-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PC2Gaq50auq3VWIy7lR+ypkH5Ri0ZhEhpP0dTwetYbS4usameOvb56kMe7ED9hWq GQCRNvMOjm+e8ALrl6Gipw== 0000884939-98-000016.txt : 19980810 0000884939-98-000016.hdr.sgml : 19980810 ACCESSION NUMBER: 0000884939-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980807 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNAPTIC PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000884939 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 222859704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27324 FILM NUMBER: 98679645 BUSINESS ADDRESS: STREET 1: 215 COLLEGE RD CITY: PARAMUS STATE: NJ ZIP: 07652 BUSINESS PHONE: 2012611331 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q Mark One: [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-27324 SYNAPTIC PHARMACEUTICAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 22-2859704 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 215 College Road Paramus, NJ 07652 (Address of principal executive offices) (Zip Code) (201) 261-1331 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of July 29, 1998, there were 10,698,819 shares of the registrant's Common Stock outstanding. SYNAPTIC PHARMACEUTICAL CORPORATION INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements 1 Balance Sheets at June 30, 1998 and December 31, 1997 1 Statements of Operations and Comprehensive Income (Loss) for the three months ended June 30, 1998 and 1997, and for the six months ended June 30, 1998 and 1997 2 Statements of Cash Flows for the six months ended June 30, 1998 and 1997 3 Notes to Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 8 Item 4. Submission of Matters to a Vote of Security Holders 9 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 (i) PART I. FINANCIAL INFORMATION Item 1. Financial Statements SYNAPTIC PHARMACEUTICAL CORPORATION BALANCE SHEETS (in thousands, except share information) ASSETS June 30, December 31, 1998 1997 ---------- ----------- (Unaudited) (Audited) Current assets: Cash and cash equivalents $13,448 $23,113 Restricted cash 600 600 Marketable securities--current maturities 7,747 10,010 Revenue receivable under collaborative agreement 160 40 Other current assets 1,158 674 ------- ------- Total current assets 23,113 34,437 Property and equipment, net 4,962 4,682 Marketable securities 40,309 28,977 Patent and patent application costs, net of accumulated amortization 1,132 1,306 ------- ------- $69,516 $69,402 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 606 $ 811 Accrued liabilities 560 547 Accrued compensation 240 340 Unearned revenue under research agreement 313 -- ------- ------- Total current liabilities 1,719 1,698 Stockholders' equity: Preferred Stock, $.01 par value; authorized-- 1,000,000 shares; issued--none -- -- Common Stock, $.01 par value; authorized-- 25,000,000 shares; issued and outstanding-- 10,698,207 shares in 1998 and 10,526,585 shares in 1997; 107 105 Additional paid-in capital 98,401 97,049 Deferred compensation (99) (160) Accumulated deficit (30,662) (29,316) Accumulated other comprehensive income-- net unrealized gains on securities 50 26 ------- ------- Total stockholders' equity 67,797 67,704 ------- ------- $69,516 $69,402 ======= ======= See notes to financial statements. 1 SYNAPTIC PHARMACEUTICAL CORPORATION STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except share and per share information) (Unaudited) For the three months For the six months ended June 30, ended June 30, 1998 1997 1998 1997 ------- ------- ------- ------- Revenues: Contract revenue $ 2,148 $ 2,755 $ 4,313 $ 5,310 License revenue -- -- 2,000 -- Grant revenue 60 102 150 242 ------- ------- ------- ------- Total revenues 2,208 2,857 6,463 5,552 Expenses: Research and development 3,851 3,343 7,512 6,691 General and administrative 1,085 957 2,168 1,922 ------- ------- ------- ------- Total expenses 4,936 4,300 9,680 8,613 ------- ------- ------- ------- Loss from operations (2,728) (1,443) (3,217) (3,061) Other income, net: Interest income 953 485 1,871 970 Interest expense -- (1) -- (4) ------- ------- ------- ------- Other income, net 953 484 1,871 966 ------- ------- ------- ------- Net loss $(1,775) $ (959) $(1,346) $(2,095) ======= ======= ======= ======= Comprehensive loss: Net loss $(1,775) $ (959) $(1,346) $(2,095) Other comprehensive income (loss)--unrealized holding gains (losses) arising during period 121 (163) 24 6 ------- ------- ------- ------- Comprehensive loss $(1,654) $(1,122) $(1,322) $(2,089) ======= ======= ======= ======= Basic and diluted net loss per share $(0.17) $(0.13) $(0.13) $(0.27) ====== ====== ====== ====== Shares used in computation of basic and diluted net loss per share 10,691,744 7,646,085 10,668,641 7,640,454 ========== ========= ========== ========= See notes to financial statements. 2 SYNAPTIC PHARMACEUTICAL CORPORATION STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) For the six months ended June 30, 1998 1997 ------- ------- Operating activities: Net loss $(1,346) $(2,095) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 702 584 Amortization of premiums/(discounts) on securities 74 (72) Amortization of deferred compensation 41 65 Changes in operating assets and liabilities: Increase in other current assets (484) (130) Decrease in accounts payable, accrued liabilities and accrued compensation (291) (317) Increase in collaborative agreement revenue receivable (120) -- Increase in deferred revenue 313 -- ------- ------- Net cash used in operating activities (1,111) (1,965) Investing activities: Sale or maturity of investments 30,000 10,350 Purchase of investments (39,120) (3,943) Purchases of property and equipment (808) (1,661) ------- ------- Net cash (used in) provided by investing activities (9,928) 4,746 Financing activities: Issuance of common stock, net of repurchases 1,374 23 Payments on capital lease -- (61) ------- ------- Net cash provided by (used in) financing activities 1,374 (38) ------- ------- Net (decrease) increase in cash and cash equivalents (9,665) 2,743 Cash and cash equivalents at beginning of period 23,113 4,589 ------- ------- Cash and cash equivalents at end of period $13,448 $ 7,332 ======= ======= See notes to financial statements. 3 SYNAPTIC PHARMACEUTICAL CORPORATION NOTES TO FINANCIAL STATEMENTS June 30, 1998 Note 1 -- Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and may not include all information and footnotes required for a presentation in accordance with generally accepted accounting principles. In the opinion of the management of Synaptic Pharmaceutical Corporation (the "Company"), these financial statements include all normal and recurring adjustments necessary for a fair presentation of the financial position and the results of operations and cash flows of the Company for the interim periods presented. For more complete financial information, these financial statements should be read in conjunction with the audited financial statements for the fiscal year ended December 31, 1997, and notes thereto included in the Company's 1997 Annual Report on Form 10-K. The results of operations for the fiscal quarter ended June 30, 1998, are not necessarily indicative of the results of operations to be expected for the full year. Note 2 -- New Accounting Standard In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This pronouncement, which was required to be adopted effective January 1, 1998, requires the presentation of a statement of comprehensive income. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period resulting from transactions and other events and circumstances from nonowner sources. Comprehensive loss for the Company, in addition to net loss, includes unrealized gains and losses on marketable securities held for sale, currently recorded in stockholders' equity. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Synaptic Pharmaceutical Corporation is a biotechnology company engaged in the development of a broad platform of enabling technology which it calls "human receptor-targeted drug design technology." It is utilizing this technology both to discover and clone the genes that code for human receptor subtypes associated with specific disorders and to design compounds that can potentially be developed as drugs for treating these disorders. The Company is currently engaged in collaborations with four pharmaceutical companies: Eli Lilly and Company ("Lilly"), Merck & Co., Inc. ("Merck"), The Warner-Lambert Company ("Warner-Lambert") and Grunenthal GmbH ("Grunenthal"). In connection with these collaborations, the Company has granted to these companies licenses under certain patent rights and to certain technology. The Company had been engaged in a collaboration with Novartis Pharma AG ("Novartis") and had granted to Novartis a license under certain patent rights and to certain technology. On August 3, 1998, the collaboration and related research funding support provided by Novartis ended in accordance with the terms of the Company's agreements with Novartis. Novartis continues to have a license under certain patent rights and to certain technology of the Company. The Company has also granted a license under certain patent rights, as well as an option to obtain an additional license under certain patent rights, to Glaxo Group Limited ("Glaxo"). Since inception, the Company has financed its operations primarily through the sale of stock, through funds provided by its collaborative partners Lilly and Merck and former collaborative partner Novartis under their agreements with the Company, through funds provided by its licensee, Glaxo, under a license agreement and through interest income and capital gains resulting from its investments. The Company also receives revenues from government grants under the Small Business Innovative Research ("SBIR") program of the National Institutes of Health. Under its collaborative and license agreements, the Company may receive one or more of the following types of revenue: contract revenue, license revenue, royalty revenue or revenue from the sales of drugs. Contract revenue includes research funding to support a specified number of the Company's scientists and payments upon the achievement of specified research and development milestones. Research funding revenue is recognized ratably over the period of the agreement to which it relates and is based upon predetermined funding requirements. Research and development milestone payment revenue is recognized when the related research or development milestone is achieved. License revenue represents non-refundable payments for a license to one or more of the Company's patents and/or a license to the Company's technology. Non-refundable payments for licenses are recognized at such time as they are received or, if earlier, become guaranteed. Under its agreements with Lilly, Merck, Warner-Lambert, Glaxo and Novartis, the Company is entitled to receive royalty payments based upon the sales of drugs that may be developed using the Company's technology. Under its agreement with Grunenthal, the Company has development and marketing rights in certain territories with respect to drugs, if any, that are jointly identified as part of the collaboration. Accordingly, the Company may receive revenue from sales in its territories (as defined) of such drugs if it markets them independently or the Company may receive royalty payments if it licenses its marketing rights to a third party. To date, the Company has not received either royalty revenue or revenue from the sales of drugs and the Company does not expect to receive such revenues for a number of years, if at all. To date, the Company's expenditures have been for research and development related expenses, general and administrative related expenses, fixed asset purchases and various patent related expenditures incurred in protecting the Company's technologies. The Company has been historically unprofitable and had an accumulated deficit of $30,662,000 at June 30, 1998. The Company expects to continue to incur operating losses for a number of years and may not become profitable, if at all, unless and until it receives royalty revenue or revenue from sales of drugs that may be developed with the use of its technology or its patent rights. Results of Operations Comparison of the Three Months Ended June 30, 1998 and 1997 Revenues. The Company recognized revenue of $2,208,000 and $2,857,000 for the three months ended June 30, 1998 and 1997, respectively. The decrease of $649,000 was attributable primarily to a net decrease in contract revenue of $607,000 which is primarily due to the reduction in full-time equivalent scientists being funded under one of the Company's collaborative arrangements. Research and Development Expenses. The Company incurred research and development expenses of $3,851,000, and $3,343,000 for the three months ended June 30, 1998 and 1997, respectively. The increase of $508,000, or 15%, in research and 5 development expenses was attributable primarily to: an increase of $246,000 in compensation and fringe benefit expenses resulting from a net average headcount increase of 6 research personnel as well as annual salary increases for the scientific staff; and an increase of $131,000 in facility related costs. General and Administrative Expenses. The Company incurred general and administrative expenses of $1,085,000 and $957,000 for the three months ended June 30, 1998 and 1997, respectively. The increase of $128,000, or 13%, was attributable primarily to: an increase of $48,000 in compensation expenses resulting from a net average headcount increase as well as annual salary and bonus increases for the administrative staff; an increase of $161,000 in patent costs, which includes one-time charges associated with resisting a third party opposition to the issuance to the Company of a foreign patent, all of which were offset by a decrease of $89,000 in legal costs. The additional $89,000 in legal costs reported for the second quarter of 1997 was primarily attributable to negotiations relating to a new collaboration. Other Income, Net. The Company recorded other income of $953,000 and $484,000 for the three months ended June 30, 1998 and 1997, respectively. The increase of $469,000 was primarily due to higher interest income as a result of higher cash, cash equivalent and marketable securities balances during 1998 which resulted from the receipt of net proceeds from a public offering of its common stock completed in November 1997. Net Loss and Basic and Diluted Net Loss Per Share. The net loss incurred by the Company was $1,775,000 ($0.17 per share), and $959,000 ($0.13 per share) for the three months ended June 30, 1998 and 1997, respectively. The increase in net loss per share of $0.04 resulted primarily from the decrease in revenues and increase in expenses as described above. Comparison of the Six Months Ended June 30, 1998 and 1997 Revenues. The Company recognized revenue of $6,463,000 and $5,552,000 for the six months ended June 30, 1998 and 1997, respectively. The increase of $911,000 was attributable primarily to an increase in license revenue of $2,000,000. This increase in license revenue was offset by a net decrease in contract revenue of $997,000 which is primarily due to the reduction in full-time equivalents scientists being funded under one of the Company's collaborative arrangements. Research and Development Expenses. The Company incurred research and development expenses of $7,512,000, and $6,691,000 for the six months ended June 30, 1998 and 1997, respectively. The increase of $821,000, or 12%, in research and development expenses was attributable primarily to: an increase of $474,000 in compensation and fringe benefit expenses resulting from a net average headcount increase of 9 research personnel as well as annual salary increases for the scientific staff; and an increase of $150,000 in facility related costs. General and Administrative Expenses. The Company incurred general and administrative expenses of $2,168,000 and $1,922,000 for the six months ended June 30, 1998 and 1997, respectively. The increase of $246,000, or 13%, was attributable primarily to: an increase of $105,000 in compensation expense resulting from a net average headcount increase as well as annual salary and bonus increases for the administrative staff; an increase of $176,000 in patent costs, which includes one-time charges associated with resisting a third party opposition to the issuance to the Company of a foreign patent, all of which were offset by a decrease of $86,000 in legal costs. The additional $86,000 in legal costs reported for the first half of 1997 was primarily attributable to negotiations relating to a new collaboration. Other Income, Net. The Company recorded other income of $1,871,000 and $966,000 for the six months ended June 30, 1998 and 1997, respectively. The increase of $905,000 was primarily due to higher interest income as a result of higher cash, cash equivalent and marketable securities balances during 1998 which resulted from the receipt of net proceeds from a public offering of its common stock completed in November 1997. Net Loss and Basic and Diluted Net Loss Per Share. The net loss incurred by the Company was $1,346,000 ($0.13 per share), and $2,095,000 ($0.27 per share) for the three months ended June 30, 1998 and 1997, respectively. The decrease in net loss per share of $0.14 resulted primarily from higher license revenue and higher interest income offset by higher expenses as described above. The Company does not believe that inflation has had a material impact on its results of operations. 6 Liquidity and Capital Resources At June 30, 1998 and December 31, 1997, cash, cash equivalents and marketable securities aggregated $61,504,000 and $62,100,000, respectively. The $61,504,000 of cash, cash equivalents and marketable securities includes $313,000 of research funding received in advance from Novartis for research to be performed during the third quarter. In addition to the cash, cash equivalents and marketable securities described above, the Company had $600,000 in restricted cash recorded in its balance sheet at June 30, 1998. This restricted cash secures lease payments to the Company's landlord for one full year. To date, the Company has met its cash requirements through the sale of its stock, through contract and license revenue, through SBIR grants and through interest income and gains resulting from its investments. As of June 30, 1998, the Company had received: $97,700,000 from the sale of its stock; $57,000,000 in licensing fees, research funding and milestone payments under its collaborative and license agreements; $3,500,000 in SBIR grants; and $8,100,000 in other income, net. To date, the portion of these funds that has been expended by the Company has been used principally to fund research and development, to purchase fixed assets used primarily in its research activities, to create its patent estate and to pay general and administrative support costs. During the period from January 1, 1998 through June 30, 1998, the Company received research funding under three of its collaborative arrangements. During the period from July 1, 1998 through December 31, 1998, the Company expects to receive $2,700,000 in the aggregate under two of its collaborations. Research funding under the Lilly collaboration is scheduled to expire on December 31, 1998. Research funding under the Merck collaboration is scheduled to expire on November 30, 1998 but Merck has the right to terminate the collaboration and such funding earlier by giving 90 days' prior written notice. Research funding under the Novartis collaboration ended on August 3, 1998 in accordance with the terms of the underlying agreements. At June 30, 1998, the Company had invested an aggregate of $9,255,000 in property and equipment. The Company leases laboratory and office facilities under an agreement expiring on December 31, 2015. The minimum annual payment under the lease is currently $674,000. At June 30, 1998 the Company had $61,504,000 in cash, cash equivalents and marketable securities. The Company intends to utilize these funds primarily to conduct its current and future research programs, for patent related expenditures, for general corporate purposes and to make leasehold improvements to its facilities beyond the level which existed on June 30, 1998. The Company expects to continue to incur operating losses for a number of years and will require the use of cash to finance its capital programs. The Company believes that its cash on hand, together with the funds that it expects to receive from its collaborative partners and interest income will be sufficient to fund: an increased operating expense level; the Company's portion of its shared costs of certain development activities under its collaboration with Grunenthal; and an increased level of capital spending through the year 2000. This Report on Form 10-Q contains "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Such statements include, but are not limited to, those relating to future cash and spending plans, amounts of future research funding, and any other statements regarding future growth, future cash needs, future operations, business plans and financial results, and any other statements which are not historical facts. When used in this document, the words "expect," "may," "believes," and similar expressions are intended to be among the words that identify forward looking statements. Such statements involve risks and uncertainties, including, but not limited to, those risks and uncertainties detailed under the captions "Patents, Proprietary Technology and Trade Secrets," "Competition" and "Government Regulation" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "1997 Form 10-K") as well as those risks and uncertainties disclosed under the captions "Early Stage of Product Development; Technological Uncertainty," "Dependence on Collaborative Partners and Licensees for Development, Regulatory Approvals, Manufacturing, Marketing and Other Resources" and "Uncertainties Related to Clinical Trials" as "Cautionary Statements" in the 1997 Form 10-K or detailed from time to time in filings the Company makes with the SEC. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary from those indicated. Although the Company believes that the expectations reflected in the forward looking statements contained herein are reasonable, it can give no assurance that such expectations will prove to be correct. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statement contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. 7 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds Securities Act Rule 229.463 ("Rule 463") required issuers to report on Form SR their use of proceeds, following an initial public offering, within ten days of the first three months following the effective date of the registration statement, and every six months thereafter, until the application of all such proceeds was complete. Effective September 2, 1997, pursuant to Release No. 34-38850, the Securities and Exchange Commission ("SEC") amended Rule 463 to eliminate Form SR and now requires a first-time registrant to report the application of proceeds in each of its periodic reports filed pursuant to the requirements under the Exchange Act until the application of such proceeds is complete. Prior to September 2, 1997, the Company utilized Form SR to report the application of proceeds received by the Company following its initial public offering. The information provided below represents a reasonable estimate of the cumulative application, through June 30, 1998, of the net proceeds of $25,194,000 which were received following the Company's initial public offering on December 13, 1995: Construction of plant, building and facilities $ 425,000 Purchase and installation of machinery and equipment $ 3,918,000 Working capital used to fund operations $18,235,000 Except for payments described in the following sentence, the cumulative application of the net offering proceeds listed above represents direct payments to others. No payments were made to directors or officers or to their associates except for payments made in the ordinary course of business which include, but may not be limited to, the payment of officer salaries, fringe benefits, and expense reimbursements or compensation paid to directors for their attendance at board meetings or for their services provided to the Company under consulting arrangements, if any. At June 30, 1998, the status of proceeds pending final application are as follows: Temporary investment of proceeds in marketable securities $ 2,616,000 8 Item 4. Submission of Matters to a Vote of Security Holders On May 12, 1998, the Company held its annual meeting of stockholders for the following purposes: (i) to elect three Class II directors to the Board of Directors (Proposal No. 1); (ii) to amend the Company's 1996 Incentive Plan in order to increase the number of shares of Common Stock available for award under such Plan and to bring the Plan into compliance with Section 162(m) of the Internal Revenue Code of 1986, as amended (Proposal No. 2); and (iii) to ratify the appointment by the Board of Directors of Ernst & Young LLP as the independent auditors of the Company for the fiscal year ending December 31, 1998 (Proposal No. 3). The stockholders elected the persons named below, the Company's nominees for director, as Class II directors of the Company, casting votes for such nominees or withholding votes as indicated: VOTES FOR VOTES WITHHELD Jonathan J. Fleming 7,906,914 338,092 Eric R. Kandel 7,906,914 338,092 John E. Lyons 7,906,914 338,092 The stockholders approved Proposal No. 2 as follows: VOTES FOR VOTES AGAINST VOTES ABSTAINED BROKER NON-VOTES 3,771,233 2,117,995 6,120 2,349,658 The stockholders approved Proposal No. 3 as follows: VOTES FOR VOTES AGAINST VOTES ABSTAINED BROKER NON-VOTES 8,241,906 2,300 800 0 9 Item 5. Other Information The Company, in collaboration with Lilly, is currently conducting drug discovery programs focused on a number of serotonin receptor subtypes and therapeutic applications. With respect to the drug discovery program focused on the identification and development of serotonin 2B antagonists for the prophylactic treatment of migraine, Lilly selected a compound for possible development and conducted late preclinical testing of the compound. However, Lilly recently determined that, as a result of competing priorities, it would not continue to develop this compound and would instead seek a licensee or development partner for the compound. Lilly's determination with respect to the migraine prophylaxis program does not affect the acute migraine program which Lilly is conducting in collaboration with the Company. The acute migraine program is focused on the development of a serotonin 1F-selective agonist for the treatment of acute migraine. Lilly is currently conducting Phase II clinical trials with a compound that is the subject of this program. On August 3, 1998, the term of the Company's collaboration with Novartis, which was focused principally on the identification and development of neuropeptide Y drugs for the treatment of obesity and eating disorders, as well as cardiovascular disorders, expired in accordance with the terms of the Research and License Agreement dated as of August 4, 1994, as amended, and the Research and License Agreement dated as of May 31, 1996. In connection with the expiration of the collaboration, Novartis' obligation to provide the Company with funding to support a specified number of the Company's scientists terminated. Novartis continues to have a license under certain patent rights and to certain technology of the Company pursuant to the terms of the Research and License Agreements. The Company, in collaboration with Warner-Lambert, is currently conducting drug discovery programs focused on a number of galanin receptor subtypes and therapeutic applications. As part of the collaboration, the Company and Warner-Lambert have identified small molecule compounds that are selective for certain of the galanin receptor subtypes. For a general description of Phase II clinical trials, the early and late preclinical stages of testing and other stages of drug discovery and development, see the Company's 1997 Form 10-K. 10 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description - ------- ----------- 10.1 Incentive Stock Option Agreement dated as of May 12, 1998, between the Company and Theresa A. Branchek (filed herewith) 10.2 Nonqualified Stock Option Agreement dated as of May 12, 1998, between the Company and Theresa A. Branchek (filed herewith) 27 Financial Data Schedule (b) Reports on Form 8-K The Company did not file any Current Reports on Form 8-K during the fiscal quarter ended June 30, 1998. 11 SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYNAPTIC PHARMACEUTICAL CORPORATION (Registrant) Date: August 7, 1998 By:/s/ Kathleen P. Mullinix ----------------------------- Name: Kathleen P. Mullinix Title: Chairman, President & Chief Executive Officer By:/s/ Robert L. Spence ----------------------------- Name: Robert L. Spence Title: Senior Vice President, Chief Financial Officer & Treasurer 12 EX-10.1 2 EXHIBIT 10.1 ------------ NONTRANSFERABLE INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of the 12th day of May, 1998, is by and between SYNAPTIC PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Company"), and Theresa A. Branchek (the "Optionee," which term as used herein shall be deemed to include any successor to the Optionee by will or by the laws of descent and distribution, unless the context shall otherwise require). W I T N E S S E T H: WHEREAS, the Company and the Optionee are parties to an Employment Agreement dated as of April 1, 1998 (as the same may be amended from time to time, the "Employment Agreement"); WHEREAS, pursuant to the Synaptic Pharmaceutical Corporation 1996 Incentive Plan (the "Plan"), the Company, acting through the Compensation Committee (the "Committee") of its Board of Directors (the "Board"), on May 12, 1998 (the "Start Date"), granted to the Optionee options to purchase up to an aggregate of 25,000 shares of Common Stock, $0.01 par value, of the Company (the "Common Stock"), at the price of $14.4375 per share, one of such options covering 10,827 shares of Common Stock to be for the term and upon the terms and conditions hereinafter stated and the other of such options covering 14,173 shares of Common Stock to be for the term and upon the terms and conditions set forth in the Nontransferable Nonqualified Stock Option Agreement of even date herewith; WHEREAS, the Company's intention is to have the two options granted on the Start Date generally become exercisable with respect to 25% of the total number of shares of Common Stock covered by both such options each year during a four-year period; and WHEREAS, due to certain tax limitations, the option agreements covering such options do not individually provide for four-year ratable vesting, although such agreements do, when considered together, so provide for such vesting. NOW, THEREFORE, in consideration of the mutual premises and undertakings hereinafter set forth, the parties hereto agree as follows: 1. Option; Option Price. Pursuant to said action of the Committee, the Company has granted to the Optionee the option (the "Option") to purchase, upon and subject to the terms and conditions of this Agreement and the terms and conditions of the Plan (which are hereby incorporated by reference herein), 10,827 shares (the "Option Shares") of Common Stock of the Company at the price of $14.4375 per share (the "Option Price"), which Option is intended to qualify for Federal income tax purposes as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). -1- 2. Term. The term (the "Option Term") of the Option shall commence on the Start Date and expire on the tenth anniversary of the Start Date, unless the Option shall theretofore have been terminated in accordance with the terms hereof or of the Plan. 3. Exercisability; Time of Exercise. (a) General. Unless accelerated in the discretion of the Committee or as otherwise provided herein, the Option shall become exercisable as to 1,280 of the Option Shares on April 1, 1999, as to an additional 1,399 of the Option Shares on April 1, 2000, as to an additional 2,256 of the Option Shares on April 1, 2001, and as to an additional 5,892 of the Option Shares on April 1, 2002; provided, however, that if the Optionee dies or retires with the consent of the Company any time prior to April 1, 2002, then the Option shall be exercisable as to that number of Option Shares which is equal to the sum of (i) the total number of Option Shares, if any, as to which the Option had become exercisable through the 1st day of April immediately preceding the date of death or retirement (the "Preceding April 1st") and (ii) that number which is equal to the product of (A) the number of additional Option Shares as to which the Option would have become exercisable during the 12-month period commencing on the day following the Preceding April 1st and ending on the first April 1st immediately following such date of death or retirement had such death or retirement not occurred and (B) 1/12 times the number of full calendar months which shall have elapsed during the period commencing on the Preceding April 1st and ending on the date of the Optionee's death or retirement; provided further, however, that if, at any time prior to April 1, 2002, the Optionee's employment with the Company is terminated in contemplation of, or at any time within one (1) year following, a Change in Control (capitalized terms used and not defined herein having the meanings ascribed to them in the Employment Agreement) and such termination constitutes a Termination Without Cause or a Resignation for Good Reason, then the Option shall, as of the date of such termination, become exercisable in full as to all of the Option Shares. The Option shall remain exercisable as to all of such shares until the expiration of the Option Term, unless it is terminated earlier as provided in any of the other paragraphs of this Section 3 or Section 6 or as provided in the Plan. (b) Termination for Cause. If the Optionee shall cease to be an employee of the Company as a result of a termination by the Company for Cause, the Option shall automatically terminate on, and the Optionee shall have no further right to exercise the Option on or after, the date as of which notice of such termination is given to the Optionee by the Company. (c) Termination without Cause. If the Optionee's employment with the Company terminates for any reason other than Cause or the Optionee's death or Disability or Retirement (as defined in the Plan), the Option shall thereafter be exercisable only to the extent of the purchase rights, if any, which shall have accrued pursuant to paragraph (a) of this Section 3 as of the date of such termination, and the Option and such accrued rights to purchase shall in any event terminate upon, and the Optionee shall have no further right to exercise the Option after, the earlier of (i) the expiration of the Option Term and (ii) (A) in the case of any such termination governed by Section 11 of the Employment Agreement, 120 days after the date of such termination and (B) in the case -2- of any such termination not governed by said Section 11, 90 days after the date of such termination; provided, however, that, in the case of any such termination other than a termination resulting from the Optionee being "disabled" within the meaning of Section 22(e)(3) of the Code, the Option shall no longer be treated as an "incentive stock option" within the meaning of Section 422 of the Code unless exercised within three (3) months following the date of such termination. (d) Termination as a Result of Disability or Retirement. If the Optionee's employment with the Company terminates as a result of the Optionee's Disability or Retirement, the Option shall thereafter be exercisable only to the extent of the purchase rights, if any, which shall have accrued pursuant to paragraph (a) of this Section 3 as of the date of such termination, and the Option and such accrued rights to purchase shall in any event terminate upon, and the Optionee shall have no further right to exercise the Option after, the earlier of (i) the expiration of the Option Term and (ii) 180 days after the date of such termination; provided, however, that, in the case of any such termination other than a termination resulting from the Optionee being "disabled" within the meaning of Section 22(e)(3) of the Code, the Option shall no longer be treated as an "incentive stock option" within the meaning of Section 422 of the Code unless exercised within three (3) months following the date of such termination. (e) Termination as a Result of Death. If the Optionee's employment with the Company terminates as a result of the Optionee's death, the Option shall thereafter be exercisable by the Optionee's Designated Beneficiary (as defined in the Plan) or personal representatives, heirs or legatees (as provided in the Plan), but only to the extent of the purchase rights, if any, which shall have accrued pursuant to paragraph (a) of this Section 3 as of the date of such termination, and the Option and such accrued rights to purchase shall in any event terminate upon, and the Optionee shall have no further right to exercise the Option after, the earlier of (i) the expiration of the Option Term and (ii) one (1) year after the date of death. Notwithstanding anything contained in the Plan to the contrary, the Option shall continue to be treated as an "incentive stock option" within the meaning of Section 422 of the Code even if it is not exercised until after the third month following the date of the Optionee's death. (f) Death Following Disability or Retirement. In the event of the Optionee's death within 180 days following the Optionee's termination of employment as a result of the Optionee's Disability or Retirement, the Option shall thereafter be exercisable by the Optionee's Designated Beneficiary or personal representatives, heirs or legatees, to the extent of the purchase rights, if any, which shall have accrued pursuant to paragraph (a) of this Section 3 as of the date of such termination, for a period of one (1) year following the date of death but in no event later than the expiration of the Option Term; provided, however, that, in the case in which the Optionee's termination of employment resulted from the Optionee being "disabled" within the meaning of Section 22(e)(3) of the Code, the Option shall no longer be treated as an "incentive stock option" within the meaning of Section 422 of the Code unless exercised within one (1) year following the date of such termination; and provided further, however, that, in all other cases, the Option shall no longer be treated as an "incentive stock option" within the meaning of Section 422 of the Code unless exercised within three (3) months following the date of such termination. -3- 4. Procedure for Exercise. (a) The Option may be exercised, from time to time, in whole or in part (but for the purchase of whole shares only), by delivery of a written notice (the "Notice") from the Optionee to the Secretary of the Company, which Notice shall: (i) state that the Optionee elects to exercise the Option under this Agreement; (ii) state the number of shares with respect to which the Optionee is exercising the Option (the "Acquired Shares"); (iii) include any representations of the Optionee required under Section 7(b) hereof; (iv) state the method of payment for the Acquired Shares pursuant to Section 4(b); (v) in the event that the Option shall be exercised by any person other than the Optionee pursuant to Sections 3 and 8, include appropriate proof of the right of such person to exercise the Option; and (vi) state the date upon which the Optionee desires to consummate the purchase of the Acquired Shares (which date must be prior to the termination of such Option). (b) Payment of the Option Price for the Acquired Shares shall, unless otherwise provided by the Committee, be made in cash or by personal or certified check. 5. No Rights as a Stockholder. The Optionee shall not have any privileges of a stockholder with respect to any Option Shares until the date of a stock certificate representing such Option Shares is issued to the Optionee. 6. Adjustments. (a) Stock Dividends, Splits, Subdivisions or Combinations. Subject to the other provisions of this Section 6, if, at any time while the Option is outstanding, the Common Stock is changed by reason of dividends payable in Common Stock or splits, subdivisions or combinations of shares of Common Stock, then the number of shares of Common Stock deliverable upon the exercise thereafter of the Option shall be increased or decreased proportionately, as the case may be, without change in the aggregate Option Price. (b) Cash Mergers. Upon the occurrence of a merger on consolidation of the Company with another corporation in a transaction in which the stockholders of the Company receive cash consideration in exchange for their shares of capital stock of the Company (a "cash -4- merger"), the Option shall automatically terminate; provided, however, that the Optionee shall be given (i) written notice of such cash merger at least 20 days prior to its proposed effective date (as specified in such notice) and (ii) an opportunity, during the period commencing with delivery of such notice and ending ten (10) days prior to such proposed effective date, to exercise the Option in full as to all of the Option Shares, whether or not then vested. (c) Assumption or Substitution of Options. Notwithstanding anything contained herein or in the Plan to the contrary, Section 6(b) shall not be applicable if provision shall be made in connection with such cash merger for the assumption of the Option by, or the substitution for the Option of a new option covering the stock of, the surviving, successor or purchasing corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number, kind and option price of shares subject to such option; provided, however, that the Board shall, to the extent not inconsistent with the best interests of the Company or its subsidiaries (such best interests to be determined in good faith by the Board, in its sole discretion), use its best efforts to ensure that any such assumption or substitution will not constitute a modification, extension or renewal of the Option within the meaning of Section 424(h) of the Code and the regulations thereunder. (d) Corporate Transactions. Notwithstanding anything contained herein or in the Plan to the contrary, upon the occurrence of (i) a merger or consolidation of the Company with another corporation in a transaction (other than a cash merger) in which the Company shall not survive or in which the Company is the survivor but its capital stock is exchanged for stock, securities, or property of another entity or (ii) a sale of all or substantially all of the assets of the Company (any transaction described in clause (i) or (ii) being referred to herein as a "corporate transaction"), provision shall be made in connection with such corporate transaction for the assumption of the Option by, or the substitution for the Option of a new option covering the stock of, the surviving, successor or purchasing corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number, kind and option price of shares subject to such option; provided, however, that the Board shall, to the extent not inconsistent with the best interests of the Company or its subsidiaries (such best interests to be determined in good faith by the Board, in its sole discretion), use its best efforts to ensure that any such assumption or substitution will not constitute a modification, extension or renewal of the Option within the meaning of Section 424(h) of the Code and the regulations thereunder. (e) Termination within One Year of Cash Merger or Corporate Transaction. Notwithstanding anything contained herein or in the Plan to the contrary, in the event the Optionee's employment with the Company or the person which is the surviving, successor or purchasing corporation in a cash merger to which Section 6(c) applies or a corporate transaction to which Section 6(d) applies, or a parent or subsidiary thereof, is terminated without Cause and other than as a result of the Optionee's death or disability, at any time prior to the first anniversary of such transaction or merger, the Option shall become exercisable in full as to all Option Shares, whether or not vested, as of the date on which notice of termination is given to the Optionee, and the Optionee shall have the right to exercise the Option as to any or all of such shares until the earlier -5- of (i) the expiration of the Option Term and (ii) the 90th day following the date of such termination, at which time the Option shall terminate. 7. Additional Provisions Related to Exercise. (a) The Option shall be exercisable only on such date or dates and during such period and for such number of shares of Common Stock as are set forth in this Agreement. (b) To exercise the Option, the Optionee shall follow the procedures set forth in Section 4 hereof. Upon the exercise of the Option at a time when there is not in effect a registration statement under the Securities Act of 1933, as amended, relating to the shares of Common Stock issuable upon exercise of the Option, the Optionee shall provide the Company with such representations and warranties as may be required by the Committee to the effect that the Acquired Shares are being acquired for investment and not with a view to the distribution thereof. Anything contained herein to the contrary notwithstanding, in the event the Board shall determine, in its sole and subjective discretion, that the registration, qualification or listing of the Option Shares upon a securities exchange or under any state or Federal law, or the consent or approval or any government or regulatory body, is necessary or desirable as a condition of or in connection with the exercise of the Option, the Option may not be exercised, in whole or in part, unless and until such registration, qualification, listing, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. (c) The Option shall not be affected by any change of duties or position of the Optionee (including transfer to or from a subsidiary), so long as the Optionee continues to be an employee of the Company or one of its subsidiaries. Nothing in the Option granted hereunder shall confer upon the Optionee any right to continue in the employ of the Company or any of its subsidiaries or interfere in any way with the right of the Company or its subsidiaries or the stockholders of the Company, as the case may be, to terminate the Optionee's employment or to increase or decrease the Optionee's compensation at any time. 8. Restriction on Transfer. The Option may not be transferred, pledged, assigned, hypothecated (whether by operation of law or otherwise), sold or otherwise disposed of in any way by the Optionee, except by will or by the laws of descent and distribution, and may be exercised during the lifetime of the Optionee only by the Optionee. If the Optionee dies, the Option shall thereafter be exercisable, during the applicable period specified in Section 3, by the Optionee's Designated Beneficiary or personal representatives, heirs or legatees (as provided in the Plan) to the full extent to which the Option was exercisable by the Optionee at the time of the Optionee's death as provided herein. The Option shall not be subject to execution, attachment or similar process. Any attempted transfer, pledge, assignment, hypothecation, sale or other disposition of the Option contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the Option, shall be null and void and without effect. 9. Restrictive Legends. In order to reflect certain restrictions on disposition of the shares acquired upon exercise of the Option (the "Restricted Shares"), all stock certificates -6- representing the Restricted Shares issued shall have affixed thereto any legends determined by the Company to be appropriate. 10. Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if (i) personally delivered or sent by telecopier, (ii) sent by nationally-recognized overnight courier or (iii) sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Optionee, to: Theresa A. Branchek 518 Standish Road Teaneck, New Jersey 07666 if to the Corporation, to: Synaptic Pharmaceutical Corporation 215 College Road Paramus, New Jersey 07652 Attention: President Telecopier: 201-261-0623 or to such other address as the party to whom notice is to be given may have furnished to each other party in writing in accordance herewith. Any such communication shall be deemed to have been given (i) when delivered, if personally delivered, sent by telecopier or sent by nationally-recognized overnight courier and (ii) on the third Business Day (as hereinafter defined) following the date on which the piece of mail containing such communication is posted, if sent by mail. As used herein, "Business Day" means a day that is not a Saturday, Sunday or a day on which banking institutions in the city to which the notice or communication is to be sent are not required to be open. 11. No Waiver. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. 12. Optionee Undertaking. The Optionee hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgement deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Optionee pursuant to the express provisions of this Agreement. 13. Modification of Rights. The rights of the Optionee are subject to modification and termination in certain events as provided in this Agreement and the Plan. -7- 14. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey without giving effect to principles of conflicts of laws. 15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 16. Entire Agreement. This Agreement, the Employment Agreement(the provisions relating to stock options of which are hereby incorporated herein by reference) and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof and thereof, and supersede all previously written or oral negotiations, commitments, representations and agreements with respect thereto. In the event of any inconsistency among the terms of this Agreement, the terms of the Employment Agreement and the terms of the Plan, the terms of the Employment Agreement shall control. -8- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SYNAPTIC PHARMACEUTICAL CORPORATION By:/s/ Kathleen P. Mullinix ----------------------------------------------- Kathleen P. Mullinix Chairman, President and Chief Executive Officer /s/ Theresa A. Branchek ----------------------------------------------- Theresa A. Branchek -9- EX-10.2 3 EXHIBIT 10.2 ------------ NONTRANSFERABLE NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of the 12th day of May, 1998, is by and between SYNAPTIC PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Company"), and Theresa A. Branchek (the "Optionee," which term as used herein shall be deemed to include any successor to the Optionee by will or by the laws of descent and distribution, unless the context shall otherwise require). W I T N E S S E T H: WHEREAS, the Company and the Optionee are parties to an Employment Agreement dated as of April 1, 1998 (as the same may be amended from time to time, the "Employment Agreement"); WHEREAS, pursuant to the Synaptic Pharmaceutical Corporation 1996 Incentive Plan (the "Plan"), the Company, acting through the Compensation Committee (the "Committee") of its Board of Directors (the "Board"), on May 12, 1998 (the "Start Date"), granted to the Optionee options to purchase up to an aggregate of 25,000 shares of Common Stock, $0.01 par value, of the Company (the "Common Stock"), at the price of $14.4375 per share, one of such options covering 14,173 shares of Common Stock to be for the term and upon the terms and conditions hereinafter stated and the other of such options covering 10,827 shares of Common Stock to be for the term and upon the terms and conditions set forth in the Nontransferable Incentive Stock Option Agreement of even date herewith; WHEREAS, the Company's intention is to have the two options granted on the Start Date generally become exercisable with respect to 25% of the total number of shares of Common Stock covered by both such options each year during a four-year period; and WHEREAS, due to certain tax limitations, the option agreements covering such options do not individually provide for four-year ratable vesting, although such agreements do, when considered together, so provide for such vesting. NOW, THEREFORE, in consideration of the mutual premises and undertakings hereinafter set forth, the parties hereto agree as follows: 1. Option; Option Price. Pursuant to said action of the Committee, the Company has granted to the Optionee the option (the "Option") to purchase, upon and subject to the terms and conditions of this Agreement and the terms and conditions of the Plan (which are hereby incorporated by reference herein), 14,173 shares (the "Option Shares") of Common Stock of the Company at the price of $14.4375 per share (the "Option Price"), which Option is not intended to qualify for Federal income tax purposes as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). -1- 2. Term. The term (the "Option Term") of the Option shall commence on the Start Date and expire on the tenth anniversary of the Start Date, unless the Option shall theretofore have been terminated in accordance with the terms hereof or of the Plan. 3. Exercisability; Time of Exercise. (a) General. Unless accelerated in the discretion of the Committee or as otherwise provided herein, the Option shall become exercisable as to 4,970 of the Option Shares on April 1, 1999, as to an additional 4,851 of the Option Shares on April 1, 2000, as to an additional 3,994 of the Option Shares on April 1, 2001, and as to an additional 358 of the Option Shares on April 1, 2002; provided, however, that if the Optionee dies or retires with the consent of the Company any time prior to April 1, 2002, then the Option shall be exercisable as to that number of Option Shares which is equal to the sum of (i) the total number of Option Shares, if any, as to which the Option had become exercisable through the 1st day of April immediately preceding the date of death or retirement (the "Preceding April 1st") and (ii) that number which is equal to the product of (A) the number of additional Option Shares as to which the Option would have become exercisable during the 12-month period commencing on the day following the Preceding April 1st and ending on the first April 1st immediately following such date of death or retirement had such death or retirement not occurred and (B) 1/12 times the number of full calendar months which shall have elapsed during the period commencing on the Preceding April 1st and ending on the date of the Optionee's death or retirement; provided further, however, that if, at any time prior to April 1, 2002, the Optionee's employment with the Company is terminated in contemplation of, or at any time within one (1) year following, a Change in Control (capitalized terms used and not defined herein having the meanings ascribed to them in the Employment Agreement) and such termination constitutes a Termination Without Cause or a Resignation for Good Reason, then the Option shall, as of the date of such termination, become exercisable in full as to all of the Option Shares. The Option shall remain exercisable as to all of such shares until the expiration of the Option Term, unless it is terminated earlier as provided in any of the other paragraphs of this Section 3 or Section 6 or as provided in the Plan. (b) Termination for Cause. If the Optionee shall cease to be an employee of the Company as a result of a termination by the Company for Cause, the Option shall automatically terminate on, and the Optionee shall have no further right to exercise the Option on or after, the date as of which notice of such termination is given to the Optionee by the Company. (c) Termination without Cause. If the Optionee's employment with the Company terminates for any reason other than Cause or the Optionee's death or Disability or Retirement (as defined in the Plan), the Option shall thereafter be exercisable only to the extent of the purchase rights, if any, which shall have accrued pursuant to paragraph (a) of this Section 3 as of the date of such termination, and the Option and such accrued rights to purchase shall in any event terminate upon, and the Optionee shall have no further right to exercise the Option after, the earlier of (i) the expiration of the Option Term and (ii) (A) in the case of any such termination governed by Section -2- 11 of the Employment Agreement, 120 days after the date of such termination and (B) in the case of any such termination not governed by said Section 11, 90 days after the date of such termination. (d) Termination as a Result of Disability or Retirement. If the Optionee's employment with the Company terminates as a result of the Optionee's Disability or Retirement, the Option shall thereafter be exercisable only to the extent of the purchase rights, if any, which shall have accrued pursuant to paragraph (a) of this Section 3 as of the date of such termination, and the Option and such accrued rights to purchase shall in any event terminate upon, and the Optionee shall have no further right to exercise the Option after, the earlier of (i) the expiration of the Option Term and (ii) 180 days after the date of such termination. (e) Termination as a Result of Death. If the Optionee's employment with the Company terminates as a result of the Optionee's death, the Option shall thereafter be exercisable by the Optionee's Designated Beneficiary (as defined in the Plan) or personal representatives, heirs or legatees (as provided in the Plan), but only to the extent of the purchase rights, if any, which shall have accrued pursuant to paragraph (a) of this Section 3 as of the date of such termination, and the Option and such accrued rights to purchase shall in any event terminate upon, and the Optionee shall have no further right to exercise the Option after, the earlier of (i) the expiration of the Option Term and (ii) one (1) year after the date of death. (f) Death Following Disability or Retirement. In the event of the Optionee's death within 180 days following the Optionee's termination of employment as a result of the Optionee's Disability or Retirement, the Option shall thereafter be exercisable by the Optionee's Designated Beneficiary or personal representatives, heirs or legatees, to the extent of the purchase rights, if any, which shall have accrued pursuant to paragraph (a) of this Section 3 as of the date of such termination, for a period of one (1) year following the date of death but in no event later than the expiration of the Option Term. 4. Procedure for Exercise. (a) The Option may be exercised, from time to time, in whole or in part (but for the purchase of whole shares only), by delivery of a written notice (the "Notice") from the Optionee to the Secretary of the Company, which Notice shall: (i) state that the Optionee elects to exercise the Option under this Agreement; (ii) state the number of shares with respect to which the Optionee is exercising the Option (the "Acquired Shares"); (iii) include any representations of the Optionee required under Section 7(b) hereof; (iv) state the method of payment for the Acquired Shares pursuant to Section 4(b); -3- (v) in the event that the Option shall be exercised by any person other than the Optionee pursuant to Sections 3 and 8, include appropriate proof of the right of such person to exercise the Option; and (vi) state the date upon which the Optionee desires to consummate the purchase of the Acquired Shares (which date must be prior to the termination of such Option). (b) Payment of the Option Price for the Acquired Shares shall, unless otherwise provided by the Committee, be made in cash or by personal or certified check. 5. No Rights as a Stockholder. The Optionee shall not have any privileges of a stockholder with respect to any Option Shares until the date of a stock certificate representing such Option Shares is issued to the Optionee. 6. Adjustments. (a) Stock Dividends, Splits, Subdivisions or Combinations. Subject to the other provisions of this Section 6, if, at any time while the Option is outstanding, the Common Stock is changed by reason of dividends payable in Common Stock or splits, subdivisions or combinations of shares of Common Stock, then the number of shares of Common Stock deliverable upon the exercise thereafter of the Option shall be increased or decreased proportionately, as the case may be, without change in the aggregate Option Price. (b) Cash Mergers. Upon the occurrence of a merger on consolidation of the Company with another corporation in a transaction in which the stockholders of the Company receive cash consideration in exchange for their shares of capital stock of the Company (a "cash merger"), the Option shall automatically terminate; provided, however, that the Optionee shall be given (i) written notice of such cash merger at least 20 days prior to its proposed effective date (as specified in such notice) and (ii) an opportunity, during the period commencing with delivery of such notice and ending ten (10) days prior to such proposed effective date, to exercise the Option in full as to all of the Option Shares, whether or not then vested. (c) Assumption or Substitution of Options. Notwithstanding anything contained herein or in the Plan to the contrary, Section 6(b) shall not be applicable if provision shall be made in connection with such cash merger for the assumption of the Option by, or the substitution for the Option of a new option covering the stock of, the surviving, successor or purchasing corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number, kind and option price of shares subject to such option. (d) Corporate Transactions. Notwithstanding anything contained herein or in the Plan to the contrary, upon the occurrence of (i) a merger or consolidation of the Company with another corporation in a transaction (other than a cash merger) in which the Company shall not -4- survive or in which the Company is the survivor but its capital stock is exchanged for stock, securities, or property of another entity or (ii) a sale of all or substantially all of the assets of the Company (any transaction described in clause (i) or (ii) being referred to herein as a "corporate transaction"), provision shall be made in connection with such corporate transaction for the assumption of the Option by, or the substitution for the Option of a new option covering the stock of, the surviving, successor or purchasing corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number, kind and option price of shares subject to such option. (e) Termination within One Year of Cash Merger or Corporate Transaction. Notwithstanding anything contained herein or in the Plan to the contrary, in the event the Optionee's employment with the Company or the person which is the surviving, successor or purchasing corporation in a cash merger to which Section 6(c) applies or a corporate transaction to which Section 6(d) applies, or a parent or subsidiary thereof, is terminated without Cause and other than as a result of the Optionee's death or disability, at any time prior to the first anniversary of such transaction or merger, the Option shall become exercisable in full as to all Option Shares, whether or not vested, as of the date on which notice of termination is given to the Optionee, and the Optionee shall have the right to exercise the Option as to any or all of such shares until the earlier of (i) the expiration of the Option Term and (ii) the 90th day following the date of such termination, at which time the Option shall terminate. 7. Additional Provisions Related to Exercise. (a) The Option shall be exercisable only on such date or dates and during such period and for such number of shares of Common Stock as are set forth in this Agreement. (b) To exercise the Option, the Optionee shall follow the procedures set forth in Section 4 hereof. Upon the exercise of the Option at a time when there is not in effect a registration statement under the Securities Act of 1933, as amended, relating to the shares of Common Stock issuable upon exercise of the Option, the Optionee shall provide the Company with such representations and warranties as may be required by the Committee to the effect that the Acquired Shares are being acquired for investment and not with a view to the distribution thereof. Anything contained herein to the contrary notwithstanding, in the event the Board shall determine, in its sole and subjective discretion, that the registration, qualification or listing of the Option Shares upon a securities exchange or under any state or Federal law, or the consent or approval or any government or regulatory body, is necessary or desirable as a condition of or in connection with the exercise of the Option, the Option may not be exercised, in whole or in part, unless and until such registration, qualification, listing, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. (c) The Option shall not be affected by any change of duties or position of the Optionee (including transfer to or from a subsidiary), so long as the Optionee continues to be an employee of the Company or one of its subsidiaries. Nothing in the Option granted hereunder shall confer upon the Optionee any right to continue in the employ of the Company or any of its subsidiaries or interfere in any way with the right of the Company or its subsidiaries or the -5- stockholders of the Company, as the case may be, to terminate the Optionee's employment or to increase or decrease the Optionee's compensation at any time. 8. Restriction on Transfer. The Option may not be transferred, pledged, assigned, hypothecated (whether by operation of law or otherwise), sold or otherwise disposed of in any way by the Optionee, except by will or by the laws of descent and distribution, and may be exercised during the lifetime of the Optionee only by the Optionee. If the Optionee dies, the Option shall thereafter be exercisable, during the applicable period specified in Section 3, by the Optionee's Designated Beneficiary or personal representatives, heirs or legatees (as provided in the Plan) to the full extent to which the Option was exercisable by the Optionee at the time of the Optionee's death as provided herein. The Option shall not be subject to execution, attachment or similar process. Any attempted transfer, pledge, assignment, hypothecation, sale or other disposition of the Option contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the Option, shall be null and void and without effect. 9. Restrictive Legends. In order to reflect certain restrictions on disposition of the shares acquired upon exercise of the Option (the "Restricted Shares"), all stock certificates representing the Restricted Shares issued shall have affixed thereto any legends determined by the Company to be appropriate. 10. Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if (i) personally delivered or sent by telecopier, (ii) sent by nationally-recognized overnight courier or (iii) sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Optionee, to: Theresa A. Branchek 518 Standish Road Teaneck, New Jersey 07666 if to the Corporation, to: Synaptic Pharmaceutical Corporation 215 College Road Paramus, New Jersey 07652 Attention: President Telecopier: 201-261-0623 or to such other address as the party to whom notice is to be given may have furnished to each other party in writing in accordance herewith. Any such communication shall be deemed to have been given (i) when delivered, if personally delivered, sent by telecopier or sent by nationally-recognized overnight courier and (ii) on the third Business Day (as hereinafter defined) following the date on -6- which the piece of mail containing such communication is posted, if sent by mail. As used herein, "Business Day" means a day that is not a Saturday, Sunday or a day on which banking institutions in the city to which the notice or communication is to be sent are not required to be open. 11. No Waiver. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. 12. Optionee Undertaking. The Optionee hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgement deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Optionee pursuant to the express provisions of this Agreement. 13. Modification of Rights. The rights of the Optionee are subject to modification and termination in certain events as provided in this Agreement and the Plan. 14. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey without giving effect to principles of conflicts of laws. 15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 16. Entire Agreement. This Agreement, the Employment Agreement(the provisions relating to stock options of which are hereby incorporated herein by reference) and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof and thereof, and supersede all previously written or oral negotiations, commitments, representations and agreements with respect thereto. In the event of any inconsistency among the terms of this Agreement, the terms of the Employment Agreement and the terms of the Plan, the terms of the Employment Agreement shall control. -7- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SYNAPTIC PHARMACEUTICAL CORPORATION By:/s/Kathleen P. Mullinix ----------------------------------------------- Kathleen P. Mullinix Chairman, President and Chief Executive Officer /s/Theresa A. Branchek ----------------------------------------------- Theresa A. Branchek -8- EX-27 4
5 6-MOS DEC-31-1998 JUN-30-1998 13,448,000 48,056,000 160,000 0 0 23,113,000 9,255,000 4,293,000 69,516,000 1,719,000 0 0 0 107,000 67,690,000 69,516,000 0 6,463,000 0 9,680,000 0 0 0 (1,346,000) 0 (1,346,000) 0 0 0 (1,346,000) (0.13) (0.13)
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