Document:

exv10w40

Exhibit 10.40

Vanda Pharmaceuticals Inc.

December 16, 2010

John Feeney, M.D.

c/o Vanda Pharmaceuticals Inc.

9605 Medical Center Drive

Rockville, MD 20850

Dear John:

          You and Vanda Pharmaceuticals, Inc. (the “Company”) entered into an employment agreement as of
May 22, 2009, (the “Employment Agreement”). To avoid potential adverse tax consequences imposed by
Section 409A of the Internal Revenue Code of 1986, as amended, the Employment Agreement is hereby
further amended as follows:

          Section 6(b)(i) of the Employment Agreement is hereby amended and restated as follows:

          (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 on the Company’s first payroll that occurs on or following the
61st day after the Employee’s Separation, provided that the release of
claims described in Section 6(a) has become effective on or prior to the
60th day after the Employee’s Separation. Once such salary continuation
payments commence, the first installment thereof will include all amounts that would
have been paid had such payments commenced on the Separation date.

          Section 6(b)(ii) of the Employment Agreement is hereby amended and restated as follows:

          (ii) Target Bonus. An amount equal to his Annual Target Bonus at the rate in
effect at the time of the Separation. Such amount shall be payable in a lump sum on
the Company’s first payroll that occurs on or following the 61st day
after the Employee’s Separation, provided that the release of claims described in
Section 6(a) has become effective on or prior to the 60th day after the
Employee’s Separation.

 

 

John Feeney, M.D.

December 16, 2010

Page 2

          You may indicate your agreement with this amendment of the Employment Agreement by
signing and dating the enclosed duplicate original of this letter agreement and returning
it to me. This letter agreement may be executed in two counterparts, each of which will be
deemed an original, but both of which together will constitute one and the same instrument.

	 	 	 	 	 
	 	Very truly yours,

Vanda Pharmaceuticals Inc.

 	 
	 	By:  	/s/ James P. Kelly            12/16/10
 	 
	 
	 	 	 	 
	 	Title: 	SVP & CFO	 
	 	 	 	 
	 

	 	 	 

	I have read and accept this amendment:
	 
	 	 
	/s/ John Feeney, M.D.
	 
	John Feeney, M.D.
	 
	 	 
	Dated:

	 	16 Dec 2010exv10w41

Exhibit 10.41

TAX INDEMNITY AGREEMENT

     This Amended and Restated Tax Indemnity Agreement (this “Agreement"') is made as of
this 16th day of December 2010 by and between Vanda Pharmaceuticals Inc. (the
“Company”) and Mihael H. Polymeropoulos (the “Executive"').

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

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

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

     2. Determination by Accountant. All determinations and calculations required to
be made under this Agreement shall be made by an independent accounting firm selected by the
Executive from among the largest five accounting firms in the United States (the
“Accounting
Firm”). For purposes of making the calculations required by this Agreement, the
Accounting
Firm may make reasonable assumptions and approximations concerning applicable taxes and
may rely on reasonable, good-faith interpretations concerning the application of sections 280G
and 4999 of the Code. The Company and the Executive shall furnish to the Accounting Firm
such information and documents as the Accounting Firm may reasonably request in order to
make a determination under this Agreement. The Accounting Firm shall provide its
determination (the “Determination”), together with detailed supporting calculations
regarding the
amount of any Gross-Up Payment and any other relevant matter, to the Executive and the
Company within five days after the Executive or the Company made a request (if the Executive
reasonably believes that any of the Total Payments may be subject to the Excise Tax). If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish
the

 

 

Executive with a written statement that it has concluded that no Excise Tax is payable (including
the reasons therefor) and that the Executive has substantial authority not to report any Excise
Tax on his federal income tax return. If a Gross-Up Payment is determined to be payable, it shall
be paid to the Executive within five days after the Determination has been delivered to him or the
Company, but in any event prior to the close of the calendar year next following the calendar year
in which the Excise tax was paid. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive, absent manifest error.

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

     4. Limitation on Parachute Payments. Any other provision of this Agreement
notwithstanding, if the Excise Tax could be avoided by reducing the Total Payments by $25,000
or less, then the Total Payments shall be reduced to the extent necessary to avoid the Excise
Tax
and no Gross-Up Payment shall be made. If the Accounting Firm determines that the Total
Payments are to be reduced under the preceding sentence, then the Company shall promptly give
the Executive notice to that effect and a copy of the detailed calculation thereof. If none of
the
Total Payments are subject to section 409A of the Code, then the reduction will occur in the
manner elected by the Executive prior to the date of any such payment; provided,
however, that
if the manner elected by the Executive pursuant to this sentence could in the opinion of the
Company result in any of the Total Payments becoming subject to section 409A of the Code,
then the following sentence will instead apply. If any of the Total Payments is subject to
section
409A of the Code, or the Executive fails to elect an order under the preceding sentence, then
the
reduction will occur in the following order: (i) cancellation of acceleration of vesting of
any
equity or equity-based awards (including options to purchase shares of the Company’s stock)
for
which the exercise price (if any) exceeds the then-fair market value of the underlying stock
or
other equity; (ii) reduction of cash payments (with such reduction being applied to the
payments
in the reverse order in which they would otherwise be made (that is, later payments will be
reduced before earlier payments); and (iii) cancellation of acceleration of vesting of equity
or
equity-based awards not covered under (i) above; provided, however, that in the event
that
acceleration of vesting of equity or equity-based awards is to be cancelled, such acceleration
of

 

 

vesting will be cancelled in the reverse order of the date of grant of such awards (that is, later
awards will be canceled before earlier awards).

     5. 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
contains the entire understanding of the parties with respect to the subject matter hereof. The Tax
Indemnity Agreement entered into as of November 7, 2007, between the Executive and the Company is
hereby superseded.

[The rest of this page has been intentionally left blank.]

 

 

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

	 	 	 

	VANDA PHARMACEUTICALS INC.
	 
	 	 
	/s/ James P Kelly            12/16/10
	 
	 
	 	 
	By:

	 	James P Kelly
	 

	 	 
	 
	 	 
	Its:

	 	SVP & CFO
	 

	 	 
	 
	 	 
	EXECUTIVE
	 
	 	 
	/s/ Mihael H. Polymeropoulos            12/16/10
	 
	Mihael H. Polymeropoulos

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