Exhibit 10.20

[********] Certain confidential information contained in this document, marked
by brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

Execution Copy

COLLABORATION AND LICENSE AGREEMENT

BETWEEN

ASTRAZENECA AB

AND

TARGACEPT, INC.

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TABLE OF CONTENTS

 

ARTICLE 1 DEFINITIONS

   1

ARTICLE 2 GOVERNANCE OF THE COLLABORATION

   34 2.1       

The Joint Development Committee

   34 2.2       

Working Groups

   38 2.3       

Alliance Managers; Development Liaisons

   39 2.4       

Appointment of JDC Members, Alliance Managers and Development Liaisons

   40

ARTICLE 3 DEVELOPMENT AND COMMERCIALIZATION OF LICENSED PRODUCTS; BACKUP R&D
PROGRAMS

   41 3.1       

Implementation of Development Programs

   41 3.2       

Licensed Product Commercialization

   43 3.3       

Manufacturing

   44 3.4       

Diligence

   46 3.5       

Compliance

   48 3.6       

Cooperation

   48 3.7       

Exchange of Reports; Information; Updates

   48 3.8       

Safety Agreement; Adverse Event Reporting; Complaints; Product Recall

   51 3.9       

Development Costs; Reconciliation and Auditing

   52 3.10     

Co-Promotion

   60

 

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3.11      Backup R&D Programs Agreement    62 3.12      Subcontracting    62

ARTICLE 4 GRANT OF RIGHTS; PROPRIETARY MATERIALS

   63 4.1        License Grants; Sublicenses    63 4.2        Confirmatory
Patent Licenses    65 4.3        Indication of Licensed Status    66 4.4       
Supply of Proprietary Materials    66 4.5        Distributors and Net Sales
Distributors    67 4.6        Co-Promotion Rights    67 4.7        Potential
Expansion of Field to Include Excluded Indications    68

ARTICLE 5 PAYMENTS

   69 5.1        Upfront Payment    69 5.2        Milestone Payments    69 5.3  
     Payment of Royalties; Royalty Rates; Accounting and Records    71 5.4  
     Diagnostic or Veterinary Products    75 5.5        Records; Royalty Audit
Rights    76 5.6        Overdue Royalties and Milestones    77 5.7       
Payments    77 5.8        Foreign Currency Exchange    77 5.9        Withholding
Taxes    78

 

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5.10     

Indirect Taxes

   78 5.11     

Certain Reductions for Additional Development Costs

   79

ARTICLE 6 EXCLUSIVITY; STANDSTILL; TARGACEPT SUBLICENSE AGREEMENTS

   80 6.1       

Exclusivity; Standstill

   80 6.2       

Targacept Sublicense Agreements

   87

ARTICLE 7 INTELLECTUAL PROPERTY RIGHTS

   89 7.1       

Targacept Intellectual Property Rights

   89 7.2       

AstraZeneca Intellectual Property Rights

   89 7.3       

Joint Intellectual Property Rights

   89 7.4       

Patent Coordinators

   89 7.5       

Patent-Related Matters

   90 7.6       

Employees and Agents

   92 7.7       

Prosecution and Maintenance

   92 7.8       

Patent Listings

   97 7.9       

********

   98 7.10     

Liability

   98 7.11     

CREATE Act

   99 7.12     

Legal Actions

   99 7.13     

Trademarks

   105

 

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7.14     

Product Information

   105

ARTICLE 8 CONFIDENTIALITY

   106 8.1       

Targacept Licensed Product Information

   106 8.2       

Confidentiality; Exceptions

   107 8.3       

Authorized Disclosure

   108 8.4       

Press Release; Disclosure of Agreement

   110 8.5       

Publications

   111

ARTICLE 9 REPRESENTATIONS AND WARRANTIES

   112 9.1       

Mutual Representations and Warranties

   112 9.2       

Additional Representations of Targacept

   113

ARTICLE 10 INDEMNIFICATION AND DISCLAIMERS

   119 10.1       

Indemnification of AstraZeneca by Targacept

   119 10.2       

Indemnification of Targacept by AstraZeneca

   120 10.3       

Conditions to Indemnification

   120 10.4       

Insurance

   123 10.5       

Warranty Disclaimer

   125 10.6       

Limited Liability

   125

ARTICLE 11 TERM AND TERMINATION

   125 11.1       

Term

   125 11.2       

Termination for Cause

   126

 

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11.3       

Unilateral Termination Rights

   127 11.4       

Termination for Insolvency

   129 11.5       

Effect of Certain Terminations

   130 11.6       

Return of Confidential Information

   144 11.7       

Accrued Rights; Surviving Provisions

   144

ARTICLE 12 MISCELLANEOUS

   145 12.1       

Dispute Resolution

   145 12.2       

Notices

   147 12.3       

Governing Law

   148 12.4       

Equitable Relief

   148 12.5       

Targacept Change of Control

   149 12.6        

Binding Effect

   150 12.7       

Headings

   150 12.8       

Counterparts

   150 12.9       

Amendment; Waiver

   150 12.10     

No Third Party Beneficiaries

   150 12.11     

Purposes and Scope

   151 12.12     

Assignment and Successors

   151 12.13     

Force Majeure

   151 12.14     

Export Control

   151

 

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12.15     

Interpretation

   152 12.16     

Integration; Severability

   153 12.17     

Further Assurances

   153 12.18     

HSR Filing

   153 12.19     

Prior to Effective Date

   154

 

Schedules      Schedule 1      Description of the Primary Compound Schedule 2
     Existing Patent Rights Schedule 3      Existing Trademarks Schedule 4     
Special Milestone Criteria Schedule 5      Form of Assignment and Assumption
Agreement Schedule 6      Material Terms to Be Included in the Co-Promotion
Agreement Schedule 7      Form of Confirmatory License Agreement Schedule 8     
USFRF Consent Schedule 9      ******** Consent Schedule 10      ********
Manufacturing Costs Schedule 11      Framework Schedule 12      Example
Calculation of Reduction in Royalties Pursuant to Section 5.3.1(c)(i)

 

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COLLABORATION AND LICENSE AGREEMENT

This COLLABORATION AND LICENSE AGREEMENT (this “Agreement”) is entered into as
of the third day of December 2009 (the “Execution Date”) by and between
Targacept, Inc., a Delaware corporation having its principal place of business
at 200 East First Street, Winston-Salem, North Carolina 27101 (“Targacept”), and
AstraZeneca AB, a company limited by shares organized and existing under the
laws of Sweden having a principal place of business at V-Malarehamnen 9, S-151
85 Södertälje, Sweden (“AstraZeneca”). Targacept and AstraZeneca are each
referred to herein by name or as a “Party” or, collectively, as the “Parties.”

RECITALS

WHEREAS, Targacept has completed a Phase 2 human clinical trial of its product
candidate known as Amplixa™ as an augmentation (add-on) treatment for major
depressive disorder;

WHEREAS, AstraZeneca possesses expertise in the research, development,
manufacturing and commercialization of pharmaceuticals for human use and is
interested in developing and commercializing Amplixa, and potentially other
Compounds (as defined below), as a drug product(s); and

WHEREAS, the Parties desire to establish a worldwide, strategic collaboration
for the continued development of Amplixa, and potentially for the development of
other Compounds, and, if successful, Marketing Approval and Commercialization
for Licensed Products (as defined below), subject to the terms and conditions
set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following terms shall have the respective
meanings set forth or referenced below.

1.1 “AAA” means the American Arbitration Association.

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1.2 “Acceptance” means, with respect to an NDA or sNDA, (a) the date on which
the FDA notifies AstraZeneca that it has accepted such NDA or sNDA for filing or
(b) if, after the Effective Date, Applicable Laws in the U.S. Territory do not
require such an affirmative notice from the FDA for an NDA or sNDA to be deemed
accepted for filing, the date on which such NDA or sNDA is deemed accepted for
filing under Applicable Laws in the U.S. Territory.

1.3 “Acquisition Transaction” has the meaning set forth in Section 6.1.3(b)(ii).

1.4 “Acting Party” has the meaning set forth in Section 7.12.4.

1.5 “Additional Development Activities” means, with respect to an Additional
Development Project, all Development activities related to obtaining and
maintaining Regulatory/Pricing Approval in the Territory with respect to the
form, formulation, method of delivery or Indication that is the subject of such
Additional Development Project.

1.6 “Additional Development Costs” means, with respect to an Additional
Development Project, all Development Costs attributable to the Additional
Development Activities with respect to such Additional Development Project.

1.7 “Additional Development Costs ********” has the meaning set forth in Section
********.

1.8 “Additional Development Project” means any discrete collection of
Development (and, for clarity, not Commercialization) activities that are not
Initial Development Activities.

1.9 “Additional Notice Deadline” has the meaning set forth in
Section 3.9.1(c)(iv).

1.10 “Adjunct Therapy” means, with respect to a Licensed Product, that such
Licensed Product is any of (a) labeled for use, (b) the subject of a Drug
Approval Application for approval to be labeled for use or (c) the subject of a
Phase 3 Clinical Trial for evaluation, in each case (clauses (a), (b) and (c))
as an augmentation (add-on) or adjunctive treatment (or other term reflecting
the concurrent use of two (2) or more pharmaceutical products) with one or more
other pharmaceutical products to treat, prevent, cure or delay the progression
of MDD.

 

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1.11 “Adverse Event” means the development of an undesirable medical condition
or the deterioration of a pre-existing medical condition in a patient or
clinical investigation subject following or during exposure to or use of a
Compound or Licensed Product, whether or not considered causally related to such
Compound or Licensed Product, the exacerbation of any pre-existing condition(s)
occurring following or during exposure to or use of such Compound or Licensed
Product, or any other adverse experience or adverse drug experience (as
described in the FDA’s Investigational New Drug safety reporting and NDA
post-marketing reporting regulations, 21 C.F.R. §§312.32 and 314.80,
respectively, and any applicable corresponding regulations outside the U.S.
Territory, in each case as may be amended from time to time), occurring
following or during exposure to or use of a Compound or Licensed Product. For
purposes of this Agreement, “undesirable medical condition” shall include
symptoms (e.g., nausea, chest pain), signs (e.g., tachycardia, enlarged liver)
or the abnormal results of an investigation (e.g., laboratory findings,
electrocardiogram), including unfavorable side effects, toxicity, injury,
overdose or sensitivity reactions.

1.12 “Affiliate” means, with respect to any Person, any other Person that,
directly or through one or more intermediaries, controls, or is controlled by,
or is under common control with, such first Person. For purposes of this
definition, “control” means (a) ownership of more than fifty percent (50%) of
the shares of stock entitled to vote for the election of directors in the case
of a corporation, or more than fifty percent (50%) of the equity interests in
the case of any other type of legal entity, (b) status as a general partner in
any partnership, or (c) any other arrangement whereby a Person controls or has
the right to control the management and policies of such first Person, including
via the right to control the board of directors of a corporation or equivalent
governing body of an entity other than a corporation.

1.13 “Agreement” has the meaning set forth in the preamble hereto.

1.14 “Alliance Managers” has the meaning set forth in Section 2.3.1.

1.15 “Amplixa Annual Global Development Plan” means each written plan for the
Development activities with respect to Compounds and Licensed Products for a
Calendar Year prepared and approved pursuant to Section 3.1.1, as the same may
be amended, modified or updated in accordance with Section 3.1.1; provided that,
for clarity, the first Amplixa Annual Global Development Plan, as agreed as of
the Execution Date, shall cover the period from the Effective Date through
December 31, 2010.

1.16 “Amplixa Co-Promotion Information Documents” has the meaning set forth in
Section 3.7.2(a).

1.17 “Amplixa Global Development Outline” means the written outline for the
Development activities with respect to Compounds and Licensed Products during
the Term that, as of the Execution Date, includes Development activities solely
with respect to the Primary Compound and Primary Compound Licensed Products and
the projected aggregate Initial Development Costs to obtain Regulatory/Pricing
Approval for one or more Primary Compound Licensed Products for the Target
Indication in the U.S. Territory and the EU.

 

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1.18 “Amplixa IND” means IND number ********.

1.19 “Applicable Laws” means any federal, state, local, national or
supra-national laws, statutes, rules and regulations, including any rules,
regulations, guidance, guidelines or requirements of Regulatory Authorities,
national securities exchanges, securities listing organizations or patent
offices that are in effect from time to time during the Term and applicable to a
particular activity hereunder.

1.20 “AstraZeneca” has the meaning set forth in the preamble hereto.

1.21 “AstraZeneca Development Activities” means the Development activities for
one or more Compounds or Licensed Products (a) specified to be conducted by
AstraZeneca in any Amplixa Annual Global Development Plan or (b) that the
Parties agree in writing shall be conducted by AstraZeneca.

1.22 “******** Development ******** Right” has the meaning set forth in
Section 3.4.2(a).

1.23 “AstraZeneca Extended Term Patent Rights” means, with respect to each
Licensed Product in (a) the U.S. Territory, any patents included in the
AstraZeneca Patent Rights for which the patent term is extended in the U.S.
Territory pursuant to 35 U.S.C. §156 et. seq. or any such future extension or
restoration mechanism that may come into force and effect in the U.S. Territory,
or (b) each country or jurisdiction in the ROW Territory, such patents included
in the AstraZeneca Patent Rights for which the patent term is extended in such
country or jurisdiction pursuant to any and all extensions or restorations by
existing or future extension or restoration mechanisms (including supplementary
protection certificates and the like).

1.24 “AstraZeneca Indemnitees” has the meaning set forth in Section 10.1.

1.25 “AstraZeneca Know-How” means any Information or Invention owned or
Controlled by AstraZeneca or any of its Affiliates on the Execution Date, during
the period from the Execution Date until the Effective Date, or during the Term
(including, for clarity, as between the Parties, Information discovered,
developed or otherwise made during the Term in the conduct of AstraZeneca
Development Activities solely by one or more employees of or consultants to
AstraZeneca or any of its Affiliates) that is not generally known and that
relates to any Compound or Licensed Product and is necessary or reasonably
useful, as reasonably determined by AstraZeneca, for Targacept to perform any
Targacept Development Activities, but excluding (a) Product Information,
(b) Product Invention-Related Information, (c) Joint Program Information,
(d) Program Inventions and (e) Inventions claimed or covered by AstraZeneca
Patent Rights, AstraZeneca Program Patent Rights or Joint Program Patent Rights.

 

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1.26 “AstraZeneca Patent Rights” means all Patent Rights in the entire world
owned or Controlled by AstraZeneca or any of its Affiliates as of the Execution
Date, during the period from the Execution Date until the Effective Date, or
during the Term that claim the composition of matter of, a method of use or
Manufacture of, or a pharmaceutical preparation containing or comprising
(including the pharmaceutical composition of), or cover the research,
development, Manufacture, use, import, offer to sell or sale of, any Compound or
Licensed Product, but excluding AstraZeneca Program Patent Rights and Joint
Program Patent Rights.

1.27 “AstraZeneca Program Invention” means each Program Invention, other than a
Product Invention, for which one or more employees of or consultants to
AstraZeneca or any of its Affiliates are the sole inventors. Inventorship for
purposes of this definition shall be determined by reference to United States
patent laws in effect on the Execution Date irrespective of where such Program
Invention is actually invented.

1.28 “AstraZeneca Program Patent Rights” means all Patent Rights in the entire
world that contain one or more claims that cover any AstraZeneca Program
Invention.

1.29 “AstraZeneca Returned Compound” means, as of any date, any Compound or
Licensed Product that either (a) is being Developed or Commercialized in the
Territory as of such date or (b) had been Developed or Commercialized in the
Territory at any time in the ******** years preceding such date, in each case
(clauses (a) and (b)) pursuant to this Agreement.

1.30 “AstraZeneca Technology” means, collectively: (a) AstraZeneca Patent
Rights; (b) AstraZeneca Know-How; (c) AstraZeneca Program Inventions;
(d) AstraZeneca Program Patent Rights; (e) Product Information; and
(e) AstraZeneca’s interest in Joint Program Information, Joint Program
Inventions and Joint Program Patent Rights.

1.31 “AstraZeneca Termination Technology” means, as of any date: (a) all
Information and Inventions included in AstraZeneca Technology as of such date to
the extent actually in use as of such date (or actually used at any time in the
******** years preceding such date) in connection with the Development or
Commercialization of any AstraZeneca Returned Compound; and (b) all Patent
Rights included in AstraZeneca Technology as of such date to the extent that the
Development or Commercialization of any AstraZeneca Returned Compound would
infringe such Patent Rights in the absence of a license under such Patent
Rights.

 

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1.32 “AstraZeneca Third Party Agreement” means any agreement with a Third Party
pursuant to which AstraZeneca or any of its Affiliates Controls any AstraZeneca
Technology that is the subject of the license granted by AstraZeneca to
Targacept pursuant to Section 11.5.1(c) or 11.5.3(c).

1.33 “Backup R&D Programs” has the meaning set forth in Section 3.11.1.

1.34 “Backup R&D Programs Agreement” has the meaning set forth in
Section 3.11.1.

1.35 “Bankruptcy Code” has the meaning set forth in Section 11.4.2.

1.36 “Bayh-Dole Act” means the Patent and Trademark Law Amendments Act of 1980,
as amended, codified at 35 U.S.C. §§200-212, as amended, as well as any
regulations promulgated pursuant thereto, including in 37 C.F.R. part 401.

1.37 “Board of Directors” has the meaning set forth in the definition of “Change
of Control.”

1.38 “Breaching Party” has the meaning set forth in Section 11.2.1.

1.39 “Business Day” means any day, other than a Saturday or Sunday, on which
banking institutions in New York, New York, London, England and Stockholm,
Sweden are open for business.

1.40 “Calendar Quarter” means each period of three (3) consecutive months ending
on the last day of March, June, September or December.

1.41 “Calendar Year” means each period of twelve (12) consecutive months from
January 1 through December 31.

1.42 “Chairperson” has the meaning set forth in Section 2.1.1.

 

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1.43 “Challenge” means any challenge to the validity or enforceability of any of
the Targacept Patent Rights, Targacept Program Patent Rights or Joint Program
Patent Rights, including by: (a) filing a declaratory judgment action in which
any of the Targacept Patent Rights, Targacept Program Patent Rights or Joint
Program Patent Rights is alleged to be invalid or unenforceable; (b) citing
prior art pursuant to 35 U.S.C. §301 or filing a request for re-examination of
any of the Targacept Patent Rights, Targacept Program Patent Rights or Joint
Program Patent Rights pursuant to 35 U.S.C. §302 or §311 (without the prior
written consent of Targacept); (c) provoking or becoming party to an
interference with an application for any of the Targacept Patent Rights,
Targacept Program Patent Rights or Joint Program Patent Rights pursuant to 35
U.S.C. §135; or (d) filing or commencing any re-examination (without the prior
written consent of Targacept), opposition, cancellation, nullity or similar
proceedings against any of the Targacept Patent Rights, Targacept Program Patent
Rights or Joint Program Patent Rights in any country.

1.44 “Change of Control” means, with respect to either Party, the occurrence of
any of the following:

(a) any “person” or “group” (as such terms are defined below) (i) is or becomes
the “beneficial owner” (as defined below), directly or indirectly, of shares of
capital stock or other interests (including partnership interests) of such Party
(or any Controlling Affiliate of such Party) then outstanding and normally
entitled (without regard to the occurrence of any contingency) to vote in the
election of the directors, managers or similar supervisory positions (“Voting
Stock”) of such Party (or its Controlling Affiliate) representing fifty percent
(50%) or more of the total voting power of all outstanding classes of Voting
Stock of such Party (or its Controlling Affiliate) or (ii) has the power,
directly or indirectly, to elect a majority of the members of such Party’s (or
its Controlling Affiliate’s) board of directors or similar governing body (as
the case may be, “Board of Directors”); or

(b) such Party (or its Controlling Affiliate) enters into a merger,
consolidation or other form of business combination, share exchange,
reorganization, recapitalization or other similar extraordinary transaction with
another Person (whether or not such Party (or its Controlling Affiliate) is the
surviving entity) and as a result of such merger, consolidation or other form of
business combination, share exchange, reorganization, recapitalization or
similar extraordinary transaction (i) the members of the Board of Directors of
such Party (or its Controlling Affiliate) immediately prior to such transaction
constitute less than a majority of the members of the Board of Directors of such
Party (or its Controlling Affiliate) or, if not such Party (or its Controlling
Affiliate), such surviving Person immediately following such transaction or
(ii) the Persons that beneficially owned, directly or indirectly, the shares of
Voting Stock of such Party (or its Controlling Affiliate) immediately prior to
such transaction cease to beneficially own, directly or indirectly, shares of
Voting Stock representing at least a majority of the total voting power of all
outstanding classes of Voting Stock of the surviving Person in substantially the
same proportions as their ownership of Voting Stock of such Party (or its
Controlling Affiliate) immediately prior to such transaction; or

 

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(c) such Party (or its Controlling Affiliate) sells or transfers to any Third
Party, in one or more related transactions, properties or assets representing
all or substantially all of the consolidated total assets of such Party and its
Affiliates; or

(d) the holders of capital stock of such Party (or its Controlling Affiliate)
approve a plan or proposal for the liquidation or dissolution of such Party (or
its Controlling Affiliate).

For the purpose of this definition: (x) “person” and “group” have the meanings
given such terms under Section 13(d)(3) and 14(d)(2) of the Exchange Act and the
term “group” includes any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act; (y) a “beneficial owner” shall be determined in accordance with
Rule 13d-3 under the Exchange Act; and (z) the terms “beneficially owned” and
“beneficially own” shall have meanings correlative to that of “beneficial
owner”.

1.45 “Claims” has the meaning set forth in Section 10.1.

1.46 “Clinical Study” means a human clinical trial designed to evaluate the
safety, efficacy, tolerability or appropriate dosage of a Licensed Product, as
the context requires, including Phase 1 Clinical Trials, Phase 2 Clinical
Trials, Phase 3 Clinical Trials or Phase 4 Clinical Trials.

1.47 “Co-Development Activities” means Targacept Development Activities or
AstraZeneca Development Activities, as the case may be.

1.48 “Co-Development Percentage” means, with respect to AstraZeneca, eighty
percent (80%) and, with respect to Targacept, twenty percent (20%).

1.49 “Collaboration” means the alliance of Targacept and AstraZeneca established
pursuant to this Agreement.

1.50 “Combination Product” means a Licensed Product that is comprised of or
contains any Compound as an active pharmaceutical ingredient together with one
or more other active pharmaceutical ingredients and is sold either as a fixed
dose or as separate doses in a single package.

 

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1.51 “Commercialization” or “Commercialize” means, with respect to each Licensed
Product, any and all lawful activities directed to the commercialization of such
Licensed Product, both before and after Regulatory/Pricing Approval of such
Licensed Product has been obtained, including activities related to marketing,
promoting, detailing, distributing, Manufacturing or having Manufactured (other
than Manufacturing Development or Manufacturing for use in Development),
importing, selling and offering to sell such Licensed Product, conducting Phase
4 Clinical Trials (other than those required to obtain or maintain
Regulatory/Pricing Approval in the U.S. Territory or the EU) and all regulatory
affairs activities (including interacting with Regulatory Authorities) regarding
any of the foregoing. When used as a verb, “to Commercialize” and
“Commercializing” means to engage in Commercialization and “Commercialized” has
a corresponding meaning.

1.52 “Commercially Reasonable Efforts” means, with respect to:

(a) the performance by Targacept of Targacept Development Activities, efforts
and resources consistent in manner and degree with the efforts and resources
that ******** for a compound that is at a similar stage of development or market
acceptance and with similar technical, safety, medical, regulatory and
scientific profiles, characteristics and challenges, a similar level of
development and commercialization complexity and difficulty, and a similar
potential commercial or strategic value (taking into account stage of research,
development or market acceptance, product life, potential financial return,
market potential and patent position); or

(b) the performance by AstraZeneca of its obligations with respect to the
Development of, seeking Marketing Approval for or the launch or other
Commercialization of Licensed Products, efforts and resources consistent in
manner and degree with the efforts and resources that ******** for a compound at
a similar stage of development or market acceptance and with similar technical,
safety, medical, regulatory and scientific profiles, characteristics and
challenges, a similar level of development and commercialization complexity and
difficulty, and a similar potential commercial or strategic value (taking into
account stage of research or development, product life, potential financial
return, market potential or share and patent position); provided that,
notwithstanding the foregoing, with respect to Developing, seeking Marketing
Approval (including, for clarity, Regulatory Approval) for, launching or
otherwise Commercializing any particular Licensed Product in any particular
Major Country, no ******** of ******** on ******** of ******** or ******** shall
be taken into account.

 

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For clarity, (i) in each case (clauses (a) and (b)), Commercially Reasonable
Efforts shall be determined on a country-by-country basis, (ii) the application
of Commercially Reasonable Efforts requires AstraZeneca to conduct the Initial
Development Activities called for by the Amplixa Global Development Outline
(beginning on page 4) as agreed as of the Execution Date (as amended or as
superseded by an Amplixa Annual Global Development Plan in good faith in a
manner that (A) does not reduce such activities or (B) reduces such activities
but where such reduced activities remain reasonably expected to be sufficient to
obtain Regulatory/Pricing Approval of ******** for the ******** in the ********
and the ********), but excluding Targacept Development Activities, and
(iii) without limitation of clause (ii), the application of Commercially
Reasonable Efforts may or may not require AstraZeneca to ******** (including,
for clarity, ********) for, ******** or otherwise ******** for ******** in
********.

1.53 “Competitive Activity” has the meaning set forth in Section 6.1.2(a).

1.54 “Competitive Product” has the meaning set forth in Section 6.1.2(b).

1.55 “Completed Phase 2 Amplixa Study” means Targacept’s completed clinical
trial of the Primary Compound (Protocol No. TC-5214-23-CRD-001).

1.56 “Compound” means each of (a) the Primary Compound, (b) any ******** of the
Primary Compound (including, for clarity, the ******** Compound), (c) any
prodrug, ester, salt, polymorph, hydrate or solvate of either of the foregoing
(clauses (a) or (b)), and (d) any compound that all of:

(i) has any of ******** and ******** set forth on Schedule 11 attached hereto;

(ii) has no ******** at any ********; and

(iii) acts as a ******** (showing ******** of ******** at a concentration of
such compound below ********) of either:

(A) each of the same ******** at which the Primary Compound acts as a ********
(showing ******** of ******** at a concentration of the Primary Compound below
********); or

(B) both (1) each of the ******** or ******** and (2) either of the ******** or
********.

 

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For clarity, the ******** identified on Schedule 11 include simple ********, and
simple ********, including ******** and all ******** of the foregoing
(including, for clarity, any ********).

1.57 “Confidential Information” has the meaning set forth in Section 8.2.1.

1.58 “Consensus Patent-Related Matter” has the meaning set forth in
Section 7.5.1.

1.59 “Consensus Patent Rights” has the meaning set forth in Section 7.7.2(a).

1.60 “Control,” “Controls,” “Controlled” or “Controlling” means (a) with respect
to Information, Inventions, Patent Rights or other intellectual property rights
(other than Proprietary Materials), possession of the legal right (other than
pursuant to the licenses granted under Section 4.1.1 or Section 4.1.2, as
applicable) to grant the licenses or sublicenses under such Information,
Inventions, Patent Rights or other intellectual property rights provided herein,
in each case if applicable, without violating the terms of any agreement or
other arrangement with any Third Party and (b) with respect to Proprietary
Materials, the possession by a Party of the right to supply such Proprietary
Materials to the other Party as provided herein without violating the terms of
any agreement or arrangement with any Third Party. A Party shall be deemed to
Control Joint Program Information, Joint Program Inventions or Joint Program
Patent Rights to the extent of its individual or joint interest therein, as
applicable.

1.61 “Controlling Affiliate” means, with respect to any Party or other Person,
an Affiliate of such Party or other Person that controls (within the meaning
given under the definition of “Affiliate”) such Party or other Person.

1.62 “Cooperating Party” has the meaning set forth in Section 7.12.4.

1.63 “Co-Promoted Products” means Licensed Products, but only if Targacept has
exercised its Co-Promotion Right and thereafter for so long as the Co-Promotion
Agreement remains in effect.

1.64 “Co-Promotion Agreement” has the meaning set forth in Section 3.10.1.

1.65 “Co-Promotion Right” has the meaning set forth in Section 3.10.

1.66 “Cost Audited Party” and “Cost Auditing Party” have the respective meanings
set forth in Section 3.9.2(b).

1.67 “CREATE Act” has the meaning set forth in Section 7.11.

 

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1.68 “Develop” or “Development” means any and all activities that relate to
(a) the research and development of any Compound or Licensed Product (other than
Phase 4 Clinical Trials, unless required to obtain or maintain
Regulatory/Pricing Approval in the U.S. Territory or the EU) and (b) obtaining,
or that are required to maintain, Regulatory/Pricing Approval of Licensed
Products in the Territory. Development includes Preclinical Activities,
pharmacology studies, biomarker studies, toxicology studies, DMPK studies,
Manufacturing Development, Manufacturing or having Manufactured for use in
Development, quality assurance and quality control, technical support,
pharmacokinetic studies, Clinical Studies (other than Phase 4 Clinical Trials,
unless required to obtain or maintain Regulatory/Pricing Approval in the U.S.
Territory or the EU), preparing and filing Drug Approval Applications and all
regulatory affairs activities (including interacting with Regulatory
Authorities) regarding any of the foregoing. When used as a verb, “Developing”
means to engage in Development and “Developed” has a corresponding meaning.

1.69 “Development Cost Reconciliation Report” has the meaning set forth in
Section 3.9.2(a).

1.70 “Development Costs” means, with respect to each Compound or Licensed
Product, the reasonable out-of-pocket costs, internal costs of a Party or any of
its Affiliates, and costs with respect to the supply of such Compound or
Licensed Product (including placebos) for use in Clinical Studies, in each case
that are incurred after the Effective Date and that are both specifically
attributable to the Development of such Compound or Licensed Product and
generally consistent with such Party’s Co-Development Activities as specified in
the then-current Amplixa Annual Global Development Plan. For purposes of this
definition and subject to the conditions set forth above: (a) “out-of-pocket
costs” means, with respect to each Compound or Licensed Product, actual amounts
paid to a Third Party, including all license fees (excluding any payments to a
Third Party under the Targacept Sublicense Agreements) and filing fees required
for, and other costs associated with, any Regulatory Filings applicable to such
Compound or Licensed Product; (b) “internal costs” means the applicable FTE
Rate(s) multiplied by the actual number of FTEs utilized; (c) with respect to
each Clinical Study, unless otherwise agreed by the Parties, in no event shall
the internal costs incurred by a Party for such Clinical Study, excluding costs
with respect to the supply of the applicable Compound or Licensed Product
(including placebos) for use in such Clinical Study, exceed ******** (********%)
of the out-of-pocket costs incurred by such Party therefor; and (d) costs with
respect to the supply of the applicable Compound or Licensed Product (including
placebos) for use in Clinical Studies means (i) if such Compound or Licensed
Product (or placebo) is purchased from a Third Party, the actual costs paid by
AstraZeneca or Targacept to such Third Party with respect to such Compound or
Licensed Product (or placebo), or (ii) if such Compound or Licensed Product (or
placebo) is Manufactured by AstraZeneca or any of its Affiliates, AstraZeneca’s
(or its Affiliate’s) fully burdened (determined as provided on Schedule 10
attached hereto) costs for Manufacturing such Compound or Licensed Product (or
placebo).

 

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1.71 “Development Liaison” has the meaning set forth in Section 2.3.2.

1.72 “Development Program” means the Development program to be conducted by the
Parties during the Term pursuant to the Amplixa Annual Global Development Plans
to obtain Regulatory/Pricing Approval of one or more Licensed Products in the
Territory.

1.73 “Development Regulatory Filing” means, with respect to each Compound or
Licensed Product: each (a) NDA or other Drug Approval Application; (b) IND;
(c) application for “Fast Track” status under Section 506 of the FDCA (21 U.S.C.
§356) or for a Special Protocol Assessment under Section 505(b)(4)(B) and (C) of
the FDCA (21 U.S.C. §355(b)(4)(B) and §355(b)(4)(C)) or the analogous
application or request with respect to Major Countries outside the U.S.
Territory; in each case (clauses (a), (b) and (c)) with respect to such Compound
or Licensed Product in Major Countries (including, for clarity, via the
centralized procedure in the EU); and (d) all supplements and amendments to any
of the foregoing.

1.74 “Development Working Group” has the meaning set forth in Section 2.2.

1.75 “Disclosing Party” has the meaning set forth in Section 8.2.2.

1.76 “Dispute” has the meaning set forth in Section 12.1.1.

1.77 “Distributor” has the meaning set forth in Section 4.5.

1.78 “Dollars” means U.S. dollars.

1.79 “Drug Approval Application” means, with respect to each Licensed Product in
a particular country or jurisdiction, an application to commercially distribute,
sell or market such Licensed Product in such country or jurisdiction, including:
(a) an NDA or sNDA; (b) the analogous application to an NDA or sNDA in any
country or jurisdiction in the ROW Territory; and (c) all supplements and
amendments to any of the foregoing.

1.80 “DSM IV” means the Diagnostic and Statistical Manual of Mental Disorders,
Fourth Edition, published by the American Psychiatric Association (text
revision, 2000), as amended and as supplemented or superseded by subsequent
editions published from time to time.

1.81 “Effective Date” has the meaning set forth in Section 12.19.3.

 

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1.82 “Election Period” has the meaning set forth in Section 12.5.2(a).

1.83 “EMEA” means the European Medicines Agency or, as used in any particular
context hereunder, any successor thereto for the purpose contemplated in such
context.

1.84 “End of Phase 2 Meeting” means any meeting with the FDA for the purpose of
(a) reviewing data from a Phase 2 Clinical Trial for a Licensed Product or
(b) discussing the design of a pivotal Phase 3 Clinical Trial for a Licensed
Product.

1.85 “European Union” or “EU” means Austria, Belgium, Bulgaria, Cyprus, Czech
Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland,
Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal,
Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom, and any such other
country or territory that may officially become part of the European Union after
the Execution Date.

1.86 “Excepted Decision” has the meaning set forth in Section 2.1.5(a).

1.87 “Excess Additional Development Costs Offset” has the meaning set forth in
Section 5.11.2.

1.88 “Excess Initial Development Costs Offset” has the meaning set forth in
Section 5.11.1.

1.89 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

1.90 “Excluded Indications” means the management, treatment, prevention, cure or
delayed progression of hypertension, in any form and however caused.

1.91 “Exclusivity Period” has the meaning set forth in Section 6.1.1.

1.92 “Execution Date” has the meaning set forth in the preamble hereto.

1.93 “Executive Officers” has the meaning set forth in Section 2.1.5(a).

1.94 “Existing CDA” means that certain Confidentiality Agreement between
AstraZeneca Pharmaceuticals LP and Targacept dated December 3, 2008, as amended.

1.95 “Existing Patent Rights” means the Targacept Patent Rights set forth on
Part A, Part B and Part C, collectively, of Schedule 2 attached hereto.

1.96 “Existing Trademarks” means the Trademarks listed on Schedule 3 attached
hereto.

1.97 “Existing TRGT Alliance Agreement” means the Product Development and
Commercialization Agreement by and between SmithKline Beecham Corporation (d/b/a
GlaxoSmithKline) and Glaxo Group Limited, on the one hand, and Targacept, on the
other hand, dated July 27, 2007, as may be amended from time to time.

 

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1.98 “Existing TRGT API Agreements” and “Existing TRGT Supply Agreement” have
the respective meanings set forth in Section 3.3.2.

1.99 “Expanded Field Indication” has the meaning set forth in Section 4.7.2.

1.100 “Experts” has the meaning set forth in Section 12.1.2(a).

1.101 “FDA” means the U.S. Food and Drug Administration or, as used in any
particular context hereunder, any successor thereto for the purpose contemplated
in such context.

1.102 “FDCA” means the United States Federal Food, Drug, and Cosmetic Act, as
amended.

1.103 “Field” means any and all uses, excluding the Excluded Indications;
provided that, if under the circumstances set forth in Section 4.7.2 AstraZeneca
has an option to expand the Field to include an Excluded Indication and
exercises such option, “Field” shall include such Excluded Indication from and
after such exercise.

1.104 “First Commercial Sale” means, with respect to each Licensed Product and
each country or jurisdiction, the first sale of such Licensed Product for use or
consumption by the general public in such country or jurisdiction after:
(a) Regulatory Approval from the applicable Regulatory Authority has been
obtained; and (b) solely in the case of ******** or ******** is ********,
(i) such ******** or ******** from the applicable Regulatory Authority has been
obtained or (ii) solely with respect to Section 5.2.1 (and, for clarity, not for
purposes of determining a Royalty Term or for any other purpose), such ********
or ******** from the applicable Regulatory Authority has not been obtained but
******** of such Licensed Product as an ******** in ********, as a ******** in
******** or as either an ******** or a ******** in ********, as applicable, are
********; provided that a sale of a Licensed Product to a Party’s Affiliate or
Sublicensee shall not constitute a First Commercial Sale (unless the purchasing
Affiliate or Sublicensee is the last Person in the distribution chain for such
Licensed Product and is purchasing it for its own commercial use). For clarity,
sales prior to satisfaction of clause (a) and, if applicable, clause (b)(i)
above, such as so-called “treatment IND sales,” “named patient sales” and
“compassionate use sales” shall not be construed as a First Commercial Sale.

 

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1.105 “Force Majeure” means an event that is beyond a non-performing Party’s
reasonable control, including an act of God, act of the other Party, strike,
lock-out or other industrial/labor dispute (whether involving the workforce of
the non-performing Party or of any other Person), war, riot, civil commotion,
terrorist act, malicious damage, epidemic, quarantine, fire, flood, storm,
natural disaster, or compliance with any injunction, law, order, proclamation,
regulation, ordinance, demand or requirement of any government or of any
subdivision, authority or representative of any such government (including
changes in the requirements of a Regulatory Authority), whether or not it is
later held to be invalid, except to the extent any such injunction, law, order,
proclamation, regulation, ordinance, demand or requirement operates to delay or
prevent the non-performing Party’s performance as a result of any breach by such
Party or any of its Affiliates of any term or condition (including any
representation or warranty) of this Agreement, the Co-Promotion Agreement (if
any) or the Backup R&D Programs Agreement (if any).

1.106 “FTE” means ******** and ******** hours of work devoted to or in support
of Development of Compounds or Licensed Products in accordance with an Amplixa
Annual Global Development Plan that is carried out by one or more employees or
temporary contract personnel of a Party, measured in accordance with such
Party’s normal time allocation practices from time to time, consistently
applied.

1.107 “FTE Cost” means, for any period, the applicable FTE Rate multiplied by
the number of FTEs in such period.

1.108 “FTE Rate” means a rate of ******** Dollars (US $********) per FTE per
annum; provided that on January 1 of each Calendar Year in the Term, commencing
with January 1, 2011, the FTE Rate will be increased by multiplying the FTE Rate
applicable on December 31 of the immediately preceding Calendar Year by 1 +
[(CPIx - CPIy) / CPIy], where CPIx is the United States Consumer Price Index for
All Urban Consumers (1982-84=100) published by the Bureau of Labor Statistics of
the United States Department of Labor for December in the immediately preceding
Calendar Year and CPIy is the United States Consumer Price Index for All Urban
Consumers (1982-84=100) published by the Bureau of Labor Statistics of the
United States Department of Labor for the month immediately preceding the
Effective Date. Any such increase shall be rounded to the nearest one hundred
Dollars (US $100).

1.109 “GLP” means the then-current requirements under Applicable Laws for
nonclinical laboratory studies that support or are intended to support
applications to conduct research in humans or to obtain marketing authorization,
including as set forth in 21 C.F.R. part 58 and EC Directives 87/18/EEC,
88/320/EEC and 1999/11/EC, and as otherwise required by the Regulatory
Authorities of the EU, the United States and Japan, in each case as amended from
time to time.

1.110 “Good Clinical Practices” means the then-current requirements under
Applicable Laws and international ethical, scientific and quality standards for
designing, conducting, recording, analyzing and reporting trials that involve
the participation of human subjects, including as set forth in 21 C.F.R. parts
50, 54, 56 and 312 and in the International Conference on Harmonization
Guideline for Good Clinical Practice (E6), in each case as amended from time to
time.

 

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1.111 “Good Manufacturing Practices” means the then-current requirements under
Applicable Laws for the manufacturing, preparation, processing, labeling,
packaging, and distribution of pharmaceutical products (and components thereof),
including as set forth in 21 U.S.C. Section 351, 21 C.F.R. parts 210 and 211,
European Commission Directive 2003/94/EEC of 08 October 2003, and as otherwise
required by the Regulatory Authorities of the EU, the United States and Japan,
in each case as amended from time to time.

1.112 “Hatch-Waxman Act” means the Drug Price Competition and Patent Term
Restoration Act of 1984, as amended.

1.113 “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(15 U.S.C. §18a), as amended.

1.114 “IND” means an investigational new drug application submitted to the FDA
pursuant to 21 C.F.R. part 312, including any supplements and amendments
thereto. References herein to IND shall include, to the extent applicable, any
analogous Regulatory Filing in the ROW Territory (including a Clinical Trial
Authorization in the European Union).

1.115 “Indemnification Claim Notice” has the meaning set forth in
Section 10.3.1.

1.116 “Indemnified Party” and “Indemnifying Party” have the respective meanings
set forth in Section 10.3.1.

1.117 “Indemnitees” has the meaning set forth in Section 10.3.1.

1.118 “Indication” means any human disease or condition that can be treated,
prevented, cured or the progression of which can be delayed.

1.119 “Indirect Taxes” means value added taxes, sales taxes, consumption taxes
and other similar taxes.

 

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1.120 “Information” means all tangible and intangible information, techniques,
trade secrets, technical information, methods, processes, know-how, data and
results (including pharmacological, toxicological and clinical test data and
results and market research or commercial data), analytical and quality control
data, laboratory notes and notebooks, results or descriptions. Notwithstanding
the foregoing, Information does not include Inventions.

1.121 “Infringement” and “Infringement Notice” have the respective meanings set
forth in Section 7.12.1(a).

1.122 “Initiation” or “Initiate” means, with respect to a Clinical Study, the
first dosing of the first subject in such Clinical Study, unless AstraZeneca has
made an affirmative determination reasonably and in good faith, and so informed
Targacept, that it is more likely than not that such subject should not have
been enrolled in such Clinical Study for failure to meet the subject selection
criteria outlined in the applicable protocol.

1.123 “Initial Development Activities” has the meaning set forth in the Amplixa
Global Development Outline as agreed as of the Execution Date.

1.124 “Initial Development Costs” means all Development Costs with respect to
Initial Development Activities.

1.125 “Initial Notice Deadline” has the meaning set forth in
Section 3.9.1(b)(ii).

1.126 “In-Licensed Patent Rights” has the meaning set forth in Section 9.2.3.

1.127 “Invention” means any new or useful process, composition of matter,
formulation, design, device, kit or method of use or manufacture that is
reasonably expected to be patentable under Applicable Laws (whether or not
patented), as determined pursuant to Section 7.5.

1.128 “Joint Development Committee” or “JDC” has the meaning set forth in
Section 2.1.

1.129 “Joint Program Information” means all Program Information discovered,
developed or otherwise made jointly by one or more employees of or consultants
to Targacept or any of its Affiliates, on the one hand, and one or more
employees of or consultants to AstraZeneca or any of its Affiliates, on the
other hand, but excluding Product Information and Product Invention-Related
Information.

 

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1.130 “Joint Program Invention” means each Program Invention, other than a
Product Invention, for which one or more employees of or consultants to
AstraZeneca or any of its Affiliates, on the one hand, and one or more employees
of or consultants to Targacept or any of its Affiliates, on the other hand, are
inventors. Inventorship for purposes of this definition shall be determined by
reference to United States patent laws in effect on the Execution Date
irrespective of where such Program Invention is actually invented.

1.131 “Joint Program Patent Rights” means all Patent Rights in the entire world
that contain one or more claims that cover any Joint Program Invention.

1.132 “Knowledge” means, subject to Section 12.15, the good faith understanding
and awareness of the facts and information by: (a) with respect to each Party,
******** of such Party or any of its Affiliates, or any ******** of, or ********
by, such Party or any of its Affiliates; and (b) with respect to Targacept,
******** or ******** in each case (clauses (a) and (b)) without any duty to
conduct any investigation with respect to such facts and information by reason
of the execution of this Agreement or the formation of the Collaboration. For
purposes of this definition, ******** means any individual in the position of
******** or ********. “Known” has the corresponding meaning.

1.133 “Lead Compound” means the Primary Compound unless the Primary Compound is
not the most advanced Compound in Development or being Commercialized in the
Collaboration, in which case “Lead Compound” means the most advanced Compound in
Development or being Commercialized in the Collaboration.

1.134 “LIBOR” means the London Interbank Offered Rate for deposits in Dollars
having a maturity of one (1) month published by the British Bankers’
Association, as adjusted from time to time on the first (1st) London business
day of each month.

1.135 “Licensed Product” means each pharmaceutical or medicinal item, substance
or formulation that is comprised of or contains any Compound, whether or not the
sole active pharmaceutical ingredient. For clarity, Licensed Products include
Combination Products.

1.136 “Losses” has the meaning set forth in Section 10.1.

1.137 “MADRS” means the Montgomery-Asberg Depression Rating Scale.

1.138 “Major Country” means each of ********.

1.139 “Manufacture” or “Manufacturing” or “Manufactured” means all operations
involved in the manufacture, receipt, incoming inspections, storage and handling
of Materials, and the manufacture, processing, purification, formulation,
packaging, labeling, warehousing, quality control testing (including in-process
release and stability testing), quality assurance, shipping and release of any
Compound or Licensed Product.

 

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1.140 “Manufacturing Development” means all activities related to the
optimization of a commercial-grade Manufacturing process for the Manufacture of
any Compound or Licensed Product, including test method development and
stability testing, formulation, validation, productivity, trouble shooting and
second generation formulation, process development, Manufacturing scale-up,
development-stage Manufacturing, and quality assurance/ quality control
development.

1.141 “Marketing Approval” means, with respect to each Licensed Product and each
country or jurisdiction, all approvals, licenses, registrations or
authorizations of Regulatory Authorities necessary or reasonably useful to
commercially distribute, sell, or market such Licensed Product in such country
or jurisdiction, including Regulatory/Pricing Approval.

1.142 “Materials” means all raw materials, including Compound, intermediates,
solvents, reactants, excipients, components, containers, labels and packaging
materials necessary for the Manufacture of any Compound or Licensed Product.

1.143 “MDD” means major depressive disorder as described in DSM IV from time to
time. For clarity, as of the Execution Date, MDD is as encoded in DSM IV as
296.2x or 296.3x.

1.144 “MHLW” means the Ministry for Health, Labor and Welfare of Japan or the
Pharmaceutical and Medical Devices Agency (the “PMDA,” formerly known as
IYAKUHIN SOGO KIKO), or, as used in any particular context hereunder, any
successor to either of them, as the case may be, for the purpose contemplated in
such context.

1.145 “Milestone Event” means each of the events identified as a milestone event
in Section 5.2.1 or Section 5.2.2.

1.146 “Milestone Product” has the meaning set forth on Schedule 4 attached
hereto.

1.147 “Monotherapy” means, with respect to a Licensed Product, that such
Licensed Product is any of (a) labeled for use, (b) the subject of a Drug
Approval Application for approval to be labeled for use or (c) the subject of a
Phase 3 Clinical Trial for evaluation, in each case (clauses (a), (b) and (c))
by itself, without any other pharmaceutical product, to treat, prevent, cure or
delay the progression of MDD.

 

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1.148 “NCB” means any compound that both: (a) blocks the channel of an NNR as a
principal mechanism of action; and (b) does not occupy the site at
which acetylcholine naturally accesses such NNR (commonly referred to as
“binding”).

1.149 “NDA” means a New Drug Application (as more fully described in Title 21 of
the U.S. Code of Federal Regulations, Section 314.50) filed with the FDA, or any
successor application in the U.S. Territory.

1.150 “Net Sales” means, with respect to each Licensed Product, the gross
invoiced sales price of such Licensed Product sold by AstraZeneca or any of its
Affiliates, Sublicensees or Net Sales Distributors (each, a “Selling Party”) in
finished product form, packaged and labeled for sale, to Third Parties
(including Distributors, but, for clarity, not Net Sales Distributors), less
deductions allowed by the Selling Party and incurred, allowed, paid, accrued or
specifically allocated in its financial statements in accordance, where
applicable, with International Financial Reporting Standards (“IFRS”) for any
Selling Party that accounts in accordance with IFRS or generally accepted
accounting principles in the United States (“GAAP”) for any Selling Party that
accounts in accordance with GAAP, in each case applied on a consistent basis,
for:

(a) normal and customary trade, quantity or prompt settlement discounts
(including chargebacks and allowances);

(b) administration, service, inventory management or similar fees paid to a
wholesaler, distributor, group purchasing organization, buying group, or similar
organization pursuant to a contract between the Selling Party and such
wholesaler, distributor, group purchasing organization, buying group, or similar
organization, relating to the sale of Licensed Products by the Selling Party;

(c) credits, rebates, or discounts made to or for the account of a customer or a
payor pursuant to a contract between the Selling Party and such customer or
payor, relating to the sale of Licensed Products by the Selling Party to such
customer or for the account of such payor;

(d) rebates, discounts, credits, price concessions, and other payments made with
respect to sales paid for, or required as a condition of participation in or
reimbursement under, any program administered or funded from time to time during
the Term by any governmental or regulatory authority, including Federal or state
Medicaid, Medicare or similar state program in the U.S. Territory or equivalent
governmental program in any other country, including any rebates, discounts,
credits, price concessions, and other payments that may be required by any
healthcare reform legislation or other Applicable Laws that may be enacted or
promulgated after the Execution Date;

 

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(e) ******** or ******** on account of ******** or ******** (including ********
and ********) or on account of bona fide ******** affecting such Licensed
Product;

(f) sales (such as VAT or its equivalent) and excise taxes, other consumption
taxes, customs duties and compulsory payments to governmental authorities and
any other governmental charges imposed upon the importation, use or sale of such
Licensed Product to Third Parties (excluding any taxes paid on the income from
such sales), to the extent the Selling Party is not otherwise entitled to a
credit or a refund for such taxes, duties or payments made;

(g) ******** related to ******** or ******** provided by the Selling Party to
********, or other ******** through ********, or ********;

(h) actual ******** (i.e., when such ******** is no longer recorded as a
********) specifically attributable to such Licensed Product;

(i) any other similar deductions that are ******** as of the ******** but
******** in the ******** after the ********; and

(j) ********.

Sales of a Licensed Product between AstraZeneca and its Affiliates, Sublicensees
or Net Sales Distributors shall be excluded from the computation of Net Sales,
except where any such Affiliate, Sublicensee or Net Sales Distributor is the
last Person in the distribution chain for such Licensed Product and is
purchasing it for its own commercial use. In addition, no Licensed Product
provided to patients for compassionate use, as “treatment IND sales” or as
“named patient sales” shall be included in Net Sales.

In the case of pharmacy incentive programs, hospital performance incentive
programs, chargebacks, disease management programs, or any similar programs or
discounts on portfolio product offerings, all rebates, discounts and other forms
of reimbursements shall be allocated among products on the basis on which such
rebates, discounts and other forms of reimbursements were actually granted or,
if such basis cannot be determined, in accordance with the Selling Party’s
existing allocation method; provided, however, that any such allocation shall be
reasonable, consistent and done in strict accordance with Applicable Laws,
including any price reporting laws, rules and regulations.

 

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In the event that a Licensed Product is sold in any country in the form of a
Combination Product, Net Sales of such Combination Product shall be adjusted by
multiplying actual Net Sales of such Combination Product in such country
calculated pursuant to the foregoing definition of “Net Sales” by the fraction
A/(A+B), where A is the average invoice price in such country of any Licensed
Product that contains the applicable Compound as its sole active pharmaceutical
ingredient, if sold separately in such country, and B is (i) except as provided
in clause (ii) below, the average invoice price(s) in such country of each
product(s) that contains an active pharmaceutical ingredient other than the
Compound contained in such Combination Product as its sole active pharmaceutical
ingredient, if sold separately in such country, or (ii) where an active
pharmaceutical ingredient other than the Compound contained in such Combination
Product is an active pharmaceutical ingredient that is a ********, the lesser of
(A) the amount in clause (i) above or (B) the actual cost to the Selling Party
to make or obtain such active pharmaceutical ingredient (or, for clarity, the
product that contains such active pharmaceutical ingredient) for inclusion in
such Combination Product. If either such Licensed Product that contains such
Compound as its sole active pharmaceutical ingredient or, solely in the case of
clause (i) above, a product that contains an active pharmaceutical ingredient
(other than such Compound) in the Combination Product is not sold separately in
a particular country, the Parties shall negotiate in good faith a reasonable
adjustment to Net Sales in such country that takes into account the medical
contribution to the Combination Product of, and all other factors reasonably
relevant to the relative value of, the applicable Compound, on the one hand, and
all of the other active pharmaceutical ingredients, collectively, on the other
hand; provided that if, notwithstanding such good faith negotiation, the Parties
are unable to agree on an adjustment to Net Sales in such country within
******** days after a request by a Party that they negotiate such an adjustment,
then either Party shall have the right to submit such matter for resolution
pursuant to Section 12.1.

 

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For purposes of the immediately preceding paragraph, the invoice price in a
country for each Licensed Product that contains only a Compound and each product
that contains solely active pharmaceutical ingredients other than the Compound
included in the Combination Product shall be for a quantity comparable to that
used in such Combination Product and of substantially the same class, purity and
potency.

The Parties agree that, in the event that either Party proposes that this
definition of Net Sales be amended to reflect changes required by the adoption
of new accounting standards applicable to such Party, whether due to a Change of
Control or a requirement of Applicable Laws, the other Party shall consider such
proposal reasonably and in good faith.

1.151 “Net Sales Distributor” has the meaning set forth in Section 4.5.

1.152 “NNR” means a neuronal nicotinic receptor.

1.153 “NNR Subtype” means, a particular collection of protein subunits that,
when combined in a specific pentameric manner, form a functional NNR.

1.154 “Non-Breaching Party” has the meaning set forth in Section 11.2.1.

1.155 “Non-Consensus Targacept Program Patent Rights” has the meaning set forth
in Section 7.7.2(b)(iii).

1.156 “******** Application” means the patent application set forth under such
heading in Part C of Schedule 2 attached hereto.

1.157 “Orange Book” means the publication Approved Drug Products with
Therapeutic Equivalence Evaluations that identifies drug products approved on
the basis of safety and effectiveness by the FDA under the FDCA.

1.158 “Owned Patent Rights” has the meaning set forth in Section 9.2.3.

1.159 “Party” or “Parties” has the meaning set forth in the preamble hereto.

1.160 “Patent Coordinator” has the meaning set forth in Section 7.4.

1.161 “Patent Costs” means the reasonable fees and expenses paid to outside
legal counsel, and filing, maintenance and other reasonable out-of-pocket
expenses paid to Third Parties, in connection with the Prosecution and
Maintenance of Patent Rights.

1.162 “Patent-Related Matter,” “Patent-Related Matter Deadline” and
“Patent-Related Matter Resolution Deadline” have the respective meanings set
forth in Section 7.5.1.

 

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1.163 “Patent Rights” means: (a) all national, regional and international
patents and patent applications, including provisional patent applications;
(b) all patent applications filed either from a patent or patent application
described in clause (a) or from an application claiming priority to a patent or
patent application described in clause (a), including divisionals,
continuations, continuations-in-part, provisionals, converted provisionals, and
continued prosecution applications; (c) any and all patents that have issued or
in the future issue from the foregoing patent applications (clauses (a) and
(b)), including utility models, petty patents and design patents and
certificates of invention; (d) any and all extensions or restorations by
existing or future extension or restoration mechanisms, including revalidations,
reissues, re-examinations and extensions (including any supplementary protection
certificates and the like) of the foregoing patents or patent applications
(clauses (a), (b) and (c)); and (e) any similar rights, including so-called
pipeline protection, or any importation, revalidation, confirmation or
introduction patent or registration patent or patent of additions to any such
foregoing patent applications and patents.

1.164 “******** Agreement” has the meaning set forth in Section 3.3.2.

1.165 “Payments” has the meaning set forth in Section 5.9.

1.166 “Person” means an individual, sole proprietorship, partnership, limited
partnership, limited liability partnership, corporation, limited liability
company, business trust, joint stock company, trust, incorporated association,
joint venture or similar entity or organization, including a government or
political subdivision, department or agency of a government.

1.167 “Phase 1 Clinical Trial” means a human clinical trial of a pharmaceutical
product candidate, in healthy volunteers or patients, that generally provides
for the first introduction into humans of such product candidate, with the
principal purpose of obtaining data regarding any or all of the safety,
metabolism, pharmacokinetic properties and clinical pharmacology, and
potentially early evidence on effectiveness, of such product candidate, as
described or contemplated by 21 C.F.R. §312.21(a).

1.168 “Phase 2 Clinical Trial” means a human clinical trial, following
completion of one or more Phase 1 Clinical Trials, of a pharmaceutical product
candidate in subjects with a particular disease or condition, with a principal
purpose of evaluating the effectiveness, safety, and acceptable dose range for
such product candidate for a particular use, as described or contemplated by 21
C.F.R. §312.21(b).

 

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1.169 “Phase 3 Clinical Trial” means a human clinical trial of a pharmaceutical
product candidate in subjects with a particular disease or condition that is
designed to establish that such product candidate is safe and efficacious for
its intended use so as to support Regulatory Approval of such product candidate,
as described or contemplated by 21 C.F.R. §312.21(c); provided that it is not
intended that a human clinical trial must, by itself, support Regulatory
Approval of a product candidate (including, for clarity, itself establish that
such product candidate is safe and efficacious for its intended use) in order to
be a Phase 3 Clinical Trial.

1.170 “Phase 4 Clinical Trial” means a human clinical trial of a pharmaceutical
product for a particular Indication and patient population, after receipt of
Regulatory Approval for such Indication and patient population, whether or not
such clinical trial is required to be conducted as a condition to obtaining or
maintaining such Regulatory Approval. For clarity, for purposes of this
Agreement, a human clinical trial designed to support an expansion of the
patient population for which a particular Licensed Product is labeled for use in
the U.S. Territory or the EU is not a Phase 4 Clinical Trial; provided that a
human clinical trial designed to support the modification of a label to include
expressly a subset of the patient population for which a particular Licensed
Product is already labeled for use is a Phase 4 Clinical Trial. For clarity and
notwithstanding the foregoing, any human clinical trial of a pharmaceutical
product for a particular Indication, after receipt of Regulatory Approval for
such Indication, that is not required by the applicable Regulatory Authority to
maintain such Regulatory Approval (or to obtain Regulatory Approval in another
country in the Territory) and that AstraZeneca reasonably determines to be a
Phase 4 Clinical Trial shall, for purposes of this Agreement, be a Phase 4
Clinical Trial.

1.171 “Preclinical Activities” means in vitro and in vivo animal studies, not in
humans, including those studies conducted in whole animals and other test
systems, designed to determine any or all of the toxicity, bioavailability,
pharmacokinetics and other pharmacological properties of a compound, as
described or contemplated by 21 C.F.R. §58.3(d).

1.172 “Primary Compound” means the pharmaceutical compound described on Schedule
1 attached hereto known by Targacept as of the Execution Date as TC-5214 or
Amplixa™.

 

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1.173 “Primary Compound Licensed Product” means each Licensed Product that is
comprised of or contains the Primary Compound.

1.174 “Product Information” means all Program Information that relates solely to
one or more Compounds or Licensed Products, but excluding Product
Invention-Related Information.

1.175 “Product Invention” means (a) each Program Invention that has ******** one
or more Compounds or Licensed Products or the use of one or more Compounds or
Licensed Products, but excluding any Program Invention that constitutes a
******** or ******** or ********, and (b) each Program Invention that
constitutes a ******** or ******** or ******** that ******** one or more
Compounds or Licensed Products or ******** one or more Compounds or Licensed
Products.

1.176 “Product Invention-Related Information” means, with respect to each
Product Invention, all Program Information that has ******** such Product
Invention, including any applicable Information contained in laboratory
notebooks or other documentation establishing inventorship or demonstrating
conception or reduction to practice.

1.177 “Product Regulatory Approval” means each approval, license, registration
or authorization included in Marketing Approval.

1.178 “Product Trademark” means, with respect to each Licensed Product, each
Trademark, whether or not registered, or trademark application or renewal,
extension or modification thereof, under which such Licensed Product is marketed
in the Territory, together with all goodwill associated therewith and
promotional materials relating thereto. For purposes of clarity, Product
Trademarks shall not include any name or logo used by AstraZeneca or any of its
Affiliates that is not specific to a Licensed Product.

1.179 “Program Information” means all Information that is discovered, developed
or otherwise made in connection with the Development or Commercialization of
Compounds or Licensed Products (i) solely by one or more employees of or
consultants to Targacept or any of its Affiliates, (ii) solely by one or more
employees of or consultants to AstraZeneca or any of its Affiliates or
(iii) jointly by one or more employees of or consultants to Targacept or any of
its Affiliates, on the one hand, and one or more employees of or consultants to
AstraZeneca or any of its Affiliates, on the other hand.

 

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1.180 “Program Invention” means each Invention (a) that is invented in
connection with the Development or Commercialization of any Compound or Licensed
Product and (b) for which (i) one or more employees of or consultants to
Targacept or any of its Affiliates are inventors, (ii) one or more employees of
or consultants to AstraZeneca or any of its Affiliates are inventors, or
(iii) one or more employees of or consultants to Targacept or any of its
Affiliates, on the one hand, and one or more employees of or consultants to
AstraZeneca or any of its Affiliates, on the other hand, are inventors.
Inventorship for purposes of this definition shall be determined by reference to
United States patent laws in effect on the Execution Date irrespective of where
such Invention is actually invented.

1.181 “Proprietary Materials” means tangible chemical, biological or physical
materials that are furnished by or on behalf of one Party to the other Party in
connection with this Agreement and are not generally available or accessible
from sources other than the furnishing Party, whether or not specifically
designated as proprietary by the furnishing Party.

1.182 “Prosecution and Maintenance” or “Prosecute and Maintain” means, with
regard to particular Patent Rights, the preparing, filing, prosecuting and
maintenance of such Patent Rights, as well as re-examinations and reissues with
respect to such Patent Rights, together with the conduct of interferences, the
defense of oppositions and other similar proceedings with respect to such Patent
Rights. For clarity, “Prosecution and Maintenance” or “Prosecute and Maintain”
shall not include any other enforcement action taken with respect to Patent
Rights.

1.183 “********” means a Licensed Product that is an Adjunct Therapy or a
Monotherapy in ******** containing ******** Primary Compound as its sole active
pharmaceutical ingredient.

1.184 “******** Initial Development Cost Maximum” means aggregate Development
Costs incurred by the Parties with respect to one or more ******** equal to the
lesser of (a) ******** Dollars ($********) or (b) the amount of aggregate
Development Costs incurred by the Parties with respect to all ******** in the
aggregate as of the time that the amount of aggregate Initial Development Costs
incurred by the Parties first equals ******** Dollars ($********).

1.185 “******** Product” means each product of AstraZeneca that is comprised of
or contains ********, whether or not the ********, but excluding Combination
Products.

1.186 “Racemic Compound” means Exo (1SR, 2SR,
4SR)-N,2,3,3-tetramethylbicyclo[2.2.1]heptan-2-amine.

1.187 “Receiving Party” has the meaning set forth in Section 8.2.2.

 

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1.188 “Regulatory Approval” means, with respect to each Licensed Product and
each country or jurisdiction, the granting or approval by the applicable
Regulatory Authority of a Drug Approval Application for such Licensed Product in
such country or jurisdiction.

1.189 “Regulatory Authority” means, as applicable, the FDA, EMEA, MHLW, PMDA or
any other federal, state, local, national or supra-national agency, department,
bureau or other government entity in any country in the Territory that holds
responsibility for regulating the distribution, importation, exportation,
Manufacture, use, storage, transport, Development, marketing or sale of a
Licensed Product in such country, as used in any particular context hereunder,
together with any successor thereto for the purpose contemplated in such
context.

1.190 “Regulatory Documentation” means all applications, registrations,
licenses, authorizations, approvals and correspondence submitted to or received
from Regulatory Authorities (including minutes and official contact reports
relating to any communications with any Regulatory Authority), and all
supporting documents, relating to any Compound or Licensed Product, including
all Drug Approval Applications, INDs and other Regulatory Filings, Adverse Event
files and complaint files, but expressly excluding NDA ******** and IND
********.

1.191 “Regulatory Filings” means all communications, correspondence and
documents submitted to a Regulatory Authority in connection with a Licensed
Product, but excluding Drug Approval Applications. For clarity, Regulatory
Filings are also Regulatory Documentation.

1.192 “Regulatory/Pricing Approval” means both (a) Regulatory Approval and
(b) solely in the case of any country in which pricing or reimbursement approval
is required, pricing or reimbursement approval.

1.193 “Reverse Royalty Terminated Territory Product” has the meaning set forth
in Section 11.5.3(i).

1.194 “Reverse Royalty Territory Product” has the meaning set forth in
Section 11.5.1(f).

1.195 “ROW Territory” means all of the countries and territories of the world
other than the U.S. Territory.

 

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1.196 “Royalty Term” means, with respect to each Licensed Product and each
country in the Territory, the period beginning on the date of the first sale of
such Licensed Product for use or consumption by the general public in such
country after Regulatory Approval has been obtained in such country and ending
on the later of:

(a) expiration of the last to expire Targacept Patent Rights, Targacept Program
Patent Rights, AstraZeneca Program Patent Rights, AstraZeneca Extended Term
Patent Rights or Joint Program Patent Rights in such country that includes a
Valid Claim that covers:

(i) the ******** of such Licensed Product;

(ii) a ******** or ******** such Licensed Product (including the ******** of
such Licensed Product); or

(iii) a ******** of such Licensed Product for any ******** for which such
Licensed Product has ******** (and, in the case of any country in which ********
or ******** is required, such ******** or ********) in such country, if, solely
in the case of this clause (iii), no ******** (other than a ******** or ********
of ********) is ******** in such country a ******** that (A) is, if such country
is the U.S. Territory, ******** in the ******** as a ******** that the ********
considers to be ******** such Licensed Product or (B) is, if such country is in
the ROW Territory, ******** in the manner required by Applicable Laws in such
country as ******** and ******** such Licensed Product; and

(b) twelve (12) years from the date of the First Commercial Sale of such
Licensed Product in such country.

For clarity, with respect to any Licensed Product and country in the Territory,
any Targacept Patent Rights, Targacept Program Patent Rights, AstraZeneca
Program Patent Rights, AstraZeneca Extended Term Patent Rights or Joint Program
Patent Rights that are the subject of a patent term extension for such Licensed
Product and country as contemplated by Section 7.9 shall not be deemed to have
expired until expiration of such patent term extension.

1.197 “Safety Agreement” has the meaning set forth in Section 3.8.1.

1.198 “Selling Party” has the meaning set forth in the definition of “Net
Sales.”

1.199 “sNDA” means a Supplemental New Drug Application, as described in 21
C.F.R. §314.70, or any successor application in the U.S. Territory.

1.200 “******** Notice” has the meaning set forth in Section ********.

1.201 “Sublicensee” means a Third Party to which AstraZeneca or Targacept, as
applicable, has granted a sublicense or license under any Patent Rights,
Information or Inventions licensed to such Party pursuant to this Agreement.

1.202 “Surviving Party” has the meaning set forth in Section 6.1.2(b).

1.203 “Targacept” has the meaning set forth in the preamble hereto.

 

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1.204 “Targacept Additional Development Cost Notice” has the meaning set forth
in Section 3.9.1(c)(iv).

1.205 “Targacept Additional Development Cost Threshold” means, with respect to
an Additional Development Project, (a) the amount designated by Targacept for
such Additional Development Project in accordance with Section 3.9.1(c)(ii)
(which amount, for clarity, may be $********) or (b) if Targacept initially
designates an amount greater than $******** for such Additional Development
Project, such higher amount as may become applicable pursuant to, and determined
in accordance with, Section 3.9.1(c)(iv).

1.206 “Targacept Additional Development Cost Threshold Establishment Date” has
the meaning set forth in Section 3.9.1(c)(ii).

1.207 “Targacept Change of Control Notice” has the meaning set forth in
Section 12.5.1.

1.208 “Targacept Development Activities” means the Development activities for
one or more Compounds or Licensed Products (a) specified to be conducted by
Targacept in the first Amplixa Annual Global Development Plan as agreed upon by
the Parties as of the Execution Date, (b) specified after the Execution Date to
be conducted by Targacept in any Amplixa Annual Global Development Plan, without
resort to ******** (if applicable) pursuant to Section 2.1.5(a), or (c) that the
Parties agree in writing shall be conducted by Targacept.

1.209 “Targacept Indemnitees” has the meaning set forth in Section 10.2.

1.210 “Targacept Initial Development Cost Notice” has the meaning set forth in
Section 3.9.1(b)(ii).

1.211 “Targacept Initial Development Cost Threshold” means (a) ******** Dollars
(US $********) or (b) such higher amount as may become applicable pursuant to,
and determined in accordance with, Section 3.9.1(b).

1.212 “Targacept Know-How” means, subject to Section 11.5.3(d)(i), any
Information or Invention owned or Controlled by Targacept or any of its
Affiliates on the Execution Date, during the period from the Execution Date
until the Effective Date, or during the Term (including, for clarity, as between
the Parties, Information discovered, developed or otherwise made during the Term
in the conduct of Targacept Development Activities solely by one or more
employees of or consultants to Targacept or any of its Affiliates) that is not
generally known and that is necessary or reasonably useful for AstraZeneca to
exercise any Development or Commercialization rights or perform any Development
or Commercialization obligations hereunder, but excluding (a) Product
Information, (b) Product Invention-Related Information, (c) Joint Program
Information, (d) Program Inventions and (e) Inventions claimed or covered by
Targacept Patent Rights, Targacept Program Patent Rights or Joint Program Patent
Rights.

 

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1.213 “Targacept Licensed Product Information” has the meaning set forth in
Section 8.1.

1.214 “Targacept Patent Rights” means, subject to Section 7.7.1(c), all Patent
Rights in the entire world owned or Controlled by Targacept or any of its
Affiliates as of the Execution Date, during the period from the Execution Date
until the Effective Date, or during the Term that claim the composition of
matter, a method of Manufacture or use of or a pharmaceutical preparation
containing or comprising (including the pharmaceutical composition of), or cover
the research, development, Manufacture, use, import, offer to sell or sale of,
any Compound or Licensed Product, including the Existing Patent Rights, but
excluding Targacept Program Patent Rights and Joint Program Patent Rights.

1.215 “Targacept Program Invention” means each: (a) Program Invention for which
one or more employees of or consultants to Targacept or any of its Affiliates
are the sole inventors; and (b) Product Invention. Inventorship for purposes of
this definition shall be determined by reference to United States patent laws in
effect on the Execution Date irrespective of where such Invention is actually
invented.

1.216 “Targacept Program Patent Rights” means all Patent Rights in the entire
world that contain one or more claims that cover any Targacept Program
Invention.

1.217 “Targacept Sublicense Agreements” means the USFRF Agreement and the Yale
Agreement.

1.218 “Targacept Technology” means, collectively: (a) Targacept Patent Rights;
(b) Targacept Know-How; (c) Targacept Program Inventions; (d) Product
Invention-Related Information; (e) Targacept Program Patent Rights; and
(f) Targacept’s interest in Joint Program Information, Joint Program Inventions
and Joint Program Patent Rights.

1.219 “Target Indication” means the treatment, prevention, cure or delayed
progression of MDD in humans.

1.220 “Term” has the meaning set forth in Section 11.1.

 

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1.221 “Terminated Territory” means each Major Country with respect to which this
Agreement is terminated by Targacept pursuant to Section 11.2.2 or by
AstraZeneca pursuant to Section 11.3.2.

1.222 “Territory” means all of the countries and territories of the world,
excluding each Terminated Territory, if any.

1.223 “Third Party” means any entity other than Targacept, AstraZeneca or an
Affiliate of Targacept or AstraZeneca.

1.224 “Trademark” means any word, name, symbol, color, designation or device or
any combination thereof for use in the course of trade, including any domain
name, trademark, trade dress, brand mark, trade name, brand name, logo or
business symbol, any registrations thereof or any pending applications thereto.

1.225 “Unresolved Matter” has the meaning set forth in Section 2.1.5(a).

1.226 “Unshared Development Costs” means, with respect to any Licensed Product,
Development Costs that are specifically in furtherance of obtaining or
maintaining Marketing Approval of such Licensed Product for any Indication in
any country that is outside both the U.S. Territory and the EU but not also
required to obtain or maintain Regulatory/Pricing Approval in the U.S. Territory
or in any country in the EU (e.g., toxicology studies or Clinical Studies
required to obtain or maintain Marketing Approval under Applicable Laws in
Japan).

1.227 “U.S. Territory” means the United States of America and its territories
and possessions, including Puerto Rico and the U.S. Virgin Islands.

1.228 “USF/USFRF Agreement” means, together, the Exclusive License Agreement,
effective as of July 9, 1997, and the Exclusive License Agreement, effective as
of October 10, 1998, in each case by and between USF and USFRF. “USF” means the
University of South Florida and “USFRF” means the University of South Florida
Research Foundation, Inc.

1.229 “USFRF Agreement” means the Amended and Restated License Agreement, dated
as of March 9, 2004, by and between Targacept and USFRF, as amended and as may
be further amended.

 

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1.230 “Valid Claim” means a claim within: (a) an issued patent that has not
(i) expired, lapsed or been finally cancelled or abandoned, (ii) been held
unenforceable or invalid, or permanently revoked by a court or administrative or
governmental agency of competent jurisdiction in an order or decision that is
unappealable or unappealed within the time allowed for appeal or (iii) been
abandoned, disclaimed, denied or admitted to be unenforceable through reissue,
reexamination, disclaimer or otherwise; or (b) a pending patent application that
was filed and is being prosecuted in good faith and has not been abandoned or
finally disallowed without the possibility of appeal or re-filing of the
application; provided that such application has not ******** for ******** its
********.

1.231 “Voting Securities” has the meaning set forth in Section 6.1.3(a)(i).

1.232 “Voting Stock” has the meaning set forth in the definition of “Change of
Control.”

1.233 “Working Group” has the meaning set forth in Section 2.2.

1.234 “Yale Agreement” means the Exclusive License Agreement, dated January 22,
2007, by and between Targacept and Yale, as may be amended. “Yale” means Yale
University.

ARTICLE 2

GOVERNANCE OF THE COLLABORATION

2.1 The Joint Development Committee. Promptly and in any event within ********
days after the Effective Date, the Parties shall establish and convene a
committee (the “Joint Development Committee” or “JDC”) to oversee the
Development Program as more specifically provided herein.

2.1.1 Membership. The JDC shall be comprised of ******** representatives (or
such other number of representatives as the Parties may agree) of each of
AstraZeneca and Targacept. Each Party shall provide the other Party with a list
of its initial members of the JDC within ******** Business Days after the
Effective Date. Each Party may replace any or all of its representatives on the
JDC at any time upon written notice to the other Party in accordance with
Section 12.2. Each representative of each Party shall be an employee of such
Party at the level of ******** or ******** and shall have expertise in clinical
development, pharmaceutical commercialization or regulatory affairs. Any member
of the JDC may designate a substitute to attend and perform the functions of
that member at any meeting of the JDC. Each Party may, in its reasonable
discretion, invite non-member employees of such Party to attend meetings of the
JDC as a non-voting participant, subject to the confidentiality obligations of
Article 8. ******** representative shall be the chairperson of the JDC (the
“Chairperson”) to oversee the operation of the JDC and prepare minutes as set
forth in Section 2.1.3.

 

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2.1.2 Meetings.

(a) Until the termination or expiration of the Development Program, the JDC
shall meet in person or otherwise at least once every ******** months, and more
frequently as the Parties deem appropriate, on such dates as the Parties shall
agree. The location of meetings of the JDC that are held in person shall
alternate between the respective offices of the Parties or be held at such other
place as the Parties may agree, with the first JDC meeting being held at
Targacept’s offices. The members of the JDC also may be polled or consulted from
time to time by means of telecommunications, video conferences, electronic mail
or correspondence, as deemed necessary or appropriate. Each Party shall be
solely responsible for the expenses of its representatives to attend or
participate in JDC meetings.

(b) Without limitation of Section 2.1.2(a), if any member of the JDC deems it
appropriate to convene an additional JDC meeting in advance of the next
regularly scheduled meeting: (i) such member shall contact each other member of
the JDC in a manner appropriate under the circumstances; and (ii) AstraZeneca
and Targacept shall cause their respective representatives on the JDC to use
diligent efforts to identify a mutually acceptable date and time for such
meeting to occur by telecommunications or video conference as soon as
practicable thereafter, with a good faith target of within ******** Business
Days after the first contact by the initiating JDC member to the first
representative of the other Party on the JDC.

2.1.3 Minutes. The Chairperson shall have responsibility for preparing and
circulating minutes within ******** Business Days after each meeting setting
forth, inter alia, a description, in reasonable detail, of the discussions at
the meeting and a list of any actions, decisions or determinations approved and
a list of any issues to be resolved by the Executive Officers pursuant to
Section 2.1.5(a). With the sole exception of specific items of the meeting
minutes to which the members cannot agree and that are escalated to the
Executive Officers as provided in Section 2.1.5(a), the JDC shall use diligent
efforts to ensure that definitive minutes of all JDC meetings are finalized
within ******** Business Days after the applicable meeting. If at any time
during the preparation and finalization of the JDC minutes, the Parties do not
agree on any issue with respect to the minutes, such issue shall be resolved by
the escalation process as provided in Section 2.1.5(a), subject to
Section 2.1.5(b). The decision of the JDC or, if applicable, any decision made
as provided in Section 2.1.5(a) shall be recorded by the Chairperson in amended
minutes for such meeting.

 

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2.1.4 Responsibilities of the JDC. The JDC shall be responsible for overseeing
the Development Program. Without limiting the generality of the foregoing, the
JDC shall have the following responsibilities:

(a) direct the preparation of, and review and approve: (i) each Amplixa Annual
Global Development Plan; provided that the Parties have agreed to the first
Amplixa Annual Global Development Plan, which covers the period from the
Effective Date through December 31, 2010, as of the Execution Date; (ii) any
update or amendment to any Amplixa Annual Global Development Plan or the Amplixa
Global Development Outline, subject to Section 3.1.1; and (iii) protocols
(including subject population, inclusion/exclusion criteria, primary and
secondary endpoints, dose selection, dosing regimen, duration of dosing, control
and study design), success criteria, statistical analysis methodology and other
material elements for each Clinical Study of a Licensed Product, to the extent
not included in any previously approved Amplixa Annual Global Development Plan;

(b) monitor the execution of the Parties against each Amplixa Annual Global
Development Plan, including the applicable budgets;

(c) review data, reports or other information submitted to it from time to time
by either Party or any Working Group;

(d) oversee the performance of each Working Group;

(e) resolve all matters for which there is not consensus between one Party’s
representatives on a Working Group and the other Party’s representatives on such
Working Group;

(f) consider and determine the regulatory strategy for Development of Compounds
and Licensed Products;

(g) determine whether a Milestone Event has occurred;

(h) serve as a vehicle to facilitate the transfer of information between the
Parties with respect to all Development activities; and

(i) perform such other responsibilities as may be mutually agreed upon by the
Parties from time to time; provided that, for clarity, the JDC shall not have
the power to amend or modify this Agreement.

For clarity, no matter for which consent, approval or agreement of a Party is
expressly required by any provision of this Agreement shall be within the
responsibility of the JDC.

 

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2.1.5 Decision-making.

(a) General. Except to the extent otherwise expressly provided herein, decisions
of the JDC shall be made by consensus, with all representatives of each Party,
collectively, having one (1) vote in all decisions. In the event that the JDC is
unable to reach a consensus decision within ******** Business Days after it has
met and attempted to reach such decision, either Party may, by written notice to
the other Party, have such matter referred to ******** Targacept and ********
AstraZeneca and its Affiliates, or such other person holding a similar position
designated by AstraZeneca from time to time (collectively, the “Executive
Officers”), for resolution. The Executive Officers shall meet promptly to
discuss the matter submitted and to determine a resolution. If the Executive
Officers are unable to determine a resolution within ******** Business Days
after the matter was first referred to them (each such matter, an “Unresolved
Matter”), then the ******** shall ******** with regard to such Unresolved
Matter, except that (a) the ******** shall not have such right with regard to
the Unresolved Matters set forth in Section 2.1.5(b) (each an “Excepted
Decision”) and (b) in no event shall ******** (or, for clarity, the ********)
have the right to assign ******** responsibility for, and unless ******** shall
otherwise expressly consent, ******** shall have no responsibility for,
performing any aspect of any ******** or performing any aspect of any Initial
Development Activities other than those specified to be performed by ******** in
the first Amplixa Annual Global Development Plan as agreed upon by the Parties
as of the Execution Date. For clarity, neither any patent or other intellectual
property matter nor any other matter not expressly specified as a JDC
responsibility in Section 2.1.4 is (A) within the responsibilities of the JDC,
(B) subject to the dispute escalation process of this Section 2.1.5(a) or
(C) subject ******** of the ******** pursuant to this Section 2.1.5(a) (but, for
clarity, such matter may be subject ******** of ******** to the extent expressly
provided elsewhere in this Agreement).

(b) Excepted Decisions. Each of the following Unresolved Matters shall be an
Excepted Decision:

(i) any matter with respect to an ******** or ********, including (A) whether to
conduct a particular ********, (B) the identification of ******** to be
conducted with respect to a particular ********, (C) the design, scope or
conduct of any particular ******** and (D) with respect to each ******** (but
except as provided in Section ********), the determination of the ********
required to trigger ******** right pursuant to Section ******** with respect to
such ******** (such ********, the “********”);

 

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(ii) any proposed ******** or amendment, modification or update thereto, or any
proposed amendment, modification or update to the ********, that includes or
impacts any of the matters covered by clause (i) above;

(iii) a determination as to whether any Milestone Event has occurred;

(iv) a disagreement as to whether a particular matter or decision is an Excepted
Decision;

(v) any unresolved issue relating to a proposed ********; and

(vi) the content of the minutes of any JDC meeting with respect to any matter
specified in the foregoing clauses (i) through (v).

The Parties shall work diligently and in good faith to resolve each Excepted
Decision by consensus. For clarity: (A) neither Party (nor either Party’s
Executive Officer) shall have final decision-making authority with respect to an
Excepted Decision; (B) notwithstanding anything in this Agreement to the
contrary, ******** shall not have the right to conduct any Development
activities to the extent that such activities would be inconsistent with any
unresolved Excepted Decision; (C) no matter shall be an Excepted Decision to the
extent such matter relates to ********; (D) all Development activities with
respect to one or more ******** (regardless of the Development Costs with
respect thereto) shall constitute ******** for the purposes of Section 2.1.5
(i.e., no matter with respect to such ******** activities shall be an Excepted
Decision); and (E) no Excepted Decision, other than a determination as to
whether any Milestone Event has occurred or as to whether a particular matter or
decision is an Excepted Decision, shall be subject to dispute resolution
pursuant to Section 12.1.

2.2 Working Groups. From time to time, the JDC may establish one or more
subcommittees or working groups to oversee particular activities (each, a
“Working Group”). In any event, the JDC shall establish a joint Working Group to
oversee the operation of Co-Development Activities (the “Development Working
Group”). Each Working Group shall consist of such number of members as the JDC
determines is appropriate from time to time; provided that (a) unless the
Parties agree otherwise, each Party shall have the same number of
representatives on each Working Group and (b) each Party’s Development Liaison
shall be a member of the Development Working Group. Either Party’s
representatives on a Working Group at any time may escalate to the JDC for
resolution any matter with respect to which such Party’s representatives are not
satisfied.

 

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2.3 Alliance Managers; Development Liaisons.

2.3.1 Promptly after the Effective Date, each Party shall appoint an individual
(other than an existing member of the JDC) to act as the project leader for such
Party (each, an “Alliance Manager”). Each Alliance Manager shall thereafter be
permitted to attend meetings of any Working Group and to attend meetings of the
JDC (as a non-voting observer), subject to the confidentiality provisions of
Article 8. The Alliance Managers shall be the primary point of contact for the
Parties regarding the Collaboration (excluding matters that relate solely to
Development or Commercialization). The Alliance Managers shall also be
responsible for assisting the JDC in performing its oversight responsibilities.
Each Party shall provide the other Party with the name and contact information
for its Alliance Manager within ******** Business Days after the Effective Date.
Each Party may replace its Alliance Manager at any time upon written notice to
the other Party in accordance with Section 12.2.

2.3.2 Promptly after the Effective Date, each Party shall appoint an individual
(other than an existing member of the JDC) to act as the Development liaison for
such Party (each, a “Development Liaison”). Each Development Liaison shall
thereafter be permitted to attend meetings of the JDC (as a non-voting
observer), subject to the confidentiality provisions of Article 8. The
Development Liaisons shall be the primary point of contact for the Parties
regarding the Development Program and shall meet at least once a month to review
and discuss the progress of the Development Program and any aspects thereof that
either of them shall deem relevant. Such meetings shall be by telecommunication
or video conference. Neither Party shall be obligated to prepare any printed
materials in connection with such meetings, but each Party shall nevertheless
use diligent efforts to provide such printed materials as may be reasonable
under the circumstances to achieve the objective of each such meeting. The
Development Liaisons shall also be responsible for assisting the JDC in
performing its oversight responsibilities. Each Party shall provide the other
Party with the name and contact information for its Development Liaison within
******** Business Days after the Effective Date. Each Party may replace its
Development Liaison at any time upon written notice to the other Party in
accordance with Section 12.2.

 

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2.4 Appointment of JDC Members, Alliance Managers and Development Liaisons.

2.4.1 Appointment is a Right. The appointment of members of the JDC and an
Alliance Manager and Development Liaison is a negotiated right of Targacept,
waivable at any time, is not an obligation and shall not be a “deliverable” as
referred to in Subtopic 25, “Multiple-Element Arrangements” of Accounting
Standards Codification Topic 605, “Revenue Recognition.” For clarity, Targacept
shall be free to determine not to appoint members to the JDC (or to appoint
fewer than the total number of members that it is eligible to appoint) and to
determine not to appoint an Alliance Manager or a Development Liaison.

2.4.2 Consequence of Non-Appointment. If Targacept does not appoint members of
the JDC, or does not appoint the total number of members that it is eligible to
appoint, or does not appoint an Alliance Manager or a Development Liaison, it
shall not be a breach of this Agreement, nor shall any consideration be required
to be returned to AstraZeneca; provided that, with respect to the JDC,
AstraZeneca shall have the votes and decision-making power of Targacept unless
and until Targacept appoints at least one member of the JDC.

 

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ARTICLE 3

DEVELOPMENT AND COMMERCIALIZATION OF LICENSED PRODUCTS;

BACKUP R&D PROGRAMS

3.1 Implementation of Development Programs.

3.1.1 Amplixa Global Development Outline and Amplixa Annual Global Development
Plans. The first Amplixa Annual Global Development Plan, which covers the period
from the Effective Date through December 31, 2010, and the Amplixa Global
Development Outline have been agreed upon by the Parties as of the Execution
Date. For Calendar Year 2011 and for each Calendar Year thereafter during the
Term, an Amplixa Annual Global Development Plan shall be prepared at the
direction of the JDC and submitted to the JDC for approval; provided that the
Parties shall manage the preparation of each such Amplixa Annual Global
Development Plan in a manner designed to submit it for such JDC approval at
least ******** Business Days before the meeting at which it will be considered
and to obtain such JDC approval no later than ******** days prior to the end of
the current Calendar Year. Each Amplixa Annual Global Development Plan shall,
subject to Sections 2.1.5(a) and 2.1.5(b): (a) set forth for the applicable
Calendar Year (i) the Development objectives, each Indication in the Field for
which Development is to be conducted (which, for clarity, will constitute
******** if not the ********), Clinical Studies and other Development
activities, priorities, timelines, budget and resources with reasonable
specificity, (ii) whether activities are Targacept Development Activities or
AstraZeneca Development Activities, (iii) with respect to such Co-Development
Activities, the estimated number of FTEs to be allocated to perform such
activities and the corresponding FTE Costs and (iv) a projection, based on
available information, of those Co-Development Activities for which Development
Costs will be Unshared Development Costs; and (b) be consistent with the terms
of this Agreement and, unless the JDC shall otherwise determine, the Amplixa
Global Development Outline then in effect; provided that if the JDC shall have
determined, as expressly reflected in minutes of a JDC meeting and subject to
Section 2.1.5(b), that an Amplixa Annual Global Development Plan need not be
consistent with the Amplixa Global Development Outline on a particular matter,
the Amplixa Global Development Outline need not be formally amended and shall be
superseded in relevant part by such Amplixa Annual Global Development Plan. Each
amendment, modification or update to any Amplixa Annual Global Development Plan
or the Amplixa Global Development Outline shall: (x) except as set forth in the
immediately preceding sentence, be set forth in a written document that
specifically states that it is an amendment, modification or update to such
Amplixa Annual Global Development Plan or the Amplixa Global Development
Outline, as applicable, and be subject to approval by the JDC, and (y) include
the resulting changes to the budget, if any.

3.1.2 Responsibility for Development of Licensed Products. Development of any
Compound or Licensed Product shall be conducted in accordance with the Amplixa
Annual Global Development Plans. With respect to each Compound or Licensed
Product, unless otherwise set forth in any Amplixa Annual Global Development
Plan approved by the JDC or agreed by the Parties in a writing that expressly
references this Section 3.1.2: (a) with respect to Targacept Development
Activities, Targacept shall have operational, day-to-day responsibility over the
implementation of such activity (i.e., “how” it gets performed), but shall not
have any strategic control over such activity (i.e., “whether” or “to what
extent” it gets performed); (b) with respect to AstraZeneca Development
Activities, AstraZeneca shall have operational, day-to-day responsibility over
the implementation of such activity (i.e., “how” it gets performed), but,
subject to Section 2.1.5, shall not have any strategic control over such
activity (i.e., “whether” or “to what extent” it gets performed); and
(c) AstraZeneca shall be solely responsible for all aspects of Manufacturing
Development, subject to Section 3.3.

 

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3.1.3 Assignment of Regulatory Documentation. Targacept hereby assigns to
AstraZeneca all of its right, title and interest in and to all Regulatory
Documentation and Product Regulatory Approvals (including the Amplixa IND) owned
by Targacept as of the Execution Date and during the period from the Execution
Date until the Effective Date. Targacept shall duly execute and deliver, or
cause to be duly executed and delivered, such assignments, agreements, documents
and instruments as both (a) may be necessary to carry out, or as AstraZeneca may
reasonably request in connection with, this Section 3.1.3 and (b) shall be
provided by AstraZeneca in reasonable and customary form, such execution and
delivery by Targacept to be completed, with respect to each such assignment,
agreement, document or instrument, not later than ******** Business Days after
the later of (i) the Effective Date or (ii) the date of receipt thereof by
Targacept.

3.1.4 Information Disclosure; Assistance. In connection with the transition of
certain Development and regulatory activities from Targacept to AstraZeneca,
Targacept shall, and shall cause its Affiliates to:

(a) disclose and make available to AstraZeneca within ******** after the
Effective Date (unless previously provided): (i) the meeting request for an End
of Phase 2 Meeting, (ii) the briefing package for an End of Phase 2 Meeting (in
its then-current form) and all supporting documentation with respect thereto;
and (iii) any written communications, and shall describe any oral
communications, with the FDA related to an End of Phase 2 Meeting, in each case
if any;

(b) disclose and make available to AstraZeneca within ******** Business Days
after the Effective Date (unless previously provided): IND ********;

(c) disclose and make available to AstraZeneca within ******** days after the
Effective Date (unless previously provided): all raw and final data sets and
supporting data dictionaries, analyses and analytic results, and all clinical
study reports and case report forms, in each case with respect to the Primary
Compound;

(d) disclose and make available to AstraZeneca within ******** days after the
Effective Date (unless previously provided): IND ********, IND ********, IND
********, IND ******** and NDA ********;

 

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(e) use diligent efforts to disclose and make available to AstraZeneca as soon
as reasonably practicable, and in any event within ******** days after the
Effective Date, (unless previously provided): (i) the Regulatory Documentation;
and (ii) all other Information owned or Controlled by Targacept that is related
to Compounds or Licensed Products, including ******** and ********, and
********, with all ******** and ******** and ********, and ******** materials,
and all ******** and ******** with ******** on issues relating specifically to
the ******** of Compounds or Licensed Products for all Indications, in whatever
form such Information exists in the possession of Targacept or its Affiliates on
the Effective Date; and

(f) provide AstraZeneca with reasonable assistance required in order to transfer
the Targacept Know-How to AstraZeneca in a timely manner. Without limiting the
generality of this clause (f), if visits of Targacept’s representatives to
AstraZeneca’s facilities are reasonably requested by AstraZeneca for purposes of
transferring the Targacept Know-How to AstraZeneca or for purposes of
AstraZeneca acquiring expertise on the practical application of the Targacept
Know-How or assisting on issues arising during such Development or
Commercialization, Targacept shall send appropriate representatives to
AstraZeneca’s facilities at a mutually acceptable time and frequency; provided
that AstraZeneca shall reimburse Targacept for its reasonable and verifiable FTE
Costs and direct out-of-pocket expenses related to such visits.

3.1.5 Limitations on Development by Targacept. Except as otherwise agreed by the
Parties in writing, Targacept shall not, and shall cause it Affiliates not to,
directly or through any Third Party, Develop any Compound or Licensed Product
for use in the Field in the Territory, except for the Targacept Development
Activities; provided that, for purposes of this Section 3.1.5, Targacept
Development Activities include all actions taken by Targacept that it reasonably
and in good faith believes are permitted by this Agreement and Targacept’s
performance of Section 3.3.4.

3.2 Licensed Product Commercialization.

3.2.1 Right to Commercialize. Subject to Targacept’s rights and obligations
under the Co-Promotion Agreement, if any, and subject to Sections 3.2.2, 3.2.3,
3.3 and 3.7.2, AstraZeneca shall have the sole and exclusive right to
Commercialize Compounds and Licensed Products in the Field in the Territory.

 

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3.2.2 Executive Meetings. The ******** for AstraZeneca’s ******** and the
******** of Targacept (or, in each case, a substitute acceptable to the
non-substituting Party, acting reasonably) shall meet at least ******** each
Calendar Quarter in person at the offices of ******** to review and discuss such
aspects of the historical or planned Commercialization of Licensed Products in
the Territory as either of them shall deem relevant. Each Party shall be solely
responsible for the expenses of its representative to attend or participate in
such meetings.

3.2.3******** Personnel. AstraZeneca and Targacept shall work diligently and in
good faith through the ******** for AstraZeneca’s ******** and the ******** of
Targacept to determine within ******** days after the Effective Date the
******** and, ********, terms of an arrangement whereby ******** employees with
experience or expertise in one or more of ******** and ******** would
participate with and contribute to initially, the ******** (or other similar)
******** for ********, and then the ******** (or other similar) ******** for
********, for the ******** Licensed Product; provided that if after such
******** period, the Parties have not agreed upon whether such arrangement would
be ******** or, ********, the terms of such arrangement, the matter shall be
referred to the ******** of Targacept and the ******** of AstraZeneca’s ********
for resolution. If despite good faith negotiations such officers cannot resolve
such matter within ******** Business Days after it has been referred to them,
then neither Party shall ******** with respect thereto. ******** such an
arrangement is established, approximately ******** days prior to the projected
date on which the ******** (or other similar) ******** for ******** would first
become active in ******** activities for the first Licensed Product, the Parties
would consider in good faith any appropriate modifications to such arrangement.
The Parties ******** that (a) such ******** employees would be ******** at
******** of ******** and (b) ******** would be responsible for all ******** and
******** related to such employees.

3.3 Manufacturing.

3.3.1 Manufacturing of Licensed Products. Without limitation of Section 3.2,
subject to Sections 3.3.2 and 3.3.4, AstraZeneca shall have the sole and
exclusive right to (a) conduct or have conducted Manufacturing Development with
respect to Compounds and Licensed Products and (b) Manufacture or have
Manufactured Compounds and Licensed Products. For clarity, subject to the terms
of the Existing TRGT API Agreements with respect to the Primary Compound,
AstraZeneca shall have the right, in its sole discretion, to determine the
specifications with respect to any Compound or Licensed Product.

 

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3.3.2 Existing TRGT API Agreements and ******** Agreement. As soon as
practicable after the Effective Date, Targacept shall assign (a) its Amended and
Restated Supply Agreement dated December 3, 2009 by and among Targacept, Poli
Industria Chimica, SpA and Interchem Corporation (the “Existing TRGT Supply
Agreement”) and the related Quality Agreement dated December 3, 2009 by and
among Targacept, Poli Industria Chimica, SpA and Interchem Corporation (together
with the Existing TRGT Supply Agreement, the “Existing TRGT API Agreements”) and
(b) its Master Service Agreement between Targacept and ******** dated August 13,
2009, and Work Order No. 1, dated August 13, 2009, thereunder (collectively, the
“******** Agreement”), in each case (clauses (a) and (b)) to AstraZeneca, and
AstraZeneca shall accept such assignment and assume all of Targacept’s rights
and obligations under the Existing TRGT API Agreements and the ********
Agreement pursuant to an assignment and assumption agreement substantially in
the form of Schedule 5 attached hereto. Each Party shall duly and punctually
perform all of its obligations under such assignment and assumption agreement.

3.3.3 Assignment of Primary Compound and Primary Compound Licensed Products.
Targacept hereby assigns to AstraZeneca all of its right, title and interest in
and to any and all supply of the Primary Compound and Primary Compound Licensed
Product owned by Targacept and existing as of the Effective Date, wherever
located, including finished tablets and work in process, for ********.

3.3.4 Cooperation Regarding Capsules. At AstraZeneca’s request, Targacept shall
cooperate in all reasonable respects to secure supply of Licensed Products in
capsule form for the conduct of the Development Program from ******** pursuant
to Targacept’s current master services agreement with ********.

 

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3.4 Diligence.

3.4.1 Development and Commercialization. During the Term, (a) with respect to
each Licensed Product, AstraZeneca shall, without limitation of clause
(b) below, use Commercially Reasonable Efforts to conduct the AstraZeneca
Development Activities and Targacept shall use Commercially Reasonable Efforts
to conduct the Targacept Development Activities and (b) AstraZeneca shall use
Commercially Reasonable Efforts to Develop, obtain Marketing Approval
(including, for clarity, Regulatory/Pricing Approval) for, launch and otherwise
Commercialize ******** Licensed Product for ******** Indication in each Major
Country. Notwithstanding anything herein to the contrary, to the extent that
AstraZeneca would be required to perform ******** to satisfy its obligations
under the first sentence of this Section 3.4.1 and Targacept’s representatives
on the JDC withhold their consent to such ********, then AstraZeneca’s failure
to perform such ******** shall not constitute a breach of AstraZeneca’s
obligations under this Section 3.4.1. Except as set forth in this Section 3.4.1
or, with respect to Targacept, the Co-Promotion Agreement, if any, neither Party
shall have any diligence obligations with respect to the Development or
Commercialization of Compounds or Licensed Products. Targacept acknowledges that
(x) AstraZeneca and its Affiliates have ******** for the commercialization of
their products, (y) AstraZeneca and its Affiliates intend to continue research,
development and commercialization of one or more ******** during the Term and
shall have the right to continue to do so in the ordinary course of business and
(z) in the ordinary course of business, AstraZeneca and its Affiliates ********
of their products, including ******** and Licensed Products.

 

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3.4.2 ******** Development ******** Right.

(a) Conditional Right. If at any time ******** a reasonable good faith belief
that ******** is unwilling or unable to successfully perform one or more of the
******** Development Activities in accordance with the timeline for such
******** Development Activities contemplated by the applicable Amplixa Annual
Global Development Plan, ******** shall have the right, at ********, to assume
and complete some or all of such ******** Development Activities (the “********
Development ******** Right”); provided that: (i) in no event shall ******** have
or be entitled to exercise the ******** Development ******** Right unless and
until (A) ******** shall have ******** of the specific ******** Development
Activities with respect to which ******** good faith belief applies (a “********
Notice”) and (B) the Executive Officers (or, in the case of ********, a designee
thereof) shall have met in person at a neutral location in Washington D.C.
designated by ******** to discuss ******** good faith belief, and, at any time
after such meeting ******** shall have confirmed to ******** that it continued
to have such good faith belief; provided that, if the Executive Officer of
******** is not available for such meeting within ******** Business Days after
delivery by ******** of the ******** Notice, then ******** may exercise the
******** Development ******** Right upon written notice to ******** given at any
time after such ******** Business Day period regardless of whether such meeting
has occurred; and (ii) the ******** Development ******** Right shall be subject
to Section 3.4.2(b). If ******** so elects to exercise the ******** Development
******** Right with respect to any ******** Development Activities, to the
extent requested by ******** in writing, ******** shall assign to ******** any
or all Third Party agreements relating to such ******** Development Activities
(including agreements with contract research organizations, clinical sites and
investigators), unless, with respect to any such agreement, such agreement
(A) expressly prohibits such assignment, in which case ******** shall cooperate
with ******** in all reasonable respects to secure the consent of the applicable
Third Party to such assignment, or (B) relates to activities in addition to such
******** Development Activities in which case, ******** would be required, at
******** sole cost and expense, to cooperate with ******** in all reasonable
respects to facilitate the execution of a new agreement between ******** and the
applicable Third Party with respect to such ******** Development Activities. If
******** assumes control of any such ******** Development Activities, then at
******** request and expense, ******** shall provide ******** with such
reasonable assistance as is necessary to effectuate a smooth and orderly
transition of such ******** Development Activities so as to minimize any
disruption of such activities. With respect to all such ******** Development
Activities that involve Clinical Studies for any Compound or Licensed Product,
at ********’s option, ******** shall either (1) end such Clinical Studies with
respect to enrolled subjects in an orderly and prompt manner in accordance with
Applicable Laws, including any required follow up treatment with previously
enrolled subjects, or (2) transfer control to ******** or its designee of such
Clinical Studies and cooperate with ******** in all reasonable respects to
ensure a smooth and orderly transition thereof that will not involve any
disruption of such studies.

(b) ******** Right to Arbitrate. If ******** does not agree with ********
assertion that ******** is unwilling or unable to successfully perform one or
more of the ******** Development Activities in accordance with the timeline for
such ******** Development Activities contemplated by the applicable Amplixa
Annual Global Development Plan and ******** nevertheless exercises the ********
Development ******** Right as provided in Section 3.4.2(a), ******** shall have
the right, at its sole election, to submit such matter to arbitration pursuant
to Section 12.1.2; provided that, for clarity, ******** shall have the right to
proceed as provided in Section 3.4.2(a) notwithstanding such submission by
********. If it is determined in such arbitration proceeding that, at the time
of ******** delivery of the ******** Notice, ******** was using Commercially
Reasonable Efforts to conduct the ******** Development Activities in question,
******** shall be responsible for funding ******** percent (********%) of all
Development Costs with respect to such activities incurred after ********
exercised its ******** Development ******** Right with respect thereto.

 

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3.5 Compliance. Each Party shall perform its Development responsibilities and
AstraZeneca shall perform its Commercialization responsibilities in good
scientific or commercial manner, as the case may be, and in compliance in all
material respects with all Applicable Laws. For clarity, with respect to each
activity performed under an Amplixa Annual Global Development Plan that will or
would reasonably be expected to be submitted to a Regulatory Authority in
support of a Drug Approval Application, the Party performing such activity shall
comply with, if and as applicable, the regulations and guidance of the FDA that
constitute GLP, current Good Manufacturing Practices or Good Clinical Practices
(or, if and as applicable under the circumstances, International Conference on
Harmonization (ICH) guidance or other comparable regulation and guidance of any
Regulatory Authority in the ROW Territory).

3.6 Cooperation. Scientists and other personnel at Targacept and AstraZeneca
shall cooperate in all reasonable respects in the performance of their
respective responsibilities hereunder and, subject to the terms of this
Agreement and any confidentiality obligations to Third Parties, shall exchange
such data, information and materials as is necessary or reasonably useful for
the other Party to perform its obligations under any Amplixa Annual Global
Development Plan.

3.7 Exchange of Reports; Information; Updates.

3.7.1 Development Program Reports.

(a) Targacept Development Activities. Targacept shall keep the JDC and
AstraZeneca’s Development Liaison regularly informed of the progress of its
efforts with respect to the Targacept Development Activities. Without limiting
the generality of the foregoing, Targacept shall, at each regular meeting of the
JDC, provide the JDC and AstraZeneca’s Development Liaison with a report in
reasonable detail that summarizes the status of all Targacept Development
Activities, together with such information that it has in its possession as may
be reasonably requested from time to time by the JDC or AstraZeneca’s
Development Liaison.

 

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(b) AstraZeneca Development Activities. AstraZeneca shall keep the JDC and
Targacept’s Development Liaison regularly informed of the progress of its
efforts with respect to the AstraZeneca Development Activities. Without limiting
the generality of the foregoing, AstraZeneca shall, at each regular meeting of
the JDC, provide the JDC and Targacept’s Development Liaison with a report in
reasonable detail that summarizes the status of all AstraZeneca Development
Activities, together with such information that it has in its possession as may
be reasonably requested from time to time by the JDC or Targacept’s Development
Liaison.

(c) Information and Records. Each Party shall maintain, or cause to be
maintained, such data, results and analyses, and all records of its
Co-Development Activities under this Agreement, in sufficient detail and in good
scientific manner appropriate for patent and regulatory purposes, which shall:
(i) be complete and accurate in all material respects and reflect in all
material respects all work done and results achieved in the performance of its
activities hereunder; and (ii) be retained for at least ******** years after the
Term or for such longer period as may be required by Applicable Laws. Each Party
shall use diligent efforts to ensure that such records include only such
activities and do not include and are not commingled with records of activities
outside the Collaboration. Each Party shall have the right, during normal
business hours and at a mutually convenient time, to inspect and copy any such
records of the other Party. Each Party shall notify the other Party prior to
destroying such records and the other Party shall have the right to take custody
of such records within ******** Business Days after receipt of such notice.

3.7.2 Commercialization Reports. In addition to and not in limitation of
Section 3.2.2 and 3.2.3, AstraZeneca shall provide Targacept:

(a)(i) at least ******** days, but not more than ******** days, prior to the
projected submission date for the first NDA for the first Licensed Product,
(A) the Amplixa ******** for AstraZeneca’s U.S.-based Affiliate and (B) the
Amplixa ******** for AstraZeneca’s U.S.-based Affiliate, in each case (clauses
(A) and (B)) as such document exists as of the time of delivery to Targacept
(such documents collectively, the “Amplixa Co-Promotion Information Documents”),
and (ii) each update, amendment or modification made to any Amplixa Co-Promotion
Information Document, if any, promptly after such update, amendment or
modification is made; and

 

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(b) a written update summarizing in reasonable detail the plans for, and
progress and results of, Commercialization activities for each Licensed Product
in each of the Major Countries no less frequently than every ********.

In addition, at Targacept’s reasonable request, AstraZeneca shall use diligent
efforts to answer any questions Targacept has with respect to the Amplixa
Co-Promotion Information Documents accurately and in a manner designed in good
faith to provide Targacept sufficient time to take such answers into account in
making its decision whether to exercise the Co-Promotion Right.

3.7.3 Regulatory Matters.

(a) Regulatory Filings and Drug Approval Applications. Subject to Sections 2.1.4
and 2.1.5(b) and this Section 3.7.3(a), with respect to each Compound or
Licensed Product, AstraZeneca shall have the sole right to prepare and make all
Drug Approval Applications and all Regulatory Filings (including reports of
Adverse Events, if and to the extent required by Applicable Laws) in the
Territory; provided that AstraZeneca shall (i) collaborate closely with
Targacept throughout the preparation of each Development Regulatory Filing and
consider all comments of Targacept with respect thereto in good faith, taking
into account the best interests of the Development and Commercialization of the
applicable Compound or Licensed Product on a global basis, and (ii) promptly
provide Targacept with copies of each document or other correspondence received
from a Regulatory Authority in a Major Country pertaining to the Development of
such Compound or Licensed Product. Without limiting the generality of the
foregoing proviso: (A) unless prohibited by any Third Party confidentiality
obligations, AstraZeneca shall provide Targacept with each draft of each
Development Regulatory Filing with respect to such Compound or Licensed Product,
sufficiently in advance of its submission so that Targacept shall have an
opportunity reasonable under the circumstances to review and comment on the
substance of such Development Regulatory Filing (and, if prohibited by any Third
Party confidentiality obligations, use diligent efforts to provide Targacept
sufficient information with respect to such Development Regulatory Filing to
enable Targacept to provide meaningful input with respect thereto); and (B) to
the extent any such draft is other than in the English language, AstraZeneca
shall cooperate with Targacept in all reasonable respects to cause such draft to
be translated into English (at Targacept’s reasonable expense) on a timely
basis.

 

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(b) FDA Meetings. With respect to each Licensed Product, AstraZeneca shall
provide Targacept with at least ******** days written notice of any meeting with
the FDA relating to the Development of such Licensed Product, except that, if
AstraZeneca learns of the date scheduled by the FDA for such meeting fewer than
******** days before such scheduled date, AstraZeneca shall instead provide
written notice of such meeting to Targacept within ******** Business Days after
the date on which AstraZeneca learned of such scheduled date. With respect to
each such meeting, Targacept shall have the right, but not the obligation, to
send ******** (or such greater number, if any, as AstraZeneca may expressly
agree) person to participate as ******** (at Targacept’s sole cost and expense)
in such meeting.

(c) Ownership. Subject to Section 11.5, all Drug Approval Applications, Product
Regulatory Approvals and other Regulatory Documentation shall be the property of
AstraZeneca and held in the name of AstraZeneca or its Affiliates.

3.8 Safety Agreement; Adverse Event Reporting; Complaints; Product Recall.

3.8.1 Safety Agreement. The rights and obligations of the Parties (and their
Affiliates) with respect to safety and related reporting activities with respect
to each Licensed Product shall be set forth in a safety agreement in a form
mutually acceptable to the Parties (the “Safety Agreement”), which the Parties
shall enter into no later than ******** Business Days after the Effective Date.

3.8.2 Adverse Event Reporting. Without limitation of Section 3.8.1, upon
transfer of the Amplixa IND to AstraZeneca, AstraZeneca shall be responsible for
Adverse Event reporting to applicable Regulatory Authorities in the Territory,
shall comply with Applicable Laws with respect to Adverse Event reporting and
shall maintain the global safety database for Licensed Products; except that
Targacept shall be responsible for Adverse Event reporting to applicable
Regulatory Authorities in the Territory as required with respect to NDA ********
and IND ********.

 

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3.8.3 Product Recall.

(a) Notification and Recall. In the event that any Regulatory Authority issues
or requests a recall or takes similar action in connection with any Compound or
Licensed Product or, in the event AstraZeneca determines that an event, incident
or circumstance has occurred that may result in the need for a recall or market
withdrawal with respect to any Compound or Licensed Product, AstraZeneca shall
promptly consult with at least one of Targacept’s ******** (or ********) or
******** by telephone to discuss and consider such matter and AstraZeneca shall
consider in good faith such Targacept representative’s comments with respect
thereto. Following such telephone call, AstraZeneca shall have final
decision-making authority and control of whether to conduct such a recall or
market withdrawal (except in the case of a government-mandated recall) in the
Territory and the manner in which any such recall or market withdrawal shall be
conducted.

(b) Recall Expenses. AstraZeneca shall bear all expenses of any recall or market
withdrawal of any Compound or Licensed Product except to the extent such recall
or market withdrawal resulted from any breach by Targacept of this Agreement or
the Co-Promotion Agreement or from Targacept’s or any of its Affiliates’
negligence or willful misconduct, in which case Targacept shall bear the
expenses of such recall or market withdrawal to the extent attributable to such
breach, negligence or willful misconduct.

3.9 Development Costs; Reconciliation and Auditing.

3.9.1 Responsibility for Development Costs.

(a) Generally. Subject to Sections 3.4.2(b), 3.9.1(b) and 3.9.1(c), with respect
to each Compound and Licensed Product, Targacept shall be responsible for
funding its Co-Development Percentage of the total Development Costs for such
Compound or Licensed Product and AstraZeneca shall be responsible for funding
its Co-Development Percentage of the total Development Costs for such Compound
or Licensed Product, except that, notwithstanding the foregoing, AstraZeneca
shall be responsible for funding one hundred percent (100%) of all Unshared
Development Costs for such Compound or Licensed Product, if any.

(b) Initial Development Costs.

(i) Notwithstanding anything to the contrary in this Agreement, in no event
shall Targacept be required to fund cumulative Initial Development Costs in
excess of the Targacept Initial Development Cost Threshold. Notwithstanding
anything to the contrary in this Agreement, the Parties acknowledge and agree
that aggregate Development Costs incurred by the Parties with respect to one or
more ********, and no more, shall be deemed to be Initial Development Costs.

 

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(ii) In the event that at any time during a Calendar Quarter Targacept has
incurred cumulative Initial Development Costs that equal or exceed the Targacept
Initial Development Cost Threshold then in effect, Targacept may, in its sole
discretion and upon written notice to AstraZeneca (a “Targacept Initial
Development Cost Notice”), elect to (A) increase the Targacept Initial
Development Cost Threshold to the amount set forth in such Targacept Initial
Development Cost Notice or (B) terminate its obligation to fund any Initial
Development Costs in excess of the Targacept Initial Development Cost Threshold
then in effect; provided that such Targacept Initial Development Cost Notice
must be given no later than ******** Business Days after receipt by Targacept of
the Development Cost Reconciliation Report for such Calendar Quarter showing
that Targacept has incurred cumulative Initial Development Costs that equal or
exceed the Targacept Initial Development Cost Threshold then in effect (an
“Initial Notice Deadline”).

(iii) If Targacept gives a Targacept Initial Development Cost Notice by the
Initial Notice Deadline with respect to a particular Calendar Quarter and elects
to:

(A) increase the Targacept Initial Development Cost Threshold, then the
Targacept Initial Development Cost Threshold shall be increased to the amount
set forth in such Targacept Initial Development Cost Notice; or

(B) terminate its obligation to fund any Initial Development Costs in excess of
the Targacept Initial Development Cost Threshold then in effect, then (1) the
Targacept Initial Development Cost Threshold shall no longer be subject to
increase and shall be final and (2) AstraZeneca shall be solely responsible for
funding ******** percent (********%) of all Initial Development Costs
(regardless of which Party incurs such Initial Development Costs) in excess of
such Targacept Initial Development Cost Threshold (including, for clarity, any
such excess incurred prior to such Targacept Initial Development Cost Notice)
and shall have the rights set forth in Section 5.11.1; provided that Targacept
shall continue to have the responsibility to provide the reports contemplated by
this Agreement, including Section 3.9.2(a), in each case to the extent
applicable.

(iv) If Targacept does not give a Targacept Initial Development Cost Notice by
the Initial Notice Deadline with respect to a particular Calendar Quarter:

(A) the Targacept Initial Development Cost Threshold shall automatically be
increased to an amount equal to the cumulative Initial Development Costs
incurred by Targacept as of the last day of the next Calendar Quarter (i.e., the
Calendar Quarter in which such Initial Notice Deadline occurs); and

 

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(B) for clarity, Targacept shall again have the right to give a Targacept
Initial Development Cost Notice with respect to the next Calendar Quarter (i.e.,
the Calendar Quarter in which such Initial Notice Deadline occurs) by the
Initial Notice Deadline for such next Calendar Quarter.

(v) For clarity, the amount of Initial Development Costs incurred by Targacept
for the purpose of determining whether Targacept has incurred Initial
Development Costs equal to, or in excess of, the Targacept Initial Development
Cost Threshold then in effect shall be equal to the sum of the Initial
Development Costs actually incurred by Targacept less any amounts received by
Targacept from AstraZeneca pursuant to Section 3.9.2(a)(ii) (or, with respect to
the most recently completed Calendar Quarter, that would be received by
Targacept from AstraZeneca pursuant to Section 3.9.2(a)(ii) but for the
application of this Section 3.9.1(b)) plus any amounts payable by Targacept to
AstraZeneca pursuant to Section 3.9.2(a)(ii) (or, with respect to the most
recently completed Calendar Quarter, that would be payable by Targacept to
AstraZeneca pursuant to Section 3.9.2(a)(ii) but for the application of this
Section 3.9.1(b)).

(c) Additional Development Costs; ********.

(i) Notwithstanding anything to the contrary in this Agreement, in no event
shall Targacept be required to fund cumulative Additional Development Costs with
respect to any Additional Development Project in excess of the Targacept
Additional Development Cost Threshold for such Additional Development Project.

(ii) With respect to each Additional Development Project (but subject, with
respect to ********, to clause (vi) below), prior to the earlier of (A) the date
of commencement by Targacept of any Additional Development Activities with
respect to such Additional Development Project and (B) the date that is ********
days after approval by the JDC of the Amplixa Annual Global Development Plan or
update or amendment thereto providing for such Additional Development Project
(such earlier date, the “Targacept Additional Development Cost Threshold
Establishment Date”), Targacept shall notify AstraZeneca of the Targacept
Additional Development Cost Threshold with respect to such Additional
Development Project.

 

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(iii) In the event that Targacept does not notify AstraZeneca of the Targacept
Additional Development Cost Threshold with respect to any Additional Development
Project prior to the Targacept Additional Development Cost Threshold
Establishment Date for such Additional Development Project, the Targacept
Additional Development Cost Threshold with respect to such Additional
Development Project shall be $********, unless Targacept shall expressly agree
otherwise in writing. If the Targacept Additional Development Cost Threshold
with respect to any Additional Development Project is $********, AstraZeneca
shall be solely responsible for funding ******** percent (********%) of all
Additional Development Costs with respect to such Additional Development Project
and AstraZeneca shall have the rights set forth in Section 5.11.2.

(iv) If the Targacept Additional Development Cost Threshold with respect to any
Additional Development Project is greater than $********, in the event that at
any time during a Calendar Quarter Targacept has incurred cumulative Additional
Development Costs with respect to such Additional Development Project that equal
or exceed the Targacept Additional Development Cost Threshold with respect to
such Additional Development Project then in effect, Targacept may, in its sole
discretion and upon written notice to AstraZeneca (a “Targacept Additional
Development Cost Notice”), elect to (x) increase the Targacept Additional
Development Cost Threshold with respect to such Additional Development Project
to the amount set forth in such Targacept Additional Development Cost Notice or
(y) terminate its obligation to fund any Additional Development Costs with
respect to such Additional Development Project in excess of the Targacept
Additional Development Cost Threshold with respect to such Additional
Development Project then in effect; provided that such Targacept Additional
Development Cost Notice with respect to such Additional Development Project must
be given no later than ******** Business Days after receipt by Targacept of the
Development Cost Reconciliation Report for such Calendar Quarter showing that
Targacept has incurred cumulative Additional Development Costs with respect to
such Additional Development Project that equal or exceed the Targacept
Additional Development Cost Threshold with respect to such Additional
Development Project then in effect (an “Additional Notice Deadline”).

 

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(A) If Targacept gives a Targacept Additional Development Cost Notice with
respect to such Additional Development Project by the Additional Notice Deadline
with respect to a particular Calendar Quarter and elects to:

(1) increase the Targacept Additional Development Cost Threshold with respect to
such Additional Development Project, then the Targacept Additional Development
Cost Threshold with respect to such Additional Development Project shall be
increased to the amount set forth in such Targacept Additional Development Cost
Notice; or

(2) terminate its obligation to fund any Additional Development Costs with
respect to such Additional Development Project in excess of the Targacept
Additional Development Cost Threshold with respect to such Additional
Development Project then in effect, then (x) the Targacept Additional
Development Cost Threshold with respect to such Additional Development Project
shall no longer be subject to increase and shall be final and (y) AstraZeneca
shall be solely responsible for funding ******** percent (********%) of all
Additional Development Costs with respect to such Additional Development Project
(regardless of which Party incurs such Additional Development Costs) in excess
of such Targacept Additional Development Cost Threshold (including, for clarity,
any such excess incurred prior to such Targacept Additional Development Cost
Notice) and shall have the rights set forth in Section 5.11.2; provided that
Targacept shall continue to have the responsibility to provide the reports
contemplated by this Agreement, including Section 3.9.2(a), in each case to the
extent applicable.

(B) If Targacept does not give a Targacept Additional Development Cost Notice
with respect to such Additional Development Project by the Additional Notice
Deadline with respect to a particular Calendar Quarter:

(1) the Targacept Additional Development Cost Threshold with respect to such
Additional Development Project shall automatically be increased to an amount
equal to the cumulative Additional Development Costs with respect to such
Additional Development Project incurred by Targacept as of the last day of the
next Calendar Quarter (i.e., the Calendar Quarter in which such Additional
Notice Deadline occurs); and

(2) for clarity, Targacept shall have the right to give a Targacept Additional
Development Cost Notice with respect to such Additional Development Project with
respect to the next Calendar Quarter (i.e., the Calendar Quarter in which such
Additional Notice Deadline occurs) by the Additional Notice Deadline for such
next Calendar Quarter.

 

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(v) For clarity, the amount of Additional Development Costs with respect to an
Additional Development Project incurred by Targacept under Section 3.9.1(c)(iv)
for the purpose of determining whether Targacept has incurred Additional
Development Costs with respect to such Additional Development Project equal to,
or in excess of, the Targacept Additional Development Cost Threshold for such
Additional Development Project shall be equal to the sum of the Additional
Development Costs for such Additional Development Project actually incurred by
Targacept less any amounts received by Targacept from AstraZeneca pursuant to
Section 3.9.2(a)(iii) with respect to such Additional Development Project (or,
with respect to the most recently completed Calendar Quarter, that would be
received by Targacept from AstraZeneca pursuant to Section 3.9.2(a)(iii) but for
the application of this Section 3.9.1(c)) plus any amounts payable by Targacept
to AstraZeneca pursuant to Section 3.9.2(a)(iii) with respect to such Additional
Development Project (or, with respect to the most recently completed Calendar
Quarter, that would be payable by Targacept to AstraZeneca pursuant to
Section 3.9.2(a)(iii) but for the application of this Section 3.9.1(c)).

(vi) Notwithstanding anything to the contrary in this Agreement, the Parties
acknowledge and agree that: (A) all Development Costs with respect to
Development of one or more ******** in excess of the ******** shall be deemed to
be Additional Development Costs; (B) all Development activities with respect to
one or more ******** undertaken after all Development Costs with respect to
******** equal the ******** shall be deemed a single Additional Development
Project solely for purposes of this Section 3.9.1(c) and Section 5.11.2, if
applicable; (C) the Additional Development Cost Threshold with respect to such
Additional Development Project shall be $********, unless Targacept shall
expressly agree otherwise in writing; and (D) the ******** with respect to such
Additional Development Project shall be the first receipt of Regulatory/Pricing
Approval of a ******** for the ******** in a ********.

 

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3.9.2 Reconciliation of Development Costs.

(a) Reports; Reconciliation of Development Costs. With respect to each Compound
and Licensed Product, within ******** days following the end of each Calendar
Quarter during the Term, each of Targacept and AstraZeneca shall submit to the
JDC and to the other Party a written report setting forth in reasonable detail
all Development Costs incurred by Targacept or AstraZeneca, as applicable,
during such Calendar Quarter for such Compound or Licensed Product, broken out
between Initial Development Costs and Additional Development Costs, if any, and
by individual Additional Development Projects, and between Unshared Development
Costs and all other Development Costs; provided that AstraZeneca shall have no
obligation to report any Unshared Development Costs to Targacept. Upon the
request of the Party receiving such report, the Party delivering such report
shall provide copies of invoices or other appropriate supporting documentation
for any payments made by such Party or any of its Affiliates to Third Parties
that individually exceed ******** Dollars (US $********) or such other amount as
may be determined by the Parties. Within ******** days following the receipt by
the JDC of such written reports, the JDC shall prepare and submit to each Party
a written report (each such report, a “Development Cost Reconciliation Report”)
setting forth in reasonable detail: (i) the calculation of all such Development
Costs incurred by both Parties during such Calendar Quarter (and on a cumulative
basis) for such Compound or Licensed Product, broken out between Initial
Development Costs and Additional Development Costs, if any, and by individual
Additional Development Projects, and between Unshared Development Costs (if any)
and all other Development Costs; (ii) the calculation of the net amount owed by
AstraZeneca to Targacept, or by Targacept to AstraZeneca, in order to ensure the
funding of such Initial Development Costs (excluding, for clarity, Unshared
Development Costs) in accordance with Section 3.9.1; provided that the JDC shall
not be obligated to provide the calculation set forth in clause (ii) after
Targacept elects to terminate its obligation to fund any Initial Development
Costs in excess of the Targacept Initial Development Cost Threshold then in
effect pursuant to Section 3.9.1(b)(ii); and (iii) the calculation of the net
amount owed by AstraZeneca to Targacept, or by Targacept to AstraZeneca, in
order to ensure the funding of such Additional Development Costs (excluding, for
clarity, Unshared Development Costs) with respect to each Additional Development
Project in accordance with Section 3.9.1; provided that the JDC shall not be
obligated to provide the calculation set forth in clause (iii) for any
Additional Development Project for which the Targacept Additional Development
Cost Threshold is $******** or with respect to which Targacept elects to
terminate its obligation to fund any Additional Development Costs in excess of
the Targacept Additional Development Cost Threshold with respect to such
Additional Development Project then in effect pursuant to Section 3.9.1(c)(iv),
as the case may be. The net amounts payable pursuant to clauses (ii) and
(iii) in the immediately preceding sentence shall be paid by Targacept or
AstraZeneca, as applicable, to the other Party within ******** days after the
distribution by the JDC of each Development Cost Reconciliation Report. For
clarity: (A) if Targacept elects to terminate its obligation to fund any Initial
Development Costs in excess of the Targacept Initial Development Cost Threshold
then in effect pursuant to Section 3.9.1(b)(ii), the net amounts payable
pursuant to clause (ii) above shall be determined so as to ensure that the
maximum amount of Initial Development Costs funded by Targacept does not exceed
such Targacept Initial Development Cost Threshold; (B) for each Additional
Development Project with respect to which Targacept elects to terminate its
obligation to fund any Additional Development Costs in excess of the Targacept
Additional Development Cost Threshold with respect to such Additional
Development Project then in effect pursuant to Section 3.9.1(c)(iv), if any, the
net amounts payable pursuant to clause (iii) above shall be determined so as to
ensure that the maximum amount of Additional Development Costs funded by
Targacept with respect to such Additional Development Project does not exceed
such Targacept Additional Development Cost Threshold for such Additional
Development Project; (C) in the event Targacept has incurred Initial Development
Costs in excess of the Initial Development Cost Threshold then in effect and
this Agreement is terminated pursuant to Article 11 prior to the Initial Notice
Deadline with respect to the Calendar Quarter in which such Initial Development
Cost Threshold was so exceeded, Targacept shall be deemed to have given a
Targacept Initial Development Cost Notice immediately prior to effectiveness of
such termination electing to terminate its obligation to fund any Initial
Development Costs in excess of the Targacept Initial Development Cost Threshold
then in effect; and (D) in the event Targacept has incurred Additional
Development Costs with respect to any Additional Development Project for which
the Targacept Additional Development Cost Threshold is greater than $******** in
excess of the Additional Development Cost Threshold then in effect for such
Additional Development Project and this Agreement is terminated pursuant to
Article 11 prior to the Additional Notice Deadline with respect to the Calendar
Quarter in which such Additional Development Cost Threshold was so exceeded,
Targacept shall be deemed to have given a Targacept Additional Development Cost
Notice with respect to such Additional Development Project immediately prior to
effectiveness of such termination electing to terminate its obligation to fund
any Additional Development Costs with respect to such Additional Development
Project in excess of the Targacept Additional Development Cost Threshold with
respect to such Additional Development Project then in effect.

 

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(b) Records; Development Cost Audit Rights. Each Party shall keep and maintain
for ******** years complete and accurate records of Development Costs incurred
with respect to each Compound or Licensed Product in sufficient detail to allow
confirmation of same by the JDC and the other Party, including confirmation of
the proper allocation of FTEs to Development of such Compound or Licensed
Product. Each Party (the “Cost Auditing Party”) shall have the right for a
period of ******** years after the date of each Development Cost Reconciliation
Report to appoint at its expense an independent accountant acceptable to the
other Party (the “Cost Audited Party”), acting reasonably, to audit the
applicable records of the Cost Audited Party and its Affiliates to verify that
the amounts of Development Costs shown in such Development Cost Reconciliation
Report and related calculations were correctly determined. The Cost Audited
Party shall, and shall cause each of its Affiliates to, make its records
available for audit by such independent accountant during regular business hours
at such place or places where such records are customarily kept upon ********
days written notice from the Cost Auditing Party; provided that the Cost Audited
Party and its Affiliates shall not be obligated to make such records available
to such accountant until such accountant has entered into a non-disclosure
agreement in a form acceptable to the Cost Audited Party, acting reasonably. All
records made available for audit shall be deemed to be Confidential Information
of the Cost Audited Party. Such audit right shall not be exercised by the Cost
Auditing Party more than once in any Calendar Year and the records of
Development Costs for a given period may not be audited more than once. The
results of each audit, if any, shall be binding on both Parties absent manifest
error. The accountant shall report to the Cost Audited Party and the Cost
Auditing Party whether there was an error in the amount of Development Costs
reported by the Cost Audited Party and details concerning such error, but no
other information shall be disclosed to the Cost Auditing Party. In the event
there was an error in the amount of Development Costs reported by the Cost
Audited Party hereunder: (i) if the amount of Development Costs was over
reported, the Cost Audited Party shall promptly (but in any event no later than
******** days after the Cost Audited Party’s receipt of the report so
concluding) make payment to the Cost Auditing Party in an amount equal to the
overpayment by, or underpayment to, the Cost Auditing Party (calculated based on
the amount that would have been paid by or to the Cost Auditing Party if the
Development Costs had been reported correctly); and (ii) if the amount of
Development Costs was underreported, the Cost Auditing Party shall promptly (but
in any event no later than ******** days after the Cost Auditing Party’s receipt
of the report so concluding) make payment to the Cost Audited Party in an amount
equal to the overpayment by, or underpayment to, the Cost Audited Party
(calculated based on the amount that would have been paid by or to the Cost
Audited Party if the Development Costs had been reported correctly). The Cost
Auditing Party shall bear the full cost of such audit unless such audit
discloses an over reporting by the Cost Audited Party of more than ********
percent (********%) of the aggregate amount of Development Costs reportable in
any Calendar Year, in which case the Cost Audited Party shall reimburse the Cost
Auditing Party for all reasonable and documented costs incurred by the Cost
Auditing Party in connection with such audit. Notwithstanding the foregoing,
AstraZeneca shall not be obligated to maintain records with respect to, and
Targacept shall have no right to audit, Unshared Development Costs incurred by
AstraZeneca.

 

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(c) Good Faith Estimate. Without limitation of Section 3.9.1, within ********
days after the end of each month, AstraZeneca shall contact Targacept’s
Controller and provide by email its best estimate in good faith of the
Development Costs incurred by AstraZeneca in such month. AstraZeneca
acknowledges that Targacept will use such good faith estimate in the preparation
of its financial statements, but the Parties agree that such good faith estimate
shall not have application to any provision of this Agreement and that
AstraZeneca shall have no responsibility or liability with respect to
Targacept’s financial statements.

3.10 Co-Promotion. Notwithstanding anything in this Agreement to the contrary,
but subject to this Section 3.10, Targacept shall have the right to designate
all Licensed Products as Co-Promoted Products (the “Co-Promotion Right”) by
giving written notice to AstraZeneca at any time on or before the later of
(a) ******** days after the submission of an NDA for the first Licensed Product
and (b) ******** days after AstraZeneca has provided to Targacept the Amplixa
Co-Promotion Information Documents. For clarity but without limitation of the
last paragraph of Section 3.7.2, any period during which AstraZeneca answers
Targacept’s questions with respect to the Co-Promotion Information Documents
shall in no way impact the foregoing deadline. Targacept shall promote in
accordance with the Co-Promotion Agreement each Co-Promoted Product for all
Indications for which Regulatory Approval for such Co-Promoted Product is
obtained in the U.S. Territory.

 

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3.10.1 Negotiation of Co-Promotion Agreement. As soon as practicable following
the exercise by Targacept of its Co-Promotion Right, the Parties shall commence
the preparation of a co-promotion agreement for Co-Promoted Products (the
“Co-Promotion Agreement”), that shall: (a) set forth the terms applicable to the
co-promotion in the U.S. Territory of each Licensed Product for so long as it
remains a Co-Promoted Product; (b) conform in all material respects with the
terms and conditions set forth on Schedule 6 attached hereto; and (c) include
such additional provisions as are usual and customary for inclusion in a
co-promotion agreement between companies in the pharmaceutical industry of
comparable size and expertise to the respective Parties, which, for clarity,
shall supplement and shall not materially expand, limit or change the terms and
conditions set forth on Schedule 6 attached hereto. The Parties shall use
diligent efforts in good faith to negotiate, execute and deliver the
Co-Promotion Agreement within ******** days following the exercise by Targacept
of the Co-Promotion Right.

3.10.2 Breach of Co-Promotion Agreement. For clarity, following the effective
date of the Co-Promotion Agreement, if any, a determination that either
Targacept or AstraZeneca (or its applicable Affiliate) has breached the
Co-Promotion Agreement shall not constitute a breach of this Agreement and shall
be governed solely by the terms of the Co-Promotion Agreement.

3.10.3 Amendment to Co-Promotion Terms Under Prior Agreement. Promptly after the
execution of the Co-Promotion Agreement, if any, Targacept and AstraZeneca shall
discuss in good faith any appropriate amendments to Schedule 5.11.2 to the
Collaborative Research and License Agreement by and between Targacept and
AstraZeneca or an Affiliate thereof dated December 27, 2005, as amended, or any
co-promotion agreement entered into thereunder in light of the differences in
terms between such Schedule 5.11.2 or co-promotion agreement and the
Co-Promotion Agreement.

3.10.4 Dispute Resolution. In the event the Parties fail to negotiate, execute
and deliver the Co-Promotion Agreement within the ******** day period described
in Section 3.10.1, either Party may submit a list of unresolved issues for
resolution pursuant to ‘baseball’ arbitration pursuant to Section 12.1.3.

 

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3.11 Backup R&D Programs Agreement.

3.11.1 Negotiation, Execution and Delivery. Targacept and AstraZeneca agree to
negotiate in good faith the terms and conditions pursuant to which (a) Targacept
would conduct research with respect to (i) its product candidate that it refers
to as ******** (or its product candidate that it refers to as ********), (ii) a
******** and ******** or ******** that are NCBs and (iii) a ******** and
******** or ******** that inhibit the activity of an NNR by occupying the site
at which acetylcholine naturally accesses such NNR (clauses (i), (ii) and (iii),
collectively, the “Backup R&D Programs”) and (b) AstraZeneca would have ********
in a specified field certain compounds advanced in the Backup R&D Programs (the
“Backup R&D Programs Agreement”) as soon as reasonably practicable following the
Effective Date. AstraZeneca and Targacept shall work diligently and in good
faith to negotiate, execute and deliver the Backup R&D Programs Agreement within
******** days after the Effective Date. The Parties contemplate that part of the
compensation to Targacept with respect to such Backup R&D Programs Agreement
would be ******** paid ******** over ********-year period.

3.11.2 Dispute Resolution. In the event the Parties fail to negotiate, execute
and deliver the Backup R&D Programs Agreement within the ******** day period
described in Section 3.11.1, the Parties shall use diligent efforts to complete
such negotiations and to execute and deliver the Backup R&D Programs Agreement
as soon as practicable thereafter. If, notwithstanding such diligent efforts,
the Parties fail to execute and deliver the Backup R&D Programs Agreement within
******** days after the Effective Date, each Party shall produce a list of
unresolved issues and submit its list to the JDC to be resolved in accordance
with Section 2.1.5. If, notwithstanding such diligent efforts, the Parties fail
to execute and deliver the Backup R&D Programs Agreement within ******** days
after the Effective Date, neither Party shall have any further obligation or
liability to the other Party with respect to the Backup R&D Programs, or any of
them, or the Backup R&D Programs Agreement. For clarity, if for any reason there
is no Backup R&D Programs Agreement executed and delivered by both Parties, no
payment made or other consideration given to Targacept under this Agreement
shall be required to be refunded or returned to AstraZeneca.

3.12 Subcontracting.

3.12.1 By AstraZeneca. Unless expressly contemplated by the Amplixa Global
Development Outline agreed as of the Execution Date, AstraZeneca may subcontract
with a Third Party to perform any or all AstraZeneca Development Activities
(other than Manufacturing Development) only with the prior written consent of
Targacept, such consent not to be unreasonably withheld, conditioned or delayed.
For clarity, subject to the terms of the Existing TRGT Supply Agreements and
except as otherwise provided in Sections 4.5, 4.6 and 6.2.1, AstraZeneca shall
have the right in its sole discretion to subcontract with a Third Party to
perform any or all of its Manufacturing Development, Manufacturing or
Commercialization obligations hereunder. Notwithstanding the foregoing,
AstraZeneca shall not subcontract any of its rights or obligations under Article
7 with respect to the Prosecution and Maintenance, enforcement or defense of any
Patent Rights licensed by USFRF to Targacept under the USFRF Agreement without
the prior written consent of Targacept and USFRF.

 

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3.12.2 By Targacept. Unless expressly contemplated by an Amplixa Annual Global
Development Plan, Targacept may subcontract with a Third Party to perform any or
all of its obligations hereunder only with the prior written consent of
AstraZeneca, such consent not to be unreasonably withheld, conditioned or
delayed.

3.12.3 Subcontract Requirements. Notwithstanding Section 3.12.1 or
Section 3.12.2, (a) no otherwise permitted subcontracting shall relieve a Party
of any liability or obligation hereunder and (b) the agreement pursuant to which
a Party engages any Third Party subcontractor must (i) be consistent in all
material respects with this Agreement, (ii) contain terms obligating such
subcontractor to comply with the confidentiality provisions of this Agreement
and providing the other Party with substantially the same rights with respect to
any intellectual property arising from the performance of the subcontracted
obligation as such other Party would have if such intellectual property had
arisen from the performance of such obligation by the subcontracting Party, and
(iii) contain terms obligating such subcontractor to permit the other Party
rights of inspection, access and audit substantially similar to those provided
to the other Party in this Agreement.

ARTICLE 4

GRANT OF RIGHTS; PROPRIETARY MATERIALS

4.1 License Grants; Sublicenses.

4.1.1 Targacept License Grants.

(a) Development Program. Subject to (i) all of the terms of this Agreement and
(ii) rights of the U.S. government and rights reserved by USFRF and Yale under
the Targacept Sublicense Agreements, Targacept hereby grants to AstraZeneca and
its Affiliates a royalty-free, worldwide, exclusive (including as to Targacept
and its Affiliates) license (or sublicense) during the Term, with the right to
grant sublicenses solely as provided in Section 4.1.3 and Section 7.12.1(d),
under Targacept Technology for the sole purpose of Developing Compounds and
Licensed Products in the Field in the entire world.

 

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(b) Commercialization. Subject to (i) all of the terms of this Agreement and
(ii) rights of the U.S. government and rights reserved by USFRF and Yale under
the Targacept Sublicense Agreements, Targacept hereby grants to AstraZeneca
during the Term a royalty-bearing, worldwide, exclusive (including as to
Targacept and its Affiliates) license (or sublicense), with the right to grant
sublicenses solely as provided in Section 4.1.3 and Section 7.12.1(d), under
Targacept Technology for the sole purpose of Commercializing Compounds and
Licensed Products in the Field in the entire world.

(c) Pentad. Notwithstanding anything in this Agreement to the contrary
(including the definitions), the Parties expressly acknowledge and agree that,
as between the Parties, Targacept shall own all right, title and interest in and
to, and no license is granted to AstraZeneca or any of its Affiliates hereunder
to, and AstraZeneca shall have no right to Prosecute and Maintain any Patent
Rights that claim or cover, the proprietary Information of Targacept or any of
its Affiliates (including Targacept’s database) concerning structure-activity
relationships of compounds and NNRs or any component subunit thereof,
pharmacophore mapping of NNRs or any component subunit thereof or computational
or quantum mechanical methods for use in the design, synthesis and evaluation of
compounds, in each case as exists on the Execution Date, during the period from
the Execution Date until the Effective Date, or during the Term. For clarity,
the Information and Patent Rights described in the immediately preceding
sentence do not include Information specifically with respect to, or Patent
Rights that claim or cover, any Compounds or Licensed Products.

4.1.2 AstraZeneca License Grants. Subject to all of the terms of this Agreement,
AstraZeneca hereby grants to Targacept an exclusive (including as to AstraZeneca
and its Affiliates), royalty-free, worldwide license, without the right to grant
sublicenses, during the Term under the AstraZeneca Technology and AstraZeneca’s
right, title and interest in and to the Targacept Technology for the sole
purpose of performing the Targacept Development Activities anywhere in the
world; provided that, for purposes of this Section 4.1.2, Targacept Development
Activities include all actions taken by Targacept that it reasonably and in good
faith believes are permitted by this Agreement and Targacept’s performance of
Section 3.3.4. For clarity, the rights granted by AstraZeneca under this
Section 4.1.2 are not consideration for the intellectual property rights granted
by Targacept under Section 4.1.1 or elsewhere in this Agreement.

 

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4.1.3 Sublicensing. Except as otherwise provided in this Section 4.1.3,
AstraZeneca shall have the right to grant sublicenses under the rights granted
in Section 4.1.1 through multiple tiers of Sublicensees; provided that: (a) any
such sublicense is consistent with and subject to the terms of this Agreement
(including this Article 4) and shall terminate automatically upon termination of
the corresponding license hereunder; (b) AstraZeneca shall provide written
notice to Targacept of any such sublicense and provide copies to Targacept (and,
in the case of a sublicense to Targacept Technology licensed by USFRF to
Targacept under the USFRF Agreement, to USFRF) of each such sublicense (with
confidential and financial information redacted) promptly after the execution
thereof; and (c) AstraZeneca shall not be relieved of its obligations pursuant
to this Agreement as a result of such sublicense except to the extent
satisfactorily performed by such Sublicensee. Notwithstanding the foregoing or
any other provision of this Agreement, except as provided in Section 7.12.1(d)
and except for sublicenses granted to Affiliates of AstraZeneca, neither
AstraZeneca nor any Sublicensee shall have the right to grant sublicenses under
any of the rights and licenses granted in Section 4.1.1 in ******** without
********. For clarity, if AstraZeneca otherwise has the right to sublicense
pursuant to this Section 4.1.3, AstraZeneca shall have the right, without the
consent of USFRF, to grant sublicenses through multiple tiers of Sublicensees
with respect to the Targacept Technology licensed by USFRF to Targacept under
the USFRF Agreement.

4.1.4 No Implied Licenses; Retention of Rights. Except as expressly provided
herein, no license or other right is or shall be created or granted hereunder by
implication, estoppel or otherwise. For clarity, notwithstanding anything in
this Agreement to the contrary, Targacept retains all of its right, title and
interest in and to Targacept Technology in the entire world other than the
rights and licenses granted to AstraZeneca pursuant to Section 4.1.1(a) and
Section 4.1.1(b) and AstraZeneca retains all of its right, title and interest in
and to AstraZeneca Technology in the entire world other than the rights and
licenses granted to Targacept pursuant to Section 4.1.2.

4.2 Confirmatory Patent Licenses. Each Party shall, if reasonably requested to
do so by the other Party, promptly enter into confirmatory license agreements in
the form or substantially in the form set out in Schedule 7 attached hereto for
purposes of recording the licenses granted under this Agreement with such patent
offices in the Territory as such first Party considers reasonably necessary,
including to avoid disclosure of this Agreement. As between the Parties,
regardless of whether any required confirmatory licenses are executed, the
Parties’ respective rights and obligations in respect of the Targacept Patent
Rights, AstraZeneca Patent Rights, Targacept Program Patent Rights, AstraZeneca
Program Patent Rights and Joint Program Patent Rights shall be as set forth
under this Agreement.

 

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4.3 Indication of Licensed Status. To the extent permitted under Applicable
Laws, the packaging and labeling for each Licensed Product will indicate that
the Licensed Product is licensed by AstraZeneca from Targacept in a manner to be
decided by AstraZeneca in its reasonable discretion but in any case in a manner
that provides Targacept’s name and logo with at least reasonable prominence.

4.4 Supply of Proprietary Materials. From time to time during the Term, either
Party may supply the other Party with Proprietary Materials of the transferring
Party for use in the Development Program. In connection therewith, each Party
that receives Proprietary Materials of the other Party hereby agrees that:
(a) it shall not use such Proprietary Materials for any purpose other than to
exercise its rights or perform its obligations hereunder; (b) it shall use such
Proprietary Materials only in compliance with Article 8 and all Applicable Laws;
(c) it shall not transfer any such Proprietary Materials to any Third Party
without the prior written consent of the transferring Party, except as expressly
permitted hereby; (d) the receiving Party shall not acquire any right, title or
interest in or to such Proprietary Materials as a result of such supply by the
transferring Party; and (e) at the end of the Development Program, the receiving
Party shall, if and as instructed by the transferring Party and as further
provided in Article 8, either destroy or return any such Proprietary Materials
that are not the subject of the grant of a continuing license hereunder.

 

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4.5 Distributors and Net Sales Distributors. Subject to Section 4.1.3,
AstraZeneca shall have the right, in its sole discretion, to appoint any of its
Affiliates, and AstraZeneca and any of its Affiliates shall have the right, in
their sole discretion, to appoint any other Person or Persons, in the Territory
(subject to the proviso below), to distribute, market and sell Licensed Products
(with or without packaging rights), in circumstances where such Person purchases
its requirements of Licensed Products from AstraZeneca or any of its Affiliates;
provided that, notwithstanding the foregoing, neither AstraZeneca nor any of its
Affiliates shall have such right with respect to ******** unless Targacept shall
********. Where AstraZeneca or any of its Affiliates appoints such a Person and
such Person (a) is not an Affiliate of AstraZeneca, (b) does not make any
royalty or other payments (e.g., upfront payment, quarterly distribution
payments, etc.) with respect to intellectual property rights of AstraZeneca or
any of its Affiliates or for the right to distribute Licensed Products, however
characterized, to AstraZeneca, any of its Affiliates or any Third Party
designated by AstraZeneca and (c) unless distributors used by AstraZeneca or its
Affiliates in the ordinary course of business are responsible for promotion and
advertising costs (in which event this clause (c) shall have no force or effect
and be ignored), does not bear any part of the promotion or advertising costs of
any such Licensed Product, such Person shall be a “Distributor.” Where
AstraZeneca or any of its Affiliates appoints such a Person and such Person
(i) is not an Affiliate of AstraZeneca and (ii) either (A) makes royalty or
other payments (e.g., upfront payment, quarterly distribution payments, etc.)
with respect to intellectual property rights of AstraZeneca or any of its
Affiliates or for the right to distribute Licensed Products, however
characterized, to AstraZeneca, any of its Affiliates or any Third Party
designated by AstraZeneca or (B) unless distributors used by AstraZeneca or its
Affiliates in the ordinary course of business are responsible for promotion and
advertising costs (in which event this clause (B) shall have no force or effect
and be ignored), bears all or any part of the promotion or advertising costs of
any such Licensed Product, such Person shall be a “Net Sales Distributor.” For
clarity, no Distributor is a Net Sales Distributor and no Net Sales Distributor
is a Distributor. The term “packaging rights” in this Section 4.5 shall mean the
right for the Distributor or Net Sales Distributor to package Licensed Products
supplied in unpackaged bulk form into individual ready-for-sale packs.

4.6 Co-Promotion Rights. Subject to Section 4.1.3, AstraZeneca and its
Affiliates shall have the right, in their sole discretion, to co-promote
Licensed Products with any other Person(s) (or, solely outside of the Major
Countries, to appoint one or more Third Parties to promote Licensed Products
without AstraZeneca) in all or any part of the Territory; provided that (a) such
co-promotion or Third Party promotion does not affect the rights of Targacept
under Section 3.10 or the Co-Promotion Agreement, if any, and (b) in ******** in
which such co-promotion or Third Party promotion for any Licensed Product
occurs, AstraZeneca (together with its Affiliates) must itself provide at least
******** percent (********%) of ******** for Licensed Products ******** in each
Calendar Quarter, unless Targacept shall have given prior written consent
otherwise (not to be unreasonably withheld, conditioned or delayed). For
clarity, if AstraZeneca requests that Targacept consent to an arrangement
whereby AstraZeneca (together with its Affiliates) would not itself provide at
least ******** percent (********%) of ******** for Licensed Products in ********
or Calendar Quarter, the withholding, conditioning or delaying of such consent
by Targacept may or may not be reasonable.

 

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4.7 Potential Expansion of Field to Include Excluded Indications.

4.7.1 Targacept Notice. If at any time Targacept or any of its Affiliates wishes
to conduct any activity, either on its own, or with, for the benefit of, or
sponsored by, any Third Party, that is designed to ******** or ********, or to
******** or other ******** (including any ********) to any Third Party to
utilize any Information, Invention or Patent Rights Controlled by Targacept or
any of its Affiliates for the purpose of ******** or ********, any Compound or
Licensed Product in any Excluded Indication, Targacept shall provide AstraZeneca
with ******** days’ written notice prior to conducting such activity or ********
such ******** or other ********, which notice shall specify the applicable
Excluded Indication, describe the reasons for Targacept’s interest in conducting
such activity or ******** such ******** or other ******** and include any data
or information known to Targacept that supports the use of such Compound or
Licensed Product for such Excluded Indication. Thereafter, Targacept shall
provide AstraZeneca with such other information with respect thereto as
AstraZeneca may reasonably request.

4.7.2 AstraZeneca Option. If Targacept provides a notice contemplated by
Section 4.7.1, AstraZeneca shall have the right, upon written notice to
Targacept within ******** days after receipt of such notice, to elect to expand
the Field to include the Excluded Indication specified in Targacept’s notice. If
AstraZeneca exercises its option as provided above, such Excluded Indication
shall thereupon become included in the Field (such Excluded Indication, an
“Expanded Field Indication”) effective from and after the date of AstraZeneca’s
notice pursuant to this Section 4.7.2; provided that, for clarity and
notwithstanding anything herein to the contrary, unless AstraZeneca expressly
agrees otherwise in writing, (a) AstraZeneca shall have no obligation hereunder
to ******** or ******** any Compound or Licensed Product for any Expanded Field
Indication and (b) Targacept shall have no right to any ******** under Section
******** (but shall, for clarity, have the right to ******** under Section
********) with respect to any Expanded Field Indication. For clarity, if
AstraZeneca does not exercise its option as provided above with respect to an
Excluded Indication specified in Targacept’s notice, then Targacept shall be
free to Develop or Commercialize any Compound or Licensed Product for such
Excluded Indication.

 

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For clarity this Section 4.7 shall have no application to any compound that is
not a Compound or any product that is not a Licensed Product.

ARTICLE 5

PAYMENTS

5.1 Upfront Payment. AstraZeneca shall pay Targacept a non-refundable,
non-creditable upfront fee in the amount of Two Hundred Million Dollars (US
$200,000,000), payable by wire transfer of immediately available funds within
******** Business Days after the Effective Date according to written
instructions that Targacept shall provide.

5.2 Milestone Payments.

5.2.1 Development and Regulatory Milestones. Subject to Section 5.11,
AstraZeneca shall make each of the following non-refundable, non-creditable
payments to Targacept within ******** days after the first occurrence of the
corresponding Milestone Event; provided that, for clarity, payment with respect
to each such Milestone Event shall be made only one time regardless of the
number of Licensed Products that achieve such Milestone Event.

 

Milestone Event

  

Payment

******** of ******** or ******** for a Licensed Product that is ********

   ******** Dollars

******** of ******** for a Licensed Product that is ******** in ******** in the
******** or using the ******** in the ********

   ******** Dollars

******** of ******** for a Licensed Product that is ******** in ********

   ******** Dollars

******** of a Licensed Product that is ******** in a ******** in ********

   ******** Dollars

******** of ******** for a Licensed Product that is ********

   ******** Dollars

******** of ******** or ******** for a Licensed Product that is ********

   ******** Dollars

******** of ******** for a Licensed Product that is ******** in ******** in
******** or using the ******** in ********

   ******** Dollars

******** of ******** for a Licensed Product that is ******** or ******** in
********

   ******** Dollars

******** of ******** for a Licensed Product that is ******** in ********

   ******** Dollars

******** of a Licensed Product that is ******** in ******** in ********

   ******** Dollars

******** of a Licensed Product that is ******** or ******** in ********

   ******** Dollars

******** of ******** set forth on ******** attached hereto

   ******** Dollars

 

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For clarity, in no event shall AstraZeneca pay more than 540 Million Dollars
under this Section 5.2.1.

5.2.2 Sales Milestones. In addition to the milestone payments contemplated by
Section 5.2.1, subject to Section 5.11, AstraZeneca shall make each of the
following non-refundable, non-creditable payments to Targacept within ********
days after the first occurrence of the corresponding Milestone Event; provided
that, for clarity, payment with respect to each such Milestone Event shall be
made only one time.

 

Milestone Event

   Payment

Worldwide Net Sales of all Licensed Products ******** of at least ********
Dollars

   ******** Dollars

Worldwide Net Sales of all Licensed Products ******** of at least ********
Dollars

   ******** Dollars

Worldwide Net Sales of all Licensed Products ******** of at least ********
Dollars

   ******** Dollars

Worldwide Net Sales of all Licensed Products ******** of at least ********
Dollars

   ******** Dollars

Worldwide Net Sales of all Licensed Products ******** of at least ********
Dollars

   ******** Dollars

Worldwide Net Sales of all Licensed Products ******** of at least ********
Dollars

   ******** Dollars

Worldwide Net Sales of all Licensed Products ******** of at least ********
Dollars

   ******** Dollars

 

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For clarity, (a) in no event shall AstraZeneca pay more than 500 Million Dollars
under this Section 5.2.2 and (b) Net Sales of each Licensed Product in each
country in the Territory shall be included in worldwide Net Sales for purposes
of this Section 5.2.2, whether or not the Royalty Term for such Licensed Product
for such country has expired.

5.2.3 Determination that Milestone Events have Occurred. AstraZeneca shall
provide Targacept with prompt written notice upon each occurrence of each
Milestone Event. In the event that, notwithstanding the fact that AstraZeneca
has not given such a notice, Targacept believes any such Milestone Event has
occurred, it shall so notify AstraZeneca in writing and shall provide to
AstraZeneca data, documentation or other information that supports its belief.
Any dispute under this Section 5.2.3 that relates to whether or not a Milestone
Event has occurred shall first be referred to the JDC to be resolved in
accordance with Section 2.1.5; provided that, if such dispute is not resolved in
accordance with Section 2.1.5(a) or Section 2.1.5(b), it shall be subject to
resolution in accordance with Section 12.1.

5.2.4 Special Milestone. AstraZeneca hereby agrees that, with respect to the
Milestone Product for which Regulatory Approval is sought in ********, if any,
it shall request the ******** to ******** the ******** of ******** to ********
the Milestone Product in ******** in a manner that would reasonably be expected
to result in the achievement of the ******** set forth in item 3 on ********
attached hereto, unless either (a) the criteria set forth in item 1 on ********
attached hereto have not been achieved or (b) it could not reasonably be
concluded that the ******** set forth in item 2 on ******** attached hereto have
been achieved.

5.3 Payment of Royalties; Royalty Rates; Accounting and Records.

5.3.1 Payment of Royalties.

(a) Royalties Applicable in ROW Territory. Subject to Section 5.3.1(c) and
Section 5.11, AstraZeneca shall pay Targacept a royalty on Net Sales of all
Licensed Products in the ROW Territory (excluding Net Sales of each Licensed
Product in any country in the ROW Territory for which the Royalty Term for such
Licensed Product and country has expired) in each Calendar Year (or partial
Calendar Year), as follows:

 

That portion of Net Sales of all Licensed Products in the

ROW Territory in a Calendar Year that is:

   Royalty Percentage

Not greater than ******** Dollars

   ********%

Greater than ******** Dollars but not greater than ******** Dollars

   ********%

Greater than ******** Dollars but not greater than ******** Dollars

   ********%

Greater than ******** Dollars

   ********%

 

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(b) Royalties Applicable in the U.S. Territory. Subject to Section 5.3.1(c) and
Section 5.11, AstraZeneca shall pay Targacept a royalty on Net Sales of all
Licensed Products in the U.S. Territory (excluding Net Sales of each Licensed
Product for which the Royalty Term for the U.S. Territory has expired) in each
Calendar Year (or partial Calendar Year), as follows:

 

That portion of Net Sales of all Licensed Products in the

U.S. Territory in a Calendar Year that is:

   Royalty Percentage

Not greater than ******** Dollars

   ********%

Greater than ******** Dollars but not greater than ******** Dollars

   ********%

Greater than ******** Dollars but not greater than ******** Dollars

   ********%

Greater than ******** Dollars

   ********%

(c) Reduction of Royalty.

(i) No Royalty-Bearing Claim. With respect to a Licensed Product in a country in
the Territory, from and after the expiration date in such country of the last to
expire of, or during any period during the Royalty Term in such country in which
there are no, Targacept Patent Rights, Targacept Program Patent Rights,
AstraZeneca Program Patent Rights, AstraZeneca Extended Term Patent Rights or
Joint Program Patent Rights in such country that includes a Valid Claim that
covers (A) the ******** of such Licensed Product, (B) a ******** or ********
such Licensed Product (including the ******** of such Licensed Product), or
(C) a ******** of such Licensed Product for any ******** for which such Licensed
Product has ******** (and, in the case of any country in which ******** or
******** is required, such ******** or ********) in such country if, solely in
the case of this clause (C), no ******** (other than a ******** or ********of
********) is ******** in such country a ******** that (1) is, if such country is
the U.S. Territory, ******** in the ******** as a ******** that the ******** to
be ******** such Licensed Product or (2) is, if such country is in the ROW
Territory, ******** in such country as ******** and ******** such Licensed
Product in the manner required by Applicable Laws in such country, the royalty
rate(s) payable to Targacept by AstraZeneca under Section 5.3.1(a) or
Section 5.3.1(b), as the case may be, with respect to Net Sales of such Licensed
Product in such country shall be reduced by ******** percent (********%).

 

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For purposes of this Section 5.3.1(c)(i): (A) if the affected country is in ROW
Territory, the portion of Net Sales of the affected Licensed Product in such
country subject to each of the royalty rates under Section 5.3.1(a) shall be
proportional to Net Sales of all Licensed Products in all countries in the ROW
Territory subject to the applicable royalty rates under Section 5.3.1(a); and
(B) if the affected country is the United States, the portion of Net Sales of
the affected Licensed Product subject to each of the royalty rates under
Section 5.3.1(b) shall be proportional to Net Sales of all Licensed Products in
the U.S. Territory subject to the applicable royalty rates under
Section 5.3.1(b). Schedule 12 attached hereto contains an example calculation
pursuant to this Section 5.3.1(c)(i). The calculation set forth on Schedule 12
is for illustrative purposes only.

(ii) Royalty Stacking. Subject to Section 5.3.1(c)(iv), AstraZeneca shall have
the right to reduce the amount of royalties owing to Targacept under
Section 5.3.1(a) or Section 5.3.1(b), whichever one is applicable, by ********
percent (********%) of the amount of royalties (if any) and other amounts
(including license fees and milestones) paid by AstraZeneca or any of its
Affiliates (including on behalf of any Sublicensee, Distributor or Net Sales
Distributor) to any Third Party in consideration for the license of Patent
Rights for any country if, at the time such license is granted, it is more
likely than not that such Patent Rights would be infringed by the Development or
Commercialization of a Licensed Product in the Field for such country in the
absence of such license.

For purposes of this Section 5.3.1(c)(ii), (1) if the affected country is in the
ROW Territory, the portion of Net Sales of the affected Licensed Product in such
country subject to each of the royalty rates under Section 5.3.1(a) shall be
proportional to Net Sales of such Licensed Product in all countries in the ROW
Territory subject to the applicable royalty rates under Section 5.3.1(a); and
(2) if the affected country is the United States, the portion of Net Sales of
the affected Licensed Product subject to each of the royalty rates under
Section 5.3.1(b) shall be proportional to Net Sales of all Licensed Products in
the U.S. Territory subject to the applicable royalty rates under
Section 5.3.1(b).

 

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(iii) Compulsory Licenses. In the event that a court or a governmental agency of
competent jurisdiction requires AstraZeneca or any of its Affiliates or
Sublicensees to grant a compulsory license to a Third Party permitting such
Third Party to make and sell a Licensed Product in a country in the Territory
and such Third Party in fact makes and sells such Licensed Product in such
country, then, for the purposes of calculating the royalties payable with
respect to such Licensed Product under Section 5.3.1(a) or Section 5.3.1(b), as
the case may be, ******** percent (********%) of the Net Sales of such Licensed
Product in such country shall be disregarded for so long as such Third Party in
fact makes and sells such Licensed Product in such country, subject to
Section 5.3.1(c)(iv).

(iv) Application of Reductions. (A) In no event shall the royalties owed under
Section 5.3.1(a) with respect to Net Sales of a Licensed Product in a particular
country in the ROW Territory in any Calendar Quarter after giving effect to any
required adjustment pursuant to Section 5.3.1(c)(i) be reduced by operation of
Sections 5.3.1(c)(ii) and 5.3.1(c)(iii), together, by more than ******** percent
(********%) of what would otherwise be owed under Section 5.3.1(a) with respect
to Net Sales of such Licensed Product in such country in such Calendar Quarter
after giving effect to any required adjustment pursuant to Section 5.3.1(c)(i).
In no event shall the royalties owed under Section 5.3.1(b) for any Calendar
Quarter after giving effect to any required adjustment pursuant to
Section 5.3.1(c)(i) be reduced by operation of Sections 5.3.1(c)(ii) and
5.3.1(c)(iii), together, by more than ******** percent (********%) of what would
otherwise be owed under Section 5.3.1(b) for such Calendar Quarter after giving
effect to any required adjustment pursuant to Section 5.3.1(c)(i). Reductions
under Section 5.3.1(c), together with reductions under Section 6.2.1, not
exhausted in any Calendar Quarter may be carried into future Calendar Quarters.

(v) Effect of Expiration of Royalty Term. With respect to each Licensed Product
in each country in the Territory, from and after the expiration of the Royalty
Term for such Licensed Product in such country, Net Sales of such Licensed
Product in such country shall be excluded for purposes of calculating the
royalty thresholds and ceilings set forth in Section 5.3.1(a) or
Section 5.3.1(b), as the case may be.

 

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(d) Payment Dates and Reports. Royalty payments shall be made by AstraZeneca
within ******** days after the end of each Calendar Quarter commencing with the
Calendar Quarter in which the first day of the first Royalty Term for the first
Licensed Product occurs. AstraZeneca shall also provide, at the same time each
such payment is made, a report showing: (i) the Net Sales of Licensed Products
by country in the Territory; (ii) the basis for any deductions from gross
amounts billed or invoiced to determine Net Sales; (iii) the applicable royalty
rates for Licensed Products; (iv) the exchange rates used in calculating any of
the foregoing; (v) a calculation of the amount of royalty due to Targacept; and
(vi) such additional information as Targacept may be required to provide to
USFRF under the USFRF Agreement or to Yale under the Yale Agreement.

(e) Acknowledgement of Blended Royalty. The Parties hereby acknowledge and agree
that royalties may become payable hereunder for each Licensed Product for which
there are no Targacept Patent Rights or Targacept Program Patent Rights and that
such royalties are in consideration of each of the following, separately and
together, which have substantial economic benefit to AstraZeneca:
(i) Targacept’s expertise and know-how relating to NNRs; (ii) the disclosure by
Targacept to AstraZeneca of Preclinical Activities and Clinical Studies
conducted with the Primary Compound, as well as results obtained in the
Development Program; (iii) the licenses granted to AstraZeneca hereunder with
respect to Targacept Technology that is not within the claims of any Targacept
Patent Rights or Targacept Program Patent Rights; (iv) the restrictions on
Targacept pursuant to Section 6.1; and (v) the benefit afforded to AstraZeneca
by each of the foregoing. The Parties agree that the royalty rates set forth
herein reflect an efficient and reasonable blended allocation of the values
provided by Targacept to AstraZeneca.

5.4 Diagnostic or Veterinary Products. The milestones and royalties in Sections
5.2 and 5.3 shall not apply to Development and Commercialization of Licensed
Products for diagnostic or veterinary use, or for uses solely for screening
patients who have been diagnosed with a disease, state or condition for
eligibility to be treated for such disease, state or condition with a Licensed
Product or for monitoring patients who are or have been treated with a Licensed
Product. In the event that a Licensed Product is Developed for commercial
diagnostic or veterinary purposes, the Parties shall negotiate a downward
adjustment to such milestones and royalties for the sale of such Licensed
Product that reflects the commercial potential of such Licensed Product and
standard commercial terms in the industry for diagnostic or veterinary products,
as applicable.

 

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5.5 Records; Royalty Audit Rights. AstraZeneca shall, and shall cause its
Affiliates and its and their Sublicensees and Net Sales Distributors to, keep
and maintain for ********years from the date of each payment of royalties
hereunder complete and accurate records of gross sales and Net Sales by
AstraZeneca and its Affiliates and its and their Sublicensees and Net Sales
Distributors of each Licensed Product, in sufficient detail to allow royalties
under Section 5.3 (and the related financial obligations under the Targacept
Sublicense Agreements) to be determined accurately. Targacept shall have the
right for a period of ******** years after receiving any such payment to appoint
at its expense, subject to the last sentence of this Section 5.5, an independent
accountant acceptable to AstraZeneca, acting reasonably, to audit the applicable
records of AstraZeneca and its Affiliates and its and their Sublicensees and Net
Sales Distributors to verify that such amounts were correctly determined.
AstraZeneca shall, and shall cause each of its Affiliates and each of their
respective Sublicensees and Net Sales Distributors to, make its records
available for audit by such independent accountant during regular business hours
at such place or places where such records are customarily kept, upon ********
days written notice from Targacept; provided that neither AstraZeneca nor any of
its Affiliates nor any of their respective Sublicensees or Net Sales
Distributors shall be obligated to make such records available to such
accountant until such accountant has entered into a non-disclosure agreement in
a form acceptable to AstraZeneca, acting reasonably. All records made available
for audit shall be deemed to be Confidential Information of AstraZeneca. Such
audit right shall not be exercised by Targacept more than ******** in any
Calendar Year or more than ******** with respect to amounts payable in a
particular period. The results of each audit, if any, shall be binding on both
Parties absent manifest error. The accountant shall report to AstraZeneca and
Targacept whether the royalty reports are correct and details concerning any
discrepancies, but no other information shall be disclosed to Targacept. In the
event there was an underpayment by AstraZeneca hereunder, AstraZeneca shall
promptly (but in any event no later than ******** days after AstraZeneca’s
receipt of the report so concluding) make payment to Targacept of the shortfall,
and, in the event there was an overpayment by AstraZeneca hereunder, Targacept
shall promptly (but in any event no later than ******** days after Targacept’s
receipt of the report so concluding) make payment to AstraZeneca of the overage.
Targacept shall bear the full cost of such audit unless such audit discloses an
underreporting by AstraZeneca of more than ******** percent (********%) of the
aggregate amount payable for any Calendar Quarter, in which case AstraZeneca
shall reimburse Targacept for all reasonable and documented costs incurred by
Targacept in connection with such audit.

 

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5.6 Overdue Royalties and Milestones. All royalty payments not made within the
time period set forth in Section 5.3.1(d) including underpayments discovered
during an audit, and all milestone payments not made within the time period
specified in Section 5.2, shall bear interest at an annual rate of LIBOR plus
******** basis points from the due date until paid in full or, if less, the
maximum interest rate permitted by Applicable Laws. Any such overdue royalty or
milestone payment shall, when made, be accompanied by, and credited first to,
all interest so accrued. This Section 5.6 shall be in addition to any rights or
remedies to which a Party may be entitled in law or equity as a result of such
late payment, underpayment or failure to pay.

5.7 Payments. All payments made by a Party under this Article 5 shall be made by
wire transfer in Dollars in accordance with instructions given in writing from
time to time by the receiving Party and shall be free and clear of any taxes,
duties, levies, fees or charges (including wire or other transfer fees), except
as expressly provided in Section 5.9 or Section 5.10.

5.8 Foreign Currency Exchange. All royalty payments made under this Article 5
shall be payable in the United States in Dollars, regardless of the countries in
which sales are made. In the case of Net Sales outside the United States, such
currency shall be converted from local currency to United States Dollars by
AstraZeneca in accordance with the rates of exchange for the relevant month for
converting such other currency into Dollars used by AstraZeneca’s internal
accounting systems, which AstraZeneca represents to Targacept are independently
audited on an annual basis. All milestone payments shall similarly be payable in
Dollars, regardless of the country in which the milestone event is achieved.

 

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5.9 Withholding Taxes. The royalties, milestones and other amounts payable by
AstraZeneca to Targacept pursuant to this Agreement (“Payments”) shall not be
reduced on account of any taxes unless required to be so reduced by Applicable
Laws. Targacept alone shall be responsible for paying any and all taxes (other
than withholding taxes required by Applicable Laws to be paid by AstraZeneca)
levied on account of, or measured in whole or in part by reference to, any
Payment it receives. AstraZeneca shall deduct or withhold from the Payments any
taxes that it is required by Applicable Laws to deduct or withhold.
Notwithstanding the foregoing, if Targacept is entitled under any applicable tax
treaty to a reduction of rate of, or the elimination of, applicable withholding
tax, it may deliver to AstraZeneca or the appropriate governmental authority
(with the assistance of AstraZeneca to the extent reasonably required and
expressly requested in writing) the prescribed forms necessary to reduce the
applicable rate of withholding or to relieve AstraZeneca of its obligation to
withhold tax and AstraZeneca shall apply the reduced rate of withholding, or
dispense with withholding, as the case may be; provided that AstraZeneca has
received evidence, in a form satisfactory to AstraZeneca, of Targacept’s
delivery of all applicable forms (and, if necessary, its receipt of appropriate
governmental authorization) at least ******** Business Days prior to the date
that the applicable Payment is due. If, in accordance with the foregoing,
AstraZeneca withholds any amount, it shall pay to Targacept the balance when
due, make timely payment to the proper taxing authority of the withheld amount,
and send to Targacept proof of such payment within ******** days following such
payment.

5.10 Indirect Taxes. Notwithstanding anything contained in Section 5.9, this
Section 5.10 shall apply with respect to Indirect Taxes. All Payments are
exclusive of Indirect Taxes. If any Indirect Taxes are chargeable in respect of
any Payment, AstraZeneca shall pay such Indirect Taxes at the applicable rate in
respect of such Payment following the receipt, where applicable, of an Indirect
Taxes invoice in the appropriate form issued by Targacept in respect of such
Payment, such Indirect Taxes to be payable on the due date of the payment of the
Payments to which such Indirect Taxes relate. Upon the express request by either
Party, the other Party shall cooperate in all reasonable respects to issue
invoices consistent with Indirect Tax requirements for any or all amounts
payable under this Agreement.

 

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5.11 Certain Reductions for Additional Development Costs.

5.11.1 Initial Development Costs. Notwithstanding anything in this Agreement to
the contrary, if Targacept elects to terminate its obligation to fund any
Initial Development Costs in excess of the Targacept Initial Development Cost
Threshold then in effect, the amounts otherwise payable thereafter by
AstraZeneca to Targacept under Section 5.2 or 5.3 (as may be adjusted pursuant
to Section 5.3.1(c) or Section 6.2.1) shall automatically be reduced by the
total amount of the Excess Initial Development Costs Offset for which a
reduction under this Section 5.11.1 has not been made, except that in no event
shall any such amount be reduced to an amount that is less than ********
(********%) of the amount that would be payable by AstraZeneca without regard to
this Section 5.11.1 and without regard to Section 5.11.2. “Excess Initial
Development Costs Offset” means an amount equal to the product of (a) ********,
multiplied by (b) the difference between (i) the product of (A) the aggregate
amount of Initial Development Costs (excluding Initial Development Costs that
are Unshared Development Costs) incurred by both Parties multiplied by
(B) ******** percent (********%), less (ii) the final Targacept Initial
Development Cost Threshold as provided in Section 3.9.1(b)(iii). If a reduction
under this Section 5.11.1 does not exhaust the Excess Initial Development Costs
Offset, the remaining Excess Initial Development Costs Offset may be carried
forward to reduce in accordance with this Section 5.11.1 amounts otherwise
payable by AstraZeneca to Targacept under Section 5.2 or 5.3 (as may be adjusted
pursuant to Section 5.3.1(c) or Section 6.2.1) in future periods until
exhausted.

5.11.2 Additional Development Costs. Notwithstanding anything in this Agreement
to the contrary, with respect to each Additional Development Project, if the
Targacept Additional Development Cost Threshold for such Additional Development
Project is $******** or if Targacept elects to terminate its obligation to fund
any Additional Development Costs for such Additional Development Project in
excess of the applicable Targacept Additional Development Cost Threshold then in
effect, from and after the first to occur of receipt of the Additional
Development Cost Offset Approval with respect to such Additional Development
Project, the amounts otherwise payable by AstraZeneca to Targacept under
Section 5.2 or 5.3 (as may be adjusted pursuant to Section 5.3.1(c) or
Section 6.2.1) shall automatically be reduced by the total amount of the Excess
Additional Development Costs Offset with respect to such Additional Development
Project for which a reduction under this Section 5.11.2 has not been made,
except that in no event shall any payment by AstraZeneca be reduced to an amount
that is less than ******** (********%) of the amount that would be payable by
AstraZeneca without regard to Section 5.11.1 and without regard to this
Section 5.11.2. “Excess Additional Development Costs Offset” means, with respect
to each Additional Development Project, an amount equal to the product of
(a) ********, multiplied by (b) the difference between (i) the product of
(A) the aggregate amount of Additional Development Costs with respect to such
Additional Development Project (excluding Additional Development Costs that are
Unshared Development Costs) incurred by both Parties multiplied by (B) ********
percent (********%), less (ii) the final Targacept Additional Development Cost
Threshold with respect to such Additional Development Project as provided in
Section 3.9.1(c)(iv). If a reduction under this Section 5.11.2 does not exhaust
the Excess Additional Development Costs Offset, the remaining Excess Additional
Development Costs Offset may be carried forward to reduce in accordance with
this Section 5.11.2 the amounts otherwise payable by AstraZeneca to Targacept
under Section 5.2 or 5.3 (as may be adjusted pursuant to Section 5.3.1(c) or
Section 6.2.1) under this Agreement in future periods until exhausted.

 

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ARTICLE 6

EXCLUSIVITY; STANDSTILL; TARGACEPT SUBLICENSE AGREEMENTS

6.1 Exclusivity; Standstill.

6.1.1 Exclusivity. Subject to Section 6.1.2, except in the Development or
Commercialization of Compounds or Licensed Products pursuant to this Agreement,
from the Effective Date until the third (3rd) anniversary thereof (the
“Exclusivity Period”): (a) neither Party shall, and each Party shall cause its
Affiliates not to, conduct a Phase 2 Clinical Trial, Phase 3 Clinical Trial or
Phase 4 Clinical Trial of, or commercialize in any respect, a compound as an
augmentation (add-on) or adjunctive treatment (or other term reflecting the
concurrent use of two or more pharmaceutical products) for the Target
Indication; and (b) neither Party shall, and each Party shall cause its
Affiliates not to, grant a license (other than, in the case of Targacept, as may
be provided for by the terms of the Existing TRGT Alliance Agreement in effect
as of the Execution Date, whether or not the Existing TRGT Alliance Agreement is
amended after the Execution Date) under any Information, Invention or Patent
Rights to a Third Party to conduct a Phase 2 Clinical Trial, Phase 3 Clinical
Trial or Phase 4 Clinical Trial of, or commercialize in any respect, a compound
as an augmentation (add-on) or adjunctive treatment (or other term reflecting
the concurrent use of two or more pharmaceutical products) for the Target
Indication; provided that, notwithstanding the foregoing, the research,
development, commercialization or other exploitation by AstraZeneca or its
Affiliates or any licensee thereof of (i) any pharmaceutical or medicinal item,
substance or formulation that is comprised of or contains quetiapine, whether or
not the sole active pharmaceutical ingredient thereof, (ii) ******** known as of
the Execution Date as ******** in ******** or (iii) any product from the drug
class known as atypical antipsychotics that is ******** in the Territory as of
********, in each case (clauses (i), (ii) and (iii)) shall not be deemed to
breach or violate this Section 6.1.1.

 

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6.1.2 Acquisitions or Changes of Control.

(a) Notwithstanding Section 6.1.1, if during the Exclusivity Period, a Change of
Control of Targacept occurs and the surviving or acquiring entity in such
transaction is engaged in an activity that would otherwise constitute a breach
of Section 6.1.1 (such activity, a “Competitive Activity”), neither such
transaction nor the continuation of such Competitive Activity in any respect
following consummation of such transaction shall constitute a breach of
Section 6.1.1.

(b) Notwithstanding Section 6.1.1, if during the Exclusivity Period AstraZeneca
or any of its Affiliates merges or consolidates with, or otherwise acquires or
is acquired by, a Third Party (including through a Change of Control) that is
engaged in a Competitive Activity, unless the Parties agree otherwise in
writing, AstraZeneca or its successor (in either case, the “Surviving Party”)
shall, within ******** days after the date of such merger, consolidation or
acquisition, notify Targacept in writing whether it intends to: (i) terminate,
or cause its relevant Affiliate to terminate, the Competitive Activity; or
(ii) divest, or cause its relevant Affiliate to divest, each compound or product
that is the subject of such Competitive Activity (each such compound or product,
a “Competitive Product”).

(c) If the Surviving Party notifies Targacept in writing within such ********
day period that it intends to terminate, or cause its relevant Affiliate to
terminate, such Competitive Activity, the Surviving Party or its Affiliate,
shall: (i) promptly terminate such Competitive Activity as quickly as possible,
with due regard for patient safety and Applicable Laws, and in any event within
******** days after the Surviving Party delivers such written notice to
Targacept; provided that, notwithstanding the foregoing, with respect to any
Competitive Activity that is a human clinical trial, the Surviving Party or its
Affiliate shall be permitted to continue to conduct such trial, in accordance
with its protocol as in effect as of the date of such notice, to completion; and
(ii) confirm to Targacept in writing when such termination has been completed.

 

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(d) If the Surviving Party notifies Targacept in writing within such thirty
(30)-day period that it intends to divest all Competitive Products, the
Surviving Party or its relevant Affiliate shall: (i) use diligent efforts to
effect such divestiture as quickly as possible and in any event within ********
days after the Surviving Party delivers such written notice to Targacept; and
(ii) confirm to Targacept in writing when such divestiture has been completed.
If the Surviving Party or its relevant Affiliate fails to complete such
divestiture within such ******** day-period, but can demonstrate to Targacept’s
reasonable satisfaction that it used diligent efforts to effect such divestiture
within such ******** day period, then, unless otherwise required by Applicable
Laws, such ******** day period shall be extended for such additional reasonable
period thereafter as is necessary to enable such Competitive Products to be in
fact divested, not to exceed an additional ******** days (or such longer period
as is necessary to obtain any governmental or regulatory approvals required to
complete such divestiture). The Surviving Party shall keep Targacept reasonably
informed of its efforts and progress in effecting such divestiture until it is
completed. If the Surviving Party or its relevant Affiliate effects such
divestiture by way of one or more licenses or sublicenses, the licensor shall be
entitled to receive license fees, milestones and royalties on sales of any such
Competitive Product so divested; provided that neither the Surviving Party nor
any of its Affiliates funds or continues to conduct in any respect the
commercialization of such Competitive Product and, for clarity, such license
fees, milestones or royalties shall not be a factor in determining Commercially
Reasonable Efforts under this Agreement.

(e) If the Surviving Party fails to provide the notice contemplated by
Section 6.1.2(c) or Section 6.1.2(d) within such ******** day period or, having
provided such notice, fails to carry out the termination or divestiture, as the
case may be, within the time periods required under Section 6.1.2(c) or
Section 6.1.2(d), as the case may be, then, unless the Parties agree otherwise,
the Surviving Party shall be deemed to be in material breach of this Agreement.

 

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6.1.3 Standstill.

(a) Restrictions. Except (x) with the written consent of Targacept (which may be
withheld by Targacept at the sole discretion of its Board of Directors) or
(y) by way of stock dividends or other distributions made to Targacept’s
stockholders generally, AstraZeneca agrees that, during the period from the
Effective Date until the ******** anniversary thereof, but subject to
Section 6.1.3(b), AstraZeneca shall not and shall not assist or encourage others
to, and shall cause its Affiliates to not and to not assist or encourage others
to:

(i) acquire, publicly disclose an intention to acquire, offer or propose to
acquire, solicit an offer to sell or agree to acquire, directly or indirectly,
by purchase, by gift, by joining a partnership, limited partnership, syndicate
or other group or otherwise, any direct or indirect beneficial or record
ownership of any shares of common stock or other voting securities, or any other
securities convertible into, exchangeable for or exercisable for common stock or
other voting securities, of Targacept or any Controlling Affiliate thereof (all
such securities, collectively, “Voting Securities”); provided, however, that
this Section 6.1.3(a)(i) shall not prohibit: (A) AstraZeneca or its Affiliates
from proposing other collaborative research agreements or license agreements to
Targacept or any Affiliate thereof; or (B) AstraZeneca and its Affiliates,
collectively, from acquiring, beneficially or of record, up to an aggregate
number of Voting Securities that at the time of such acquisition represents (on
a common stock equivalent basis), together with all Voting Securities owned by
AstraZeneca and its Affiliates immediately prior to such acquisition (on a
common stock equivalent basis), ******** percent (********%) or less of the
number of shares of common stock outstanding of Targacept or such Controlling
Affiliate, as the case may be;

(ii) participate in the formation of any person or group for the purpose of
owning or acquiring Voting Securities or join with any person or group that
seeks to acquire beneficial ownership of Voting Securities;

(iii) solicit, or participate in any “solicitation” of “proxies” or become a
“participant” in any “solicitation in opposition” (as such terms are defined or
used in Regulation 14A under the Exchange Act) with respect to Targacept or any
Controlling Affiliate thereof;

(iv) initiate, propose or otherwise solicit stockholders for the approval of one
or more stockholder proposals with respect to Targacept or any Controlling
Affiliate thereof or induce any other person to initiate any stockholder
proposal;

 

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(v) seek to place any individual on the Board of Directors of Targacept or any
Controlling Affiliate thereof;

(vi) deposit any Voting Securities in a voting trust or subject any Voting
Securities to a voting agreement or other agreement or arrangement with respect
to the voting of such Voting Securities;

(vii) otherwise act, alone or in concert with others, to seek to control the
management, Board of Directors, policies or affairs of Targacept or any
Controlling Affiliate thereof;

(viii) solicit, propose, seek to effect or negotiate with any other person
(including, without limitation, Targacept or any Affiliate thereof) with respect
to the acquisition of any material portion of the consolidated assets of
Targacept and its Affiliates with respect to which AstraZeneca does not have a
license or an option to obtain a license or any form of merger, consolidation or
other form of business combination or other similar extraordinary transaction
with Targacept or any Controlling Affiliate thereof or any share exchange,
reorganization, recapitalization or other similar extraordinary transaction not
in the ordinary course of business with respect to Targacept or any Controlling
Affiliate thereof, or solicit, make or propose or negotiate with any other
person with respect to, or publicly disclose an intent to make, any tender offer
or exchange offer for any securities of Targacept or any Controlling Affiliate
thereof, or publicly disclose an intent, purpose, plan or proposal to engage,
with respect to Targacept, any Controlling Affiliate thereof, any securities of
Targacept or any Controlling Affiliate thereof or any material portion of the
consolidated assets of Targacept and its Affiliates with respect to which
AstraZeneca does not have a license or an option to obtain a license, in any
action that is described in the foregoing provisions of this Section 6.1.3(a) or
that would violate the provisions of this Section 6.1.3(a), or assist,
participate in, facilitate or solicit any effort or attempt by any person to do
so or seek to do any of the foregoing; provided, however, that this
Section 6.1.3(a)(viii) shall not prohibit AstraZeneca or its Affiliates from
proposing other collaborative research agreements or license agreements with
Targacept or any Affiliate thereof; or

(ix) request publicly (or in any manner that would require Targacept or any
Affiliate thereof to make a public disclosure) Targacept, any Affiliate of
Targacept or any of their respective directors, officers, employees or agents to
amend, waive or modify any provision of this Section 6.1.3(a) or otherwise seek
publicly (or in any manner that would require Targacept or any Affiliate thereof
to make a public disclosure) any amendment or modification to or waiver of any
obligations of AstraZeneca under this Section 6.1.3(a).

 

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Nothing in clauses (i) through (ix) above in this Section 6.1.3(a) shall
preclude or limit AstraZeneca or any Affiliate thereof from: (A) consulting on a
confidential basis with Third Party advisors with respect to any proposal with
respect to any transaction of the type referred to in this Section 6.1.3(a);
(B) making requests to Targacept, any Affiliate of Targacept or any of their
respective directors, officers, employees or agents to amend, waive or modify
any provision of this Section 6.1.3(a); or (C) making or submitting to
Targacept, any Affiliate of Targacept or any of their respective directors,
officers, employees or agents proposals relating to possible transactions; in
the case of clauses (B) and (C) above, only to the extent that such request or
proposal is both non-public and not made in a manner that would require
Targacept or any Affiliate thereof to make a public disclosure.

(b) Exception to Standstill Provisions. Subject to the proviso appearing beneath
clause (iv) below, the restrictions of Section 6.1.3(a) shall cease to apply:

(i) if Targacept or any Controlling Affiliate thereof announces publicly a
decision of its Board of Directors to conduct a formal process for the purpose
of soliciting offers relating to an Acquisition Transaction (as defined in
Section 6.1.3(b)(ii));

(ii) if Targacept or any Controlling Affiliate thereof enters into a definitive
written agreement, written agreement in principle or written letter of intent
with any party or parties (other than AstraZeneca or its Affiliates) providing
for: (A) the direct or indirect sale of a number of Voting Securities that at
the time of such sale represents (on a common stock equivalent basis) more than
******** percent (********%) of the number of shares of common stock outstanding
of Targacept or such Controlling Affiliate, as the case may be, to any person or
group that is not affiliated with AstraZeneca and its Affiliates; (B) a merger,
consolidation or other form of business combination, share exchange,
reorganization, recapitalization or other similar extraordinary transaction
involving Targacept or such Controlling Affiliate that, if consummated, would
result in the holders of the outstanding Voting Securities (on a common stock
equivalent basis) of Targacept (or, if Targacept has a Controlling Affiliate,
such Controlling Affiliate and not Targacept) immediately prior to such
transaction ceasing to hold at least ******** percent (********%) of the
combined voting power of the surviving, purchasing or continuing entity
immediately after such transaction; or (C) the sale of all or substantially all
of the consolidated assets of Targacept and its Affiliates to a Third Party
(each of clauses (A), (B) and (C) above, an “Acquisition Transaction”);

 

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(iii) if any Third Party commences a tender or exchange offer which, if
successful, would result in such Third Party beneficially owning not less than
******** percent (********%) of all outstanding Voting Securities (on a common
stock equivalent basis) of Targacept or any Controlling Affiliate thereof and
such Third Party offer is not withdrawn or terminated within ******** Business
Days after its commencement; provided that, if the Board of Directors of
Targacept or such Controlling Affiliate, as the case may be, (1) makes a public
statement recommending the Third Party offer to the stockholders of Targacept or
such Controlling Affiliate during such ******** Business Day period, then such
******** Business Day period shall expire on the date of such announcement or
(2) ********, then such ******** Business Day period shall expire on the
******** Business Day of such ******** Business Day period conditional on
AstraZeneca or any of its Affiliates not publicly disclosing any offer to
acquire Voting Securities until at least ******** Business Days following the
commencement of the Third Party offer; and provided further that, if the Board
of Directors of Targacept or such Controlling Affiliate has publicly announced
within ******** Business Days following the commencement of the Third Party
offer that it is rejecting the Third Party offer or recommending that the
stockholders of Targacept or such Controlling Affiliate do not tender and if
Targacept or such Controlling Affiliate or any of their respective Boards of
Directors thereafter requests, AstraZeneca shall, and shall cause its Affiliates
to, cease and (unless impossible) rescind any action taken by AstraZeneca or any
of its Affiliates that, but for this Section 6.1.3(b), would be prohibited by
this Agreement, but only if and at such time as such Third Party withdraws or
terminates its offer prior to its completion, and the restrictions in
Section 6.1.3(a) shall thereupon automatically be reinstated and be in full
force and effect (subject, again, to the provisions of this Section 6.1.3(b));
or

(iv) if the Board of Directors of Targacept or any Controlling Affiliate thereof
adopts a plan of liquidation or dissolution;

provided that AstraZeneca and Targacept expressly agree that the termination of
the obligations under Section 6.1.3(a) pursuant to this Section 6.1.3(b) shall
only occur if, in connection with the applicable event set forth in this
Section 6.1.3(b), there is and has been no breach by AstraZeneca or any of its
Affiliates of the restrictions set forth in Section 6.1.3(a).

 

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(v) Definitions. As used in this Section 6.1.3, “group” and “person” have the
respective meanings set forth or referenced in the definition of “Change of
Control.”

(c) Interpretation. For all purposes of this Section 6.1.3, the term Voting
Securities shall also include any securities of Targacept or any Controlling
Affiliate thereof entitled to vote generally for the election of directors of
Targacept or such Controlling Affiliate that the holders of Voting Securities
shall receive or as a matter of right be entitled to receive as a result of
(i) any capital reorganization, recapitalization or reclassification of the
capital stock of Targacept or such Controlling Affiliate or (ii) any merger,
consolidation or other form of business combination, share exchange or similar
extraordinary transaction of Targacept or such Controlling Affiliate with
another entity in which Targacept or such Controlling Affiliate survives after
such merger, consolidation or other form of business combination, share exchange
or similar extraordinary transaction.

6.2 Targacept Sublicense Agreements.

6.2.1 USFRF Agreement. The sublicenses granted by Targacept to AstraZeneca under
Section 4.1.1 shall terminate, solely with respect to Targacept Technology
licensed by Targacept under the USFRF Agreement, upon termination of the USFRF
Agreement; provided that, notwithstanding the foregoing, AstraZeneca may elect
to continue such sublicenses with respect to Targacept Technology licensed by
Targacept under the USFRF Agreement by advising USFRF in writing, within
******** days of AstraZeneca’s receipt of written notice of such termination
from USFRF, of its election and its agreement to assume all of the obligations
to USFRF (including obligations for payment) contained in the USFRF Agreement.
In addition, any sublicense agreement entered into by AstraZeneca in accordance
with Section 4.1.3 shall contain provisions corresponding to those of this
paragraph. AstraZeneca shall have the right to reduce the amount of royalties
owing to Targacept under Sections 5.3.1(a) and 5.3.1(b) (as such royalties may
be adjusted pursuant to the provisions of Section 5.3.1(c)) by ******** percent
(********%) of the amount of royalties (if any), or other amounts (including
license fees and milestones) paid by AstraZeneca to USFRF in the event that
AstraZeneca assumes all of Targacept’s obligations to USFRF under the USFRF
Agreement pursuant to this Section 6.2.1.

 

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6.2.2 Yale Agreement. AstraZeneca hereby: (a) assumes the same obligations of
confidentiality with respect to Yale’s “Confidential Information” (as defined in
the Yale Agreement) that Targacept has under the Yale Agreement; (b) agrees
that, with respect to any Licensed Product that is a “Licensed Product” (as
defined in the Yale Agreement), AstraZeneca shall mark such Licensed Product
with the numbers of all issued patents included in the Targacept Patent Rights
that are sublicensed from Yale and that cover such Licensed Product in a manner
that conforms with Applicable Laws in the country in which such Licensed Product
is made, sold, used or shipped; (c) agrees that it shall not use the name “Yale”
or “Yale University,” or any variation or adaptation thereof, or any trademark,
tradename or other designation owned by Yale, or the names of any of its
trustees, officers, faculty, students, employees or agents, for any purpose
without the prior written consent of Yale in each instance, except that
AstraZeneca may state that it has sublicensed from Yale one or more of the
Targacept Patent Rights; and (d) acknowledges that, upon termination of the Yale
Agreement (but not expiration of its term), Yale has the option, in its
discretion, of terminating the sublicenses granted by Targacept to AstraZeneca
under Section 4.1.1 with respect to Targacept Technology licensed by Targacept
under the Yale Agreement.

6.2.3 USFRF and Yale. AstraZeneca acknowledges that it has received each
Targacept Sublicense Agreement and, without limiting the generality of and
notwithstanding any other provision hereof, agrees that all rights and licenses
granted to AstraZeneca or otherwise arising hereunder with respect to the
subject matter of such Targacept Sublicense Agreement shall be subject in all
respects to the rights of USFRF under the USFRF Agreement and Yale under the
Yale Agreement.

6.2.4 Financial Obligations Under Targacept Sublicense Agreements.
Notwithstanding anything in this Agreement to the contrary, but without
intending to limit, modify or affect in any respect the provisions of Article 10
hereof, Targacept shall be solely responsible for all payments owed to any Third
Party under the Targacept Sublicense Agreements.

6.2.5 Standby License from Yale. At the request of AstraZeneca at any time
during the Term, Targacept shall use diligent efforts to facilitate
AstraZeneca’s entering into an agreement with Yale pursuant to which, in the
event that the Yale Agreement is terminated, Yale would grant AstraZeneca a
license to the Targacept Patent Rights that Targacept has licensed from Yale.

 

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ARTICLE 7

INTELLECTUAL PROPERTY RIGHTS

7.1 Targacept Intellectual Property Rights. Targacept shall have sole and
exclusive ownership of all right, title and interest on a worldwide basis in and
to any and all Targacept Program Inventions, Targacept Program Patent Rights,
Product Invention-Related Information, Targacept Know-How and Targacept Patent
Rights. AstraZeneca agrees to assign, and hereby assigns, to Targacept all
right, title and interest that AstraZeneca may acquire from time to time in any
and all Product Invention-Related Information, Targacept Program Inventions and
Targacept Program Patent Rights and shall, at Targacept’s reasonable expense,
execute all documents and do all proper actions reasonably required by Targacept
from time to time to perfect Targacept’s title to and ownership thereof.

7.2 AstraZeneca Intellectual Property Rights. AstraZeneca shall have sole and
exclusive ownership of all right, title and interest on a worldwide basis in and
to any and all AstraZeneca Program Inventions, AstraZeneca Program Patent
Rights, AstraZeneca Know-How and AstraZeneca Patent Rights.

7.3 Joint Intellectual Property Rights. AstraZeneca and Targacept shall jointly
own all Joint Program Information, Joint Program Inventions and Joint Program
Patent Rights. The Parties hereby agree that, except to the extent restricted by
Section 6.1 or any other provision of this Agreement, either Party may use or
license or sublicense to any of its Affiliates or to Third Parties all or any
portion of its interest in Joint Program Information, Joint Program Inventions
and Joint Program Patent Rights or Confidential Information related to Joint
Program Inventions, without the prior written consent of the other Party and
without the obligation to provide an accounting or compensation to the other
Party. Each Party shall execute all documents and do all proper actions
reasonably required to fully effect the joint ownership provided for in this
Section 7.3.

7.4 Patent Coordinators. Targacept and AstraZeneca shall each appoint a patent
coordinator reasonably acceptable to the other Party (each, a “Patent
Coordinator”) to serve as such Party’s primary liaison with the other Party on
matters relating to Prosecution and Maintenance and enforcement of Patent
Rights. Each Party may replace its Patent Coordinator at any time by notice in
writing to the other Party. The initial Patent Coordinators shall be:

 

For Targacept:

   ******** (Prosecution and Maintenance only) and General Counsel (Enforcement)

For AstraZeneca:

   ********

 

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7.5 Patent-Related Matters.

7.5.1 Decision-Making. With respect to each Patent-Related Matter, the Patent
Coordinators, in consultation with patent counsel (provided that such
consultation shall not be required with respect to any Patent Coordinator who is
a patent counsel), shall use diligent efforts in good faith to determine or
resolve such Patent-Related Matter at least ******** days, or such different
number of days as the Patent Coordinators shall expressly agree in writing,
before any action with respect to such Patent-Related Matter must be taken to be
effective under applicable patent laws, regulations or administrative process in
the applicable country or jurisdiction (such deadline for determination or
resolution, the “Patent-Related Matter Resolution Deadline”); provided that,
with respect to each Patent-Related Matter and unless the Parties otherwise
agree, if such Patent-Related Matter has not been resolved pursuant to this
Section 7.5 by the date any action with respect to such Patent-Related Matter
must be taken to be effective under applicable patent laws, regulations or
administrative process in the applicable country or jurisdiction (such date, the
“Patent-Related Matter Deadline”), AstraZeneca shall, to the extent permitted
under applicable patent laws, regulations or administrative process in the
applicable country or jurisdiction, (a) seek an extension of such Patent-Related
Matter Deadline sufficient to resolve such Patent-Related Matter by the
applicable Patent-Related Matter Deadline as so extended and (b) file, if the
extension contemplated by clause (a) above is not permitted under applicable
patent laws, regulations or administrative process in the applicable country or
jurisdiction, a continuation or divisional patent application in such country or
jurisdiction designed in good faith to preserve the status quo and to maintain
full rights of further prosecution, in each case to the maximum extent possible
under the circumstances. “Patent-Related Matter” means each of the following
matters: (i) whether any new or useful process, composition of matter,
formulation, design, device, kit or method of use or manufacture is reasonably
expected to be patentable under Applicable Laws; (ii) inventorship of Program
Inventions and, as a result, whether any particular Program Invention is a
Targacept Program Invention, AstraZeneca Program Invention or Joint Program
Invention; (iii) whether any Program Invention is a Product Invention;
(iv) whether any action or decision with respect to the Prosecution and
Maintenance of any Consensus Patent Rights, including any action contemplated by
clause (v) below, would be contrary to the best interests of the Development and
Commercialization of the Lead Compound or Licensed Products that are comprised
of or contain the Lead Compound on a global basis; and (v) with respect to
Patent Rights that claim or cover any Program Invention, whether it is
reasonably practicable to separate into discrete applications (i) claims that
solely claim the composition of matter, a method of use or Manufacture of or a
pharmaceutical preparation containing or comprising (including the
pharmaceutical composition of), or solely cover the research, development,
Manufacture, use, import, offer to sell or sale of, any Compound or Licensed
Product and (ii) claims other than as specified in the foregoing clause
(i) (each of the Patent-Related Matters in clauses (iv) and (v), a “Consensus
Patent-Related Matter”).

 

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7.5.2 Dispute Resolution. In case of a dispute between the Patent Coordinators
over any Patent-Related Matter that is not determined or resolved as of the
Patent-Related Matter Resolution Deadline for such Patent-Related Matter, such
dispute shall be resolved by patent counsel who (and whose firm) is mutually
acceptable to both Parties, acting reasonably. In the event the Parties are
unable to select mutually acceptable patent counsel within ******** Business
Days after either Party requests such selection in writing, then each Party
shall select a patent counsel and the two (2) Party-selected patent counsels
shall mutually select a third patent counsel to resolve such dispute within
******** Business Days after expiration of such first ******** Business Day
period. Each Party shall, within ******** Business Days after the selection of
patent counsel to determine or resolve such Patent-Related Matter, propose in
writing a determination or resolution of such Patent-Related Matter. Such patent
counsel shall be directed to determine or resolve such Patent-Related Matter not
later than ******** Business Days after receipt of such written proposals, such
determination or resolution to be final and binding between the Parties;
provided that, in the case of a Patent-Related Matter described in clause
(iv) of Section 7.5.1, such patent counsel must select the determination or
resolution proposed by one of the Parties that more closely reflects the best
interests of the Development and Commercialization of the Lead Compound and
Licensed Products that are comprised of or contain the Lead Compound on a global
basis. Both Parties shall cooperate in all reasonable respects with such patent
counsel’s reasonable requests for assistance and information in connection with
its determination hereunder. Expenses of such patent counsel shall be shared
equally by the Parties.

 

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7.6 Employees and Agents. Each Party shall obtain from each of its Affiliates,
Sublicensees, employees and agents, and from the employees and agents of its
Affiliates, who are engaged in research or Development activities conducted
pursuant to this Agreement or who otherwise have access to the other Party’s
Confidential Information, such undertakings and agreements as are necessary to
ensure that each Party shall, by virtue of this Agreement, receive from the
other Party, without payments beyond those required by Article 5,
Section 11.5.1(f) or Section 11.5.3(i), the licenses and other rights granted to
the other Party hereunder.

7.7 Prosecution and Maintenance.

7.7.1 Prosecution and Maintenance.

(a) AstraZeneca. Subject to Section 7.7.2(a) and Section 7.7.2(b), as between
the Parties, AstraZeneca, acting through patent counsel or agents of its choice,
shall be responsible for Prosecution and Maintenance of all Targacept Patent
Rights, Targacept Program Patent Rights that solely claim the composition of
matter, a method of use or Manufacture of or a pharmaceutical preparation
containing or comprising (including the pharmaceutical composition of), or
solely cover the research, development, Manufacture, use, import, offer to sell
or sale of, any Compound or Licensed Product, AstraZeneca Patent Rights,
AstraZeneca Program Patent Rights and Joint Program Patent Rights. The Patent
Costs incurred by AstraZeneca in connection with Prosecution and Maintenance of
Patent Rights contemplated by this Section 7.7.1(a) shall be the sole
responsibility of AstraZeneca and, for clarity, shall not be Development Costs.

(b) Targacept. Subject to Section 7.7.2(b), Targacept, acting through patent
counsel or agents of its choice, shall have the sole right and responsibility
for Prosecution and Maintenance of all Targacept Program Patent Rights not
described in Section 7.7.1(a). The Patent Costs incurred by Targacept in
connection with Prosecution and Maintenance of such Targacept Program Patent
Rights shall be the sole responsibility of Targacept and, for clarity, shall not
be Development Costs.

 

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(c) ******** Application. As soon as practicable after the Effective Date,
Targacept and AstraZeneca shall take such actions as are necessary to generate
discrete applications from the ******** Application, whether by filing
divisionals, continuations, continuations-in-part or otherwise, so as to
separate in a discrete application(s) the claims that solely claim a method of
use of, or solely cover the research, development, Manufacture, use, import,
offer to sell or sale of, one or more Compounds or Licensed Products. It is
expressly acknowledged and agreed that, notwithstanding any other provision of
this Agreement: (i) beginning at the time of such action, only the
application(s) generated from the ******** Application in accordance with this
Section 7.7.1(c) that solely claims a method of use of, or solely covers the
research, development, Manufacture, use, import, offer to sell or sale of, any
Compound or Licensed Product shall be deemed included within the Targacept
Patent Rights; and (ii) no other application generated from the ********
Application in accordance with this Section 7.7.1(c) shall be deemed included
within the Targacept Patent Rights or Targacept Program Patent Rights or
otherwise subject to this Agreement.

(d) Program Patent Rights. Whenever reasonably practicable without being
contrary to the best interests of the Development and Commercialization of the
Lead Compound or Licensed Products that are comprised of or contain the Lead
Compound on a global basis, Targacept and AstraZeneca shall take such actions as
are necessary with respect to Patent Rights that claim or cover any Program
Invention so as to separate into discrete patent application(s) (i) claims that
solely claim the composition of matter, a method of use or Manufacture of or a
pharmaceutical preparation containing or comprising (including the
pharmaceutical composition of), or solely cover the research, development,
Manufacture, use, import, offer to sell or sale of, one or more Compounds or
Licensed Products and (ii) claims other than as specified in the foregoing
clause (i).

 

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7.7.2 Consensus; Cooperation.

(a) Prosecution and Maintenance of Consensus Patent Rights. Notwithstanding
Section 7.7.1(a) or any other provision of this Agreement, it is the intent of
the Parties that all decisions in the Prosecution and Maintenance of
(i) Targacept Patent Rights (including the Existing Patent Rights),
(ii) Targacept Program Patent Rights that solely claim the ******** or a
******** or ******** or a ******** or ******** (including ********), or solely
cover the research, development, Manufacture, use, import, offer to sell or sale
of, one or more Compounds or Licensed Products, and (iii) Joint Program Patent
Rights (collectively (clauses (i), (ii) and (iii), “Consensus Patent Rights”) be
made by the consensus of AstraZeneca and Targacept acting through their
respective Patent Coordinators (and, in the case of a Patent Coordinator who is
not a patent counsel, in consultation with patent counsel); provided that, with
respect to each patent or patent application within Consensus Patent Rights:
(A) for each Prosecution and Maintenance action or decision with respect
thereto, if the Parties’ respective Patent Coordinators have undertaken diligent
efforts in good faith to reach consensus but are unable to do so by the
applicable Patent-Related Matter Deadline, AstraZeneca shall, subject to clause
(B) below and except as otherwise provided in clause (C) below, have the right
to take such action or make such decision; (B) in no event shall AstraZeneca
take any action or make any decision with respect to the Prosecution and
Maintenance thereof that would be contrary to the best interests of the
Development and Commercialization of the Lead Compound and Licensed Products
that are comprised of or contain the Lead Compound on a global basis without
Targacept’s prior written consent; and (C) notwithstanding clause (A) above, any
action or decision with respect thereto that is the subject of a Consensus
Patent-Related Matter shall be resolved in accordance with Section 7.5 and
AstraZeneca shall proceed only in accordance with such resolution.

(b) Cooperation.

(i) At either Party’s request, the other Party shall cooperate with and assist
the requesting Party in all reasonable respects at the requesting Party’s
expense, in connection with the requesting Party’s Prosecution and Maintenance
of Patent Rights in accordance with Section 7.7.1(a) or Section 7.7.1(b), as the
case may be.

(ii) In addition, without limitation of Section 7.7.2(a): AstraZeneca shall:
(A) regularly provide Targacept with copies of all patent applications
(including drafts) to be filed hereunder that are within the Consensus Patent
Rights and other material submissions and correspondence with all patent offices
with respect to Consensus Patent Rights, in sufficient time to allow for review
and comment by Targacept; (B) provide Targacept and its patent counsel with an
opportunity to consult with AstraZeneca and its patent counsel regarding the
filing and contents of any such application, amendment, submission or response;
(C) take into consideration in good faith the advice and suggestions of
Targacept and its patent counsel; and (D) subject to Section 7.7.4(a), pursue in
good faith all reasonable claims requested by Targacept in the Prosecution and
Maintenance of Consensus Patent Rights.

 

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(iii) In addition, Targacept shall: (A) regularly provide AstraZeneca with
copies of all patent applications (including drafts) to be filed hereunder that
both (1) are within the Targacept Program Patent Rights and (2) claim the
******** or a ******** or ******** or a ******** or ******** (including the
********), or cover the research, development, Manufacture, use, import, offer
to sell or sale of, Compounds and Licensed Products, but are not Consensus
Targacept Program Patent Rights (such patent applications, together with all
Patent Rights with respect thereto, “Non-Consensus Targacept Program Patent
Rights”) and other material submissions and correspondence with all patent
offices with respect to Non-Consensus Targacept Program Patent Rights, in
sufficient time to allow for review and comment by AstraZeneca; (B) provide
AstraZeneca and its patent counsel with an opportunity to consult with Targacept
and its patent counsel regarding the filing and contents of any such
application, amendment, submission or response; (C) take into consideration in
good faith the advice and suggestions of AstraZeneca and its patent counsel; and
(D) subject to Section 7.7.4(b), pursue in good faith all reasonable claims
requested by AstraZeneca in the Prosecution and Maintenance of Non-Consensus
Targacept Program Patent Rights.

7.7.3 Disclosure. Each Party shall promptly notify the other Party, through its
Patent Coordinator, of any Program Invention and discuss with the other Party,
through its Patent Coordinator, the filing of any patent application with
respect thereto.

7.7.4 Abandonment.

(a) If AstraZeneca decides to abandon or to allow to lapse any Consensus Patent
Rights, or any Patent Rights that it knows are AstraZeneca Patent Rights, in any
country or jurisdiction in the world, AstraZeneca shall inform Targacept of such
decision promptly and, in any event, so as to provide Targacept a reasonable
amount of time to meet any applicable deadline to establish or preserve such
Consensus Patent Rights or AstraZeneca Patent Rights in such country or
jurisdiction; provided that, in such event, solely with respect to Consensus
Patent Rights, the licenses granted by Targacept pursuant to Section 4.1.1 shall
thereupon exclude such abandoned Consensus Patent Rights. Targacept shall have
the right to assume responsibility for continuing Prosecution and Maintenance of
such Patent Rights in such country or jurisdiction and paying any required fees
to Prosecute and Maintain such Patent Rights in such country or jurisdiction,
all at Targacept’s sole expense, through patent counsel or agents of its choice.
Upon transfer of AstraZeneca’s responsibility for Prosecution and Maintenance of
any Patent Rights to Targacept under this Section 7.7.4(a), AstraZeneca shall
promptly deliver to Targacept copies of all necessary files related to the
Patent Rights with respect to which responsibility has been transferred and
shall take all actions and execute all documents reasonably necessary for
Targacept to assume such Prosecution and Maintenance.

 

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(b) If Targacept decides to abandon or to allow to lapse any Patent Rights that
it knows to be Non-Consensus Targacept Program Patent Rights in any country or
jurisdiction in the Territory, Targacept shall inform AstraZeneca of such
decision promptly and, in any event, so as to provide AstraZeneca a reasonable
amount of time to meet any applicable deadline to establish or preserve such
Non-Consensus Targacept Program Patent Rights in such country or jurisdiction.
AstraZeneca shall have the right to assume responsibility for continuing
Prosecution and Maintenance of such Non-Consensus Targacept Program Patent
Rights in such country or jurisdiction and paying any required fees to Prosecute
and Maintain such Non-Consensus Targacept Program Patent Rights in such country
or jurisdiction, all at AstraZeneca’s sole expense, through patent counsel or
agents of its choice. Upon transfer of Targacept’s responsibility for
Prosecution and Maintenance of any Non-Consensus Targacept Program Patent Rights
to AstraZeneca under this Section 7.7.4(b), Targacept shall promptly deliver to
AstraZeneca copies of all necessary files related to the Non-Consensus Targacept
Program Patent Rights with respect to which responsibility has been transferred
and shall take all actions and execute all documents reasonably necessary for
AstraZeneca to assume such Prosecution and Maintenance.

7.7.5 Alignment of Interests. The Parties acknowledge that as of the Execution
Date it is not possible to identify and agree on all of the actions or decisions
in the Prosecution and Maintenance of Consensus Patent Rights that would be
contrary to the best interests of the Development and Commercialization of the
Lead Compound or Licensed Products that are comprised of or contain the Lead
Compound on a global basis. However, solely for purposes of this Article 7, the
Parties agree that, without limitation, each of the following actions or
decisions in the Prosecution and Maintenance of Consensus Patent Rights would be
contrary to the best interests of the Development and Commercialization of the
Lead Compound and Licensed Products that contain the Lead Compound on a global
basis: (a) any action or decision that would ******** of such Consensus Patent
Rights, unless all of (i) such action or decision would result in subject matter
that is or would be ******** in a particular patent application being ********,
(ii) a continuation or divisional patent application to ******** all such
******** subject matter is permitted under applicable patent laws, regulations
or administrative process to be filed in the applicable country or jurisdiction
in a manner that preserves full rights of further prosecution and (iii) a
continuation or divisional patent application to ******** all such ********
subject matter is filed by AstraZeneca by all applicable deadlines and otherwise
diligently Prosecuted and Maintained by AstraZeneca; (b) any action or decision
that would ******** such Patent Rights; (c) ******** that is required under
applicable patent laws, regulations or administrative process to be ******** any
patent office or examiner; (d) ********; and (e) ******** a ******** or ********
as ******** is known not to be ********.

 

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7.7.6 Targacept Sublicense Agreements. Notwithstanding anything in this
Agreement to the contrary, it is understood and agreed that the respective
rights and obligations of the Parties pursuant to this Section 7.7 are subject
in all respects to the rights of USFRF under the USFRF Agreement and the rights
of Yale under the Yale Agreement. AstraZeneca agrees that, consistent with
Section 6.1 of the USFRF Agreement, it shall exercise its rights and perform its
obligations with respect to the Prosecution and Maintenance of any Patent Rights
licensed by USFRF to Targacept pursuant to the USFRF Agreement and sublicensed
to AstraZeneca hereunder in good faith and it shall give due consideration in
good faith to comments timely received from USFRF or its patent counsel, through
Targacept, with respect to the Prosecution and Maintenance of such Patent
Rights. AstraZeneca acknowledges and agrees that USFRF shall be a third party
beneficiary solely with respect to this Section 7.7.6; provided that USFRF shall
enforce its rights as a third party beneficiary solely pursuant to and in
accordance with Section 12.1, mutatis mutandis.

7.8 Patent Listings. AstraZeneca shall have the sole right to make all filings
with the Regulatory Authorities with respect to the Consensus Patent Rights,
Non-Consensus Targacept Program Patent Rights, AstraZeneca Patent Rights and
AstraZeneca Program Patent Rights, including as required or allowed in
connection with: (a) in the U.S. Territory, the Orange Book and (b) in the ROW
Territory, under the national implementations of Article 10.1(a)(iii) of
Directive 2001/EC/83 or other international equivalents. Targacept shall, if
requested by AstraZeneca and at AstraZeneca’s reasonable expense: (i) provide to
AstraZeneca all Information in Targacept’s possession, including a correct and
complete list of Consensus Patent Rights and Non-Consensus Targacept Program
Patent Rights, covering any Compound or Licensed Product or otherwise necessary
or reasonably useful to enable AstraZeneca to make such filings with Regulatory
Authorities with respect to Consensus Patent Rights, Non-Consensus Targacept
Program Patent Rights, AstraZeneca Patent Rights and AstraZeneca Program Patent
Rights; and (ii) cooperate in all reasonable respects with AstraZeneca’s
reasonable requests in connection therewith, including meeting any submission
deadlines, in each case to the extent required or permitted by Applicable Laws.
AstraZeneca shall, to the extent reasonably practicable, notify Targacept in
writing of each such filing with a Regulatory Authority with respect to any
Consensus Patent Rights or Non-Consensus Targacept Program Patent Rights.

 

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7.9 ********. AstraZeneca shall have the ******** right to ******** in the
Territory regarding ******** for Licensed Products, including (a) in the U.S.
Territory with respect to ********, (b) in the ROW Territory pursuant to
******** and (c) in the Territory with respect to any other ******** that are
now or become available in the future; provided that, with respect to ********,
neither the effect of ******** on a ******** hereunder nor the effect of
******** on sales, profit or market share of any product (other than a Licensed
Product) marketed or sold by AstraZeneca or any of its Affiliates shall be
********. Upon request by AstraZeneca, Targacept shall cooperate in all
reasonable respects in the implementation of AstraZeneca’s decisions under this
Section 7.9.

7.10 Liability.

7.10.1 AstraZeneca. To the extent that AstraZeneca is Prosecuting and
Maintaining Consensus Patent Rights, AstraZeneca Patent Rights or AstraZeneca
Program Patent Rights (or any other Patent Rights with respect to the
Collaboration that the Parties expressly agree are to be Prosecuted and
Maintained by AstraZeneca) or otherwise exercising its rights under Sections 7.7
through 7.9, if AstraZeneca has complied with Sections 7.7 through 7.9
(including Section 7.7.2(a) and the proviso in Section 7.9) and the Targacept
Sublicense Agreements, neither AstraZeneca nor any of its employees, agents or
representatives shall be liable to Targacept in respect of any act, omission,
default or neglect taken or omitted in good faith by any such employee, agent or
representative in connection with such activities.

 

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7.10.2 Targacept. To the extent that Targacept is Prosecuting and Maintaining
Non-Consensus Targacept Program Patent Rights (or any Patent Rights with respect
to the Collaboration that the Parties expressly agree are to be Prosecuted and
Maintained by Targacept) or otherwise exercising its rights under Section 7.7,
if Targacept has complied with Section 7.7, neither Targacept nor any of its
employees, agents or representatives shall be liable to AstraZeneca in respect
of any act, omission, default or neglect taken or omitted in good faith by any
such employee, agent or representative in connection with such activities.

7.11 CREATE Act. Notwithstanding anything to the contrary in Sections 7.1
through 7.9, neither Party shall have the right to make an election under the
Cooperative Research and Technology Enhancement Act of 2004, 35 U.S.C.
103(c)(2)-(c)(3) (the “CREATE Act”) when exercising its rights under Sections
7.1 through 7.9 without the prior written consent of the other Party. With
respect to any such permitted election, the Parties shall use diligent efforts
to cooperate and coordinate their activities with respect to any submissions,
filings or other activities in support thereof. The Parties acknowledge and
agree that this Agreement is a “joint research agreement” as defined in the
CREATE Act.

7.12 Legal Actions.

7.12.1 Third Party Infringement.

(a) Notice. In the event either Party becomes aware of (i) any suspected
infringement of any Consensus Patent Rights, Non-Consensus Targacept Program
Patent Rights, AstraZeneca Patent Rights or AstraZeneca Program Patent Rights or
(ii) any certification filed under the Hatch-Waxman Act claiming that any
Consensus Patent Rights, Non-Consensus Targacept Program Patent Rights,
AstraZeneca Patent Rights or AstraZeneca Program Patent Rights are invalid or
unenforceable or claiming that any Consensus Patent Rights, Non-Consensus
Targacept Program Patent Rights, AstraZeneca Patent Rights or AstraZeneca
Program Patent Rights will not be infringed by the making, use, offer for sale,
sale or import of a product for which an application under the Hatch-Waxman Act
is filed, or any equivalent or similar certification or notice in any other
jurisdiction in the Territory (each of clauses (i) and (ii), an “Infringement”),
in each case (clauses (i) and (ii)) such Party shall promptly notify the other
Party and provide it with all details of such Infringement of which it is aware
(each, an “Infringement Notice”); provided that each Party shall give the other
Party an Infringement Notice not later than ******** Business Days after it
becomes aware of any Infringement described in clause (ii) above.

 

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(b) AstraZeneca Right to Prosecute Infringement. As between the Parties,
AstraZeneca shall have the first right, but not the obligation, in the Major
Countries, and sole right, but not the obligation, in any other countries in the
Territory, to prosecute an Infringement by taking commercially reasonable steps;
provided that, with respect to prosecuting any Infringement of any Non-Consensus
Targacept Program Patent Rights, without limitation of Section 7.12.1(f),
AstraZeneca shall collaborate closely with Targacept with respect to prosecuting
such Infringement and consider in good faith, and not unreasonably reject or act
contrary to, Targacept’s advice and suggestions with respect thereto taking into
account Targacept’s interests under such Non-Consensus Targacept Program Patent
Rights that are not related to Compounds or Licensed Products. All costs,
including attorneys’ fees, relating to such legal proceedings or other action
shall be borne by AstraZeneca, subject to Section 7.12.1(g).

(c) Targacept Right to Prosecute Infringement in Major Countries. If AstraZeneca
does not take or initiate commercially reasonable steps to prosecute an
Infringement that occurs in a Major Country within ******** days after receipt
or delivery of any Infringement Notice (or ******** days in the case of an
Infringement described in Section 7.12.1(a)(ii)), then AstraZeneca shall notify
Targacept within ******** after the end of such period and, as between the
Parties, Targacept shall have the right, but not the obligation, to do so upon
written notice to AstraZeneca and shall bear all costs to do so, subject to
Section 7.12.1(g); provided that if AstraZeneca has commenced good faith
negotiations with an alleged infringer for elimination of such Infringement
within such ******** day (or, if applicable, ******** day) period, AstraZeneca
shall have an additional ******** days (or an additional ******** days in the
case of an Infringement described in Section 7.12.1(a)(ii)) to conclude its
negotiations before Targacept may take steps to prosecute such Infringement.

(d) Settlement. The Party prosecuting any Infringement proceedings or other
action under Section 7.12.1(b) or Section 7.12.1(c) shall have the right to
settle or otherwise dispose of such Infringement proceedings or other action on
such terms as such Party shall determine in its sole discretion, including, with
respect to Infringement proceedings or other actions for which AstraZeneca is
the prosecuting Party, by granting a license or sublicense to a Third Party
under any rights granted to AstraZeneca under Section 4.1.1; provided that,
notwithstanding the foregoing, (i) no such settlement or other disposition shall
impose any restriction or obligation on or admit fault of the other Party and
(ii) where AstraZeneca is prosecuting any Infringement proceeding with respect
to Non-Consensus Targacept Program Patent Rights, no such settlement or other
disposition shall concede, directly or indirectly, the invalidity or
enforceability of, or materially weaken or reduce the scope of, such
Non-Consensus Targacept Program Patent Rights.

 

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(e) Right to Representation. Each Party shall have the right, at its sole
expense, to participate and be represented by counsel that it selects, in any
legal proceedings or other action instituted under Section 7.12.1(b) or
Section 7.12.1(c) by the other Party. If a Party with the right to initiate
legal proceedings under this Section 7.12.1 to eliminate an Infringement lacks
standing to do so and the other Party has standing to initiate such legal
proceedings, then the Party with the right to initiate legal proceedings under
Section 7.12.1 may name the other Party as plaintiff in such legal proceedings
or may require the Party with standing to initiate such legal proceedings at the
expense of the other Party (subject to Section 7.12.1(g)).

(f) Cooperation. In any legal proceedings or other action instituted under this
Section 7.12.1, the Parties shall cooperate with and assist each other in all
reasonable respects. Upon the reasonable request of the Party instituting such
action, suit or proceeding, the other Party shall join such legal proceedings or
other action and shall be represented using counsel of its own choice, at the
requesting Party’s expense.

(g) Allocation of Proceeds. Any amounts recovered by either Party pursuant to
actions under Section 7.12.1(b) or Section 7.12.1(c) with respect to any
Infringement in the Territory, whether by settlement or judgment, shall be
allocated in the following order: (i) first, to reimburse AstraZeneca and
Targacept for their reasonable ******** expenses in making such recovery (which
amounts shall be allocated pro rata if insufficient to cover the totality of
such expenses); and (ii) then (A) if Targacept took steps to eliminate the
Infringement pursuant to Section 7.12.1(c) (or to defend any action or claim
pursuant to Section 7.12.2), any remainder to Targacept or (B) otherwise, any
remainder to AstraZeneca and Targacept in the same ratio as (1) ******** percent
(********%) of AstraZeneca’s historic profits on Net Sales of Licensed Products
in the ROW Territory (if such Infringement occurred in any country in the ROW
Territory) or ******** percent (********%) of AstraZeneca’s historic profits on
Net Sales of Licensed Products in the U.S. Territory (if such Infringement
occurred in the U.S. Territory), bears to (2) the historic royalties paid to
Targacept under Section 5.3.1(a) (if such Infringement occurred in any country
in the ROW Territory) or the historic royalties paid to Targacept under
Section 5.3.1(b) (if such Infringement occurred in the U.S. Territory), as the
case may be, as determined by AstraZeneca consistently, reasonably and in good
faith.

 

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7.12.2 Invalidity or Unenforceability Defenses or Actions. In the event that a
Third Party or Sublicensee asserts as a defense or as a counterclaim in any
Infringement action under Section 7.12.1 that any Consensus Patent Rights,
Non-Consensus Targacept Program Patent Rights, AstraZeneca Patent Rights or
AstraZeneca Program Patent Rights are invalid or unenforceable, then the Party
pursuing such Infringement action shall promptly give written notice to the
other Party. As between the Parties, AstraZeneca shall have the first right, but
not the obligation, through counsel of its choice and at its sole expense
(subject to the last sentence of this Section 7.12.2), to respond to and control
such defense or defend against such counterclaim (as applicable), including the
right to settle or otherwise compromise such claim at its sole expense; provided
that: (a) notwithstanding the foregoing, no such settlement or other compromise
shall impose any restriction or obligation on or admit fault of Targacept or
concede, directly or indirectly, the invalidity or enforceability of, or
materially ******** or ******** the ******** of, any Non-Consensus Targacept
Program Patent Rights; and (b) with respect to any claim of invalidity or
unenforceability of any Non-Consensus Targacept Program Patent Rights,
AstraZeneca shall collaborate closely with Targacept with respect to the defense
of such claim and consider in good faith, and not unreasonably reject or act
contrary to, Targacept’s advice and suggestions with respect thereto taking into
account Targacept’s interests under such Non-Consensus Targacept Program Patent
Rights that are not related to Compounds or Licensed Products. If AstraZeneca
notifies Targacept in writing that it does not wish to respond to such defense
or defend against, or settle or otherwise compromise, such counterclaim (as
applicable), Targacept shall have the right, but not the obligation, through
counsel of its choice and at its sole expense (subject to the last sentence of
this Section 7.12.2), upon written notice to AstraZeneca, to respond to such
defense or defend against such counterclaim (as applicable); provided that
Targacept shall use diligent efforts to provide written notice to AstraZeneca
sufficiently in advance of ceasing to defend or prosecute such defense or
counterclaim so as to enable AstraZeneca to assume control of such defense or
counterclaim if it so elects and shall obtain the written consent of AstraZeneca
(not to be unreasonably withheld, conditioned or delayed and, absent compelling
reasons affecting both Parties in substantially the same manner, not to be
withheld, conditioned or delayed unless AstraZeneca provides evidence
satisfactory to Targacept, acting reasonably, that such settlement or compromise
is not in the best interests of the Development and Commercialization, globally,
of the Lead Compound and Licensed Products that are comprised of or contain the
Lead Compound), prior to settling or otherwise compromising such defense or
counterclaim. Further, if a Third Party asserts, in a declaratory judgment
action or similar action or claim filed by such Third Party, that any Consensus
Patent Rights, Non-Consensus Targacept Program Patent Rights, AstraZeneca Patent
Rights or AstraZeneca Program Patent Rights are invalid or unenforceable, then
the Party first becoming aware of such action or claim shall promptly give
written notice to the other Party. As between the Parties, AstraZeneca shall
have the first right, but not the obligation, through counsel of its choice, and
at its sole expense (subject to the last sentence of this Section 7.12.2), to
defend against such action or claim, including the right to settle or otherwise
compromise such claim; provided that: (i) notwithstanding the foregoing, no such
settlement or other compromise shall impose any restriction or obligation on or
admit fault of Targacept or concede, directly or indirectly, the invalidity or
enforceability of, or materially ******** or ******** the ******** of, any
Non-Consensus Targacept Program Patent Rights; and (ii) with respect to any
action or claim asserting the invalidity or unenforceability of any
Non-Consensus Targacept Program Patent Rights, AstraZeneca shall collaborate
closely with Targacept with respect to the defense of such action or claim and
consider in good faith Targacept’s advice and suggestions, and not unreasonably
reject or act contrary to, with respect thereto taking into account Targacept’s
interests under such Non-Consensus Targacept Program Patent Rights that are not
related to Compounds or Licensed Products. If AstraZeneca notifies Targacept in
writing that it does not wish to respond to or defend against or settle or
otherwise compromise such action or claim, Targacept shall have the right, but
not the obligation, through counsel of its choice and at its sole expense
(subject to the last sentence of this Section 7.12.2), upon written notice to
AstraZeneca, to defend against and control such action or claim; provided that
Targacept shall use diligent efforts to provide written notice to AstraZeneca
sufficiently in advance of ceasing to defend such action or claim so as to
enable AstraZeneca to assume control of such defense if it so elects and shall
obtain the written consent of AstraZeneca (not to be unreasonably withheld,
conditioned or delayed and, absent compelling reasons affecting both Parties in
substantially the same manner, not to be withheld, conditioned or delayed unless
AstraZeneca provides evidence satisfactory to Targacept, acting reasonably, that
such settlement or compromise is not in the best interests of the Development
and Commercialization, globally, of the Lead Compound and Licensed Products that
are comprised of or contain the Lead Compound) prior to settling or otherwise
compromising such action or claim. Any amounts recovered in connection with any
action, claim or suit under this Section 7.12.2 shall be allocated between the
Parties as provided in Section 7.12.1(g).

 

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7.12.3 Defense of Claims. In the event that any action, suit or proceeding is
brought against either Party or any Affiliate or Sublicensee of either Party
alleging the infringement of Patent Rights or other intellectual property rights
of a Third Party by reason of the Development or Commercialization, including
the Manufacture, use or sale, of any Compound or Licensed Product, such Party
shall notify the other Party within ******** Business Days of the earlier of
(a) receipt of service of process in such action, suit or proceeding or (b) the
date such Party becomes aware that such action, suit or proceeding has been
instituted and provide the other Party with all the details of such action, suit
or proceeding of which such Party is aware. As between the Parties, AstraZeneca
shall have the first right, but not the obligation, to defend such action, suit
or proceeding at its sole expense. If AstraZeneca notifies Targacept in writing
that it does not wish to defend such action, suit or proceeding, Targacept shall
have the right, but not the obligation, through counsel of its choice and at its
sole expense, upon written notice to AstraZeneca, to defend such action, suit or
proceeding; provided that Targacept shall use diligent efforts to provide
written notice to AstraZeneca sufficiently in advance of ceasing to defend such
action, suit or proceeding so as to enable AstraZeneca to assume control of such
defense if it so elects. Each Party shall have the right, at its sole expense,
to be represented by counsel that it selects, in any action, suit or proceeding
defended by the other Party under this Section 7.12.3. In no event shall either
Party settle or otherwise resolve any claims included in such action, suit or
proceeding brought against the other Party or any of its Affiliates or
Sublicensees without the prior written consent of the other Party, which shall
not be unreasonably withheld, conditioned or delayed and, absent compelling
reasons affecting both Parties in substantially the same manner, shall not be
withheld, conditioned or delayed unless such other Party provides evidence
satisfactory to such first Party, acting reasonably, that such settlement or
other resolution is not in the best interests of the Development and
Commercialization, globally, of the Lead Compound and Licensed Products that are
comprised of or contain the Lead Compound). For clarity, either Party shall have
the right to settle or otherwise resolve claims of infringement asserted against
it, in its sole and absolute discretion.

 

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7.12.4 Cooperation. Each Party (the “Cooperating Party”) shall provide to the
other Party (the “Acting Party”) all assistance reasonably requested by the
Acting Party in connection with any action, claim or suit under Section 7.12.1,
7.12.2 or 7.12.3, including allowing the Acting Party reasonable access during
normal business hours to the Cooperating Party’s files and documents and to the
Cooperating Party’s personnel who may have possession of relevant information.
The Cooperating Party shall use diligent efforts (a) likewise to procure for the
Acting Party reasonable access to former personnel of the Cooperating Party and
(b) to cause any Third Parties owning Patent Rights licensed to the Cooperating
Party, and any Third Parties that are licensees of any of the Cooperating
Party’s Patent Rights, to use diligent efforts to assist and cooperate with the
Acting Party in connection with the response to such action, claim or suit under
Section 7.12.1, 7.12.2 or 7.12.3. In addition to the foregoing, prior to the
initiation of any action, claim or suit under Section 7.12.1, 7.12.2 or 7.12.3,
upon the reasonable request of AstraZeneca, Targacept shall request USFRF and
Yale to provide AstraZeneca access to relevant personnel to enable AstraZeneca
to prepare for any such possible action, claim or suit.

7.12.5 Third Party Licenses. If in the reasonable opinion of AstraZeneca the
Development or Commercialization of any Compound or Licensed Product by
AstraZeneca, any of its Affiliates or any of its or their Sublicensees,
Distributors or Net Sales Distributors infringes or misappropriates any Patent
Rights, trade secret or other intellectual property right of a Third Party in
any country in the Territory, such that AstraZeneca, any of its Affiliates or
any of its or their Sublicensees, Distributors or Net Sales Distributors cannot
Develop or Commercialize such Compound or Licensed Product in such country
without infringing such Patent Rights, trade secret or other intellectual
property right of such Third Party, then, as between the Parties, AstraZeneca
shall have the first right, but not the obligation, through counsel of its
choice and at its sole expense (subject to Section 5.3.1(c)(ii), if and to the
extent applicable), and in its sole discretion, to negotiate and obtain a
license from such Third Party as necessary for AstraZeneca and its Affiliates,
Sublicensees, Distributors and Net Sales Distributors to Develop and
Commercialize Compound and any Licensed Product in such country.

 

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7.12.6 Targacept Sublicense Agreements. Notwithstanding anything in this
Agreement to the contrary, it is understood and agreed that the respective
rights and obligations of the Parties pursuant to this Section 7.12 are subject
in all respects to the rights of USFRF under the USFRF Agreement and the rights
of Yale under the Yale Agreement.

7.13 Trademarks.

7.13.1 Amplixa Trademarks. Targacept hereby assigns to AstraZeneca the Existing
Trademarks and all rights and goodwill with respect thereto. Targacept shall
duly execute and deliver, or cause to be duly executed and delivered, such
instruments and shall do and cause to be done such acts and things, including
the filing of such assignments, agreements, documents and instruments, as may be
necessary to carry out, or as AstraZeneca may reasonably request in connection
with, this Section 7.13.1. In jurisdictions where trademark laws may prohibit
current assignment of the Existing Trademarks, the Parties will mutually agree
on the best approach to ultimately assign the Existing Trademarks to
AstraZeneca.

7.13.2 Product Trademarks. AstraZeneca shall have the sole right to select the
Product Trademarks for the marketing and sale of Licensed Products in the
Territory. AstraZeneca shall own such Product Trademarks and all rights and
goodwill with respect thereto. AstraZeneca shall have the right, using legal
counsel of its own choosing and at its sole expense, to file, maintain, defend,
and enforce the Product Trademarks. Targacept shall not, and shall not permit
its Affiliates to, use any Trademark that is the same as or confusingly similar
to, or misleading or deceptive with respect to, the Product Trademarks.

7.14 Product Information. Subject to Sections 11.5.1 and 11.5.3, AstraZeneca
shall have sole and exclusive ownership of all right, title and interest on a
worldwide basis in and to any and all Product Information. Targacept agrees to
assign, and hereby assigns, to AstraZeneca all right, title and interest that
Targacept may acquire from time to time in any and all Product Information and
shall, at AstraZeneca’s reasonable expense, execute all documents and do all
proper actions reasonably required by AstraZeneca from time to time to perfect
AstraZeneca’s title to and ownership thereof.

 

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ARTICLE 8

CONFIDENTIALITY

8.1 Targacept Licensed Product Information. Targacept recognizes that by reason
of, inter alia, AstraZeneca’s status as an exclusive licensee pursuant to the
grants under Section 4.1.1, AstraZeneca has an interest in Targacept’s retention
in confidence of certain information of Targacept. Accordingly, until the
expiration of AstraZeneca’s exclusive position with respect to the last Licensed
Product under Section 4.1.1, Targacept shall, and shall cause its Affiliates and
Sublicensees and its and their respective officers, directors, employees and
agents to, keep confidential, and not publish or otherwise disclose, and not use
for any purpose other than to perform its obligations, or exercise its rights,
under this Agreement, the Co-Promotion Agreement, if any, or the Backup R&D
Programs Agreement, if any, any Information owned or Controlled by, Targacept,
to the extent relating to: (a) any Compound or Licensed Product or any
Regulatory Documentation, including Product Regulatory Approvals, with respect
thereto or (b) the Development or Commercialization of any Compound or Licensed
Product (collectively, clauses (a) and (b), the “Targacept Licensed Product
Information”); except to the extent (i) such Targacept Licensed Product
Information was available to the public generally or otherwise part of the
public domain at the time it was disclosed or made available to, or received or
accessed by, AstraZeneca or became available to the public generally or
otherwise part of the public domain after it was disclosed or made available to,
or received or accessed by, AstraZeneca through no fault of Targacept, any of
its Affiliates or any of its or their respective officers, directors, employees
or agents, (ii) such disclosure or use is expressly permitted by Section 8.3 or
(iii) such disclosure or use is otherwise expressly permitted by the terms of
this Agreement. For purposes of Section 8.3, both AstraZeneca and Targacept
shall be deemed to be the Disclosing Party with respect to Targacept Licensed
Product Information under Section 8.3 and both Targacept and AstraZeneca shall
be deemed to be the Receiving Party with respect thereto. For clarity, to the
extent Targacept Licensed Product Information is received by AstraZeneca
pursuant to this Agreement, such Targacept Licensed Product Information shall
also constitute Confidential Information of Targacept with respect to the use
and disclosure of such Confidential Information by AstraZeneca, subject to the
other terms and conditions of this Article 8, but the disclosure or making
available to, or receipt or access by, AstraZeneca of Targacept Licensed Product
Information shall not cause such Targacept Licensed Product Information to cease
to be subject to the provisions of this Section 8.1 with respect to the use and
disclosure of such Confidential Information by Targacept. In the event this
Agreement is terminated (A) pursuant to Article 11 in its entirety, this
Section 8.1 shall have no continuing force or effect with respect to the use or
disclosure of Targacept Licensed Product Information by Targacept and its
Affiliates and licensees or (B) with respect to one or more Terminated
Territories, this Section 8.1 shall have no continuing force or effect with
respect to the use or disclosure of Targacept Licensed Product Information by
Targacept and its Affiliates and licensees in or for any Terminated Territory;
provided that, in each case (clauses (A) and (B)) the Targacept Licensed Product
Information, to the extent disclosed by Targacept to AstraZeneca hereunder,
shall continue to be Confidential Information of Targacept, subject to the terms
of Sections 8.2 and 8.3.

 

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8.2 Confidentiality; Exceptions.

8.2.1 Confidential Information. “Confidential Information” means any Information
and materials, patentable or otherwise (including Proprietary Materials, trade
secrets, know-how, Inventions or discoveries, formulae, methods, processes,
techniques and information relating to a Party’s past, present and future
marketing, financial, and research and development activities of any product or
potential product or useful technology of a Party and the pricing thereof),
together with the specific royalty rates and individual milestone amounts set
forth in this Agreement (which, for clarity, shall be Confidential Information
of both Parties), in any form (written, oral, photographic, electronic,
magnetic, or otherwise), that is disclosed or made available to a Party by or on
behalf of the other Party, or otherwise received or accessed by such other
Party, before (including under the Existing CDA), on or after the Effective Date
pursuant to this Agreement, in connection with the transactions contemplated
hereby or any discussions or negotiations with respect thereto or in the course
of performing its obligations or exercising its rights under this Agreement. For
purposes of this Section 8.2, AstraZeneca shall be deemed to be the Disclosing
Party with respect to Product Information and Targacept shall be deemed to be
the Receiving Party with respect thereto.

8.2.2 Obligation of Confidentiality. Except to the extent otherwise expressly
provided in this Agreement (including Section 8.1) or otherwise agreed in
writing, the Parties agree that, during the Term and for a period of ********
years thereafter, each Party (the “Receiving Party”) shall, and shall cause its
Affiliates and Sublicensees and its and their respective officers, directors,
employees and agents to, keep confidential, and not publish or otherwise
disclose or use for any purpose other than as provided for in this Agreement,
the Co-Promotion Agreement, if any, or the Backup R&D Programs Agreement, if
any, any Confidential Information provided to it by the other Party (the
“Disclosing Party”).

 

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8.2.3 Exceptions. Notwithstanding the foregoing, the Receiving Party’s
obligations with respect to Confidential Information of the Disclosing Party
pursuant to Section 8.2.2 (including (x) in the case of AstraZeneca obligations
with respect to Targacept Licensed Product Information but excluding (y) in the
case of Targacept, obligations with respect to Targacept Licensed Product
Information, which shall be subject to Section 8.1) shall not apply with respect
to any such information that:

(a) was in the lawful knowledge and possession of the Receiving Party prior to
the time it was disclosed or made available to, or received or accessed by, the
Receiving Party, or was otherwise developed independently by the Receiving Party
without reference to or use of the Disclosing Party’s Confidential Information,
as evidenced by written records kept in the ordinary course of business by, or
other documentary proof of, the Receiving Party;

(b) was available to the public generally or otherwise part of the public domain
at the time it was disclosed or made available to, or received or accessed by,
the Receiving Party;

(c) became available to the public generally or otherwise part of the public
domain after it was disclosed or made available to, or received or accessed by,
the Receiving Party other than through any act or omission of the Receiving
Party; or

(d) was disclosed to the Receiving Party, other than under an obligation of
confidentiality to or at the direction of the Disclosing Party, by a Third Party
who had no obligation to the Disclosing Party not to disclose such information.

8.3 Authorized Disclosure. Notwithstanding anything contained in Sections 8.1
and 8.2, (a) Targacept may disclose (i) Targacept Licensed Product Information
and (ii) Confidential Information of AstraZeneca and (b) AstraZeneca may
disclose Confidential Information of Targacept (including Targacept Licensed
Product Information):

(A) to any employee or consultant of the Receiving Party or any of its
Affiliates to enable the Receiving Party to exercise its rights or to carry out
its responsibilities under this Agreement; provided that any such disclosure or
transfer shall only be made to Persons who are bound by written obligations
substantially as restrictive as those contained in Section 8.2.2;

 

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(B)(1) on a need-to-know basis to the Receiving Party’s legal and financial
advisors; (2) as necessary or reasonably useful in connection with an actual or
potential (x) permitted sublicense or assignment of the Receiving Party’s rights
hereunder or other permissible license of intellectual property rights, (y) debt
or equity financing of the Receiving Party or (z) Change of Control involving
the Receiving Party; provided that any disclosure pursuant to this clause
(z) shall be limited to the terms of this Agreement (including providing a copy
of this Agreement), as may be amended; and (3) to any Third Party to enable the
Receiving Party to exercise its rights and perform its obligations under this
Agreement (including, with respect to Targacept, its rights with respect to the
Development and Commercialization of Compounds and Licensed Products with
respect to any Terminated Territory); if, in the case of clauses (1) (except
with respect to disclosures to the Receiving Party’s legal advisors), (2) and
(3) the receiving Person is bound by written obligations substantially as
restrictive as those contained in Section 8.2.2;

(C) to the extent that such disclosure is necessary or reasonably useful for the
Receiving Party to file, Prosecute and Maintain Patent Rights, or to file,
prosecute or defend litigation against Third Parties related to Patent Rights,
in accordance with this Agreement; provided that reasonable measures shall be
taken to assure confidential treatment of such information, to the extent such
protection is available;

(D) to the extent that such disclosure is required by Applicable Laws; provided
that, in the case of any disclosure under this clause (D), the Receiving Party
shall (1) unless not practicable under the circumstances, provide the Disclosing
Party with reasonable advance notice of and an opportunity to comment on such
disclosure, (2) if requested by the Disclosing Party, cooperate in all
reasonable respects with the Disclosing Party’s efforts to obtain confidential
treatment or a protective order with respect to such disclosure, at the
Disclosing Party’s reasonable expense and (3) use diligent efforts in good faith
to incorporate the comments of the Disclosing Party in such disclosure or
request for confidential treatment;

(E) to the extent that such disclosure is made in response to a valid order of a
court of competent jurisdiction or other competent authority; provided that:
(1) the Receiving Party shall first have given notice to the Disclosing Party
and, unless not practicable under the circumstances, given the Disclosing Party
a reasonable opportunity to quash any such order or obtain a protective order
requiring that such Targacept Licensed Product Information or Confidential
Information, as applicable, that is the subject of such order be held in
confidence by such court or authority or, if disclosed, be used only for the
purpose for which the order was issued; and (2) if such order is not quashed or
a protective order is not obtained, the Targacept Licensed Product Information
or Confidential Information, as applicable, disclosed in response to such court
or governmental order shall be limited to that information that is legally
required to be disclosed in response to such court or governmental order;

 

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(F) to the extent, without intending to expand the rights and obligations of
Targacept with respect to regulatory matters hereunder, that such disclosure is
made by AstraZeneca, Targacept or any of their respective Affiliates or
Sublicensees (or licensees) to a Regulatory Authority as may be necessary or
reasonably useful in connection with any filing, application or request for a
Product Regulatory Approval; provided that reasonable measures shall be taken to
assure confidential treatment of such information, to the extent such protection
is available; or

(G) made by AstraZeneca or Targacept or their respective Affiliates or
Sublicensees to permitted subcontractors, as may be necessary or reasonably
useful in connection with the Development and Commercialization of any Compound
or Licensed Product as contemplated by this Agreement; provided that such
disclosures are made under obligations of confidentiality and non-use at least
as protective as this Article 8.

8.4 Press Release; Disclosure of Agreement. On or promptly after the Execution
Date, the Parties shall individually or jointly issue a public announcement of
the execution of this Agreement in a form agreed upon by the Parties, and either
Party may make subsequent public disclosure of the contents of such press
release without further approval of the other Party. After issuance of such
press release, except as required by Applicable Laws (including, for clarity,
those relating to disclosure of material information to investors), neither
Party shall issue any other press release or similar public announcement
regarding the Development or Commercialization of Compounds or Licensed Products
(it being understood that publication in scientific journals, presentation at
scientific conferences and meetings and the like are intended to be covered by
Section 8.5 and not subject to this Section 8.4), except with the other Party’s
consent or as permitted pursuant to Section 8.3; provided that, notwithstanding
the foregoing, Targacept shall not require the consent of AstraZeneca for any
press release or similar public announcement (but shall provide any such release
to AstraZeneca for its review and consider any comments timely received in good
faith) for the achievement of any Milestone Event or the payment of any
milestone payment. The Parties agree to consult with each other reasonably and
in good faith with respect to the text and timing of any such press release
prior to the issuance thereof, and neither Party shall unreasonably withhold,
condition or delay consent to any press release proposed for issuance by the
other Party. Notwithstanding the foregoing, to the extent information regarding
this Agreement has been publicly disclosed (or disclosed in a scientific or
other conference), either Party may subsequently disclose the same information
without the consent of the other Party. Each Party shall give the other Party a
reasonable opportunity to review prior to submission (a) the first filing with
the United States Securities and Exchange Commission describing the terms of
this Agreement and (b) any subsequent filing that includes material terms of
this Agreement disclosed for the first time and shall give due consideration to
any reasonable comments by the non-filing Party relating to such filing,
including the provisions of this Agreement for which confidential treatment
should be sought.

 

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8.5 Publications.

8.5.1 First Approval. The Parties acknowledge that scientific and medical
publications and presentations of the activities hereunder will be made in a
manner consistent with Targacept Sublicense Agreements or other agreements with
Third Parties as in effect as of the Effective Date and applicable industry
standards, but must be strictly monitored to prevent any premature publication
or dissemination of results. Each Party agrees that it shall not: (a) publish or
present, or permit to be published or presented, the results of the Development
Program or the results of any Phase 4 Clinical Studies of any Licensed Product;
or (b) register any Clinical Study to be conducted with respect to any Compound
or Licensed Product at www.clinicaltrials.gov or any similar publicly-available
registry with respect to clinical trials, in each case (clauses (a) and (b))
without the prior review by and approval of the other Party (not to be
unreasonably withheld, conditioned or delayed and not to be withheld to the
extent required by Applicable Laws). Each Party shall provide the other Party
with the opportunity to review each of the submitting Party’s proposed
abstracts, manuscripts or presentations (including information to be presented
verbally) with respect to the foregoing at least ******** days prior to its
intended presentation or submission for publication, and such submitting Party
agrees, upon written request from the other Party given within such ******** day
period, not to submit such abstract or manuscript for publication or to make
such presentation until the other Party is given up to ******** days from the
date of such written request to seek appropriate patent protection for any
material in such publication or presentation that it reasonably believes may be
patentable.

 

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8.5.2 Prior Approved Publications. Notwithstanding Section 8.5.1, once an
abstract, manuscript or presentation has been reviewed and approved by a Party,
the same content included in such abstract, manuscript or presentation does not
have to be provided again to such Party for review for a later submission for
publication.

8.5.3 General. In any permitted publication or presentation by a Party, the
other Party’s contribution shall be duly recognized, and co-authorship shall be
determined in accordance with the standards established by the International
Committee of Medical Journal Editors or such other standard prevailing at the
time of such publication or presentation. Furthermore, with respect to any
proposed abstracts, manuscripts or summaries of presentations by investigators
or other Third Parties having the right to do so, such materials shall be
subject to review under this Section 8.5 to the extent that AstraZeneca or
Targacept (as the case may be) has the right to do so.

ARTICLE 9

REPRESENTATIONS AND WARRANTIES

9.1 Mutual Representations and Warranties. Targacept and AstraZeneca each
represents and warrants to the other, as of the Execution Date, as follows:

9.1.1 Organization. It is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, and has
all requisite power and authority, corporate or otherwise, to execute, deliver
and perform this Agreement.

9.1.2 Authorization. The execution and delivery of this Agreement and the
performance by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and do not violate (a) such Party’s
charter documents, bylaws or other organizational documents, (b) in any material
respect, any agreement, instrument or contractual obligation to which such Party
is bound, (c) any requirement of any Applicable Laws or (d) any order, writ,
judgment, injunction, decree, determination or award of any court or
governmental agency presently in effect applicable to such Party.

9.1.3 Binding Agreement. This Agreement is a legal, valid and binding obligation
of such Party enforceable against it in accordance with its terms and
conditions, subject to the effects of bankruptcy, insolvency or other laws of
general application affecting the enforcement of creditor rights, judicial
principles affecting the availability of specific performance and general
principles of equity (whether enforceability is considered a proceeding at law
or equity).

 

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9.1.4 No Inconsistent Obligation. It is not under any obligation, contractual or
otherwise, to any Person that conflicts with or is inconsistent in any material
respect with the terms of this Agreement or that would impede the diligent and
complete fulfillment of its obligations hereunder.

9.1.5 No Debarment. It shall not use in any capacity, in connection with the
performance of the activities contemplated by this Agreement, any Person who has
been debarred pursuant to Section 306 of the FDCA, or who is the subject of a
conviction described in such section. It agrees to inform the other Party in
writing immediately if it or any Person who is performing services hereunder on
its behalf is debarred or is the subject of a conviction described in
Section 306, or if any action, suit, claim, investigation or legal or
administrative proceeding is pending or, to its Knowledge, is threatened,
relating to the debarment or conviction of it or any Person performing services
hereunder.

9.2 Additional Representations of Targacept. Targacept further represents and
warrants to AstraZeneca, as of the Execution Date, and covenants, as follows:

9.2.1 The Existing Patent Rights are the only Targacept Patent Rights existing
as of the Execution Date. To Targacept’s Knowledge, no issued patents included
in the Existing Patent Rights are invalid or unenforceable.

9.2.2 There are no claims, judgments or settlements against, or amounts with
respect thereto owed by, Targacept or any of its Affiliates relating to the
Regulatory Documentation, the Existing Patent Rights or the Targacept Know-How.
No claim or litigation has been brought or threatened in writing by any Person
alleging that (a) the Existing Patent Rights are invalid or unenforceable or
(b) the Regulatory Filings, the Existing Patent Rights or the Targacept Know-How
or the disclosing, copying, making, assigning or licensing of the Regulatory
Filings, the Existing Patent Rights or the Targacept Know-How, or Developing or
Commercializing Compound or Licensed Products as set forth herein violates,
infringes or otherwise conflicts or interferes with any intellectual property or
proprietary right of any Person.

 

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9.2.3 Targacept is: (a) the sole and exclusive owner of the Existing Patent
Rights listed on Schedule 2, Part A (the “Owned Patent Rights”); and (b) to
Targacept’s Knowledge, the sole and exclusive licensee of the Existing Patent
Rights listed on Schedule 2, Part B (the “In-Licensed Patent Rights”) with
respect to the Primary Compound, the Racemic Compound, (1S, 2R,
4R)-N,2,3,3-tetramethylbicyclo[2.2.1]heptan-2-amine and Licensed Products that
contain or are comprised of any of the foregoing, except for rights of the U.S.
government and rights reserved by USFRF and Yale; in each case (clauses (a) and
(b)) free of any encumbrance, lien or claim of ownership by any Third Party
arising from the action or inaction of Targacept. The Owned Patent Rights and
In-Licensed Patent Rights constitute all of the Existing Patent Rights.
Targacept is entitled to grant the licenses and sublicenses specified in this
Agreement.

9.2.4 To Targacept’s Knowledge, the Development or Commercialization of any
Compound or Licensed Product will not be subject to any other license or
agreement to which Targacept or any of its Affiliates is a party other than the
Targacept Sublicense Agreements, the Targacept Existing API Agreements and the
******** Agreement.

9.2.5 During the Term, Targacept shall: (a) not encumber or diminish the rights
granted to AstraZeneca hereunder with respect to the Targacept Patent Rights,
including by (i) committing any acts or permitting the occurrence of any
omissions that would cause the breach or termination of the USFRF Agreement or
the Yale Agreement or (ii) amending or otherwise modifying or permitting to be
amended or modified, the USFRF Agreement or the Yale Agreement in a manner that
would encumber or diminish the rights granted to AstraZeneca hereunder with
respect to such Targacept Patent Rights; (b) without limitation of the foregoing
clause (a) but subject to the proviso below, not ******** until the earlier of
(i) the date on which AstraZeneca gives written consent, not to be unreasonably
withheld, conditioned or delayed, or (ii) ******** days after ********
AstraZeneca; provided that, in the event AstraZeneca either gives such consent
or does not provide written objection to ******** Targacept within such ********
day period, ******** shall be conclusively deemed not to ******** AstraZeneca
hereunder with respect to the Targacept Patent Rights licensed by Targacept
under the ********; and (c) promptly provide AstraZeneca with notice of any
alleged breach by Targacept, or threatened or actual breach by USFRF or Yale, of
the USFRF Agreement or the Yale Agreement.

9.2.6 To Targacept’s Knowledge, the Existing Patent Rights have been filed and
are being maintained in accordance with the procedures of the respective patent
offices in which they are filed and all applicable fees have been paid.

 

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9.2.7 Targacept has not previously assigned, transferred, licensed, conveyed or
otherwise encumbered (including by granting any covenant not to sue with respect
thereto) its right, title or interest in or to (a) the Existing Patent Rights,
(b) Targacept Know-How as it relates specifically to the Primary Compound,
Primary Compound Licensed Products or Regulatory Filings or (c) any Patent
Rights or Information that would be (i) Existing Patent Rights or (ii) Targacept
Know-How as it relates specifically to the Primary Compound, Primary Compound
Licensed Products or Regulatory Filings but for such assignment, transfer,
license, conveyance or encumbrance, except in each case ((clauses (a), (b) and
(c)) where such assignment, transfer, license, conveyance or encumbrance is
terminated and no longer in force or effect; and Targacept will not enter into
any such agreements or grant any such right, title or interest to any Person
that is inconsistent with the rights and licenses granted to AstraZeneca under
this Agreement.

9.2.8 To Targacept’s Knowledge, no Person is (a) infringing or threatening to
infringe the Existing Patent Rights or (b) misappropriating or threatening to
misappropriate the Targacept Know-How as it relates specifically to any Compound
or Licensed Product.

9.2.9 True, complete and correct copies (as of the Execution Date) of: (a) the
file wrapper relating to the prosecution and maintenance of the Owned Patent
Rights and, to the extent in Targacept’s possession, the In-Licensed Patent
Rights; (b) the Targacept Sublicense Agreements, the Existing TRGT API
Agreements, the ******** Agreement and, to Targacept’s Knowledge, the USF/USFRF
Agreement; (c) all Regulatory Filings (excluding drafts) with respect to the
Primary Compound; and (d) all material adverse information with respect to the
safety and efficacy of the Primary Compound Known to Targacept have been
provided or made available (except to the extent publicly available) to
AstraZeneca prior to the Execution Date.

9.2.10 Targacept has prepared, maintained and retained all Regulatory Filings in
accordance in all material respects with Applicable Laws.

9.2.11 None of Targacept, any of its Affiliates or, to Targacept’s Knowledge,
any Third Party is in breach of a Targacept Sublicense Agreement, the Existing
TRGT API Agreements or the ******** Agreement in any material respect and, to
the Knowledge of Targacept, each of the Targacept Sublicense Agreements, the
Existing TRGT API Agreements, the ******** Agreement and the USF/USFRF Agreement
is in full force and effect.

 

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9.2.12 To Targacept’s Knowledge, the conduct of the Development Program and the
Parties’ Development of the Primary Compound and Primary Compound Licensed
Products for which the Primary Compound is the sole active pharmaceutical
ingredient in accordance with the Amplixa Global Development Outline and the
first Amplixa Annual Global Development Plan, in each case as agreed as of the
Execution Date, and the commercial sale by AstraZeneca of Primary Compound
Licensed Products for which the Primary Compound is the sole active
pharmaceutical ingredient as an Adjunct Therapy or a Monotherapy hereunder will
not infringe any Patent Rights of any Person.

9.2.13 To Targacept’s Knowledge, the conception, development and reduction to
practice of (a) the Existing Patent Rights and (b) the Targacept Know-How
existing as of the Execution Date as it relates specifically to any Compound or
Licensed Products, in each case (clause (a) and (b)) have not constituted or
involved the misappropriation of trade secrets or other rights or property of
any Person.

9.2.14 In respect of the pending United States patent applications included in
the Existing Patent Rights, Targacept has disclosed to the applicable Patent
Examiner at the United States Patent and Trademark Office all references,
documents, or information of which Targacept has Knowledge that would reasonably
be expected to be required by Applicable Laws to be disclosed by Targacept to
such Patent Examiner.

9.2.15 To Targacept’s Knowledge, the Existing Patent Rights represent all Patent
Rights within Targacept’s or any of its Affiliates’ ownership or Control that
claim or cover Compounds or Licensed Products as of the Execution Date.

9.2.16 To Targacept’s Knowledge, each of the Existing Patent Rights properly
identifies each and every inventor of the claims thereof as determined in
accordance with the laws of the jurisdiction in which such Existing Patent
Rights are issued or such application is pending.

9.2.17 To Targacept’s Knowledge, each Person who has or has had any ownership
rights in or to any Owned Patent Rights has assigned and has executed an
agreement assigning its entire right, title and interest in and to such Owned
Patent Rights to Targacept.

 

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9.2.18 No rights or licenses are required under the Existing Patent Rights or
Targacept Know-How for the conduct of the Development Program or the Parties’
Development of Compounds and Licensed Products in accordance with the Amplixa
Global Development Outline and the first Amplixa Annual Global Development Plan,
in each case as agreed as of the Execution Date, and the commercial sale by
AstraZeneca of Primary Compound Licensed Products for which the Primary Compound
is the sole active pharmaceutical ingredient as an Adjunct Therapy or a
Monotherapy, other than those granted under Section 4.1.1.

9.2.19 To Targacept’s Knowledge, all rights in all inventions and discoveries,
made, developed or conceived by any employee or independent contractor of
Targacept during the course of their employment (or other retention) by
Targacept that are the subject of one or more Owned Patent Rights have been or
will be assigned in writing to Targacept.

9.2.20 Targacept has obtained the right (including under any Patent Rights and
other intellectual property rights) to use all Information, Inventions,
Proprietary Materials and all other materials (including any formulations and
manufacturing processes and procedures) developed or delivered by any Third
Party under any agreements between Targacept and any such Third Party with
respect to the Primary Compound and licensed to AstraZeneca hereunder, and
Targacept has the rights under each such agreement to transfer such Information,
Inventions, Proprietary Materials or other materials to AstraZeneca and its
designees and to grant AstraZeneca the right to use such Information,
Inventions, Proprietary Materials or other materials in the Development or
Commercialization of the Primary Compound or any Primary Compound Licensed
Product for which the Primary Compound is the sole active pharmaceutical
ingredient without restriction; provided that, notwithstanding the foregoing,
Targacept makes no representation or warranty with regard in any respect to the
Information or Inventions of, or obtained from, either or both of ******** and
******** (including any ******** or ********), and all such Information and
Inventions are expressly excluded in all respects from this Section 9.2.20.

9.2.21 To Targacept’s Knowledge, the Targacept Know-How that constitutes
Confidential Information subject to Section 8.2 has been kept confidential in
all material respects or has been disclosed to Third Parties only under terms of
confidentiality. To Targacept’s Knowledge, no breach of such confidentiality has
been committed by any Third Party.

9.2.22 All written information, documentation and other materials furnished or
made available by Targacept upon the request of AstraZeneca during AstraZeneca’s
period of diligence prior to the Execution Date are true, complete and correct
copies of what they purport to be.

 

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9.2.23 Except as provided in the Targacept Sublicense Agreements, the Targacept
Existing API Agreements and the ******** Agreement, there are no amounts that
will be required to be paid to a Third Party as a result of the Development or
Commercialization of the Primary Compound or Primary Compound Licensed Products
for which the Primary Compound is the sole active pharmaceutical ingredient that
arise out of any agreement to which Targacept is a party or, to Targacept’s
Knowledge, at all.

9.2.24 Targacept has obtained the consent of USFRF attached as Schedule 8 hereto
and the consent of ******** attached as Schedule 9 hereto.

9.2.25 Targacept has not sold or offered for sale the Racemic Compound in the
ROW Territory.

9.2.26 To Targacept’s Knowledge, the Inventions claimed or covered by the
Existing Patent Rights licensed by Targacept from USFRF: (a) were not conceived,
discovered, developed or otherwise made in connection with any research
activities funded, in whole or in part, by the federal government of the United
States or any agency thereof; (b) are not a “subject invention” as that term is
described in 35 U.S.C. Section 201(f); and (c) are not otherwise subject to the
provisions of the Bayh-Dole Act.

9.2.27 Targacept is the sole and exclusive owner of the Existing Trademarks free
of any encumbrance, lien or claim of ownership by any Third Party and is
entitled to assign the Existing Trademarks as provided herein.

9.2.28 None of Targacept, any of its Affiliates or, to Targacept’s Knowledge,
any Third Party is researching or developing any compound or product under the
******** specifically for use as ******** or ******** (or other term reflecting
the ******** of ******** or ********) for the ********, and ******** the
******** Targacept shall not, and shall cause its Affiliates not to, research or
develop any compound or product ******** the ******** specifically for use as
******** or ******** (or other term reflecting the ******** of ******** or
********) for the ********.

9.2.29 The representations and warranties of Targacept in this Agreement, and
the information, documents and materials furnished to AstraZeneca in connection
with its period of diligence prior to the Execution Date, do not, taken as a
whole, (a) contain any untrue statement of a material fact or (b) omit to state
any material fact Known to Targacept to be necessary to make the statements or
facts contained therein, in light of the circumstances under which they were
made, not misleading.

 

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ARTICLE 10

INDEMNIFICATION AND DISCLAIMERS

10.1 Indemnification of AstraZeneca by Targacept. Targacept shall indemnify,
defend and hold harmless AstraZeneca, its Affiliates, all of its and their
respective directors, officers, employees and agents and all successors, heirs
and assigns of any of the foregoing (collectively, the “AstraZeneca
Indemnitees”) from and against all liabilities, damages, losses and expenses
(including reasonable attorneys’ fees and expenses of litigation and
investigation) (collectively, “Losses”) incurred by or imposed upon the
AstraZeneca Indemnitees, or any of them, as a result of or arising from claims,
suits, actions, demands or judgments of Third Parties, including personal injury
and product liability claims (collectively, “Claims”), arising out of: (a) the
breach of this Agreement by Targacept; (b) the gross negligence or willful
misconduct of any Targacept Indemnitee in connection with Targacept’s
performance of this Agreement; (c) the Development or Commercialization of any
Compound or Licensed Product (including Inversine®) prior to the Effective Date
by Targacept, any of its Affiliates or any Person expressly authorized by
Targacept or any of its Affiliates to Develop or Commercialize such Compound or
Licensed Product; (d) the Development or Commercialization of any Compound or
Licensed Product in a Terminated Territory (after termination of this Agreement
with respect to such Terminated Territory) by Targacept, any of its Affiliates
or any Person expressly authorized by Targacept or any of its Affiliates to
Develop or Commercialize such Compound or Licensed Product; (e) the Development
or Commercialization of any Compound or Licensed Product anywhere in the world
(after termination of this Agreement in its entirety) by Targacept, any of its
Affiliates or any Person expressly authorized by Targacept or any of its
Affiliates to Develop or Commercialize such Compound or Licensed Product;
(f) the Manufacture of any Licensed Product by or on behalf of Targacept
pursuant to Section 3.3.4; (g) the failure of any supply of the Primary Compound
or Primary Compound Licensed Product assigned to AstraZeneca pursuant to
Section 3.3.3 to have been Manufactured (i) in compliance with the applicable
specification with respect thereto as provided for in a purchase order submitted
under the predecessor to the Existing TRGT Supply Agreement or in the ********
Agreement, as applicable, or (ii) in substantial compliance with Good
Manufacturing Practices or other Applicable Laws; or (h) the adulteration or
misbranding (within the meaning of the FDCA) of any supply of the Primary
Compound or Primary Compound Licensed Product assigned to AstraZeneca pursuant
to Section 3.3.3 or the inability under the FDCA to introduce such supply of
Primary Compound or Primary Compound Licensed Product into interstate commerce;
provided that, with respect to any Claim for which Targacept has an obligation
to any AstraZeneca Indemnitee pursuant to this Section 10.1 and AstraZeneca has
an obligation to any Targacept Indemnitee pursuant to Section 10.2, each Party
shall indemnify each of the other Party’s Indemnitees for its Losses to the
extent of its responsibility, relative to the other Party, for the facts
underlying such Claim.

 

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10.2 Indemnification of Targacept by AstraZeneca. AstraZeneca shall indemnify,
defend and hold harmless Targacept, its Affiliates, its and their respective
directors, officers, employees and agents and all successors, heirs and assigns
of any of the foregoing (collectively, the “Targacept Indemnitees”) from and
against all Losses incurred by or imposed upon the Targacept Indemnitees, or any
of them, as result of or arising from Claims arising out of: (a) the
Manufacture, use or sale in the Territory of any Compound or Licensed Product by
(i) AstraZeneca, (ii) any of its Affiliates, (iii) any of its Sublicensees,
Distributors, Net Sales Distributors or agents, or (iv) any Person expressly
authorized by AstraZeneca or any of its Affiliates to do any of the foregoing;
(b) the breach of this Agreement by AstraZeneca; or (c) the gross negligence or
willful misconduct of any AstraZeneca Indemnitee in connection with
AstraZeneca’s performance of this Agreement; provided that with respect to any
Claim for which Targacept has an obligation to any AstraZeneca Indemnitee
pursuant to Section 10.1 and AstraZeneca has an obligation to any Targacept
Indemnitee pursuant to this Section 10.2, each Party shall indemnify each of the
other Party’s Indemnitees for its Losses to the extent of its responsibility,
relative to the other Party, for the facts underlying the Claim.

10.3 Conditions to Indemnification.

10.3.1 Notice of Claim. A Party seeking recovery (or defense) under this Article
10 (the “Indemnified Party”) in respect of any Losses incurred by it or, in the
case of AstraZeneca, one or more AstraZeneca Indemnitees or, in the case of
Targacept, one or more Targacept Indemnitees (in either case, the “Indemnitees”)
shall give prompt notice of the applicable Claim (an “Indemnification Claim
Notice”) to the Party from which recovery (or defense) is sought (the
“Indemnifying Party”), and in no event shall the Indemnifying Party be liable
for any Losses that would not have occurred but for a failure in providing
notice promptly. Each Indemnification Claim Notice must contain a description of
the applicable Claim and the nature and amount of such Loss (to the extent that
the nature and amount of such Loss is known at such time). The Indemnified Party
shall furnish promptly to the Indemnifying Party copies of all papers and
official documents received in respect of any Claims. All indemnification claims
in respect of a Party or its Indemnitees shall be made solely by such Party.

 

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10.3.2 Claim Indemnification Procedures. The obligations of an Indemnifying
Party under this Article 10 with respect to Claims and Losses that are subject
to Section 10.1 or Section 10.2 shall be governed by and be contingent upon the
following additional terms and conditions:

(a) Subject to Section 7.12.2 and Section 7.12.3, at its option, the
Indemnifying Party may assume the defense of any Claim by giving written notice
to the Indemnified Party within ******** days after the applicable
Indemnification Claim Notice is delivered to the Indemnifying Party. The
assumption of the defense of a Claim by the Indemnifying Party shall not be
construed as an acknowledgment that the Indemnifying Party is liable to
indemnify the Indemnified Party or any of its Indemnitees in respect of such
Claim, nor shall it constitute a waiver by the Indemnifying Party of any
defenses it may assert against the Indemnified Party’s, or any of its
Indemnitees’, claim for indemnification. Upon assuming the defense of a Claim,
the Indemnifying Party may select and appoint lead counsel in the defense of the
Claim, such lead counsel to be subject to the approval of the Indemnified Party
(not to be unreasonably withheld, conditioned or delayed). In the event the
Indemnifying Party assumes the defense of a Claim, the Indemnified Party shall
promptly deliver to the Indemnifying Party all original notices and documents
(including court papers) received by the Indemnified Party or any of its
Indemnitees in connection with such Claim. If the Indemnifying Party assumes the
defense of a Claim, except as provided in Section 10.3.2(b), the Indemnifying
Party shall not be liable to the Indemnified Party or any of its Indemnitees for
any legal expenses subsequently incurred by such Indemnified Party or
Indemnitee(s) in connection with the analysis, defense or settlement of such
Claim. In the event that it is judicially determined (in a final, non-appealable
decision), or otherwise agreed by the Parties, that the Indemnifying Party is
not obligated to indemnify, defend or hold harmless an Indemnified Party or any
of its Indemnitee(s) from and against a Claim, the Indemnified Party shall
reimburse the Indemnifying Party for any and all actual costs and expenses
(including reasonable attorneys’ fees and costs of suit) and Losses actually
paid by the Indemnifying Party in its defense of such Claim with respect to such
Indemnified Party or such Indemnitee(s).

 

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(b) Without limitation of Section 10.3.2(a), if the Indemnifying Party assumes
the defense of a Claim, the Indemnified Party and its Indemnitees shall be
entitled to participate in, but not control, the defense of such Claim and to
employ counsel of its choice for such purpose; provided that such employment
shall be at the Indemnified Party’s, or its Indemnitee’s own expense unless
(i) the employment thereof has been specifically authorized by the Indemnifying
Party in writing, or (ii) the named parties to such Claim include both the
Indemnifying Party and the Indemnified Party and the Indemnified Party
reasonably concludes, based on advice from counsel, that the Indemnifying Party
and the Indemnified Party have conflicting interests with respect to such Claim.

(c) With respect to each Claim for which the Indemnifying Party has assumed the
defense in accordance with Section 10.3.2(a) and has acknowledged in writing the
obligation to indemnify the Indemnified Party or any of its Indemnitees
hereunder, the Indemnifying Party shall have the sole right to consent to the
entry of any judgment, enter into any settlement or otherwise dispose of such
Claim, on such terms as the Indemnifying Party, in its sole discretion, shall
deem appropriate, provided such judgment, settlement or disposition does not
result in the Indemnified Party or any of its Indemnitees becoming subject to
injunctive or other relief or admitting fault or liability. With respect to each
Claim for which the Indemnifying Party has assumed the defense of in accordance
with Section 10.3.2(a) and has acknowledged in writing the obligation to
indemnify the Indemnified Party or any of its Indemnitees hereunder, but as to
which the immediately preceding sentence does not apply, the Indemnifying Party
shall have authority to consent to the entry of any judgment, enter into any
settlement or otherwise dispose of such Claim provided it obtains the prior
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld, conditioned or delayed).

(d) The Indemnifying Party shall not be liable for any settlement or other
disposition of a Claim by the Indemnified Party or any of its Indemnitees that
is reached without the written consent of the Indemnifying Party.

 

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(e) If the Indemnifying Party assumes the defense of any Claim, neither the
Indemnified Party nor its Indemnitees shall admit any liability with respect to,
or settle, compromise or discharge (other than as a result of a court-imposed
judgment), such Claim without the prior written consent of the Indemnifying
Party.

(f) If the Indemnifying Party chooses to assume control of the defense of any
Claim, the Indemnified Party shall, and shall use diligent efforts to cause each
of its Indemnitees to, (i) cooperate in all reasonable respects in the defense
or prosecution thereof, (ii) furnish such records, information and testimony,
(iii) provide such witnesses and (iv) attend such conferences, discovery
proceedings, hearings, trials and appeals as may be reasonably requested in
connection therewith. The Indemnifying Party shall reimburse the Indemnified
Party and each of its Indemnitees for all its reasonable out-of-pocket expenses
in connection with the foregoing.

10.4 Insurance.

10.4.1 General. AstraZeneca shall have and maintain such type and amounts of
liability insurance covering the Manufacture, supply, use and sale of Compounds
and Licensed Products as is normal and customary in the pharmaceutical industry
for a Person of comparable size and engaged in activities comparable to the
activities in which AstraZeneca engages hereunder. AstraZeneca’s liability
insurance shall be primary to any liability insurance carried by Targacept,
which insurance shall be excess and non-contributory, for claims and losses to
the extent arising out of AstraZeneca’s performance of this Agreement and shall
be specifically endorsed to list Targacept as an additional insured.

 

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10.4.2 Targacept. Targacept shall maintain (a) commercial general liability
insurance covering bodily injury and property damage with minimum limits of
******** Dollars (US $********) per occurrence and ******** Dollars (US
$********) general aggregate, (b) commercial automobile liability insurance, if
and for so long as Targacept has personnel located at the offices of
AstraZeneca’s Affiliate as contemplated by Section 3.2.3, covering owned, hired
and non-owned vehicles with limits of at least ******** Dollars (US $********)
combined single limit (bodily injury and property damage) and (c) products
liability/completed operations coverage with minimum limits of ******** Dollars
(US $********) each occurrence and ******** Dollars (US $********) general
aggregate or, if Targacept is Commercializing a Compound or Licensed Product in
any Terminated Territory (in the event this Agreement is terminated with respect
to one or more Terminated Territories pursuant to Section 11.2.2) or anywhere in
the world (in the event this Agreement is terminated in its entirety), ********
Dollars (US $********) per occurrence and ******** Dollars (US $********)
general aggregate. Each of the above policies of insurance: (i) shall cover
claims arising out of Targacept’s performance of this Agreement that are made
within a period of at least ******** years after the Term and claims arising out
of Targacept’s Commercialization of any Compound or Licensed Product in any
Terminated Territory (in the event this Agreement is terminated with respect to
one or more Terminated Territories pursuant to Section 11.2.2) or anywhere in
the world (in the event this Agreement is terminated in its entirety), as
applicable, that are made within a period of at least ******** years after the
end of any such period in which Targacept is Commercializing any Compound or
Licensed Product in any Terminated Territory (in the event this Agreement is
terminated with respect to one or more Terminated Territories pursuant to
Section 11.2.2) or anywhere in the world (in the event this Agreement is
terminated in its entirety), as applicable; and (ii) shall be primary to any
liability insurance carried by AstraZeneca, which insurance shall be excess and
non-contributory, for claims and losses to the extent arising out of Targacept’s
performance of this Agreement. The general, commercial automobile (if any) and
product liability policies shall be specifically endorsed to list AstraZeneca as
an additional insured. In addition, Targacept shall maintain worker’s
compensation insurance as required by all applicable laws and employers
liability coverage of not less than ******** Dollars (US $********). At such
times as AstraZeneca may reasonably request in writing, Targacept shall provide
AstraZeneca with a certificate of insurance evidencing the insurance coverage
required under this Section 10.4.2, which certificate shall provide at least
******** days’ notice of cancellation or termination of such insurance coverage.
Such policies shall remain in effect throughout the Term and for ******** years
thereafter and throughout any period during which Targacept is Commercializing
any Compound or Licensed Product in any Terminated Territory (in the event this
Agreement is terminated with respect to one or more Terminated Territories
pursuant to Section 11.2.2) or anywhere in the world (in the event this
Agreement is terminated in its entirety), as applicable and for ******** years
thereafter, and shall not be canceled, if not replaced, without the prior
written authorization of AstraZeneca. Maintenance of such insurance coverage
shall not relieve Targacept of any responsibility under this Agreement for
damages in excess of insurance limits or otherwise. All such insurance shall be
written with a company or companies having a financial rating of not less than
******** in the most current edition of Best’s Key Rating Guide.

 

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10.5 Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY TECHNOLOGY,
PRODUCTS OR OTHER GOODS, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF THIS
AGREEMENT AND EACH PARTY HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NONINFRINGEMENT.

10.5.1 No Warranty of Success. Nothing contained in this Agreement shall be
construed as a warranty, either express or implied, on the part of either Party
that: (a) the Development Program will yield any Licensed Products or otherwise
be successful or meet its goals, objectives, timelines or budgets; or (b) a
Compound or Licensed Product can or will be successfully Developed or
Commercialized.

10.6 Limited Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ANY OF ITS
AFFILIATES FOR ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOST REVENUES ARISING
OUT OF THIS AGREEMENT OR THE PERFORMANCE THEREOF, WHETHER UNDER ANY CONTRACT,
WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY. THIS
SECTION 10.6 SHALL NOT BE DEEMED TO LIMIT EITHER PARTY’S OBLIGATION UNDER
SECTION 10.1 OR SECTION 10.2, IF APPLICABLE, TO INDEMNIFY AND HOLD HARMLESS THE
OTHER PARTY FROM AND AGAINST “LOSSES” ACTUALLY PAID BY SUCH OTHER PARTY TO THIRD
PARTIES.

ARTICLE 11

TERM AND TERMINATION

11.1 Term. This Agreement shall become effective as of the Effective Date and,
unless earlier terminated pursuant to this Article 11 or by mutual agreement of
the Parties, shall continue in force and effect until the date, following
expiration of the last Royalty Term for the last Licensed Product, of final
payment to Targacept of all payment obligations of AstraZeneca under this
Agreement (the period during which this Agreement is in force and effect, the
“Term”).

 

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11.1.1 Effect of Expiration of the Term. Following the expiration of the Term,
subject to the terms and conditions of this Agreement, AstraZeneca shall have a
non-exclusive, fully-paid and royalty-free right and license, with the right to
grant sublicenses (through multiple tiers), under the Targacept Technology as it
exists as of the date of expiration solely to Develop and Commercialize Compound
and Licensed Products in the Field in the Territory.

11.2 Termination for Cause.

11.2.1 Material Breach. Subject to Section 11.2.2, either Party (the
“Non-Breaching Party”) may, without prejudice to any other remedies available to
it at law or in equity, terminate this Agreement in its entirety in the event
(a) the other Party (the “Breaching Party”) shall have materially breached the
performance of any of its material obligations hereunder and (b) such breach
shall have continued for ******** days (or, in the case of a payment breach,
******** days) after written notice thereof to the Breaching Party referencing
this Section 11.2.1, describing in reasonable detail the alleged material breach
and stating its intention to pursue a remedy under this Section 11.2.1 if not
cured; provided that, except in the case of a payment breach and except as
provided in Section 11.2.3, if the Breaching Party has during such ******** day
period commenced and diligently continued conducting activities designed to cure
such breach but such cure is not possible during such ******** day period, the
Breaching Party shall have an additional ******** days in which to cure such
breach. Subject to Section 11.2.3, termination of this Agreement by the
Non-Breaching Party shall become effective on the last day of the applicable
cure period if the alleged breach has not been cured.

11.2.2 Material Breach Related to Diligence in ********. Notwithstanding
Section 11.2.1, if the material breach and failure to cure contemplated by
Section 11.2.1 is with respect to any of AstraZeneca’s obligations under clause
******** of Section ******** with respect to ******** but not ********,
Targacept shall have the right to terminate this Agreement ******** with respect
to ********.

11.2.3 Disagreement. If the Parties in good faith dispute whether there has been
a material breach as alleged pursuant to Section 11.2.1 (including as described
in Section 11.2.2) or whether such material breach has been cured or cured on a
timely basis, either Party shall have the right to initiate dispute resolution
in accordance with Section 12.1 to resolve such dispute. If the Breaching Party
initiates such dispute resolution procedure during the cure period set forth in
Section 11.2.1 to resolve the dispute for which termination is being sought and
is diligently pursuing such procedure, the cure period set forth in
Section 11.2.1 shall be tolled and the termination shall become effective only
if such breach remains uncured for ******** days (or, in the case of a payment
breach, ******** days) after the final resolution of the dispute through such
dispute resolution procedure This Section 11.2 defines exclusively the Parties’
right to terminate in case of any material breach of contract.

 

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11.3 Unilateral Termination Rights.

11.3.1 AstraZeneca - Entire Agreement. AstraZeneca shall have the right to
terminate this Agreement in its entirety, without incurring any additional
liability, penalty, cost or expense to Targacept, other than any costs or
expenses that are (x) accrued as of the effective date of such termination
(including, for clarity, during the applicable notice period) or (y) otherwise
provided for in this Article 11:

(a)******** if, after the JDC and Executive Officers meeting required as set
forth below, AstraZeneca determines in good faith that it is not advisable for
AstraZeneca to continue to Develop or Commercialize Compounds or Licensed
Products as a result of a perceived serious safety issue regarding the use of
the Primary Compound, immediately upon written notice to Targacept; provided
that, if AstraZeneca perceives there to be such a serious safety issue:
(i) AstraZeneca shall notify Targacept and the JDC and the Executive Officers
shall meet as soon as practicable thereafter in person; and (ii) at such
meeting, AstraZeneca shall (A) provide the JDC and the Executive Officers with
any ******** and ******** related to the Primary Compound not previously
provided in writing by AstraZeneca to Targacept that demonstrates such perceived
serious safety issue and (B) explain in detail to the JDC and the Executive
Officers the basis for AstraZeneca’s good faith belief, including the supporting
factors, and, if applicable, Targacept’s members of the JDC and Executive
Officer may provide to AstraZeneca any ******** and ******** that supports a
contrary belief of Targacept;

(b) in its sole discretion upon at least ******** days’ written notice to
Targacept, which notice must be given to Targacept (i) no sooner than ********
days after ******** of the last to be completed Phase 3 Clinical Trial designed
to support an NDA (the first NDA) for the Milestone Product and (ii) no later
than ******** days after such ********; provided that, notwithstanding anything
herein to the contrary, AstraZeneca shall not be required to ******** any
******** with respect to a Licensed Product after giving notice of termination
referencing this Section 11.3.1(b); or

 

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(c) immediately upon written notice to Targacept in the event that AstraZeneca
both: (i) reasonably believes, having obtained the advice of independent patent
counsel, that the Commercialization of the Primary Compound or Primary Compound
Licensed Products for which the Primary Compound is the sole active
pharmaceutical ingredient by AstraZeneca, any of its Affiliates or any of its or
their Sublicensees is more likely than not to infringe or misappropriate any
Patent Rights, trade secrets or any other intellectual property right of a Third
Party(ies) in either the U.S. Territory or at least two (2) Major Countries,
such that it is more likely than not that AstraZeneca, any of its Affiliates or
any of its or their Sublicensees would not be able to Commercialize the Primary
Compound or Primary Compound Licensed Products for which the Primary Compound is
the sole active pharmaceutical ingredient in the U.S. Territory or such Major
Countries, as applicable, without infringing such Patent Rights or other
intellectual property right of such Third Party; and (ii) is unable to obtain a
license from such Third Party(ies) on commercially reasonable terms.

In addition, notwithstanding anything herein to the contrary, if AstraZeneca
terminates this Agreement with respect to the United States (i.e., the U.S.
Territory) pursuant to Section 11.3.2, this Agreement shall automatically
terminate in its entirety as of the effective date of termination with respect
to the U.S. Territory.

11.3.2 AstraZeneca - With Respect to a Major Country. AstraZeneca shall have the
right to terminate this Agreement in its sole discretion with respect to each
Major Country, on a Major Country-by-Major Country basis, without incurring any
additional liability, penalty, cost or expense to Targacept, other than any
costs or expenses that are (a) accrued as of the effective date of such
termination (including, for clarity, during the applicable notice period) or
(b) otherwise provided for in this Article 11, upon ******** days’ written
notice to Targacept specifying the applicable Major Country and referencing this
Section 11.3.2; provided that no such termination pursuant to this
Section 11.3.2 shall be permitted or effective prior to the fourth
(4th) anniversary of the Effective Date.

11.3.3 Targacept. Except to the extent the following is unenforceable under the
law of a particular jurisdiction where a patent application within the Targacept
Patent Rights or Targacept Program Patent Rights is pending or a patent within
the Targacept Patent Rights or Targacept Program Patent Rights issued, Targacept
may terminate this Agreement in its entirety immediately on written notice to
AstraZeneca in the event that AstraZeneca or any of its Affiliates or any of its
or their Sublicensees Challenges any Targacept Patent Rights or Targacept
Program Patent Rights or assists a Third Party in initiating a Challenge of any
Targacept Patent Rights or Targacept Program Patent Rights; provided that, if
such Challenge is by a Sublicensee of AstraZeneca or any of its Affiliates,
Targacept shall notify AstraZeneca of such Challenge and may not terminate this
Agreement if AstraZeneca notifies Targacept within ******** Business Days after
the receipt of such notice that it (or its applicable Affiliate) has a valid
right to terminate and will terminate the Sublicensee’s sublicense and then
provides written notice of such termination to Targacept within ********
Business Days thereafter.

 

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11.4 Termination for Insolvency.

11.4.1 Right to Terminate. In the event that either Party files for protection
under bankruptcy or insolvency laws, makes an assignment for the benefit of
creditors, appoints or suffers appointment of a receiver or trustee over
substantially all of its property that is not discharged within ******** days
after such filing, proposes a written agreement of composition or extension of
its debts, proposes or is a party to any dissolution or liquidation (other than
in connection with a Change of Control of such Party that does not result in the
dissolution or liquidation or other similar event by the successor to such
Party), files a petition under any bankruptcy or insolvency act or has any such
petition filed against that is not discharged within ******** days of the filing
thereof, then the other Party may terminate this Agreement in its entirety
effective immediately upon written notice to such Party that specifically
references this Section 11.4.1.

11.4.2 Rights and Licenses. The Parties intend that all rights and licenses
granted under or pursuant to any section of this Agreement are and shall
otherwise be deemed to be for purposes of Section 365(n) of Title 11, United
States Code (the “Bankruptcy Code”), or any analogous provisions in any country
or jurisdiction in the ROW Territory, licenses of rights to “intellectual
property” as defined in Section 101(35A) of the Bankruptcy Code. The Parties
shall retain and may fully exercise all of their respective rights and elections
under the Bankruptcy Code, or any analogous provisions in any country or
jurisdiction in the ROW Territory. To the extent lawful, upon the bankruptcy of
either Party, the non-bankrupt Party shall further be entitled to a complete
duplicate of, or complete access to, any such intellectual property in tangible
form, and such, if not already in its possession, shall be promptly delivered to
the non-bankrupt Party, unless the bankrupt Party elects to continue, and
continues, to perform all of its obligations under this Agreement.

 

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11.5 Effect of Certain Terminations.

11.5.1 In the event of a termination of this Agreement in its entirety by
AstraZeneca pursuant to Section 11.3.1(b) or (c), by Targacept pursuant to
Section 11.2.1, 11.3.3 or 11.4.1 or as provided in the last sentence of
Section 11.3.1:

(a) all rights and licenses granted by Targacept hereunder shall immediately
terminate;

(b) all rights and licenses granted by AstraZeneca pursuant to Section 4.1.2
hereunder shall immediately terminate;

(c) AstraZeneca shall, and hereby does effective as of the date of termination,
grant Targacept and its Affiliates an exclusive license, with the right to grant
sublicenses (through multiple tiers), under AstraZeneca Termination Technology
(excluding Product Information, which shall be assigned to Targacept as set
forth in Section 11.5.1(d)) Controlled by AstraZeneca as of the effective date
of such termination to Develop and Commercialize in the Field in the entire
world, itself or through contractors, Compounds and Licensed Products; provided
that: (i) the foregoing license shall exclude any license or other rights with
respect to any ******** that is not a ******** and the ******** of which is
covered by Patent Rights owned or Controlled by AstraZeneca; (ii) AstraZeneca
shall provide Targacept with copies of any and all AstraZeneca Third Party
Agreements with respect to the AstraZeneca Termination Technology that is the
subject of the license granted by AstraZeneca to Targacept pursuant to this
Section 11.5.1(c) and Targacept may at any time thereafter exclude all of the
AstraZeneca Termination Technology that is the subject of any such AstraZeneca
Third Party Agreement from the grant set forth in this Section 11.5.1(c) by
written notice to AstraZeneca, in which event clauses (iii), (v) and (vi) below
shall not apply thereafter to such AstraZeneca Third Party Agreement and, for
clarity, Targacept shall have no obligations with respect to any amounts that
may become payable under such AstraZeneca Third Party Agreement; (iii) Targacept
shall be responsible for (A) making any payments (including royalties,
milestones and other amounts) payable by AstraZeneca to Third Parties under any
such AstraZeneca Third Party Agreements that are applicable to the grant to
Targacept of such license or to the exercise of such license by Targacept or any
of its Affiliates or Sublicensees, by making such payments directly to
AstraZeneca and, in each instance, Targacept shall make the requisite payments
to AstraZeneca and provide the necessary reporting information to AstraZeneca in
sufficient time to enable AstraZeneca to comply with its obligations under the
AstraZeneca Third Party Agreements, and (B) complying with any other obligations
included in any such AstraZeneca Third Party Agreements that are applicable to
the grant to Targacept of such license or to the exercise of such license by
Targacept or any of its Affiliates or Sublicensees; (iv) AstraZeneca shall be
responsible for paying or providing to any such Third Party any payments or
reports made or provided by Targacept under this Section 11.5.1(c);
(v) AstraZeneca shall not amend any such AstraZeneca Third Party Agreement in
any manner that encumbers or diminishes the rights granted to Targacept pursuant
to this Section 11.5.1(c) without Targacept’s prior written consent, not to be
unreasonably withheld, conditioned or delayed, and AstraZeneca shall not
undertake any action that would allow a Third Party to terminate any such
AstraZeneca Third Party Agreement; and (vi) AstraZeneca shall, if reasonably
requested to do so by Targacept, promptly enter into confirmatory license
agreements in the form or substantially the form set out in Schedule 7 attached
hereto (with the Parties reversed) for purposes of recording the licenses
granted under this Agreement with such patent offices in the Territory as
Targacept considers reasonably necessary, including to avoid disclosure of this
Agreement; provided that, as between the Parties, regardless of whether any
required confirmatory licenses are executed, the Parties’ respective rights and
obligations in respect of AstraZeneca Termination Technology shall be as set
forth under this Agreement;

 

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(d) to the extent requested in writing by Targacept, AstraZeneca shall promptly:

(i) assign all right, title and interest in and to any and all Product
Information and, at Targacept’s reasonable expense, execute all documents and do
all proper actions reasonably required by Targacept from time to time to perfect
Targacept’s title to and ownership thereof;

(ii) where permitted by Applicable Laws, transfer to Targacept all of its right,
title and interest in all Regulatory Documentation (including, for clarity,
Product Regulatory Approvals) then in its name applicable to any Compound or
Licensed Product in the Territory;

(iii) notify the applicable Regulatory Authorities and take any other action
reasonably necessary to effect the transfer set forth in clause (ii) above;

(iv) unless expressly prohibited by any Regulatory Authority, transfer control
to Targacept of all Clinical Studies of each Compound or Licensed Product being
conducted as of the effective date of termination and continue to conduct such
Clinical Studies, at Targacept’s cost, for up to ******** months to enable such
transfer to be completed without interruption of any such Clinical Study;
provided that (A) for clarity, Targacept shall not have any obligation to
continue any Clinical Study unless required by Applicable Laws and (B) with
respect to each Clinical Study for which such transfer is expressly prohibited
by the applicable Regulatory Authority, if any, AstraZeneca shall continue to
conduct such Clinical Study to completion, at Targacept’s reasonable cost;

 

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(v) assign (or cause its Affiliates to assign) to Targacept all agreements with
any Third Party with respect to the conduct of Preclinical Activities or
Clinical Studies of each Compound or Licensed Product including agreements with
contract research organizations, clinical sites and investigators, unless, with
respect to any such agreement, such agreement (A) expressly prohibits such
assignment, in which case AstraZeneca shall cooperate with Targacept in all
reasonable respects to secure the consent of the applicable Third Party to such
assignment, or (B) covers clinical trials for Combination Products in which any
active pharmaceutical ingredient that is not a Compound is covered by Patent
Rights of AstraZeneca or products covered by Patent Rights of AstraZeneca in
addition to Licensed Products, in which case, AstraZeneca would be required, at
Targacept’s sole cost and expense, to cooperate with Targacept in all reasonable
respects to facilitate the execution of a new agreement between Targacept and
the applicable Third Party;

(vi) provide Targacept with all supplies of each Compound and all supplies of
each Licensed Product owned by AstraZeneca or any Affiliate of AstraZeneca,
wherever located, at a transfer price equal to (A) AstraZeneca’s ********
(determined as provided on Schedule 10 attached hereto) plus ******** percent
(********%) or (B) if, with respect to any Compound or Licensed Product,
AstraZeneca’s supply is purchased from a Third Party, the actual costs paid by
AstraZeneca or Targacept to such Third Party ********;

(vii) without limitation of clause (i) above, subject to any Third Party
agreement, provide Targacept with copies of all reports and data generated or
obtained by AstraZeneca or any of its Affiliates that relate to any Compound or
Licensed Product that have not previously been provided to Targacept;

(viii) facilitate the orderly transition to Targacept of, and transition to
Targacept, control of the Prosecution and Maintenance of all Targacept Patent
Rights, Targacept Program Patent Rights and AstraZeneca Extended Term Patent
Rights (and discuss with Targacept in good faith a likewise transition of
control of the Prosecution and Maintenance of Joint Program Patent Rights) that
AstraZeneca was Prosecuting and Maintaining as of the effective date of such
termination and, in each case, meeting during such transition in a manner
reasonably directed by Targacept all applicable deadlines needed to be met to
establish or preserve such Patent Rights;

 

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(ix) use diligent efforts in good faith to provide all documents with respect to
Targacept Patent Rights, Targacept Program Patent Rights, AstraZeneca Extended
Term Patent Rights and Joint Program Patent Rights that Targacept may reasonably
request in connection with any current or potential future effort to secure
patent term extensions for Licensed Products; and

(x) assign to Targacept all right, title and interest of AstraZeneca in each
Product Trademark;

(e) to the extent requested in writing by Targacept, AstraZeneca shall supply
Targacept with its requirements for each Compound and its requirements for each
Licensed Product (which amounts shall be consistent with AstraZeneca’s
historical usage thereof and then-current forecasts therefor) for up to ********
following such termination (i) at a transfer price equal to AstraZeneca’s
******** (determined as provided on Schedule 10 attached hereto) ******** for
the supply thereof or (ii) if, with respect to any Compound or Licensed Product,
AstraZeneca’s supply is purchased from a Third Party, at a transfer price equal
to the actual costs paid by AstraZeneca or Targacept to such Third Party with
respect to such supply of such Compound or Licensed Product ********; and,
promptly after Targacept’s request, AstraZeneca shall provide to Targacept or
its designee all Information in its Control with respect to the Manufacture of
each Compound and the Manufacture of each Licensed Product that is being
researched, is in Development or is being Commercialized as of the effective
date of such termination, solely in the forms, formulations or methods of
delivery as such Compound or Licensed Product exists as of the effective date of
such termination; and

 

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(f) if this Agreement is terminated in its entirety by AstraZeneca pursuant to
Section 11.3.1 or as provided in the last sentence of Section 11.3.1 and after
the effective date of such termination Targacept or any of its Affiliates,
Sublicensees or Net Sales Distributors Commercializes a Licensed Product that
was the subject of a Clinical Study prior to or as of the effective date of such
termination or was being Commercialized as of the effective date of such
termination (each such Licensed Product, if any, a “Reverse Royalty Territory
Product”), then within ******** days after the end of each Calendar Quarter
(commencing with the Calendar Quarter in which the first sale (excluding
“treatment IND sales,” “named patient sales” and “compassionate use sales”) of
the first Reverse Royalty Territory Product for use or consumption by the
general public in any country by Targacept or any of its Affiliates,
(sub)licensees (including Sublicensees) or Net Sales Distributors after (a) this
Section 11.5.1 becomes operative and (b) Regulatory Approval from the applicable
Regulatory Authority has been obtained), Targacept shall pay AstraZeneca a
royalty on Net Sales of each Reverse Royalty Territory Product in each country
in the world by Targacept or any of its Affiliates or its or their licensees,
Sublicensees or Net Sales Distributors at a rate of (x) ******** percent
(********%), for each Reverse Royalty Territory Product with respect to which
******** of the ******** (as specified in the applicable ********) were ********
in at least ******** prior to AstraZeneca’s notice of termination (******** or
******** to ********, as ********, for each such ********, using the ********
specified in the ********), if any, or (y) ********, for each Reverse Royalty
Territory Product as to which clause (x) above does not apply. Targacept’s
obligation to pay royalties under this Section 11.5.1(f) shall expire with
respect to each Reverse Royalty Territory Product in each country upon the later
of:

(i) expiration of the last to expire Targacept Patent Rights, Targacept Program
Patent Rights, AstraZeneca Program Patent Rights, AstraZeneca Extended Term
Patent Rights or Joint Program Patent Rights in such country that includes a
Valid Claim that covers:

(A) the ******** of such Reverse Royalty Territory Product;

(B) a ******** or ******** such Reverse Royalty Territory Product (including the
******** of such Reverse Royalty Territory Product); or

(C) a ******** of such Reverse Royalty Territory Product for ******** for which
such Reverse Royalty Territory Product has obtained Regulatory Approval (and, in
the case of any country in which ******** or ******** is required, such ********
or ********) in such country, if, solely in the case of this clause (C), no
******** (other than a ******** or ******** of ********) is selling in such
country a ******** that:

(1) is, if such country is the U.S. Territory, ******** in the ******** as a
******** that the ******** considers to be ******** such Reverse Royalty
Territory Product; or

 

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(2) is, if such country is outside of the U.S. Territory, ******** in the manner
required by Applicable Laws in such country as ******** and ******** such
Reverse Royalty Territory Product; and

(ii) ******** years from the First Commercial Sale of such Reverse Royalty
Territory Product in such country (whether occurring before or after this
Section 11.5.1 becomes operative).

During such period (if any) as Targacept is required to pay royalties to
AstraZeneca pursuant to this Section 11.5.1(f), the definition of “Net Sales,”
“Net Sales Distributors,” and Sections 5.3.1(c)(i-iv), 5.3.1(d), and 5.5 through
5.10 shall apply mutatis mutandis to the calculation (including credits and
offsets), payment, recording and auditing of Targacept’s obligations to pay
royalties under this Section 11.5.1(f) as they apply to AstraZeneca and, solely
for such purpose, each reference in each such Section (and any related
definitions) to AstraZeneca shall be deemed to be a reference to Targacept.

11.5.2 In the event of a termination of this Agreement in its entirety by
AstraZeneca pursuant to Section 11.3.1(a), Sections 11.5.1(a), (b), (c), (d) and
(f) shall apply.

11.5.3 In the event of a termination of this Agreement with respect to a
Terminated Territory by Targacept pursuant to Section 11.2.2 or by AstraZeneca
pursuant to Section 11.3.2:

(a) all rights and licenses granted by Targacept hereunder (i) shall
automatically be deemed to be amended to exclude, if applicable, the right to
market, promote, detail, distribute, import, sell, offer for sale, file any Drug
Approval Application for or seek any Product Regulatory Approval for any one or
more Compounds or Licensed Products in such Terminated Territory and (ii) shall
otherwise survive and continue in effect in such Terminated Territory solely for
the purpose of furthering any Development or Commercialization of Compounds and
Licensed Products in the Territory;

 

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(b) all rights and licenses granted by AstraZeneca pursuant to Section 4.1.2
that relate solely to the Development of Compounds and Licensed Products in such
Terminated Territory shall immediately terminate;

(c) AstraZeneca shall, and hereby does effective as of the date of termination,
grant Targacept and its Affiliates an exclusive license, with the right to grant
sublicenses (through multiple tiers), under AstraZeneca Termination Technology
(excluding Product Information related solely to such Terminated Territory,
which shall be assigned to Targacept as set forth in Section 11.5.3(d))
Controlled by AstraZeneca as of the effective date of such termination of this
Agreement with respect to such Terminated Territory to Develop in the Field for
such Terminated Territory and Commercialize in the Field in such Terminated
Territory, itself or through contractors, Compounds and Licensed Products;
provided that (i) the foregoing license shall exclude any license or other
rights with respect to any ******** that is not a ******** and the ******** of
which is covered by Patent Rights owned or Controlled by AstraZeneca;
(ii) AstraZeneca shall provide Targacept with copies of all AstraZeneca Third
Party Agreements with respect to AstraZeneca Termination Technology that is the
subject of the license granted by AstraZeneca to Targacept pursuant to this
Section 11.5.3(c) and Targacept may at any time thereafter exclude all of the
AstraZeneca Termination Technology that is the subject of any such AstraZeneca
Third Party Agreement from the grant set forth in this Section 11.5.3(c) by
written notice to AstraZeneca, in which event clauses (iii), (v) and (vi) below
shall not apply thereafter to such AstraZeneca Third Party Agreement and, for
clarity, Targacept shall have no obligations with respect to any amounts that
may become payable under such AstraZeneca Third Party Agreement; (iii) Targacept
shall be responsible for (A) making any payments (including royalties,
milestones and other amounts) payable by AstraZeneca to Third Parties under any
such AstraZeneca Third Party Agreements that are applicable to the grant to
Targacept of such license with respect to such Terminated Territory or to the
exercise of such license by Targacept or any of its Affiliates or Sublicensees
by making such payments directly to AstraZeneca and, in each instance, Targacept
shall make the requisite payments to AstraZeneca and provide the necessary
reporting information to AstraZeneca in sufficient time to enable AstraZeneca to
comply with its obligations under any such AstraZeneca Third Party Agreements,
and (B) complying with any other obligations included in any such AstraZeneca
Third Party Agreements that are applicable to the grant to Targacept of such
license with respect to such Terminated Territory or to the exercise of such
license by Targacept or any of its Affiliates or Sublicensees; (iv) AstraZeneca
shall be responsible for paying or providing to any such Third Party any
payments or reports made or provided by Targacept under this Section 11.5.3(c);
(v) AstraZeneca shall not amend any such AstraZeneca Third Party Agreements in
any manner that encumbers or diminishes the rights granted to Targacept pursuant
to this Section 11.5.3(c) without Targacept’s prior written consent, not to be
unreasonably withheld, conditioned or delayed, and AstraZeneca shall not
undertake any action that would allow the Third Party to terminate any such
AstraZeneca Third Party Agreement; and (vi) AstraZeneca shall, if reasonably
requested to do so by Targacept, promptly enter into confirmatory license
agreements in the form or substantially the form set out in Schedule 7 attached
hereto (with the Parties reversed) for purposes of recording the licenses
granted under this Agreement with such patent offices in the Territory as
Targacept considers reasonably necessary, including to avoid disclosure of this
Agreement; provided that, as between the Parties, regardless of whether any
required confirmatory licenses are executed, the Parties’ respective rights and
obligations in respect of AstraZeneca Termination Technology shall be as set
forth under this Agreement;

 

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(d) to the extent requested in writing by Targacept, AstraZeneca shall promptly:

(i) assign all right, title and interest in and to any and all Product
Information related solely to such Terminated Territory and, at Targacept’s
reasonable expense, execute all documents and do all proper actions reasonably
required by Targacept from time to time to perfect Targacept’s title to and
ownership thereof; provided that all such assigned Product Information shall
constitute Targacept Know-How from and after the effective date of such
termination;

(ii) where permitted by Applicable Law, transfer to Targacept all of its right,
title and interest in all Regulatory Documentation (including, for clarity,
Product Regulatory Approvals) then in its name solely applicable to any Compound
or Licensed Product that is in clinical development or is being Commercialized,
as such Regulatory Documentation exists as of the effective date of such
termination of this Agreement with respect to such Terminated Territory;
provided that AstraZeneca retains a right of reference under any Regulatory
Documentation transferred pursuant to this clause (ii) as necessary or
reasonably useful for AstraZeneca to Develop or Commercialize Compound or
Licensed Products in the Territory;

 

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(iii) notify the applicable Regulatory Authorities and take any other action
reasonably necessary to effect the transfer set forth in clause (ii) above;

(iv) without limitation of clause (i) above, subject to any Third Party
agreement, provide Targacept with copies of all reports and data generated or
obtained by AstraZeneca or any of its Affiliates that relate to any Compound or
Licensed Product that have not previously been provided to Targacept;

(v) grant Targacept a right of reference to all Regulatory Documentation then in
AstraZeneca’s name that are not transferred to Targacept pursuant to clause
(ii) above that are necessary or reasonably useful for Targacept, any of its
Affiliates or Sublicensees to Develop or Commercialize any Compound or Licensed
Product that is in clinical development or is being Commercialized, as such
Regulatory Documentation exists as of the effective date of such termination of
this Agreement with respect to such Terminated Territory;

(vi) facilitate the orderly transition to Targacept of, and transition to
Targacept, control of the Prosecution and Maintenance of all Targacept Patent
Rights, Targacept Program Patent Rights and AstraZeneca Extended Term Patent
Rights (and discuss with Targacept in good faith a likewise transition of
control of the Prosecution and Maintenance of Joint Program Patent Rights) that
AstraZeneca was Prosecuting and Maintaining in or with respect to such
Terminated Territory as of the effective date of such termination and, in each
case, meeting during such transition in a manner reasonably directed by
Targacept all applicable deadlines needed to be met to establish or preserve
such Patent Rights;

(vii) use diligent efforts in good faith to provide all documents with respect
to Targacept Patent Rights, Targacept Program Patent Rights, AstraZeneca
Extended Term Patent Rights and Joint Program Patent Rights in or with respect
to such Terminated Territory that Targacept may reasonably request in connection
with any current or potential future effort to secure patent term extensions for
Licensed Products in such Terminated Territory; and

(viii) grant Targacept an exclusive (even as to AstraZeneca) license under the
Product Trademarks to Commercialize Licensed Products in such Terminated
Territory;

 

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(e) to the extent requested in writing by Targacept, AstraZeneca shall supply
Targacept with its requirements for each Compound and its requirements for each
Licensed Product with respect to such Terminated Territory (which amounts shall
be consistent with AstraZeneca’s historical usage thereof and then-current
forecasts therefor with respect to such Terminated Territory) for up to ********
months following such termination (i) at a transfer price equal to AstraZeneca’s
******** (determined as provided on Schedule 10 attached hereto) ******** for
the supply thereof or (ii) if, with respect to any Compound or Licensed Product,
AstraZeneca’s supply is purchased from a Third Party, at a transfer price equal
to the actual costs paid by AstraZeneca or Targacept to such Third Party with
respect to such supply of Compound or Licensed Product ********; and, promptly
after Targacept’s request, AstraZeneca shall provide to Targacept or its
designee all Information in its Control with respect to the Manufacture of each
Compound and the Manufacture of each Licensed Product that is being researched,
is in Development or is being Commercialized with respect to such Terminated
Territory as of the effective date of such termination, solely in the forms,
formulations or methods of delivery as such Compound or Licensed Product exists
as of the effective date of the termination of this Agreement with respect to
such Terminated Territory;

(f) each Party shall provide the other Party on a timely basis with access to
all material preclinical and clinical data compiled in support of any Product
Regulatory Approval or other Regulatory Documentation with respect to Compounds
or Licensed Products, in the case of Targacept, with respect to such Terminated
Territory, and, in the case of AstraZeneca, with respect to the Territory;
provided that the Party receiving such access shall not have the right to use
any such data to support a Product Regulatory Approval for a product unless the
inclusion of such data is required or advisable to comply with a requirement to
report worldwide clinical studies to Regulatory Authorities in a filing a Drug
Approval Application or seeking or maintaining a Product Regulatory Approval of
a Licensed Product;

(g) promptly following the effective date of termination of this Agreement with
respect to such Terminated Territory, the Parties shall enter into an agreement
(or an amendment to the Safety Agreement) governing the Parties’ respective
rights and responsibilities with respect to the coordination of safety-related
regulatory obligations, including the reporting of Adverse Events and other
safety or quality data, which agreement shall set forth terms and conditions
with respect to such activities that are reasonable and customary in the
industry for agreements of that nature;

 

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(h) to the extent permitted by Applicable Laws, each Party: (i) shall, and shall
cause its Affiliates, distributors (including Distributors and Net Sales
Distributors) and (sub)licensees (including Sublicensees) to, distribute,
market, promote, offer for sale and sell Licensed Products only in the countries
that it is permitted to do so under this Agreement (with respect to AstraZeneca,
the Territory and, with respect to Targacept, the Terminated Territory), and
(ii) shall not, shall not permit its Affiliates to, and shall require its
distributors (including Distributors and Net Sales Distributors) and
(sub)licensees (including Sublicensees) not to distribute, market, promote,
offer for sale or sell Licensed Products (A) to any Person outside such
countries or (B) to any Person inside such countries who (1) it has reason to
believe is reasonably likely to distribute, market, promote, offer for sale or
sell Licensed Products outside such countries or assist another Person to do so,
or (2) it knows has previously distributed, marketed, promoted, offered for sale
or sold Licensed Products outside such countries or assisted another Person to
do so;

(i) if this Agreement is terminated with respect to such Terminated Territory by
AstraZeneca pursuant to Section 11.3.2 (and, for clarity, not by Targacept
pursuant to Section 11.2.2) and after the effective date of such termination
Targacept or any of its Affiliates, Sublicensees or Net Sales Distributors
Commercializes a Licensed Product in such Terminated Territory that was the
subject of a Clinical Study prior to or as of the effective date of such
termination or was being Commercialized in the Terminated Territory as of the
effective date of such termination (each such Licensed Product, if any, a
“Reverse Royalty Terminated Territory Product”), then within ******** days after
the end of each Calendar Quarter (commencing with the Calendar Quarter in which
the first sale (excluding “treatment IND sales,” “named patient sales” and
“compassionate use sales”) of such Reverse Royalty Terminated Territory Product
for use or consumption by the general public in such Terminated Territory by
Targacept or any of its Affiliates, (sub)licensees (including Sublicensees) or
Net Sales Distributors after (a) this Section 11.5.3 becomes operative and
(b) Regulatory Approval from the applicable Regulatory Authority has been
obtained), Targacept shall pay AstraZeneca a royalty on Net Sales of each
Reverse Royalty Terminated Territory Product in the Terminated Territory by
Targacept or any of its Affiliates or its or their licensees, Sublicensees or
Net Sales Distributors at a rate of (x) ******** percent (********%), for each
Reverse Royalty Terminated Territory Product with respect to which ******** of
the ******** (as specified in the applicable ********) were ******** in at least
******** prior to AstraZeneca’s notice of termination (******** or ******** to
********, as ********, for each such ********, using the ******** specified in
the ********), if any, or (y) ******** percent (********%) for each Reverse
Royalty Terminated Territory Product as to which clause (x) above does not
apply. Targacept’s obligation to pay royalties under this Section 11.5.3(i)
shall expire with respect to each such Reverse Royalty Terminated Territory
Product in such Terminated Territory upon the later of:

(i) expiration of the last to expire Targacept Patent Rights, Targacept Program
Patent Rights, AstraZeneca Program Patent Rights, AstraZeneca Extended Term
Patent Rights or Joint Program Patent Rights in such Terminated Territory that
includes a Valid Claim that covers:

(A) the ******** of such ********;

 

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(B) a ******** containing or comprising such Reverse Royalty Terminated
Territory Product (including the pharmaceutical composition of such Reverse
Royalty Terminated Territory Product); or

(C) a ******** of such Reverse Royalty Terminated Territory Product for any
******** for which such Reverse Royalty Terminated Territory Product has
obtained Regulatory Approval (and if ******** or ******** is required in such
Terminated Territory, such ******** or ********) in such country, if, solely in
the case of this clause (C), no ******** (other than ******** or ******** of
********) is ******** in such Terminated Territory a ******** that is ********
in the manner required by Applicable Laws in such Terminated Territory as
******** and ******** such Reverse Royalty Terminated Territory Product; and

(ii) ******** years from the date of the First Commercial Sale of such Reverse
Royalty Terminated Territory Product in such Terminated Territory (whether
occurring before or after this Section 11.5.3(i) becomes operative).

During such period (if any) as Targacept is required to pay royalties to
AstraZeneca pursuant to this Section 11.5.3(i), the definition of “Net Sales,”
“Net Sales Distributors,” and Sections 5.3.1(c)(i-iv), 5.3.1(d), and 5.5 through
5.10 shall apply mutatis mutandis to the calculation (including credits and
offsets), payment, recording and auditing of Targacept’s obligations to pay
royalties under this Section 11.5.3(i) as they apply to AstraZeneca and, solely
for such purpose, each reference in each such Section (and any related
definitions) to AstraZeneca shall be deemed to be a reference to Targacept.

 

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(j) each Party’s rights and obligations under Articles 2 and 3, AstraZeneca’s
obligations under Article 5, and the Parties’ representations, warranties and
covenants under Article 9 shall survive, but in each case solely with respect to
the Territory, and each Party’s obligations under Article 6 shall survive. For
clarity, AstraZeneca shall have no obligation to make any payment pursuant to
Section 5.2 with respect to any Milestone Event that occurs with respect to a
Terminated Territory after the effective date of termination of this Agreement
with respect to such Terminated Territory; and

(k) each Party’s rights and obligations governing ownership, Prosecution and
Maintenance, enforcement, and defense of Patent Rights and other intellectual
property under Article 7, except as provided in Section 11.5.3(d)(vi), and the
Parties’ respective confidentiality obligations under Article 8 and
indemnification obligations under Article 10 shall survive in their entirety.

11.5.4 In the event of a termination of this Agreement in its entirety by
AstraZeneca pursuant to Section 11.2.1 or Section 11.4.1:

(a) the rights and licenses granted to AstraZeneca pursuant to Section 4.1.1
shall survive such termination (for clarity, beyond the end of the Term
notwithstanding anything to the contrary in Section 4.1.1) and AstraZeneca shall
have the right to grant sublicenses (through multiple tiers) thereunder;

(b) solely if both (i) such termination results from an uncured material breach
of a representation or warranty of Targacept in Section 9.2 and (ii) the failure
of such representation or warranty to be true constitutes a material change to
the ******** of the Primary Compound as compared to the ******** of the Primary
Compound if such representation or warranty were true (in each case considered
as of the Execution Date with all other factors unchanged), then the royalty
rates set forth in Section 5.3.1 and the milestone obligations set forth in
Section 5.2 shall be adjusted in an amount to be determined by the Parties to
reflect royalty rates and milestone obligations that a pharmaceutical company
similarly situated to AstraZeneca would pay and assume for the same rights with
respect to a compound with the post-breach ******** of the Primary Compound as
AstraZeneca has with respect to the Primary Compound hereunder; provided that,
if the Parties cannot agree, each Party may submit the matter for resolution
pursuant to ‘baseball’ arbitration pursuant to Section 12.1.3;

 

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(c) all rights and licenses granted by AstraZeneca pursuant to Section 4.1.2
hereunder shall immediately terminate;

(d) to the extent requested in writing by AstraZeneca, Targacept shall promptly:
(i) unless expressly prohibited by any Regulatory Authority, transfer control to
AstraZeneca of all Clinical Studies of each Compound or Licensed Product being
conducted as of the effective date of termination and continue to conduct such
Clinical Studies, at AstraZeneca’s cost, for up to ******** to enable such
transfer to be completed without interruption of any such Clinical Study;
provided that (A) for clarity, AstraZeneca shall not have any obligation to
continue any Clinical Study except as required by Applicable Laws and (B) with
respect to each Clinical Study for which such transfer is expressly prohibited
by the applicable Regulatory Authority, if any, Targacept shall continue to
conduct such Clinical Study to completion, at AstraZeneca’s reasonable cost;
(ii) assign (or cause its Affiliates to assign) to AstraZeneca all agreements
with any Third Party with respect to the conduct of Clinical Studies of each
Compound or Licensed Product including agreements with contract research
organizations, clinical sites and investigators, unless, with respect to any
such agreement, such agreement (A) expressly prohibits such assignment, in which
case Targacept shall cooperate with AstraZeneca in all reasonable respects to
secure the consent of such Third Party to such assignment, or (B) covers
clinical trials for Combination Products in which any active pharmaceutical
ingredient that is not a Compound is covered by Patent Rights of Targacept or
products covered by Patent Rights of Targacept in addition to Licensed Products,
in which case, Targacept would be required, at AstraZeneca’s sole cost and
expense, to cooperate with AstraZeneca in all reasonable respects to facilitate
the execution of a new agreement between AstraZeneca and the applicable Third
Party; and (iii) subject to any Third Party agreement, provide AstraZeneca with
copies of all reports and data generated or obtained by Targacept or any of its
Affiliates that relate to any Compound or Licensed Product that have not
previously been provided to AstraZeneca; and

(e) subject to clause (b) above, if applicable, the rights and obligations of
the Parties under Article 5 shall survive.

 

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11.6 Return of Confidential Information. In the event of termination of this
Agreement, each Party shall return all data, files, records and other materials
in its possession or control containing or comprising the other Party’s
Confidential Information (in the event of termination of this Agreement with
respect to one or more Terminated Territories but not in its entirety, solely to
the extent relating to such Terminated Territories but not the Territory) to
which such first Party does not retain rights under the surviving provisions of
this Agreement (except one copy of which may be retained solely for archival
purposes). Upon the effective date of such termination, Targacept Licensed
Product Information that AstraZeneca is required to return pursuant to the
immediately preceding sentence shall be deemed Confidential Information only of
Targacept. For clarity, in the event of termination of this Agreement with
respect to any Terminated Territory (but not in its entirety), AstraZeneca shall
have the right to retain a copy of all such Confidential Information that is
necessary or reasonably useful for AstraZeneca to Develop and Commercialize
Compound or Licensed Products with respect to the Territory.

11.7 Accrued Rights; Surviving Provisions.

11.7.1 Accrued Rights. Expiration or termination of this Agreement shall be
without prejudice to any rights or remedies that have accrued hereunder to the
benefit of a Party prior to such expiration or termination or that either Party
may otherwise have at law or in equity. In addition, such expiration or
termination shall not relieve either Party from obligations that are expressly
indicated to survive expiration or termination of this Agreement.

11.7.2 Surviving Provisions. In addition to the provisions of this Agreement
that survive termination of this Agreement pursuant to any provision of this
Agreement, the provisions of Sections 3.7.1(c), 3.7.3(c), 3.9.2(a), 3.9.2(b),
3.11.2 (last sentence only), 4.1.4, 4.2, 5.5, 5.6, 5.7, 6.1.3, 6.2.1, 6.2.2,
6.2.3, 6.2.4, 7.1, 7.2, 7.3, 7.10, 7.11, 7.14, 8.1, 8.2, 8.3, 8.4, 12.1, 12.2,
12.3, 12.4 (excluding Section 12.4.1), 12.6, 12.7, 12.8, 12.9, 12.10, 12.11,
12.12, 12.13, 12.14, 12.15, 12.16 and 12.17, and Articles 10 and 11 (including,
for purposes of Section 11.5.1(f) and Section 11.5.3(c)(i), Sections
5.3.1(c)(i-iv), 5.3.1(d) and 5.5 through 5.10), shall survive expiration or
termination of this Agreement (including, for purposes of interpreting any such
Section or Article, Article 1 and all Sections, Articles or Schedules referenced
in any such Section or Article).

 

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ARTICLE 12

MISCELLANEOUS

12.1 Dispute Resolution.

12.1.1 Except as provided in Section 2.1.5 or Section 12.4 and except with
respect to any provision of this Agreement that provides for a different dispute
resolution mechanism in a particular context, in the event of any dispute
concerning the validity, interpretation or construction of, compliance with, or
breach of, this Agreement (each, a “Dispute”), either Party may, by written
notice to the other Party, have such dispute referred to their respective
Executive Officers for attempted resolution by good faith negotiations within
******** days after such notice is received. In the event the Executive Officers
are not able to resolve such dispute within such ******** day period, then,
either Party may submit such Dispute to arbitration pursuant to Section 12.1.2.

12.1.2 Binding Arbitration. The arbitration proceeding shall be conducted in
accordance with the Commercial Arbitration Rules and Supplementary Procedures
for Large Complex Disputes of the AAA and otherwise as described in this
Section 12.1.2.

(a) The arbitration shall be conducted by a panel of three (3) persons who have
sufficient background and experience in pharmaceutical development or
commercialization, as applicable, to resolve the Dispute and are independent of
both Parties and conflict-free (the “Experts”); provided that the Parties may
instead by mutual agreement select a single independent, conflict-free Expert.
Subject to the foregoing proviso, within ******** days after initiation of
arbitration, each Party shall select one person to act as an Expert and the two
(2) Party-selected Experts shall select a third Expert within ******** days of
their appointment. If the Experts selected by the Parties are unable or fail to
agree upon the third Expert, the third Expert shall be appointed by the AAA of
Washington D.C. The place of arbitration shall be Washington, D.C., and all
proceedings and communications shall be in English.

(b) The Expert(s) shall make a final decision with respect to the Dispute within
******** days following the arbitration proceeding; provided that the Expert(s)
shall have no authority to award punitive or any other type of damages not
measured by a Party’s compensatory damages.

 

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(c) Either Party may apply to the Expert(s) for interim injunctive relief until
the arbitration decision is rendered or the Dispute is otherwise resolved.
Either Party also may, without waiving any right or remedy under this Agreement,
seek from any court having jurisdiction any injunctive or provisional relief
necessary to protect the rights or property of that Party pending resolution of
the Dispute pursuant to this Section 12.1.2. Each Party shall bear its own costs
and expenses and attorneys’ fees, and the Party that does not prevail in the
arbitration proceeding shall pay the Experts’ fees and any administrative fees
of arbitration.

(d) Except to the extent necessary to confirm an award or decision or as may be
required by Applicable Laws, neither Party may, and the Parties shall instruct
the Expert(s) not to, disclose the existence, content, or results of an
arbitration without the prior written consent of both Parties. In no event shall
an arbitration be initiated after the date when commencement of a legal or
equitable proceeding based on the Dispute would be barred by the applicable New
York statute of limitations.

(e) The Parties hereby agree that any payment to be made by a Party pursuant to
a decision of the Expert(s) shall be made in Dollars.

(f) The decision of the Expert(s) shall be the sole, exclusive and binding
remedy between the Parties regarding determination of each Dispute presented.

12.1.3 Baseball Arbitration. Under the circumstances described in Section 3.10.4
or Section 11.5.4(b), either Party may elect to have the matter resolved by
expedited arbitration by an Expert. The arbitration proceeding shall be
conducted in accordance with the Commercial Arbitration Rules of the AAA and
otherwise as described in this Section 12.1.3. Upon written request by either
Party to the other Party, the Parties shall promptly negotiate in good faith to
appoint an appropriate Expert. If the Parties are not able to agree within
******** days after the receipt by a Party of the written request in the
immediately preceding sentence, the AAA of Washington D.C, or such other similar
entity as the Parties may agree, shall be responsible for selecting an Expert
with background and experience in pharmaceutical commercialization within
******** days of being approached by a Party. The fees and costs of the Expert
and the AAA (or such other entity) shall be shared equally (50%/50%) by the
Parties. Within ******** days after the designation of the Expert, the Parties
shall each simultaneously submit to the Expert and one another a written
statement of their respective positions on such disagreement. Each Party shall
have ******** Business Days from receipt of the other Party’s submission to
submit a written response thereto. The Expert shall have the right to meet with
the Parties, either alone or together, as necessary to make a determination.
Further, the Expert shall have the right to request information and materials
and to require and facilitate discovery as it shall determine is appropriate in
the circumstances, taking into account the needs of the Parties and the
desirability of making discovery expeditious and cost-effective determinations.
No later than ******** days after the designation of the Expert, or as otherwise
agreed by the Parties, the Expert shall make a determination by selecting the
resolution proposed by one of the Parties that as a whole is the most consistent
with this Agreement and the most fair and reasonable to the Parties in light of
the totality of the circumstances. The Expert shall provide the Parties with a
written statement setting forth the basis of the determination in connection
therewith. The decision of the Expert shall be final, binding and conclusive,
absent manifest error.

 

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12.2 Notices. All notices and communications shall be in writing and delivered
personally, by facsimile transmission, or by internationally-recognized
overnight express courier providing evidence of delivery or mailed via certified
mail, return receipt requested, addressed as follows, or to such other address
as may be designated from time to time:

 

If to AstraZeneca:    If to Targacept: AstraZeneca AB    Targacept, Inc.
V-Malarehamnen 9    200 East First Street S-151 85 Södertälje    Suite 300
Sweden    Winston-Salem, NC 27101-4165 Tel: 46 8 553 260 00    Tel: (336)
480-2100 Fax: 46 8 553 288 12    Fax: (336) 480-2103 Attention: Secretary   
Attention: Chief Executive Officer With a copy to:    With a copy to:
AstraZeneca UK Ltd.    Targacept, Inc. G37 Alderley House    200 East First
Street Alderley Park    Suite 300 Macclesfield, Cheshire    Winston-Salem, NC
27101-4165 England    Tel: (336) 480-2100 SK10 4TF    Fax: (336) 480-2103 Tel:
44 (0)1625 515802    Attention: General Counsel Fax: 44 (0)1625 518805   
Attention: Deputy General Counsel - Corporate

In addition, all notices to the JDC shall be sent to each Party’s designated
members of such committees at such Party’s address stated above or to such other
address as such Party may designate by written notice given in accordance with
this Section 12.2; provided that, notwithstanding the foregoing, notices to each
member of the JDC may be sent by email to a known email address of the
recipient.

 

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Except as otherwise expressly provided in this Agreement or mutually agreed in
writing, any notice, communication or document (excluding payment) required to
be given or made shall be deemed given or made and effective upon actual receipt
or, if earlier, (a) ******** Business Days after deposit with an
internationally-recognized overnight express courier with charges prepaid
(b) ******** Business Days after mailed by certified, registered or regular
mail, postage prepaid, or (c) the date transmitted by facsimile (with
transmission confirmed), in each case (clauses (a), (b) and (c)) addressed to a
Party at its address stated above or to such other address as such Party may
designate by written notice given in accordance with this Section 12.2. Any
notice delivered by facsimile shall be confirmed by a copy delivered by courier
or mail as provided above as soon as practicable thereafter.

12.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (U.S.A.), excluding any
conflicts or choice of law rule or principle that might otherwise refer
construction or interpretation of this Agreement to the substantive law of
another jurisdiction.

12.4 Equitable Relief. Each Party acknowledges and agrees that the restrictions
set forth in Section 6.1 and Article 8 of this Agreement are reasonable and
necessary to protect the legitimate interests of the other Party and that the
other Party would not have entered into this Agreement in the absence of such
restrictions.

12.4.1 Section 6.1. Each Party acknowledges and agrees that any breach or
threatened breach of Section 6.1 would result in irreparable injury to the other
Party for which there will be no adequate remedy at law. In the event of a
breach or threatened breach of Section 6.1 by a Party, the other Party shall be
authorized and entitled to obtain from any court of competent jurisdiction
equitable relief, whether preliminary or permanent, specific performance and an
equitable accounting of all earnings, profits and other benefits arising from
such breach, which rights shall be cumulative and in addition to any other
rights or remedies to which the Party may be entitled in law or equity. Each
Party agrees (a) to waive any requirement that the other Party post a bond or
other security as a condition for obtaining any such relief and (b) to waive any
requirement that the other Party show irreparable harm, balancing of harms,
consideration of the public interest or inadequacy of monetary damages as a
remedy.

 

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12.4.2 Article 8. Each Party acknowledges and agrees that any breach or
threatened breach of Article 8 might result in irreparable injury to the other
Party for which there might be no adequate remedy at law. In the event of a
breach or threatened breach of Article 8 by a Party, the other Party shall be
entitled to seek to obtain from any court of competent jurisdiction equitable
relief, whether preliminary or permanent, specific performance and an equitable
accounting of all earnings, profits and other benefits arising from such breach,
which rights, if granted, would be cumulative and in addition to any other
rights or remedies to which the Party may be entitled in law or equity.

12.4.3 Other. Nothing in this Section 12.4 is intended, or should be construed,
to limit either Party’s rights to equitable relief or any other remedy for a
breach of any provision of this Agreement besides Section 6.1 or Article 8.

12.5 Targacept Change of Control.

12.5.1 Notice. If Targacept enters into an agreement that results or, if the
transaction contemplated thereby is completed, would result, in a Change of
Control of Targacept, Targacept shall provide AstraZeneca with prompt written
notice describing such Change of Control in reasonable detail (the “Targacept
Change of Control Notice”). The Targacept Change of Control Notice shall be
provided by Targacept promptly following the earlier of (a) the public
disclosure of the entry into such agreement and (b) consummation of the
transaction constituting the Change of Control.

12.5.2 Consequences of Change of Control of Targacept. Upon the occurrence of
any Change of Control of Targacept:

(a) AstraZeneca shall have the option to disband the JDC and any or all Working
Groups by giving written notice to Targacept within ******** after the later of
the date the Targacept Change of Control Notice is delivered to AstraZeneca and
the consummation of the Change of Control transaction (the “Election Period”),
and if AstraZeneca elects to disband the JDC or any Working Group any activities
and decisions that would otherwise have been performed, made or subject to
determination by the JDC or such Working Group, as the case may be, shall be
performed, made or determined by AstraZeneca acting unilaterally;

(b) AstraZeneca may elect, by delivering written notice to Targacept within the
Election Period, to terminate the Parties’ right to appoint Alliance Mangers and
Development Liaisons;

 

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(c) AstraZeneca may elect, by delivering written notice to Targacept within the
Election Period, to terminate Targacept’s rights under Section ********;

(d) AstraZeneca may elect, by delivering written notice to Targacept within the
Election Period, to terminate Targacept’s Co-Promotion Right and the
Co-Promotion Agreement (if any) and Targacept’s rights under Sections ********
and ********; and

(e) AstraZeneca shall have no obligations to provide ******** or ********, or to
******** with respect to the Development and Commercialization of Compounds or
Licensed Products under this Agreement, except to: (i) provide ******** as
provided in Section ******** and ******** as provided in Section ******** and
(ii) comply with the audit requirements provided in Section 5.5.

12.6 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective legal representatives, successors
and permitted assigns.

12.7 Headings. Section and subsection headings are inserted for convenience of
reference only and do not form a part of this Agreement.

12.8 Counterparts. This Agreement may be executed simultaneously in two (2) or
more counterparts, each of which shall be deemed an original and all of which,
together, shall constitute a single agreement. An executed signature page of
this Agreement delivered by facsimile transmission or in PDF format via email
shall be as effective as the manual exchange of an originally executed signature
page.

12.9 Amendment; Waiver. This Agreement may be amended, modified, superseded or
canceled, and any of the terms of this Agreement may be waived, only by a
written instrument executed by each Party or, in the case of waiver, by the
Party or Parties waiving compliance. The delay or failure of either Party at any
time or times to require performance of any provision shall in no manner affect
the rights at a later time to enforce the same. No waiver by either Party of any
condition or of the breach of any term contained in this Agreement, whether by
conduct, or otherwise, in any one or more instances, shall be deemed to be, or
considered as, a further or continuing waiver of any such condition or of the
breach of such term or any other term of this Agreement.

12.10 No Third Party Beneficiaries. Except as set forth in Section 7.7.6, no
Third Party (including no employee of either Party) shall have or acquire any
rights by reason of this Agreement.

 

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12.11 Purposes and Scope. The Parties understand and agree that this
Collaboration is limited to the activities, rights and obligations as set forth
in this Agreement and the relationship between the Parties is that of
independent contractors. Nothing in this Agreement shall be construed to:
(a) create or imply a general partnership or joint venture between the Parties;
(b) make either Party the agent of the other for any purpose; (c) to alter,
amend or supersede any other arrangements between the Parties with respect to
any subject matters not covered hereunder; (d) to give either Party the right to
bind the other; (e) to create any duties or obligations between the Parties
except as expressly set forth herein; or (f) to grant any direct or implied
licenses or any other right other than as expressly set forth herein.

12.12 Assignment and Successors. Neither Party shall assign its rights or,
subject to Section 3.12, delegate its obligations under this Agreement without
the consent of the other, which shall not be unreasonably withheld, conditioned
or delayed, except that: (a) each Party may assign this Agreement and the
rights, obligations and interests of such Party (i) in whole or in part, to any
of its Affiliates or (ii) in whole, but not in part, to any purchaser of all or
substantially all of its assets to which this Agreement relates or to any
successor resulting from a Change of Control; and (b) each Party shall always
have the right to perform any or all of its obligations and exercise any or all
of its rights under this Agreement through any of its Affiliates, but, in such
event, shall remain responsible for and liable with respect to such obligations.

12.13 Force Majeure. Neither AstraZeneca nor Targacept shall be liable for
failure of or delay in performing obligations set forth in this Agreement, and
neither shall be deemed in breach of its obligations, if such failure or delay
is due to a Force Majeure. In event of such Force Majeure, the Party affected
shall use diligent efforts to cure or overcome the same and resume performance
of its obligations hereunder.

12.14 Export Control. This Agreement is made subject to any restrictions
concerning the export of products or technical information from the U.S.
Territory or other countries that may be imposed on the Parties from time to
time. Each Party agrees that it will not export, directly or indirectly, any
technical information acquired from the other Party under this Agreement or any
products using such technical information to a location or in a manner that at
the time of export requires an export license or other governmental approval,
without first obtaining the written consent to do so from the appropriate agency
or other governmental authority in accordance with applicable law.

 

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12.15 Interpretation. The Parties hereto acknowledge and agree that: (a) each
Party and its counsel reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision; (b) the rule of construction to
the effect that any ambiguities are resolved against the drafting Party shall
not be employed in the interpretation of this Agreement; and (c) the terms and
provisions of this Agreement shall be construed fairly as to each Party and not
in a favor of or against either Party, regardless of which Party was generally
responsible for the preparation of this Agreement. In addition, unless a context
otherwise requires, wherever used in this Agreement (including any Schedule
hereto): (i) the singular shall include the plural and the plural shall include
the singular; (ii) the use of any gender shall be applicable to all genders; the
word “or” is used in the inclusive sense (and/or); (iii) the words “including,”
“taking into account” and all correlative words are used without limitation and
shall mean “including without limitation,” “taking into account without
limitation” or their respective correlative words, as the case may be; (iv) any
statutory or regulatory citation includes such statute or regulation as amended
or as superseded by any other statute or regulation; (v) consistent with the
absence of any duty to conduct any investigation with respect to the applicable
facts or information by reason of the execution of this Agreement or the
formation of the Collaboration, no statement, representation or warranty made or
given to the Knowledge of a Party shall create any implication that, be
construed to mean that or constitute a certification, representation or warranty
that any one or more of the individuals identified (by name or position) in
clause (a) or clause (b) of the definition of “Knowledge” knows affirmatively
(i.e., so as to be able to positively confirm) such facts and information to be
true and correct, and each such statement, representation or warranty shall
constitute negative assurance as to such facts and information; (vi) all
references to a Party’s Controlling Affiliate shall be if any; and (vii) all
references to JDC approval or a JDC determination shall be subject to resolution
in accordance with Section 2.1.5.

 

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12.16 Integration; Severability. This Agreement sets forth the entire agreement
with respect to the subject matter hereof and supersedes all other agreements
and understandings between the Parties or their Affiliates with respect to such
subject matter, including the Existing CDA. To the fullest extent permitted by
Applicable Law, the Parties waive any provision of law that would render any
provision in this Agreement invalid, illegal or unenforceable in any respect. If
any provision of this Agreement is held to be invalid, illegal or unenforceable,
in any respect, then such provision will be given no effect by the Parties and
shall not form part of this Agreement. To the fullest extent permitted by
Applicable Laws and if the rights or obligations of either Party, taken as a
whole, will not be materially and adversely affected, all other provisions of
this Agreement shall remain in full force and effect, and the Parties shall use
their best efforts to negotiate a provision in replacement of the provision held
invalid, illegal or unenforceable that is consistent with Applicable Laws and
achieves, as nearly as possible, the original intention of the Parties.

12.17 Further Assurances. Each of Targacept and AstraZeneca agrees to duly
execute and deliver, or cause to be duly executed and delivered, such further
instruments and do and cause to be done such further acts and things, including
the filing of such additional assignments, agreements, documents and
instruments, as the other Party may at any time and from time to time reasonably
request in connection with this Agreement or to carry out more effectively the
provisions and purposes of, or to better assure and confirm unto such other
Party its rights and remedies under, this Agreement.

12.18 HSR Filing. Each Party shall, as promptly as practicable after the
Execution Date, file or cause to be filed with the U.S. Federal Trade Commission
and the U.S. Department of Justice and any relevant foreign governmental
authority any notifications required to be filed under the HSR Act with respect
to the transactions contemplated hereby; provided that the Parties shall each
file the notifications required to be filed under the HSR Act within ********
Business Days after the Execution Date. The Parties shall cooperate with each
other in the preparation of any such filing. The Parties shall use diligent
efforts to respond promptly to any requests for additional information made by
either of such agencies and to cause the waiting period (and any extension
thereof) under the HSR Act to terminate or expire at the earliest possible date
after the date of filing. If the Parties have failed to obtain the necessary
clearances required under the HSR Act by March 1, 2010, either Party shall have
the right, on written notice to the other Party, to terminate this Agreement.
Each Party shall bear all costs and expenses incurred by it in connection with
filings under the HSR Act, except that AstraZeneca shall be responsible for the
filing fees associated with such filings by either Party.

 

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12.19 Prior to Effective Date.

12.19.1 Targacept shall conduct its business with respect to the Primary
Compound and Licensed Products in the ordinary course, consistent with past
practices, during the period from the Execution Date until the earlier of
(a) Effective Date or (b) ********, 2010, including by not conducting any End of
Phase 2 Meeting with the FDA relating to any Licensed Product or initiating any
Phase 3 Clinical Trial for any Licensed Product. For clarity, the submission by
Targacept of documents, questions or other information or materials to, or other
communication with, the FDA in contemplation of an End of Phase 2 Meeting to be
conducted after the earlier of the Effective Date or ********, 2010 is expressly
permitted and shall not be deemed to violate or breach this Section 12.19.1 or
any other provision of this Agreement.

12.19.2 Notwithstanding anything in this Agreement to the contrary, (a) neither
Party shall have the right to amend, modify or update in any respect the Amplixa
Global Development Outline or the first Amplixa Annual Global Development Plan
during the period from the Execution Date until the Effective Date and (b) any
such amendment, modification or update made by a Party notwithstanding this
Section 12.19.2 shall be null and void and of no force or effect.

12.19.3 Notwithstanding anything in this Agreement to the contrary, this
Agreement (other than Section 8.4, Section 12.18 and this Section 12.19)) shall
not become effective unless and until the waiting period (or any extension
thereof) under the HSR Act in the United States has expired or been terminated
early (the date of such expiration or earlier termination, the “Effective
Date”).

12.19.4 Each Party shall use diligent efforts to ensure that its representations
and warranties set forth in this Agreement remain true and correct at and as of
the Effective Date as if such representations and warranties were made at and as
of the Effective Date.

* - * - * - *

[remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives as of the Execution Date.

 

TARGACEPT, INC. By:  

/s/ J. Donald deBethizy

Name:   J. Donald deBethizy Title:   President & Chief Executive Officer
ASTRAZENECA AB (publ) By:  

/s/ Anders Ekblom

Name:   Anders Ekblom Title:   Authorised Signatory

--------------------------------------------------------------------------------

SCHEDULE 1

DESCRIPTION OF THE PRIMARY COMPOUND

Chemical IUPAC Name:

********

Structural Formula:

********

--------------------------------------------------------------------------------

SCHEDULE 2

EXISTING PATENT RIGHTS

 

Part A: Owned Patent Rights

Country

   Filing Date    Application #    Issue Date    Pat#

********

           

********

           

********

           

********

           

********

           

********

           

********

           

********

           

********

           

********

           

********

           

********

            Part B: In-Licensed Patent Rights

Country

   Filing Date    Application #    Issue Date    Pat#

********

           

********

           

US

   6/15/01    09/882,935    5/11/04    6,734,215

US

   5/19/03    10/441,947    9/5/06    7,101,916

********

           

********

           

********

           

Europe

   12/16/99    99967401.3    3/22/06    1,139,743

Austria

      99967401.3       1,139,743

Belgium

      99967401.3       1,139,743

Switzerland

      99967401.3       1,139,743

Germany

      99967401.3       69930552.7-08

Denmark

      99967401.3       1,139,743

Spain

      99967401.3       1,139,743

Finland

      99967401.3       1,139,743

France

      99967401.3       1,139,743

UK

      99967401.3       1,139,743

Greece

      99967401.3       20060401770

Ireland

      99967401.3       1,139,743

Italy

      99967401.3       1,139,743

Luxembourg

      99967401.3       1,139,743

Netherlands

      99967401.3       1,139,743

Portugal

      99967401.3       1,139,743

Sweden

      99967401.3       1,139,743

Europe div.

   12/16/99    5024899.6    9/3/08    1,634,498

Austria

      5024899.6       1,634,498

Belgium

      5024899.6       1,634,498

Switzerland

      5024899.6       1,634,498

Cyprus

      5024899.6       1,634,498

Germany

      5024899.6       69939498.8-08

Denmark

      5024899.6       1,634,498

Spain

      5024899.6       1,634,498

Finland

      5024899.6       1,634,498

France

      5024899.6       1,634,498

UK

      5024899.6       1,634,498

Greece

      5024899.6       20080403093

Ireland

      5024899.6       1,634,498

Italy

      5024899.6       1,634,498

Luxembourg

      5024899.6       1,634,498

Monaco

      5024899.6       1,634,498

Netherlands

      5024899.6       1,634,498

Portugal

      5024899.6       1,634,498

Sweden

      5024899.6       1,634,498

********

           

********

           

********

           

US

   11/23/98    09/198,882    3/7/00    6,034,079

US

   3/15/00    09/526,403    12/27/05    6,979,698

********

           

Canada

   8/11/98    2,300,148    6/23/09    2,300,148

Europe

   8/11/98    98939328.5    12/19/07    1,011,678

Austria

      98939328.5       1,011,678

Belgium

      98939328.5       1,011,678

Switzerland

      98939328.5       1,011,678

Cyprus

      98939328.5       1,011,678

Germany

      98939328.5       69838875.5-08

Denmark

      98939328.5       1,011,678

Spain

      98939328.5       1,011,678

Finland

      98939328.5       1,011,678

France

      98939328.5       1,011,678

UK

      98939328.5       1,011,678

Greece

      98939328.5       20080400416

Ireland

      98939328.5       1,011,678

Italy

      98939328.5       1,011,678

Netherlands

      98939328.5       1,011,678

Portugal

      98939328.5       1,011,678

Sweden

      98939328.5       1,011,678

********

           

Taiwan

   11/4/98    87113218    6/1/05    I-233,354

South Africa

   8/11/98    98/7182    8/31/99    98/7182

********

           

********

           

********

           

********

           

********

           

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Part C: ******** Application ********             ********            

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SCHEDULE 3

EXISTING TRADEMARKS

 

AMPLIXA   Canada   Filed AMPLIXA   Community Trademark   Registered AMPLIXA  
Japan   Registered AMPLIXA   Mexico   Filed AMPLIXA   United States   Filed (2)
INVERSINE   Ireland   Registered INVERSINE (block letters)   United States  
Registered INVERSINE (stylized)   United States   Registered

amplixa.com

amplixa.net

amplixa.org

amplixa.us

inversine.com

inversine.net

inversine.org

mecamylamine.com

mecamylamine.net

mecamylamine.org

   

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SCHEDULE 4

SPECIAL MILESTONE CRITERIA

********

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SCHEDULE 5

FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT

ASSIGNMENT AND ASSUMPTION AGREEMENT

This ASSIGNMENT AND ASSUMPTION AGREEMENT (this “Agreement”) is entered into as
of the 15th day of January 2010 (the “Effective Date”) by and between
Targacept, Inc., a Delaware corporation having its principal place of business
at 200 East First Street, Winston-Salem, North Carolina 27101 (“Targacept”), and
AstraZeneca AB, a company limited by shares organized and existing under the
laws of Sweden having a principal place of business at V-Malarehamnen 9, S-151
85 Södertälje, Sweden (“AstraZeneca”). Targacept and AstraZeneca are each
referred to herein by name or as a “Party” or, collectively, as the “Parties.”
All capitalized terms used but not defined herein shall have the meanings set
forth in that certain Collaboration and License Agreement by and between the
Parties dated as of December 3, 2009 (the “Collaboration Agreement”).

RECITALS

WHEREAS, Targacept is a party to (a) that certain Amended and Restated Supply
Agreement by and among Targacept, Poli Industria Chimica, SpA (“Poli”) and
Interchem Corporation (“Interchem”) dated December 3, 2009, attached hereto as
Annex A (the “Existing TRGT Supply Agreement”), the related Quality Agreement by
and among Targacept, Poli and Interchem dated December 3, 2009, attached hereto
as Annex B (the “Existing TRGT Quality Agreement”), and the related Services
Agreement by and among Targacept, Poli and Interchem dated July 28, 2006, as
amended, attached hereto as Annex C (the “Existing TRGT Services Agreement” and,
together with the Existing TRGT Supply Agreement and the Existing TRGT Quality
Agreement, the “Existing TRGT API Agreements”), and (b) that certain Master
Services Agreement by and between Targacept and ******** dated August 13, 2009,
and Work Order No. 1 dated August 13, 2009 thereunder, attached hereto as Annex
D (collectively, the “******** Agreement” and, together with the Existing TRGT
API Agreements, the “Manufacturing Agreements”);

WHEREAS, the Parties have entered into the Collaboration Agreement, pursuant to
which the Parties established a worldwide, strategic collaboration for the
continued development of the Primary Compound, and potentially for the
development of other Compounds, and, if successful, Marketing Approval and
Commercialization for Licensed Products; and

WHEREAS, as contemplated by the Collaboration Agreement, Targacept now desires
to assign to AstraZeneca the Manufacturing Agreements and AstraZeneca now
desires to assume the Manufacturing Agreements, all on the terms set forth
herein.

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NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:

ARTICLE 1

ASSIGNMENT AND ASSUMPTION

 

1.1 Assignment. Targacept hereby assigns, sells, transfers and sets over to
AstraZeneca all of Targacept’s rights and Liabilities (as defined herein) under
the Manufacturing Agreements as of the Effective Date, but expressly excluding
any and all Excluded Liabilities (as defined herein). Targacept shall retain and
remain solely responsible for, and shall satisfy, perform, pay and discharge
when and as due any and all Excluded Liabilities. “Liability” means any debt,
liability, loss, damage, cost, expense and obligation of any kind (whether fixed
or contingent, known or unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, or due or to become due),
including any liability for taxes. “Excluded Liabilities” means all Liabilities
under the Manufacturing Agreements arising, or attributable to actions or
omissions occurring, prior to the Effective Date, including Liabilities with
respect to any claim or action asserted on or after the Effective Date to the
extent the conduct giving rise to such claim or action occurred prior to the
Effective Date.

 

1.2 Acceptance and Assumption. AstraZeneca hereby accepts the assignment made by
Targacept herein and hereby assumes and agrees to satisfy, perform, pay and
discharge when and as due any and all Liabilities under the Manufacturing
Agreements other than the Excluded Liabilities.

ARTICLE 2

GENERAL PROVISIONS

 

2.1 Entire Agreement. The Parties have entered into the Collaboration Agreement,
which contains certain financial and other provisions. This Agreement does not
amend, limit or otherwise qualify any representation, warranty, covenant, right
or obligation of Targacept or AstraZeneca under the Collaboration Agreement. To
the extent there is a conflict between the terms and conditions of this
Agreement and the terms and conditions of the Collaboration Agreement, the terms
and conditions of the Collaboration Agreement shall govern. Subject to the
foregoing, this Agreement (and all Annexes attached hereto) sets forth the
entire agreement between the Parties with respect to the subject matter hereof
and supersedes all prior discussions and agreements between the Parties with
respect to the subject matter hereof.

 

2.2 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective legal representatives, successors
and permitted assigns.

 

2.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (U.S.A.), excluding any
conflicts or choice of law rule or principle that might otherwise refer
construction or interpretation of this Agreement to the substantive law of
another jurisdiction.

 

2.4 Headings. Section and subsection headings are inserted for convenience of
reference only and do not form a part of this Agreement.

 

2.5 Counterparts. This Agreement may be executed simultaneously in two (2) or
more counterparts, each of which shall be deemed an original and all of which,
together, shall constitute a single agreement. An executed signature page of
this Agreement delivered by facsimile transmission or in PDF format via email
shall be as effective as the manual exchange of an originally executed signature
page.

 

- 3 -

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2.6 Amendment; Waiver. This Agreement may be amended, modified, superseded or
canceled, and any of the terms of this Agreement may be waived, only by a
written instrument executed by each Party or, in the case of waiver, by the
Party or Parties waiving compliance. The delay or failure of either Party at any
time or times to require performance of any provision shall in no manner affect
the rights at a later time to enforce the same. No waiver by either Party of any
condition or of the breach of any term contained in this Agreement, whether by
conduct, or otherwise, in any one or more instances, shall be deemed to be, or
considered as, a further or continuing waiver of any such condition or of the
breach of such term or any other term of this Agreement.

 

2.7 No Third Party Beneficiaries. No Third Party (including no employee of
either Party), shall have or acquire any rights by reason of this Agreement.

 

2.8 Interpretation. The Parties hereto acknowledge and agree that: (a) each
Party and its counsel reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision; (b) the rule of construction to
the effect that any ambiguities are resolved against the drafting Party shall
not be employed in the interpretation of this Agreement; and (c) the terms and
provisions of this Agreement shall be construed fairly as to each Party and not
in a favor of or against either Party, regardless of which Party was generally
responsible for the preparation of this Agreement. In addition, unless a context
otherwise requires, wherever used in this Agreement, the singular shall include
the plural, the plural the singular, the use of any gender shall be applicable
to all genders, the word “or” is used in the inclusive sense (and/or) and the
words “including” and all correlative words are used without limitation and
shall mean “including without limitation” or their correlative words, as the
case may be.

 

2.9 Severability. To the fullest extent permitted by Applicable Laws, the
Parties waive any provision of law that would render any provision in this
Agreement invalid, illegal or unenforceable in any respect. If any provision of
this Agreement is held to be invalid, illegal or unenforceable, in any respect,
then such provision will be given no effect by the Parties and shall not form
part of this Agreement. To the fullest extent permitted by Applicable Laws and
if the rights or obligations of either Party, taken as a whole, will not be
materially and adversely affected, all other provisions of this Agreement shall
remain in full force and effect, and the Parties shall use their best efforts to
negotiate a provision in replacement of the provision held invalid, illegal or
unenforceable that is consistent with Applicable Laws and achieves, as nearly as
possible, the original intention of the Parties.

 

2.10 Further Assurances. Targacept shall from time to time, at the request of
AstraZeneca, execute and deliver, or cause to be executed and delivered, such
other documents or instruments of assignment, transfer and conveyance and take
such other actions as AstraZeneca may reasonably request, in order to carry out
the provisions of this Agreement or more effectively consummate the transactions
contemplated hereby.

SIGNATURE PAGE FOLLOWS

 

- 4 -

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives as of the Effective Date.

 

TARGACEPT, INC. By:  

 

Name:  

 

Title:  

 

ASTRAZENECA AB (publ) By:  

 

Name:  

 

Title:  

 

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ANNEX A

EXISTING TRGT SUPPLY AGREEMENT

--------------------------------------------------------------------------------

ANNEX B

EXISTING TRGT QUALITY AGREEMENT

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ANNEX C

EXISTING TRGT SERVICES AGREEMENT

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ANNEX D

******** AGREEMENT

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SCHEDULE 6

MATERIAL TERMS TO BE INCLUDED IN THE CO-PROMOTION AGREEMENT

The Co-Promotion Agreement to be negotiated by the Parties pursuant to
Section 3.10.1 of the Agreement shall contain the following material terms.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in the Agreement.

1. Co-Promotion Rights and Obligations.

(a) Subject to the terms and conditions herein, AstraZeneca shall grant to
Targacept the right to Detail (as defined herein) each Co-Promoted Product in
the U.S. Territory to ******** (together, the “Target Audience”) in accordance
with the Plans (as defined in Section 11 below); provided, however, that
Targacept shall be required to provide ******** sales representatives to Detail
Co-Promoted Product(s), unless AstraZeneca shall otherwise consent, and not more
than ******** sales representatives to Detail Co-Promoted Product(s), unless
Targacept and AstraZeneca shall otherwise consent. “Detail” means that part of
an in person, face-to-face sales call during which a representative, who has
successfully completed the training program described in Section 4(b) with
respect to the Co-Promoted Product, makes a full presentation of the Co-Promoted
Product to a physician or other medical professional with prescribing authority,
in a fair and balanced manner consistent with the requirements of the
Co-Promotion Agreement and Applicable Laws. For the avoidance of doubt, the
following shall not constitute a Detail: (i) e-details; (ii) presentations made
at conventions or to any group of more than ******** prescribers; or (iii) mere
delivery of sample forms without discussion with a medical professional about
the Co-Promoted Product.

(b) Targacept shall perform its activities under the Co-Promotion Agreement in
accordance with (i) the PhRMA Code on Interactions with Healthcare
Professionals, (ii) Applicable Laws (iii) AstraZeneca’s then-current compliance
policies for promoting pharmaceutical products, and (iv) the applicable
provisions of any corporate integrity agreement to which AstraZeneca (or its
applicable Affiliate) is then subject; provided that, in the case of clauses
(iii) and (iv), (A) AstraZeneca has provided copies of such compliance policies
or applicable provisions to Targacept and (B) training with respect to such
compliance policies or applicable provisions has been included in the training
program provided to each of Targacept’s Designated Sales Forces as described in
Section 4(b).

(c) Targacept may perform some or all of its Detailing obligations under the
Co-Promotion Agreement through a contract sales organization (“CSO”), at
Targacept’s sole cost and expense; provided that (i) no permitted use of a CSO
by Targacept shall relieve Targacept of any of its obligations under the
Co-Promotion Agreement, (ii) the individuals provided by such CSO shall promote
products (including the Co-Promoted Product(s)) only pursuant to agreement(s)
with Targacept, and (iii) each agreement with a CSO shall be subject to the
review and approval of AstraZeneca.

--------------------------------------------------------------------------------

2. Sales Force Composition.

(a) Designated Sales Forces. During the term of the Co-Promotion Agreement
(“Term”), Targacept shall use the number of sales forces assigned to the
promotion of a Co-Promoted Product (each, a “Designated Sales Force”) as set
forth in the applicable Plan then in effect to Detail such Co-Promoted Product,
provided that such number of Representatives is consistent with Section 1(a).

(b) Minimum Qualifications. Except as may be set forth to the contrary in the
applicable Plan, each of Targacept’s sales representatives and sales managers
shall (i) have graduated from ******** and (ii) have satisfactorily completed
the sales training program specified in Section 4(b). In addition, ******** of
Targacept’s sales representatives and sales managers engaged in the promotion of
a Co-Promoted Product at any time during the Term must have been promoting
branded pharmaceutical products in the U.S. Territory for ******** prior to the
date that such person commences promoting such Co-Promoted Product.

(c) Turnover and Vacancies. During the Term and after the launch of the first
Co-Promoted Product in the U.S. Territory, Targacept shall use commercially
reasonable efforts to ensure that (i) turnover on any of its Designated Sales
Forces in any Calendar Year does not exceed standards customary in the United
States contract sales organization industry at the time as reasonably determined
by AstraZeneca and set forth in the applicable Plan and (ii) each Designated
Sales Force has a maximum vacancy rate for any Calendar Period during the Term
that does not exceed standards customary in the United States contract sales
organization industry at the time as determined by AstraZeneca and set forth in
the applicable Plan.

(d) Sales Force Incentives. The incentive compensation structure for Targacept’s
Designated Sales Force(s) shall be solely determined by Targacept, provided that
each such incentive program shall provide that the weighting for sales
performance of the Co-Promoted Product(s) shall be at least ******** of such
Targacept’s Designated Sales Force(s)’ total incentive compensation.

(e) Sales Meetings and Review. Targacept shall permit AstraZeneca’s compliance
and sales and marketing management personnel (at reasonable levels), upon the
request of AstraZeneca, to attend and participate in those portions of its sales
meetings that relate solely to the Co-Promoted Product(s); provided that
Targacept shall ensure that significant portions of any sales meeting with
respect to the Co-Promoted Product(s) shall relate solely to the Co-Promoted
Product(s); provided further that ******** shall bear the costs of travel and
attendance at such meetings for ******** compliance and sales and marketing
management personnel. Further, Targacept shall permit AstraZeneca’s compliance
and sales and marketing management personnel, upon request of AstraZeneca, to
spend time in the field (ride-alongs) with Targacept’s sales representatives to
assess their performance under the Co-Promotion Agreement (e.g., messaging,
quality, sales direction) and compliance with Sections 1(b)(i) – (iv) above.

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(f) Non-Solicitation. During the Term and for a period of ******** thereafter,
neither Party shall actively recruit or solicit any member of a Designated Sales
Force or any other staff of the other Party engaged in the marketing, promotion
or Detailing of any Co-Promoted Product. For the avoidance of doubt, this
provision shall not restrict either Party or its Affiliates from advertising
employment opportunities, engaging head-hunters or engaging in any other
activity directed towards recruitment, in each case if and to the extent that
such advertising or activities do not directly target the other Party or its
Affiliates.

(g) Managed Care. AstraZeneca shall be responsible for managing necessary
responsibilities with respect to the Co-Promoted Product(s) across all managed
care market segments in the U.S. Territory and shall have exclusive
responsibility for: (i) ********, (ii) ********; (iii) ********; (iv) ********;
(v) ********; and (vi) all other matters related to managed care.

3. Promotional Materials.

(a) During the Term, AstraZeneca shall create and produce all written, printed
or graphic material, other than product labels and inserts, intended for use by
sales representatives in promoting Co-Promoted Product(s) in the U.S. Territory,
including visual aids, file cards, premium items, clinical study reports,
reprints, drug information updates and any other promotional support items
(collectively, the “Promotional Materials”) to be used by the Parties in
connection with the co-promotion of Co-Promoted Product(s) in accordance with
the terms of the applicable Plan. All Promotional Materials and the directions
to sales representatives for the use of such Promotional Materials, in each case
provided by AstraZeneca, shall comply with Applicable Laws. The quantities of
Promotional Materials for each Co-Promoted Product produced by AstraZeneca
(other than materials intended for distribution to patients) shall be allocated
to the Parties in proportion to the respective numbers of representatives
engaged by the Parties to co-promote such Co-Promoted Product.

(b) Targacept shall, and shall cause its sales representatives to, use only the
Promotional Materials provided by AstraZeneca in connection with the promotion
of Co-Promoted Product(s). Targacept shall ensure that the Promotional Materials
are used only in the form provided and not changed in any way (including by
underlining or otherwise highlighting any text or graphics or adding any notes
thereto) by any member of its Designated Sales Force(s).

(c) Targacept shall, and shall cause its sales representatives to, immediately
cease the use of any Promotional Materials when instructed to do so by
AstraZeneca. Targacept shall, and shall cause its sales representatives to, use
the Promotional Materials only for the purposes contemplated by the Co-Promotion
Agreement. All Promotional Materials in the possession of Targacept or its sales
representatives shall be returned to AstraZeneca upon termination of the
Co-Promotion Agreement or as earlier requested by AstraZeneca.

(d) Targacept shall, and shall cause its sales representatives to, make only
such statements and claims regarding the Co-Promoted Product(s), including as to
efficacy and safety, as are consistent with the applicable product labels and
inserts and Promotional Materials. Targacept shall not, and Targacept shall
cause its sales representatives not to, make any false or misleading statements
or comments about the Co-Promoted Product(s).

--------------------------------------------------------------------------------

4. Training.

(a) Training Materials. AstraZeneca shall (i) establish training objectives
(including with respect to: disease state; Co-Promoted Product knowledge;
competitive product knowledge; compliance with Applicable Law, compliance
policies and applicable provisions of any corporate integrity agreement; use of
sample forms; reporting of adverse events, field alerts, product quality
complaints and PIRs (as defined herein); and other information AstraZeneca deems
necessary or appropriate) and training plans for members of Targacept’s
Designated Sales Force(s) who are hired or assigned to promote Co-Promoted
Product(s) and (ii) develop and produce all training programs and materials
(including Co-Promoted Product sales orientation assessment tests and refresher
tests) to be used by Targacept.

(b) Training Programs. A reasonable time prior to the launch of the first
Co-Promoted Product in the U.S. Territory, AstraZeneca, at its expense
(including costs for Targacept’s representatives travel, food and lodging for
training meetings, but excluding Targacept’s internal costs for salaries and
benefits), shall provide training materials to, and hold in-person meetings or
webcasts for, each member of each Targacept’s Designated Sales Force prior to
his or her commencement of promotion of such Co-Promoted Product to ensure that
he or she is appropriately trained in proper Detailing and sales techniques and
properly trained and able to satisfy his or her responsibilities under the
Co-Promotion Agreement. Following the launch of the first Co-Promoted Product in
the U.S. Territory, AstraZeneca shall provide training materials to, and hold
in-person meetings or webcasts for, each member of each Targacept’s Designated
Sales Force as necessary to provide refresher training and training updates.
AstraZeneca shall bear the costs of training materials and the costs of its own
personnel who provide the refresher training and training updates, and Targacept
shall bear all other expenses related to such refresher training and training
updates.

5. PDE Requirements. For purposes hereof, “PDE” means a primary Detail
equivalent where (i) a Primary Product Presentation (a Detail during a sales
call in which a Co-Promoted Product ********) has a value of ******** primary
Detail equivalent, (ii) a Secondary Product Presentation (a Detail during a
sales call in which a Co-Promoted Product ********) has the value of ********
primary Detail equivalents and (iii) a Product Presentation in ********. In any
event, no more than three products may be presented during any sales call.

(a) Performance of PDEs. In each calendar trimester, or such other period as
AstraZeneca may designate from time to time (each, a “Calendar Period”), during
the Term, Targacept shall use commercially reasonable efforts to perform the
number of PDEs for each Co-Promoted Product to be performed by Targacept as set
forth in the applicable Plan for such Calendar Period (the “Targeted PDEs”);
provided that, without limiting the foregoing, for each Calendar Period,
Targacept shall be conclusively presumed to have satisfied such obligation if it
performed ******** of the aggregate number PDEs allocated to Targacept in the
applicable Plan (consistent with the Section 11) for such Calendar Period. In
addition, in each Calendar Period during the Term, Targacept shall ensure that
******** of the number of PDEs it actually performed were made to targeted
prescribers. Targacept may deliver ******** of its required PDEs to non-target
prescribers if it reasonably believes in good faith that such PDEs are likely to
result in increased sales of Co-Promoted Product(s).

--------------------------------------------------------------------------------

(b) Shortfalls. In the event that Targacept believes in good faith that,
notwithstanding commercially reasonable efforts, it will be unable to perform
the number of Targeted PDEs for any Calendar Period, it shall promptly give
written notice to AstraZeneca that it shall not be able to meet its PDE
obligations and the projected shortfall in PDEs.

(c) Permissible PDEs. For purposes of determining compliance by Targacept with
any of its annual PDE performance requirements set forth in the Co-Promotion
Agreement, except as provided in the last sentence of Section 5(a), PDEs that
are not performed by Targacept as set forth in the applicable Plan for the
applicable Calendar Period, shall not be taken into account.

6. Failure to Perform Required Number of PDEs; Consequences.

(a) Subject to Section 6(c), if, during any ******** Calendar Periods, Targacept
fails to perform ******** of its Targeted PDEs for each Co-Promoted Product as
set forth in the respective Plans for such Calendar Periods (each such Calendar
Period, a “Shortfall Calendar Period”), then the PDE Cost (as defined in
Section 10) for the Calendar Period immediately following such two Shortfall
Calendar Periods (but not any Calendar Period thereafter) shall be equal to the
product of (i) ********, (but without regard to this Section 6(a)), multiplied
by (ii) ******** such Co-Promoted Product(s) actually performed by Targacept
during such ******** Shortfall Calendar Periods, divided by the sum of A + B,
where A is ******** of the Targeted PDEs for ******** as set forth in the
applicable Plan for such Calendar Period and B is ******** of the Targeted PDEs
for ******** as set forth in the applicable Plan for such Calendar Period. The
reduction in compensation set forth in this Section 6(a) shall apply whether or
not Targacept has used commercially reasonable efforts to perform the Targeted
PDEs under the applicable Plans.

(b) Subject to Section 6(c), in addition to any reduction in compensation
pursuant to Section 6(a), if during any Calendar Year Targacept performs
******** of the aggregate number of its Targeted PDEs for each Co-Promoted
Product to be performed during such Calendar Year as set forth in the applicable
Plan for such Calendar Year, then AstraZeneca may terminate the Co-Promotion
Agreement by giving notice to Targacept not later ******** days after the end of
the Calendar Year during which the termination right arises, and such
termination shall become effective ******** days after delivery of such notice.
AstraZeneca’s right to terminate under this Section 6(b) shall apply whether or
not Targacept has used commercially reasonable efforts to perform the Targeted
PDEs under the applicable Plan.

(c) Notwithstanding anything herein to the contrary, in no event shall the
amount payable to Targacept under the Co-Promotion Agreement be reduced due to a
failure of Targacept to provide a particular percentage of Targeted PDEs for
particular Calendar Period(s) as set forth in Section 6(a), and in no event
shall AstraZeneca have the right to terminate the Co-Promotion Agreement due to
a failure of Targacept to provide a particular percentage of Targeted PDEs for
particular Calendar Year as set forth in Section 6(b), unless the AstraZeneca
field force(s) comparable to Targacept’s Designated Sales Force(s) has itself
satisfied the same applicable percentage standard, as demonstrated by ********
or ******** to be provided by AstraZeneca to Targacept (in each case generated
in a consistent manner).

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7. Samples. AstraZeneca may, in its sole and absolute discretion and at its
expense, make sample request forms available to Targacept for use by Targacept’s
sales representatives in Detailing Co-Promoted Product(s). Such sample order
forms will be used by Targacept’s sales representatives to submit to AstraZeneca
requests by prescribers for Co-Promoted Product samples, and AstraZeneca will
fulfill such requests by delivering the samples directly to the prescribers.
Targacept’s sales representatives will not carry any Co-Promoted Product
samples. AstraZeneca in its sole and absolute discretion will determine the
number of sample request forms (and the number of samples that may be requested
pursuant to each such form), if any, to be distributed and sampling strategy for
such sample forms.

8. Promotion of Other Products. During the Term, members of each of Targacept’s
Designated Sales Forces shall be permitted to promote products in addition to
Co-Promoted Product(s); provided that such other products have not ********.

9. Reporting and Auditing.

(a) Recordkeeping. Targacept shall keep complete and accurate books and records
(financial and otherwise) pertaining to the performance of its obligations under
the Co-Promotion Agreement, including records of PDEs performed by its sales
representatives, in sufficient detail to calculate all fees and expenses payable
pursuant to the Co-Promotion Agreement and to prepare all reports required
thereunder. All financial books and records maintained by Targacept shall be
maintained in accordance with GAAP.

(b) Detail Reporting. Targacept shall cause each of its sales representatives to
report his or her Detailing activity in accordance with the procedures specified
from time to time in the applicable Plan. Targacept, at its sole expense, shall
ensure that each of its sales representatives on its Designated Sales Force(s)
is properly equipped with all necessary hardware, software and other information
technology required from time to time by the applicable Plan to perform his or
her recordkeeping and reporting obligations under this Section.

(c) Tracking Reports. Targacept shall provide to AstraZeneca such additional
information and reports concerning Detail activity under the Co-Promotion
Agreement at the times and in the manner specified in the applicable Plan;
provided that (i) no less often than ******** during ******** after the launch
of each Co-Promoted Product and (ii) no less often than ******** per Calendar
Period thereafter, Targacept shall submit to AstraZeneca a written report
containing the following information with respect to such ******** or Calendar
Period, as the case may be:

(A) the total number of PDEs for such Co-Promoted Product performed by
Targacept;

(B) the total number of Primary Product Presentations and Secondary Product
Presentations for such Co-Promoted Product performed by Targacept; and

(C) the number of PDEs for such Co-Promoted Product performed by Targacept made
in total and individually to target prescribers.

--------------------------------------------------------------------------------

(d) PDE Audits. No more than ******** during any ******** period during the
Term, AstraZeneca shall have the right to engage an independent third party
auditor (an “Auditor”) to conduct an audit of Targacept’s Detailing activities
to confirm the accuracy of the Detail and PDE related-information contained in
the reports delivered by Targacept. If the results of such audit identify an
overstatement of PDEs, within ******** days after the date on which the
Auditor’s report is delivered, Targacept shall reimburse the excess payment made
by AstraZeneca for such overstated PDEs, with interest at an annual rate of
LIBOR plus ******** basis points (or, if less, the maximum interest rate
permitted by Applicable Laws) from the date such excess payment was made by
AstraZeneca until such excess payment is reimbursed in full by Targacept. Any
audit conducted under this Section 9(d) shall be at AstraZeneca’s sole expense;
provided, however, that if the results of such audit identify an overstatement
of PDEs in such reports by ******** more in any Calendar Period, then Targacept
shall bear the expense of such audit and shall implement promptly corrective
actions reasonably acceptable to AstraZeneca to ensure accurate reporting
thereafter. At any time within ******** after the completion of an audit that
identifies an overstatement of PDEs by ******** or more in any Calendar Period,
AstraZeneca shall have the right to engage an Auditor to conduct, at Targacept’s
reasonable expense, a subsequent audit of Targacept’s Detailing activities, to
ensure that Targacept has corrected its reporting deficiencies.

(e) Detail Message Audits. AstraZeneca shall have the right, at its sole
expense, to engage an Auditor to conduct market research in order to evaluate
the effectiveness of the Details performed by Targacept and the content of the
“Product Message” (the principal promotional messages with respect to a
Co-Promoted Product set forth in the applicable Plan, that a sales
representative is required to convey to a prescriber during a Detail of such
product) delivered by the Targacept’s sales representatives. If such market
research indicates that Targacept is not delivering a Product Message consistent
with the applicable Plan or the Co-Promotion Agreement, then AstraZeneca may
deliver written notice of such failure to Targacept. Within ******** after
receipt of such notice, Targacept shall develop and deliver to AstraZeneca a
plan of action designed to correct such failure that is reasonably satisfactory
to AstraZeneca (a “Corrective Plan”). Targacept shall implement the Corrective
Plan within ******** after approval thereof by AstraZeneca. AstraZeneca shall
have the right, at the reasonable expense of Targacept, to engage an Auditor to
conduct independent market research in order to evaluate whether Targacept has
corrected such failure in accordance with the Corrective Plan. If such market
research indicates that Targacept has not corrected such failure, then
AstraZeneca may deliver written notice of such failure to Targacept. Within
******** after receipt of such notice, Targacept (at its sole expense) will
develop and deliver to AstraZeneca a comprehensive re-training program for its
applicable Designated Sales Force reasonably satisfactory to AstraZeneca (the
“Retraining Program”), which may utilize the materials developed by AstraZeneca
for the training and refresher programs pursuant to Section 4(b). Targacept
shall implement the Retraining Program within ********. AstraZeneca shall have
the right, at the reasonable expense of Targacept, to engage an Auditor to
conduct independent market research in order to evaluate whether Targacept has
corrected such failure as a result of the Retraining Program. Without limitation
of Section 17(b)(i), if such market research indicates that Targacept has not
corrected such failure in one or more sales territories, Targacept will use
commercially reasonable efforts to replace within ******** the members of
Targacept’s Designated Sales Forces Detailing in such sales territories.

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10. Co-Promotion Fees and Expenses.

(a) Promotion Fee Payment. Not later than ******** after the end of each
Calendar Period during the Term (commencing with the Calendar Period in which
the launch of the first Co-Promoted Product in the U.S. Territory occurs),
AstraZeneca shall pay to Targacept a fee in an amount equal to (i) the number of
PDEs for Co-Promoted Product(s) actually performed by Targacept during such
Calendar Period, multiplied by (ii) the PDE Cost applicable for such Calendar
Period. In no event shall AstraZeneca pay any compensation to Targacept for PDEs
performed by Targacept in any Calendar Period in excess of the Targeted PDEs for
such Calendar Period unless AstraZeneca otherwise consents to such excess or to
such payment. Except as provided in this Section 10(a), Targacept shall bear and
be solely responsible for all costs and expenses incurred by it in the
performance of its obligations under the Co-Promotion Agreement.

For purposes hereof, “PDE Cost,” means (A) with respect to the first ********
period following the launch of the first Co-Promoted Product in the U.S.
Territory, the ******** of the good faith quotes obtained jointly by AstraZeneca
and Targacept not less than ******** prior to such launch from ********
reputable CSOs in the U.S. Territory for the price that would be charged by such
CSOs for performing a PDE on the terms and conditions of the quote specified in
the then-current applicable Plan, or, if obtaining such quotes is not reasonably
practicable, such other method as may be agreed by the Parties, and (B) with
respect to each successive ******** period thereafter, (1) the PDE Cost for the
immediately preceding ******** period, multiplied by (2) the sum of ********,
rounded to the nearest one Dollar (US $1).

(b) Recruitment Cost Reimbursement. Not later than ******** after the launch of
the first Co-Promoted Product in the U.S. Territory, AstraZeneca shall pay
Targacept an amount equal to (i) the number of members of Targacept’s Designated
Sales Force(s) as of such launch date, multiplied by (ii) the ******** of the
good faith quotes obtained jointly by AstraZeneca and Targacept not less than
******** prior to such launch from ******** reputable CSOs in the U.S. Territory
for the price that would be charged by such CSOs for recruiting a designated
sales force.

11. Plan. For each Co-Promoted Product, there shall be a co-promotion plan
(each, a “Plan”) that sets forth, with respect to the applicable annual period,
a description of strategy and positioning implementation for such Co-Promoted
Product in the U.S. Territory and the key Detailing issues for such Co-Promoted
Product in the U.S. Territory including:

(a) a “Promotional Plan” that specifies the Promotional Materials to be used by
Targacept in conducting promotional activities with respect to such Co-Promoted
Product and the applicable Product Message;

(b) a “Sales Force Management Plan” that specifies, per region or local market
within the U.S. Territory, (i) the minimum number of sales representatives and
other members of the Designated Sales Force(s) to be provided by Targacept;
(ii) the minimum qualifications for sales representatives (to the extent that
such minimum represents a change from the minimum set forth in Section 2(b));
(iii) the minimum number of PDEs that each sales representative will perform in
each Calendar Period, and (iv) standards for turnover and vacancies for
Targacept’s Designated Sales Force(s); provided that no such Sales Force
Management Plan shall be inconsistent with the proviso in Section 11(c);

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(c) a “Strategic Targeting Plan” that specifies Detailing strategy and
obligations of Targacept on a Calendar Period basis, including (i) the “call
plan” size (i.e., the number of targeted prescribers to be called on by each
sales representative); (ii) identification and prioritization of targeted
prescribers by deciles; provided that ******** of the total number of PDEs for
each Co-Promoted Product allocated to Targacept in each Calendar Period shall be
to ******** (substantially comprised of ******** for the Target Indication or,
if Regulatory Approval in the U.S. Territory is not obtained for the Target
Indication, such other Indication for which such Regulatory Approval is
obtained) and the remainder to ******** (substantially comprised of ******** for
the Target Indication or, if Regulatory Approval in the U.S. Territory is not
obtained for the Target Indication, such other Indication for which such
Regulatory Approval is obtained); (iii) reach and frequency expectations for the
targeted prescribers in each Calendar Period; and (iv) the number of PDEs for
each Co-Promoted Product to be performed in each Calendar Period, which shall
equal the product of A x B x C, where A is AstraZeneca’s then-current “Days in
Territory” assumption for its full-time specialty care sales representatives
that would detail the Co-Promoted Product (“AstraZeneca Sales Force”), B is
AstraZeneca’s then-current “Calls Per Day Per Full-Time Specialty Care Sales
Representative” assumption for the AstraZeneca Sales Force and C is the number
of members of Targacept’s then-current Designated Sales Force(s).

(d) a reporting plan that specifies the reporting obligations of Targacept and
its sales representatives with respect to the performance of their promotional
activities under the Co-Promotion Agreement, including the recording of
Detailing activity by sales representatives; and

(e) such other plans relating to the Detailing and promotion of such Co-Promoted
Product in the U.S. Territory as AstraZeneca deems necessary or appropriate;
provided that no such plan shall be inconsistent with the proviso in
Section 11(c).

Each Plan shall be prepared by AstraZeneca prior to the beginning of the annual
period to be covered by any such Plan in accordance with AstraZeneca’s normal
procedures with respect to the preparation of promotional plans.

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12. Product Supply.

(a) Orders for Products; Terms of Sale. AstraZeneca shall have the sole
responsibility and right to fill orders with respect to Co-Promoted Product(s).
Targacept shall not take orders for Co-Promoted Product(s), but if for any
reason Targacept should receive sales orders for Co-Promoted Product(s),
Targacept shall promptly forward such orders to AstraZeneca. All orders for
Co-Promoted Product(s) shall be subject to AstraZeneca’s acceptance, in its sole
discretion. AstraZeneca may cancel any order for Co-Promoted Product(s), or any
part thereof, at any time after acceptance without thereby incurring any
liability to Targacept. AstraZeneca shall be solely responsible for responding
to requests from physicians for individual patients who need the Co-Promoted
Product(s) but are unable to afford it. Any such request received by Targacept
should be forwarded to AstraZeneca for processing in accordance with
AstraZeneca’s procedures. AstraZeneca shall have the sole right and
responsibility for establishing and modifying the terms and conditions of the
sale of Co-Promoted Product(s), including the price at which each Co-Promoted
Product will be sold, whether each Co-Promoted Product will be subject to any
trade or quantity discounts, whether any discount will be provided for payments
on accounts receivable, whether each Co-Promoted Product will be subject to
rebates, returns and allowances or retroactive price reductions, the channels of
distribution of each Co-Promoted Product, and whether credit is to be granted or
refused in connection with the sale of each Co-Promoted Product.

(b) Returned Product. AstraZeneca shall have the sole responsibility and right
to accept any returned Co-Promoted Product. Targacept shall not solicit the
return of any Co-Promoted Product, but if for any reason Targacept should
receive any returned Co-Promoted Product, Targacept shall promptly notify
AstraZeneca. Any Co-Promoted Product returned to Targacept shall be shipped by
Targacept to AstraZeneca’s designated facility, and all reasonable documented
shipping costs incurred by Targacept shall be promptly reimbursed by
AstraZeneca. Targacept shall advise the customer that made such return that the
Co-Promoted Product has been returned to AstraZeneca. Targacept shall complete
in all material respects and deliver to AstraZeneca the returned goods form
provided by AstraZeneca with respect to any Co-Promoted Product returned by
Targacept to AstraZeneca.

(c) Recalled Product. With respect to any actual or proposed recall or market
withdrawal of Co-Promoted Product the terms of Section 3.8.3 of the Agreement
shall apply, provided that Targacept shall not be deemed to be negligent or in
breach of the Agreement or the Co-Promotion Agreement to the extent of any
action taken by Targacept in compliance with the training provided by
AstraZeneca under the Co-Promotion Agreement, with AstraZeneca’s compliance
policies that both were provided to Targacept under the Co-Promotion Agreement
and training with respect to which has been included in the training program
provided to Targacept’s Designated Sales Force(s) as described in Section 4(b),
or otherwise with direction from AstraZeneca if the activities required by such
training, policies or other direction would themselves constitute negligence or
breach. At AstraZeneca’s request and reasonable expense, Targacept shall assist
AstraZeneca in obtaining any Co-Promoted Product, including all samples thereof,
that has been recalled or withdrawn from the market.

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13. Requests for Medical Information.

(a) Response to Requests. AstraZeneca shall have the exclusive right to respond
to all questions or requests for information about a Co-Promoted Product made by
any medical professionals or any other Person to Targacept or its sales
representatives that either (i) warrant a response beyond the understanding or
knowledge of such sales representative or (ii) are beyond the scope of the
product labels and inserts or other Promotional Materials for such Co-Promoted
Product (a “PIR”).

(b) Communication of PIRs. Targacept shall, and shall cause its sales
representatives to, promptly communicate to the AstraZeneca Information Center
or Medical Resources Department all PIRs received by Targacept or such sales
representatives.

(c) Communications to Prescribers. In connection with the co-promotion of
Co-Promoted Product(s), Targacept shall cause its sales representatives to
inform prescribers that they may contact the AstraZeneca Information Center
regarding questions or requests for information about the Co-Promoted Product(s)
by telephone or by completing a Medical Resource Form and faxing the completed
form directly to AstraZeneca Medical Resources at the facsimile number provided
on such form. AstraZeneca shall provide Targacept with sufficient quantities of
Medical Resource Forms and Targacept shall cause the sales representatives to
provide such forms to prescribers.

14. Product Trademarks and Product Copyrights. Targacept shall promote
Co-Promoted Product(s) only under the Product Trademarks. AstraZeneca shall
grant Targacept a non-exclusive, royalty free license to use the Product
Trademarks and Product Copyrights solely for purposes of performing its
obligations under the Co-Promotion Agreement, which license shall terminate upon
the expiration or earlier termination of the Co-Promotion Agreement for any
reason. “Product Copyrights” means all copyrightable subject matter included in
the product labels and inserts, the Promotional Materials, and the Co-Promoted
Product training materials.

15. Insurance. During the term of the Co-Promotion Agreement, at a minimum, and
in addition to any insurance obligations under the Agreement, Targacept shall
maintain in full force and effect the following types and amounts of insurance:

(a) commercial general liability insurance covering bodily injury, property
damage (including loss of use thereof) with limits of $******** each occurrence
and $******** general aggregate, including Premises Liability,
Personal/Advertising Injury and Contractual Liability coverage for Targacept’s
indemnification obligations under the Co-Promotion Agreement;

(b) Products Liability insurance with minimum limits of $******** each event and
$******** policy aggregate, including contractual liability endorsement;

(c) commercial automobile liability insurance with a $******** combined single
limit (bodily injury and property damage) on Targacept owned and non-owned
vehicles at any time during the Term;

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(d) workers’ compensation insurance as required by all Applicable Laws and
Employers Liability insurance with limits of not less than $******** each
accident, $******** each employee and $******** policy limit;

(e) umbrella or excess liability insurance with limits of $******** each
occurrence and $******** general aggregate; and

(f) employment practices liability insurance with limits of $******** per event.

As of the effective date of the Co-Promotion Agreement and from time to time
during the Term, Targacept shall upon request from AstraZeneca certify that its
general liability, product liability, automobile liability and employers’
liability insurance policies are scheduled as “underlying” insurance on its
umbrella or excess liability insurance policy(ies).

Each of the policies in Sections 15(a), (b) and (c) shall name AstraZeneca as an
additional insured and shall be primary to any liability insurance carried by
AstraZeneca, which insurance shall be excess and non-contributory, for claims
and losses arising out of Targacept’s performance of the Co-Promotion Agreement.

Certificates evidencing at least the above-required insurance coverage shall be
submitted by Targacept prior to the commencement of any promotion activities by
Targacept and thereafter prior to each renewal or replacement period and shall
bear a certification that the coverage specified therein will not be canceled or
terminated without at least ******** written notice to AstraZeneca. All such
insurances shall be written with one or more companies licensed to do business
in the states in which Targacept operates, which companies have a financial
rating of not less than ******** in the most current edition of Bests Key Rating
Guide.

For the avoidance of doubt, Section 15 shall apply to any CSO retained by
Targacept (including pursuant to Section 1(c)).

16. Indemnification.

(a) Indemnification of AstraZeneca. In addition to any other remedy available to
AstraZeneca, Targacept shall defend, indemnify and hold harmless AstraZeneca,
its Affiliates, all of its and their respective officers, directors, employees
and agents and all successors, heirs and assigns of any of the foregoing
(collectively, “AstraZeneca Indemnitees”) from and against any and all Losses
incurred by or imposed upon any of them as a result of or arising from Claims
arising out of (i) any breach of the Co-Promotion Agreement by Targacept, other
than its obligations under Section 5 (for which the sole and exclusive remedy is
as set forth in Section 6) or (ii) the material breach of any representation or
warranty made by Targacept in the Co-Promotion Agreement, except to the extent
such Losses arise as a result of the negligence, fraud, willful misconduct or
wrongful act of any AstraZeneca Indemnitee.

--------------------------------------------------------------------------------

(b) Indemnification of Targacept. In addition to any other remedy available to
Targacept, AstraZeneca shall defend, indemnify and hold harmless Targacept, its
Affiliates, all of its and their respective officers, directors, employees and
agents and all successors, heirs and assigns of any of the foregoing
(collectively, “Targacept Indemnitees”) from and against any and all Losses
incurred by or imposed upon any of them as a result of or arising from Claims
arising out of (i) any breach of the Co-Promotion Agreement by AstraZeneca,
(ii) the material breach of any representation or warranty made by AstraZeneca
in the Co-Promotion Agreement, (iii) any product liability claim, regardless of
the basis of such claim, relating to the treatment of a patient with Co-Promoted
Product, (iv) the defective design of a Co-Promoted Product or inherent defects
in a Co-Promoted Product, or (v) the use of Promotional Materials without
modification and in accordance with the Co-Promotion Agreement, the training
provided by AstraZeneca under the Co-Promotion Agreement, Applicable Laws and,
to the extent Targacept was given written notice thereof, AstraZeneca’s
compliance policies for promoting pharmaceutical products, except to the extent
such Losses arise as a result of the negligence, fraud, willful misconduct or
wrongful act of any Targacept Indemnitee.

(c) With respect to any Claim for which Targacept has an obligation to any
AstraZeneca Indemnitee pursuant to Section 16(a) and AstraZeneca has an
obligation to any Targacept Indemnitee pursuant to Section 16(b), each Party
shall indemnify each of the other Party’s Indemnitees for its Losses to the
extent of its responsibility, relative to the other Party, for the facts
underlying the Claim.

17. Term and Termination.

(a) Term. Unless earlier terminated in accordance with the terms hereof or
extended by mutual written agreement of the Parties, the term of the
Co-Promotion Agreement (the “Term”) shall commence on the effective date and
continue until AstraZeneca is no longer fielding a sales force for a Co-Promoted
Product in the U.S. Territory.

(b) Termination. In addition to any other provision of the Co-Promotion
Agreement expressly providing for termination of the Agreement, the Co-Promotion
Agreement may be terminated by either Party:

(i) in the event of a material breach of the Co-Promotion Agreement by the other
Party, other than a breach of Targacept’s obligations under Section 5 (for which
the sole and exclusive remedy is as set forth in Section 6), which breach
remains uncured ******** after written notice thereof is given to the breaching
Party;

(ii) upon ******** written notice to the other Party in the event the FDA
recommends or otherwise causes the withdrawal of a Co-Promoted Product from the
market at any time after launch for a period in excess of ********;

(iii) immediately upon written notice if the other Party files for protection
under bankruptcy or insolvency laws, makes an assignment for the benefit of
creditors, appoints or suffers appointment of a receiver or trustee over its
property that is not discharged within ******** after such filing, proposes a
written agreement of composition or extension of its debts, proposes or is a
party to any dissolution or liquidation, files a petition under any bankruptcy
or insolvency act or has any such petition filed against it which involuntary
petition is not discharged within ******** of the filing thereof; or

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(iv) as otherwise set forth in the Agreement.

(c) Suspension. The Co-Promotion Agreement may be suspended by either Party upon
******** written notice to the other Party in the event the FDA recommends or
otherwise causes the withdrawal of a Co-Promoted Product from the market at any
time after launch for a period in excess of ******** days; provided that the
Co-Promotion Agreement shall be reinstated at the request of Targacept if the
Co-Promoted Product is subsequently returned to the market prior to the date, if
any, that the Co-Promotion Agreement is terminated pursuant to Section 17(b).

(d) Effect of Termination or Expiration. Upon the effective date of termination
or expiration of the Co-Promotion Agreement, Targacept immediately shall cease
all Detailing and promotion of the Co-Promoted Product(s) and discontinue the
use of any Promotional Materials and sample forms.

(e) Return of All Materials. Upon the termination or expiration of the
Co-Promotion Agreement, Targacept shall promptly return to AstraZeneca all
Co-Promoted Product sample forms, all Promotional Materials, and all training
materials that AstraZeneca provided to Targacept pursuant to the Co-Promotion
Agreement that are in the possession of, or under the control of, Targacept or
its Designated Sales Force(s).

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SCHEDULE 7

FORM OF CONFIRMATORY LICENSE AGREEMENT

Date:

Parties:

(1) ‘Targacept’: Targacept, Inc., a Delaware corporation having its principal
place of business at 200 East First Street, Winston-Salem, North Carolina 27101.

(2) ‘AstraZeneca’: [AstraZeneca Entity], a [                    ] having a
principal place of business at [                    ].

By an Agreement (the ‘Main Agreement’) dated [                    ] and made
between Targacept and AstraZeneca Targacept granted for the consideration
therein contained to AstraZeneca a license under [UK Patent No
                    ] [European Patent (UK) No                     ] (‘the
Patent’).

Operative provisions:

In pursuance of the Main Agreement and for the consideration referred to in the
Main Agreement Targacept hereby confirms the grant to AstraZeneca of the
exclusive license from the Effective Date for the term specified in the Main
Agreement to manufacture, market, sell and otherwise dispose of Licensed
Products (as defined in the Main Agreement) in the Field (as defined in the Main
Agreement) for the life of the Patent and subject to the provisions of the Main
Agreement.

Subject as provided in the Main Agreement this License shall terminate with
respect to a given country without notice in the event of the termination for
any reason of the Main Agreement with respect to such country.

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IN WITNESS of which this License has been executed as a deed and delivered the
day and year first above written.

EXECUTED as a Deed by                      acting by:

[name of director] and:

[name of director/secretary]

EXECUTED as a Deed by                      acting by:

[name of director] and:

[name of director/secretary]

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SCHEDULE 8

USFRF CONSENT

December 1, 2009

USF Research Foundation, Inc.

Attention: Business Manager

USF Box 30445

Tampa, Florida 33620-3044

 

Re: Targacept, Inc. License Agreement

Ladies and Gentlemen:

Targacept, Inc. (“Targacept”) and the University of South Florida Research
Foundation, Inc. (“Research Foundation”) are parties to that certain Amended and
Restated License Agreement dated March 9, 2004, as amended effective
September 21, 2009 (the “License Agreement”), whereby Research Foundation
granted Targacept an exclusive license under the Patent Rights to research,
develop, make, have made, use, market, distribute, lease, sell, import and
export Licensed Products and Licensed Processes for any and all indications in
the Territory (collectively, the “Licensed Rights”). Capitalized terms used
herein and not otherwise defined have the respective meanings ascribed to them
in the License Agreement.

Targacept desires to enter into a Collaboration and License Agreement with
AstraZeneca AB (“AstraZeneca”) substantially in the form attached hereto as
Exhibit A (the “Collaboration Agreement”). As would be required by the
Collaboration Agreement, Targacept wishes to grant to AstraZeneca a sublicense
to the Licensed Rights (the “Sublicense”). Targacept hereby requests that
Research Foundation approve the Sublicense and otherwise consent to all of the
terms of the Collaboration Agreement.

By signing below, Research Foundation hereby: (i) approves, as contemplated by
Section 2.5 of the License Agreement, the Sublicense in accordance with the
terms of the Collaboration Agreement; (ii) consents to Targacept’s subcontract
of its rights and obligations to prosecute, maintain, enforce and defend the
Patent Rights to AstraZeneca and the right of AstraZeneca to grant sublicenses
(through multiple tiers) to the Licensed Rights, in each case subject to the
terms and conditions set forth in the Collaboration Agreement and without need
for further consent or approval from Research Foundation); and (iii) agrees to
hold in confidence the terms of the Collaboration Agreement in accordance with
Research Foundation’s obligations under Article XV of the License Agreement.

Please sign in the space provided below and return a copy as soon as possible by
facsimile, or in PDF format via email, to Pete Zorn, Vice President, Legal
Affairs and General Counsel (facsimile number: 336-480-2103; email:
pete.zorn@targacept.com), and then mail the originally executed document to the
attention of Katy Lusetti at Targacept’s address set forth below.

[signature page follows]

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Very truly yours, Targacept, Inc. By:  

 

Name:   Title:  

Consented to, approved and agreed:

University of South Florida Research Foundation, Inc.

 

By:

 

 

Name:

 

Title:

 

Date:

 

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Exhibit A

Collaboration Agreement

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SCHEDULE 9

******** CONSENT

********

********

********

********

Attention: Legal Department

 

Re: Targacept, Inc. Master Services Agreement and Work Order No. 1

Ladies and Gentlemen:

Targacept, Inc. (“Targacept”) and ******** (“********”) are parties to that
certain Master Services Agreement, dated August 13, 2009 (the “Master Services
Agreement”), and Work Order No. 1, dated August 13, 2009, entered into under the
Master Services Agreement (“Work Order No. 1” and, together with the Master
Services Agreement, the “Agreement”).

Targacept intends to enter into a Collaboration and License Agreement (the
“Collaboration Agreement”) with AstraZeneca AB (publ) (“Assignee”). As would be
required by the Collaboration Agreement, Targacept wishes to assign the
Agreement and all of Targacept’s rights under the Agreement, and delegate all of
Targacept’s obligations and liabilities under the Agreement, to Assignee
(together, the “Assignment”), in each case if and as of the date on which the
Collaboration Agreement becomes effective by its terms, if any (the “Assignment
Date”). By signing below, ******** hereby provides its written consent to the
Assignment as contemplated by Section 17 of the Master Services Agreement. It is
acknowledged and agreed that: (1) the consent of ******** shall be null and void
and of no force or effect if Targacept and Assignee have not entered into the
Collaboration Agreement on or before December 31, 2009 or if the Collaboration
Agreement has not become effective on or before December 31, 2011; and (2) if
any Work Order is entered into under the Master Services Agreement by ********
and Assignee after the Assignment Date, the terms and conditions of Work Order
No. 1 may not necessarily be incorporated into such Work Order.

Please sign in the space provided below and return a copy as soon as possible by
facsimile, or in PDF format via email, to Pete Zorn, Vice President, Legal
Affairs and General Counsel (facsimile number: 336-480-2103; email:
pete.zorn@targacept.com), and then mail the originally executed document to the
attention of Katy Lusetti at Targacept’s address set forth below.

[signature page follows]

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Very truly yours, Targacept, Inc. By:  

 

Name:   Title:  

 

Consented to and Agreed: ******** By:  

 

Name:   Title:   Date:  

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SCHEDULE 10

******** MANUFACTURING COSTS

If a Licensed Product (or placebo) is Manufactured by AstraZeneca or its
Affiliate (“AstraZeneca Manufactured Material”), AstraZeneca’s (or its
Affiliate’s) ******** costs for Manufacturing such AstraZeneca Manufactured
Material shall be include solely the following components:

(a) the following direct Manufacturing costs:

(i) raw materials (including, but not limited to, active pharmaceutical
ingredient, process chemicals and excipients, semi-finished materials, primary
and secondary packaging components, and consumables used in manufacturing and
testing);

(ii) ******** and ********;

(iii) ********; and

(iv) ******** costs that can be directly attributed to such AstraZeneca
Manufactured Material, such as ******** and ******** costs, other ********
(e.g., ********), ********, and ******** that can be directly attributed to such
AstraZeneca Manufactured Material; and

(b) allocations of ******** and Manufacturing ******** costs, such as ********
and ******** and ******** and ******** on ******** and ********; provided that
(i) ******** costs shall be allocated to AstraZeneca Manufactured Material (and
other products or materials) using allocation methodologies employed
consistently at the site across all brands such as ******** or ******** and
********, (ii) it is the intent of the Parties that the then-existing accounting
and allocation methodologies resident at a particular Manufacturing facility be
used for determining cost allocation and that cost allocations be fair and
equitable and (iii) allocations to AstraZeneca Manufactured Material shall be
made based on its ******** relative to the ******** of the ******** used for the
******** over the previous ******** years.

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SCHEDULE 11

FRAMEWORK

********

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SCHEDULE 12

EXAMPLE CALCULATION OF REDUCTION IN ROYALTIES PURSUANT TO

SECTION 5.3.1(c)(i)

The calculation set forth in this Schedule 12 is for illustrative purposes only.
Capitalized terms used but not defined in this Schedule 12 shall have the
meaning set forth in Article 1 this Agreement.

 

•  

******** Dollars in Net Sales for applicable Licensed Product in ROW Territory
(including Country A)

 

  •  

******** Dollars in the ********% royalty tier (********% of total Net Sales in
the ROW Territory)

 

  •  

******** Dollars in the ********% royalty tier (********% of total Net Sales in
the ROW Territory)

 

•  

******** Dollars in Net Sales for applicable Licensed Product in Country A where
the royalty rates are subject to reduction pursuant to Section 5.3.1(c)(i)

 

  •  

******** Dollars in the ********% royalty tier (********% of Net Sales in
Country A)

 

  •  

******** Dollars in the ********% royalty tier (********% of Net Sales in
Country A)

 

•  

Royalties with respect to Net Sales of applicable Licensed Product in ROW
Territory excluding Country A:

 

  •  

[******** Dollars - ******** Dollars] * ******** = ******** Dollars

 

  •  

[******** Dollars - ******** Dollars] * ******** = ******** Dollars

 

•  

Royalties with respect to Net Sales of applicable Licensed Product in Country A:

 

  •  

******** Dollars * ******** = ******** Dollars

 

  •  

******** Dollars * ******** = ******** Dollars

 

•  

Total royalties payable with respect to Net Sales of applicable Licensed Product
in ROW Territory: ******** Dollars