-----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, FOHw5lpsr2gE43xtXYH5wQnJZ042HV88uOj/O/dlp0H564g06Txnw9Mz8MscJy5x dyXk2HUCLMPqZXOegdFnmw== 0000884939-02-000021.txt : 20021114 0000884939-02-000021.hdr.sgml : 20021114 20021114093428 ACCESSION NUMBER: 0000884939-02-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNAPTIC PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000884939 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 222859704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27324 FILM NUMBER: 02822057 BUSINESS ADDRESS: STREET 1: 215 COLLEGE RD CITY: PARAMUS STATE: NJ ZIP: 07652 BUSINESS PHONE: 2012611331 10-Q 1 q32002.txt BODY OF 10-Q 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 September 30, 2002 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 07652 Paramus, NJ (Zip Code) (Address of principal executive offices) (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, as amended, 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 November 1, 2002, there were 10,977,790 shares of the registrant's Common Stock outstanding. SYNAPTIC PHARMACEUTICAL CORPORATION INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002 PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements (unaudited): Balance Sheets at September 30, 2002 and December 31, 2001... 1 Statements of Operations and Comprehensive Income (Loss) for the three months ended September 30, 2002 and 2001 and for the nine months ended September 30, 2002 and 2001.......... 2 Statements of Cash Flows for the nine months ended September 30, 2002 and 2001................................. 3 Notes to Financial Statements................................ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 13 Item 4. Controls and Procedures.......................................... 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 15 Item 6. Exhibits and Reports on Form 8-K................................. 16 Signatures....................................................... 17 Certifications Pursuant to Section 302 of Sarbanes-Oxley Act of 2002..................................................... 18 (i) PART I. FINANCIAL INFORMATION Item 1. Financial Statements SYNAPTIC PHARMACEUTICAL CORPORATION BALANCE SHEETS (in thousands, except share information) September 30, December 31, Assets 2002 2001 - ------------------------------------------------------------------------------- (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 26,234 $ 45,552 Marketable securities--current maturities 1,529 2,553 Deferred tax assets - 256 Other current assets 803 431 - ------------------------------------------------------------------------------- Total current assets 28,566 48,792 Property and equipment, net 4,610 4,268 Marketable securities - 1,545 Other assets 214 228 - ------------------------------------------------------------------------------- $ 33,390 $ 54,833 =============================================================================== Liabilities, Redeemable Convertible Preferred Stock and Stockholders' (Deficit) Equity - ------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 1,380 $ 1,441 Accrued liabilities 1,462 1,104 Accrued compensation 403 550 Deferred revenue 734 107 - ------------------------------------------------------------------------------- Total current liabilities 3,979 3,202 Deferred rent obligation 1,056 845 Series B senior redeemable convertible preferred stock; authorized, issued and outstanding--11,056 shares liquidation preference--$11,056 10,529 10,206 Series C senior redeemable convertible preferred stock; authorized, issued and outstanding--29,944 shares liquidation preference--$29,944 27,761 27,613 Stockholders' (deficit) equity: Series A preferred stock, $.01 par value; authorized--1,000,000 shares - - Common Stock, $.01 par value; authorized--25,000,000 shares issued and outstanding--10,977,790 shares in 2002 and 10,953,353 shares in 2001 109 109 Additional paid-in capital 99,428 99,376 Accumulated other comprehensive income--net unrealized 28 87 gains on securities Accumulated deficit (109,230) (86,605) - ------------------------------------------------------------------------------- Total stockholders' (deficit) equity (9,665) 12,967 - ------------------------------------------------------------------------------- $ 33,390 $ 54,833 =============================================================================== 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 nine months ended September 30, ended September 30, 2002 2001 2002 2001 - -------------------------------------------------------------------------------- Revenues: Contract revenue $ 293 $ 290 $ 879 $ 867 License revenue 83 84 1,854 250 - -------------------------------------------------------------------------------- Total revenues 376 374 2,733 1,117 Expenses: Research and development 6,339 4,677 19,574 12,777 General and administrative 2,446 1,605 6,822 5,152 - -------------------------------------------------------------------------------- Total expenses 8,785 6,282 26,396 17,929 - -------------------------------------------------------------------------------- Loss from operations (8,409) (5,908) (23,663) (16,812) Other income, net: Interest income 161 315 618 1,093 Other 121 118 362 372 - -------------------------------------------------------------------------------- Other income, net 282 433 980 1,465 - -------------------------------------------------------------------------------- Net loss before benefit from income taxes (8,127) (5,475) (22,683) (15,347) Income tax benefit - - 58 - - -------------------------------------------------------------------------------- Net loss (8,127) (5,475) (22,625) (15,347) Accretion to redemption value of mandatorily redeemable convertible preferred stock (68) (4,316) (201) (4,316) - -------------------------------------------------------------------------------- Net loss applicable to common stockholders $(8,195) $(9,791) $(22,826) $(19,663) ================================================================================ Comprehensive loss: Net loss $(8,127) $(5,475) $(22,625) $(15,347) Unrealized (losses) gains arising during period (13) 75 (60) 334 - -------------------------------------------------------------------------------- Comprehensive loss $(8,140) $(5,400) $(22,685) $(15,013) ================================================================================ Basic and diluted net loss per share $(0.75) $(0.89) $(2.08) $(1.80) ================================================================================ Shares used in computation of net loss per share 10,977,614 10,942,755 10,973,345 10,939,822 ================================================================================ See notes to financial statements. 2 SYNAPTIC PHARMACEUTICAL CORPORATION STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) For the nine months ended September 30, 2002 and 2001 2002 2001 - -------------------------------------------------------------------------------- Operating activities: Net loss $ (22,625) $ (15,347) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation 856 1,037 Amortization of premiums on securities 10 262 Deferred rent, net 225 125 Non-cash stock compensation 139 - Changes in operating assets and liabilties: Increase in other current assets (116) 100 Increase in accounts payable, accrued liabilities and accrued compensation 150 3,324 Increase in deferred revenue 624 44 - -------------------------------------------------------------------------------- Net cash (used in) operating activities (20,734) (10,455) Investing activities: Proceeds from sale or maturity of investments 2,500 22,240 Purchases of property and equipment (1,198) (540) Purchase of investments - (2,000) Proceeds from sale of equipment - 16 - -------------------------------------------------------------------------------- Net cash provided by investing activities 1,302 19,916 Financing activities: Issuance of common stock 114 38 Issuance of common stock -- 37,745 - -------------------------------------------------------------------------------- Net cash provided by financing activities 114 37,783 - -------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (19,318) 47,244 Cash and cash equivalents at beginning of period 45,552 2,037 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 26,234 $ 49,281 ================================================================================ See notes to financial statements. 3 SYNAPTIC PHARMACEUTICAL CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2002 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 accounting principles generally accepted in the United States. 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, 2001, and notes thereto included in the company's 2001 Annual Report on Form 10-K. The results of operations for the fiscal quarter ended September 30, 2002, are not necessarily indicative of the results of operations to be expected for the full year. Note 2 - Senior Redeemable Convertible Preferred Stock On August 3, 2001, the company sold to investors (the "purchasers"), 9,438 shares of Series B Preferred Stock in a private placement for $9,438,000. On September 26, 2001, the company sold 1,618 shares of Series B Preferred Stock and 29,944 shares of Series C Preferred Stock for $31,562,000. Net proceeds, after giving effect to placement fees and offering expenses, were approximately $37,745,000. The purchasers were granted certain subscription and registration rights in connection with their acquisition of the Preferred Stock. The Series B and Series C Convertible Preferred Stock (the "Preferred Stock") are two series of senior redeemable convertible preferred stock having identical terms, except that the Series B Preferred Stock has an initial conversion price of $4.3358 and the Series C Preferred Stock has an initial conversion price of $5.9713. Each share of Preferred Stock may be converted at any time at the option of the holder thereof into a number of shares of common stock determined by dividing $1,000 by the conversion price, as appropriately adjusted for any stock splits, stock dividends, combinations or similar events. All shares of Preferred Stock shall automatically be converted into common stock upon the vote to so convert of holders of a majority of the Preferred Stock then outstanding, voting together as a separate class. The Preferred Stock is currently convertible into an aggregate of 7,564,584 shares of common stock. Holders of Preferred Stock are entitled to receive dividends on a pari passu basis, if and when dividends are declared on the common stock, in an amount equal to the dividends that would have been payable had their shares been converted to common stock immediately prior to the record date for the dividend. Upon any liquidation of the company, each holder of Preferred Stock is entitled to receive $1,000, plus declared but unpaid dividends, if any, for each share held, prior to the holders of any common stock or junior preferred stock receiving any assets of the company available for distribution. Holders of Preferred Stock, voting together as a separate class, are entitled to elect two members of the board of directors, as long as 60% of the Preferred Stock issued and outstanding as of September 26, 2001 remains outstanding. The holders of the Preferred Stock are entitled to vote together with the holders of the common stock on all matters presented to our stockholders for consideration, except that as long as the holders of the Preferred Stock are entitled to vote as a separate class to elect members of the board of directors, they will not be entitled to vote for the remaining directors. Each share of Preferred Stock has a number of votes equal to the number of shares of common stock into which it may then be converted. The company may redeem all outstanding shares of Preferred Stock at any time after August 3, 2003, provided that the company can redeem these shares prior to August 3, 2009, only if the market price of the common stock is at least 200% of the conversion price then in effect for any 20 consecutive trading days ending within 10 trading days of the redemption date. The company must redeem all outstanding shares of Preferred Stock in two annual installments beginning on August 3, 2009. On any redemption, the redemption price will be $1,000 per share, as appropriately adjusted for any stock splits, stock dividends, combinations or similar events, plus declared but unpaid dividends. During 2001, the company recorded an adjustment to net loss applicable to common stockholders of $4,226,000 relating to the beneficial conversion feature inherent in the issuances of the Series B Preferred Stock. This amount was determined based upon the excess of the fair value of the company's common stock into which the Series B Preferred Stock was immediately convertible less the initial conversion price of $4.3358 per share in accordance with Emerging Issues Task Force No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios." For the nine-month period ended September 30, 2002, the company recorded an adjustment to net loss applicable to common stockholders of approximately $201,000 representing the accretion of the Series B Preferred Stock and Series C Preferred Stock to their respective redemption values. Note 3 - Recent Accounting Pronouncements In June 2002, the FASB issued SFAS no. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002. The company does not anticipate that SFAS 146 will have a material affect on the Company's financial position or results of operations. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Synaptic is a drug discovery company using G protein-coupled receptors as the basis for developing new drugs for the treatment of a variety of human disorders. We currently collaborate with Grunenthal GmbH ("Grunenthal") and Kissei Pharmaceutical Co., Ltd. ("Kissei"). In connection with our collaborative arrangement with Grunenthal, we have licensed some of our technology and patent rights to them. We have also granted licenses to some of our technology and patent rights to other pharmaceutical companies. Since our inception, we have financed our operations primarily through the sale of our stock, through contract and license revenue under license agreements, and through interest income and capital gains resulting from the investment of the proceeds of our financing activities pending use of these funds for operational activities. We have also received funds through government grants under the Small Business Innovative Research ("SBIR") program of the National Institutes of Health and through the sale of our New Jersey state tax net operating loss ("NOL") carryforwards. To date, our 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 our technologies. Historically, we have not been profitable, and at September 30, 2002 we had an accumulated deficit of $109,230,000. We incurred net losses applicable to common stockholders of $26,118,000, $13,859,000 and $15,121,000 for the fiscal years ended 2001, 2000 and 1999, respectively. We expect to continue to incur operating losses for a number of years, and we will not become profitable unless and until we receive royalty revenue or revenue from sales of drugs developed with the use of our technology or patent rights. Critical Accounting Policies Our financial statements are prepared in accordance with accounting principles generally accepted in the United States that require us to make estimates and assumptions. We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity: Revenue - ------- Revenues that we receive, or may receive, are derived from either multi-element revenue arrangements or from research services that we perform. Historically, virtually all revenue that has been recorded has been under multi-element revenue arrangements. Generally, revenue is realized or realizable and earned when all of the following criteria are met: (1) an arrangement exists, (2) services have been rendered, (3) prices of services are fixed or determinable and (4) collectibility is reasonably assured. As the structures of our arrangements are unique and may contain several different revenue components, each is reviewed on a case-by-case basis in order to determine the appropriate amount and term over which to recognize revenues. Under these multi-element revenue arrangements, we may receive one or more of the following types of revenue: license revenue, research funding revenue, milestone revenue, royalty revenue and revenue derived from sales of drugs. License revenue represents non-refundable payments for a license to one or more of our patents and/or a license to our technology. Payments for licenses are recognized as they are received or, if earlier, when they become guaranteed, provided they are independent of any continuing research activity on the related project. Otherwise, they are recognized pro-rata during the term of the related research agreement in accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." Research funding revenue includes payment to support a specified number of Synaptic's scientists. Such revenue is recognized ratably over the period in which the research is performed. Milestone revenue represents non-refundable payments for the achievement of a specified milestone under either an existing arrangement or under a license that has been granted to one or more of our patents and/or our technology. Such payments typically coincide with the achievement of a substantial element in a multi-element arrangement or measure substantive stages of progress toward completion under a long-term contract. The recognition of such payments as revenue is determined based upon the nature of the underlying arrangement. Milestone payments received under contracts where the company is performing related ongoing research, and which are deemed to have multi-element financial arrangements, will be recognized as revenue over the remaining life of the contract. Milestone payments received under license agreements are recognized as revenue as they are received or, if earlier, when they become guaranteed, provided they are independent of any research activity. Royalty revenue represents payments that may be received from the sales of drugs that may be developed using the technology or the patent rights that have been licensed. We are entitled to receive royalty payments under most of our license agreements. To date, we have not received royalty payments and we do not expect to receive such payments for a number of years, if at all. Revenue derived from the sales of drugs would be recognized if the company markets drugs. The company may develop drugs on its own or in partnership with others. As part of the agreement with Grunenthal, we have development and marketing rights in certain geographic areas with respect to any drugs that are jointly identified under the agreement. Accordingly, we may receive revenue from sales of drugs in our designated geographic areas if we market them independently, or we may receive royalty payments if we license our marketing rights to a third party. To date, we have not received revenue from the sales of drugs. The collaboration with Grunenthal is scheduled to expire on January 11, 2003. Income Taxes - ------------ We account for income taxes using the liability method. Under this method, deferred income tax assets and liabilities reflect tax carryforwards and the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes, as determined under currently enacted tax rates. Deferred tax assets are recorded if future realization is more likely than not. Deferred taxes are recorded primarily for Federal and state net operating loss carryforwards, research and development credit carryforwards and depreciation and amortization, which are reported in different periods for Federal income tax purposes than for financial reporting purposes. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. At December 31, 2001, we had approximately $29,625,000 of Federal and state net operating loss carryforwards and approximately $1,610,000 research and development credit carryforwards. We have a history of operating losses and expect these losses to increase as a result of our strategy of increasing our internal drug development efforts. These losses would remain available to us on a carryforward basis to offset any future earnings; however, deferred tax assets attributable to these net operating losses have been fully offset by a valuation allowance in the financial statements, as their future realization is uncertain. Research and Development We perform research for ourselves and for our current collaborators, Kissei and Grunenthal. As this research progresses, we designate some projects for preclinical and clinical development. Until a lead compound is chosen for development, all costs associated with that compound are considered to be research expense. Costs incurred during the research phase are not separately identifiable by project. At this preliminary or investigational stage, research is performed within a broad family of receptors with the objective of identifying lead compounds. Once a lead compound enters the preclinical development stage, costs are accumulated for each project associated with that compound. Currently, the only project for which a lead compound has been chosen is the company's depression program. The lead compound in this program was selected during the second quarter of 2000. Costs incurred on the depression program for the nine-month and inception-to-date periods ended September 30, 2002 approximated $5,543,000 and $8,093,000, respectively. Total research costs for the nine-month period ended September 30, 2002 amounted to $19,574,000. In general, from the time a lead compound is chosen until that compound reaches the market, many years may elapse. During this time, the compound must undergo clinical trials that include Phase I, Phase II and Phase III trials, the results of which are subject to review and approval by the U.S. Food & Drug Administration and other regulatory agencies. Successful completion of each trial carries its own set of risks and may cost many millions of dollars. At this stage of Phase I clinical development of the depression program, completion costs and dates cannot be estimated. Net Loss Applicable to Common Stockholders During the third quarter of 2001, we sold shares of two series of senior redeemable convertible preferred stock the Series B Convertible Preferred Stock and Series C Convertible Preferred Stock, in a private equity placement. In connection with these issuances, we recorded an adjustment to net loss applicable to common stockholders for the year ended December 31, 2001 of approximately $4,226,000 relating to the beneficial conversion feature inherent in the issuances of the Series B Convertible Preferred Stock. This amount was determined based upon the excess of the fair value of the company's common stock into which the Series B Convertible Preferred Stock was immediately convertible less the initial conversion price of $4.3358 per share in accordance with Emerging Issues Task Force No. 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios." For the nine-month period ended September 30, 2002, we recorded an adjustment to net loss applicable to common stockholders of approximately $201,000 representing the accretion of the Series B and Series C Convertible Preferred Stock to their respective redemption values. Results of Operations Comparison of the Three Months Ended September 30, 2002 and 2001 Revenues. We recognized license and contract revenue of $376,000 and $374,000 for the three months ended September 30, 2002 and 2001, respectively. Research and Development Expenses. We incurred research and development expenses of $6,339,000, and $4,677,000 for the three months ended September 30, 2002 and 2001, respectively. The increase of $1,662,000, or 36%, was attributable primarily to increases in: clinical and preclinical testing costs associated with the company's depression program; research and development salaries and fringe benefits resulting from a net increase in headcount; and preclinical testing costs associated with moving compounds in other programs towards development. General and Administrative Expenses. We incurred general and administrative expenses of $2,446,000 and $1,605,000 for the three months ended September 30, 2002 and 2001, respectively. The increase of $841,000, or 52%, was attributable primarily to increases in: severance costs incurred in complying with the terms of the separation agreement entered into with our president and chief executive officer; costs incurred in attracting a new president and chief executive officer; and an increase in legal expenses as a result of a suit filed by the company (See "Legal Proceedings" in PART II, Item 1). Other Income, Net. We recorded other income of $282,000 and $433,000 for the three months ended September 30, 2002 and 2001, respectively. The decrease of $151,000 was primarily due a decrease in interest income related to lower cash, cash equivalent and marketable securities balances during 2002 as a result of the utilization of these resources to fund the company's operations and an overall reduction in interest rates. Net loss applicable to common stockholders. Our net loss applicable to common stockholders was $8,195,000 ($0.75 per share), and $9,791,000 ($0.89 per share) for the three months ended September 30, 2002 and 2001, respectively. The decrease in net loss per share of $0.14 resulted primarily from the $4,226,000 adjustment in 2001, described in the section entitled "Net Loss Applicable to Common Stockholders," partially offset by higher expenses during the third quarter of 2002 as described above. Comparison of the Nine Months Ended September 30, 2002 and 2001 Revenues. We recognized revenue of $2,733,000 and $1,117,000 for the nine months ended September 30, 2002 and 2001, respectively. The increase in revenue of $1,616,000 resulted primarily from an increase in license revenue resulting from the grant of licenses for certain patent rights to two separate pharmaceutical companies. Research and Development Expenses. We incurred research and development expenses of $19,574,000, and $12,777,000 for the nine months ended September 30, 2002 and 2001, respectively. The increase of $6,797,000, or 53%, was attributable primarily to increases in: clinical and preclinical testing costs associated with the company's depression program; research and development salaries and fringe benefits resulting from a net increase in headcount; and preclinical testing costs associated with moving compounds in other programs towards development. General and Administrative Expenses. We incurred general and administrative expenses of $6,822,000 and $5,152,000 for the nine months ended September 30, 2002 and 2001, respectively. The increase of $1,670,000, or 32%, was attributable primarily to increases in: severance costs associated with the separation agreement entered into with our president and chief executive officer; costs incurred in attracting a new president and chief executive officer; an increase in patent expenses and an increase in legal expenses as a result of a suit filed by the company (See "Legal Proceedings" in PART II, Item 1). Other Income, Net. We recorded other income of $980,000 and $1,465,000 for the nine months ended September 30, 2002 and 2001, respectively. The decrease of $485,000 was primarily due a decrease in interest income related to lower cash, cash equivalent and marketable securities balances during 2002 as a result of the utilization of these resources to fund the company's operations and an overall reduction in interest rates. Income tax benefit. During the nine months ended September 30, 2002, we recorded a $58,000 income tax benefit related to the sale of a portion of our New Jersey state net operating loss carryforwards. Net loss applicable to common stockholders. Our net loss applicable to common stockholders was $22,826,000 ($2.08 per share), and $19,663,000 ($1.80 per share) for the nine months ended September 30, 2002 and 2001, respectively. The increase in net loss per share of $0.28 resulted primarily from higher expenses partially offset by higher revenues during the second quarter of 2002 as described above. Operating Trends. Our revenues may vary from period to period depending on numerous factors, including the timing of revenue earned under license agreements and revenue that may be earned under future collaborative and/or license agreements. During 2001 and for the nine-month period ended September 30, 2002, we recognized revenue under our research and licensing agreement with Kissei Pharmaceutical Co., Ltd. and will continue to recognize additional revenues under this agreement during the remainder of 2002. Also during the second quarter of 2002 we recognized revenue relating to the licensing of certain of the company's patent rights to Procter and Gamble Pharmaceuticals and Ranbaxy Laboratories Limited. Under the terms of some of our license agreements, revenues may be recognized if specified milestones are achieved. We continue to monitor our spending level in order to ensure that we have enough cash to last through the second quarter of 2003. We continue to assess the opportunity for obtaining additional funding under new collaborative and/or license agreements as well as through equity financings. Since late 2000, we have been pursuing a new business strategy of increasing our internal drug development efforts. This new strategy requires us to hire additional employees with drug development expertise and to incur additional preclinical expenses as well as expenses associated with clinical trials. We expect to sign a contract for clinical services that may result in approximately $2,800,000 of expenditures for the services provided under the contract. Legal expenses are expected to continue to be a significant expense as a result of a suit filed by the company. See "Legal Proceedings" in PART II, Item 1. Other income, net is expected to decrease during 2002 because of less favorable short-term interest rates. This decrease will, however, be somewhat mitigated by an increase in rental income that we expect to recognize under our existing sublease agreements. We are pursuing further sales of our state tax NOL carryforwards and our state research and development credits under the State of New Jersey's Technology Business Tax Certificate Transfer Program (the "Program"). No assurance can be given, however, as to the amount of NOL carryforwards that may be sold under the Program in any one year. External factors that may have an effect on future NOL sales include limitations imposed by State law and availability of buyers and related demand. Property and equipment spending may vary from period to period depending on numerous factors, including the level of drug development efforts, the number of collaborations in which we are involved at any given time, and replacement due to normal wear and obsolescence. Equipment spending in 2002 has increased from that of 2001. At September 30, 2002, we held marketable securities with an estimated fair value of $1,529,000. Our primary interest rate exposure results from changes in short-term interest rates. We do not purchase financial instruments for trading or speculative purposes. All of the marketable securities we hold are classified as available-for-sale securities. The following table provides information about marketable securities that we held at September 30, 2002: Principal Amount and Stated Rate by Estimated Fair Expected Maturity Value - ------------------------------------------------------ ----------------- (000's) 2003 (000's) - ------------------------------------------------------ ------------------ Principal $1,500 $1,529 Stated Rate 6.20% -- - ------------------------------------------------------ ------------------ The stated rates of interest expressed in the above table may not approximate the actual yield of the securities that Synaptic currently holds since we have purchased some marketable securities at other than face value. Additionally, the securities represented in the above table may be called or redeemed, at the option of the issuer, prior to their expected due dates. If early redemptions occur, we may reinvest the proceeds realized on such calls or redemptions in marketable securities with stated rates of interest or yields that are lower than those of current holdings, affecting both future cash interest streams and future earnings. In addition to investments in marketable securities, we place some of our cash in money market funds in order to keep cash available to fund operations and to hold cash pending investments in marketable securities. Fluctuations in short term interest rates will affect the yield on monies invested in such money market funds. Such fluctuations can have an impact on future cash interest streams and future earnings, but the impact of such fluctuations are not expected to be material. We do not believe that inflation has had a material impact on our results of operations. Liquidity and Capital Resources At September 30, 2002 and December 31, 2001, cash, cash equivalents and marketable securities aggregated $27,763,000 and $49,650,000, respectively. This decrease was primarily the result of the utilization of these resources to fund our operations. We intend to utilize our cash primarily for research, preclinical and clinical development costs, for patent related expenditures, for general corporate purposes, for leasehold improvements to our facilities and for the purchase of property and equipment. We expect to continue to incur operating losses for a number of years. Additionally, we expect to sign a contract for clinical services that may result in approximately $2,800,000 of expenditures for the services provided under the contract. We believe that cash, cash equivalents and marketable securities on hand, and interest payments on investments, will be sufficient to fund operations, as well as to support our share of certain development costs under the Grunenthal Agreement, if any, through the second quarter of 2003. We are considering various alternatives as to how best to raise cash and in what amount. The alternatives we are considering include an equity financing, partnerships and collaborations with pharmaceutical and biotech companies, and possible M & A activities. To date, we have met our cash requirements through the sale of our stock, through contract and license revenue, through interest income and gains resulting from our investments, through SBIR grants and through sales of portions of our state research and development credits and state NOL carryforwards. As of December 31, 2001, we had NOL carryforwards of approximately $76,000,000 for Federal income tax purposes that will expire principally in the years 2002 through 2021. In addition, we had Federal research and development credit carryforwards of approximately $1,610,000 that will expire principally in 2002 through 2018. Also at December 31, 2001, we had NOL carryforwards of approximately $61,000,000 for state income tax purposes and state research and development credit carryforwards of $311,000. For financial reporting purposes, a valuation allowance has been recognized to offset the deferred tax assets related to these carryforwards. We lease laboratory and office facilities under an agreement expiring on December 31, 2015. The minimum annual payment under the lease is currently $1,835,000. The lease provides for fixed escalations in rent payments in the years 2005 and 2010. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk Quantitative and qualitative disclosures about market risk (i.e., interest rate risk) are included in Item 2 of this Report. 13 Item 4. Controls and Procedures The Company's chief executive officer and principle accounting officer performed an evaluation of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing of this quarterly report on Form 10-Q. Based on this evaluation, the Company believes that such controls and procedures effectively ensure that information required to be disclosed in this quarterly report on Form 10-Q is appropriately recorded, processed and reported. There have been no significant changes in the Company's disclosure controls and procedures or in other factors that could significantly affect these controls subsequent to the date of their evaluation. 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings On June 5, 2000, we filed suit in the United States District Court for the District of New Jersey against M.D.S. Panlabs, Inc., a Washington corporation, and Panlabs Taiwan Ltd., a Taiwanese corporation (collectively, "Panlabs"). The suit alleges that Panlabs has infringed several issued U.S. Patents owned by Synaptic that relate to cloned human receptors and their use in binding assays. The suit also alleges that Panlabs has been importing, selling and offering to sell products of our patented binding assay processes to pharmaceutical companies and others in the United States, particularly in New Jersey. On December 14, 2001, we filed a suit in the United States District Court for the District of New Jersey against Euroscreen, S.A., a Belgian corporation ("Euroscreen"). The suit alleges that Euroscreen has infringed numerous issued U.S. Patents owned by us, which relate to cloned human receptors and their use in binding assays. The suit alleges that Euroscreen has been importing, selling and offering to sell products of our patented binding assay processes to pharmaceutical companies and others in the United States, particularly in New Jersey, and that Euroscreen has conspired with Panlabs to infringe our patents. The suits seek injunctions against the infringing activities of Euroscreen and Panlabs, damages, the destruction of data obtained by the infringement of patents and other relief. We believe that our complaint against Panlabs and Euroscreen is well founded and necessary to protect the value of our intellectual property assets. We believe that an adverse resolution of the above matters would not have a material adverse effect on our ongoing business. 15 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Employment agreement, dated as of September 9, 2002,between the Company and Dr. Errol B. De Souza, filed herewith 10.2 Incentive Stock Option Agreement, dated as of September 9, 2002,between the Company and Dr. Errol B. De Souza, filed herewith 10.3 Nonqualified Stock Option Agreement, dated as of September 9, 2002, between the Company and Dr. Errol B. De Souza, filed herewith 10.4 Nonqualified Stock Option Agreement relating to non-plan options, dated as of September 9, 2002, between the Company and Dr. Errol B. De Souza, filed herewith 99.1 Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K during the fiscal quarter ended September 30, 2002 relating to a Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 certifying information in the June 30, 2002 10-Q. - --------------- Safe Harbor Statement 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 "expects," "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 in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (the "2001 Form 10-K"), including in Item 1 of the 2001 Form 10-K under the captions "Patents, Proprietary Technology and Trade Secrets," "Competition" and "Government Regulation" as well as in the section entitled "Risk Factors" 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 materially 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. 16 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 Date: November 14, 2002 By: /s/ Errol B. De Souza ------------------------------- Name: Errol B. De Souza Title: President and Chief Executive Officer By: /s/ Edmund M. Caviasco -------------------------------- Name: Edmund M. Caviasco Title: Controller (Principal Accounting Officer) 17 CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002 I, Errol B. De Souza, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Synaptic Pharmaceutical Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4.The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, is made known to us by others within Synaptic Pharmaceutical Corporation, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 By: /s/ Errol B. De Souza ------------------------------- Name: Errol B. De Souza Title: President and Chief Executive Officer 18 CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002 I, Edmund M. Caviasco, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Synaptic Pharmaceutical Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4.The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, is made known to us by others within Synaptic Pharmaceutical Corporation, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 By: /s/ Edmund M. Caviasco ------------------------------- Name: Edmund M. Caviasco Title: Controller and Principal Accounting Officer 19 EX-10.1 4 q32002ex10p1.txt DESOUZA EMP AGREE EMPLOYMENT AGREEMENT dated as of September 9, 2002, between SYNAPTIC PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Company"), and Errol de Souza (the "Employee"). Effective as of the Start Date (as defined below), the Employee is hereby employed by the Company as its Chief Executive Officer and President. As a result of such employment by the Company, the Employee will possess special and particular knowledge of the business and operations of the Company and of the industry in which it operates. The Company and the Employee desire to set forth in writing the terms of the Employee's employment by the Company in the capacity of Chief Executive Officer and President. ACCORDINGLY, in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto agree as follows: 1. Employment. The Company hereby employs the Employee, and the Employee hereby accepts such employment by the Company, on the terms and subject to the conditions hereinafter set forth. 2. Term. Subject to earlier termination as provided herein, the employment of the Employee hereunder shall be for a four year period commencing on September 9, 2002 (the "Start Date") and ending on the fourth anniversary of the Start Date; provided, however, that commencing as of such fourth anniversary and on each anniversary thereafter, unless either party hereto gives the other party at least 90 days' prior written notice of its or the Employee's election not to extend or further extend the period of the Employee's employment hereunder, such period shall automatically be extended for an additional one-year period on the same terms and conditions set forth herein, unless otherwise mutually agreed upon by the parties in writing. For convenience of reference, such period of employment, as the same may be extended or earlier terminated as aforesaid, is referred to herein as the "Employment Period." 3. Duties. (a) During the Employment Period, the Employee shall be employed as the Chief Executive Officer and President of the Company and shall perform such duties for the Company consistent with such position as may be provided for in the By-Laws and/or reasonably assigned to the Employee from time to time by the Board of Directors of the Company (the "Board"). The Employee shall report to the Board. In addition, as soon as practicable after the Start Date, the Employee shall be appointed to the Board as a member thereof. If the Board determines that it is in the best interests of the Company to elect or appoint a Chairman of the Board, the Employee shall be considered for such position in good faith by the Board and such candidacy shall be reviewed in an appropriate and serious manner. (b) The Employee shall perform the Employee's duties hereunder at the offices of the Company in Paramus, New Jersey; provided, however, that the Company may require the Employee to travel in connection with the performance of such duties. (c) The Employee represents and warrants that the performance by Employee of the Employee's duties and obligations under this Agreement will not violate any agreement between the Employee and any other person, firm, partnership, corporation or other organization. 4. Time to be Devoted to Employment. Except for vacations and absences due to temporary illness in accordance with the policies of the Company, during the Employment Period, the Employee shall devote all of the Employee's business time, attention and energies to the performance of the Employee's duties under this Agreement. During the Employment Period, the Employee shall not, without the prior written consent of the Board, be engaged in any other business activity which, in the judgment of the Board, conflicts with the duties of the Employee under this Agreement, whether or not such activity is pursued for gain, profit or other pecuniary advantage; provided, however, that the Employee shall be allowed, to the extent such activities do not substantially interfere with the performance by the Employee of his duties and responsibilities hereunder, to (a) manage the Employee's personal, financial and legal affairs, and (b) serve on the corporate, civic or charitable boards or committees set forth on Schedule A hereto. 5. Compensation; Reimbursement. (a) Base Salary. During the Employment Period, the Company shall pay to the Employee a base salary of $450,000 per annum, subject to increase by the Board, in its sole discretion. For convenience of reference, such base salary, as the same may be increased as aforesaid, is referred to herein as the "Base Salary." The Base Salary shall be payable in such installments (but not less frequent than monthly) as is the policy of the Company generally with respect to its executive officers. The Base Salary shall be reviewed annually by the Board for increases only, as determined by the Board in its sole discretion. (b) Annual Performance Bonus. The Employee shall be eligible to receive for each calendar year of the Company (or portion thereof) ending during the Employment Period a cash bonus having a target amount equal to 50% of the Employee's Base Salary for such calendar year (or portion thereof) and based on and subject to the achievement of annual performance objectives determined by the Board. Each such cash bonus, if earned, will be payable to the Employee within ninety days after the end of the calendar year in respect of which such bonus is earned. Additional bonuses may be approved by the Board, in its sole discretion. Notwithstanding the above, for calendar year 2002 only, the Employee shall be entitled to receive, if the Employee has not voluntarily resigned (or given notice thereof) prior to January 1, 2003, a guaranteed pro-rated bonus for 2002 equal to $225,000, multiplied by a fraction, the numerator of which is the number of days the Employee is employed by the Company after the Start Date and prior to January 1, 2003, and the denominator of which is 365. (c) Benefits. During the Employment Period, the Employee shall be eligible for such benefits as are generally made available to other executive officers of the Company. (d) Reimbursement of Expenses. During the Employment Period, the Company shall reimburse the Employee, in accordance with the policies and practices of the Company in effect from time to time during such Period, for all reasonable and necessary traveling expenses and other disbursements incurred by the Employee for or on behalf of the Company in connection with the performance of the Employee's duties hereunder (such expenses being referred to herein as "Reimbursable Expenses") upon presentation by the Employee to the Company of appropriate documentation therefor. (e) Option Grants. The Employee shall be granted on the Start Date two separate options to purchase in the aggregate 1,000,000 shares of the Common Stock of the Company, $.01 par value (the "Common Stock"), at a price per share equal to the fair market value of the Common Stock as of the Start Date. The first, an option to acquire 250,000 shares, (A) shall be granted under and subject to the Company's 1996 Incentive Plan (the "Plan") and, to the extent permitted by law, shall be treated as an "incentive stock option" (under Section 422 of the Internal Revenue Code of 1986, as amended), and (B) shall be made pursuant to the terms and conditions of the Company's standard form of stock option agreement, except as modified to reflect the terms and provisions herein. The second option, to acquire 750,000 shares, shall be granted on similar terms, but shall not be granted under the Plan, and shall be made pursuant to the terms and conditions of a stock option agreement similar to the Company's standard form of stock option agreement, except as modified to reflect the terms and provisions herein. Each such stock option will provide, among other things, for pro-rata four-year vesting of the option shares covered thereby, with the option becoming vested monthly in 48 monthly installments beginning on the date in the month immediately following the month in which the option is granted that corresponds to the actual date grant of the option. The Employee shall be considered for additional stock options each year to be determined by the Company's Compensation Committee of the Board in its sole discretion. The form of such stock option agreements is attached hereto as Exhibit A. (f) Signing Bonus. The Employee shall be entitled, subject to the vesting and forfeiture conditions set forth below, to receive a one-time signing bonus (the "Signing Bonus") equal to $150,000, payable within thirty days after the Start Date. The Signing Bonus shall vest as to 25% of the aggregate bonus amount on each of the first four anniversaries of the Start Date. In the event of the Employee's termination of employment due to death, a Disability Termination, Termination Without Cause or a Resignation For Good Reason, the Signing Bonus shall become 100% vested as of the date of any such termination. In the event of the Employee's termination for any other reason prior to the fourth anniversary of the Start Date, any unvested portion of the Signing Bonus shall be immediately forfeited and returned in gross amount to the Company by the Employee or the Employee's estate, beneficiaries or other legal representatives. In addition, the Company shall have the right to offset the amount of any such obligation of the Employee against and in reduction of any severance or other benefits or payments which the Employee (or the Employee's estate or beneficiaries) may otherwise be entitled to receive from the Company under this Agreement or otherwise. The Employee and the Company each agree that the aggregate amount of the Signing Bonus shall be treated for all income and payroll tax purposes as ordinary, wage-type compensation actually received in 2002 and all tax returns and other documentation filed or issued by the Employee and/or the Company shall reflect and be consistent with such treatment. Consistent with the above and to the extent required by law or regulation, the Company shall report any amounts of the Signing Bonus returned to the Company by or in respect of the Employee as ordinary income and, to the extent permitted by applicable law and regulation, the Company shall not object to any deduction claimed by the Employee in respect thereof. (g) Relocation Expenses. The Employee shall be entitled, to be reimbursed by the Company against receipt of proper invoices for up to $130,000 for all reasonable out-of-pocket costs, including, without limitation, interim living expenses, household property storage costs, real estate closing costs and income tax increases attributable to reimbursements hereunder, related to the relocation of the Employee (and his spouse and dependent children) from Basking Ridge, New Jersey to Paramus, New Jersey or any other township within 30 miles of Paramus, New Jersey. 6. Termination of Employment. (a) General. The Company may terminate the Employee's employment hereunder at any time for any reason. The Employee may terminate the Employee's employment hereunder pursuant to a Resignation for Good Reason, a Voluntary Termination or a Disability Termination. The Employee's employment shall terminate automatically upon the Employee's death. Any termination of the Employee's employment is referred to herein as a "Termination of Employment." Upon the occurrence of any Termination of Employment, the Employee shall immediately resign from any membership on the Board and from any committees thereof (and the Employee shall promptly tender to the Board a written resignation letter effecting the foregoing). (b) Termination Notice. The Company or the Employee may initiate a Termination of Employment in any manner permitted hereunder by giving the other party written notice thereof (the "Termination Notice"). (c) Termination Date. The effective date (the "Termination Date") of any Termination of Employment shall be deemed to be the later of (i) the date on which the Termination Notice is given and (ii) the date specified as the effective date in the Termination Notice; provided, however, that in the case of the Employee's death, the Termination Date shall be the date of death and in the case of a Disability Termination, the Termination Date shall be the thirtieth (30th) day after receipt by the Employee or the Company of the Termination Notice stating that the termination is a Disability Termination. 7. Termination by the Company. (a) Termination for Cause. Any Termination of Employment initiated by the Company upon the occurrence of an event that constitutes Cause shall be a "Termination for Cause." For purposes of this Agreement, the term "Cause" shall mean (i) the Employee's willful failure to perform those duties that the Employee is required or expected to perform as an employee of the Company under Section 3 hereof (other than due to a physical disability certified by a physician reasonably acceptable to the Company), (ii) the Employee's engaging in willful misconduct or gross negligence that is materially injurious to the Company, (iii) the Employee's conviction of a felony, or (iv) the Employee's dishonesty intended to personally enrich the Employee at the Company's expense. In the event of a Termination for Cause, the Termination Notice given to the Employee by the Company shall state that the Termination of Employment is "for Cause." Such written notice shall specify the particular act or acts, or failure to act, which is or are the basis for the decision to so terminate the Employee's employment for Cause. The Employee shall be given the opportunity within 30 calendar days of the receipt of such notice to meet with the Board to defend such act or acts, or failure to act, and the Employee shall be given 15 days after such meeting to cure such act (or failure to act) to the Board's reasonable satisfaction. Upon failure of the Employee, within such latter 15 day period, to so cure such act or failure to act, the Employee's employment by the Company shall be deemed terminated for Cause. For purposes of this Section 7(a), any conduct engaged in by the Employee shall not be deemed to be willful misconduct if that conduct is taken, or engaged in, by the Employee with a good faith belief that such conduct was in the best interests of the Company. (b) Termination Without Cause. Any Termination of Employment initiated by the Company (other than a Termination for Cause or a Disability Termination or due to death) shall be a "Termination Without Cause" and the Employee shall be given at least thirty days prior written notice of any such Termination Without Cause. 8. Termination by the Employee. (a) Resignation for Good Reason. Any Termination of Employment initiated by the Employee within 90 days following the occurrence, without the Employee's express written consent, of any of the following events shall be a "Resignation for Good Reason" and the Company shall be given at least fifteen days prior written notice of any such Resignation for Good Reason: (i) any material reduction in the Employee's responsibilities or authority within the Company, including, without limitation, a material change in the Employee's reporting rights or duties or the Employee not being the chief executive officer of any entity that results from the merger of the Company into or with any other entity in connection with a Change in Control pursuant to Section 11(d) below; (ii) any reduction in the Employee's Base Salary or target bonus amount; (iii) any relocation of the Employee's principal office location to a location more than 35 miles from Paramus, New Jersey; and (iv) any material reduction in the Employee's welfare benefits in the aggregate (other than any across-the-board reduction imposed on substantially all other members of the Company's senior management). (b) Other Termination by the Employee. Any Termination of Employment initiated by the Employee (other than a Termination of Employment resulting from the Employee's death, a Resignation for Good Reason or a Disability Termination) shall be a "Voluntary Termination" and the Company shall be given at least thirty days prior written notice of any such Voluntary Termination. 9. Termination by the Company or by the Employee--Disability Termination. Any Termination of Employment resulting from the Employee's Disability shall be a "Disability Termination." For purposes of this Agreement, the term "Employee's Disability" shall mean the Employee's illness or other physical or mental disability that prevents the Employee from performing the Employee's duties hereunder for a period of 90 consecutive days or 120 business days in any twelve month period. In the event of a Disability Termination, the Termination Notice given to one party by the other party shall state that the Termination of Employment is a "Disability Termination." 10. Effect of Termination of Employment Generally. In the Event of a Termination of Employment (including without limitation a Voluntary Termination and a Termination for Cause), neither the Employee nor the Employee's estate or beneficiaries shall have any further rights or claims against the Company under this Agreement (other than as contemplated by Section 11), except the right to receive: (i) the portion of the Base Salary which accrued with respect to the period prior to the Termination Date but which remained unpaid as of the Termination Date; (ii) the aggregate amount of Reimbursable Expenses which were incurred prior to the Termination Date but which were not reimbursed by the Company as provided in Section 5(d) prior to the Termination Date; and (iii) any other benefits to which the Employee may be entitled upon such Termination of Employment under the plans, programs and policies of the Company then in effect, which benefits shall be payable in accordance with the terms of such plans, programs and policies. 11. Effect of Termination Without Cause, Resignation for Good Reason, Disability Termination, Termination Due to the Employee's Death, or Termination after a Change in Control Without Cause or for Good Reason. (a) In the event that the Employee's employment with the Company is terminated prior to the occurrence of a Change in Control (as defined below) and such termination constitutes a Termination Without Cause or a Resignation for Good Reason, neither the Employee nor the Employee's estate or beneficiaries shall have any further rights or claims against the Company under this Agreement other than the following: (i) the right to receive all amounts and benefits to which the Employee would be entitled under Section 10 upon a Termination of Employment; (ii) twelve (12) months of Base Salary continuation commencing upon the execution by the Employee of a general release in favor of the Company, its subsidiaries and affiliates, and its officers, employees, and directors, in form and substance acceptable to the Company; (iii) twenty-four (24) months additional vesting of the stock options granted under and referred to in Section 5(e) above; (iv) in the event only of a Termination Without Cause, a pro-rated bonus for the year of termination equal to the target bonus amount for such year multiplied by a fraction, the numerator of which shall be the number of days worked in the current calendar year prior to the Termination Without Cause, and the denominator of which shall be 365; and (v) continuation of the Employee's (A) life insurance coverage for one year after the Termination Date, and (B) medical benefits for one year after the Termination Date to be provided through payment of the Employee's COBRA premium amount (less any contribution requirement of the Employee as of the date of termination), and continuation for one year after the Termination Date of any other welfare benefits the Employee was participating in on such date to the extent permitted by the terms and provisions of the programs providing such benefits. (b) In the event of a Disability Termination, neither the Employee nor the Employee's estate or beneficiaries shall have any further rights or claims against the Company under this Agreement other than the following: (i) the right to receive all amounts and benefits to which the Employee would be entitled under Section 10 upon a Termination of Employment; (ii) a pro-rated bonus payment, payable upon the execution by the Employee of a general release in favor of the Company, its subsidiaries and affiliates, and its officers, employees, and directors, in form and substance acceptable to the Company for the year of termination equal in amount to the average annual bonus amount earned and paid to the Employee during the Employment Period multiplied by a fraction, the numerator of which is the number of days worked in the current calendar year of the Company prior to the Disability Termination, and the denominator of which is 365; and (iii) twelve (12)months additional vesting of the stock options granted under and referred to in Section 5(e) above. (c) In the event of the Employee's death, neither the Employee nor the Employee's estate or beneficiaries shall have any further rights or claims against the Company under this Agreement other than the following: (i) the right to receive all amounts and benefits to which the Employee would be entitled under Section 10 upon a Termination of Employment; (ii) a pro-rated bonus payment, payable upon the execution by the Employee's estate of a general release in favor of the Company, its subsidiaries and affiliates, and its officers, employees, and directors, for the year of termination equal in amount to the average annual bonus amount earned and paid to the Employee during the Employment Period, multiplied by a fraction, the numerator of which is the number of days worked in the current calendar year of the Company prior to the date of the Employee's death, and the denominator of which is 365; and (iii) twelve (12)months additional vesting of the stock options granted under and referred to in Section 5(e) above. (d) In the event the Employee's employment with the Company is terminated on or after the occurrence of a Change in Control and such termination constitutes a Termination Without Cause or a Resignation for Good Reason, neither the Employee nor the Employee's estate or beneficiaries shall have any further rights or claims against the Company under this Agreement other than the following: (i) the right to receive all amounts and benefits to which the Employee would be entitled under Section 10 upon a Termination of Employment; (ii) twelve (12) months of Base Salary, payable in one lump sum upon the execution by the Employee of a general release in favor of the Company, its subsidiaries and affiliates, and its officers, employees, and directors, in form and substance acceptable to the Company; (iii) 100% accelerated vesting and exercisability of all stock options outstanding on the date of such Termination of Employment. (iv) in the event only of a Termination Without Cause, a pro-rated bonus for the year of termination equal to the target bonus amount for such year multiplied by a fraction, the numerator of which shall be the number of days worked in the current calendar year of the Company prior to the Termination Without Cause, and the denominator of which shall be 365; and (v) continuation of the Employee's (A) life insurance coverage for one year after the Termination Date, and (B) medical benefits for one year after the Termination Date to be provided through payment of the Employee's COBRA premium amount (less any contribution requirement of the Employee as of the date of termination), and continuation for one year after the Termination Date of any other welfare benefits the Employee was participating in on such date to the extent permitted by the terms and provisions of the programs providing such benefits. In addition, the Employee's employment shall be deemed to have been terminated following a Change in Control (as defined below) by the Company without Cause or by the Employee with Good Reason (a) if the Employee reasonably demonstrates that the Employee's employment was terminated within 90 days prior to a Change in Control without Cause at the request of a person (as defined below) who has entered into an agreement with the Company the consummation of which will constitute a Change in Control (or who has taken other steps reasonably calculated to effect a Change in Control) or (b) if the Employee terminates his employment for Good Reason within 90 days prior to a Change in Control and the Employee reasonably demonstrates that the circumstance(s) or event(s) which constitute such Good Reason occurred at the request of any such person. For purposes of this Section 11(d), "Change in Control" shall mean and shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least a majority of the directors of the Company then still in office who were directors at the beginning of the period. If the benefits payable hereunder, together with other payments in the nature of compensation to or with respect to the Employee, would otherwise be subject to the excise taxes imposed under Section 280G of the Internal Revenue Code of 1986, as amended ("Code"), and if the net value of such benefits and payments in the nature of compensation, after reduction for such taxes, is less than the aggregate value of the benefits and payments in the nature of compensation determined as if such amounts had been $1.00 less than a maximum amount which could be paid without imposition of excise taxes, then the benefits payable hereunder shall be reduced to highest amount such that such excise taxes shall not be imposed with respect to the benefits or the other payments in the nature of compensation. It is the intention of this provision to reduce benefits payable hereunder only if the Employee would be in a superior position taking into account such excise taxes than if such payments were made, and such reduction shall, in any event, be the least amount in order that the Employee be better off with the reduction than before such reduction. The calculation of the value of benefits payable hereunder and other payments in the nature of compensation, and the implications of the excise tax rules of Section 280G of the Code, shall be determined by the Company in good faith based on written advice of a national accounting firm. 12. Non-solicitation of Employees. The Employee agrees that during the term of the Employee's employment with the Company and for a period of one year after the termination of the Employee's employment with the Company for any reason, the Employee shall not directly or indirectly recruit, solicit or otherwise induce or attempt to induce any current employees, or employees separated from employment with the Company for less than one year, of, or any consultants or scientific or other advisors to, the Company to leave the employment of the Company or to cease advising or providing services to the Company. 13. Non-competition. The Employee agrees that during the term of the Employee's employment with the Company and for a period of one year after the termination of the Employee's employment with the Company for any reason (other than a Termination Without Cause), the Employee shall not directly or indirectly, except as a passive investor in publicly held companies not exceeding 3% of the issued and outstanding shares of any such company, engage, within or with respect to the United States of America, in competition with the Company or any of its subsidiaries, or own or control any interest in, or act as director, officer or employee of, or consultant to, any firm, corporation or institution directly or indirectly engaged in competition with the Company or any of its subsidiaries. For purposes of this Section 13, "competition with the Company or any or its subsidiaries" shall mean engaging in or assisting others in the discovery or development of products or services which have been, or are being, developed by the Company (or are substantially related to such products or services) as of or at the Termination Date and/or activities otherwise involving the Company's technology platform at the Termination Date, and "products" shall be defined and identified, among other criteria, by reference to the underlying mechanisms of action (e.g., their biological targets). 14. Confidentiality. The Employee agrees that the Employee will not (except as required in the course of employment with the Company), both during the term of Employee's employment with the Company and thereafter, communicate or divulge to, or use for Employee's own benefit or the benefit of any other person, firm or organization, any confidential and proprietary information of the Company and its subsidiaries (other than when required to do so in good faith to perform the Employee's duties and responsibilities under this Agreement or when (a) required to do so by a lawful order of a court of competent jurisdiction, any governmental authority or agency, or any recognized subpoena power). All, records, files, memoranda, reports, price lists, drawings, plans, sketches and documents and the like, relating to the business of the Company, which Employee shall use or prepare or come into contact within the course of, in connection with, or as a result of employment with the Company, shall remain the Company's sole and exclusive property. Notwithstanding the immediately preceding sentences, Confidential Information shall not include any information that is, or becomes, generally available to the public (unless such availability occurs as a result of the Employee's breach of any portion of this Section 14. 15. Ownership of Inventions. Each Invention made, conceived or first actually reduced to practice by the Employee, whether alone or jointly with others, during the term of Employee's employment with the Company and each Invention made, conceived or first actually reduced to practice by the Employee, whether alone or jointly with others, within one year after the termination of Employee's employment with the Company which relates in any way to work performed for the Company during the term of Employee's employment, shall be promptly disclosed in writing to the Board. Such report shall be sufficiently complete in technical detail and appropriately illustrated by sketch or diagram to convey to one skilled in the art of which the invention pertains, a clear understanding of the nature, purpose, operations, and, to the extent known, the physical, chemical, biological or other characteristics of the Invention. As used in this Agreement, "Invention" means any invention, discovery or innovation with regard to chemistry, enzymology, biotechnology, genetic engineering, medicine, pharmaceuticals or recombinant DNA technology, whether or not patentable, made, conceived, or first actually reduced to practice by Employee, alone or jointly with others, in the course of, in connection with, or as a result of service as an executive of the Company, including any art, method, process, machine, manufacture, design or composition of matter, or any improvement thereof, or any variety of plant or microorganism. Each invention, as herein defined, shall be the sole and exclusive property of the Company. The Employee agrees to execute an assignment to the Company or its nominee of the Employee's entire right, title and interest in and to any Invention, without compensation beyond that provided in this Agreement. The Employee further agrees, upon the request of the Company and at its expense, that the Employee will execute any other instrument and document necessary or desirable in applying for and obtaining patents in the United States and in any foreign country with respect to any Invention. The Employee further agrees, whether or not the Employee is then an employee of the Company, to cooperate to the extent and in the manner reasonably requested by the Company in the prosecution or defense of any claim involving a patent covering any Invention or any litigation or other claim or proceeding involving any Invention covered by this Agreement, but all expenses thereof shall be paid by the Company. 16. Breach of Restrictive Covenants. (a) The Employee acknowledges and agrees that the Company will have no adequate remedy at law, and would be irreparably harmed, if the Employee breaches or threatens to breach any of the provisions of Sections 12, 13, 14 and/or 15 of this Agreement. The Employee agrees that the Company shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of such Sections, and to specific performance of each of the terms of such Sections in addition to any other legal or equitable remedies that the Company may have. The Employee further agrees that the Employee shall not, in any equity proceeding relating to the enforcement of the terms of Sections 12, 13, 14 and/or 15, raise the defense that the Company has an adequate remedy at law. (b) The terms and provisions of Sections 12, 13, 14 and/or 15 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity or the enforceability of any other provision of this Agreement shall thereby be affected. It is the intention of the parties to this Agreement that the potential restrictions on the Employee's future employment imposed by Section 13 be reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of Section 13 unreasonable in duration or geographic scope or otherwise, the Employee and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction. 17. Notices. All notices or other communications that are required or permitted hereunder shall be in writing and shall be deemed to have been given if (a) personally delivered or sent by telecopier, (b) sent by nationally-recognized overnight courier or (c) sent by certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Employee, at: Mr. Errol de Souza c/o Synaptic Pharmaceutical Corporation 215 College Road Paramus, New Jersey 07652 with a copy to: Claude E. Johnston Managing Partner Pearl Meyer & Partners 445 Park Avenue New York, NY 10022-2606 if to the Company, at: Synaptic Pharmaceutical Corporation 215 College Road Paramus, New Jersey 07652 Attention: Chairman of the Compensation Committee with a copy to: Stephen W. Skonieczny, Esq. Dechert 30 Rockefeller Plaza New York, NY 10112 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 received when delivered. As used herein, the term "Business Day" means a day that is not a Saturday, a 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. 18. Entire Agreement; Amendments. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior or contemporaneous negotiations, correspondence, understandings and agreements between the parties with respect thereto. This Agreement may be amended only by an agreement in writing signed by both parties hereto. Anything contained herein to the contrary notwithstanding, the provisions of this Agreement shall survive the expiration or early termination of the Employment Period. 19. Assignment. This Agreement is personal in its nature. Accordingly, Employee shall not assign this Agreement or any rights or obligations hereunder to any other person or entity. 20. Benefits of Agreement. The provisions of this Agreement shall be binding upon and inure to the benefit of the heirs, beneficiaries, executors and administrators of the Employee and the successors and assigns of the Company. 21. Obligation of the Company's Successors. The Company shall require any successor to all or substantially all of its business and/or assets, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement inform and substance satisfactory to the Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 22. Waiver of Breach. A waiver of any breach of any provision of this Agreement shall not constitute or operate as a waiver of any other breach of such provision or of any other provision, and any failure to enforce any provision hereof shall not operate as a waiver of such provision or of any other provision. 23. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 24. Headings. The headings of sections in this Agreement are for convenience only, are not a part of this Agreement and shall not affect the construction of the provisions of this Agreement. 25. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New Jersey without giving effect to principles of conflicts of laws. 26. Enforceability. In the event that any provision of this Agreement is determined to be partially or wholly invalid, illegal or unenforceable in any jurisdiction, then such pro vision shall, as to such jurisdiction, be modified or restricted to the extent necessary to make such provision valid, binding and enforceable, or, if such provision cannot be modified or restricted, then such provision shall, as to such jurisdiction, be deemed to be excised from this Agreement; provided, however, that the binding effect and enforceability of the remaining provisions of this Agreement, to the extent that the economic benefits conferred upon the parties by virtue of this Agreement remain substantially unimpaired, shall not be affected or impaired in any manner, and that any such invalidity, illegality or unenforceability with respect to such provisions shall not invalidate or render unenforceable such provision in any other jurisdiction. 27. Withholding. The Company may withhold from any payments or benefits due or payable under this Agreement or otherwise such taxes and other amounts as shall be required to be withheld pursuant to any applicable law, regulation or rule. 28. Arbitration. (a) The parties hereto agree that any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement (including, without limitation, any claim regarding or related to the interpretation, scope, effect, enforcement, termination, extension, breach, legality, remedies and other aspects of this Agreement or the conduct and communications of the parties regarding this Agreement and the subject matter of this Agreement) shall be settled by arbitration at the offices of Judicial Arbitration and Mediation Services, Inc. or successor organization for binding arbitration in New York City by a single arbitrator. The arbitrator may grant injunctions or other relief in such dispute or controversy. All awards of the arbitrator shall be binding and non-appealable. Judgment upon the award of the arbitrator may be entered in any court having jurisdiction. The arbitrator shall apply New Jersey law to the merits of any dispute or claims, without reference to any rules of conflicts of law that might result in the application of any other state's law. Suits to compel or enjoin arbitration or to determine the applicability or legality of arbitration shall be brought in the United States District Court for the Southern District of New York, or if that court lacks jurisdiction, in a state court located within the geographic boundaries thereof. Notwithstanding the foregoing, no party to this Agreement shall be precluded from applying to a proper court for injunctive relief by reason of the presence of this Section 28 or the prior or subsequent commencement of an arbitration proceeding as herein provided. (b) The Employee has read and understands this Section 28 which discusses arbitration. The Employee understands that by signing this Agreement, the Employee agrees to submit any claims arising out of relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach or termination thereof, or his employment or the termination thereof, to binding arbitration, and that this arbitration provision constitutes a waiver of the Employee's right to a jury trial and relates to the resolution of all disputes relating to all aspects of the employer/employee relationship, including but not limited to the following: (i) Any and all claims for wrongful discharge of employment, breach of contract, both express and implied; breach of the covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; and defamation; (ii) Any and all claims for violation of any federal, state or municipal statute, including, without limitation, Title VII of the Civil Rights Act of 1964, as amended the Civil Rights Act of 1991, the Equal Pay Act, the Employee Retirement Income Security Act, as amended, the Age Discrimination in Employment Act of 1964, the Americans wit Disabilities Act of 1990, the Family and Medical Leave Act of 1993, and the Fair Labor Standards Act; and (iii) Any and all claims arising out of any other federal, state or local laws or regulations relating to employment or employment discrimination. 29. Legal Fees and Other Expenses. In the event that a claim for payment or benefits under this Agreement is disputed, the Employee shall be reimbursed for all attorney fees and expenses incurred by the Employee in pursing any such claim, provided that the Employee substantially prevails in respect of the disputed claim by reason of litigation, arbitration or settlement. In addition, the Employee shall be paid or reimbursed for all reasonable legal fees and expenses incurred by the Employee in connection with the review, preparation and negotiation of this Agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. SYNAPTIC PHARMACEUTICAL CORPORATION By:/s/ Jonathan Leff ------------------------------------- Name: Title: Member of the Compensation Committee /s/ Errol de Souza --------------------------------------- Errol de Souza EX-10.2 5 q32002ex10p2.txt DESOUZA ISO ISO Plan Option NONTRANSFERABLE INCENTIVE STOCK OPTION AGREEMENT for Errol de Souza ----------------------------------- THIS AGREEMENT (this "Agreement"), dated as of September 9, 2002, is by and between SYNAPTIC PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Company"), and Errol de Souza (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 September 9, 2002 (the "Employment Agreement"); WHEREAS, the Employment Agreement provides for the grant of an option to acquire 250,000 shares (the "Plan Option Shares") of the Company's common stock pursuant to the Synaptic Pharmaceutical Corporation 1996 Incentive Plan (the "Plan"), with such option to be treated as an "incentive stock option" to the maximum extent permitted by law; WHEREAS, based on the closing sale price of the Company's common stock on the Start Date (as defined below), no more than 69,565 of the Plan Option Shares may be subject to an incentive stock option agreement and this agreement provides an option for that number of shares; WHEREAS, a separate nonqualified option agreement is being entered into between the Company and the Optionee to provide an option for the balance of the Plan Option Shares; and WHEREAS, pursuant to the Plan, the Company, acting through the Compensation Committee (the "Committee") of its Board of Directors (the "Board"), effective September 9, 2002 (the "Start Date"), granted to the Optionee an option to purchase up to an aggregate of 69,565 shares of Common Stock, $0.01 par value, of the Company (the "Common Stock"), at the price of $5.75 per share, such option to be for the term and upon the terms and conditions hereinafter stated. 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), 69,565 shares (the "Option Shares") of Common Stock of the Company at the price of $5.75 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"). 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 vest and become exercisable as to 1/48th of the Option Shares each month, commencing on the one-month anniversary of the Start Date, so that the Option shall be vested and exercisable as to all of the Option Shares on the 48-month anniversary of the Start Date. The Option shall remain exercisable as to all shares as to which is becomes vested and exercisable 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 the result of a Termination for Cause (as defined in the Employment Agreement), 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. As used in this Agreement, the term "Cause" has the meaning given to such term in the Employment Agreement. (c) Termination Without Cause; Resignation for Good Reason. If the Optionee's employment with the Company terminates and such termination constitutes a Termination Without Cause (as defined in the Employment Agreement) or a Resignation for Good Reason (as defined in the Employment Agreement), the vesting of the Option shall accelerate so that, as of the date of such termination, the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date of such termination plus an additional 24/48ths of the Option Shares (up to the total number of Option Shares). The Option 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) 30 days after the date of such a termination. (d) Voluntary Termination. If the Optionee terminates his employment with the Company by a Voluntary Termination (as defined in the Employment Agreement), the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date the Optionee gives notice of such termination. The Option 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) 30 days after the date the Optionee gives notice of such termination. (e) Disability Termination. If the Optionee's employment with the Company terminates and such termination constitutes a Disability Termination (as defined in the Employment Agreement), the vesting of the Option shall accelerate so that, as of the date of such termination, the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date of such termination plus an additional 12/48ths of the Option Shares (up to the total number of Option Shares). The Option 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 a 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. For purposes of Agreement, the term "Disability" has the meaning given to the term "Employee's Disability" in the Employment Agreement. (f) 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, as of the date of such termination, be exercisable by the Optionee's Designated Beneficiary (as defined in the Plan) or personal representatives, heirs or legatees (as provided in the Plan), and the vesting of the Option shall accelerate so that, as of the date of such termination, the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date of such termination plus an additional 12/48ths of the Option Shares (up to the total number of Option Shares). The Option shall in any event terminate upon, and the Optionee (and the Designated Beneficiary) shall have no further right to exercise the Option after, the earlier of (i) the expiration of the Option Term and (ii) one 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. (g) Death Following Disability. In the event of the Optionee's death within 180 days following a Disability Termination (as defined in the Employment Agreement), the Option shall thereafter be exercisable by the Optionee's Designated Beneficiary or personal representatives, heirs or legatees, to the extent, if any, which it shall have vested and become exercisable pursuant to paragraphs (a) and (d) of this Section 3 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. 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 (i) in cash or by personal or certified check, or (ii) by delivery of shares of the Company's Common Stock owned by the Optionee for more than six months prior to the date of exercise having a value equal to the aggregate Option Price of the Acquired Shares, with such delivered shares to be valued at the closing sale price of the Company's Common Stock on the Nasdaq National Market on the date of exercise (provided that, if the Company's Common Stock does not trade on the Nasdaq National Market at such time, the value thereof shall be determined by the Committee in a manner it deems appropriate). 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; 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 Following a Change of Control. 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, is terminated at any time following any Change of Control (as defined in the Employment Agreement) and such termination constitutes a Termination Without Cause (as defined in the Employment Agreement) or a Resignation for Good Reason (as defined in the Employment Agreement), the Option shall become exercisable in full as to all Option Shares, whether or not vested, as of the date of such termination, 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 as 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 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: Errol de Souza c/o Synaptic Pharmaceutical Corporation 215 College Road Paramus, New Jersey 07652 with a copy to: Claude E. Johnston Managing Partner Pearl Meyer & Partners 445 Park Avenue New York, NY 10022-2606 if to the Corporation, to: Synaptic Pharmaceutical Corporation 215 College Road Paramus, New Jersey 07652 Attention: President Telecopier: 201-261-0623 With a copy to: Robert Murray, Esq. Baker Botts L.L.P. 30 Rockefeller Plaza New York, NY 10112 Stephen W. Skonieczny, Esq. Dechert 30 Rockefeller Plaza New York, NY 10112 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. Disqualifying Disposition. If the Optionee disposes of any shares of Common Stock acquired upon the exercise of the Option within two years after the Start Date or within one year after such shares were acquired pursuant to the exercise of the Option, the Optionee shall notify the Company in writing of such disposition. Any notice required under this Section shall be given within thirty days of such disposition. 12. 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. 13. 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. 14. 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. 15. 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. 16. 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. 17. Entire Agreement. This Agreement, the Employment Agreement (the provisions of which related to stock options 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 between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control. [Signature Page Follows] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SYNAPTIC PHARMACEUTICAL CORPORATION By:/s/ Jonathan Leff --------------------------------- Name: Title: OPTIONEE /s/ Errol B. De Souza ------------------------------------ Errol de Souza EX-10.3 6 q32002ex10p3.txt DESOUZA NQL NQL Plan Option NONTRANSFERABLE NONQUALIFIED STOCK OPTION AGREEMENT for Errol de Souza ----------------------------------- THIS AGREEMENT (this "Agreement"), dated as of September 9, 2002, is by and between SYNAPTIC PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Company"), and Errol de Souza (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 September 9, 2002 (the "Employment Agreement"); WHEREAS, the Employment Agreement provides for the grant of an option to acquire 250,000 shares (the "Plan Option Shares") of the Company's common stock pursuant to the Synaptic Pharmaceutical Corporation 1996 Incentive Plan (the "Plan"), with such option to be treated as an "incentive stock option" to the maximum extent permitted by law; WHEREAS, it is legally impermissible for all of the Plan Option Shares to be subject to an incentive stock option agreement, and, pursuant to a separate option agreement, the Company is granting to the Optionee an option to acquire 69,565 shares of the Company's common stock, which option is intended to qualify as an incentive stock option and is exercisable for the maximum number of shares with respect to which incentive stock options granted to the Optionee may be exercisable; WHEREAS, this Agreement is being entered into to provide an option for the balance of the Plan Option Shares; and WHEREAS, pursuant to the Plan, the Company, acting through the Compensation Committee (the "Committee") of its Board of Directors (the "Board"), effective September 9, 2002 (the "Start Date"), granted to the Optionee an option to purchase up to an aggregate of 180,435 shares of Common Stock, $0.01 par value, of the Company (the "Common Stock"), at the price of $5.75 per share, such option to be for the term and upon the terms and conditions hereinafter stated. 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), 180,435 shares (the "Option Shares") of Common Stock of the Company at the price of $5.75 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"). 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 vest and become exercisable as to 1/48th of the Option Shares each month, commencing on the one-month anniversary of the Start Date, so that the Option shall be vested and exercisable as to all of the Option Shares on the 48-month anniversary of the Start Date. The Option shall remain exercisable as to all shares as to which is becomes vested and exercisable 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 the result of a Termination for Cause (as defined in the Employment Agreement), 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. As used in this Agreement, the term "Cause" has the meaning given to such term in the Employment Agreement. (c) Termination Without Cause; Resignation for Good Reason. If the Optionee's employment with the Company terminates and such termination constitutes a Termination Without Cause (as defined in the Employment Agreement) or a Resignation for Good Reason (as defined in the Employment Agreement), the vesting of the Option shall accelerate so that, as of the date of such termination, the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date of such termination plus an additional 24/48ths of the Option Shares (up to the total number of Option Shares). The Option 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) 30 days after the date of such a termination. (d) Voluntary Termination. If the Optionee terminates his employment with the Company by a Voluntary Termination (as defined in the Employment Agreement), the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date the Optionee gives notice of such termination. The Option 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) 30 days after the date the Optionee gives notice of such termination. (e) Disability Termination. If the Optionee's employment with the Company terminates and such termination constitutes a Disability Termination (as defined in the Employment Agreement), the vesting of the Option shall accelerate so that, as of the date of such termination, the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date of such termination plus an additional 12/48ths of the Option Shares (up to the total number of Option Shares). The Option 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 a termination. For purposes of Agreement, the term "Disability" has the meaning given to the term "Employee's Disability" in the Employment Agreement. (f) 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, as of the date of such termination, be exercisable by the Optionee's Designated Beneficiary (as defined in the Plan) or personal representatives, heirs or legatees (as provided in the Plan), and the vesting of the Option shall accelerate so that, as of the date of such termination, the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date of such termination plus an additional 12/48ths of the Option Shares (up to the total number of Option Shares). The Option shall in any event terminate upon, and the Optionee (and the Designated Beneficiary) shall have no further right to exercise the Option after, the earlier of (i) the expiration of the Option Term and (ii) one year after the date of the Optionee's death. (g) Death Following Disability. In the event of the Optionee's death within 180 days following a Disability Termination (as defined in the Employment Agreement), the Option shall thereafter be exercisable by the Optionee's Designated Beneficiary or personal representatives, heirs or legatees, to the extent, if any, which it shall have vested and become exercisable pursuant to paragraphs (a) and (d) of this Section 3 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); (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 (i) in cash or by personal or certified check, or (ii) by delivery of shares of the Company's Common Stock owned by the Optionee for more than six months prior to the date of exercise having a value equal to the aggregate Option Price of the Acquired Shares, with such delivered shares to be valued at the closing sale price of the Company's Common Stock on the Nasdaq National Market on the date of exercise (provided that, if the Company's Common Stock does not trade on the Nasdaq National Market at such time, the value thereof shall be determined by the Committee in a manner it deems appropriate). 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 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 Following a Change of Control. 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, is terminated at any time following any Change of Control (as defined in the Employment Agreement) and such termination constitutes a Termination Without Cause (as defined in the Employment Agreement) or a Resignation for Good Reason (as defined in the Employment Agreement), the Option shall become exercisable in full as to all Option Shares, whether or not vested, as of the date of such termination, 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 as 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 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: Errol de Souza c/o Synaptic Pharmaceutical Corporation 215 College Road Paramus, New Jersey 07652 with a copy to: Claude E. Johnston Managing Partner Pearl Meyer & Partners 445 Park Avenue New York, NY 10022-2606 if to the Corporation, to: Synaptic Pharmaceutical Corporation 215 College Road Paramus, New Jersey 07652 Attention: President Telecopier: 201-261-0623 With a copy to: Robert Murray, Esq. Baker Botts L.L.P. 30 Rockefeller Plaza New York, NY 10112 Stephen W. Skonieczny, Esq. Dechert 30 Rockefeller Plaza New York, NY 10112 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. 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 of which related to stock options 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 between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control. [Signature Page Follows] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SYNAPTIC PHARMACEUTICAL CORPORATION By:/s/ Jonathan Leff --------------------------------- Name: Title: OPTIONEE /s/ Errol B. De Souza ------------------------------------ Errol de Souza EX-10.4 7 q32002ex10p4.txt DESOUZA NONPLAN Non-Plan Option NONTRANSFERABLE NONQUALIFIED STOCK OPTION AGREEMENT for Errol de Souza ----------------------------------- THIS AGREEMENT (this "Agreement"), dated as of September 9, 2002, is by and between SYNAPTIC PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Company"), and Errol de Souza (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 September 9, 2002 (the "Employment Agreement"); WHEREAS, the Employment Agreement provides for the grant of an option to acquire 750,000 shares of the Company's common stock on the terms provided herein, such option not be granted under, or subject to the terms of, the Synaptic Pharmaceutical Corporation 1996 Incentive Plan; WHEREAS, the Company, acting through the Compensation Committee (the "Committee") of its Board of Directors (the "Board"), effective September 9, 2002 (the "Start Date"), granted to the Optionee an option to purchase up to an aggregate of 750,000 shares of Common Stock, $0.01 par value, of the Company (the "Common Stock"), at the price of $5.75 per share, such option to be for the term and upon the terms and conditions hereinafter stated. 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, 750,000 shares (the "Option Shares") of Common Stock of the Company at the price of $5.75 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"). 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. 3. Exercisability; Time of Exercise. (a) General. Unless accelerated in the discretion of the Committee or as otherwise provided herein, the Option shall vest and become exercisable as to 1/48th of the Option Shares each month, commencing on the one-month anniversary of the Start Date, so that the Option shall be vested and exercisable as to all of the Option Shares on the 48-month anniversary of the Start Date. The Option shall remain exercisable as to all shares as to which is becomes vested and exercisable 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 . (b) Termination for Cause. If the Optionee shall cease to be an employee of the Company as the result of a Termination for Cause (as defined in the Employment Agreement), 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. As used in this Agreement, the term "Cause" has the meaning given to such term in the Employment Agreement. (c) Termination Without Cause; Resignation for Good Reason. If the Optionee's employment with the Company terminates and such termination constitutes a Termination Without Cause (as defined in the Employment Agreement) or a Resignation for Good Reason (as defined in the Employment Agreement), the vesting of the Option shall accelerate so that, as of the date of such termination, the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date of such termination plus an additional 24/48ths of the Option Shares (up to the total number of Option Shares). The Option 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) 30 days after the date of such a termination. (d) Voluntary Termination. If the Optionee terminates his employment with the Company by a Voluntary Termination (as defined in the Employment Agreement), the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date the Optionee gives notice of such termination. The Option 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) 30 days after the date the Optionee gives notice of such termination. (e) Disability Termination. If the Optionee's employment with the Company terminates and such termination constitutes a Disability Termination (as defined in the Employment Agreement), the vesting of the Option shall accelerate so that, as of the date of such termination, the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date of such termination plus an additional 12/48ths of the Option Shares (up to the total number of Option Shares). The Option 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 a termination. For purposes of this Agreement, the term "Disability" has the meaning given to the term "Employee's Disability" in the Employment Agreement. (f) 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, as of the date of such termination, be exercisable by the beneficiary designated by the Optionee for such purpose (the "Designated Beneficiary") or, if the Designated Beneficiary shall predecease the Optionee, by the personal representatives, heirs or legatees of the Optionee, and the vesting of the Option shall accelerate so that, as of the date of such termination, the Option shall be exercisable for the Option Shares, if any, for which it has become exercisable pursuant to paragraph (a) of this Section 3 as of the date of such termination plus an additional 12/48ths of the Option Shares (up to the total number of Option Shares). The Option shall in any event terminate upon, and the Optionee (and the Designated Beneficiary) shall have no further right to exercise the Option after, the earlier of (i) the expiration of the Option Term and (ii) one year after the date of the Optionee's death. (g) Death Following Disability. In the event of the Optionee's death within 180 days following a Disability Termination (as defined in the Employment Agreement), the Option shall thereafter be exercisable by the Optionee's Designated Beneficiary or personal representatives, heirs or legatees, to the extent, if any, which it shall have vested and become exercisable pursuant to paragraphs (a) and (e) of this Section 3 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); (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 (i) in cash or by personal or certified check, or (ii) by delivery of shares of the Company's Common Stock owned by the Optionee for more than six months prior to the date of exercise having a value equal to the aggregate Option Price of the Acquired Shares, with such delivered shares to be valued at the closing sale price of the Company's Common Stock on the Nasdaq National Market on the date of exercise (provided that, if the Company's Common Stock does not trade on the Nasdaq National Market at such time, the value thereof shall be determined by the Committee in a manner it deems appropriate). 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 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 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 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. (e) Termination Following a Change of Control. Notwithstanding anything contained herein to the contrary, in the event the Optionee's employment with the Company or the person which is the surviving, successor or purchasing corporation, is terminated at any time following any Change of Control (as defined in the Employment Agreement) and such termination constitutes a Termination Without Cause (as defined in the Employment Agreement) or a Resignation for Good Reason (as defined in the Employment Agreement), the Option shall become exercisable in full as to all Option Shares, whether or not vested, as of the date of such termination, 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 as 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, if the Designated beneficiary predeceases the Optionee, by the personal representatives, heirs or legatees 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: Errol de Souza c/o Synaptic Pharmaceutical Corporation 215 College Road Paramus, New Jersey 07652 with a copy to: Claude E. Johnston Managing Partner Pearl Meyer & Partners 445 Park Avenue New York, NY 10022-2606 if to the Corporation, to: Synaptic Pharmaceutical Corporation 215 College Road Paramus, New Jersey 07652 Attention: President Telecopier: 201-261-0623 With a copy to: Robert Murray, Esq. Baker Botts L.L.P. 30 Rockefeller Plaza New York, NY 10112 Stephen W. Skonieczny, Esq. Dechert 30 Rockefeller Plaza New York, NY 10112 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. 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. Withholding. The Company shall have the right to require the Optionee or his beneficiaries or legal representatives, including without limitation the Designated Representative, to remit to the Company an amount sufficient to satisfy Federal, state and local withholding tax requirements, or deduct from all payments under this Agreement, amounts sufficient to satisfy any withholding tax requirements. Whenever payments, if any, are to be made to the Optionee under this Agreement in cash, such payments shall be net of any amounts sufficient to satisfy all withholding tax requirements. 17. Interpretation. The Committee shall have sole discretionary authority to interpret the terms of this Agreement, to administer this Agreement and to make any factual determinations which it believes to be necessary or desirable for the administration of this Agreement. All actions taken and interpretations and determinations made by the Committee in good faith shall be final and binding on the Optionee. 18. Entire Agreement. This Agreement and the Employment Agreement (the provisions of which related to stock options are hereby incorporated herein by reference) 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 between the terms of this Agreement and the terms of the Employment Agreement, the terms of the Employment Agreement shall control. [Signature Page Follows] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SYNAPTIC PHARMACEUTICAL CORPORATION By:/s/ Jonathan Leff --------------------------------- Name: Title: OPTIONEE /s/ Errol B. De Souza ------------------------------------ Errol de Souza EX-99.1 8 q32002ex99p1.txt SARBANES CERT Exhibit 99.1 ------------ Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Synaptic Pharmaceutical Corporation, a Delaware corporation (the "Company"), does hereby certify, to such officer's knowledge, that: The Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (the "Form 10-Q") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. November 14, 2002 /s/ Kathleen P. Mullinix ----------------------------------- Name: Kathleen P. Mullinix Title: President and Chief Executive Officer November 14, 2002 /s/ Edmund M. Caviasco ----------------------------------- Name: Edmund M. Caviasco Title: Controller and Principal Accounting Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code). -----END PRIVACY-ENHANCED MESSAGE-----