Information" shall mean information regarding the
Invention disclosed by THE REGENTS to LICENSEE, or information regarding
LICENSEE's business disclosed by LICENSEE to THE REGENTS, which if disclosed in
writing shall be marked "Confidential", or if first disclosed otherwise, shall
within thirty (30) days of such disclosure be reduced to writing by the
disclosing party (hereinafter, the "Disclosing Party"), marked as "Confidential"
and sent to the receiving party (hereinafter, the "Recipient")

        28.2 Recipient hereby agrees:

               (a) not to use the Confidential Information of the Disclosing
Party except for the sole purpose of performing under the terms of this
Agreement;

               (b) to safeguard such Confidential Information against disclosure
to others with the same degree of care as it exercises with its own data of a
similar nature; and

               (c) not to disclose such Confidential Information to others
(except to its employees, agents or consultants who are bound to Recipient by a
like obligation of confidentiality) without the express written permission of
the Disclosing Party, except that Recipient shall not be prevented from using or
disclosing any of the Confidential Information that:

                      (1) Recipient can demonstrate by written records was
previously known to it,

                      (2) is now, or becomes in the future, public knowledge
other than through acts or omissions of Recipient,

                      (3) is lawfully obtained by Recipient from sources
independent of the Disclosing Party, or

                      (4) is required to be disclosed by the California

<PAGE>   24

Exclusive License Agreement                                        Page 23 of 25
Case No. SD97-026

Public Records Act or other requirement of law.

        28.3 The secrecy obligations of Recipient with respect to Confidential
Information shall continue for a period ending five (5) years from the
termination date of this Agreement.

                         ARTICLE 29. DISPUTE RESOLUTION.

        29.1 Mediation. Either party to this Agreement may refer a dispute
arising under this Agreement and which cannot be resolved among themselves
without assistance, to third-party mediation in accordance with the rules of the
American Arbitration Association then in effect or successor thereto. Such
referral to mediation shall be made by notifying the other party in writing in
accordance with the provisions of Article 20 (NOTICES) hereto, stating the
nature of the dispute to be resolved by such mediation. Any resolution of such
dispute arrived at in such mediation shall not be binding on either of the
parties.

        29.2 Arbitration.

               (a) Any such dispute that is not resolved within ninety (90) days
after the date of such request for mediation in accordance with this Article 29
may be referred to and decided by arbitration, except for disputes based, in
whole or in part, on Article 14 (USE OF NAME AND TRADEMARKS) hereof; Article 15
(LIMITED WARRANTY) hereof; Article 18 (PATENT INFRINGEMENT) hereof; Article 19
(INDEMNIFICATION) hereof; the validity of any claim of any patent or patent
application within Regents' Patent Rights; or infringement by a party hereto, or
a third party, of any claim of any patent within Regents' Patent Rights. Such
referral to arbitration shall be made by notifying the other party in writing in
accordance with the provisions of Article 20 (NOTICES) hereof, stating the
nature of the dispute to be resolved.

               (b) The arbitration shall be held in San Diego, California, and
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect or any successor thereto. None
of the arbitrators selected by the parties to conduct such arbitration shall be
employees of the parties. If the parties cannot agree on mutually satisfactory
arbitrators within thirty (30) days of

<PAGE>   25

Exclusive License Agreement                                        Page 24 of 25
Case No. SD97-026

the request of any party hereto for arbitration hereunder, such arbitrators
shall forthwith be appointed pursuant to the aforesaid rules of the American
Arbitration Association. The arbitrators shall establish an arbitration
timetable resulting in a hearing, within one hundred and twenty (120) days of
the original request to arbitrate.

               (c) The arbitrators as a panel may grant injunctions and any and
all other forms of relief in such dispute permitted under the American
Arbitration Association rules then in effect or successor thereto; provided,
however, that such panel shall not award punitive damages and shall not award
costs and expenses, including attorney's fees and expenses. The decision of the
panel shall be final, conclusive and binding on the parties to such arbitration,
and shall not be appealable. The decision of the panel shall be enforceable in
any court of competent jurisdiction.

                           ARTICLE 30. MISCELLANEOUS.

        30.1 The headings of the several sections are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.

        30.2 This Agreement is not binding on the parties until it has been
signed below on behalf of each party. It shall be effective as of the Effective
Date.

        30.3 No amendment or modification of this Agreement shall be valid or
binding on the parties unless made in writing and signed on behalf of each
party.

        30.4 This Agreement and the Shareholder's Agreement, together, embodies
the entire understanding of the parties and supersedes all previous
communications, representations or understandings, either oral or written,
between the parties relating to the subject matter hereof. The Secrecy Agreement
and Letter Agreement are both hereby terminated.

        30.5 In case any of the provisions contained in this Agreement is held
to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, and this

<PAGE>   26

Exclusive License Agreement                                        Page 25 of 25
Case No. SD97-026

Agreement shall be construed as if the invalid, illegal, or unenforceable
provisions had never been contained in it.

        In Witness Whereof, both THE REGENTS and LICENSEE have executed this
Agreement, in duplicate originals, by their respective and duly authorized
officers on the day and year written.

SIGNAL PHARMACEUTICALS, INC.:             THE REGENTS OF THE
                                          UNIVERSITY OF CALIFORNIA:

By /s/ CARL BOBKOSKI                      By /s/ ALAN S. PAAU
  ----------------------------              -----------------------------------
  (Signature)                               (Signature)

Name:  EVP                                   Alan S. Paau, Ph.D
     ---------------------------
Title Carl Bobkoski                          Director, Technology
     ---------------------------             Transfer Office

Date  Februaty 23, 1998                      Date    2/25/98
    ----------------------------                 -------------------------------<PAGE>   1
                                           *** Text Omitted and Filed Separately
                                               Under 17 C.F.R. Sections 200.80
                                               200.83 and 230.406

                                                                   EXHIBIT 10.32

                       RESTRICTED STOCK PURCHASE AGREEMENT

        Agreement made as of this ______ day of ________________, 1998 by and
between Signal Pharmaceuticals, Inc., a California corporation (the "Company"),
and The Regents of the University of California ("The Regents" or "Purchaser").

        Unless otherwise defined herein, all capitalized terms used herein shall
have the same meanings given to them in that certain License Agreement (the
"License Agreement") by and between Purchaser and the Company, dated
_____________, 1998 a copy of which is attached hereto as Exhibit 1.

1.      PURCHASE OF SHARES

        1.1 PURCHASE. In consideration of Purchaser's grant of certain patent
and technology rights to the Company pursuant to the License Agreement, within
seven (7) days of the Effective Date of the License Agreement the Company shall
issue to Purchaser [***] shares of its Common Stock in the manner provided in
paragraph 7.1 of the License Agreement. Upon the Company's achievement of
certain milestones, the Company shall issue additional shares to Purchaser in
the manner provided in paragraph 7.1 of the License Agreement as follows:

               (a) Within thirty (30) days following (i) [***] the Company
shall issue [***] shares of its Common Stock (as adjusted for stock splits,
subdivisions, combinations, recapitalizations and distributions of stock) to
Purchaser.

               (b) Within thirty (30) days following [***] the Company shall
issue [***] shares of its Common Stock (as adjusted for stock splits,
subdivisions combinations, recapitalizations and distributions of stock) to
Purchaser; provided, however, that only [***].

               (c) Within thirty (30) days following [***] the Company shall
issue to Purchaser [***] shares of its Common Stock (as adjusted for stock
splits, subdivisions, combinations, recapitalizations and distributions of
stock); provided, however, that only [***].

               All shares of the Company's Common Stock issued to Purchaser
pursuant to this Paragraph 1.1, shall hereinafter be referred to as the
"Shares". Notwithstanding the foregoing, the Company shall have no obligation to
issue any shares following any termination of the License Agreement.

                                       1.

                      *** Confidential Treatment Requested

<PAGE>   2

2.      INVESTMENT REPRESENTATIONS.

        2.1 EXEMPTION FROM REGISTRATION. The Shares have not been registered
under the 1933 Act, and are accordingly being issued to Purchaser in reliance
upon the exemption from such registration provided by Section 4(2) of the 1933
Act.

        2.2 INVESTMENT INTENT. Purchaser hereby warrants and represents that it
is acquiring the Shares for its own account and not with a view to their resale
or distribution and that it is prepared to hold the Shares for an indefinite
period and has no present intention to sell, distribute or grant any
participating interests in, the Shares. Purchaser hereby acknowledges the fact
that the Shares have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), and that the Company is issuing the Shares to it in
reliance on the representations made by it herein.

        2.3 RESTRICTED SECURITIES. Purchaser hereby confirms that it has been
informed that the Shares may not be resold or transferred unless such Shares are
first registered under the 1933 Act or unless an exemption from such
registration is available. Accordingly, Purchaser hereby acknowledges that it is
prepared to hold the Shares for an indefinite period and that it is aware that
Rule 144 of the Securities and Exchange Commission issued under the 1933 Act is
not presently available to exempt the sale of the Shares from the registration
requirements of the Act. Should Rule 144 subsequently become available,
Purchaser is aware that any sale of Shares effected pursuant to the Rule may,
depending upon the status of Purchaser as an "affiliate" or "non-affiliate"
under the Rule, be made only in limited amounts in accordance with the
provisions of the Rule, and that in no event may any Shares be sold pursuant to
the Rule until Purchaser has held such Shares for at least one year following
their issuance.

        2.4 DISPOSITION OF SHARES. Except as specifically set forth below,
Purchaser hereby agrees that it shall make no disposition of the Shares, unless
and until:

               (a) it shall have complied with all requirements of this
Agreement applicable to the disposition of such Shares;

               (b) it shall have notified the Company of the proposed
disposition and furnished it with a written summary of the terms and conditions
of the proposed disposition; and

               (c) unless otherwise waived by the Company, it shall have
delivered to the Company a written opinion of counsel at the Company's expense,
in form and substance satisfactory to the Company, that (i) the proposed
disposition does not require registration of the Shares under the 1933 Act or
(ii) all appropriate action necessary for compliance with the registration
requirements of the 1933 Act or of any exemption from registration available
under the 1933 Act has been taken.

        2.5 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Shares, the stock certificates for the Shares shall be
endorsed with restrictive legends, including the following legend:

               "The securities represented by this certificate have not been
        registered under the Securities Act of 1933. The shares have been
        acquired for investment and may not be

                                       2.

<PAGE>   3

        sold or offered for sale in the absence of an effective registration
        statement for the shares under that Act, a `no action' letter of the
        Securities and Exchange Commission as to such sale or offer, or an
        opinion of counsel to the Company that registration under such Act is
        not required for such sale or offer."

3.      TRANSFER RESTRICTIONS

        3.1 TRANSFEREE OBLIGATIONS. Each person (other than the Company) to whom
the Shares are transferred must, as a condition precedent to the validity of
such transfer, acknowledge in writing to the Company that such person is bound
by the provisions of this Agreement and that the transferred shares are subject
to the market stand-off provisions of paragraph 3.2 to the same extent such
shares would be so subject if retained by Purchaser.

        3.2    MARKET STAND-OFF.

               (a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the 1933 Act, including the Company's initial public offering (the
"IPO"), Purchaser and all subsequent holders of the Shares who derive their
chain of ownership through a transfer from Purchaser ("Owner") shall not sell,
make any short sale of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose of or transfer for value or otherwise agree to
engage in any of the foregoing transactions with respect to, any Shares without
the prior written consent of the Company or its underwriters. Such limitations
shall be in effect for such period of time from and after the effective date of
the final prospectus for such offering as may be requested by the Company or
such underwriters (which period shall not exceed 180 days).

               (b) Owner shall be subject to the market stand-off provisions of
this paragraph 3.2 provided and only if all of the executive officers and
directors of the Company are also subject to similar arrangements.

               (c) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding Common
Stock effected as a class without the Company's receipt of consideration, then
any new, substituted or additional securities distributed with respect to the
Shares shall be immediately subject to the provisions of this paragraph 3.2, to
the same extent the Shares are at such time covered by such provisions.

               (d) In order to enforce the limitations of this paragraph 3.2,
the Company may impose stop-transfer instructions with respect to the Shares
until the end of the applicable stand-off period.

4.      REGISTRATION RIGHTS.

        4.1 For purposes of this Section 4:

               (a) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement or document.

                                       3.

<PAGE>   4

               (b) The term "Registrable Securities" means the Common Stock
issued pursuant to this Agreement, excluding, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 4 are not assigned.

               (c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.

               (d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 4.7 hereof.

        4.2 COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the 1933 Act in connection with the public offering of
such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 5.2, the Company shall,
subject to the provisions of Section 4.4, cause to be registered under the 1933
Act all of the Registrable Securities that each such Holder has requested to be
registered.

        4.3 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
4.2 for each Holder (which right may be assigned as provided in Section 4.7),
including (without limitation) all registration, filing, and qualification fees,
printers' and accounting fees relating to and apportionable thereto, but
excluding underwriting discounts and commissions relating to Registrable
Securities.

        4.4 UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 4.2 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholder to be included in such offering
exceeds the amount of securities sold other than by the Company that the
underwriters determine in their sole discretion is compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (subject to the rights of other security holders of the Company,
including, without limitation, preferred shareholders, the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in

                                       4.

<PAGE>   5

such other proportions as shall mutually be agreed to by such selling
shareholders). For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership of corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.

        4.5 DELAY OF REGISTRATION. No holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 4.

        4.6 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 4:

               (a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the 1933 Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the 1933 Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 4.6 shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.

               (b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims,

                                       5.

<PAGE>   6

damages or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the 1933 Act, or the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 4.6(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 4.6(b) shall not apply to amounts paid in settlements of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
4.6(b) exceed the gross proceeds from the offering received by such Holder.

               (c) The foregoing indemnity agreements of the Company and Holders
are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any indemnified party if a copy of the Final Prospectus was furnished
to such indemnified party and was not furnished to the person asserting the
loss, liability, claim or damage at or prior to the time such Final Prospectus
is required to be delivered under the 1933 Act if such loss, claim or damage
would have been avoided had the indemnified party furnished the Final Prospectus
to such person.

               (d) Promptly after receipt by an indemnified party under this
Section 4.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 4.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
4.6, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 4.6.

               (e) If the indemnification provided for in this Section 4.6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of

                                       6.

<PAGE>   7

indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.

               (f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.

               (g) The obligations of the Company and Holders under this Section
4.6 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 4, and otherwise.

        4.7 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 4 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities who, after such assignment or transfer, holds at least twenty
percent (20%) of the shares of Registrable Securities originally purchased by
such Holder (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other recapitalizations), provided the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 4.

5.      INTERPRETATION.

        5.1 PURCHASER UNDERTAKING. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may
reasonably in its judgment deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on either
Purchaser or the Shares pursuant to the express provisions of this Agreement.

                                       7.

<PAGE>   8

        5.2 NOTICES. Any notice required or permitted in connection with any
matter pertaining to this Agreement shall be given in writing and shall be
deemed effective upon personal delivery or upon deposit in the United States
Mail, registered or certified, postage prepaid and addressed to the party to be
notified at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by 10 days'
advance written notice under this Section 5.2 to the other party to this
Agreement.

        5.3 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and shall be governed by, the laws of the State of California.

        5.4 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

        5.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.

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

                                                SIGNAL PHARMACEUTICALS, INC.

                                                By:_____________________________

                                                   Address:   5555 Oberlin Drive
                                                   San Diego, California  92121

                                                THE REGENTS OF THE UNIVERSITY OF
                                                CALIFORNIA

                                                By:_____________________________

                                                Its:____________________________

                                        Address: _______________________________
                                                 _______________________________

                                       8.

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