Document:

exv10w26

Exhibit 10.26

Vanda Pharmaceuticals Inc.

Amended and Restated Employment Agreement

          This Employment Agreement (this “Agreement”) was entered into as of July 6, 2006, by and
between Paolo Baroldi (the “Executive”) and Vanda Pharmaceuticals Inc., a
Delaware corporation (the “Company”). This Agreement is hereby amended and restated as of November
4, 2008.

          1. Duties and Scope of Employment.

               (a) Position. For the term of his employment under this Agreement (“Employment”), the Company
agrees to employ the Executive in the position of Senior Vice President and Chief Medical Officer.
The Executive shall be subject to the supervision of, and shall have such authority as is delegated
to him by, the Company’s Chief Executive Officer. The Executive hereby accepts such employment and
agrees to undertake the duties and responsibilities normally inherent in such position and such
other duties and responsibilities as the Company’s board of directors (the “Board”) shall from time
to time reasonably assign to him.

               (b) Obligations to the Company. During the term of his Employment, the Executive shall devote
his full business efforts and time to the Company. During the term of his Employment, without the
prior written approval of the Board, the Executive shall not render services in any capacity to any
other person or entity and shall not act as a sole proprietor or partner of any other person or
entity or as a shareholder owning more than five percent of the stock of any other corporation.
The Executive shall comply with the Company’s policies and rules, as they may be in effect from
time to time during the term of his Employment.

               (c) No Conflicting Obligations. The Executive represents and warrants to the Company that he
is under no obligations or commitments, whether contractual or otherwise, that are inconsistent
with his obligations under this Agreement. The Executive represents and warrants that he will not
use or disclose, in connection with his employment by the Company, any trade secrets or other
proprietary information or intellectual property in which the Executive or any other person has any
right, title or interest and that his employment by the Company as contemplated by this Agreement
will not infringe or violate the rights of any other person or entity. The Executive represents
and warrants to the Company that he has returned all property and confidential information
belonging to any prior employers.

          2. Cash and Incentive Compensation.

               (a) Salary. The Company shall pay the Executive as compensation for his services a base
salary at a gross annual rate of $250,000. Such salary shall be payable in accordance with the
Company’s standard payroll procedures. (The annual compensation specified in this Subsection (a),
together with any increases in such compensation that the

 

 

Company may grant from time to time, is referred to in this Agreement as “Base Compensation.”)

               (b) Incentive Bonuses. The Executive shall be eligible for an annual incentive bonus with a
target amount equal to 25% of his Base Compensation (the “Annual Target Bonus”). Such bonus (if
any) shall be awarded based on objective or subjective criteria established in advance by the
Board. Any bonus for the fiscal year in which Executive’s employment begins shall be prorated,
based on the number of days Executive is employed by the Company during that fiscal year. Any
incentive bonus for a fiscal year shall in no event be paid later than 21/2 months after the close of
such fiscal year. Such bonus shall be paid only if Executive is employed by the Company at the
time of payment. The determinations of the Board with respect to such bonus shall be final and
binding.

               (c) Signing Bonus. The Company shall pay the Executive a signing bonus of $30,000 in the
first pay period after the commencement of his Employment.

               (d) Relocation. The Company shall reimburse the reasonable expenses, not to exceed $20,000,
that the Executive incurs in moving himself, his family and his household to the Rockville area.

               (e) Stock Options. Subject to the approval of the Compensation Committee of the Board, the
Company shall grant the Executive an option covering 60,427 shares of the Company’s Common Stock.
Such option shall be granted as soon as reasonably practicable after commencement of Employment.
The per-share exercise price of such option shall be equal to the fair market value of one share of
the Company’s Common Stock on the later of (i) the closing of the last trading day prior to date of
the Board (or Compensation Committee) meeting or written consent approving such option or (ii) the
date the Executive’s service to the Company commences. The term of such option shall be 10 years,
subject to earlier expiration in the event of the termination of the Executive’s Employment. The
option shall vest and become exercisable for 25% of the option shares after the first 12 months of
the Executive’s continuous service and for the remaining option shares in equal monthly
installments over the next three years of continuous service. The vested and exercisable portion
of the option shall be determined by adding 24 months to the Executive’s actual period of service
if, after a Change in Control (as defined in the 2006 Equity Incentive Plan (the “Plan”)), the
Executive is subject to an Involuntary Termination (as defined in the Plan). The grant of such
option shall be subject to the other terms and conditions set forth in the Plan and the Company’s
form stock option agreement.

          3. Vacation and Employee Benefits. During the term of his Employment, the Executive shall be
eligible for 20 paid vacation days each year in accordance with the Company’s standard policy for
similarly situated employees, as it may be amended from time to time. During the term of his
Employment, the Executive shall be eligible to participate in any employee benefit plans maintained
by the Company for similarly situated employees, subject in each case to the generally applicable
terms and conditions of the plan in question and to the determinations of any person or committee
administering such plan.

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          4. Business Expenses. During the term of his Employment, the Executive shall be authorized to
incur necessary and reasonable travel, entertainment and other business expenses in connection with
his duties hereunder. The Company shall reimburse the Executive for such expenses upon
presentation of an itemized account and appropriate supporting documentation, all in accordance
with the Company’s generally applicable policies.

          5. Term of Employment.

               (a) Basic Rule. The Company agrees to continue the Executive’s Employment, and the Executive
agrees to remain in Employment with the Company, from the date of this Agreement until the date the
Executive’s Employment terminates pursuant to Subsection (b) below. The Executive’s Employment
with the Company shall be “at will,” meaning that either the Executive or the Company may terminate
the Executive’s Employment at any time, with or without cause. Any contrary representations which
may have been made to the Executive shall be superseded by this Agreement. This Agreement shall
constitute the full and complete agreement between the Executive and the Company on the “at will”
nature of the Executive’s Employment, which may only be changed in an express written agreement
signed by the Executive and a duly authorized officer of the Company (other than Executive).

               (b) Termination. The Company may terminate the Executive’s Employment at any time and for any
reason (or no reason), and with or without cause, by giving the Executive 14 days’ advance notice
in writing. The Executive may terminate his Employment by giving the Company 14 days’ advance
notice in writing. The Executive’s Employment shall terminate automatically in the event of his
death.

               (c) Rights Upon Termination. Except as expressly provided in Section 6, upon the termination
of the Executive’s Employment pursuant to this Section 5, the Executive shall only be entitled to
the compensation, benefits and reimbursements described in Sections 2, 3 and 4 for the period
preceding the effective date of the termination. The payments under this Agreement shall fully
discharge all responsibilities of the Company to the Executive.

               (d) Termination of Agreement. This Agreement shall terminate when all obligations of the
parties hereunder have been satisfied. The termination of this Agreement shall not limit or
otherwise affect any of the Executive’s obligations under Section 7.

          6. Termination Benefits.

               (a) General Release. Any other provision of this Agreement notwithstanding, Subsections (b)
and (c) below shall not apply unless the Executive (i) has executed a general release (in a form
prescribed by the Company) of all known and unknown claims that he may then have against the
Company or persons affiliated with the Company, (ii) has agreed not to prosecute any legal action
or other proceeding based upon any of such claims and (iii) has returned all property of the
Company in the Executive’s possession. The Company shall deliver the form of release to the
Executive within 30 days after his Separation. The Executive shall execute the release within the
period set forth in the form.

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               (b) Severance Pay. If, during the term of this Agreement, a Separation occurs because the
Company terminates the Executive’s Employment for any reason other than Cause or Permanent
Disability, or because the Executive terminates his Employment within six months after a condition
constituting Good Reason arises, then the Company shall pay the Executive:

          (i) Base Compensation. His Base Compensation for a period of 12 months
following the Separation (the “Continuation Period”). Such Base Compensation shall
be paid at the rate in effect at the time of the Separation and in accordance with
the Company’s standard payroll procedures. The salary continuation payments shall
commence within 30 days after the Executive returns the release described in
Subsection (a) above.

          (ii) Bonus Compensation. A bonus (the “Severance Bonus”) in an amount
determined as follows:

          (A) If the Separation occurs prior to the first anniversary of
the date of this Agreement, the Severance Bonus shall be equal to a
pro-rata portion of the anticipated first-year Annual Target Bonus,
as determined by the Board in good faith.

          (B) If the Separation occurs on or following the first
anniversary of the date of this Agreement and prior to the third
anniversary of the date of this Agreement, the Severance Bonus shall
be equal to the greater of (I) the most recent Annual Target Bonus
and (II) the average of Annual Target Bonuses awarded for the prior
years.

          (C) If the Separation occurs on or following the third
anniversary of the date of this Agreement, the Severance Bonus shall
be equal to the greater of (I) the most recent Annual Target Bonus
and (II) the average of Annual Target Bonuses awarded for the prior
three years.

The Severance Bonus shall be payable in accordance with the Company’s standard
payroll procedures within 30 days after the Executive returns the release described
in Subsection (a) above.

The amount of the salary continuation payments under this Subsection (b) shall be reduced by the
amount of any severance pay or pay in lieu of notice that the Executive receives from the Company
under a federal or state statute (including, without limitation, the Worker Adjustment and
Retraining Notification Act).

               For purposes of the foregoing:

               “Cause” shall mean (i) an unauthorized use or disclosure of the Company’s confidential
information or trade secrets, which use or disclosure causes material

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harm to the Company; (ii) a material breach of any agreement between Executive and the
Company; (iii) a material failure to comply with the Company’s written policies or rules;
(iv) conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United
States or any state thereof; (v) gross negligence or willful misconduct which causes material harm
to the Company; or (vi) a continued failure to perform assigned duties after receiving written
notification of such failure from the Board.

               “Good Reason” shall mean any of the following events: (i) the Executive’s receipt of notice
that his principal workplace will be relocated more than 30 miles; (ii) a reduction in the
Executive’s base salary by more than 10%, unless pursuant to a Company-wide reduction affecting all
employees proportionately; or (iii) a change in the Executive’s position with the Company that
materially reduces his level of authority or responsibility. A condition shall not be considered
“Good Reason” unless the Executive gives the Company written notice of such condition within 90
days after such condition comes into existence and the Company fails to remedy such condition
within 30 days after receiving the Executive’s written notice.

               “Permanent Disability” shall mean the Executive’s inability to perform the essential functions
of the Executive’s position, with or without reasonable accommodation, for a period of at least 120
consecutive days because of a physical or mental impairment.

               “Separation” shall mean a “separation from service,” as defined in the regulations under
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

          (c) Health Insurance. If Subsection (b) above applies, and if the Executive elects to
continue his health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act
(“COBRA”) following the Separation, then the Company shall pay the Executive’s monthly premium
under COBRA until the earliest of (i) the close of the Continuation Period, (ii) the expiration of
the Executive’s continuation coverage under COBRA and (iii) the date the Executive is offered
substantially equivalent health insurance coverage in connection with new employment.

          7. Non-Solicitation, Non-Disclosure and Non-Competition. The Executive has entered into a
Proprietary Information and Inventions Agreement with the Company, which agreement is incorporated
herein by this reference.

          8. Successors.

               (a) Company’s Successors. This Agreement shall be binding upon any successor (whether direct
or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all
or substantially all of the Company’s business and/or assets. For all purposes under this
Agreement, the term “Company” shall include any successor to the Company’s business and/or assets
which becomes bound by this Agreement.

               (b) Executive’s Successors. This Agreement and all rights of the Executive hereunder shall
inure to the benefit of, and be enforceable by, the Executive’s personal
or legal representatives, executors, administrators, successors, heirs, distributees, devisees
and legatees.

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     9. Miscellaneous Provisions.

               (a) Notice. Notices and all other communications contemplated by this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or when mailed by
overnight courier, U.S. registered or certified mail, return receipt requested and postage prepaid.
In the case of the Executive, mailed notices shall be addressed to him at the home address which
he most recently communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall be directed to the
attention of its Secretary.

               (b) Modifications and Waivers. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing and signed by the
Executive and by an authorized officer of the Company (other than the Executive). No waiver by
either party of any breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.

               (c) Whole Agreement. This Agreement supersedes the offer letter dated March 9, 2006. No
other agreements, representations or understandings (whether oral or written and whether express or
implied) which are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement and the Proprietary
Information and Inventions Agreement contain the entire understanding of the parties with respect
to the subject matter hereof.

               (d) Tax Matters. All payments made under this Agreement shall be subject to reduction to
reflect taxes or other charges required to be withheld by law. For purposes of Section 409A of the
Code, each periodic salary continuation payment under Section 6(b)(i) is hereby designated as a
separate payment. If the Company determines that the Employee is a “specified employee” under
Section 409A(a)(2)(B)(i) of the Code and the regulations thereunder at the time of his Separation,
then (i) the payments under Section 6(b), to the extent not exempt from Section 409A of the Code,
shall commence on the earliest practicable date that occurs more than six months after the
Employee’s Separation and (ii) the payments that otherwise would have been made during the first
six months following the Employee’s Separation shall be paid in a lump sum on the first day of the
seventh month after his Separation. The Company shall not have a duty to design its compensation
policies in a manner that minimizes the Employee’s tax liabilities, and the Employee shall not make
any claim against the Company or the Board related to tax liabilities arising from the Employee’s
compensation.

               (e) Choice of Law. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Maryland (except their provisions governing
the choice of law).

               (f) Severability. The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other provision hereof, which
shall remain in full force and effect.

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               (g) Arbitration. Any controversy or claim arising out of or relating to this Agreement or the
breach thereof, or the Executive’s Employment or the termination thereof, shall be settled in the
State of Maryland, by arbitration in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association. The decision of the arbitrator shall
be final and binding on the parties, and judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The parties hereby agree that the arbitrator
shall be empowered to enter an equitable decree mandating specific enforcement of the terms of this
Agreement. The Company and the Executive shall share equally all fees and expenses of the
arbitrator. The Executive hereby consents to personal jurisdiction of the state and federal courts
located in the State of Maryland for any action or proceeding arising from or relating to this
Agreement or relating to any arbitration in which the parties are participants. This arbitration
provision does not apply to (a) workers’ compensation or unemployment insurance claims or
(b) claims concerning the validity, infringement or enforceability of any trade secret, patent
right, copyright or any other trade secret or intellectual property held or sought by either
Executive or the Company (whether or not arising under the Proprietary Information and Inventions
Agreement between Executive and the Company).

               (h) No Assignment. This Agreement and all rights and obligations of the Executive hereunder
are personal to the Executive and may not be transferred or assigned by the Executive at any time.
The Company may assign its rights under this Agreement to any entity that assumes the Company’s
obligations hereunder in connection with any sale or transfer of all or a substantial portion of
the Company’s assets to such entity.

               (i)
Counterparts. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and the same
instrument.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

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          IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the
Company by its duly authorized officer, as of the date first written above.

	 	 	 	 	 	 	 
	 	 	/s/ Paolo Baroldi	 	 
	 	 	 	 	 
	 	 	Paolo Baroldi
	 
	 	 	 	 	 	 
	 	 	Vanda Pharmaceuticals Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Mihael H. Polymeropoulos
 

	 	 
	 
	 	 	 	 	 	 
	 

	 	Title:
	 	Chief Executive Officer
 

	 	 

8exv10w27

Exhibit 10.27

Vanda Pharmaceuticals Inc.

Amended and Restated Employment Agreement

          This Employment Agreement (this “Agreement”) was entered into as of October 12, 2007, by and
between Al Gianchetti (the “Employee”) and Vanda Pharmaceuticals Inc., a Delaware
corporation (the “Company”). This Agreement is hereby amended and restated as of November 4, 2008.

          1. Duties and Scope of Employment.

               (a) Position. For the term of his employment under this Agreement (“Employment”), the Company
agrees to employ the Employee in the position of Chief Commercial Officer. The Employee shall be
subject to the supervision of, and shall have such authority as is delegated to him by, the Chief
Executive Officer of the Company, consistent with his position as Chief Commercial Officer. The
Employee hereby accepts such employment and agrees to undertake the duties and responsibilities
normally inherent in such position and such other duties and responsibilities as the Chief
Executive Officer shall from time to time reasonably assign to him consistent with his position as
Chief Commercial Officer.

               (b) Obligations to the Company. During the term of his Employment, the Employee shall devote
his full business efforts and time to the Company. During the term of his Employment, without the
prior written approval of the Board of Directors of the Company (the “Board”), the Employee shall
not render services in any capacity to any other person or entity and shall not act as a sole
proprietor or partner of any other person or entity or as a shareholder owning more than five
percent of the stock of any other corporation. The Employee shall comply with the Company’s
policies and rules, as they may be in effect from time to time during the term of his Employment.

               (c) No Conflicting Obligations. The Employee represents and warrants to the Company that he
is under no obligations or commitments, whether contractual or otherwise, that are inconsistent
with his obligations under this Agreement. The Employee represents and warrants that he will not
use or disclose, in connection with his employment by the Company, any trade secrets or other
proprietary information or intellectual property in which the Employee or any other person has any
right, title or interest and that his employment by the Company as contemplated by this Agreement
will not infringe or violate the rights of any other person or entity. The Employee represents and
warrants to the Company that he has returned all property and confidential information belonging to
any prior employers.

          2. Cash and Incentive Compensation.

               (a) Salary and Signing Bonus. The Company shall pay the Employee as compensation for his
services a base salary at a gross annual rate of not less than $295,000. Such salary shall be
payable in accordance with the Company’s standard payroll procedures. (The annual compensation
specified in this Subsection (a), together with any increases in such compensation that the Company
may grant from time to time, is referred to in

 

 

this Agreement as “Base Compensation.”). The Employee will also receive a $100,000 signing bonus that will be
become due and payable upon hire and a $35,000 bonus that will be become due and payable once the
Employee has completed one year of continuous service to the Company. The payment of both bonuses
will be subject to standard federal and state taxes and will be made in accordance with the
Company’s standard payroll procedures.

               (b) Incentive Bonuses. The Employee shall be eligible to be considered for an annual
incentive bonus with a target amount equal to 25% of his Base Compensation (the “Annual Target
Bonus”). Such annual incentive bonus (if any) shall be awarded based on objective or subjective
criteria established in advance by the Board or its Compensation Committee. The determinations of
the Board or its Compensation Committee with respect to such bonus shall be final and binding. Any
incentive bonus for a fiscal year shall in no event be paid later than 21/2 months after the close of
such fiscal year. For the avoidance of doubt, (i) to be eligible for an annual incentive bonus for
any given fiscal year of the Company, the Employee must have been employed continuously by the
Company throughout such fiscal year, and (ii) provided the Employee has been employed
continuously by the Company from the date of this Agreement through December 31, 2007, then,
notwithstanding clause (i), the Employee’s annual incentive bonus with respect to the Company’s
2007 fiscal year shall not be prorated but shall instead be based on the full amount of Base
Compensation the Employee would have been entitled to receive had the Employee commenced his
employment with the Company on January 1, 2007.

               (c) Stock Option. Subject to the approval of the Board or its Compensation Committee, the
Company shall grant the Employee an incentive stock option under the Company’s 2006 Equity
Incentive Plan, covering 90,000 shares of the Company’s Common Stock. Such option shall be granted
as soon as reasonably practicable after the date of this Agreement. The per-share exercise price
of such option shall be equal to the fair market value of one share of the Company’s Common Stock
on the date of grant. The term of such option shall be 10 years, subject to earlier expiration in
the event of the termination of the Employee’s Employment. The Employee shall vest in 25% of the
option shares after the first 12 months of continuous service and shall vest in the remaining
option shares in equal monthly installments over the next three years of continuous service. The
vested and exercisable portion of the option shall be determined by adding 24 months to the
Employee’s actual period of service if, after a Change in Control, (i) the Employee’s Employment is
terminated by the Company for reasons other than Cause or (ii) the Employee’s Employment is
terminated by the Employee for Good Reason.1 The grant of such option shall be subject
to the other terms and conditions set forth in the Company’s 2006 Equity Incentive Plan and the
Company’s standard form of stock option agreement under such Plan.

               (d) Restricted Stock Grant. Subject to the approval of the Board or its Compensation
Committee, the Company shall also award the Employee as compensation 3,000 shares of the Company’s
Common Stock under the Company’s 2006 Equity Incentive Plan, which shall be “Restricted Shares” as
defined in such Plan. The Employee shall vest in

 

			
	1	 	Certain capitalized terms are defined in Section 9.

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25% of such Restricted Shares after the first 12 months of continuous service and shall vest in the
remaining Restricted Shares in equal monthly installments over the next three years of continuous
service. The vested portion of the Restricted Shares shall be determined by adding 24 months to
the Employee’s actual period of service if, after a Change in Control, (i) the Employee’s
Employment is terminated by the Company for reasons other than Cause or (ii) the Employee’s
Employment is terminated by the Employee for Good Reason. The Restricted Shares shall be subject
to the terms of the Company’s 2006 Equity Incentive Plan and such other terms as shall be
determined by the Board or its Compensation Committee and shall be evidenced by a restricted stock
agreement to be executed by the Employee and the Company as soon as reasonably practicable
following approval thereof.

          3. Vacation and Employee Benefits. During the term of his Employment, the Employee shall be
eligible for 20 paid vacation days each year in accordance with the Company’s standard policy for
similarly situated employees, as it may be amended from time to time. During the term of his
Employment (and beginning on the first day of such Employment), the Employee shall be eligible to
participate in any employee benefit plans maintained by the Company for similarly situated
employees, subject in each case to the generally applicable terms and conditions of the plan in
question, the completion of any required enrollment forms and the determinations of any person or
committee administering such plan.

          4. Business Expenses. During the term of his Employment, the Employee shall be authorized to
incur necessary and reasonable travel, entertainment and other business expenses in connection with
his duties hereunder. The Company shall reimburse the Employee for such expenses upon presentation
of an itemized account and appropriate supporting documentation, all in accordance with the
Company’s generally applicable policies.

          5. Term of Employment.

               (a) Basic Rule. The Company agrees to continue the Employee’s Employment, and the Employee
agrees to remain in Employment with the Company, from the date of this Agreement until the date
when the Employee’s Employment terminates pursuant to Subsection (b) or (c) below. The Employee’s
Employment with the Company shall be “at will,” meaning that either the Employee or the Company may
terminate the Employee’s Employment at any time, with or without cause. Any contrary
representations which may have been made to the Employee shall be superseded by this Agreement.
This Agreement shall constitute the full and complete agreement between the Employee and the
Company on the “at will” nature of the Employee’s Employment, which may only be changed in an
express written agreement signed by the Employee and a duly authorized officer of the Company.

               (b) Termination. The Company may terminate the Employee’s Employment at any time and for any
reason (or no reason), and with or without cause, by giving the Employee notice in writing. The
Employee may terminate his Employment by giving the Company 14 days’ advance notice in writing.
The Employee’s Employment shall terminate automatically in the event of his death.

               (c) Permanent Disability. The Company may terminate the Employee’s Employment due to
Permanent Disability by giving the Employee 30 days’ advance

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notice in writing. In the event that the Employee satisfactorily resumes the performance of substantially all of his duties hereunder
before the termination of his Employment under this Subsection (c) becomes effective, the notice of
termination shall automatically be deemed to have been revoked.

               (d) Rights Upon Termination. Except as expressly provided in Section 6, upon the termination
of the Employee’s Employment pursuant to this Section 5, the Employee shall only be entitled to the
compensation, benefits and reimbursements described in Sections 2, 3 and 4 for the period preceding
the effective date of the termination. The payments under this Agreement shall fully discharge all
responsibilities of the Company to the Employee.

               (e) Termination of Agreement. This Agreement shall terminate when all obligations of the
parties hereunder have been satisfied. The termination of this Agreement shall not limit or
otherwise affect any of the Employee’s obligations under Section 7.

          6. Termination Benefits.

               (a) General Release. Any other provision of this Agreement notwithstanding, Subsections (b)
and (c) below shall not apply unless the Employee (i) has executed a general release of all known
and unknown claims that he may then have against the Company or persons affiliated with the Company
and (ii) has agreed not to prosecute any legal action or other proceeding based upon any of such
claims. The release shall be in a form prescribed by the Company, without alterations. The
Company shall deliver the form to the Employee within 30 days after his Separation. The Employee
shall execute the release within the period set forth in the form.

               (b) Severance Pay. If, during the term of this Agreement, a Separation occurs because the
Company terminates the Employee’s Employment for any reason other than Cause or Permanent
Disability, then the Company shall pay the Employee:

               (i) Base Compensation. His Base Compensation for a period of 12 months
following the Separation (the “Continuation Period”). Such Base Compensation shall
be paid at the rate in effect at the time of the Separation and in accordance with
the Company’s standard payroll procedures. The salary continuation payments shall
commence within 30 days after the Employee returns the release described in
Subsection (a) above.

               (ii) Bonus Compensation. A bonus (the “Severance Bonus”) in an amount
determined as follows:

               (A) If the Separation occurs prior to the first anniversary of
the date of this Agreement, the Severance Bonus shall be equal to a
pro-rata portion of the anticipated first-
year Annual Target Bonus as determined by the Board in good
faith.

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               (B) If the Separation occurs on or following the first
anniversary of the date of this Agreement and prior to the third
anniversary of the date of this Agreement, the Severance Bonus shall
be equal to the greater of (I) the most recent Annual Target Bonus
and (II) the average of Annual Target Bonuses awarded for the prior
years.

               (C) If the Separation occurs on or following the third
anniversary of the date of this Agreement, the Severance Bonus shall
be equal to the greater of (I) the most recent Annual Target Bonus)
and (II) the average of Annual Target Bonuses awarded for the prior
three years.

The Severance Bonus shall be payable in accordance with the Company’s standard
payroll procedures within 30 days after the Employee returns the release described
in Subsection (a) above.

               (c) Health Insurance. If Subsection (b) above applies, and if the Employee elects to continue
his health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”)
following the Separation, then the Company shall pay the Employee’s monthly premium under COBRA
until the earliest of (i) the close of the Continuation Period, (ii) the expiration of the
Employee’s continuation coverage under COBRA and (iii) the date when the Employee is offered
substantially equivalent health insurance coverage in connection with new employment or
self-employment.

          7. Non-Solicitation, Non-Disclosure and Non-Competition. The Employee has entered into a
Proprietary Information and Inventions Agreement with the Company, which agreement is incorporated
herein by reference.

          8. Successors.

               (a) Company’s Successors. This Agreement shall be binding upon any successor (whether direct
or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all
or substantially all of the Company’s business and/or assets. For all purposes under this
Agreement, the term “Company” shall include any successor to the Company’s business and/or assets
which becomes bound by this Agreement.

               (b) Employee’s Successors. This Agreement and all rights of the Employee hereunder shall
inure to the benefit of, and be enforceable by, the Employee’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and legatees.

          9. Definitions. For all purposes under this Agreement:

               “Change in Control” shall mean (i) the consummation of a merger or consolidation of the
Company with or into another entity, if persons who were not stockholders of the Company
immediately prior to such merger or consolidation own immediately after such

5

 

merger or consolidation 50% or more of the voting power of the outstanding securities of each of (A) the
continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing
or surviving entity; or (ii) the sale, transfer or other disposition of all or substantially all of
the Company’s assets. A transaction shall not constitute a Change in Control if its sole purpose
is to change the state of the Company’s incorporation or to create a holding company that will be
owned in substantially the same proportions by the persons who held the Company’s securities
immediately before such transaction.

               “Cause” shall mean (i) an unauthorized use or disclosure of the Company’s confidential
information or trade secrets, which use or disclosure causes material harm to the Company; (ii) a
material breach of any agreement between the Employee and the Company; (iii) a material failure to
comply with the Company’s written policies or rules; (iv) conviction of, or plea of “guilty” or “no
contest” to, a felony under the laws of the United States or any state thereof; (v) gross
negligence or willful misconduct which causes material harm to the Company; (vi) a continued
failure to perform assigned duties after receiving written notification of such failure from the
Board; or (vii) a failure by the Employee to cooperate in good faith with a governmental or
internal investigation of the Company or its directors, officers or employees, if the Company has
requested the Employee’s cooperation.

               “Good Reason” shall mean any of the following events: (i) the Employee’s receipt of notice
that his principal workplace will be relocated more than 30 miles; (ii) a reduction in the
Employee’s base salary by more than 10%, unless pursuant to a Company-wide reduction affecting all
employees proportionately; or (iii) a change in the Employee’s position with the Company that
materially reduces his level of authority or responsibility. A condition shall not be considered
“Good Reason” unless the Employee gives the Company written notice of such condition within 90 days
after such condition comes into existence and the Company fails to remedy such condition within 30
days after receiving the Employee’s written notice.

               “Permanent Disability” shall mean that the Employee, at the time notice is given, has failed
to perform his duties under this Agreement for a period of not less than 90 consecutive days as the
result of his incapacity due to physical or mental injury, disability or illness.

               “Separation” shall mean a “separation from service,” as defined in the regulations under
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

          10. Miscellaneous Provisions.

               (a) Notice. Notices and all other communications contemplated by this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or when mailed by
overnight courier, U.S. registered or certified mail, return receipt
requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed
to him at the home address which he most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate headquarters, and all
notices shall be directed to the attention of its Secretary.

6

 

               (b) Modifications and Waivers. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing and signed by the
Employee and by an authorized officer of the Company (other than the Employee). No waiver by
either party of any breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.

               (c) Whole Agreement. No other agreements, representations or understandings (whether oral or
written and whether express or implied) which are not expressly set forth in this Agreement have
been made or entered into by either party with respect to the subject matter hereof. This
Agreement and the Proprietary Information and Inventions Agreement contain the entire understanding
of the parties with respect to the subject matter hereof.

               (d) Tax Matters. All payments made under this Agreement shall be subject to reduction to
reflect taxes or other charges required to be withheld by law. For purposes of Section 409A of the
Code, each periodic salary continuation payment under Section 6(b)(i) is hereby designated as a
separate payment. If the Company determines that the Employee is a “specified employee” under
Section 409A(a)(2)(B)(i) of the Code and the regulations thereunder at the time of his Separation,
then (i) the payments under Section 6(b), to the extent not exempt from Section 409A of the Code,
shall commence on the earliest practicable date that occurs more than six months after the
Employee’s Separation and (ii) the payments that otherwise would have been made during the first
six months following the Employee’s Separation shall be paid in a lump sum on the first day of the
seventh month after his Separation. The Company shall not have a duty to design its compensation
policies in a manner that minimizes the Employee’s tax liabilities, and the Employee shall not make
any claim against the Company or the Board related to tax liabilities arising from the Employee’s
compensation.

               (e) Choice of Law. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Maryland (except their provisions governing
the choice of law).

               (f) Severability. The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other provision hereof, which
shall remain in full force and effect.

               (g) Arbitration. Any controversy or claim arising out of or relating to this Agreement or the
breach thereof, or the Employee’s Employment or the termination thereof, shall be settled in the
State of Maryland, by arbitration in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association. The decision of the arbitrator shall
be final and binding on the parties, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The parties hereby agree
that the arbitrator shall be empowered to enter an equitable decree mandating specific enforcement
of the terms of this Agreement. The Company and the Employee shall share equally all fees and
expenses of the arbitrator. The Employee hereby consents to personal jurisdiction of the state and
federal courts located in the State of Maryland for any action or

7

 

proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants.

               (h) No Assignment. This Agreement and all rights and obligations of the Employee hereunder
are personal to the Employee and may not be transferred or assigned by the Employee at any time.
The Company may assign its rights under this Agreement to any entity that assumes the Company’s
obligations hereunder in connection with any sale or transfer of all or a substantial portion of
the Company’s assets to such entity.

               (i) Counterparts. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and the same
instrument.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

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          IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the
Company by its duly authorized officer, as of the date first written above.

	 	 	 	 	 	 	 
	 	 	/s/ Al Gianchetti	 	 
	 	 	 	 	 
	 	 	Al Gianchetti	 	 
	 
	 	 	 	 	 	 
	 	 	Vanda Pharmaceuticals Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Mihael H. Polymeropoulos	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:
	 	Chief Executive Officer	 	 
	 

	 	 	 	 

	 	 

9

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