Document:

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                                                                     EXHIBIT 4.3

                              COMMON STOCK WARRANT

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR
DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION.

                 WARRANT TO PURCHASE 451 SHARES OF COMMON STOCK

                                                         Dated: October 28, 2003

THIS CERTIFIES THAT, for value received, Oxford Finance Corporation, ("Holder")
is entitled to subscribe for and purchase Four Hundred Fifty One (451) shares of
the fully paid and nonassessable Common Stock (the "Shares") of Vanda
Pharmaceuticals Inc., a Delaware corporation (the "Company"), at the Warrant
Price (as hereinafter defined), subject to the provisions and upon the terms and
conditions hereinafter set forth. As used herein, the term "Common Stock" shall
mean the Company's presently authorized Class A Common Stock, and any stock into
which such Common Stock may hereafter be exchanged.

1. Warrant Price. The Warrant Price shall initially be Forty and 00/100 dollars
($40.00) per share, subject to adjustment as provided in Section 7 below.

2. Conditions to Exercise. The purchase right represented by this Warrant may be
exercised at any time, or from time to time, in whole or in part during the term
commencing on the date hereof and ending on the earlier of:

      (a)   5:00 P.M. Eastern Standard time on the eighth annual anniversary of
            this Warrant Agreement; or

      (b)   The closing of the initial public offering of the Company's Common
            Stock pursuant to a registration statement under the Securities Act
            of 1933, as amended (the "Initial Public Offering"). The Company
            shall provide notice of the Initial Public Offering to the Holder at
            least 10 business days prior to the closing thereof; or

      (c)   The effective date of the merger of the Company with or into, the
            consolidation of the Company with, or the sale by the Company of all
            or substantially all of its assets or all or substantially all of
            its shares to another corporation or other entity (other than such a
            transaction wherein the shareholders of the Company retain or obtain
            a majority of the voting capital stock of the surviving, resulting,
            or purchasing corporation); provided that the Company shall notify
            the registered Holder of this Warrant of the proposed effective date
            of the merger, consolidation, or sale at least 10 business days
            prior to the effectiveness thereof.

<PAGE>

In the event that, although the Company shall have given notice of a transaction
pursuant to subparagraph (b) or subparagraph (c) hereof, the transaction does
not close within 60 days of the day specified by the Company, unless otherwise
elected by the Holder any exercise of the Warrant subsequent to the giving of
such notice shall be rescinded and the Warrant shall again be exercisable until
terminated in accordance with this Paragraph 2.

3. Method of Exercise; Payment; Issuance of Shares; Issuance of New Warrant.

      (a)   Cash Exercise. Subject to Section 2 hereof, the purchase right
            represented by this Warrant may be exercised by the Holder hereof,
            in whole or in part, by the surrender of this Warrant (with a duly
            executed Notice of Exercise in the form attached hereto) at the
            principal office of the Company (as set forth below) and by payment
            to the Company, by check, of an amount equal to the then applicable
            Warrant Price per share multiplied by the number of shares then
            being purchased. In the event of any exercise of the rights
            represented by this Warrant, certificates for the shares of stock so
            purchased shall be in the name of, and delivered to, the Holder
            hereof (subject to the terms of transfer contained herein and upon
            payment by such Holder hereof of any applicable transfer taxes).
            Such delivery shall be made within 10 days after exercise of the
            Warrant and at the Company's expense and, unless this Warrant has
            been fully exercised or expired, a new Warrant having terms and
            conditions substantially identical to this Warrant and representing
            the portion of the Shares, if any, with respect to which this
            Warrant shall not have been exercised, shall also be issued to the
            Holder hereof within 10 days after exercise of the Warrant.

      (b)   Net Issue Exercise. In lieu of exercising this Warrant pursuant to
            Section 3(a), Holder may elect to receive shares equal to the value
            of this Warrant (or of any portion thereof remaining unexercised) by
            surrender of this Warrant at the principal office of the Company
            together with notice of such election, in which event the Company
            shall issue to Holder the number of shares of the Company's Common
            Stock computed using the following formula:

                   X = Y (A-B)
                       -------
                          A

                  Where X = the number of shares of Common Stock to be issued to
                  Holder.

                  Y = the number of shares of Common Stock purchasable under
                  this Warrant (at the date of exercise).

                  A = the Fair Market Value of one share of the Company's Common
                  Stock (at the date of exercise).

                  B = Warrant Price (as adjusted to the date of exercise).

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      (c)   Fair Market Value. For purposes of this Section 3, Fair Market Value
            of one share of the Company's Common Stock shall mean:

                  (i) In the event of an exercise in connection with an Initial
                  Public Offering, the per share Fair Market Value for the
                  Common Stock shall be the Offering Price at which the
                  underwriters initially sell Common Stock to the public; or

                  (ii) The average of the closing bid and asked prices of the
                  Common Stock quoted in the Over-The-Counter Market Summary, or
                  the average of, the last reported sale price of the Common
                  Stock or the closing price quoted on the Nasdaq National
                  Market System ("NMS") or on any exchange on which the Common
                  Stock is listed, whichever is applicable, as published in The
                  Wall Street Journal over the ten (10) trading days prior to
                  the date of determination of fair market value; or

                  (iii) In the event of an exercise in connection with a merger,
                  acquisition or other consolidation in which the Company is not
                  the surviving entity, as described in Section 2(c), the per
                  share Fair Market Value for the Common Stock shall be the
                  value to be received per share of Common Stock by all holders
                  of the Common Stock in such transaction as determined by the
                  Board of Directors; or

                  (iv) If the Common Stock is not publicly traded, the per share
                  fair market value of the Common Stock shall be as determined
                  in good faith by the Company's Board of Directors unless
                  Holder elects to have such fair market value determined by an
                  appraiser selected by the Company, which election must be made
                  by Holder within ten (10) business days of the date the
                  Company notifies Holder of the fair market value as determined
                  by its Board of Directors. In the event of such an appraisal,
                  the cost thereof shall be borne by the Holder unless such
                  appraisal results in a fair market value in excess of 115% of
                  that determined by the Company's Board of Directors, in which
                  event the Company shall bear the cost of such appraisal.

                  In the event of 3(c)(iii) or 3(c)(iv), above, the Company
                  shall deliver to the Holder a certificate setting forth in
                  reasonable detail the basis for and method of determination of
                  the per share Fair Market Value of the Common Stock. Such
                  certificate must be made to Holder at least 10 business days
                  prior to the proposed effective date of the merger,
                  consolidation, sale, or other triggering event as defined in
                  3(c)(iii) and 3(c)(iv).

      (d)   Automatic Exercise. To the extent this Warrant is not previously
            exercised, it shall be automatically exercised in accordance with
            Sections 3(b) and 3(c) hereof (even if not surrendered) immediately
            before: (i) its expiration, or (ii) the consummation of any
            consolidation or merger of the Company, or any sale or transfer of a
            majority of the Company's assets or stock pursuant to Section 2(b)
            and 2(c).

<PAGE>

4. Representations and Warranties of Holder and Restrictions on Transfer Imposed
by the Securities Act of 1933.

      (a)   Representations and Warranties by Holder. The Holder represents and
            warrants to the Company with respect to this purchase as follows:

                  (i) The Holder has substantial experience in evaluating and
                  investing in private placement transactions of securities of
                  companies similar to the Company so that the Holder is capable
                  of evaluating the merits and risks of its investment in the
                  Company and has the capacity to protect its interests.

                  (ii) The Holder is acquiring the Warrant and the Shares of
                  Common Stock issuable upon exercise of the Warrant
                  (collectively, the "Securities") for investment for its own
                  account and not with a view to, or for resale in connection
                  with, any distribution thereof. The Holder understands that
                  the Securities have not been registered under the Securities
                  Act of 1933, as amended (the "Act") by reason of a specific
                  exemption from the registration provisions of the Act, which
                  depends upon, among other things, the bona fide nature of the
                  investment intent as expressed herein. In this connection, the
                  Holder understands that, in the view of the Securities and
                  Exchange Commission (the "EC"), the statutory basis for such
                  exemption may be unavailable if this representation was
                  predicated solely upon a present intention to hold the
                  Securities for the minimum capital gains period specified
                  under tax statutes, for a deferred sale, for or until an
                  increase or decrease in the market price of the Securities or
                  for a period of one year or any other fixed period in the
                  future.

                  (iii) The Holder acknowledges that the Securities must be held
                  indefinitely unless subsequently registered under the Act or
                  an exemption from such registration is available. The Holder
                  is aware of the provisions of Rule 144 promulgated under the
                  Act ("Rule 144") which permits limited resale of securities
                  purchased in a private placement subject to the satisfaction
                  of certain conditions, including, in case the securities have
                  been held for more than one but less than two years, the
                  existence of a public market for the shares, the availability
                  of certain public information about the Company, the resale
                  occurring not less than one years after a party has purchased
                  and paid for the security to be sold, the sale being through a
                  "broker's transaction" or in a transaction directly with a
                  "market maker" (as provided by Rule 144(f)) and the number of
                  shares or other securities being sold during any three-month
                  period not exceeding specified limitations.

                  (iv) The Holder further understands that at the time the
                  Holder wishes to sell the Securities there may be no public
                  market upon which such a sale may be effected, and that even
                  if such a public market exists, the Company may not be
                  satisfying the current public information requirements of Rule
                  144, and that in such event, the Holder may be precluded from
                  selling the Securities under Rule 144 unless a) a one-year
                  minimum holding period has been satisfied and b) the Holder
                  was not

<PAGE>

                  at the time of the sale nor at any time during the three-month
                  period prior to such sale an affiliate of the Company.

                  (v) The Holder has had an opportunity to discuss the Company's
                  business, management and financial affairs with its management
                  and an opportunity to review the Company's facilities. The
                  Holder understands that such discussions, as well as the
                  written information issued by the Company, were intended to
                  describe the aspects of the Company's business and prospects
                  which it believes to be material but were not necessarily a
                  thorough or exhaustive description. The Company makes no
                  representation or warranty to Holder with respect to any
                  thereof.

      (b)   Legends. Each certificate representing the Securities shall be
            endorsed with the following legend:

                        THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
                        SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
                        COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER
                        SAID ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND
                        EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A
                        TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE
                        SECURITIES AND EXCHANGE COMMISSION, OR (IF REASONABLY
                        REQUIRED BY THE COMPANY) AN OPINION OF COUNSEL
                        SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH
                        TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

                  The Company need not enter into its stock register a transfer
                  of Securities unless the conditions specified in the foregoing
                  legend are satisfied. The Company may also instruct its
                  transfer agent not to register the transfer of any of the
                  Shares unless the conditions specified in the foregoing legend
                  are satisfied.

      (c)   Removal of Legend and Transfer Restrictions. The legend relating to
            the Act endorsed on a certificate pursuant to paragraph 4(b) of this
            Warrant and the stop transfer instructions with respect to the
            Securities represented by such certificate shall be removed and the
            Company shall issue a certificate without such legend to the Holder
            of the Securities if (i) the Securities are registered under the Act
            and a prospectus meeting the requirements of Section 10 of the Act
            is available or (ii) the Holder provides to the Company an opinion
            of counsel for the Holder reasonably satisfactory to the Company, or
            a no-action letter or interpretive opinion of the staff of the SEC
            reasonably satisfactory to the Company, to the effect that public
            sale, transfer or assignment of the Securities may be, to the effect
            that public sale, transfer or assignment of the Securities may be
            made without registration and without compliance with any
            restriction such as Rule 144.

<PAGE>

5. Condition of Transfer or Exercise of Warrant. It shall be a condition to any
transfer or exercise of this Warrant that at the time of such transfer or
exercise, the Holder shall provide the Company with a representation in writing
that the Holder or transferee is acquiring this Warrant and the shares of Common
Stock to be issued upon exercise, for investment purposes only and not with a
view to any sale or distribution, or will provide the Company with a statement
of pertinent facts covering any proposed distribution. As a further condition to
any transfer of this Warrant or any or all of the shares of Common Stock
issuable upon exercise of this Warrant, other than a transfer registered under
the Act, the Company must have received a legal opinion, in form and substance
satisfactory to the Company and its counsel, reciting the pertinent
circumstances surrounding the proposed transfer and stating that such transfer
is exempt from the registration and prospectus delivery requirements of the Act.
Each certificate evidencing the shares issued upon exercise of the Warrant or
upon any transfer of the shares (other than a transfer registered under the Act
or any subsequent transfer of shares so registered) shall, at the Company's
option, contain a legend in form and substance satisfactory to the Company and
its counsel, restricting the transfer of the shares to sales or other
dispositions exempt from the requirements of the Act.

As further condition to each transfer, the Holder shall surrender this Warrant
to the Company and the transferee shall receive and accept a Warrant, of like
tenor and date, executed by the Company.

6. Stock Fully Paid; Reservation of Shares. All Shares which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance and
payment of the exercise price therefor, be fully paid and nonassessable, and
free from all taxes, liens, and charges with respect to the issue thereof.
During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for
issuance upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.

7. Adjustment for Certain Events. In the event of changes in the outstanding
Common Stock by reason of stock dividends, split-ups, reclassifications,
recapitalizations, mergers, consolidations, combinations or exchanges of shares,
reorganizations, liquidations, or the like, the number and class of shares
available under the Warrant in the aggregate and the Warrant Price shall be
correspondingly adjusted, as appropriate, by the Board of Directors of the
Company. The adjustment shall be such as will give the Holder of this Warrant
upon exercise for the same aggregate Warrant Price the total number, class and
kind of shares as he would have owned had the Warrant been exercised prior to
the event and had he continued to hold such shares until after the event
requiring adjustment.

8. Notice of Adjustments. Whenever any Warrant Price shall be adjusted pursuant
to Section 7 hereof, the Company shall prepare a certificate signed on the
Company's behalf by the chief financial officer of the Company setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Warrant
Price and number of shares issuable upon exercise of the Warrant after giving
effect to such adjustment, and shall cause copies of such certificate to be
mailed (by certified or

<PAGE>

registered mail, return receipt required, postage prepaid) within thirty (30)
days of such adjustment to the Holder of this Warrant as set forth in Section 18
hereof.

9. "Market Stand-Off" Agreement. Holder hereby agrees that for a period of up to
180 days following the effective date of the first registration statement of the
Company covering common stock (or other securities) to be sold on its behalf of
the Company in an underwritten public offering, it will not, to the extent
requested by the Company and any underwriter, sell or otherwise transfer or
dispose of (other than to donees or transferees who agree to be similarly bound)
any of the Shares at any time during such period except common stock included in
such registration.

10. Transferability of Warrant. This Warrant is transferable on the books of the
Company at its principal office by the registered Holder hereof upon surrender
of this Warrant properly endorsed, subject to compliance with Section 5 and
applicable federal and state securities laws. Notwithstanding the previous
sentence, this Warrant is transferable to affiliates of Oxford Finance
Corporation only after the Holder gives at least three (3) days' prior notice to
the Board of Directors of the Company. The Company shall issue and deliver to
the transferee a new Warrant representing the Warrant so transferred. Upon
partial transfer, the Company will issue and deliver to the Holder a new Warrant
with respect to the Warrant not so transferred. Holder shall not have any right
to transfer any portion of this Warrant to any direct competitor of the Company.

11. No Fractional Shares. No fractional share of Common Stock will be issued in
connection with any exercise hereunder, but in lieu of such fractional share the
Company shall make a cash payment therefor upon the basis of the Warrant Price
then in effect.

12. Charges, Taxes and Expenses. Issuance of certificates for shares of Common
Stock upon the exercise of this Warrant shall be made without charge to the
Holder for any United States or state of the United States documentary stamp tax
or other incidental expense within respect to the issuance of such certificate,
all of which taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the Holder.

13. No Shareholder Rights Until Exercise. This Warrant does not entitle the
Holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof.

14. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft, or
destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant, having terms and conditions substantially identical to this
Warrant, in lieu hereof.

15. Registry of Warrant. The Company shall maintain a registry showing the name
and address of the registered Holder of this Warrant. This warrant may be
surrendered for exchange or exercise, in accordance with its terms, at such
office or agency of the Company, and the

<PAGE>

Company and Holder shall be entitled to rely in all respects, prior to written
notice to the contrary, upon such registry.

16. Miscellaneous.

      (a)   Issue Date. The provisions of this Warrant shall be construed and
            shall be given effect in all respect as if it had been issued and
            delivered by the Company on the date hereof.

      (b)   Successors. This Warrant shall be binding upon any successors or
            permitted assigns of the Company.

      (c)   Governing Law. This Warrant shall be governed by and construed in
            accordance with the laws of the State of Maryland.

      (d)   Headings. The headings used in this Warrant are used for convenience
            only and are not to be considered in construing or interpreting this
            Warrant.

      (e)   Saturdays, Sundays, Holidays. If the last or appointed day for the
            taking of any action or the expiration of any right required or
            granted herein shall be a Saturday or a Sunday or shall be a legal
            holiday in the State of Maryland, then such action may be taken or
            such right may be exercised on the next succeeding day not a legal
            holiday.

17. No Impairment. The Company shall not by any action including, without
limitation, amending its Sections or certificate of incorporation or by-laws,
any reorganization, transfer of assets, consolidation, merger, share exchange
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of the Warrants,
but shall at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or appropriate
to protect the rights of the Holder(s) hereof against impairment. Without
limiting the generality of the foregoing, the Company shall (a) not increase the
par value of any shares of Common Stock issuable upon the exercise of the
Warrants above the amount payable therefor upon such exercise, (b) take all such
action as may be necessary or appropriate in order that the Company may validly
issue fully paid and nonassessable shares of Common Stock upon the exercise of
the Warrants, (c) obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under the Warrants and (d) not
take or permit to be taken any action which would have the effect of shortening
the period provided herein for exercise of the Warrants.

18. Addresses. Any notice required or permitted hereunder shall be in writing
and shall be mailed by overnight courier, registered or certified mail, return
receipt required, and postage prepaid, or otherwise delivered by hand or by
messenger, addressed as set forth below, or at such other address as the Company
or the Holder hereof shall have furnished to the other party.

<PAGE>

          If to the                Vanda Pharmaceuticals Inc.
          Company:
                                   9620 Medical Center Drive, Suite
                                   201,
                                   Rockville, MD 20850
                                   Attn: Chief Executive Officer

          If to the Holder:        Oxford Finance Corporation
                                   133 N. Fairfax Street
                                   Alexandria, VA 22314
                                   Attn: Chief Financial Officer

IN WITNESS WHEREOF, Vanda Pharmaceuticals Inc. has caused this Warrant to be
executed by its officers thereunto duly authorized.

Dated as of October 28, 2003.

By: /s/ William D. Clark
    ---------------------------
Name: William D. Clark

Title: Director

<PAGE>

                               NOTICE OF EXERCISE

TO: ________________________
    ________________________
    ________________________

1. The undersigned, Oxford Finance Corporation ("Holder") elects to acquire
shares of the Common Stock of Vanda Pharmaceuticals Inc. (the "Company"),
pursuant to the terms of the Stock Purchase Warrant dated October 28, 2003 (the
"Warrant").

2. The Holder exercises its rights under the Warrant as set forth below:

   (   )      The Holder elects to purchase_____ shares of Common Stock as
              provided in Section 3(a), (c) and tenders herewith a check in the
              amount of $_____ as payment of the purchase price.

   (   )      The Holder elects to convert the purchase rights into shares of
              Common Stock as provided in Section 3(b), (c) of the Warrant.

3. The Holder surrenders the Warrant with this Notice of Exercise.

4. The Holder represents that it is acquiring the aforesaid shares of Common
Stock for investment and not with a view to or for resale in connection with,
distribution and that the Holder has no present intention of distributing or
reselling the shares.

5. Please issue a certificate representing the shares of Common Stock in the
name of the Holder or in such other name as is specified below:

            Name:         ___________________________

            Address:      ___________________________

            Taxpayer ID.: ___________________________

<PAGE>

         Oxford Finance Corporation

By:    ________________________________

Name:  ______________________________

Title: _____________________________

Date:  ______________________________<PAGE>

                                                                    EXHIBIT 10.1

                           VANDA PHARMACEUTICALS INC.

                           SECOND AMENDED AND RESTATED
                             MANAGEMENT EQUITY PLAN

<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE
SECTION 1.   Establishment And Purpose..................................      1

SECTION 2.   Administration.............................................      1
     (a)     Committees of the Board of Directors.......................      1
     (b)     Authority of the Board of Directors........................      1

SECTION 3.   Eligibility................................................      1
     (a)     General Rule...............................................      1
     (b)     Ten-Percent Stockholders...................................      1

SECTION 4.   Stock Subject To Plan......................................      2
     (a)     Basic Limitation...........................................      2
     (b)     Additional Shares..........................................      2

SECTION 5.   Terms And Conditions Of Awards Or Sales....................      2
     (a)     Stock Purchase Agreement...................................      2
     (b)     Duration of Offers and Nontransferability of Rights........      2
     (c)     Purchase Price.............................................      2
     (d)     Withholding Taxes..........................................      2
     (e)     Restrictions on Transfer of Shares.........................      2

SECTION 6.   Terms And Conditions Of Options............................      3
     (a)     Stock Option Agreement.....................................      3
     (b)     Number of Shares...........................................      3
     (c)     Exercise Price.............................................      3
     (d)     Exercisability.............................................      3
     (e)     Term.......................................................      3
     (f)     Restrictions on Transfer of Shares.........................      3
     (g)     Transferability of Options.................................      3
     (h)     Withholding Taxes..........................................      4
     (i)     No Rights as a Stockholder.................................      4
     (j)     Modification, Extension and Assumption of Options..........      4

SECTION 7.   Payment For Shares.........................................      4
     (a)     General Rule...............................................      4
     (b)     Surrender of Stock.........................................      4
     (c)     Services Rendered..........................................      4
     (d)     Promissory Note............................................      4
     (e)     Exercise/Sale..............................................      5
     (f)     Exercise/Pledge............................................      5
     (g)     Other Forms of Payment.....................................      5

SECTION 8.   Adjustment Of Shares.......................................      5
     (a)     General....................................................      5

                                       i
<PAGE>

     (b)     Mergers and Consolidations.................................      5

SECTION 9.   Securities Law Requirements................................      6

SECTION 10.  No Retention Rights........................................      7

SECTION 11.  Duration and Amendments....................................      7
     (a)     Term of the Plan...........................................      7
     (b)     Right to Amend or Terminate the Plan.......................      7
     (c)     Effect of Amendment or Termination.........................      7

SECTION 12.  Definitions................................................      7

                                       ii
<PAGE>

                           VANDA PHARMACEUTICALS INC.
               SECOND AMENDED AND RESTATED MANAGEMENT EQUITY PLAN

SECTION 1. ESTABLISHMENT AND PURPOSE.

            The purpose of the Plan is to offer selected persons an opportunity
to acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory Options
as well as ISOs intended to qualify under Section 422 of the Code.

            Capitalized terms are defined in Section 12.

SECTION 2. ADMINISTRATION.

            (a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be
administered by one or more Committees. Each Committee shall consist of one or
more members of the Board of Directors who have been appointed by the Board of
Directors. Each Committee shall have such authority and be responsible for such
functions as the Board of Directors has assigned to it. If no Committee has been
appointed, the entire Board of Directors shall administer the Plan. Any
reference to the Board of Directors in the Plan shall be construed as a
reference to the Committee (if any) to whom the Board of Directors has assigned
a particular function.

            (b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions
of the Plan, the Board of Directors shall have full authority and discretion to
take any actions it deems necessary or advisable for the administration of the
Plan. All decisions, interpretations and other actions of the Board of Directors
shall be final and binding on all Purchasers, all Optionees and all persons
deriving their rights from a Purchaser or Optionee.

SECTION 3. ELIGIBILITY.

            (a) GENERAL RULE. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Nonstatutory Options or the direct award or
sale of Shares. Only Employees shall be eligible for the grant of ISOs.

            (b) TEN-PERCENT STOCKHOLDERS. A person who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries shall not be eligible for the grant of an
ISO unless (i) the Exercise Price is at least 110% of the Fair Market Value of a
Share on the date of grant and (ii) such ISO by its terms is not exercisable
after the expiration of five years from the date of grant. For purposes of this
Subsection (b), in determining stock ownership, the attribution rules of Section
424(d) of the Code shall be applied.

<PAGE>

SECTION 4. STOCK SUBJECT TO PLAN.

            (a) BASIC LIMITATION. Not more than 5,489,714 Shares may be issued
under the Plan (subject to Subsection (b) below and Section 8). All of these
Shares may be issued upon the exercise of ISOs. The number of Shares that are
subject to Options or other rights outstanding at any time under the Plan shall
not exceed the number of Shares that then remain available for issuance under
the Plan. The Company, during the term of the Plan, shall at all times reserve
and keep available sufficient Shares to satisfy the requirements of the Plan.
Shares offered under the Plan may be authorized but unissued Shares or treasury
Shares.

            (b) ADDITIONAL SHARES. In the event that Shares previously issued
under the Plan are reacquired by the Company, such Shares shall be added to the
number of Shares then available for issuance under the Plan. In the event that
an outstanding Option or other right for any reason expires or is canceled, the
Shares allocable to the unexercised portion of such Option or other right shall
be added to the number of Shares then available for issuance under the Plan.

SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.

            (a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the
Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions which are not inconsistent with the
Plan and which the Board of Directors deems appropriate for inclusion in a Stock
Purchase Agreement. The provisions of the various Stock Purchase Agreements
entered into under the Plan need not be identical.

            (b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right
to acquire Shares under the Plan (other than an Option) shall automatically
expire if not exercised by the Purchaser within 30 days after the grant of such
right was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.

            (c) PURCHASE PRICE. The Purchase Price of Shares to be offered under
the Plan, if newly issued, shall not be less than the par value of such Shares.
Subject to the preceding sentence, the Board of Directors shall determine the
Purchase Price at its sole discretion. The Purchase Price shall be payable in a
form described in Section 7.

            (d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.

            (e) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares awarded or sold
under the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the Board
of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Purchase Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally. A Stock Purchase
Agreement may

                                       2
<PAGE>

provide for accelerated vesting in the event of the Purchaser's death,
disability or retirement or other events.

SECTION 6. TERMS AND CONDITIONS OF OPTIONS.

            (a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Board of Directors deems appropriate
for inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.

            (b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.

            (c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, and a higher percentage may
be required by Section 3(b). The Exercise Price of a Nonstatutory Option to
purchase newly issued Shares shall not be less than 30% of the Fair Market Value
of a Share on the date of grant. Subject to the preceding two sentences, the
Exercise Price under an Option shall be determined by the Board of Directors at
its sole discretion. The Exercise Price shall be payable in a form described in
Section 7.

            (d) EXERCISABILITY. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. No
Option shall be exercisable unless the Optionee has delivered an executed copy
of the Stock Option Agreement to the Company. The Board of Directors shall
determine the exercisability provisions of any Stock Option Agreement at its
sole discretion. All of an Optionee's Options shall become exercisable in full
if Section 8(b)(iv) applies.

            (e) TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, and in the
case of an ISO a shorter term may be required by Section 3(b). Subject to the
preceding sentence, the Board of Directors at its sole discretion shall
determine when an Option is to expire. A Stock Option Agreement may provide for
expiration prior to the end of its term in the event of the termination of the
Optionee's Service or death.

            (f) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon
exercise of an Option shall be subject to such special forfeiture conditions,
rights of repurchase, rights of first refusal and other transfer restrictions as
the Board of Directors may determine. Such restrictions shall be set forth in
the applicable Stock Option Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally.

            (g) TRANSFERABILITY OF OPTIONS. An Option shall be transferable by
the Optionee only by (i) a beneficiary designation, (ii) a will or (iii) the
laws of descent and

                                       3
<PAGE>

distribution, except as provided in the next sentence. If the applicable Stock
Option Agreement so provides, a Nonstatutory Option shall also be transferable
by gift or domestic relations order to a Family Member of the Optionee. An ISO
may be exercised during the lifetime of the Optionee only by the Optionee or by
the Optionee's guardian or legal representative.

            (h) WITHHOLDING TAXES. As a condition to the exercise of an Option,
the Optionee shall make such arrangements as the Board of Directors may require
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.

            (i) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.

            (j) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.

SECTION 7. PAYMENT FOR SHARES.

            (a) GENERAL RULE. The entire Purchase Price or Exercise Price of
Shares issued under the Plan shall be payable in cash or cash equivalents at the
time when such Shares are purchased, except as otherwise provided in this
Section 7.

            (b) SURRENDER OF STOCK. At the discretion of the Board of Directors,
all or any part of the Exercise Price may be paid by surrendering, or attesting
to the ownership of, Shares that are already owned by the Optionee. Such Shares
shall be surrendered to the Company in good form for transfer and shall be
valued at their Fair Market Value on the date when the Option is exercised. The
Optionee shall not surrender, or attest to the ownership of, Shares in payment
of the Exercise Price if such action would cause the Company to recognize
compensation expense (or additional compensation expense) with respect to the
Option for financial reporting purposes.

            (c) SERVICES RENDERED. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.

            (d) PROMISSORY NOTE. At the discretion of the Board of Directors,
all or a portion of the Exercise Price or Purchase Price (as the case may be) of
Shares issued under the Plan may be paid with a full-recourse promissory note.
The Shares shall be pledged as security

                                       4
<PAGE>

for payment of the principal amount of the promissory note and interest thereon.
The interest rate payable under the terms of the promissory note shall not be
less than the minimum rate (if any) required to avoid (i) the imputation of
additional interest under the Code and (ii) the recognition of compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes. Subject to the foregoing, the Board of Directors
(at its sole discretion) shall specify the term, interest rate, amortization
requirements (if any) and other provisions of such note.

            (e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the Company to sell Shares and to deliver all
or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.

            (f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.

            (g) OTHER FORMS OF PAYMENT. At the discretion of the Board of
Directors, the Purchase Price or Exercise Price of Shares issued under the Plan
may be paid in any other form permitted by the Delaware General Corporation Law,
as amended.

SECTION 8. ADJUSTMENT OF SHARES.

            (a) GENERAL. In the event of a subdivision of the outstanding Stock,
a declaration of a dividend payable in Shares or a combination or consolidation
of the outstanding Stock into a lesser number of Shares, corresponding
adjustments shall automatically be made in each of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option and (iii) the Exercise Price under each outstanding
Option. In the event of a declaration of an extraordinary dividend payable in a
form other than Shares in an amount that has a material effect on the Fair
Market Value of the Stock, a recapitalization, a spin-off, a reclassification or
a similar occurrence, the Board of Directors at its sole discretion may make
appropriate adjustments in one or more of (i) the number of Shares available for
future grants under Section 4, (ii) the number of Shares covered by each
outstanding Option or (iii) the Exercise Price under each outstanding Option.

            (b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a
party to a merger or consolidation, all outstanding Options shall be subject to
the agreement of merger or consolidation. Such agreement shall provide for one
or more of the following:

                  (i) The continuation of such outstanding Options by the
      Company (if the Company is the surviving corporation).

                                       5
<PAGE>

                  (ii) The assumption of such outstanding Options by the
      surviving corporation or its parent in a manner that complies with Section
      424(a) of the Code (whether or not such Options are ISOs).

                  (iii) The substitution by the surviving corporation or its
      parent of new options for such outstanding Options in a manner that
      complies with Section 424(a) of the Code (whether or not such Options are
      ISOs).

                  (iv) Full exercisability of such outstanding Options and full
      vesting of the Shares subject to such Options, followed by the
      cancellation of such Options. The full exercisability of such Options and
      full vesting of the Shares subject to such Options may be contingent on
      the closing of such merger or consolidation. The Optionees shall be able
      to exercise such Options during a period of not less than five full
      business days preceding the closing date of such merger or consolidation,
      unless (A) a shorter period is required to permit a timely closing of such
      merger or consolidation and (B) such shorter period still offers the
      Optionees a reasonable opportunity to exercise such Options. Any exercise
      of such Options during such period may be contingent on the closing of
      such merger or consolidation.

                  (v) The cancellation of such outstanding Options and a payment
      to the Optionees equal to the excess of (A) the Fair Market Value of the
      Shares subject to such Options (whether or not such Options are then
      exercisable or such Shares are then vested) as of the closing date of such
      merger or consolidation over (B) their Exercise Price. Such payment shall
      be made in the form of cash, cash equivalents, or securities of the
      surviving corporation or its parent with a Fair Market Value equal to the
      required amount. Such payment may be made in installments and may be
      deferred until the date or dates when such Options would have become
      exercisable or such Shares would have vested. Such payment may be subject
      to vesting based on the Optionee's continuing Service, provided that the
      vesting schedule shall not be less favorable to the Optionees than the
      schedule under which such Options would have become exercisable or such
      Shares would have vested. If the Exercise Price of the Shares subject to
      such Options exceeds the Fair Market Value of such Shares, then such
      Options may be cancelled without making a payment to the Optionees. For
      purposes of this Paragraph (v), the Fair Market Value of any security
      shall be determined without regard to any vesting conditions that may
      apply to such security.

SECTION 9. SECURITIES LAW REQUIREMENTS.

            Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.

                                       6
<PAGE>

SECTION 10. NO RETENTION RIGHTS.

            Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Company (or any Parent or Subsidiary employing or
retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which
rights are hereby expressly reserved by each, to terminate his or her Service at
any time and for any reason, with or without cause.

SECTION 11. DURATION AND AMENDMENTS.

            (a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's stockholders. If the stockholders fail to approve the
Plan within 12 months after its adoption by the Board of Directors, then any
grants, exercises or sales that have already occurred under the Plan shall be
rescinded and no additional grants, exercises or sales shall thereafter be made
under the Plan. The Plan shall terminate automatically 10 years after the later
of (i) its adoption by the Board of Directors or (ii) the most recent increase
in the number of Shares reserved under Section 4 that was approved by the
Company's stockholders. The Plan may be terminated on any earlier date pursuant
to Subsection (b) below.

            (b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan shall be subject to the approval of the
Company's stockholders if it (i) increases the number of Shares available for
issuance under the Plan (except as provided in Section 8) or (ii) materially
changes the class of persons who are eligible for the grant of ISOs. Stockholder
approval shall not be required for any other amendment of the Plan. If the
stockholders fail to approve an increase in the number of Shares reserved under
Section 4 within 12 months after its adoption by the Board of Directors, then
any grants, exercises or sales that have already occurred in reliance on such
increase shall be rescinded and no additional grants, exercises or sales shall
thereafter be made in reliance on such increase.

            (c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.

SECTION 12. DEFINITIONS.

            (a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.

            (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.

            (c) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).

                                       7
<PAGE>

            (d) "COMPANY" shall mean Vanda Pharmaceuticals Inc., a Delaware
corporation.

            (e) "CONSULTANT" shall mean a person who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.

            (f) "EMPLOYEE" shall mean any individual who is a common-law
employee of the Company, a Parent or a Subsidiary.

            (g) "EXERCISE PRICE" shall mean the amount for which one Share may
be purchased upon exercise of an Option, as specified by the Board of Directors
in the applicable Stock Option Agreement.

            (h) "FAIR MARKET VALUE" shall mean the fair market value of a Share,
as determined by the Board of Directors in good faith. Such determination shall
be conclusive and binding on all persons.

            (i) "FAMILY MEMBER" shall mean (i) any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law, including adoptive relationships, (ii) any person sharing the
Optionee's household (other than a tenant or employee), (iii) a trust in which
persons described in Clause (i) or (ii) have more than 50% of the beneficial
interest, (iv) a foundation in which persons described in Clause (i) or (ii) or
the Optionee control the management of assets and (v) any other entity in which
persons described in Clause (i) or (ii) or the Optionee own more than 50% of the
voting interests.

            (j) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.

            (k) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.

            (l) "OPTION" shall mean an ISO or Nonstatutory Option granted under
the Plan and entitling the holder to purchase Shares.

            (m) "OPTIONEE" shall mean a person who holds an Option.

            (n) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors
who is not an Employee.

            (o) "PARENT" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.

                                       8
<PAGE>

            (p) "PLAN" shall mean this Vanda Pharmaceuticals Inc. Second Amended
and Restated Management Equity Plan.

            (q) "PURCHASE PRICE" shall mean the consideration for which one
Share may be acquired under the Plan (other than upon exercise of an Option), as
specified by the Board of Directors.

            (r) "PURCHASER" shall mean a person to whom the Board of Directors
has offered the right to acquire Shares under the Plan (other than upon exercise
of an Option).

            (s) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.

            (t) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).

            (u) "STOCK" shall mean the Common Stock of the Company, with a par
value of $0.001 per Share.

            (v) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to the Optionee's Option.

            (w) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan that contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.

            (x) "SUBSIDIARY" shall mean any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.

                                       9

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