exv10w21



 



Exhibit 10.21



TAX INDEMNITY AGREEMENT



     This Tax Indemnity Agreement (this “Agreement”) is made as of this 7 day
of November, 2007 by and between Vanda Pharmaceuticals Inc. (the “Company”) and
Al Gianchetti (the “Executive”).


     WHEREAS, the Compensation Committee of the Company’s Board of Directors
has determined that the Company should enter into tax indemnity agreements with
certain of its executives to reimburse certain excise taxes, interest and
penalties they may be obligated to pay in connection with a change of control
of the Company, so that the Company may preserve the financial incentives the
Company created by granting stock options to those executives, and so that the
Company may also continue to provide motivation for those executives to stay
with the Company and act in its best interests.


     NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and agreed to, the parties hereto agree as follows:


     1.     Gross-Up Payment. If it is determined that any payment or distribution
of any type to the Executive or for his benefit by the Company, any of its
affiliates, any person who acquires ownership or effective control of the
Company or ownership of a substantial portion of the Company’s assets (within
the meaning of section 280G of the Internal Revenue Code of 1986, as amended
(the “Code”), and the regulations thereunder) or any affiliate of such person,
whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise (the “Total Payments”), would be subject to the
excise tax imposed by section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax and any such interest or
penalties are collectively referred to as the “Excise Tax”), then the Executive
shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an
amount calculated to ensure that after the Executive pays all taxes (and any
interest or penalties imposed with respect to such taxes), including any Excise
Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments.


     2.     Determination by Accountant. All determinations and calculations
required to be made under this Agreement shall be made by an independent
accounting firm selected by the Executive from among the largest five
accounting firms in the United States (the “Accounting Firm”). The Accounting
Firm shall provide its determination (the “Determination”), together with
detailed supporting calculations regarding the amount of any Gross-Up Payment
and any other relevant matter, to the Executive and the Company within five
days after the Executive or the Company made a request (if the Executive
reasonably believes that any of the Total Payments may be subject to the Excise
Tax). If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written statement that it has
concluded that no Excise Tax is payable (including the reasons therefor) and
that the Executive has substantial authority not to report any Excise Tax on
his federal income tax return. If a Gross-Up Payment is determined to be
payable, it shall be paid to the Executive within five days after the
Determination has been delivered to him or the Company. Any determination by
the Accounting Firm shall be binding upon the Company and the Executive, absent
manifest error.


 






 


     3.     Over- and Underpayments.    As a result of uncertainty in the application
of section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments not made by
the Company should have been made (“Underpayment”) or that Gross-Up Payments
will have been made by the Company that should not have been made
(“Overpayment”). In either event, the Accounting Firm shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the Company shall promptly pay the amount of such Underpayment to
the Executive or for his benefit. In the case of an Overpayment, the Executive
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the
Company, and otherwise reasonably cooperate with the Company to correct such
Overpayment, provided, however, that (i) the Executive shall in no event be
obligated to return to the Company an amount greater than the net after-tax
portion of the Overpayment that the Executive has retained or has recovered as
a refund from the applicable taxing authorities and (ii) this provision shall
be interpreted in a manner consistent with the intent of paragraph 1 above,
which is to make the Executive whole, on an after-tax basis, from the
application of the Excise Tax, it being understood that the correction of an
Overpayment may result in the Executive’s repaying to the Company an amount
that is less than the Overpayment.


     4.     Limitation on Parachute Payments.    Any other provision of this
Agreement notwithstanding, if the Excise Tax could be avoided by reducing the
Total Payments by $25,000 or less, then the Total Payments shall be reduced to
the extent necessary to avoid the Excise Tax and no Gross-Up Payment shall be
made. If the Accounting Firm determines that the Total Payments are to be
reduced under the preceding sentence, then the Company shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof.
The Executive may then elect, in his sole discretion, which and how much of
the Total Payments are to be eliminated or reduced (as long as after such
election no Excise Tax shall be payable), and the Executive shall advise the
Company in writing of his election within 10 days of receipt of notice. If the
Executive make no such election within such 10-day period, then the Company may
elect which and how much of the Total Payments are to be eliminated or reduced
(as long as after such election no Excise Tax shall be payable), and it shall
notify the Executive promptly of such election.


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     IN WITNESS WHEREOF, the Company and the Executive have duly executed this
Agreement as of the date first written above.



	 	 	 
	 	 	
VANDA PHARMACEUTICALS INC.
	 
	 	 	
By: /s/ Mihael H. Polymeropoulos         
	 	 	
Title: CEO
	 
	 	 	
By: /s/ Al Gianchetti            
          
         
	 	 	
Title: SVP, Chief Commercial Officer