Exhibit 10.2

SEPARATION AGREEMENT AND RELEASE

This Separation Agreement and Release (this “Agreement”) is made by and between
Jeffrey P. Brennan (“Brennan”) and Targacept, Inc. (“Targacept” or the
“Company”), including all Targacept predecessor entities and all affiliated
entities, and provides as follows.

RECITALS

A. Brennan is currently employed by Targacept pursuant to an Employment
Agreement dated September 1, 2003, as amended by Amendment No. 1 to Employment
Agreement dated December 3, 2007 and Amendment No. 2 to Employment Agreement
dated March 13, 2008 (the “Employment Agreement”), and such employment will
terminate as provided herein.

B. The parties wish to separate on amicable terms, Brennan wishes to cooperate
with Targacept in the transition following Brennan’s separation, and Targacept
wishes to provide Brennan with certain benefits in connection with his
separation.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Targacept and Brennan hereby covenant and
agree as follows:

AGREEMENT

1. TERMINATION OF EMPLOYMENT. Brennan’s employment with the Company will
terminate on March 31, 2013 (the “Termination Date”). Brennan understands and
agrees that the relationship created by this Agreement is purely contractual and
that no employment relationship is intended, or should be inferred, from the
performance of the Company’s obligations under this Agreement.

2. EFFECTIVENESS OF AGREEMENT. This Agreement shall become effective on the
eighth (8th) day after the date of signature of the later of Brennan or
Targacept to sign below (the “Effective Date”), but only if: (a) Brennan returns
a signed original of this Agreement as provided in Section 11 and (b) Brennan
has not exercised the ADEA Revocation Right as defined in and as provided in
Section 12. For clarity, if Brennan exercises the ADEA Revocation Right,
(i) this Agreement shall be null and void and of no force or effect and
(ii) Brennan’s employment will in any case terminate on the Termination Date.

3. SEVERANCE PAY AND BENEFITS. In consideration and exchange for Brennan’s
promises in this Agreement (including, without limitation, the release and
waiver set forth in Section 5 and the promises set forth in Sections 6 and 7),
subject to Section 14, the Company will provide Brennan with (a) the pay and
benefits set forth in Section 7(d) of the Employment Agreement (the period
during which Brennan receives severance pay as set forth in Section 7(d)(A) of
the Employment Agreement, the “Severance Period”), (b) the amount set forth in
Section 1 of the Retention Award Agreement between Brennan and Targacept dated
January 17, 2013 (the “RAA”), subject if applicable to Section 7 of the RAA, and
(c) solely to the extent expressly set forth on Exhibit A attached hereto, an
extension to the period Mr. Brennan may exercise the portion of certain
outstanding stock options vested and unexercised as of the Termination Date. All
payments under this Section 3 shall be subject to all statutory and other
required deductions and withholdings, if any. Brennan agrees that he shall be
responsible for his own tax liabilities arising out of the payments and benefits
provided to him under this Section 3 (and, for clarity, Section 7(d) of the
Employment

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Agreement), and he agrees to indemnify and hold the Company harmless from any
liabilities arising from the payments and benefits made pursuant to this
Section 3. In addition, Brennan acknowledges and agrees that: (i) the benefits
set forth in Section 7(d)(C) of the Employment Agreement shall (A) require him
to elect within sixty (60) days after his receipt of an election notice from the
Company’s health care plan administrator continuation of the healthcare coverage
provided to him as of the Termination Date under the Consolidated Omnibus Budget
Reconciliation Act of 1985 (commonly referred to as “COBRA”) and (B) be limited
to the Company paying the costs for such continuation of coverage, less the
costs being paid by Brennan for such coverage as of the Termination Date (which
shall continue to be his sole responsibility), during the Severance Period; and
(ii) any and all costs to continue such healthcare coverage after the end of the
Severance Period, whether for any further period provided by COBRA or otherwise,
shall be the sole responsibility of Brennan.

4. NO PRIOR OBLIGATION. Brennan acknowledges and agrees that: (a) the payments
and benefits that Brennan receives or for which Brennan is eligible under this
Agreement are of value to Brennan; (b) in the absence of the general release and
promises made by Brennan hereunder, the Company had no prior legal obligation to
provide the payments and benefits called for by Section 3; and (c) Brennan would
not be entitled to such payments and benefits if not for this Agreement.

5. GENERAL RELEASE AND WAIVER OF CLAIMS BY BRENNAN. Brennan, for himself and for
his heirs, successors, assigns, or anyone else claiming under or through
Brennan, hereby forever discharges and releases Targacept, its predecessor,
affiliated or subsidiary entities, and its and their respective directors,
officers, stockholders, affiliates, employees, attorneys, agents,
representatives, and assigns (all of the foregoing, collectively, the
“Releasees”), and each of them, from any and all claims, liabilities, actions or
causes of action of any kind or character whatsoever, whether at law or in
equity, whether known or unknown, whether contingent or absolute. This general
release and waiver of claims includes, without limitation, claims for personal
injuries, back pay, losses or damage to real or personal property, economic loss
or damage of any kind, breach of contract (express or implied), defamation,
breach of any covenant of good faith (express or implied), tortious interference
with contract, wrongful termination, business or personal tort,
misrepresentation, or any other losses or expenses of any kind (whether arising
in tort, contract or by statute) arising out of Brennan’s employment
relationship with Targacept and any other alleged acts or omissions by the
Releasees not expressly excluded herein. Brennan acknowledges that this general
release and waiver of claims applies both to known and unknown claims that may
exist between Brennan and any of the Releasees as of the date Brennan signs this
Agreement.

Brennan expressly acknowledges and agrees that this release and waiver of claims
includes but is not limited to a release of any and all rights, claims, or
causes of action arising under any employment, stock option or other agreement
(whether written, oral or implied) or under any state or federal constitution,
statute, law, rule, regulation, or common-law principle of tort, contract or
equity, except for the obligations of Targacept under this Agreement. This
waiver of claims specifically includes but is not limited to any action under
the Age Discrimination in Employment Act of 1967, 29 U.S.C. § 621, et seq.,
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e,
et seq., the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101,
et seq., the Family and Medical Leave Act, 42 U.S.C. § 2601, et seq., any common
law or statutory claim of wrongful discharge, the Employment Retirement Income
Security Act of 1976, as amended, and any claims for any entitlement to
severance, vacation pay, accrued paid leave, commissions, reimbursements or
attorney’s fees pursuant to any contract or state or federal law.

 

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By entering into this Agreement, Brennan understands and agrees that Brennan
does not waive any rights or claims that he might have that arise as a result of
any conduct that occurs after the date Brennan signs this Agreement or any
claims for continuation rights under COBRA.

Brennan acknowledges and agrees that: (a) any and all monies due and owing to
Brennan from Targacept (including, without limitation, any and all compensation,
wages, commissions, benefits, expense reimbursements, vacation/leave time, and
other payments or amounts), have heretofore been unconditionally and timely paid
to Brennan and that Targacept has satisfied each and every obligation owing to
Brennan, except for: (i) Brennan’s regular base salary through the Termination
Date, which shall be paid by Targacept in arrears in accordance with its
customary payroll practices; (ii) Brennan’s 27 floating holiday and vacation
days for 2013, to the extent unused as of the Termination Date, which shall be
paid by Targacept in accordance with its customary practices; and (iii) the
amounts to be paid to Brennan by Targacept pursuant to this Agreement; and
(b) there are no stock options, stock grants, equity compensation, bonus
commitments, retention incentives or incentive compensation of any kind or
nature whatsoever which are due and owing to Brennan (including, without
limitation, with respect to Targacept’s annual cash incentive award program,
commonly referred to within Targacept as its bonus program, with respect to 2013
or any other year), and no such payment or entitlement will accrue or become due
and owing after the Termination Date.

6. AGREEMENT TO COOPERATE. In addition to, and not in lieu of, his other
obligations hereunder, Brennan agrees to cooperate with Targacept in all
reasonable respects during the Severance Period in transitioning his
responsibilities and duties at Targacept to such other officers or employees of
Targacept as Targacept may direct. Brennan further agrees to cooperate in all
reasonable respects (including, without limitation, by meeting with Targacept’s
counsel and by providing sworn testimony in affidavits, depositions or trials)
in assisting in the prosecution or defense of any claims, demands, complaints,
or lawsuits filed by or against, or threatened against, any of the Releasees
that involve facts or decisions in which or about which he had, or is alleged to
have had, input or knowledge for so long as Targacept may require; provided that
Targacept will reimburse Brennan for any out-of-pocket expenses that are both
approved by Targacept prior to incurrence by Brennan and actually and reasonably
incurred by Brennan in the performance of this sentence.

7. NON-DISPARAGEMENT. Brennan agrees that he will refrain from any interference
with Targacept’s business opportunities and from any and all remarks or conduct
that are inconsistent with the non-adversarial spirit of this Agreement,
including, without limitation, refraining from comments, oral or written, that
disparage, defame, libel, slander, or otherwise damage Targacept, its business,
its scientific areas of interest (e.g., neuronal nicotinic receptors) or any of
its product candidates, or any of the Releasees.

8. FULL CAPACITY. Brennan attests that he possesses sufficient education and
experience to understand fully the extent and impact of the provisions of this
Agreement. Brennan affirms that he is fully competent to execute this Agreement
and that he does so voluntarily and without any coercion, undue influence,
threat or intimidation of any kind or type. Brennan represents that he has not
assigned or transferred any of the claims hereby released.

9. DISPUTED CLAIMS. It is agreed by both parties that this Agreement shall not
in any way be construed, directly or indirectly, as an admission by Targacept
that it has acted wrongfully with respect to Brennan or any other person, or
that Brennan has any rights whatsoever against

 

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Targacept other than as and to the extent expressly herein stated. Targacept
expressly disclaims and denies any liability to or wrongful acts against Brennan
or any other person, on the part of Targacept or any agents, directors,
officers, attorneys, employees, or representatives of Targacept.

10. ADVICE TO SEEK COUNSEL. Brennan acknowledges and agrees that he has been
encouraged by Targacept to consult with counsel of his choosing prior to
executing this Agreement.

11. CONSIDERATION AND REVIEW PERIOD. Brennan agrees that Brennan has been
provided twenty-one (21) days in which to consider and review this Agreement and
to obtain any legal advice Brennan deems appropriate from the attorney of
Brennan’s choice. Brennan can accept this Agreement only by signing and
returning a signed original of the Agreement to Karen A. Hicks, Vice President,
Human Resources (“Hicks”), at Targacept, Inc., 100 North Main Street, Suite
1510, Winston-Salem, NC 27101. Brennan understands and agrees that this
Agreement shall not become effective or enforceable until it has been signed by
both parties and a fully executed original has been received by the Company.

12. REVOCATION PERIOD. After returning a signed original of this Agreement to
the Company, Brennan may revoke his agreement in Section 5 to waive claims
arising under the Age Discrimination in Employment Act of 1967 (the “ADEA”) by
providing written notice to Targacept within seven (7) days after the date of
signature of the later of Brennan or Targacept to sign below (the “ADEA
Revocation Right”). The ADEA Revocation Right will be validly exercised by
Brennan only if such written notice is timely received by Hicks at Targacept,
Inc., 100 North Main Street, Suite 1510, Winston-Salem, NC 27101. Brennan
acknowledges and agrees that, unless he shall have validly exercised the ADEA
Revocation Right, upon expiration of the above-described revocation period, he
shall have forever waived and released the Releasees from any and all claims as
of the Effective Date, including claims under the ADEA.

13. RETURN OF PROPERTY. Brennan represents that he has: (a) returned to
Targacept all property (including, for clarity but without limitation,
Proprietary Information, as that term is defined in Section 5(b) of the
Employment Agreement) belonging to Targacept, including, without limitation, all
keys, badges, virtual private network (vpn) fobs, phones or other handheld
devices, tablets, computers, equipment, software, documents, handbooks, manuals,
files and other materials and information obtained or furnished to, or prepared
in whole or in part by, Brennan in connection with his employment with the
Company; and (b) provided to Hicks all user names, passwords, access codes and
the like in his possession or control, or of which he is aware, related to
Targacept or any Targacept database or other property or system.

14. PERFORMANCE. Targacept will make the payments and provide the benefits set
forth in clause (a) of Section 3 provided Brennan complies with and meets his
obligations under this Agreement and Section 5 (excluding Section 5(e)) of the
Employment Agreement. In the event that Brennan breaches any of his covenants or
promises, or causes any covenants or promises to be breached, in addition to any
other rights or remedies available to Targacept, at law or otherwise,
Targacept’s obligation to perform under this Agreement shall automatically
terminate and Targacept shall have no further liability or obligation to
Brennan. Alternatively, Targacept may seek injunctive relief to enforce the
provisions of this Agreement.

15. ENTIRE AGREEMENT; COMPLETE DEFENSE. The parties acknowledge and represent
that, with the express exception of (a) Section 5 (but excluding Section 5(e))
of the Employment Agreement, (b) the RAA (but excluding Section 1 thereof) and
(c) the Proprietary Information,

 

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Inventions and Noncompetition Agreement dated August 19, 2003 between Brennan
and Targacept (“Proprietary Information Agreement”), all of which survive the
Termination Date and remain in full force and effect, this Agreement contains
the entire agreement between them regarding the matters set forth and that it
supersedes all previous negotiations, discussions, communications and
understandings regarding such matters. The parties further acknowledge that no
representations, inducements, promises or agreements, oral or written, have been
made by either party or by anyone acting on behalf of either party that are not
embodied in this Agreement. The terms of this Agreement are contractual and not
a mere recital and the parties agree that the contents of this Agreement may be
used in evidence to demonstrate Brennan’s knowing and valid release of claims as
stated herein.

The parties agree that this Agreement (including, without limitation, the
general release contained in Section 5) may be treated as a complete defense to
any legal, equitable or administrative action that may be brought, instituted or
taken by Brennan, or on his behalf, against any of the Releasees and shall
forever be a complete bar to the commencement or prosecution of any claim,
demand, lawsuit, charge or other legal proceeding of any kind against any of the
Releasees relating to any or all of Targacept, Targacept’s business, Brennan’s
employment with Targacept and the termination of Brennan’s employment with
Targacept.

16. BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of Brennan, on the one hand, and to Targacept and its
successors and permitted assigns, on the other hand. This Agreement and any
rights or obligations hereunder may be assigned by the Company to the successor
of all or substantially all of its business or to an affiliate of the Company.
Neither this Agreement nor any of the rights and obligations of Brennan
hereunder may be assigned or delegated by Brennan without the Company’s prior
written consent.

17. AMENDMENT AND WAIVER. This Agreement may not be modified or amended except
in a writing signed by Brennan and an authorized representative of the Company.
The failure of either party to assert a right hereunder or to insist upon
compliance with any term or condition hereof will not constitute a waiver of
that right or excuse a similar subsequent failure to perform any such term or
condition by the other party.

18. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of
Brennan, on the one hand, and the Company and its permitted successors and
assigns, on the other hand, and shall not be construed as conferring any rights
on any other party.

19. APPLICABLE LAW AND FORUM. North Carolina law shall govern the interpretation
and enforcement of this Agreement, without regard to its conflicts of laws
provisions. Brennan agrees that the exclusive and convenient forum for any civil
lawsuit relating to this Agreement shall be any proper state court within
Forsyth County in the State of North Carolina or, if jurisdiction exists, the
United States District Court for the Middle District of North Carolina.

20. PARTIAL INVALIDITY. The parties agree that the provisions of this Agreement
shall be deemed severable and that the invalidity or unenforceability of any
portion or any provision shall not affect the validity or enforceability of the
other portions or provisions. Such provisions shall be appropriately limited and
given effect to the extent that they may be enforceable.

 

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IN WITNESS WHEREOF, the parties have set their hands and seals on this
Agreement:

 

/s/ Jeffrey P. Brennan

    Date: March 29, 2013 Jeffrey P. Brennan     TARGACEPT, INC. By:  

/s/ Stephen A. Hill

    Date: March 29, 2013   Stephen A. Hill       President and Chief Executive
Officer    

 

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Exhibit A

March 29, 2013

Dear Jeff:

We refer you to the Amended and Restated 2000 Equity Incentive Plan of
Targacept, Inc. (the “2000 Plan”) and the Targacept, Inc. 2006 Stock Incentive
Plan, as amended and restated through March 9, 2011 and further amended
effective December 7, 2012 and March 13, 2013 (the “2006 Plan” and, together
with the 2000 Plan, the “Plans”). Capitalized terms used in this letter and not
otherwise defined have the respective meanings given to them in the applicable
Plan.

As of the date of this letter, you hold certain outstanding, unexercised options
to purchase shares of Targacept common stock that were granted to you under
either or both of the 2000 Plan and the 2006 Plan (“Targacept Options”). Each of
your Targacept Options is evidenced by a stock option agreement between you and
Targacept (an “Option Agreement”) and is subject in all respects to the terms of
the Plan under which such Targacept Option was granted.

Under the terms of the applicable Option Agreement and Plan, each Targacept
Option will expire (and no longer be exercisable) prior to the end of its
10-year option period if any one of several events related to your termination
of employment occurs. We refer you to: (a) Section 5(c) of each Option Agreement
for Targacept Options granted under the 2006 Plan; and (b) Section 4 of each
Option Agreement for Targacept Options granted under the 2000 Plan and
Section 6(c)(iii)(D) of the 2000 Plan. Your employment with Targacept is
terminating with an effective date of March 31, 2013, which is your “termination
date” for purposes of your Targacept Options.” Accordingly, prior to giving
effect to this letter and assuming your termination date is March 31, 2013, the
portion of each Targacept Option granted under (i) the 2000 Plan that is vested
and unexercised as of your termination date must by its terms be exercised, if
at all, prior to June 29, 2013 and (ii) the 2006 Plan that is vested and
unexercised as of your termination date must by its terms be exercised, if at
all, prior to June 30, 2013.

The Compensation Committee of Targacept’s Board of Directors, as Administrator
of the Plans, has determined that the period during which you can exercise the
portion of each Targacept Option that is vested and unexercised as of your
termination date is extended until the earlier of (a) the expiration date of
such Targacept Option as set forth in the corresponding Option Agreement or
(b) September 30, 2014. Accordingly, each Targacept Option must be exercised, if
at all, prior to the earlier of those two dates. Targacept assumes no obligation
to advise you or remind of you of the pending expiration date for any Targacept
Option.

In addition, by the terms of your Employment Agreement with Targacept dated
September 1, 2003, as amended on December 3, 2007 and March 13, 2008, and a
related Separation Agreement and Release dated on or about the date of this
letter, effective as of your termination date, the vesting of Targacept Options
that you held as of your termination date shall be accelerated to the extent not
exercisable as of termination date, but, for each such Targacept Option, only to
the extent such Targacept Option would have become exercisable by December 31,
2013 if you had remained employed by Targacept through that date. No further
vesting for any Targacept Option will occur after your termination date, and the
unvested portion (if any) of each Targacept Option as of your termination date
will not be or become exercisable.

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Except as expressly provided above, all terms of Targacept Options remain
unchanged, unaffected by the Compensation Committee action or this letter.

Please keep in mind that each Targacept Option, to the extent designated as an
incentive stock option, will cease to be an incentive stock option and
automatically become a nonqualified stock option if it is exercised on or after
June 29, 2013 (for Targacept Options granted under the 2000 Plan) or June 30,
2013 (for Targacept Options granted under the 2006 Plan). We strongly encourage
you to consult with your personal legal or tax advisor regarding the tax
consequences of Targacept Options (including the impact of the actions described
in this letter), the exercise of any Targacept Option and the timing of any such
exercise.

Please sign this letter where indicated below and return it to Targacept as soon
as possible. By signing: (1) you acknowledge receipt of this letter and agree to
be bound by the terms of the respective Plans, the respective Option Agreements
and this letter; (2) you, for yourself and your heirs, successors, assigns and
anyone else claiming under or through you, forever discharge and release
Targacept, its predecessor, affiliated or subsidiary entities, if any, and its
and their respective directors, officers, stockholders, affiliates, employees,
agents, representatives, and assigns, and each of them, from any and all claims,
liabilities, actions or causes of action of any kind or character whatsoever,
whether at law or in equity, whether known or unknown, whether contingent or
absolute, and any other losses or expenses of any kind (whether arising in tort,
contract or by statute), arising out of or with respect to Targacept Options,
any of the Option Agreements or either of the Plans (collectively, “Released
Claims”); and (3) acknowledge that the foregoing release applies both to known
and unknown Released Claims that may exist as of date you sign this letter.

 

Sincerely, /s/ Stephen A. Hill Stephen A. Hill President and Chief Executive
Officer

 

Agreed to and accepted by:

/s/ Jeffrey P. Brennan

Print Name: Jeffrey P. Brennan

Date: March 29, 2013

 

cc:    Karen A. Hicks    Mauri K. Hodges