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 March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27324
SYNAPTIC PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2859704
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
215 College Road
Paramus, NJ 07652
(Address of principal executive offices) (Zip Code)
(201) 261-1331
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of May 5, 1998, there were 10,697,957 shares of the registrant's Common Stock
outstanding.
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SYNAPTIC PHARMACEUTICAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
PART I. FINANCIAL INFORMATION
Page
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Item 1. Financial Statements 1
Balance Sheets at March 31, 1998 and December 31, 1997 1
Statements of Operations and Comprehensive Income (Loss) for
the three months ended March 31, 1998 and 1997 2
Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 8
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
(i)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYNAPTIC PHARMACEUTICAL CORPORATION
BALANCE SHEETS
(in thousands, except share information)
ASSETS
March 31, December 31,
1998 1997
---------- -----------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $10,112 $23,113
Restricted cash 600 600
Marketable securities--current maturities 8,712 10,010
Revenue receivable under collaborative agreement 160 40
Other current assets 1,480 674
------- -------
Total current assets 21,064 34,437
Property and equipment, net 4,811 4,682
Marketable securities 43,266 28,977
Patent and patent application costs,
net of accumulated amortization 1,222 1,306
------- -------
$70,363 $69,402
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 258 $ 811
Accrued liabilities 597 547
Accrued compensation 120 340
------- -------
Total current liabilities 975 1,698
Stockholders' equity:
Preferred Stock, $.01 par value; authorized--
1,000,000 shares; issued--none -- --
Common Stock, $.01 par value; authorized--
25,000,000 shares; issued and outstanding--
10,675,570 shares in 1998 and 10,526,585 shares
in 1997; 107 105
Additional paid-in capital 98,375 97,049
Deferred compensation (136) (160)
Accumulated deficit (28,887) (29,316)
Accumulated other comprehensive (loss) income--
net unrealized (losses) gains on securities (71) 26
------- -------
Total stockholders' equity 69,388 67,704
------- -------
$70,363 $69,402
======= =======
See notes to financial statements.
1
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SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share information)
(Unaudited)
For the three months
ended March 31,
1998 1997
------- -------
Revenues:
Contract revenue $ 2,165 $ 2,555
License revenue 2,000 --
Grant revenue 90 140
------- -------
Total revenues 4,255 2,695
Expenses:
Research and development 3,661 3,348
General and administrative 1,083 965
------- -------
Total expenses 4,744 4,313
------- -------
Loss from operations (489) (1,618)
Other income, net:
Interest income 918 485
Interest expense -- (3)
------- -------
Other income, net 918 482
------- -------
Net income (loss) $ 429 $(1,136)
======= =======
Comprehensive income (loss):
Net income (loss) $ 429 $(1,136)
Other comprehensive (loss) income--unrealized
holding (losses) gains arising during period (97) 168
------- -------
Comprehensive income (loss) $ 332 $ (968)
======= =======
Basic net income (loss) per share $ 0.04 $(0.15)
====== ======
Diluted net income (loss) per share $ 0.04 $(0.15)
====== ======
Shares used in computation of basic
net income (loss) per share 10,645,281 7,634,760
========== =========
Shares used in computation of diluted
net income (loss) per share 10,907,940 7,634,760
========== =========
See notes to financial statements.
2
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SYNAPTIC PHARMACEUTICAL CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the three months
ended March 31,
1998 1997
------- -------
Operating activities:
Net income (loss) $ 429 $(1,136)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 327 270
Amortization of premiums/(discounts) on securities 19 (50)
Amortization of deferred compensation 24 33
Changes in operating assets and liabilities:
Increase in other current assets (806) (917)
Decrease in accounts payable, accrued liabilities
and accrued compensation (723) (155)
Increase in collaborative agreement
revenue receivable (120) --
------- -------
Net cash used in operating activities (850) (1,955)
Investing activities:
Sale or maturity of investments 14,300 4,400
Purchase of investments (27,407) (2,243)
Purchases of property and equipment (372) (1,055)
------- -------
Net cash (used in) provided by investing activities (13,479) 1,102
Financing activities:
Issuance of common stock, net of repurchases 1,328 3
Payments on capital lease -- (22)
------- -------
Net cash provided by (used in) financing activities 1,328 (19)
------- -------
Net decrease in cash and cash equivalents (13,001) (872)
Cash and cash equivalents at beginning of period 23,113 4,589
------- -------
Cash and cash equivalents at end of period $10,112 $ 3,717
======= =======
See notes to financial statements.
3
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SYNAPTIC PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
Note 1 -- Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and may not include all
information and footnotes required for a presentation in accordance with
generally accepted accounting principles. In the opinion of the management of
Synaptic Pharmaceutical Corporation (the "Company"), these financial statements
include all normal and recurring adjustments necessary for a fair presentation
of the financial position and the results of operations and cash flows of the
Company for the interim periods presented. For more complete financial
information, these financial statements should be read in conjunction with the
audited financial statements for the fiscal year ended December 31, 1997, and
notes thereto included in the Company's 1997 Annual Report on Form 10-K. The
results of operations for the fiscal quarter ended March 31, 1998, are not
necessarily indicative of the results of operations to be expected for the full
year.
Note 2 -- New Accounting Standard
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This pronouncement, which is required to be adopted effective January 1, 1998,
requires the presentation of a statement of comprehensive income. Comprehensive
income is defined as the change in equity of a business enterprise during a
period resulting from transactions and other events and circumstances from
nonowner sources. Comprehensive income (loss) for the Company, in addition to
net income (loss), includes unrealized gains and losses on marketable securities
held for sale, currently recorded in stockholders' equity.
Note 3 -- Basic and Diluted Net Income (Loss) per Share
A reconciliation of the number of shares used in the computation of
basic net income (loss) per share to the number of shares used in the
computation of diluted net income (loss) per share is as follows:
For the Three Months Ended
March 31,
1998 1997
---------- ----------
Shares used in the computation of Basic
Net Income (Loss) per Share--Weighted
average common shares outstanding 10,645,281 7,634,760
Weighted average shares underlying
common stock options outstanding 255,401 -- (1)
Weighted average shares underlying
common stock warrants outstanding 7,258 -- (1)
---------- ----------
Shares used in the computation of
Diluted Net Income (Loss) per Share 10,907,940 7,634,760
========== ==========
(1) Common equivalent shares from stock options and warrants are excluded from
the calculation of diluted net loss per share as their effect is anti-dilutive.
4
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Synaptic Pharmaceutical Corporation is a biotechnology company engaged
in the development of a broad platform of enabling technology which it calls
"human receptor-targeted drug design technology." It is utilizing this
technology both to discover and clone the genes that code for human receptor
subtypes associated with specific disorders and to design compounds that can
potentially be developed as drugs for treating these disorders. The Company is
engaged in collaborative agreements with five pharmaceutical companies: Eli
Lilly and Company ("Lilly"), Merck & Co., Inc. ("Merck"), Novartis Pharma AG
("Novartis"), The Warner-Lambert Company ("Warner-Lambert") and Grunenthal GmbH
("Grunenthal"). The Company has also licensed certain patent rights to Glaxo
Group Limited ("Glaxo") under a license agreement. Since inception, the Company
has financed its operations primarily through the sale of stock, through funds
provided by its collaborative partners Lilly, Merck and Novartis under
collaborative agreements, through funds provided by its licensee, Glaxo under a
license agreement and through interest income and capital gains resulting from
its investments. The Company also receives revenues from government grants under
the Small Business Innovative Research ("SBIR") program of the National
Institutes of Health.
Under its agreements with Lilly, Merck, Novartis, Warner-Lambert and
Glaxo, the Company may receive one or two types of revenue: contract revenue
and/or license revenue. Contract revenue includes research funding to support a
specified number of the Company's scientists and payments upon the achievement
of specified research and development milestones. Research funding revenue is
recognized ratably over the period of the agreement to which it relates and is
based upon predetermined funding requirements. Research milestone payment
revenue is recognized when the related research milestone is achieved. License
revenue represents non-refundable payments for a license to one or more of the
Company's patents or a license to one or more of the Company's technology and
drug discovery systems. Non-refundable payments for licenses are recognized at
such time as they are received or, if earlier, become guaranteed. In addition to
contract revenue and/or license revenue, if a drug is developed as a result of
any of its agreements with Lilly, Merck, Novartis, Warner-Lambert or Glaxo, the
Company is entitled to receive royalty payments based upon the sale of such
drugs. Under its agreement with Grunenthal, the Company would receive revenue
from the sale in its territories (as defined) of drugs, if any, that may be
developed as a result of the collaboration.
To date, the Company's expenditures have been for research and
development related expenses, general and administrative related expenses, fixed
asset purchases and various patent related expenditures incurred in protecting
the Company's technologies. The Company has been historically unprofitable and
had an accumulated deficit of $28,887,000 at March 31, 1998. The Company expects
to continue to incur operating losses for a significant number of years and may
not become profitable, if at all, until it begins to receive royalty revenue. To
date, the Company has not received any royalty revenue and does not expect to
receive such revenue for a significant number of years, if at all.
Results of Operations
Comparison of the Three Months Ended March 31, 1998 and 1997
Revenues. The Company recognized revenue of $4,255,000 and $2,695,000
for the three months ended March 31, 1998 and 1997, respectively. The increase
of $1,560,000 was attributable primarily to: an increase in license revenue of
$2,000,000. This increase in license revenue was offset by a net decrease in
contract revenue of $390,000 which is primarily due to the reduction in
full-time equivalents scientists being funded under one of the collaborative
arrangements from which the Company is receiving funding.
Research and Development Expenses. The Company incurred research and
development expenses of $3,661,000, and $3,348,000 for the three months ended
March 31, 1998 and 1997, respectively. The increase of $313,000, or 9%, in
research and development expenses was attributable primarily to: an increase of
$230,000 in compensation expense resulting from a net average headcount increase
of 11 research personnel as well as annual salary increases for the scientific
staff; and an increase of $82,000 in facility related costs.
General and Administrative Expenses. The Company incurred general and
administrative expenses of $1,083,000 and $965,000 for the three months ended
March 31, 1998 and 1997, respectively. The increase of $118,000, or 12%, was
attributable primarily to an increase of $60,000 in compensation expense
resulting from a net average headcount increase as well as annual salary and
bonus increases for the administrative staff; and a net increase of $58,000 for
all other administrative costs.
5
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Other Income, Net. The Company recorded other income of $918,000 and
$482,000 for the three months ended March 31, 1998 and 1997, respectively. The
increase of $436,000 was primarily due to higher cash, cash equivalent and
marketable securities balances during 1998 which resulted from the receipt of
net proceeds from a public offering of its common stock completed in November
1997.
Net Income (Loss) and Basic Net Income (Loss) Per Share. The Company
had net income of $429,000 or basic net income per share of $0.04, and incurred
a net loss of $1,136,000 or basic net loss per share of ($0.15)for the three
months ended March 31, 1998 and 1997, respectively. The increase in basic net
income per share of $0.19 resulted primarily from higher license revenues and
higher interest income during the first quarter of 1998.
The Company does not believe that inflation has had a material impact
on its results of operations.
Liquidity and Capital Resources
At March 31, 1998 and December 31, 1997, cash, cash equivalents and
marketable securities aggregated $62,090,000 and $62,100,000, respectively. In
addition to the cash, cash equivalents and marketable securities described
above, the Company had $600,000 in restricted cash recorded in its balance sheet
at March 31, 1998. This restricted cash secures lease payments to the Company's
landlord for one full year.
To date, the Company has met its cash requirements through the sale of
its stock, through contract and license revenue, through SBIR grants and through
interest income and capital gains resulting from its investments. As of March
31, 1998, the Company had received: $97,600,000 from the sale of its stock;
$54,800,000 in licensing fees, research funding and milestone payments under its
collaborative and license agreements; $3,500,000 in SBIR grants; and $6,800,000
in other income, net. To date, the portion of these funds that has been expended
by the Company has been used principally to fund research and development, to
purchase fixed assets used primarily in its research activities, to create its
patent estate and to pay general and administrative support costs.
At March 31, 1998, the Company was involved in collaborative agreements
with Lilly, Merck, Novartis, Warner-Lambert and Grunenthal and had licensed
certain patent rights to Glaxo under a license agreement. Lilly, Merck and
Novartis are providing research funding to the Company during 1998. The
aggregate amount of research funding under these agreements which the Company
expects to receive during the remainder of 1998 is approximately $4,800,000. The
Company's agreement with Warner-Lambert does not provide any research funding
during 1998 and the agreements with Grunenthal and Glaxo do not provide research
funding. Research funding under the Lilly agreement is scheduled to expire on
December 31, 1998. Research funding under the Merck agreement is scheduled to
expire on November 30, 1998 but Merck has the right to terminate the
collaboration and such funding earlier by giving 90 days' prior written notice.
Research funding under the Novartis agreements is scheduled to expire on August
3, 1998.
At March 31, 1998, the Company had invested an aggregate of $8,800,000
in property and equipment. The Company leases laboratory and office facilities
under an agreement expiring on December 31, 2015. The minimum annual payment
under the lease is currently $674,000.
At March 31, 1998 the Company had $62,090,000 in cash, cash equivalents
and marketable securities. The Company intends to utilize these funds primarily
to conduct its current and future research programs, for patent related
expenditures, for general corporate purposes and to make leasehold improvements
to its facilities beyond the level which existed on March 31, 1998. The Company
expects to continue to incur operating losses for a significant number of years
and will require the use of cash to finance its capital programs. The Company
believes that its cash on hand, together with the funds that it expects to
receive from its collaborative partners, interest income and funds received
under SBIR grants, will be sufficient to fund an increased operating expense
level and increased level of capital spending through the year 2000.
This Report on Form 10-Q contains "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934. Such statements include, but are not limited
to, those relating to future cash and spending plans, amounts of future research
funding, and any other statements regarding future growth, future cash needs,
future operations, business plans and financial results, and any other
statements which are not historical facts. When used in this document, the words
"expect," "may," "believes," and similar expressions are intended to be among
the words that identify forward looking statements. Such statements involve
risks and uncertainties, including, but not limited to, those risks and
uncertainties detailed under the captions "Patents, Proprietary Technology and
Trade Secrets," "Competition" and "Government Regulation" in the Company's
Annual Report on Form
6
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10-K for the fiscal year ended December 31, 1997 (the "1997 Form 10-K") as well
as those risks and uncertainties disclosed under the captions "Early Stage of
Product Development; Technological Uncertainty," "Dependence on Collaborative
Partners and Licensees for Development, Regulatory Approvals, Manufacturing,
Marketing and Other Resources" and "Uncertainties Related to Clinical Trials" as
"Cautionary Statements" in the 1997 Form 10-K or detailed from time to time in
filings the Company makes with the SEC. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary from those indicated. Although the Company believes
that the expectations reflected in the forward looking statements contained
herein are reasonable, it can give no assurance that such expectations will
prove to be correct. The Company expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward looking
statement contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
7
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Securities Act Rule 229.463 ("Rule 463") required issuers to report on
Form SR their use of proceeds, following an initial public offering, within ten
days of the first three months following the effective date of the registration
statement, and every six months thereafter, until the application of all such
proceeds was complete. Effective September 2, 1997, pursuant to Release No.
34-38850, the Securities and Exchange Commission ("SEC") amended Rule 463 to
eliminate Form SR and now requires a first-time registrant to report the
application of proceeds in each of its periodic reports filed pursuant to the
requirements under the Exchange Act until the application of such proceeds is
complete. Prior to September 2, 1997, the Company utilized Form SR to report the
application of proceeds received by the Company following its initial public
offering.
The information provided below represents a reasonable estimate of the
cumulative application, through March 31, 1998, of the net proceeds of
$25,194,000 which were received following the Company's initial public offering
on December 13, 1995:
Construction of plant, building and facilities $ 327,000
Purchase and installation of machinery and equipment $ 3,580,000
Working capital used to fund operations $16,528,000
Except for payments described in the following sentence, the cumulative
application of the net offering proceeds listed above represents direct payments
to others. No payments were made to directors or officers or to their associates
except for payments made in the ordinary course of business which include, but
may not be limited to, the payment of officer salaries, fringe benefits, and
expense reimbursements or compensation paid to directors for their attendance at
board meetings or for their services provided to the Company under consulting
arrangements, if any.
At March 31, 1998, the status of proceeds pending final application are
as follows:
Temporary investment of proceeds in marketable securities $ 4,759,000
8
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Item 5. Other Information
The Company, in collaboration with Lilly, is currently conducting drug
discovery programs focused on a number of serotonin receptor subtypes and
therapeutic applications. With respect to the drug discovery program focused on
the identification and development of serotonin 1A antagonists which ameliorate
the withdrawal symptoms associated with smoking cessation, a compound has been
selected by Lilly for possible development and is undergoing late preclinical
testing.
The Company, in collaboration with Merck, is conducting a drug
discovery program to develop alpha 1a adrenergic antagonists for the treatment
of benign prostatic hyperplasia. Merck is currently conducting Phase I clinical
trials in Europe with a compound identified as part of the collaboration. Other
compounds selected by Merck are undergoing early or late preclinical testing.
For a general description of Phase I clinical trials, the early and
late preclinical stages of testing and other stages of drug discovery and
development, see the Company's 1997 Form 10-K.
9
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
- ------- -----------
10.1 Employment Agreement dated as of April 1, 1998, between the
Company and Theresa A. Branchek (filed herewith)
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 9, 1998, the Company filed a Current Report on Form 8-K summarizing
the status of certain drug discovery programs it is conducting in collaboration
with Lilly.
10
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SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SYNAPTIC PHARMACEUTICAL CORPORATION
(Registrant)
Date: May 8, 1998 By:/s/ Kathleen P. Mullinix
-----------------------------
Name: Kathleen P. Mullinix
Title: Chairman, President &
Chief Executive Officer
By:/s/ Robert L. Spence
-----------------------------
Name: Robert L. Spence
Title: Senior Vice President,
Chief Financial Officer &
Treasurer
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EXHIBIT 10.1
------------
EMPLOYMENT
AGREEMENT dated as of April
1, 1998 (the "Effective
Date"), between SYNAPTIC
PHARMACEUTICAL CORPORATION,
a Delaware corporation (the
"Company"), and THERESA A.
BRANCHEK (the
"Employee").
Immediately prior to the Effective Date, the Employee was
employed by the Company as Vice President for New Technologies and Pharmacology.
Effective as of the Effective Date, the Employee is being promoted to the
position of Vice President for Research. As a result of her employment by the
Company, the Employee possesses 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 Vice President for
Research.
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 one-year period
commencing on the Effective Date, and ending on the first anniversary of the
Effective Date; provided, however, that commencing as of such first anniversary
and on each anniversary thereafter, unless either party hereto gives the other
party at least 90 days' prior written notice of its or her election not to
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 agreed upon by the parties.
For convenience of reference, such period of employment, as the same may be
extended as aforesaid, is referred to herein as the "Employment Period."
3. Duties. (a) During the Employment Period, the Employee
shall be employed as Vice President for Research of the Company and shall
perform such duties for the Company consistent with such position as may be
assigned to her from time to time by the President of the Company.
(b) The Employee shall perform her 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.
Anything contained herein to the contrary notwithstanding, if the Company
requires the Employee to be based anywhere other than within a 50-mile radius of
New York City and notifies the Employee in writing that her continued
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employment by the Company is conditional upon such relocation and the Employee
refuses to so relocate, then any Termination of Employment of the Employee
resulting therefrom, whether initiated by the Company or by the Employee, shall
constitute a Termination Without Cause.
4. Time to be Devoted to Employment. Except for vacations and
absences due to temporary illness, during the Employment Period, the Employee
shall devote all of her business time, attention and energies to the performance
of her duties under this Agreement. During the Employment Period, the Employee
shall not be engaged in any other business activity which, in the judgment of
the Company, conflicts with the duties of the Employee under this Agreement,
whether or not such activity is pursued for gain, profit or other pecuniary
advantage.
5. Compensation; Reimbursement.
(a) Base Salary. During the Employment Period,
the Company shall pay to the Employee a base salary of $200,000 per annum,
subject to increase by the Board of Directors of the Company, in its 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 employees.
(b) Signing Bonus. On the Effective Date, or as
soon thereafter as may be reasonably practicable, the Company shall pay the
Employee an initial cash bonus (the "Signing Bonus") of $25,000.
(c) Annual Performance Bonus. In addition to the
Signing Bonus, the Employee shall be eligible to receive for each calendar year
during the Employment Period a cash bonus in an amount determined by the Board
of Directors of the Company prior to the Effective Date and at the beginning of
each subsequent calendar year, in each case subject to the achievement of the
goals set prior to the Effective Date and at the beginning of each such
subsequent year, respectively, by the President of the Company. Each such cash
bonus, if earned, will be payable to the Employee within forty-five days after
the end of the calendar year in respect of which such bonus is earned.
Additional bonuses may be approved by the Board of Directors of the Company, in
its discretion.
(d) Benefits. During the Employment Period, the
Employee shall be entitled to such benefits as are generally made available to
other employees of the Company and to such additional benefits as are generally
made available to employees of the Company at substantially the same level of
employment as the Employee.
(e) 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 her for or on behalf of the Company in connection with
the perfor mance of her duties hereunder (such expenses being referred to herein
as "Reimbursable Expenses") upon presentation by the Employee to the Company of
appropriate documentation therefor.
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(f) Option Grants. (i) The Employee shall be
granted an option to purchase 20,000 shares of 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 date the option is granted. Such grant (A)
shall be subject to the Company's 1996 Incentive Plan and (B) shall be made
pursuant to the terms and conditions of the Company's form of stock option
agreement. Such stock option agreement will provide, among other things, for
four-year vesting of the option covered thereby, with the option becoming
exercisable for 25% of the shares subject to such option on each anniversary of
the Effective Date.
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 her employment hereunder pursuant to a Resignation for Good Reason, a
Voluntary Termination or a Disability Termination. The Employee's employment
shall terminate automatically upon her death. Any termination of the Employee's
employment is referred to herein as a "Termination of Employment."
(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 her date
of death.
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, provided that the Employee shall
have been given written notice of such failure and shall not have cured such
failure during the 30-day period following such notice, (ii) the Employee's
consistent failure over a substantial period of time to perform competently such
duties, provided that the Employee shall have been given written notice of such
failure and shall not have cured such failure during the 30-day period following
such notice, (iii) the Employee's conviction of a crime involving moral
turpitude, dishonesty, theft, unethical business conduct or conduct that
significantly impairs the reputation of the Company or (iv) the Employee's
failure to devote all of her business time, attention and energies to the
performance of her duties hereunder. 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."
3
<PAGE>
(b) Termination Without Cause. Any Termination
of Employment initiated by the Company (other than a Termination for Cause or a
Disability Termination) shall be a "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
of any of the following events shall be a "Resignation for Good Reason":
(i) subsequent to a Change in Control, and without the
Employee's express written consent, (A) the assignment to the Employee
of any duties inconsistent with her position, duties, responsibilities
and status within the Company prior to such Change in Control, (B) any
material change in the Employee's titles or offices as in effect prior
to such Change in Control or (C) any removal of the Employee from or
any failure to re-elect the Employee to any material position held by
her prior to such Change in Control;
(ii) subsequent to a Change in Control, a reduction in the
Employee's Base Salary or a termination of the Employee's participation
in any bonus plan or program (or a substantial reduction in the level
of such participation) as in effect on the Effective Date or as the
same may be increased after the Effective Date and in effect at the
time;
(iii) subsequent to a Change in Control, and without the
Employee's express written consent, any requirement that the Employee
be based anywhere other than within a 50-mile radius of New York City;
(iv) subsequent to a Change in Control, the failure by the
Company to continue the Employee's participation in any benefit or
compensation plan, life insurance plan, health-and- accident plan or
disability plan in which the Employee is participating at the time of
such Change in Control (or in plans providing the Employee with
substantially similar or more favorable benefits) or the taking of any
action by the Company which would materially adversely affect the
Employee's participation in or materially reduce the Employee's
benefits under any of such plans or deprive the Employee of any
material fringe benefit enjoyed by the Employee at the time of such
Change in Control; or
(v) subsequent to a Change in Control, the failure by the
Company to obtain the assumption of the agreement to perform this
Agreement by any successor as contemplated by Section 16.
In the event of a Resignation for Good Reason, the Termination Notice given to
the Company by the Employee shall state that the Termination of Employment is a
"Resignation for Good Reason."
(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."
4
<PAGE>
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 her
duties hereunder for a period of 90 days in any 180-day 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. (a) In the Event of a
Termination of Employment (other than a Termination of Employment contemplated
by Section 11(a)), neither the Employee nor her estate or beneficiaries shall
have any further rights or claims against the Company under this Agreement
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(e) 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;
provided, however, that if the Termination of Employment is pursuant to a
Termination Without Cause, then, in addition to the amounts computed pursuant to
the foregoing provisions of this Section 10(a), the Employee shall have the
right to receive as severance compensation an amount (the "Severance Amount")
equal to 50% of one year's Base Salary, such Severance Amount to be payable at
the same times at which and in the same manner in which the Base Salary would
have been payable to the Employee had the Termination of Employment not
occurred.
(b) The Employee shall not be required to mitigate the amount of any
payment provided for in this Section 10 by seeking other employment or
otherwise, and no payment or benefit provided for in this Section 10 shall be
reduced by compensation earned by the Employee as a result of her employment by
another employer following the Termination Date, or otherwise.
11. Effect of Termination of Employment following a Change in
Control. (a) In the event that the Employee's employment with the Company is
terminated in contemplation of, or at any time within one year following, a
Change in Control, and such termination constitutes a Termination Without Cause
or a Resignation for Good Reason, neither the Employee nor her estate or
beneficiaries shall have any further rights or claims against the Company under
this Agreement other than the following:
5
<PAGE>
(i) the right to receive all amounts and benefits to which the
Employee would be entitled under Section 10 upon a Termination of
Employment; and
(ii) all stock options, stock bonus awards and restricted
stock grants relating to securities of the Company held by the Employee
on the Termination Date shall become exercisable or vest, as the case
may be, on the Termination Date, notwithstanding any provisions in any
such stock options, stock bonus awards or restricted stock grants or
the plans covering the same to the contrary, and all rights to exercise
such stock options shall remain exercisable by the Employee for a
period of not less than 120 days after the Termination Date.
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.
(b) The Employee shall not be required to mitigate the amount of any
payment provided for in this Section 11 by seeking other employment or
otherwise, and no payment or benefit provided for in this Section 11 shall be
reduced by compensation earned by the Employee as a result of her employment by
another employer following the Termination Date, or otherwise.
(c) As used herein, the term "Change in Control" shall mean a change in
control of the Company of a nature that would be required to be reported in
response to Item 1 of Form 8-K promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), if the Company were at that time subject
to such reporting requirements of the Exchange Act; provided, however, that such
term shall in any event be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of 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 35% or more of the
combined voting power of the Company's then outstanding securities or (ii)
during any one-year period or any period of two consecutive years, individuals
who at the beginning of any such period constitute the Board of Directors of the
Company cease for any reason to constitute at least a majority thereof as of the
end of such period 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
two-thirds of the directors of the Company then still in office who were
directors at the beginning of such period.
6
<PAGE>
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 two years 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 employees of the Company to leave
the employment of 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 two years
after the termination of the Employee's employment with the Company for any
reason, the Employee shall not directly or indirectly, except as a passive
investor in publicly held companies and except for investments held at the date
hereof, engage 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 research focused upon or directed toward the specific class of
molecular targets known as "G protein- coupled receptors" and/or research
otherwise involving the Company's technology platform at the Termination Date.
The Employee's carrying out teaching, research or other academic
responsibilities at an academic institution shall not be deemed to be a
violation of this Section 13, provided that such teaching, research or other
responsibilities (i) are carried out solely on behalf of such institution and
not on behalf of, for the benefit of or in collaboration with any commercial
enterprise and (ii) do not violate any other provision of this Agreement or any
other agreement between the Employee and the Company. In the event of a
Termination of Employment to which the provisions of Section 11 apply, the
period of this non-competition restriction will be limited to the period during
which the Employee is receiving the Severance Amount provided in Section 10(a).
14. 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 registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
if to the Employee, to her at:
518 Standish Road
Teaneck, New Jersey 07666
if to the Company, to it at:
215 College Road
Paramus, New Jersey 07652
Attention: President
Telecopier: 201-261-0623
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been received (i) when delivered, if
personally delivered, sent by telecopier or sent by nationally-recognized,
overnight courier and (ii) on the third Business Day following the date on which
the piece
7
<PAGE>
of mail containing such communication is posted, if sent by mail. 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.
15. 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 Sections 10 and 11 shall survive the expiration or early
termination of the Employment Period.
16. Assignment. This Agreement is personal in its nature.
Accordingly, neither party hereto shall, without the consent of the other,
assign this Agreement or any rights or obligations hereunder to any other person
or entity.
17. Benefits of Agreement. The provisions of this Agreement
shall be binding upon and inure to the benefit of the heirs, beneficiaries,
executors, administrators and permitted assigns of the Employee and the
successors and permitted assigns of the Company.
18. Obligation of the Company's Successors. Any successor to
substantially all of the Company's assets and business, whether by merger,
consolidation, purchase of assets or otherwise, shall succeed to the rights and
obligations of the Company hereunder. The Company shall require any such
successor, by agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. The failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Employee to receive from the Company or its
successor the same amounts and benefits that the Employee would be entitled to
receive under Sections 11(a)(i) and 11(a)(ii) upon a Resignation for Good
Reason. For purposes of implementing the immediately preceding sentence, the
date on which any such succession becomes effective shall be deemed the
Termination Date.
19. 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.
20. 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.
21. 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.
8
<PAGE>
22. 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.
23. 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.
9
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
SYNAPTIC PHARMACEUTICAL CORPORATION
/s/ Kathleen P. Mullinix
By:--------------------------------
Name: Kathleen P. Mullinix
Title: Chairman, President and
Chief Executive Officer
/s/ Theresa A. Branchek
------------------------------
Theresa A. Branchek
10
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