Exhibit 10.1

[********] 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.

PRODUCT DEVELOPMENT AND

COMMERCIALIZATION AGREEMENT

BETWEEN

SMITHKLINE BEECHAM CORPORATION, D/B/A

GLAXOSMITHKLINE

AND

GLAXO GROUP LIMITED

AND

TARGACEPT, INC.

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PRODUCT DEVELOPMENT AND

COMMERCIALIZATION AGREEMENT

This PRODUCT DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (the “Agreement”) is
entered into and made effective as of the 27th day of July 2007 (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”), on the one hand, and SmithKline Beecham
Corporation, doing business as GlaxoSmithKline, a Pennsylvania corporation
having a principal place of business at One Franklin Plaza, Philadelphia, PA
19101 (“SB”), and Glaxo Group Limited, a company existing under the laws of
England and Wales, having its registered office at Glaxo Wellcome House,
Berkeley Avenue, Greenford, Middlesex, UB6 0NN, England (“GGL”), on the other
hand. SB and GGL are referred to herein collectively as “GSK.” Targacept and GSK
are each referred to herein by name or as a “Party” or, collectively, as
“Parties.”

RECITALS

WHEREAS, Targacept possesses proprietary technology and know-how related to the
research, discovery, identification, synthesis and development of small molecule
drug candidates targeting NNRs;

WHEREAS, GSK possesses expertise in the pharmaceutical research, development,
manufacturing and commercialization of human pharmaceuticals, and GSK is
interested in developing such small molecule drug candidates as drug products;

WHEREAS, GSK desires to engage in a collaborative effort with Targacept pursuant
to which Targacept shall, subject to the terms and conditions set forth herein,
carry out six (6) research and development Programs with respect to specified
combinations of NNR Subtypes;

WHEREAS, GSK shall have exclusive options, exercisable at GSK’s sole discretion,
to further develop and commercialize on an exclusive basis for any and all uses
in the Field and in the Territory certain Licensed Products resulting from each
of such Programs, all subject to the terms and conditions set forth herein;

WHEREAS, upon exercise of each of its options to such compounds by GSK,
Targacept desires to grant and will grant to GSK, and GSK desires to obtain and
will obtain, an exclusive license in the Territory and in the Field, subject to
the terms and conditions set forth herein; and

 

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WHEREAS, contemporaneously with the execution of this Agreement, the Parties
have executed a Stock Purchase Agreement pursuant to which GSK shall purchase
shares of the common stock of Targacept (the “Stock Purchase Agreement”).

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

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following terms shall have the meanings set forth
in this Article 1. All references to “Dollars” mean U.S. Dollars. The use of the
singular form of a defined term also includes the plural form and vice versa,
except where expressly noted:

1.1 “Acceptance” means the earliest date the FDA (or foreign Regulatory
Authority) notifies GSK that it has accepted for filing the relevant regulatory
submission (e.g., NDA) with respect to a Licensed Product.

1.2 “Additional Indication” shall mean, with respect to the Indication of any
Program, any other indication or condition.

1.3 “Affiliate” shall mean any Person, whether de jure or de facto, which
directly or indirectly through one (1) or more intermediaries controls, is
controlled by or is under common control with a Party. A Person shall be deemed
to “control” another Person if it: (a) owns, directly or indirectly,
beneficially or legally, at least fifty percent (50%) of the outstanding voting
securities or capital stock (or such lesser percentage which is the maximum
allowed to be owned by a Person in a particular jurisdiction) of such other
Person, or has equivalent ownership interest with respect to any Person other
than a corporation; or (b) has the power, whether pursuant to contract,
ownership of securities or otherwise, to direct the management and policies of
the Person. For purposes of this Agreement, a “Person” shall mean any
corporation, firm, partnership or other entity recognized as having a separate
existence under the law.

1.4 “Backup Compound” shall mean, with respect to the Leading Compound (which
may be, if applicable, the Development Candidate) in a given Program, any other
Collaboration Compound in such Program, which (i) is not an ester, salt,
crystalline polymorph, hydrate or solvate of such Leading Compound or of any
other Backup Compound or Follow-On Compound with respect

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to such Leading Compound, (ii) possesses substantially the same Mechanism of
Action at the Protein Target Profile as such Leading Compound and
(iii) [********] such Leading Compound. Backup Compounds shall be nominated by
Targacept as and determined to be by or pursuant to a process agreed by the JSC
and updated as necessary from time to time, but consistent with the foregoing
definition. For clarity, any Lead, Development Candidate or Product Candidate
may become a Backup Compound (if otherwise qualifying) as a result of a
substitution hereunder.

1.5 “Breaching Party” shall have the meaning assigned to such term in
Section 12.2.1.

1.6 “Calendar Quarter” shall mean a period of three (3) consecutive months
ending on the last day of March, June, September or December.

1.7 “Candidate Selection Stage” means, with respect to any compound, the stage
of pharmaceutical product development whereby the activities included in the
Development Candidate Activities are first completed and (i) the Development
Candidate Criteria are achieved or (ii) the JSC determines such compound to be a
Development Candidate or, if such compound had previously been determined to be
a Follow-On Compound, confirms that such compound remains a Follow-On Compound.

1.8 “cGMP” shall mean the principles (i) detailed in the U.S. Current Good
Manufacturing Practices, 21 CFR Parts 210 and 211, and The Rules Governing
Medicinal Products in the European Union, Volume IV Good Manufacturing Practice
for Medicinal Products, as each may be amended from time to time, or
(ii) promulgated by any governmental or regulatory body having jurisdiction over
the manufacture of a Collaboration Compound in the form of laws or regulations.

1.9 “Clinical Studies” means human studies designed to evaluate the safety,
efficacy, tolerability or appropriate dosage of a Progressed Compound, Product
Candidate or Licensed Product, as the context requires, including, without
limitation, Phase 1 Clinical Trials, Phase 2 Clinical Trials (including the PoC
Trial) or Phase 3 Clinical Trials. Clinical Studies shall include, without
limitation: (a) any clinical studies that Targacept determines is necessary or
useful to conduct in the Territory in the Early Development Programs; or (b) any
clinical studies that GSK determines are necessary or useful to conduct in the
Territory for Product Candidates or Licensed Products to achieve or maintain
Marketing Approvals.

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1.10 “Collaboration Compound” shall mean TC-2696, TC-6499 or any compound owned
or Controlled by Targacept that has been or is identified or created by or on
behalf of Targacept as of the Effective Date or during the Research Term or
Early Development Term and meets the Protein Target Profile for a Program;
provided that, notwithstanding the foregoing, in no event shall any
“Collaboration Candidate,” “Licensed Derivative,” “Additional Compound” or
“Excluded Zone Compound,” in each case as defined in the Existing TRGT
Collaboration Agreement, be a Collaboration Compound (including, for clarity, a
Hit, Lead, Development Candidate, Option Compound, Backup Compound, Follow-On
Compound, Related Compound or Product Candidate).

1.11 “Collaboration Know-How” means any Information or Invention that relates
specifically (but not necessarily exclusively) to a Collaboration Compound that
is discovered, developed, conceived or created solely by or on behalf of a Party
or by the Parties jointly, or by their respective Affiliates, in each case
pursuant to work conducted during the Collaboration Term under any Research
Program or Early Development Program or under the Product Candidate
Commercialization Program.

1.12 “Collaboration Patent” means any Patent owned or Controlled by either or
both of Targacept and GSK that claims Collaboration Know-How.

1.13 “Collaboration Technology” means, collectively, Collaboration Know-How and
Collaboration Patents.

1.14 “Collaboration Term” means the period from the Effective Date until the end
of (i) the Early Development Term or (ii) if there are no Early Development
Programs, the last Research Term.

1.15 “Combination Product” shall mean a Product that includes at least one other
active pharmaceutical ingredient (whether co-formulated or co-packaged with the
Collaboration Compound in such Product) which is not a Collaboration Compound.
To be a Combination Product, the Product must be invoiced as one product.
Notwithstanding the foregoing, drug delivery vehicles, adjuvants, and excipients
shall not be deemed to be “active pharmaceutical ingredients,” and their
presence shall not be deemed to create a Combination Product.

1.16 “Competitive Infringement” shall have the meaning assigned to such term in
Section 8.5.1.

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1.17 “Compound Exclusivity Period” shall have meaning assigned to such term in
Section 7.1(d).

1.18 “Compound Patents” shall have meaning assigned to such term in
Section 8.2.4(a).

1.19 “Confidential Information” shall have the meaning assigned to such term in
Section 9.1.

1.20 “Contract Year” shall mean a period of 365 consecutive days (or 366
consecutive days in a leap year) beginning on the Effective Date or an annual
anniversary thereof.

1.21 “Control,” “Controls,” “Controlled” or “Controlling” shall mean possession
of the legal right and ability to grant the respective licenses or sublicenses
as provided herein without violating the terms of any agreement or other
arrangement with any Third Party. A Party shall be deemed to Control
Collaboration Technology to the extent of its individual or joint interest
therein, as applicable.

1.22 “Co-promote” or “Co-promotion” shall mean, with respect to Targacept, to
engage in the agreed upon promotional activities for a Co-promotion Product in
the United States, as further described in Section 5.4.

1.23 “Co-promotion Agreement” has the meaning assigned to such term in
Section 5.4.1(a).

1.24 “Co-promotion Product” shall mean only TC-2696, TC-6499 and, with the
[********], any Licensed Product resulting from [********]. In determining
whether [********] for any Licensed Product resulting from [********] to be a
Co-promotion Product would be [********] (i) the [********] and other [********]
takes into account in determining [********] and (ii) the extent to which
[********] with regard to the [********], if applicable, or otherwise has a
[********] that would be expected to be [********] at least [********] shall be
taken into account.

1.25 “Co-promotion Right” shall have the meaning assigned to such term in
Section 5.4.1(a).

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1.26 “Derivative” shall mean a compound that is derived in one or more steps
from a Collaboration Compound and that has, or is intended at the time of its
synthesis to have, pharmacological (i.e., pharmacodynamic and not
pharmacokinetic) properties substantially similar to, or superior to, the
properties of the compound from which it was derived.

1.27 “Develop” or “Development” shall mean activities relating to obtaining
Regulatory Approval of Licensed Products or developing manufacturing
capabilities for Licensed Products. Development includes, but is not limited to,
Preclinical Activities, pharmacology studies, biomarker studies, toxicology
studies, formulation, manufacturing process development and scale-up (including,
without limitation, bulk compound production), quality assurance and quality
control, technical support, pharmacokinetic studies, Clinical Studies and
regulatory affairs activities.

1.28 “Development Candidate” shall mean TC-2696, TC-6499 and any other
Collaboration Compound (i) that is nominated by Targacept after completion of
the Development Candidate Activities and (ii) for which the JSC determines that
all or substantially all of the material Development Candidate Criteria have
been achieved. For clarity, a Backup Compound or Follow-On Compound may become a
Development Candidate, in which case it shall either be a second Development
Candidate for the applicable Program or, if substituted for a previously
determined Development Candidate, shall no longer be a Backup Compound or
Follow-On Compound.

1.29 “Development Candidate Activities” shall mean the non-clinical studies and
assessments identified by the Parties as of the Effective Date as Development
Candidate Activities, as updated by the JSC from time to time.

1.30 “Development Candidate Criteria” shall mean, for each Program, the criteria
established and updated from time to time by the JSC to be met upon completion
of the Development Candidate Activities to support the determination of a
Development Candidate by the JSC.

1.31 “Development Candidate Pursuit Conditions” shall have the meaning assigned
to such term in Section 3.1.1(b).

1.32 “Diligent Efforts” shall mean, as follows:

1.32.1 For Targacept: Targacept shall apply commercially reasonable efforts in
the conduct of all research and

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Development activities and obligations for which Targacept is responsible for
each (i) Research Program in accordance with the activities and obligations that
are set forth in the applicable Research Plan, and (ii) Early Development
Program in accordance with the activities and obligations that are set forth in
the applicable Early Development Plan. With respect to any particular
Collaboration Compound subject to a Research Program or Early Development
Program, such efforts shall at all times be consistent with the manner and
degree in which Targacept would apply efforts for a compound which is a
potential development candidate, a development candidate or a clinical stage
compound (as applicable) in its own pipeline, at a similar stage of development
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, without limitation, stage of
development, product life, profit and market potential and patent position and,
following [********] for the applicable Program [********], such value relative
to other indications) as compared to such Collaboration Compound.

1.32.2 For GSK: Upon the exercise of each of its Program Options, GSK shall
apply commercially reasonable efforts in the conduct of all activities and
obligations for which GSK is responsible with respect to the further development
of the Product Candidate(s) that are the subject of such Program Option into
Licensed Product(s) and commercialization thereof. With respect to any
particular Product Candidate or Licensed Product, such efforts shall at all
times be consistent with the manner and degree in which GSK would apply efforts
for a compound in its own pipeline, at a similar stage of development (in the
case of a Product Candidate) 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, without
limitation, stage of development, product life, profit and market potential and
patent position) as compared to such Product Candidates or Licensed Products.
Notwithstanding the foregoing, with respect to the application of Diligent
Efforts to any decision to launch or to the commercialization of any particular
Licensed Product in any particular Major Country, neither [********] such
Licensed Product [********] in such Major Country nor [********] shall be taken
into account.

1.32.3 A Party that is required to use Diligent Efforts with respect to an
obligation must (unless, in each case, to do so would constitute a higher degree
of effort than would be consistent with Diligent Efforts as provided above):
(a) promptly assign

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responsibility for such obligation to specific employee(s) who are held
accountable for progress and monitor such progress on an ongoing basis,
(b) establish and consistently seek to achieve specific, meaningful and
measurable objectives for carrying out such obligation, and (c) consistently
make and implement decisions and allocate sufficient human and financial
resources designed to advance progress with respect to such objective.

1.33 “Disclosing Party” shall have the meaning assigned to such term in
Section 9.1.

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

1.35 “Early Development Program” shall have the meaning assigned to such term in
Section 3.2. For clarity, if any Program has more than one Early Development
Plan, all such Early Development Plans together shall constitute such Program’s
Early Development Program.

1.36 “Early Development Plan” shall have the meaning assigned to such term in
Section 3.7.

1.37 “Early Development Program Term” shall have the meaning assigned to such
term in Section 3.2.3.

1.38 “Early Development Term” shall have the meaning assigned to such term in
Section 3.2.4.

1.39 “EMEA” shall mean the European Medicines Agency and any successor entity
thereto.

1.40 “European Union” or “EU” shall include 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 Effective Date.

1.41 “Exclusivity Compound” shall have the meaning assigned to such term in
Section 7.1(d).

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1.42 “Executive Officers” shall have the meaning assigned to such term in
Section 2.3.4.

1.43 “Existing TRGT Collaboration Agreement” shall mean the Collaborative
Research and License Agreement by and between Targacept and AstraZeneca AB dated
December 27, 2005, as amended and as may be further amended. For clarity,
Targacept’s right [********] Existing TRGT Collaboration is subject to
[********] hereof.

1.44 “Experts” shall have the meaning assigned to such term in
Section 14.1.2(a).

1.45 “FDA” shall mean the U.S. Food and Drug Administration and any successor
entity thereto.

1.46 “Field” shall mean any use or purpose, including without limitation the
treatment, palliation, and/or prevention of any human or animal disease,
disorder or condition; provided, however, that Field hereunder shall
specifically exclude those diseases, disorders and conditions included from time
to time in the terms “Field” and “Schizophrenia” as defined in the Existing TRGT
Collaboration Agreement.

1.47 “First Commercial Sale” shall mean, with respect to each Product and each
country, the first sale for which payment has been received for use or
consumption by the general public of such Product in any country in the
Territory after all Regulatory Approvals have been granted by the applicable
Regulatory Authority, or such sale is otherwise lawful, in such country,
excluding registration samples and compassionate use.

1.48 “Follow-On Compound” shall mean, with respect to the Leading Compound
(which may include, if applicable, the Development Candidate) in a given
Program, another Collaboration Compound in such Program which (i) is not an
ester, salt, crystalline polymorph, hydrate or solvate of such Leading Compound,
any Backup Compound with respect to such Leading Compound or, in the case of the
Pain 2 Program, any other Follow-On Compound, (ii) has a Mechanism of Action at
the applicable Protein Target Profile that is not substantially the same as the
Mechanism of Action at such Protein Target Profile of such Leading Compound (or
of any other Follow-On Compound in such Program in the case of the Pain 2
Program) and (iii) is or is reasonably be expected to be [********] such Leading
Compound, [********] any Backup Compound with respect to such Leading Compound
and, in the case of the Pain 2 Program, [********] any other Follow-On Compound;
provided that a Collaboration Compound

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nominated by Targacept as and determined by the JSC to be a Follow-On Compound
with respect to a Leading Compound prior to [********] (A) shall not continue
thereafter to be a Follow-On Compound unless, [********], it is determined by
the JSC to be or to be expected to be [********] such Leading Compound,
[********] any Backup Compound with respect to such Leading Compound and, in the
case of the Pain 2 Program, [********] any other Follow-On Compound and (B) that
does not continue to be a Follow-On Compound [********] as provided in clause
(A) above shall no longer be a Progressed Compound. For clarity, any Lead,
Development Candidate or Product Candidate may become a Follow-On Compound (if
otherwise qualifying) as a result of a substitution hereunder.

1.49 “Framework” means the structural framework of a compound determined in
accordance with the guidelines set forth on Schedule 1.49.

1.50 “Generic Incursion” shall have the meaning assigned to such term in
Section 6.6.1(f).

1.51 “Generic Product” means, with respect to any Licensed Product and any
country, any pharmaceutical product sold by a Third Party, not authorized by GSK
or an Affiliate or sublicensee of GSK, that includes the same active
pharmaceutical ingredient(s) as such Licensed Product and is approved for
marketing or sale by the applicable Regulatory Authority in such country in
reliance on the approval of such Licensed Product on the basis of it being
bioequivalent to and substitutable for such Licensed Product.

1.52 “GSK Diligence Failure Event” shall have the meaning assigned to such term
in Section 12.2.2.

1.53 “GSK Know-How” shall mean any Information or Invention that [********] to a
Collaboration Compound that (a) is Controlled by GSK or its Affiliates as of the
Effective Date or during the Term (other than Collaboration Know-How) and (b) is
necessary or reasonably useful for Targacept: (i) to conduct any Research
Program or Early Development Program; (ii) to research, develop, have developed,
make, have made, use, import, offer to sell and sell any Refused Candidate,
Refused Candidate Product or Returned Licensed Product; or (iii) to conduct
promotional activities for any Co-promotion Product with respect to which
Targacept exercises its Co-promotion Rights.

1.54 “GSK Patents” shall mean all Patents in the Territory owned or Controlled
by GSK or its Affiliates as of the Effective Date or during the Term (other than
Collaboration Patents) that contain a claim that [********] to a Collaboration
Compound and is

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necessary or reasonably useful for Targacept: (a) to conduct any Research
Program or Early Development Program; (b) to research, develop, have developed,
make, have made, use, import, offer to sell or sell any Refused Candidate,
Refused Candidate Product or Returned Licensed Product; or (c) to conduct
promotional activities for any Co-promotion Product with respect to which
Targacept exercises its Co-promotion Right.

1.55 “GSK Reverse Royalties” shall have the meaning set forth in Section 6.7.2.

1.56 “GSK Technology” shall mean, collectively, (i) GSK Patents and GSK Know-How
and (ii) any Collaboration Technology owned or Controlled by GSK either solely
or jointly with Targacept.

1.57 “Hit” means, with respect to a particular Program, a Collaboration Compound
that meets criteria set by the JSC from time to time for such Program, but
generally to include [********] criteria plus relevant [********] criteria.

1.58 “HSR” shall have the meaning assigned to such term in Section 4.3.1(a).

1.59 “ICD 10” means the International Statistical Classification of Diseases and
Related Health Problems, Tenth Edition, published by the World Health
Organization, as amended and as supplemented or superseded by subsequent
editions published from time to time.

1.60 “IND” shall mean any investigational new drug application filed with the
FDA pursuant to Part 312 of Title 21 of the U.S. Code of Federal Regulations,
including any amendments thereto. References herein to IND shall include, to the
extent applicable, any comparable filing(s) outside the U.S. (such as, without
limitation, a Clinical Trial Authorization in the European Union).

1.61 “IND Studies” means Preclinical Activities undertaken by Targacept to
support the filing of an IND.

1.62 “Indemnitee” shall have the meaning assigned to such term in Section 11.3.

1.63 “Indication” means each of Pain, Parkinson’s Disease, Smoking Cessation,
Obesity and Addiction, in each case as more particularly defined below.

“Pain” means relief of the signs and symptoms of pain associated with any of the
painful medical conditions defined in ICD 10.

EXECUTION VERSION    -11-   

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“Parkinson’s Disease” means treatment of the motor symptoms of Parkinson's
disease as described as of the Effective Date in [********].

“Smoking Cessation” means aiding treatment of nicotine dependence as described
as of the Effective Date in [********].

“Obesity” means management of obesity due to excess calories as described as of
the Effective Date in [********], including weight loss and maintenance of
weight loss in conjunction with a reduced caloric diet and exercise.

“Addiction” means aiding in the treatment of alcohol dependence as described as
of the Effective Date in [********], or the blockade of the reward effects
(i.e., craving, as described as of the Effective Date on [********]) of
exogenously administered substances as described as of the Effective Date in
[********], or the blockade of the reward effects of impulse control disorders
as described as of the Effective Date on [********] (i.e., kleptomania,
pyromania or pathological gambling).

It is understood and agreed that, where any Indication (e.g., Pain associated
with cancer) is specifically associated with another disease, disorder or
condition that is recognized by general consensus in the medical community as
being distinctly defined, diagnosed or treated (e.g., cancer), the other
disease, disorder or condition (e.g., cancer) is not an Indication or otherwise
subject to any obligation of exclusivity hereunder.

1.64 “Indication Exclusivity Period” shall have the meaning assigned to such
term in Section 7.1(a).

1.65 “Information” means all tangible and intangible information, techniques,
trade secrets, technical information, methods, processes, know-how, data,
results (including, without limitation, pharmacological, toxicological and
clinical test data and results), analytical and quality control data, results or
descriptions. Notwithstanding the foregoing, in no event shall Information
include Pentad Technology. As used herein, “clinical test data” shall be deemed
to include all information related to Clinical Studies, including, without
limitation, patient report forms, investigators’ reports, biostatistical,
pharmaco-economic and other related analyses, regulatory filings and
communications and the like.

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1.66 “Initial Term” shall have the meaning set forth in Section 3.1.1(a).

1.67 “Initiation” or “Initiate” shall mean the first dosing of the first subject
in a Clinical Study.

1.68 “Invention” shall mean any new or useful process, composition of matter or
method of use or manufacture, whether patentable or unpatentable; provided that,
notwithstanding the foregoing, in no event shall (i) Invention include Pentad
Technology and (ii) any Information be an Invention.

1.69 “Joint Collaboration Patent” shall have the meaning assigned to such term
in Section 8.2.2.

1.70 “Joint Patent Committee” shall have the meaning assigned to such term in
Section 2.3.7(b).

1.71 “Joint Program Subcommittee” or “JPS” shall have the meaning assigned to
such term in Section 2.3.7(a).

1.72 “Joint Steering Committee” or “JSC” shall have the meaning assigned to such
term in Section 2.3.

1.73 “Lead” means, with respect to a particular Program, a Hit that meets
criteria set by the JSC from time to time, but generally to include [********]
activity in [********] criteria. For clarity, a Backup Compound or Follow-On
Compound may become a Lead, in which case it shall either be a second or, as the
case may be, third Lead for the applicable Program or, if substituted in place
of a previously determined Lead that had been the Leading Compound under the
Program, shall no longer be a Backup Compound or Follow-On Compound.

1.74 “Lead Criteria” means the criteria for a Lead determined by the JSC from
time to time, subject to Section 2.3.4(a). For clarity, a Backup Compound or
Follow-On Compound, although not a Lead, may satisfy Lead Criteria.

1.75 “Leading Compound” means, at any particular point in time, the furthest
advanced Collaboration Compound under a given Program. For clarity, (i) a
Leading Compound may in some cases also be a Lead and (ii) it is contemplated
that, for any particular Program, the Leading Compound may change from time to
time.

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1.76 “Licensed Product” shall mean any product, including any formulation or
dosage or delivery form thereof, containing or comprising a Product Candidate,
including any metabolite, prodrug, ester, salt, crystalline polymorph, hydrate
or solvate of any such Product Candidate.

1.77 “Licensed Product Term” shall have the meaning assigned to such term in
Section 12.1.

1.78 “Losses” shall have the meaning assigned to such term in Section 11.1.

1.79 “Major Country” shall mean (i) the United States, Japan, France, Germany,
Italy, Spain, and the United Kingdom, and (ii) [********] if and after such time
as annual total ethical pharmaceutical sales in such country exceeds [********]
Dollars ($[********]) as measured by [********] or an equivalent industry
standard.

1.80 “Major Indication” shall mean any non-orphan indication or condition that
would reasonably be projected by [********] to have worldwide peak year sales of
greater than [********] Dollars ($[********]) and (i) that is included in ICD 10
or DSM IV, or (ii) that is recognized as a distinct diagnosable condition by
general consensus in the medical community in the United States or EU or
(iii) for which a product has received Regulatory Approval from the FDA or the
EMEA; provided, however, that, for purposes of Section 6.4.1 and 6.5, (a) all
types of pain within a particular Pain Sub-Indication shall be a single Major
Indication such that (b) the Pain Sub-Indications represent [********] Major
Indications.

1.81 “Marketing Approval” shall mean, with respect to any particular
jurisdiction and any particular Product, any and all Regulatory Approvals and,
in Europe, national approval of price and reimbursement for such Product in such
jurisdiction. “Marketing Approval” for any Product shall be deemed to occur in
any jurisdiction upon first receipt of notice from the applicable Regulatory
Authority that marketing or sale of such Product has been approved.

1.82 “Mechanism of Action” or “MoA” means the results on the [********] criteria
set forth on Schedule 1.82 (based on the corresponding measurement set forth on
Schedule 1.82) at the applicable Protein Target Profile, taking each such
criterion into account. A compound has “substantially the same” Mechanism of
Action or MoA as another compound if (i) the two compounds have the same Protein
Target Profile and the results of the first compound and the second compound on
each of such measurements at [********] the NNR Subtypes included in the
applicable Protein Target Profile are [********] for such measurement shown on
Schedule 1.82 (provided that, where there are alternative measurements (or
assays used to make such measurement) that may be

EXECUTION VERSION    -14-   

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applicable for a particular criterion (i.e., [********]) determination of
whether any compound has substantially the same Mechanism of Action as another
compound shall be made using the same measurement(s) (or assay(s)) as was used
by Targacept to make such measurement with respect to such first compound) and
(ii) neither compound has activity in any material respect [********] at which
the other compound does not have activity in any material respect.

1.83 “MHLW” shall mean 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 any successor to either of them, as the case may be.

1.84 “Milestone Event” means each of the events identified as Milestone Events
in the table in Section 6.5.

1.85 “MoA Exclusivity Period” shall have meaning assigned to such term in
Section 7.1(c).

1.86 “NDA” shall mean a New Drug Application (as more fully defined in Title 21
of the U.S. Code of Federal Regulations, Section 314.50 et seq. or its successor
regulation) filed with the FDA, or the analogous application filed with any
analogous Regulatory Authority outside the United States (including, without
limitation, the EMEA, MHLW and PMDA), and all amendments and supplements
thereto.

1.87 “Net Sales” shall mean, with respect to any Product, the gross invoiced
sales price of such Product sold by either (i) GSK, its Affiliates or
Sublicensees or (ii) Targacept, its Affiliates or Sublicensees (in each case,
the “Selling Party”), in finished product form, packaged and labeled for sale,
to Third Parties, less deductions allowed by the Selling Party and incurred,
allowed, paid, accrued or specifically allocated as reported by the Selling
Party in its financial statements in accordance with the International Financial
Reporting Standards (“IFRS”) for GSK (or any other Selling Party which accounts
in accordance with IFRS) or U.S. Generally Accepted Accounting Principles for
Targacept (or any other Selling Party which accounts in accordance with U.S.
Generally Accepted Accounting Principles), applied on a consistent basis, for:

(a) customary and reasonable trade, quantity, and cash discounts and wholesaler
allowances; provided that, in the case of pharmacy incentive programs, hospital
performance incentive program chargebacks, disease management programs, similar
programs or discounts and wholesaler allowances on “bundles” of products, all
discounts, wholesaler allowances and the like shall be allocated

EXECUTION VERSION    -15-   

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among products on the basis on which such discounts, wholesaler allowances or
the like were actually granted or, if such basis cannot be determined, in
proportion to the respective list prices of such products;

(b) customary and reasonable credits, rebates and chargebacks (including those
to managed-care entities and government agencies), and allowances or credits to
customers on account of rejection or returns (including, but not limited to,
wholesaler and retailer returns) or on account of [********] affecting such
Product;

(c) freight, postage and duties, and customary and reasonable [********]
relating to such Product, including [********] thereto;

(d) sales (such as [********] 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 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;

(e) fees paid to [********] (in each case, other than sales personnel, sales
representatives and sales agents) employed or engaged by GSK or its Affiliates
or sublicensees; and

(f) [********] (i.e., when such [********] is no longer [********]) specifically
attributable to such Product.

Sales between GSK and its Affiliates or Sublicensees, or between Targacept and
its Affiliates or Sublicensees, shall be excluded from the computation of Net
Sales and no payments will be payable on such sales, except where any such
Affiliate or Sublicensee is the last entity in the distribution chain for the
Product and is purchasing it for its own commercial use. In addition, Product
provided to patients for compassionate use will not be included in Net Sales.

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 a Selling Party, whether due to
merger, acquisition, business combination or other similar transaction with, by
or into another entity or required by law, the other Party shall consider such
proposal reasonably and in good faith.

EXECUTION VERSION    -16-   

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For purposes of determining royalties and sales milestones payable on
Combination Products, Net Sales will be calculated as follows, in each calendar
quarter:

(i) If all active pharmaceutical ingredients comprising the Combination Product
are marketed and sold separately in commercially relevant quantities in a
particular country in a calendar quarter and the Gross Selling Price (as defined
below) for each agent can be separately determined for such quarter, Net Sales
of each Combination Product for determining royalties and, in the case of GSK’s
obligations to Targacept, sales milestones payable with respect to such
Combination Product shall be calculated by multiplying the Net Sales of the
Combination Product by [********], in which A is the Gross Selling Price of the
Product containing or comprising the single active pharmaceutical ingredients
Product contained in the Combination Product sold during the relevant payment
period and B is the Gross Selling Price of each other product containing or
comprising a single active pharmaceutical ingredient(s) contained in the
Combination Product sold during such payment period. All Gross Selling Prices
shall be calculated as the weighted average of the prices (in effect with
respect to the period for which royalties and sales milestones are being
calculated hereunder) in effect in the countries representing the top [********]
of the Combination Product sales (the “Market Basket”). “Gross Selling Price”
means the gross price at which a product (including, without limitation, a
Product) is sold to a third party before discounts, deductions, credits, taxes
and allowances.

(ii) If either A or B (but not both) cannot be determined because separate sales
in commercially relevant quantities have not occurred in the applicable calendar
quarter in which the sale of Combination Product was made or if any applicable
Gross Selling Price cannot be determined for a calendar quarter, then the Net
Sales of the Combination Product in such country for determining the royalties
and, in the case of GSK’s obligations to Targacept, sales milestones payable
with respect to such Combination Product for such country for such period shall
be calculated by multiplying Net Sales of such Combination Product in such
country by either of the following, as applicable: (a) [********] minus the
result of [********], in which X is the Gross Selling Price in the Market Basket
of the products containing or comprising active pharmaceutical ingredient(s)
other than the Product if sold separately in commercially reasonable quantities
during the period and Y is the Gross Selling Price in the Market Basket of the
Combination Product sold in the applicable period, or (b) the quotient of
dividing [********], in which X is the Gross Selling Price in the Market Basket
of the Product if sold separately in commercially reasonable quantities during
the period and Y is the Gross Selling Price in the Market Basket of the
Combination Product sold in the period in question.

EXECUTION VERSION    -17-   

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(iii) If none of the single active pharmaceutical ingredient components of the
Combination Product (i.e., neither A nor B) is sold separately in commercially
relevant quantities in a country during a particular payment period, then the
Parties will meet promptly and negotiate in good faith an appropriate mechanism
for determining the royalties payable on such Combination Product, taking into
account the relative contribution of each pharmaceutically active ingredient to
the Net Sales of such Combination Product.

1.88 “New GSK NNR Program” shall have the meaning assigned to such term in
Section 7.2(a).

1.89 “NNR” means a neuronal nicotinic receptor.

1.90 “NNR Subtype” means, a particular collection of NNR Subunits which, when
combined in a specific manner, form a functional NNR pentamer.

1.91 “NNR Subunit” means, a protein component of an NNR Subtype that is commonly
classified as alpha, beta, gamma, delta or epsilon with a numerical designation
(for example, alpha1, alpha2, alpha3, etc; beta1, beta2, beta3, etc.), each
representing a different NNR Subunit.

1.92 “Non-breaching Party” shall have the meaning assigned to such term in
Section 12.2.1.

1.93 “One-Time [********] Fee” shall mean the fee corresponding to such term in
Section 6.5 with respect to the Pain 1 Program and payable at the sole
discretion of GSK, which, if paid by GSK, would preserve the inclusion of
TC-2696 in the Pain 1 Program pending the subsequent initiation and completion
of a PoC Trial of TC-2696.

1.94 “Ongoing Trial” shall mean the Phase 2 Clinical Trial of TC-2696 in third
molar extraction patients being conducted by Targacept as of the Effective Date.

1.95 “Option Compound” shall mean, with respect to each Program, the first
Development Candidate that satisfies the PoC Criteria during such Program’s
Early Development Program Term; provided that, solely with respect to the Pain 1
Program, if TC-2696 becomes an Option Compound but GSK does not exercise its
Program Option and TC-6499 satisfies the PoC Criteria during the Early
Development Program Term, TC-6499 would become an Option Compound. An Option
Compound is also a Collaboration Compound.

EXECUTION VERSION    -18-   

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1.96 “Option Period” and “Option Period Extension” shall have the meaning
assigned to such term in Section 4.3.1(a).

1.97 “Other Product Candidate PoC” shall mean achieving the equivalent of
satisfaction of the PoC Criteria for a Backup Compound or Follow-On Compound
that meets [********], whether by Targacept, GSK or an Affiliate of either;
provided that, although not a prerequisite, the Initiation of a Phase 2b
Clinical Trial or a Phase 3 Clinical Trial of such Backup Compound or Follow-On
Compound shall be conclusive evidence that Other Product Candidate PoC has
occurred.

1.98 “Pain Sub-Indication” shall mean each of (i) acute nociceptive pain (i.e.,
pain directly related to tissue damage and lasting less than [********]),
(ii) chronic nociceptive pain (i.e., pain related to tissue damage and lasting
more than [********]) and (iii) neuropathic pain (i.e., pain related to an
injury or a malfunction of the nervous system); provided that, for purposes of
Sections 6.4.1 and 6.5, [********] pain and [********] pain shall be considered
[********].

1.99 “Patents” shall mean (a) issued and unexpired letters patent, including
extensions, registrations, confirmations, reissues, supplementary protection
certificates, re-examinations and renewals thereof, (b) patent applications
pending approval, including all provisional applications, substitutions,
continuations, continuations-in-part, divisionals and renewals thereof, and
(c) foreign counterparts of any of the foregoing.

1.100 “Patent Costs” shall mean 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 Patents.

1.101 “Payee” shall have the meaning assigned to such term in Section 6.10.3.

1.102 “Payment Report” shall have the meaning assigned to such term in
Section 6.10.1.

1.103 “Payor” shall have the meaning assigned to such term in Section 6.10.1.

1.104 “Pentad Technology” means proprietary know-how of Targacept or any of its
Affiliates (including its database) concerning structure activity relationships
of compounds and NNR Subtypes or NNR Subunits, pharmacophore mapping of NNR
Subtypes or NNR Subunits and computational and quantum mechanical methods for
use in the design, synthesis and evaluation of compounds.

EXECUTION VERSION    -19-   

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1.105 “Phase 1 Clinical Trial” means a clinical trial of a pharmaceutical
product candidate in healthy volunteers that generally provides for the first
introduction into humans of such product with the primary purpose of determining
safety, metabolism and pharmacokinetic properties and clinical pharmacology of
such product candidate.

1.106 “Phase 2 Clinical Trial” means a clinical trial of a pharmaceutical
product candidate in subjects with a particular disease or condition the
principal purposes of which are to make a preliminary determination that such
product candidate is safe for its intended use and to obtain sufficient
information about such product candidate’s efficacy to support further clinical
trials.

1.107 “Phase 2b Clinical Trial” means, with respect to any Program, the first
Phase 2 Clinical Trial, if any, conducted by GSK after (i) the exercise of a
Program Option or (ii) with respect to a Follow-On Compound, such Follow-On
Compound achieves Other Product Candidate PoC.

1.108 “Phase 3 Clinical Trial” means a clinical trial of a pharmaceutical
product candidate in subjects with the particular disease or condition, the
principal purposes of which are, in combination with one or more other Phase 3
Clinical Trials, to: (a) establish that the product candidate is safe and
efficacious for its intended use; (b) define warnings, precautions and adverse
reactions that are associated with the product candidate in the dosage range to
be prescribed; and (c) support Regulatory Approvals for such product candidate.

1.109 “PoC CMC” means, with respect to any compound, (i) a pharmaceutical dosage
as to which there is [********] its development into a [********] dosage form
(i.e., for which [********] that would [********] such formulation) and (ii) a
drug substance that is in a salt or other chemical form that is suitable for
manufacture within a [********] formulation (i.e., there is [********] which
would [********] such drug substance in such salt or other chemical form).

1.110 “PoC Criteria” shall mean criteria established by the Joint Steering
Committee, subject to Section 2.3.4(b), designed to establish proof of concept
for a particular Indication, which shall consist of: (a) clinical or regulatory
endpoints and parameters for the PoC Trial (or, with respect to a Follow-On
Compound, the equivalent) designed (i) to indicate a degree or profile of
efficacy

EXECUTION VERSION    -20-   

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consistent with the [********] with a reasonable safety and tolerability profile
in view of relevant clinical and regulatory considerations and (ii) in such a
manner that, following the PoC Trial (or, with respect to a Follow-On Compound,
the equivalent), a determination can reasonably be made whether such endpoints
have been met; and (b) where reasonable and appropriate, a target population
that is reasonably [********].

1.111 “PoC Package” means, collectively, (i) the PoC Trial and (ii) the
non-clinical studies and assessments identified by the Parties as of the
Effective Date as, together with the PoC Trial, comprising the PoC Package.

1.112 “Preclinical Activities” means in vitro and in vivo studies of a
Collaboration Compound, not in humans, including those studies conducted in
whole animals and other test systems, designed to determine the toxicity,
bioavailability, and pharmacokinetics of a Collaboration Compound and whether
the Collaboration Compound has a desired effect.

1.113 “Pre-commercial Supply Costs” means, with respect to any particular
compound, the sum of (a) all payments made by Targacept or its Affiliates to
Third Parties for process development, validation and related activities,
manufacture, stability testing, supply or delivery of such compound, (b) Third
Party royalties or other payments, to the extent attributable solely to the
manufacture (or the other activities described in clause (a)) of such compound,
and (c) any other customary and reasonable overhead costs actually incurred in,
and reasonably allocable to, the manufacture or procurement of such compound,
including: import and export duties; applicable taxes assessed on the purchase
of such material; port fees and storage fees; shipping and handling; quality
control; and quality assurance. The methodology for calculating Pre-commercial
Supply Costs shall be consistent with U.S. Generally Accepted Accounting
Principles and Targacept’s methodology for other compounds.

1.114 “Preliminary PoC Plan” shall have the meaning assigned to such term in
Section 3.6.4(a).

1.115 “Proceeding” shall have the meaning assigned to such term in
Section 8.4.1.

1.116 “Product” shall mean any: (a) Licensed Product; (b) Returned Licensed
Product; or (c) Refused Candidate Product. For clarity, a Combination Product is
also a Product.

1.117 “Product Candidate” shall mean any Option Compound, or other up to two
(2) (or, solely in the case of the Pain 2 Program, up to [********]) Progressed
Compounds, in a Program as to which GSK has exercised its Program Option. A
Product Candidate is also a Collaboration Compound.

EXECUTION VERSION    -21-   

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1.118 “Product Candidate Commercialization Program” shall have the meaning
assigned to such term in Section 5.3.1.

1.119 “Product Marketing Plan” shall mean the strategic and tactical plans
developed by the GSK Sales and Marketing organization as described in
Section 5.4.1 for the marketing, sales and promotion of a Licensed Product. Such
Product Marketing Plan shall include marketing budgets, advertising and research
plans, sales targets, and co-promotion details (if applicable) and shall be
consistent with Section 5.4 and the other terms and conditions hereof.

1.120 “Program” shall mean each of the following six (6) NNR drug discovery,
research and development programs, as characterized by both (i) the stated
Indication and (ii) the Protein Target Profile (as may be changed from time to
time solely as expressly provided in this Agreement) or (iii) solely in the case
of Pain 1, specific Collaboration Compounds:

Program

 

Indication

 

Protein Target Profile

 

Specific

Collaboration Compounds

Pain 1   —     TC-2696 and TC-6499 Pain 2   [********] * [********]   —  
Parkinson’s disease   [********] * [********] *   —   Smoking cessation  
[********] * [********] *   —   Obesity   [********] * [********] *   —  
Addiction   [********] * [********] *   —  

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* indicates the presence of [********]

The Parties acknowledge and understand that the goal of [********] is to
identify and develop a different new chemical entity (NCE) with a [********],
which would result in a total of at least [********] NCEs.

EXECUTION VERSION    -22-   

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1.121 “Program Option” shall have the meaning assigned to such term in
Section 4.1.1.

1.122 “Progressed Compounds” means, with respect to: (a) each Program other than
the Pain 2 Program, the set of up to three (3) Collaboration Compounds comprised
of a Development Candidate and up to two (2) Backup Compounds or one (1) Backup
Compound and one (1) Follow-On Compound; or (b) the Pain 2 Program, the set of
up to [********] Collaboration Compounds comprised of (i) a Development
Candidate and up to [********] Backup [********] or [********] Backup [********]
and [********] Follow-On [********], in each case for a particular Pain
Sub-Indication, and (ii) up to [********] Follow-On [********], with each such
Follow-On Compound under this clause (ii) to be for a different Pain
Sub-Indication from each other and from the Development Candidate. In each case
above, such Backup Compounds or Follow-On Compounds shall be pursued pursuant to
a strategy contemplated by the Research Plan(s) and approved by the JSC.

1.123 “Project Directors” shall have the meaning assigned to such term in
Section 2.4.

1.124 “Proof of Concept Trial” or “PoC Trial” shall mean, with respect to any
Development Candidate, the first Phase 2 Clinical Trial of such Development
Candidate that is reasonably designed, subject to Section 2.3.4(b), to satisfy
the PoC Criteria if successful. For clarity, the Proof of Concept Trial is
intended only to provide evidence of the efficacy of a particular Development
Candidate and is not intended to be a pivotal trial or dose-ranging study or
otherwise to provide data sufficient to support any Regulatory Approval.

1.125 “Protein Target Profile” or “PTP” shall mean, with respect to each Program
(other than Pain 1), the specific NNR Subtypes and corresponding [********] each
such NNR Subtype shown below, which represent the basis for drug discovery
activities such that small molecule ligands against such NNR Subtype profile
will be sought as potential Collaboration Compounds.

EXECUTION VERSION    -23-   

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Programs

 

   

Protein Target Profile

Indication

 

NNR Subtypes

 

[********]

Pain 1   —     —   Pain 2   [********] * [********]   [********] at each NNR
Subtype Parkinson’s disease   [********] * [********] *   [********] at each NNR
Subtype Smoking cessation   [********] * [********] *   [********] at each NNR
Subtype Obesity   [********] * [********] *   [********] at each NNR Subtype
Addiction   [********] * [********] *   [********] at each NNR Subtype

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* indicates the presence of [********]

The Parties understand and agree that each Protein Target Profile may be
modified such that it includes different NNR Subtypes from the PTP as of the
Effective Date solely by mutual written agreement, to be considered in good
faith and not to be unreasonably withheld.

1.126 “PoC Trial Report” shall have the meaning assigned to such term in
Section 4.2.

1.127 “Prosecuting Party” shall have the meaning assigned to such term in
Section 8.2.4(b).

1.128 “Prosecution and Maintenance” or “Prosecute and Maintain” shall mean, with
regard to a Patent, the preparing, filing, prosecuting and maintenance of such
Patent, as well as re-examinations, reissues, and requests for patent term
extensions with respect to such Patent, together with the conduct of
interferences, the defense of oppositions and other similar proceedings with
respect to such Patent. For clarification, “Prosecution and Maintenance” or
“Prosecute and Maintain” shall not include any other enforcement action taken
with respect to a Patent.

1.129 “PTP Exclusivity Period” shall have the meaning assigned to such term in
Section 7.1(b).

1.130 “Receiving Party” shall have the meaning assigned to such term in
Section 9.1.

1.131 “Refused Candidate” shall have the meaning assigned to such term in
Section 4.3.2. For clarity, [********] shall not be a Refused Candidate under
any circumstances, notwithstanding any determination by GSK not to pay the
One-Time [********] Fee or the outcome of [********].

EXECUTION VERSION    -24-   

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1.132 “Refused Candidate Product” shall have the meaning assigned to such term
in Section 4.3.2.

1.133 “Refused Candidate Royalties” shall have the meaning assigned to such term
in Section 6.7.1.

1.134 “Regulatory Approval” means, with respect to any particular jurisdiction,
any and all approvals (excluding price and reimbursement approvals), licenses,
registrations, or authorizations of any country, federal, supranational, state
or local regulatory agency, department, bureau or other government entity that
are necessary for the manufacture, use, storage, import, transport or sale of a
Product in such jurisdiction.

1.135 “Regulatory Authority” or “Regulatory Authorities” shall mean the FDA in
the U.S. and any regulatory authority(ies) in any country in the Territory that
is a counterpart to the FDA and holds responsibility for granting Marketing
Approval for a Product in such country, in each case together with any
successor(s) thereto.

1.136 “Related Compound” shall mean, with respect to any Collaboration Compound,
(a) any metabolite, prodrug, ester, salt, crystalline polymorph, hydrate or
solvate of such Collaboration Compound or (b) any Derivative of such
Collaboration Compound, in each case that has the same Framework as such
Collaboration Compound.

1.137 “Related Exclusivity Compound” shall have the meaning assigned to such
term in Section 7.1(d).

1.138 “Report Date” shall have the meaning assigned to such term in
Section 4.3.1(a).

1.139 “Research Plan” shall have the meaning assigned to such term in
Section 3.5.1.

1.140 “Research Program” shall mean, with respect to each Program other than the
Pain 1 Program, the program of research, discovery, characterization,
optimization and preclinical testing of certain Collaboration Compounds to the
Candidate Selection Stage to be conducted by Targacept during the applicable
Research Program Term.

1.141 “Research Program Term” shall have the meaning set forth in Section 3.1.

EXECUTION VERSION    -25-   

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1.142 “Research Term” shall mean the period beginning on the Effective Date and
ending on the termination or expiration of the last Research Program Term.

1.143 “Returned Licensed Product” shall have the meaning assigned to such term
in Section 5.5.1.

1.144 “Stock Purchase Agreement” shall have the meaning assigned to such term in
the Recitals.

1.145 “Subcommittee” shall have the meaning assigned to such term in
Section 2.3.7.

1.146 “Sublicense Agreements” shall mean the License Agreement dated August 12,
2002 between Targacept and Wake Forest University Health Sciences and License
Agreement dated October 6, 1997 between Targacept (as assignee of R.J. Reynolds
Tobacco Company) and Virginia Commonwealth University Intellectual Property
Foundation, in each case as amended and as may be further amended.

1.147 “Sublicensee” shall mean, with respect to a particular Product Candidate
or Product, a Third Party to which GSK or Targacept, as applicable, has granted
a sublicense or license under any Collaboration Technology or other technology
licensed to such Party pursuant to this Agreement.

1.148 “Successful Completion of Phase 1 Clinical Trial” means, with respect to
any Progressed Compound in any Program, the completion of a Phase 1 Clinical
Trial of such Progressed Compound (a) by or on behalf of Targacept, either
before GSK’s exercise of its Program Option for such Program or in the conduct
of Targacept Post-Exercise Activities permitted hereunder after GSK’s exercise
of its Program Option for such Program, or (b) otherwise by or on behalf of GSK,
whereby Targacept makes a reasonable, good faith determination (in the case of
clause (a)) or GSK makes a determination (in the case of clause (b)) that
(i) another Clinical Study of such Progressed Compound will be conducted and
(ii) such Clinical Study will be a Phase 2 Clinical Trial; provided that,
although not a prerequisite, the Initiation of a Phase 2 Clinical Trial of such
Progressed Compound shall be conclusive evidence that Successful Completion of
Phase 1 Clinical Trials has occurred.

1.149 “Successor” shall have the meaning assigned to such term in Section 13.1.

1.150 “Supplemental Activities” shall have the meaning assigned to such term in
Section 3.2.5.

EXECUTION VERSION    -26-   

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1.151 “Targacept Diligence Failure Event” shall have the meaning assigned to
such term in Section 3.3.2.

1.152 “Targacept Diligence Failure Technology” means, with respect to any
Collaboration Compound that is subject to a license to GSK as a result of an
uncured Targacept Diligence Failure Event, all Targacept Technology, whether
existing as of the Effective Date or arising during the Term, that [********] to
the composition of matter, method of use of, method of manufacture used for or
the formulation developed for such compound, in each case as of the expiration
of the applicable cure period following a Targacept Diligence Failure Event, and
in each case that would be infringed by the research, development or
commercialization of such compound in the absence of a license.

1.153 “Targacept Know-How” shall mean any Information or Invention that (a) is
Controlled by Targacept on the Effective Date or during the Term (other than
Collaboration Know-How), (b) [********] to any Progressed Compound that is
subject to a grant of license to GSK hereunder (including, for clarity, any
Product Candidate), and (c) is necessary or reasonably useful for purposes of
GSK conducting its obligations or exercising its rights with respect to the
Development or commercialization of a Product Candidate or Licensed Product.

1.154 “Targacept Patents” shall mean all Patents in the Territory owned or
Controlled by Targacept as of the Effective Date or during the Term (other than
Collaboration Patents) which claim the composition of matter or a method of use
or manufacture of, or cover the research, development, manufacture, use, import,
offer to sell or sale of, any Progressed Compound, Product Candidate or Licensed
Product.

1.155 “Targacept Technology” shall mean, collectively, (i) Targacept Patents and
Targacept Know-How and (ii) any Collaboration Patents or Collaboration
Technology owned by Targacept solely or jointly with GSK.

1.156 “Target Product Profile” or “TPP” means, with respect to each Program, the
desired attributes for an aspirational drug product to treat, delay or prevent
such Program’s Indication. These attributes will be determined through an
understanding of current and future unmet medical and market needs, and of the
product performance necessary for Regulatory Approval and competitive
differentiation at the time of anticipated launch. A TPP should contain
information on at least the following parameters: Indication(s); Summary product
proposition (e.g., [********]); Target label summary—outline basis for
regulatory approval; Target patients for

EXECUTION VERSION    -27-   

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drug—segment(s) of patient population for whom drug would be most relevant;
Clinical efficacy—key endpoints, acceptable clinical effects versus baseline and
placebo, [********]; Safety and tolerability – acceptable/unacceptable level and
types of adverse events, contra-indications, drug interactions;
Presentation/administration—route and frequency of administration; Cost of Goods
– target threshold level for cost of goods for finished commercial product;
Competitive set—current gold standard and treatment options, those expected at
time of potential TPP launch; Timing information – time period of future product
launch for which TPP is relevant.

1.157 “Target Professionals” shall have the meaning assigned to such term in
Section 5.4.1(a).

1.158 “Term” shall have the meaning assigned to such term in Section 12.1.

1.159 “Territory” shall mean all of the countries and territories of the world.

1.160 “Third Party” shall mean any entity other than Targacept, GSK or an
Affiliate of Targacept or GSK.

1.161 “United States” or “U.S.” shall mean the United States of America and its
territories and possessions.

1.162 “Valid Claim” means a claim within an issued United States or foreign
Patent that has not (i) expired, lapsed, or been finally cancelled or abandoned,
been dedicated to the public or disclaimed or (ii) been held unenforceable,
invalid, or permanently cancelled by a court or administrative agency of
competent jurisdiction in an order or decision from which no appeal can be taken
or from which no appeal was timely taken, including without limitation, through
opposition, reexamination, reissue or disclaimer.

ARTICLE 2

GOVERNANCE OF THE COLLABORATION

2.1 General Overview. Pursuant to this Agreement, Targacept will undertake and
be responsible for the conduct of each Research Program and Early Development
Program, as further discussed in Article 3, the scope of which is the discovery,
identification and development of small molecule compounds that meet the Protein
Target Profile for the applicable Program, with

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GSK having exclusive options to obtain an exclusive license for certain of such
compounds on a worldwide basis, as further discussed in Article 4. The goal for
the collaboration is that, for each Program, (i) a Collaboration Compound is
progressed by Targacept through the applicable Research Program, becomes a
Development Candidate and is progressed by Targacept through an Early
Development Program through and including completion of the PoC Trial, (ii) two
(2) Backup Compound(s) or one (1) Backup Compound and one (1) Follow-On Compound
are progressed by Targacept at least to the Candidate Selection Stage or, if
earlier, until exercise by GSK of its Program Option for such Program (except
that this clause (ii) is not a goal for the Pain 1 Program) and (iii) following
exercise by GSK of its Program Option, GSK further Develops such Progressed
Compounds and commercializes them as Licensed Products.

2.2 General Allocation of Responsibilities. Generally, except as otherwise
expressly provided herein, with respect to each Program, Targacept shall be
solely responsible for conducting all research, discovery and Development
activities, and for all costs and expenses associated therewith, with respect to
the corresponding Research Program during its Research Program Term (except for
the Pain 1 Program, for which there is no Research Program) and the
corresponding Early Development Programs during their respective Early
Development Program Terms and shall have the right, but not the obligation, to
conduct Targacept Post-Exercise Activities after exercise by GSK of its Program
Option with respect to such Program. Targacept shall carry out all such
activities with respect to each of the Programs pursuant to the applicable
Research Plan and Early Development Plan. Subject to Targacept’s rights with
respect to the Targacept Post-Exercise Activities, GSK shall be solely
responsible for all development and commercialization activities, and for all
costs and expenses associated therewith, with respect to Product Candidates and
Licensed Products.

2.3 The Joint Steering Committee. Promptly and in any event within ninety
(90) days after the Effective Date, the Parties shall establish and convene a
committee (the “Joint Steering Committee” or “JSC”), which shall (i) have review
and oversight responsibilities with respect to each Research Program and Early
Development Program and (ii) serve as a vehicle to facilitate the transfer of
information between the Parties with respect to any commercialization activities
and the Product Candidate Commercialization Program, in each case as more
specifically provided herein. Each Party agrees to keep the JSC informed of its
progress and activities within each Research Program, Early Development Program,
and Product Candidate Commercialization Program.

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2.3.1 Membership. The JSC shall be comprised of at least three (3) and not more
than four (4) representatives (or such other number of representatives as the
Parties may agree) from each of GSK and Targacept; provided that the Parties
acknowledge and agree that Targacept has specifically negotiated for membership
on the JSC as a benefit under this Agreement and that such membership
constitutes a right (which may be waived by Targacept at any time, but only if
it does so expressly and in writing) and not an obligation of Targacept. Each
Party shall provide the other with a list of its initial members of the JSC
within thirty (30) days after the Effective Date. Each Party may replace any or
all of its representatives on the JSC at any time upon written notice to the
other Party in accordance with Section 14.6. Each representative of each Party
shall be of the level of Director or higher and shall have expertise in business
or pharmaceutical drug discovery and development. Any member of the JSC may
designate a substitute to attend and perform the functions of that member at any
meeting of the JSC. Each Party may, in its reasonable discretion, invite
non-member representatives of such Party to attend meetings of the JSC as a
non-voting participant, subject to the confidentiality obligations of Article 9.
The Parties shall designate a chairperson (each, a “Chairperson”) to oversee the
operation of the JSC and prepare minutes as set forth in Section 2.3.3, each
such Chairperson to serve a twelve (12) month term. Unless the JSC determines
otherwise, the right to name the Chairperson shall alternate between the
Parties, with Targacept designating the first such Chairperson.

2.3.2 Meetings. During the Collaboration Term, the JSC shall meet in person or
otherwise at least once each Calendar Quarter, and more frequently as the
Parties deem appropriate, on such dates as provided herein or as the Parties
shall otherwise agree. Upon the conclusion of the Collaboration Term, the JSC
shall meet, in person or otherwise, at least once [********] to provide
Targacept an update regarding GSK’s efforts under the Product Candidate
Commercialization Program and otherwise to perform the responsibilities assigned
to it under this Agreement; provided, however, that during the period hereunder
in which royalties are owed for a particular Licensed Product, the Parties agree
to periodically discuss in good faith increasing the frequency of such ongoing
meetings. Meetings of the JSC that are held in person shall alternate between
the offices of the Parties, or such other place as the Parties may agree. The
members of the JSC also may convene or be polled or consulted from time to time
by means of telecommunications, video conferences, electronic mail or
correspondence, as deemed necessary or appropriate.

EXECUTION VERSION    -30-   

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2.3.3 Minutes. During the Collaboration Term, the Chairperson shall be
responsible for preparing and circulating minutes within [********] 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 2.3.4. Such minutes shall be effective only after
approved by the JSC. With the sole exception of specific items of the meeting
minutes to which the members cannot agree and which are escalated to the
Executive Officers as provided in Section 2.3.4, the JSC shall use commercially
reasonable efforts to ensure that definitive minutes of all JSC meetings are
finalized within [********]. If at any time during the preparation and
finalization of the JSC 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 2.3.4. The decision resulting from the escalation process
shall be recorded by the Chairperson in amended minutes for such meeting.

2.3.4 Decision-making. Generally, except as otherwise expressly provided herein,
decisions of the JSC shall be made by consensus, with all of each Party’s
representatives, having collectively one (1) vote in all decisions. In the event
that the JSC is unable to reach a consensus decision within [********] after it
has met and attempted to reach such decision, then either Party may, by written
notice to the other, have such matter referred to the Chief Executive Officer of
Targacept, or such other officer designated by Targacept from time to time, and
the Senior Vice President of the Center of Excellence for External Drug
Discovery of GSK, or such other person holding a similar position designated by
GSK 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 in a timely manner, which shall in no case be more than [********]
after the matter was referred to them, the matter shall be finally resolved as
provided in Sections 2.3.4(a) or 2.3.4(b), subject to Section 2.3.4(c). For
clarity, except as provided in Section 2.3.4(c), no final decision made in
accordance with Sections 2.3.4(a) or 2.3.4(b) shall be subject to any further
review under Article 14 or under any other provision of this Agreement.

(a) Targacept Decisions. Except as expressly otherwise set forth in this
Agreement, to the extent not resolved as described in the preamble paragraph of
this Section 2.3.4, Targacept shall have final decision-making authority with
respect to all decisions relating to:

(i) any Research Program or Research Plan (including, without limitation,
Preclinical Activities, [********],

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the determination of whether the [********] have been met, the determination of
any Hit, Lead, Development Candidate, Backup Compound or Follow-On Compound,
[********], whether to determine any Backup Compound or Follow-On Compound to be
a Lead and substitute such Backup Compound or Follow-On Compound for the
then-current Lead, and the determination of whether to pursue the identification
of or continue to research or Develop a Follow-On Compound);

(ii) any Early Development Program or Early Development Plan (including, without
limitation, Preclinical Activities and Phase 1 Clinical Trials (except as
provided below) conducted by or on behalf of Targacept, the determination of any
Backup Compound or Follow-On Compound and, prior to the exercise by GSK of the
applicable Program Option, whether to determine any Backup Compound or Follow-On
Compound to be a Development Candidate and substitute such Backup Compound or
Follow-On Compound for the then-current Development Candidate), but excluding:
(A) the content of any [********]; (B) the [********]; (C) after exercise by GSK
of its Program Option for a particular Program, the conduct of any [********] in
such Program designed for the purpose of [********]; and (D) the inclusion in
any [********] in such Program (whether before or after the exercise by GSK of
its Program Option) of content designed for the purpose of [********];

it being understood that (1) in the case of clauses (C) and (D), such [********]
or the inclusion of such content in such [********] shall only be conducted with
GSK’s prior written approval (which, for clarity, may be evidenced by the
unanimous approval by the JSC, in which event such approval may occur at a
meeting), which shall not be unreasonably withheld, conditioned or delayed, and
(2) it would be reasonable for GSK or its representatives on the JSC to
withhold, condition or delay its approval if GSK reasonably expects that
[********] or the inclusion of such content in such [********] would [********]
of such Progressed Compound for its Program’s Indication; and

(iii) manufacture of Collaboration Compounds for any Program prior to exercise
by GSK of its Program Option with respect to such Program.

(b) GSK Decisions. Except as otherwise expressly set forth in this Agreement, to
the extent not resolved as described in the preamble paragraph of this
Section 2.3.4, GSK shall have final decision-making authority with respect to
all decisions relating to:

(i) Each [********], subject to the definition thereof and Section [********];

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(ii) whether, upon [********], any Collaboration Compound previously nominated
by Targacept as and determined by the JSC to be a Follow-On Compound with
respect to a Leading Compound is or is expected to be [********] such Leading
Compound;

(iii) the content of any [********] and the [********] (or, with respect to a
Follow-On Compound, the equivalent), subject to the definitions thereof and the
applicable provisions of this Agreement;

(iv) whether a Development Candidate meets [********], subject to the definition
thereof;

(v) whether Targacept may progress a Backup Compound beyond the [********],
either for the same Indication as the Leading Compound or for any Additional
Indication, if Targacept requests to do so.

(c) Limitation on Final Decision-Making Authority. Notwithstanding Sections
2.3.4(a) and (b), in no event shall either Party exercise its final
decision-making authority in a manner that would have the effect of modifying,
or would otherwise be in conflict with, the terms of this Agreement (including,
without limitation, applicable definitions). In such event, either Party shall
be entitled to initiate the dispute resolution procedures of Section 14.1.

2.3.5 Decision-making Regarding [********], [********] and [********]. In the
event that the JSC cannot resolve any dispute arising in the JPS with respect to
(a) the content of any [********], (b) the [********] of any [********] (or,
with respect to a Follow-On Compound, the equivalent) or (c) whether any
Development Candidate meets (or meets in all material respects) [********]
(each, a “[********] Dispute), within [********] after meeting and attempting to
reach agreement on such dispute, such dispute shall be submitted promptly to the
Executive Officers, who shall have a period of [********] to resolve such
dispute; provided, however, that: (i) notwithstanding anything contained in this
Agreement to the contrary, with respect to any such [********] Dispute, subject
in each case to Section 2.3.4(c), (A) [********] shall have final
decision-making authority regarding such matter and (B) such final decision by
[********] shall not be subject to any further review under Article 14 or any
other provision of this Agreement, provided it asserts such final
decision-making right in good faith, based upon credible scientific and medical
evidence or upon some other rational basis in light of scientific, medical,
safety, regulatory and commercial considerations

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and taking into consideration the limitations thereon set forth in the
definition of [********] or [********], as applicable, as well as the [********]
agreed upon by the Parties and [********] reliance thereon in [********]
Program; and (ii) in no event may [********] exercise its decision-making
authority to [********] for which [********] the applicable Development
Candidate (or Follow-On Compound); provided, however, the Parties hereby
acknowledge and agree that, notwithstanding clause (ii) above, the [********]
may contain supplementary content, [********] or the like, or [********]
criterion, that does not fall literally within the scope of the Indication for
the applicable Program if there is a credible scientific rationale supporting a
conclusion that [********] for such Indication could not reasonably be obtained
without such supplementary content, [********] or the like or [********]
criterion. Subject to the preceding sentence and Section 2.3.4(c), in the event
that [********] exercises such final decision-making authority, [********] shall
be obligated to [********], as the case may be, accordingly, at [********],
subject to Section 3.6.4(c). In addition, to the extent of any inconsistency
between Section 2.3.4 and this Section 2.3.5, this Section 2.3.5 shall control.

2.3.6 Responsibilities of the JSC. The JSC shall be responsible for overseeing
the entire collaboration between GSK and Targacept during the Collaboration
Term, including each Research Program and Early Development Program. With
respect to the Product Candidate Commercialization Program, the JSC shall serve
[********] as a vehicle to facilitate the transfer of information between the
Parties and will not [********] the Product Candidate Commercialization Program
or [********] other Development or commercialization matters after [********]
for such Program. Without limiting the foregoing and subject to the final
decision-making authority of Targacept as stated in Section 2.3.4(a) and the
final decision-making authority of GSK as stated in Section 2.3.4(b), and
subject to the provisions of Sections 2.3.4(c) and 2.3.5, the JSC shall have the
following responsibilities and perform the following functions, some or all of
which may be addressed directly at any given meeting of the JSC:

(a) review the overall progress of Targacept’s efforts to discover, identify,
optimize and develop Collaboration Compounds, Development Candidates, Backup
Compounds, Follow-On Compounds and Option Compounds;

(b) for each Program, establish criteria for a Hit, Lead Criteria and
Development Candidate Criteria as soon as practicable following the Effective
Date and modify such criteria for a Hit, Lead Criteria or Development Candidate
Criteria, or the Development Candidate Activities, from time to time;

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(c) based on applicable criteria (including, without limitation, their
respective definitions), determine compounds nominated by Targacept as Leads,
Development Candidates, Backup Compounds or Follow-On Compounds from time to
time to be Leads, Development Candidates, Backup Compounds or Follow-On
Compounds, as the case may be;

(d) confirm whether each Follow-on Compound determined by the JSC prior to
[********] remains a Follow-On Compound upon [********];

(e) review, update and approve the Preliminary PoC Plan for each Development
Candidate;

(f) review, update and approve the content of all PoC Criteria;

(g) review, modify, update and approve PoC Trial (or, with respect to a
Follow-On Compound, the equivalent) design and content, and determine whether a
Progressed Compound meets the [********], in each case taking into account the
recommendations of the JPS; provided that, with respect to the [********], the
JSC shall determine whether such [********] is met not later than [********]
following its receipt of all material [********] in Targacept’s possession or
control with respect to the applicable Progressed Compound;

(h) confirm Targacept’s determination as to whether, upon completion of the PoC
Trial, the PoC Criteria has been met;

(i) prior to the exercise by GSK of its Program Option for a particular Program,
review and approve the inclusion of content in any [********] a Progressed
Compound in such Program designed for the purpose of [********] for any
[********];

(j) following exercise by GSK of its Program Option for a particular Program,
review and approve the research or Development by Targacept of any Product
Candidate subject to such exercised Program Option [********];

(k) review and approve each Target Product Profile or update thereto as set
forth in Section 3.6.1;

(l) review each Research Plan and Early Development Plan or update thereto as
set forth in Sections 3.5.1 and 3.7.1 and approve, by Program, any strategy
proposed by Targacept for the pursuit of Backup Compound and Follow-On
Compounds;

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(m) consider for approval any proposal by either Party to terminate a Research
Program, Early Development Program or Program;

(n) serve as an [********] vehicle to facilitate the discussion of Development
and commercialization of Product Candidates and Licensed Products;

(o) review and coordinate all of the Parties’ activities under this Agreement
during the Collaboration Term;

(p) in accordance with the procedures established in Section 2.3.4 and subject
to Section 2.3.5, discuss and attempt to resolve any deadlock issues submitted
to it by any Subcommittee;

(q) attempt to resolve any disputes regarding proposed publications containing
Confidential Information; and

(r) such other responsibilities as may be assigned to the JSC pursuant to this
Agreement or as may be mutually agreed upon by the Parties from time to time;
provided, however that the JSC shall not have the power to amend or modify this
Agreement.

2.3.7 Subcommittee(s). From time to time, the JSC, acting unanimously, may
establish one or more subcommittees to oversee particular projects or
activities, as it deems necessary or advisable (each, a “Subcommittee”). Each
Subcommittee shall consist of such number of members as the JSC determines is
appropriate from time to time; provided that, unless the JSC shall unanimously
agree otherwise, each Party shall have the same number of representatives on
each Subcommittee. Such members shall be individuals with expertise and
responsibilities in one or more of the areas of medicinal chemistry, preclinical
development, clinical development, Patents, process sciences, manufacturing,
regulatory affairs, product development or product commercialization, as
applicable to the stage of development of the project or activity.

(a) The Joint Program Subcommittee.

(i) Creation of JPS. Promptly after the Effective Date, the JSC shall establish
the Joint Program Subcommittee (the “JPS”). The JPS shall be comprised of two
(2) representatives (or such other number of representatives as the Parties may
agree) from each of GSK and Targacept provided that the Parties acknowledge and
agree that Targacept has specifically negotiated for

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membership on the JPS as a benefit under this Agreement and that such membership
constitutes a right (which may be waived by Targacept at any time, but only if
it does so expressly and in writing) and not an obligation of Targacept. The JPS
will report to the JSC and will be responsible for the recommendation to the JSC
as to the content of all PoC Criteria, as to the design and content of all PoC
Trials (or, with respect to Follow-On Compounds, the equivalent) and as to
whether the [********] is met (based, in the case of the [********], on the
material [********] with respect to the applicable Development Candidate, Backup
Compound or Follow-On Compound to be provided by Targacept to the JSC and the
JPS). With respect to the [********], the JPS shall in each case make its
recommendation to the JSC in a timely manner so as to enable the JSC to
determine whether such [********] is met not later than [********] following its
receipt of all material [********] in Targacept’s possession or control with
respect to the applicable Progressed Compound. In the event of a dispute within
the JPS on any such matter, such matter shall be resolved in accordance with the
provisions of Section 2.3.4, subject to GSK’s final decision-making authority as
stated in Section 2.3.4(b) and Section 2.3.5 and further subject to
Section 2.3.4(c).

(ii) Limits to Oversight by JPS for Ongoing Trial. Notwithstanding the foregoing
Section 2.3.7(a)(i) or any other provision of this Agreement, with respect to
the design, content, endpoints or analysis of the Ongoing Trial, in the event of
a dispute in the JPS and referral of such matter to the JSC for resolution,
Targacept shall have the final decision-making authority on such matter.

(b) Creation of Joint Patent Committee. Promptly after the Effective Date, the
JSC shall establish a joint patent committee (the “Joint Patent Committee”). The
Joint Patent Committee shall be comprised of an equal number of representatives
from each of GSK and Targacept. The Joint Patent Committee will report to the
JSC and will be responsible for the coordination of the Parties efforts in
accordance with the provisions set forth in Article 8, including the review and
filing of joint patent applications, if any, and assessments of inventorship of
inventions created during the Collaboration Term; provided that neither Party
shall be required by any provision hereof to provide privileged information with
respect to intellectual property status unless and until procedures reasonably
acceptable to such Party are in place to protect such privilege. In the event of
a dispute within the Joint Patent Committee, such matter shall be submitted to
the JSC for resolution, subject to Sections 8.1.3 and 8.2.5.

2.4 Project Directors. Promptly after the Effective Date, each Party shall
appoint an individual (other than an existing member of the JSC) to act as the
project leader for such Party (each, a “Project Director”). Each Project
Director shall thereafter be permitted

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to attend meetings of the JSC as a non-voting observer, subject to the
confidentiality provisions of Article 9. The Project Directors shall be the
primary point of contact for the Parties regarding the collaboration activities
contemplated by this Agreement and shall facilitate all such activities
hereunder including, but not limited to, the exchange of Information described
in Section 3.9. The Project Directors shall also be responsible for assisting
the JSC in performing its oversight responsibilities and the JPS in performing
its responsibilities. The name and contact information for each Project
Director, as well as any replacement chosen from time to time by Targacept or
GSK, in its sole discretion, shall be promptly provided to the other Party in
accordance with Section 14.6.

ARTICLE 3

THE CONDUCT OF THE COLLABORATION

3.1 Research Programs; Initial Term. The Research Programs shall generally
commence as soon as practicable after the Effective Date, and Targacept shall
have commenced the application of its Diligent Efforts for all five (5) Research
Programs other than the Pain 1 Program (for which there is no Research Program)
by no later than [********]. Subject to the oversight of the JSC, Targacept
shall have responsibility for the conduct of each Research Program, including
all scientific, clinical, and regulatory activities, at its sole expense, in
accordance in all material respects with the Research Plan therefor. GSK shall
have the right to provide consultation and advice with respect to each Research
Program, which shall be considered in good faith by Targacept.

3.1.1 Research Program Term. Each Research Program will expire upon the later
of:

(a) the [********] anniversary of the Effective Date, unless earlier terminated
by the JSC or extended by the mutual written agreement of the Parties (the
period from the Effective Date to such expiration date, the “Initial Term”); or

(b) if: (i) no Lead has been nominated by Targacept as and determined by the JSC
to be a Development Candidate as of the end of the Initial Term; (ii) a Lead had
been designated by Targacept at least [********] prior to the end of the Initial
Term; and (iii) GSK pays the Development Candidate Achievement milestone with
respect to such Lead within [********] (or, if the end of

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the Initial Term [********]) following the end of the Initial Term (clauses (i),
(ii) and (iii), collectively, the “Development Candidate Pursuit Conditions”),
at such time after the Initial Term as (A) such Lead shall have been nominated
by Targacept as and determined by the JSC to be or not to be a Development
Candidate or (B) Targacept shall have determined in good faith, in accordance
with the applicable Development Candidate Criteria and in view of all the data
generated on such Lead that such Lead has not or will not satisfy the
Development Candidate Criteria (the period beginning with commencement of a
Research Program and ending upon expiration of such Research Program, the
“Research Program Term“).

Notwithstanding the foregoing, if, with respect to any Program for which GSK
exercises its Program Option, Targacept conducts Targacept Post-Exercise
Activities permitted hereunder that constitute Preclinical Activities and extend
beyond the Research Program Term determined as provided above, the period during
which Targacept conducts such Targacept Post-Exercise Activities shall
constitute an extension of the applicable Research Program Term.

3.1.2 Clarifications. Each Research Program shall be conducted by Targacept for
the duration of the Research Program Term (subject to the application of
Diligent Efforts and to the last paragraph of Section 3.3.2), unless such
Research Program (or Program) is earlier terminated by the JSC. The goal of each
Research Program is to identify a Development Candidate and two (2) Backup
Compounds or one (1) Backup Compound and one (1) Follow-On Compound to each
Development Candidate.

3.2 Early Development Program; Early Development Term.

3.2.1 Early Development Programs; Cooperation. An early Development program
shall be conducted by Targacept for each Program with respect to which a Lead is
nominated by Targacept as and determined by the JSC to be a Development
Candidate during the Research Program Term, which shall include all Development
activities for such Development Candidate (including, for clarity, any Backup
Compound or Follow-On Compound that is nominated by Targacept as and determined
by the JSC to be a Development Candidate and substituted for another Development
Candidate or otherwise), from the Candidate Selection Stage through and
including completion of the IND Studies, one (1) or more Phase 1 Clinical Trials
and the PoC Package (with each successive stage being contingent on success at
the previous stage), in furtherance of the goal of an Option Compound for each
Program (each, an “Early Development Program”). In addition, if prior to the
exercise by GSK of the applicable Program Option,

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Targacept elects in its sole discretion to conduct any further Development
activities of any Follow-On Compound that reaches the Candidate Selection Stage
and is then confirmed by the JSC as a Follow-On Compound, such activities shall
also constitute part of the Early Development Program.

With respect to any Program, at any time during the Early Development Program
(prior to conduct of the PoC Trial), Targacept may nominate any Backup Compound
or Follow-On Compound for which the Development Candidate Activities have been
completed as, and the JSC may then determine such Backup Compound or Follow-On
Compound to be, a Development Candidate in substitution for the then-current
Development Candidate. Targacept shall have responsibility for the conduct of
each Early Development Program in accordance in all material respects with the
applicable Early Development Plans and shall have sole responsibility for all
costs and expenses for each Early Development Program hereunder, subject to the
provisions of Sections 2.3.4, 2.3.5 and 3.6.4(c). In addition to GSK’s
decision-making rights under Sections 2.3.4 and 2.3.5, GSK shall also have the
right to provide consultation and advice with respect to all of such activities,
which shall be considered in good faith by Targacept. The Parties agree to
cooperate during the Collaboration Term in identifying and implementing
opportunities to reduce the costs incurred in the conduct of the Research
Programs and Early Development Programs, including costs of equipment,
consumables such as laboratory supplies and Third Party services such as
toxicology, clinical studies or manufacturing services, provided such
cooperation does not unduly delay or hamper Targacept in the performance of its
activities thereunder. This cooperation may include exploration of GSK’s
[********] or the use of GSK’s [********] or other [********] expertise.

3.2.2 If No Development Candidate. For clarity, if there is no Development
Candidate that remains in Development for any Program as of the end of the
Initial Term and the Development Candidate Pursuit Conditions do not apply,
Targacept shall have no further obligation hereunder in respect of such Program.
If the Development Candidate Pursuit Conditions apply, (i) Targacept shall
continue to conduct research on the applicable Lead to complete the Development
Candidate Activities and (ii) solely if such Lead is then nominated by Targacept
(acting in good faith, in accordance with the applicable Development Candidate
Criteria and in view of all the data generated on such Lead) as and determined
by the JSC to be a Development Candidate, (A) an Early Development Program
solely for such Development Candidate shall be conducted by Targacept as
provided in Section 3.2.1 and in accordance with the relevant provisions of this
Agreement and (B) if, as of the date of such JSC determination, there are not
two (2) Progressed

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Compounds in such Program in addition to such Development Candidate and
Targacept determines there to be up to two (2) Collaboration Compounds in such
Program that qualify as Backup Compounds to such Development Candidate or one
(1) Collaboration Compound in such Program that qualifies as a Backup Compound
and one (1) Collaboration Compound in such Program that qualifies as a Follow-On
Compound to such Development Candidate, Targacept shall nominate it or them, as
the case may be, for JSC consideration; provided that, notwithstanding anything
to the contrary set forth herein, Targacept shall have no obligation to conduct
any further research or Development activities with or otherwise to progress any
such Backup Compound or Follow-On Compound. If such Lead is not nominated by
Targacept as described above as and determined by the JSC to be a Development
Candidate, there shall be no Early Development Program with respect to such
Program and Targacept shall have no further obligation hereunder in respect of
such Program.

3.2.3 Early Development Program Term. Each Early Development Program will start
at the earlier of commencement of activities under such Early Development
Program or adoption of the first Early Development Plan by the JSC for such
Early Development Program and will terminate upon the earliest of:

(a) the date on which (i) GSK exercises its Program Option for the applicable
Program or (ii) the Option Period for such Program expires with the Program
Option unexercised;

(b) the date on which the JSC approves the termination of such Early Development
Program;

(c) [********] from the start of such Early Development Program; or

(d) the date on which the JSC determines that a Development Candidate for which
the PoC Trial was conducted failed to meet the PoC Criteria, unless both
(i) such date is before the end of the Initial Term and (ii) Targacept elects by
written notice to GSK within [********] after such determination to continue
such Early Development Program by continuing to Develop a Backup Compound for a
period specified in such notice (the period of such Early Development Program,
the “Early Development Program Term”).

Notwithstanding the foregoing, with respect to any Program for which:

(x) the Early Development Program Term ends under the circumstances described in
clause (d) above, if, at the time of JSC determination that the Development
Candidate for which the PoC Trial was conducted failed to meet the PoC Criteria,
there exists in such Program a Follow-On Compound:

(i) for which Targacept is then conducting an ongoing Phase 1 Clinical Trial,
then:

(A) such Follow-On Compound shall become a Development Candidate;

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(B) the Early Development Program Term shall continue solely with respect to
such Development Candidate (and not with respect to any other compound in such
Program), subject to Section 3.7.4, until such time as (1) Targacept has
completed the PoC Package and the PoC Trial therefor or (2) Targacept [********]
that, based on the results of any or all Phase 1 Clinical Trials of such
Development Candidate and all other information available with respect to such
Development Candidate, such Development Candidate [********] in a PoC Trial in
such Program [********] or otherwise that [********] such Development Candidate
will [********] the conduct of the PoC Trial in such Program; and

(C) notwithstanding Section 6.4.1, Targacept shall be eligible for all
milestones based on the achievement of Milestone Events thereafter with respect
to such Development Candidate as if it were the first Development Candidate in
such Program (i.e., without regard to the failure of the initial Development
Candidate); or

(ii) for which GSK has paid the milestone for the Milestone Event [********] but
for which clause (i) above does not apply, then:

(A) such Follow-On Compound shall become the Lead in such Program;

(B) Targacept shall continue to conduct research solely with respect to such
Lead and such continued research shall effect the continuation of the Early
Development Program Term solely with respect to such Lead, and not with respect
to any other compound in such Program, until such time as (1) Targacept has
completed the [********] for such Lead or (2) Targacept shall have [********]
the applicable Development Candidate Criteria and [********] the data generated
on such Lead [********] the Development Candidate Criteria; and

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(C) if such Lead is nominated by Targacept as and determined by the JSC to be a
Development Candidate:

(1) GSK shall pay to Targacept [********] and, notwithstanding Section 6.4.1,
Targacept shall be eligible for all milestones based on the achievement of
Milestone Events thereafter with respect to such Development Candidate as if it
were the first Development Candidate in such Program (i.e., without regard to
the failure of the initial Development Candidate);

(2) Targacept shall have the right exercisable by written notice to GSK within
[********] after receipt of such milestone payment, but not the obligation, to
conduct research and Development on such Development Candidate until such time
as (a) Targacept has completed the PoC Package and the PoC Trial therefor or
(b) Targacept [********] that, based on [********] such Development Candidate
and [********] with respect to such Development Candidate, such Development
Candidate [********] that such Development Candidate [********] does [********]
and, if Targacept exercises such right, the Early Development Program Term shall
continue [********] with respect to such Development Candidate (and [********]
in such Program) for so long as Targacept conducts such Development as provided
in this clause (2);

(3) if Targacept does not exercise the right described in clause (2) above, GSK
shall have the right, exercisable by written notice to Targacept within
[********] after expiration of Targacept’s period to exercise the right
described in clause (b), to exercise its Program Option early for such Program
and, in such event, such Development Candidate shall be deemed an Option
Compound but GSK shall not at that time be obligated to pay the Program Option
Exercise Fee applicable to such Program; and

(4) if GSK exercises its Program Option early as described in clause (3) above,
(x) the amounts shown in Section 6.5 payable for each Milestone Event (including
for this purpose the Program Option Exercise Fee) that is achieved with respect
to such Program after such exercise shall be [********], (y) notwithstanding
Sections [********], GSK shall not [********] with respect to such Option
Compound and (z) if GSK shall not have paid the Program Option Exercise Fee for
such Program prior to the Initiation of the first Phase 2b Clinical Trial or
Phase 3 Clinical Trial, whichever first occurs after such exercise, such Option
Compound shall, notwithstanding anything herein to the contrary, thereupon no
longer be an Option Compound (or Product Candidate or Progressed Compound) and
shall be deemed to be a Returned Licensed Product; and

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(y) GSK exercises its Program Option, Targacept conducts [********] that
constitute Development and [********] Early Development Program Term determined
as provided in this Section 3.2.3, the period during which Targacept conducts
[********] shall constitute [********] the applicable Early Development Program
Term.

3.2.4 Early Development Term. The overall term for all Early Development
Programs under the Agreement will commence at the start of the first Early
Development Program Term and will terminate upon the last day of the last to
terminate Early Development Program Term (such period, the “Early Development
Term”), except that the Early Development Term shall not be deemed in effect at
any time during which there is no Early Development Program Term then in effect.

3.2.5 Supplemental Activities. GSK shall have the right at all times during the
Research Term and during any relevant Early Development Program Term,
exercisable at its sole discretion and its sole cost and expense, to conduct
[********] for a Development Candidate (to the extent reasonably designed to
[********] Development [********] the applicable Program Option) and, solely
upon [********], other Preclinical Activities (“Supplemental Activities”).
Targacept shall offer GSK reasonable cooperation in relation to such
Supplemental Activities including, subject to availability and Targacept’s needs
to conduct its activities hereunder, the transfer of quantities of compounds, if
necessary, to the extent and on the terms provided in Section 3.12. It is
understood and agreed that any such Supplemental Activities are not part of any
Early Development Program or PoC Trial, that Targacept shall not be permitted to
delay the progress of any Early Development Plan to await the results of any
such Supplemental Activities or to transfer any responsibility to GSK for the
conduct of any activities under the Early Development Plan and that no Option
Period (or any other period for satisfaction of a GSK obligation hereunder)
shall be extended to await the results of any such Supplemental Activities.

EXECUTION VERSION    -44-   

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3.3 Objectives; Targacept Diligence and Responsibilities.

3.3.1 Targacept Diligence. The goal of the collaboration is for Targacept to
identify and develop a Leading Compound as an Option Compound for each Program,
for a total of [********] Option Compounds for further Development and
commercialization by GSK in the Territory (and, with respect to Co-promotion
Products with respect to which Targacept exercises its Co-promotion Right, by
Targacept and GSK in the United States) under the terms of this Agreement and,
subject to the limitations on Targacept’s obligations after the exercise of a
Program Option by GSK as set forth in Section 3.6.5, to have identified two
(2) Backup Compounds or one (1) Backup Compound and one (1) Follow-On Compound
to each Option Compound, and progressed, in addition to progressing an Option
Compound to the completion of the PoC Package, each Backup Compound and
Follow-On Compound to the Candidate Selection Stage, all in accordance with this
Section 3.3.1. For each Program, Targacept shall use its Diligent Efforts to
carry out and conduct the Research Program during the applicable Research
Program Term in accordance in all material respects with the applicable Research
Plan (except that the Pain 1 Program shall not have a Research Program) and the
Early Development Program during the applicable Early Development Program Term
in accordance in all material respects with the applicable Early Development
Plans. To that end, Targacept shall dedicate to each Research Program and Early
Development Program resources, and allocate personnel with an appropriate level
of education, experience and training, consistent with the standard of Diligent
Efforts applicable to Targacept.

3.3.2 Targacept Diligence Failure Event; Consequences. Subject to the last
paragraph of this Section 3.3.2, in the event that, with respect to any Program,
Targacept materially fails to conduct (i) the Research Program in the applicable
Research Program Term, or (ii) the Early Development Program in the applicable
Early Development Program Term, in each case in accordance with its diligence
obligations under Section 3.3.1, then GSK shall have the right to allege a
failure of diligence on the part of Targacept (a “Targacept Diligence Failure
Event”) by written notice to Targacept referencing this Section 3.3.2,
describing in reasonable detail the alleged Targacept Diligence Failure Event
and stating its intention to pursue its remedy under this Section 3.3.2 if not
cured; provided that in no event shall any act or failure to act by Targacept
following receipt of such notice from GSK constitute an admission or create any
implication that a Targacept Diligence Failure Event has in fact occurred.
Subject to Section 3.3.3, upon receipt of such notice of a Targacept Diligence
Failure Event, Targacept shall have a period of [********] in which to cure such
Targacept Diligence Failure Event or, if Targacept has during such [********]
period commenced and diligently continued

EXECUTION VERSION    -45-   

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conducting activities designed to cure such failure but such cure is not
possible during such [********]-day period, Targacept shall have an additional
[********] in which to cure such Targacept Diligence Failure Event. Upon
conclusion of the applicable cure period, if Targacept has not cured such
Targacept Diligence Failure Event, GSK shall have the right, exercisable not
later than [********] after the end of the applicable cure period, unless
extended by the written agreement of the Parties, to immediately (a) terminate
such Research Program or Early Development Program with respect to which the
Targacept Diligence Failure Event relates; and (b) obtain the remedy set forth
in one of the two paragraphs below (whichever is applicable), which such remedy
shall be the sole and exclusive remedy to GSK for such Targacept Diligence
Failure Event. The Parties understand and agree that, due to the nature of the
collaboration under this Agreement, damages to GSK resulting from a material
breach by Targacept of its diligence obligations under this Agreement would be
difficult to calculate accurately, and thus the remedy set forth below
represents a rational relationship between the damages from the material breach
of diligence on the one hand and the cumulative loss to GSK of its expectation
interest and its lost investment and lost potential return on investment due to
the upfront and milestone payments made hereunder.

In the case of a Targacept Diligence Failure Event of the type described in
clause (i) above (but where there is at least one (1) Collaboration Compound
from the applicable Program that has been nominated by Targacept as and
determined by the JSC to be [********] as of the end of the applicable cure
period) or clause (ii) above, that is uncured within the applicable cure period:
(A) Targacept shall grant and does hereby grant, effective only in such event
(subject to Section 3.3.3), to GSK an exclusive, worldwide license (with the
right to sublicense) under all of Targacept’s rights and interest in and to the
Targacept Diligence Failure Technology to research, develop, and commercialize
in the Field the applicable [********] (i.e., the [********] that is the subject
of the breached Early Development Program and up to [********] or the [********]
with respect to such [********], but only if and to the extent any such
[********] or [********] have previously been nominated by Targacept as such and
determined by the JSC to be such, as provided herein) and to make, have made,
use, sell, offer for sale, and import in the Field products incorporating any
such up to [********] or any formulation or dosage or delivery form thereof,
including, without limitation, any metabolite, prodrug, ester, salt, crystalline
polymorph, hydrate or solvate thereof; and (B) GSK shall pay to Targacept a
[********] percent ([********]%) royalty on the annual Net Sales of any such
products. [********] or other [********] shall be [********] on account of the
exclusive license described above and the grant of such license shall not count
against any of GSK’s Program Options; provided, however, once such a license is
triggered as provided in this Section 3.3.2, Targacept shall be released from
all obligations hereunder with respect to the corresponding Program.

EXECUTION VERSION    -46-   

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In the case of a Targacept Diligence Failure Event of the type described in
clause (i) above (where there is no Collaboration Compound from the
corresponding Program that has been nominated by Targacept as and determined by
the JSC to be [********]) that is uncured within the applicable cure period,
(x) Targacept shall grant to GSK and does hereby grant effective only in such
event (subject to Section 3.3.3), an exclusive, worldwide license (with the
right to sublicense) under all of Targacept’s rights and interest in and to the
Targacept Diligence Failure Technology to research, develop, and commercialize
in the Field [********] in the applicable Program and up to [********] in such
Program to be selected by GSK by written notice to Targacept given within
[********] after the end of the applicable cure period, and to make, have made,
use, sell, offer for sale, and import in the Field products incorporating any of
such [********], including any formulation or dosage or delivery form thereof,
and including, without limitation, any metabolite, prodrug, ester, salt,
crystalline polymorph, hydrate or solvate thereof, and (y) GSK shall pay to
Targacept a [********] percent ([********]%) royalty on the annual Net Sales of
any such products. [********] or other [********] shall be [********] on account
of the exclusive license described above, and the grant of such license shall
not count against any of GSK’s Program Options; provided however, once such a
license is triggered as provided in this Section 3.3.2, Targacept shall be
released from all obligations hereunder with respect to the corresponding
Program.

Notwithstanding anything herein to the contrary, in no event shall any acts or
omissions of Targacept, individually or collectively, in connection with any
(i) Targacept Post-Exercise Activities, (ii) research or Development activities
with respect to any Backup Compound beyond Candidate Selection or, except with
respect to Development pursuant to Section 3.7.4, Follow-On Compound beyond
Candidate Selection, (iii) Development or commercialization of any Refused
Candidate, Refused Candidate Product or Returned Licensed Product or (iv) other
activity that constitutes a right but not an obligation of Targacept hereunder
give rise to or otherwise support in any respect a Targacept Diligence Failure
Event.

3.3.3 Dispute. In the event that Targacept in good faith disputes either the
alleged Targacept Diligence Failure Event or whether the alleged Targacept
Diligence Failure Event has been cured or cured on a timely basis, Targacept
shall have the right to pursue such dispute in accordance with Section 14.1.
During the entire time pending the final resolution of any such dispute,
including without limitation, during mediation or arbitration, settlement
negotiations or any other related legal proceeding, Targacept

EXECUTION VERSION    -47-   

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shall not grant any license to any Third Party under the Targacept Diligence
Failure Technology with respect to the same subject matter, which would conflict
or otherwise interfere with the potential exclusive license to GSK.

3.3.4 Targacept’s Responsibilities. With respect to each Program, and without
limiting or modifying any obligation of Targacept expressly provided in any
other relevant provision of this Agreement, during the applicable Research
Program Term and Early Development Program Term and consistent in all material
respects with the applicable Research Plan or Early Development Plan, as updated
or amended from time to time, subject to the application and limitations of its
Diligent Efforts and the last paragraph of Section 3.3.2, Targacept shall:

(a) manufacture, or have manufactured, the Collaboration Compounds prior to
GSK’s exercise of its Program Option with respect thereto, including required
bulk drug substance and clinical materials;

(b) conduct all research and development activities it reasonably determines are
required, consistent with this Agreement, to identify and progress Progressed
Compounds to [********].

(c) conduct the Preclinical Activities and, if a Collaboration Compound is
nominated by Targacept as and determined by the JSC to be a Development
Candidate, IND Studies, one (1) or more Phase 1 Clinical Trials and through and
including the completion of the PoC Package for such Development Candidate, with
each successive stage of Development being contingent on success at the previous
stage;

(d) conduct [********] of each Development Candidate that is the subject of an
Early Development Program and is expected to enter or has moved into a PoC Trial
in a manner reasonably designed to [********];

(e) consider in good faith all reasonable suggestions received from GSK
regarding any Research Program or Early Development Program; and

(f) perform such other obligations with respect to each Research Program and
each Early Development Program as the JSC may assign to Targacept from time to
time, subject to Section 2.3.4(a).

EXECUTION VERSION    -48-   

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3.4 Reports; Publication of Clinical Trial Results.

3.4.1 Reports. During the Research Term and the Early Development Term,
Targacept shall provide reasonable progress updates [********] the JSC on the
status of each Research Program and Early Development Program, including as and
where appropriate summaries of data associated with Targacept’s research and
development activities, updates with regard to its manufacturing plans and
activities, and an assessment of the likelihood of and timetable for completion
of the respective Programs and advancement of compounds to the next phase of
research or Development, as applicable. Targacept shall use reasonable efforts
to provide any such written summaries to JSC members at least [********] days in
advance of the applicable JSC meeting.

3.4.2 Publication of Clinical Trials Results. Each of GSK and Targacept shall
have the right to publish data or results from any Clinical Studies conducted by
such Party, without requiring the consent of the other Party; provided that,
after the exercise of its Program Option for a particular Program, (i) GSK shall
also have the right to publish such clinical (but not preclinical) data or
results generated by Targacept with respect to the Product Candidates in such
Program [********] ([********] subject to compliance with the process set forth
in Section 9.6.2) and (ii) Targacept shall not have the right to publish any
such clinical data or results with respect to the Product Candidates in such
Program without the prior consent of GSK, not to be unreasonably withheld,
conditioned or delayed. The Parties shall discuss and reasonably cooperate in
order to facilitate the process to be employed in order to ensure the
publication of any such clinical data and results on the clinical trial registry
of each Party, if and as required and applicable. In addition, each Party shall
provide the Joint Patent Committee at least [********] prior notice to review
any proposed publication of such clinical data or results for the purposes of
enabling the preparation of any necessary Patent filings.

3.5 Research Plan and Collection of Data.

3.5.1 Research Plan. Each Research Program will be carried out by Targacept
pursuant to a research plan (the “Research Plan”), which will outline, as
appropriate: (i) discovery and research activities in connection with the
identification and preclinical screening of Collaboration Compounds, including
lead generation and lead optimization programs; (ii) identification and
optimization of Backup Compound(s) or Follow-On Compound(s) and (iii) estimated
timelines for completion of the studies and activities to be undertaken by
Targacept thereunder. The outline for the Research Plans shall be the cascade
identified by the Parties as of the

EXECUTION VERSION    -49-   

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Effective Date as the outline for the Research Plans. The outlined Research
Plans will be finalized for review by the JSC as soon as practicable following
the Effective Date, and thereafter shall be reviewed and modified as necessary
at each meeting of the JSC (and at any other time upon the request of either
Party) as appropriate to reflect material scientific or commercial developments
and changes. Each Research Plan shall be updated by Targacept as needed to
reflect material events or changes, but at least once per Contract Year, and all
such updates shall be submitted to the JSC for its review and comment. It is
expected that the level of detail required for each Research Plan will vary
depending on the state of progression of Targacept’s efforts with regard to the
corresponding Research Program (i.e., Research Programs at an earlier stage of
development will have more detail in their respective Research Plans). It is
understood by the Parties that the Research Plan is intended to be an outline of
expected activities and does not represent a detailed embodiment of all
activities that may be conducted under a given Research Program.

3.5.2 Data Integrity.

(a) Targacept acknowledges the importance to GSK of ensuring that the Research
Programs are undertaken in accordance with the following good data management
practices:

(i) data are being generated using sound scientific techniques and processes;

(ii) data are being accurately and reasonably contemporaneously recorded in
accordance with good scientific practices by persons conducting research
hereunder;

(iii) data are being analyzed appropriately without bias in accordance with good
scientific practices;

(iv) data and results are being stored securely and can be easily retrieved; and

(v) where, pursuant to then-existing policies and procedures, Targacept’s senior
management documents in writing its key decisions, it will use reasonable
efforts to follow its internal procedures and policy, as applicable, so as to
demonstrate or reconstruct key decisions made by such senior management during
the conduct of the research and development activities under this Agreement.

EXECUTION VERSION    -50-   

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(b) Targacept agrees that it shall use reasonable efforts to carry out the
Research Programs and Early Development Programs so as to collect and record any
data generated therefrom in a manner consistent with the above requirements as
set forth in clause (a) above.

3.6 Target Product Profiles; Development Candidate Selection; Backup Compounds
and Follow-On Compounds.

3.6.1 Target Product Profiles. For each Program, a draft Target Product Profile
shall be prepared by [********] and provided to [********] not later than
[********] following the nomination by Targacept of a Development Candidate for
such Program. [********] shall thereafter revise such TPP, in consultation with
[********], in order to prepare the TPP for presentation to the JSC for adoption
at its next scheduled meeting, subject to Section 2.3.4(b); provided that the
TPP for each Program shall (i) be consistent with and not include or contemplate
a target or profile different from the Indication and Protein Target Profile
applicable for such Program and (ii) set as the objective for the Program
[********], but not necessarily [********] to pharmaceutical commercialization.
[********] may, in consultation with [********], update any TPP from time to
time to specifically address the particular qualities and features of a
particular Development Candidate or otherwise to reflect any material event or
change; provided that no such TPP shall be changed after [********] following
[********] receipt of notice of [********] completion of [********] a
Development Candidate in such Program in any manner that would, in any material
respect, increase the obligations of Targacept hereunder or make such
obligations more costly or difficult to satisfy. It is understood and agreed
that (A) the Target Product Profile is aspirational in nature, (B) any given
Development Candidate may not meet [********] of a TPP, and (C) certain features
of the TPP may only apply to [********] of a given Development Candidate (such
as [********] of a [********] etc.).

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3.6.2 Nomination and Determination of Development Candidates, Back-Up Compounds
and Follow-On Compounds.

(a) For each Program, Targacept shall in its sole discretion select a
Collaboration Compound that it determines has completed the Development
Candidate Activities and has achieved all or substantially all of the
Development Candidate Criteria or is otherwise appropriate for nomination as a
Development Candidate, if any, and shall nominate to the JSC such Collaboration
Compound for determination as a Development Candidate. Subject to
Section 2.3.4(a), the JSC shall review all relevant information and study
results concerning each such proposed Development Candidate and, if it
determines that a proposed Development Candidate has completed the Development
Candidate Activities and satisfies all or substantially all of the material
Development Candidate Criteria, shall determine such proposed Development
Candidate to be a Development Candidate. In addition, substitutions of one
Development Candidate for another shall be permitted, to the extent provided in
Section 3.2.1, subject to Section 2.3.4(a).

(b) With respect to the Leading Compound (which, may include, if applicable, the
Development Candidate) for each Program, Targacept shall in its sole discretion
select up to (i) two (2) Collaboration Compounds that it determines qualify as
Backup Compounds or (ii) one (1) Collaboration Compound that it determines
qualifies as a Backup Compound and one (1) Collaboration Compound that it
determines qualifies as a Follow-On Compound (or, solely in the case of the Pain
2 Program, [********] Collaboration Compounds that it determines qualify as
Follow-On Compounds), in each case, if any, and for nomination as and for
determination by the JSC to be a Backup Compound or Follow-On Compound, as the
case may be. The JSC shall review all relevant information and study results
concerning each such proposed Backup Compound or Follow-On Compound and, if it
determines that it qualifies as such, shall determine such proposed Backup
Compound or Follow-On Compound to be a Backup Compound or Follow-On Compound, as
the case may be (it being understood by the Parties that, as reflected in the
definition of Follow-On Compound, to qualify under this Agreement as a Follow-On
Compound to a particular Leading Compound, a Collaboration Compound must be or
be reasonably expected to be [********] such Leading Compound, [********] any
Backup Compound to such Leading Compound, and, in the case of the Pain 2
Program, [********] any other Follow-On Compound). Upon [********], the JSC
shall confirm, based on the data and results provided by Targacept, whether a
previously determined Follow-On Compound continues to qualify as a Follow-On
Compound, subject to Section 2.3.4(b).

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(c) From time to time prior to (i) [********], with respect to a Backup
Compound, or (ii) meeting the [********], with respect to a Follow-On Compound,
Targacept may nominate alternative Collaboration Compounds for a determination
by the JSC to be a Backup Compound or a Follow-On Compound, as the case may be,
in substitution for a previously determined Backup Compound or Follow-On
Compound.

3.6.3 Decision whether to pursue Follow-On Compounds. With respect to the
Leading Compound (which may be, if applicable, the Development Candidate) for
each Program, Targacept shall have the right, but not the obligation, to conduct
research and development to identify a Follow-On Compound (or, solely in the
case of the Pain 2 Program, up to [********] Follow-On Compounds) for such
Program.

3.6.4 Preliminary PoC Plan; Final PoC Criteria and PoC Trial.

(a) At the time of, and as part of the process of (i) nomination and
determination of a Development Candidate or (ii) confirming that a Follow-On
Compound determined prior to [********] continues to be a Follow-On Compound
upon [********], the Parties, through the JSC or JPS, shall discuss and agree
upon the appropriate preliminary development strategy and a preliminary plan for
meeting the PoC Criteria, including the possible trial design and protocol for
the PoC Trial and associated costs and timelines, it being understood that such
trial design and timelines are merely provisional and preliminary and subject to
modification (the “Preliminary PoC Plan”). Targacept shall have the right to
reasonably rely on such Preliminary PoC Plan in undertaking its Phase 1 Clinical
Trials of such Development Candidate or Follow-On Compound. Notwithstanding the
foregoing and Targacept’s discretion in the overall conduct of the Research
Programs and Early Development Programs, the final PoC Criteria and the final
PoC Trial for such Development Candidate or Follow-On Compound shall be subject
to the further design of the JPS and the review and approval of the JSC, and
subject to Section 2.3.4(b).

(b) [********], in consultation with [********], shall ensure that the design
and content of the PoC Trial and the content of the PoC Criteria are presented
to the JSC for approval, subject to Section 2.3.4(b), within [********]
following Targacept’s completion of a Phase 1 Clinical Trial (multiple rising
dose) of the applicable Development Candidate.

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(c) With respect to each Program, if the total [********] costs and [********]
expenditures for the PoC Trial (or, with respect to a Follow-On Compound, the
equivalent of a PoC Trial) exceed [********] (as [********] from [********]):
(i) the portion of such costs and expenditures which exceeds such limit shall be
[********] for all or any portion of such excess; (ii) with respect to the PoC
Trial, the lesser of (A) [********] of such aggregate amount [********] and
(B) [********] will be [********] for such Program for which such PoC Trial is
being conducted, [********] for such Program; and (iii) with respect to the
equivalent of a PoC Trial for a Follow-On Compound, the lesser of (A) [********]
of such aggregate amount [********] and (B) [********] will be [********] toward
the [********] with respect to such Follow-On Compound. As used in this
Section 3.6.4(c), (1) [********] shall include [********] those costs and
expenditures which are attributable [********] the PoC Trial (or, in the case of
a Follow-On Compound, the equivalent of a PoC Trial) [********] (including, for
clarity and without limitation, [********] costs for [********] therefor) and
(2) [********] shall be [********].

3.6.5 Targacept Rights to Conduct Post-Option Exercise Activities.

Notwithstanding anything in this Agreement to the contrary and without intending
to limit or otherwise modify Targacept’s rights or responsibilities prior to
GSK’s exercise of a Program Option, after the exercise by GSK of its Program
Option for a given Program:

(a) Targacept shall have the right, but not the obligation, to conduct research
and development to identify a Follow-On Compound (or, solely in the case of the
Pain 2 Program, up to [********] Follow-On Compounds);

(b) with respect to each Backup Compound or Follow-On Compound for such Program,
if such Backup Compound or Follow-On Compound has not [********] as of the
exercise of such Program Option by GSK, Targacept shall [********] such Backup
Compound or Follow-On Compound to the [********];

(c) with respect to a Follow-On Compound (whether nominated as such and
determined to be such prior to or after exercise by GSK of its Program Option),
Targacept shall have the right (unless the JSC determines at (but not after) the
[********] that such compound no longer qualifies as a Follow-On Compound), but
not the obligation, to [********] such Follow-On Compound [********] up to
[********] the Follow-On Compound; provided that each such Follow-On Compound
shall [********] be subject to [********]; and

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(d) upon GSK’s prior written approval (which, for clarity, may be evidenced by
the unanimous approval by the JSC, in which event such approval may occur at a
meeting), Targacept shall have the right, but not the obligation, to conduct
research and development on any Backup Compound up to completion of the
equivalent of the PoC Trial and PoC Package for the Backup Compound; provided
that each such Backup Compound shall automatically be subject to GSK’s
previously exercised Program Option; and

(e) upon GSK’s prior written approval (which, for clarity, (i) may be evidenced
by the unanimous approval by the JSC, in which event such approval may occur at
a meeting, and (ii) shall not be unreasonably withheld, conditioned or delayed
(it being understood that it would be reasonable for GSK or its representatives
on the JSC to withhold, condition or delay its approval if GSK reasonably
expects that such research and development would [********] such Product
Candidate for [********]), Targacept shall have the right, but not the
obligation, to conduct research and development on any Product Candidate for one
or more Additional Indications.

The activities described in clauses (a) – (e) above are collectively the
“Targacept Post-Exercise Activities.” Each Targacept Post-Exercise Activity that
is a Clinical Study designed to achieve Other Product Candidate PoC shall be
designed by the JPS (or the JSC), subject to Section 2.3.4(b).

3.6.6 Ongoing Review. The Early Development Plan with respect to a Development
Candidate (or, if applicable, other Progressed Compound), including the design
and content of the PoC Trial, will be reviewed as necessary at each meeting of
the JPS (and at any other time upon the request of either Party) and may be
modified by the JPS or JSC as appropriate to reflect material scientific or
commercial developments, subject to Section 2.3.4(b).

3.7 Early Development Plans and Conduct of Early Development Programs.

3.7.1 Establishment, Review and Approval of Early Development Plans.

(a) For each Development Candidate (or other Progressed Compound that reaches
the Candidate Selection Stage, but only for which continued Development is to be
conducted by Targacept pursuant to the terms of this Agreement (including,
without limitation, after exercise by GSK of its Program Option,
Section 3.6.5)), the JSC shall review and discuss Targacept’s

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proposed plan for IND Studies and Phase 1 Clinical Trials and other related
Development activities. Based on these discussions, Targacept will prepare a
detailed plan for the Development of the Development Candidate or, if
applicable, other Progressed Compound (an “Early Development Plan”) for review
by the JSC. For clarity, it is contemplated that, if any Program contains more
than one Progressed Compound that (i) reaches the Candidate Selection Stage (by
way of example, but without limitation, a Development Candidate and a Follow-On
Compound) and (ii) is developed further by Targacept, each such Progressed
Compound would have its own Early Development Plan.

3.7.2 Evaluation of PoC Trial Results. Following the conduct of (i) the PoC
Trial for any Development Candidate, in the event that it determines that such
Development Candidate meets the PoC Criteria, Targacept shall promptly notify
GSK, in writing. The JSC will, at a special ad hoc meeting to be scheduled as
soon as practicable, confirm that such Development Candidate meets the PoC
Criteria. Targacept shall thereafter provide to GSK, or make available to GSK at
Targacept’s offices or another mutually acceptable location, the PoC Trial
Report as set forth in Section 4.2.

3.7.3 Timing for Providing PoC Trial Report. Targacept shall endeavor to provide
GSK with a good faith estimate of the time that such PoC Trial Report will be
available at least [********] in advance. In the event that such estimate of
delivery date is found to be more than [********] off target date, GSK shall
have [********] for the Option Period.

3.7.4 Development of Follow-On Compound under Circumstances of Section 3.2.3(x).
Without limiting the rights of Targacept with respect to Follow-On Compounds
pursuant to any other provision hereof, in the event that a Follow-On Compound
in a given Program becomes a Development Candidate under the circumstances
described in Section 3.2.3(x), then Targacept shall have the obligation to use
its Diligent Efforts to Develop such Development Candidate (but shall have no
obligation with respect to any other compound in such Program) for the remainder
of the applicable Early Development Program Term.

3.8 Regulatory Matters.

3.8.1 Ownership. Targacept shall own and maintain all regulatory filings for
Collaboration Compounds developed pursuant to this Agreement, including all
INDs. Upon exercise by GSK of any Program Option, Targacept shall transfer to
GSK ownership of such regulatory filings solely for the applicable Product
Candidates, including all INDs for such Product Candidates, and provide

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GSK with copies of such INDs and other regulatory filings and all required
preclinical and clinical data and results (including, for example, pharmacology,
toxicology, formulation and stability studies). Notwithstanding the foregoing,
Targacept shall not be obligated to transfer regulatory filings (including,
without limitation, INDs), if any, with respect to any Backup Compound or
Follow-On Compound in the Program subject to the Program Option exercised by GSK
for which Targacept has the right to conduct Targacept Post-Exercise Activities;
provided that Targacept and GSK shall cooperate in good faith with regard to
such regulatory filings as needed to facilitate the orderly conduct of such
Targacept Post-Exercise Activities and meet GSK’s reasonable needs in connection
with the Development of such Product Candidates.

3.8.2 Adverse Event Reporting. Beginning on the Effective Date and continuing
until such time, if any, that GSK exercises its Program Option with respect to a
particular Program (or, solely with respect to Backup Compounds and Follow-On
Compounds for which Targacept conducts Targacept Post-Exercise Activities, at
such time as Targacept is no longer conducting such Targacept Post-Exercise
Activities), Targacept shall be responsible for reporting all reportable adverse
drug reaction experiences related to any Collaboration Compound (or, in the case
of Targacept Post-Exercise Activities, only Backup Compounds and Follow-On
Compounds) in such Program in connection with the activities of Targacept under
this Agreement to the applicable Regulatory Authorities in the applicable
countries in the Territory in which the Collaboration Compound is being
developed, in accordance in all material respects with the laws and regulations
thereof. Through the JSC, GSK shall have the right to review from time to time
Targacept’s pharmacovigilance policies and procedures. GSK and Targacept agree
to cooperate and use good faith efforts to ensure that Targacept’s adverse event
database is organized in a format that is compatible with GSK’s adverse event
databases.

3.8.3 Adverse Event Reports. Targacept shall provide copies of all reports filed
as provided in Section 3.8.2 to GSK within [********] of such filing with a
Regulatory Authority.

3.9 Exchange of Information. Subject in all cases to the provisions of Article
9, each of GSK and Targacept will share any Information directly relating to
Collaboration Compounds that is generated in the course of the Parties’
activities hereunder with the JSC, in connection with JSC meetings, in order to
facilitate each Party’s decision-making in connection therewith and to monitor
the obligations of the Parties. All such exchanges of Information shall be
coordinated by the Project Directors. The provision of all such Information
shall be performed in a timely matter to accommodate all regulatory deadlines
and promote compliance with the timelines set forth in any agreed plan.

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3.10 GSK Technology. Although Targacept will conduct the Research Programs and
Early Development Programs, if (i) GSK in its sole discretion informs the JSC or
JPS that it possesses certain GSK Technology pertaining to the use,
administration or formulation of a particular Collaboration Compound that would
be useful in any Research Program or Early Development Program or (ii) Targacept
reasonably believes that GSK possesses any such useful GSK Technology, upon the
reasonable request of Targacept, GSK, in its sole discretion, shall consider in
good faith making the use of such GSK Technology available to Targacept solely
for the limited purposes of conducting such Research Program or Early
Development Program, subject in all cases to any existing obligations GSK may
have to any Third Party and to the terms and conditions of this Agreement.

3.11 Subcontracting. Each Party shall have the right to engage Third Party
subcontractors (which, may also include Third Party academic collaborators) to
perform certain of its obligations under this Agreement. Any subcontractor to be
engaged by a Party to perform a Party’s obligations set forth in the Agreement
shall meet the qualifications typically required by such Party for the
performance of work similar in scope and complexity to the subcontracted
activity. Notwithstanding the foregoing, either Party engaging a subcontractor
hereunder (including for the performance of Clinical Studies) shall remain
responsible and obligated for such activities and shall in all cases retain or
obtain any and all intellectual property created by such subcontractor in the
conduct of, and that is directly related to, such subcontracted activity, at
least on a non-exclusive or option to license basis, at the sole cost and
expense of the Party engaging such subcontractor. To the extent that (i) any
such subcontracted work is designed to involve the conception of new
compositions of matter or method of use or treatment for an Indication and
(ii) an assignment, an exclusive commercial license or a first or exclusive
option to acquire an exclusive commercial license cannot be obtained with
respect to such intellectual property from such subcontractor, prior to entering
into such arrangement with such subcontractor, such Party shall bring such
matter to the Joint Patent Committee in writing in a timely fashion in order to
seek the review and prior unanimous written consent from the Joint Patent
Committee (which, for clarity, may occur at a meeting) to enter into such an
arrangement, such consent not to be unreasonably withheld, conditioned or
delayed. To the extent that any exclusive license to such intellectual property
from such subcontractor would be necessary or reasonably useful to further
Develop or commercialize Licensed Products for any of the

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Indications hereunder, Targacept shall be solely responsible for satisfying all
such license costs and fees of any type or kind to be owed to such Third Party
contractor, including without limitation, upfront fees, annual fees, milestone
payments and royalties, to the extent any such intellectual property pertains to
the use of a Progressed Compound for an Indication of a Program hereunder, or to
the method of use, method of manufacture or composition of matter of any
Progressed Compound that would be licensed to GSK hereunder by the exercise of a
Program Option.

3.12 Non-Commercial Supply of Compounds. Targacept shall supply to GSK
reasonable quantities of bulk active Development Candidate or other Progressed
Compound as reasonably required for any Supplemental Activities permitted
hereunder. The price for supply by Targacept of such quantities of Development
Candidate or other Progressed Compound shall be [********]. Following GSK’s
exercise of a Program Option with respect to any Program: (i) Targacept shall
transfer to GSK any then existing “on-hand” supplies of the Product Candidates
subject to the Program Option exercised by GSK (provided that Targacept may
retain sufficient quantities of any such Product Candidate that is a Backup
Compound or Follow-On Compound for which Targacept has the right to conduct
Targacept Post-Exercise Activities) for a price equal to [********]; and
(ii) the Parties will work together to assign any Third Party manufacturing
arrangements with respect to such Product Candidates to GSK; or (iii) where an
assignment is not practicable or otherwise not preferable to GSK, Targacept will
cooperate in good faith with GSK in order to facilitate a suitable manufacturing
arrangement between GSK and any Third Party manufacturer with which Targacept
has a business or contractual relationship for manufacture or supply of such
Product Candidates.

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ARTICLE 4

GSK’S PRODUCT OPTION RIGHTS

4.1 Program Options.

4.1.1 Scope of Program Option. Targacept hereby grants to GSK with respect to
each Program the exclusive right, exercisable at GSK’s sole discretion in
accordance with Section 4.3, to elect to obtain exclusive worldwide rights to
continue to Develop and commercialize the Option Compound in such Program, if
any (and, if there is an Option Compound, the other up to two (2) (or, solely in
the case of the Pain 2 Program, up to [********] Progressed Compounds in such
Program that have been nominated by Targacept as such and determined by the JSC
to be such as provided herein, if any), as Product Candidates and Licensed
Products under the terms and conditions set forth in this Agreement (each such
right to elect, a “Program Option”). Such Option Compound, together with the
other up to two (2) Progressed Compounds in such Program, if any, are included
within and subject to a single Program Option exercise. For clarity, the
exercise by GSK of a Program Option with respect to a given Program shall be
specific to the Program’s set of Progressed Compounds only.

4.1.2 Option Compound and Other Progressed Compounds. Following exercise of its
Program Option with respect to any Program and pursuant to the resulting
exclusive worldwide license to GSK in accordance with the terms and conditions
of Article 5, GSK may, in its sole discretion but subject to its obligation to
use Diligent Efforts and Section 5.3.3, (i) [********] the other Progressed
Compounds, if any, [********] for continued Development and commercialization as
and into a Licensed Product, or (ii) Develop either or both of the other
Progressed Compounds in addition to the Option Compound and commercialize it or
them as and into Licensed Products.

4.1.3 No Inconsistent License Grant. With respect to each Program, during the
Research Program Term and any Early Development Program Term, Targacept will not
grant to any Third Party rights to any Targacept Technology that are
inconsistent with or that would interfere with the grant of the license that
would result from the exercise of the Program Option by GSK hereunder. For the
avoidance of doubt, the Parties understand and agree that, with respect to each
Program, GSK’s Program Option, as described herein and subject to the terms
hereof, shall be an exclusive option with respect to the Progressed Compounds in
such Program and until such time (if any) as (i) GSK declines to exercise or
permits to lapse its Program Option or (ii) such Program’s

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Early Development Program Term (or, if none, such Program’s Research Program
Term) expires without there being an Option Compound), Targacept shall not have
the right to offer or negotiate with any Third Party with respect to the grant
to such Third Party of any right or license or other encumbrance of any kind in
or to any of the Progressed Compounds in such Program or the relevant Targacept
Technology. Subject to the effect of Section 5.5, each Program Option exercised
by GSK shall be irrevocable.

4.2 PoC Trial Reports. Once a Development Candidate has been determined to meet
the PoC Criteria by the JSC to be an Option Compound, Targacept shall, within
[********] of such occurrence (unless impractical depending on the nature of the
applicable PoC Trial and the data generated thereunder), provide or make
available to GSK at Targacept’s offices or another mutually acceptable location
a data package containing all analysis, results [********] from the PoC Trial
for such Option Compound, as well as any previously undisclosed preclinical or
clinical data generated or any related correspondence or information received
from or sent to any Regulatory Authority relating to the Progressed Compounds
then known to be subject to the Program Option, in each case to assist and
enable GSK to make its decision on whether to elect to exercise its Program
Option (the “PoC Trial Report”). For clarity, the PoC Trial Report need not
include the final report from any particular preclinical study or Clinical Study
but shall include all resulting data and results reasonably expected to be
pertinent to such decision. However, Targacept shall provide each applicable
final report to GSK as soon as reasonably practicable following its receipt or
completion by Targacept.

4.3 Exercise of Program Options.

4.3.1 Option Period/Triggering of Options; HSR and Equivalent.

(a) Subject to Sections 4.3.1(b), 6.3 and 13.1, GSK may exercise its Program
Option, if any, with respect to any Program only by delivering to Targacept a
written notice of exercise, not later than [********] (as may be extended as
provided below pending clearance under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (15 U.S.C. §18a), as amended (“HSR”), and, in any case,
subject to Section 3.7.3) after the applicable PoC Trial Report is provided or
made available to GSK (such date, the “Report Date”), specifying the Program
(and corresponding Progressed Compounds) as to which the Program Option is being
exercised. The period extending from the Report Date until [********] after the
Report Date, or such later date as the Parties may mutually agree, is the
“Option Period”; provided that GSK agrees that, if it determines not to exercise
a Program Option prior to expiration of the Option Period, it shall in good
faith provide written notice to Targacept promptly upon such determination and
the

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date on which any such notice is given shall constitute the last day of the
Option Period. GSK shall use reasonable efforts to determine within [********]
following receipt of the PoC Trial Report whether the exercise of any Program
Option by GSK requires notifications to be filed by either or both Parties with
either or both of the U.S. Federal Trade Commission and the U.S. Department of
Justice (or any U.S. governmental authority which may hereafter have
responsibility for such matters) under HSR, or with relevant foreign
governmental authorities under any similar foreign law (each, a “Relevant
Authority”). If either Party reasonably determines in good faith, based on
advice of counsel, that any such notification is required: (i) the Parties shall
(A) reasonably cooperate with each other to coordinate, diligently prepare and
file such notifications promptly after it is determined that such filing(s) is
required, provided that all filing, registration or similar fees associated
therewith shall be borne by GSK, and (B) use reasonable efforts to respond
promptly to any requests for additional information made by any Relevant
Authority and to cause the waiting period (or any extension thereof) under HSR
or any similar foreign law to terminate or expire at the earliest possible date
after the date of filing; and (ii) the Option Period shall be extended
automatically for [********] from the expiration of the original Option Period
(the “Option Period Extension”) in the event that (A) the HSR (or similar
foreign law) initial waiting period is still pending or (B) a “Second Request”
was received from a Relevant Authority in connection with such filing during the
original Option Period or the then-current Option Period Extension, as the case
may be, such Party diligently prepares and promptly submits a response and
clearance has not been granted upon expiration of the original Option Period or
the then-current Option Period Extension, as the case may be; provided that GSK
agrees that, if it determines not to exercise a Program Option prior to
expiration of the applicable Option Period Extension, it shall in good faith
provide written notice to Targacept promptly upon such determination and the
date on which any such notice is given shall constitute the last day of the
Option Period Extension. In the event that HSR (or similar foreign law)
clearance has still not been granted upon expiration of any Option Period
Extension where the date of such expiration is at least [********] from the date
of the first such HSR or similar foreign filing by GSK, then Targacept and GSK
shall promptly meet to discuss in good faith whether an additional Option Period
Extension is merited. In such event, such additional Option Period Extension
shall only be effective with the [********], not to be [********] can
demonstrate a [********], based on documented correspondence from each Relevant
Authority, that such HSR (or similar foreign law) clearance is or will more
likely than not be forthcoming. In the event that HSR (or similar foreign law)
clearance is not granted upon expiration of the original Option Period or
applicable Option Period Extension, as the case may be, such Program Option
shall be deemed to have [********]; provided that, in such event and
notwithstanding

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anything to the contrary set forth herein, (i) Targacept’s obligation to pay any
Refused Candidate Royalties (or, solely to the extent applicable, GSK Reverse
Royalties) shall only be operative and effective with respect to the [********]
in the Program subject to such Program Option if and to the extent such payment
would be lawful and (ii) if such payment would not be lawful, Targacept and GSK
shall negotiate in good faith with an objective of [********] to such
[********].

(b) Notwithstanding Section 4.3.1(a), solely upon the mutual written agreement
of the Parties (but subject to satisfaction of all HSR or similar foreign law
requirements as described in Section 4.3.1(a)), GSK shall have the right to
exercise a Program Option prior to the Report Date (including, for clarity,
where a Development Candidate does not become an Option Compound) at any time;
provided that the Product Candidate in the Program subject to such early
exercise of a Program Option shall be the Leading Compound, which shall upon
such early exercise be deemed to be an Option Compound, and, if applicable, up
to two (2) other Progressed Compounds theretofore or thereafter nominated by
Targacept as and determined by the JSC to be Backup Compounds or Follow-On
Compounds, as applicable, in accordance with the terms hereof.

(c) For clarity, the Parties understand and agree that, except with regard to
the Pain 1 Program under circumstances where (i) TC-2696 becomes an Option
Compound, (ii) GSK does not exercise its Program Option and (iii) TC-6499
becomes an Option Compound, and without limiting the applicability of
Section 3.2.3(x), that, for each Program there is one (1) Program Option,
regardless of the total number of successful PoC Trials for Progressed Compounds
under such Program and regardless of the number of different formulations,
methods of delivery, prodrugs, esters, salts, crystalline polymorphs, hydrates
or solvates thereof which are Developed for such Progressed Compounds. It being
understood, however, that Targacept shall have no obligation to pursue any such
different formulations, methods of delivery, prodrugs, esters, salts,
crystalline polymorphs, hydrates or solvates thereof.

4.3.2 Expiration of Program Option; Refused Candidates. If GSK does not exercise
its Program Option with respect to a particular Program within the Option Period
(or, for clarity, if the Early Development Program Term (or, if none, Research
Program Term) for a particular Program expires without there being an Option
Compound), then GSK’s Program Option shall expire with respect to such Program
and Targacept shall thereafter have all rights, itself or through or with an
Affiliate or Third Party, to develop and commercialize all Collaboration
Compounds in such Program at Targacept’s sole expense, without restriction, and
shall also have

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the license from GSK as set forth in Section 5.1.4. Solely with respect to
products, including any formulation or dosage or delivery form thereof,
containing or comprising a Refused Candidate (“Refused Candidate Products”),
Targacept shall pay to GSK Refused Candidate Royalties as set forth in
Section 6.7.1. “Refused Candidates” means the [********] as of the last day of
the Option Period (or, if earlier, the date on which GSK notified Targacept that
it would not exercise the Program Option) in each Program for which there is
both an Option Period and an unexercised Program Option.

ARTICLE 5

GRANT OF RIGHTS; COMMERCIALIZATION

5.1 License Grants; Sublicenses.

5.1.1 License to Targacept for the Conduct of Research Programs and Early
Development Programs. GSK hereby grants to Targacept a non-exclusive,
non-royalty bearing, worldwide license to use the GSK Technology only as
necessary or reasonably useful to conduct any Research Program or Early
Development Program during the Research Program Term or Early Development
Program Term, respectively.

5.1.2 License to GSK Resulting from Program Option Exercise for further
Development and Commercialization. On a Program Option-by-Program Option basis,
subject to the terms and conditions of this Agreement and effective only upon
GSK’s exercise of its Program Option for a particular Program, Targacept shall
be hereby deemed to have granted in such event the exclusive (even as to
Targacept, except as provided below), right and license (or sublicense) in the
Territory, with the right to grant sublicenses (subject to Section 5.1.6), under
all of Targacept’s rights, title and interest in and to the Targacept
Technology, to make, have made, use, sell, offer for sale and import the Product
Candidates in the Program for which such Program Option has been exercised as
and into Licensed Products in the Field during the Term; provided that, for
clarity, except as expressly provided in Section 3.3.2 or in Article 12,
(i) Targacept does not grant any license (or sublicense) to GSK under this
Agreement with respect to any Program or any Collaboration Compound unless and
until, following research and Development conducted hereunder, there is an
Option Compound in such Program and GSK validly exercises its Program Option for
such Program in accordance with the terms hereof, and (ii) no license granted
under this Section 5.1.2 shall preclude Targacept from, and Targacept expressly
reserves all rights with respect to (A) any action as may be necessary or
reasonably useful to conduct Targacept Post-Exercise Activities, to conduct
promotional

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activities for Co-promotion Products or otherwise to exercise its rights or
perform its obligations as expressly stated hereunder or (B) the exploitation of
Targacept Technology for any purpose that is not within the terms of exclusive
license granted in this Section 5.1.2, subject to Section 7.1.

5.1.3 Trademarks for Licensed Products or Returned Licensed Products. To the
extent that Targacept owns any trademark(s) in any country that applies
exclusively to a Product Candidate and that GSK believes would be necessary or
reasonably useful for the commercialization and sale of the corresponding
Licensed Product in such country, Targacept shall assign its rights and title to
such trademark(s) to GSK reasonably in advance of GSK’s anticipated First
Commercial Sale of such Licensed Product in such country, upon the reasonable
request by GSK. GSK shall assign to Targacept trademarks with respect to
Returned Licensed Products to the extent provided in Section 5.5.2.

5.1.4 License to Targacept for Refused Candidates, Refused Candidate Products
and Returned Licensed Products. GSK hereby grants to Targacept an exclusive
(solely for the purposes expressly set forth below and even as to GSK) worldwide
license to use the GSK Technology, with the right to grant sublicenses, to
research, develop, have developed, make, have made, use, import, offer to sell
and sell (including, without limitation, through distributors or wholesalers)
Refused Candidates and Refused Candidate Products; provided that no license
granted under this Section 5.1.4 shall preclude GSK from, and GSK expressly
reserves all rights with respect to, the exploitation of GSK Technology for any
purpose that is not within the terms of exclusive license granted in this
Section 5.1.4, subject to Section 7.2. The license grant from GSK to Targacept
with respect to Returned Licensed Products is set forth in Section 5.5.2.

5.1.5 License to Targacept for Co-promotion Products. GSK hereby grants to
Targacept a co-exclusive (with GSK) license to use the GSK Technology only as
necessary or reasonably useful to conduct promotional activities in the United
States for any Co-promotion Product, subject to the terms and conditions hereof.

5.1.6 Sublicensing. To the extent either Party is permitted to grant sublicenses
under the licenses granted to it under this Section 5.1, such Party shall have
the right to grant such sublicenses through multiple tiers of sublicensees;
provided that: (i) any such sublicense is consistent with and subject to the
terms of this Agreement (including, without limitation this Article 5) and shall
terminate automatically upon termination of the corresponding license hereunder;
(ii) such Party shall provide written notice to the

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other Party of any such sublicense and provide copies to the other Party of each
such sublicense (with confidential and financial information redacted) promptly
after the execution thereof; (iii) neither Party shall be relieved of its
obligations pursuant to this Agreement as a result of such sublicense; and
(iv) notwithstanding the foregoing or anything to the contrary set forth herein,
GSK shall not, without the prior approval of Targacept (such approval not to be
unreasonably withheld, conditioned or delayed), grant any such sublicenses that
include the right of the Sublicensee to market or sell a Licensed Product in a
Major Country (excluding arrangements with distributors, wholesalers or
manufacturers customary in the industry).

5.1.7 Use of Names; Logo. To the extent permitted under applicable laws and
regulations, the packaging and labeling for Licensed Products will bear both GSK
and Targacept names and logos, and such names and logos will be presented with
substantially equivalent prominence in any product presentations, exhibit
booths, conferences or promotional materials or activities. Except as provided
in Section 5.1.3, no right or license, express or implied, is granted to GSK to
use any trademark, trade name, trade dress or service mark owned or Controlled
by Targacept or any of its Affiliates.

5.1.8 No Implied Licenses. No license or other right is or shall be created or
granted hereunder by implication, estoppel or otherwise. All such licenses and
rights are or shall be granted only as expressly provided in this Agreement.

5.2 Technology Transfer after Exercise by GSK of a Program Option.

5.2.1 Generally. After GSK exercises its Program Option for a particular
Program, Targacept shall as soon as reasonably practicable deliver to GSK, to
the extent in Targacept’s possession and Control and necessary for the exercise
by GSK of the rights granted under Section 5.1.2: (a) at no cost to GSK, copies
of all applicable clinical and protocol results, analytical methodologies, bulk
and final product manufacturing processes, batch records, vendor information,
validation documentation, regulatory documentation, patent information, all
regulatory filings, transfer of information related to regulatory information
and filings, all preclinical and clinical data, adverse event data, all
regulatory correspondence, analyses, manufacturing data, applicable reference
standards; and (b) for a price to GSK equal to [********], all bulk drug
substance or other materials used to manufacture the applicable Product
Candidate. Targacept shall use reasonable efforts with respect to those
activities for which it is responsible to ensure orderly transition and
uninterrupted development of Product Candidates. Notwithstanding the foregoing,
Targacept shall not

EXECUTION VERSION    -66-   

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be obligated to transfer any of the foregoing with respect to any Backup
Compound or Follow-On Compound in the Program subject to the Program Option
exercised by GSK for which Targacept has provided written notice to GSK that it
intends to exercise its right to conduct Targacept Post-Exercise Activities
pursuant to Section 3.6.5; provided that Targacept and GSK shall cooperate in
good faith with regard to the foregoing to facilitate the orderly conduct of
such Targacept Post-Exercise Activities and meet GSK’s reasonable needs in
connection with the Development of such Product Candidates.

5.2.2 Continuing Cooperation. Upon the transfer described in Section 5.2.1, and
for a [********] period thereafter, Targacept shall use reasonable efforts, at
no cost to GSK, to cooperate with GSK to provide GSK with any other Targacept
Technology, as it may be developed or identified, to which GSK has a right or
license under this Agreement. Upon the transfer described in Section 5.5.2, and
for a [********] period thereafter, GSK shall use reasonable efforts, at no cost
to Targacept, to cooperate with Targacept to provide Targacept with any other
GSK Technology, as it may be developed or identified, to which Targacept has a
right or license under this Agreement.

5.2.3 Additional Services. In the event that GSK requests Targacept to provide
GSK with any materials or services beyond those set forth in Sections 5.2.1 and
5.2.2 or any other provision hereof, such materials or services shall be
scheduled and provided by Targacept to GSK on such terms and conditions as may
be mutually agreed between the Parties at the time of any such request, but only
if the Parties mutually desire to engage in the provision of such additional
materials or services. In the event that Targacept requests GSK to provide
Targacept with any materials or services beyond those set forth in Sections
5.2.2 and 5.5.2 or any other provision hereof, such materials or services shall
be provided by GSK to Targacept on such terms and conditions as may be mutually
agreed between the Parties at the time of any such request, but only if the
Parties mutually desire to engage in the transfer or provision of such
additional materials or services.

5.3 Product Candidate Commercialization Program.

5.3.1 Commencement; Term. With respect to each Program for which GSK exercises
its Program Option, GSK shall promptly commence and pursue a program of ongoing
Development and commercialization for the Option Compound that has become a
Product Candidate as soon as practicable after such exercise by GSK and receipt
from Targacept of all reasonably required materials to proceed with further
Development with respect to such Product Candidate (the overall program for all
Product Candidates referred to as the “Product Candidate Commercialization
Program”).

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5.3.2 GSK Diligence; Responsibilities. During the Product Candidate
Commercialization Program, without limiting or modifying any obligation of GSK
expressly provided in any other relevant provision of this Agreement, GSK shall
use its Diligent Efforts to Develop and commercialize each Option Compound (and
each [********] that achieves [********] based on completion [********] of the
equivalent of [********] for such [********]) as and into a Licensed Product in
the Field. Subject expressly to (i) its obligation to use Diligent Efforts with
respect to the foregoing and (ii) the requirements of this Section 5.3.2 and
Section 5.3.3, GSK shall be entitled to make all decisions in good faith with
respect to the progression of the Development and commercialization of any
Product Candidate in any country and for any use in the Field or to discontinue
the Development, or [********] commercialization of any such Product Candidate.
In particular, GSK, either itself or by and through its Affiliates, Sublicensees
or contractors, shall be responsible for and shall have sole decision-making
authority with respect to, and shall have the exclusive right to engage in, all
further Development, manufacturing, marketing, advertising, promotional, launch,
commercialization and sales activities in connection with the further
Development, commercialization, sales and marketing of the Product Candidates
and Licensed Products, subject to Targacept’s right to conduct Targacept
Post-Exercise Activities and to Targacept’s Co-promotion Rights, each as
expressly provided in this Agreement. For the avoidance of doubt, the Parties
understand and agree that GSK’s diligence obligations under this Agreement shall
not apply to any Backup Compound with respect to an Option Compound and shall
apply to a Follow-On Compound with respect to a particular Option Compound only
to the extent provided in this Section 5.3.2.

As part of the Product Candidate Commercialization Program, GSK shall, subject
to the application and limitations of its Diligent Efforts:

(a) conduct all Clinical Studies following the PoC Trial for the Product
Candidate(s);

(b) conduct additional formulation development of Product Candidates as and if
deemed necessary or appropriate by GSK and as consistent with the Product
Candidate Commercialization Program;

EXECUTION VERSION    -68-   

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(c) be responsible for preparing and filing all regulatory filings for Product
Candidates, including all NDAs;

(d) manufacture or have manufactured (including process development and scale
up) all bulk drug substance or drug product material with respect to Product
Candidates for ongoing Development and commercial requirements, consistent with
applicable laws and regulations;

(e) own all NDAs, Marketing Approvals and other regulatory filings and
approvals, and all brands and trademarks for the Product Candidate(s) and
Licensed Products in the Territory;

(f) prepare and execute Product Marketing Plans for each of the Licensed
Products in the Territory, and all promotional and selling materials for use in
connection with the sale of Licensed Products;

(g) conduct, or cause to be conducted, manage and oversee all analysis and other
support necessary with respect to the manufacture, marketing and sale of all
Licensed Products in the Territory;

(h) consider in good faith all reasonable suggestions received from Targacept
regarding the Product Candidate Commercialization Program;

(i) consider in good faith any reasonable concerns Targacept may have regarding
the launch of Licensed Products within various marketing regions of the
Territory and in all cases promptly respond to Targacept regarding such
concerns; and

(j) maintain records, in sufficient detail, which shall be complete and accurate
and shall fully and properly reflect all work done and results achieved in
connection with the Product Candidate Commercialization Program in the form
required under applicable laws and regulations.

5.3.3 Specific Development Commitment; Launch in Major Countries.

(a) Without limiting the generality of Section 5.3.2, with respect to each
Option Compound ([********] that achieves [********] based on completion
[********] of the equivalent of [********] for [********]), GSK [********] in
each case, shall (i) [********] with respect to which the PoC Trial (or
equivalent with respect to [********] that achieves Other Product Candidate

EXECUTION VERSION    -69-   

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PoC) had been conducted [********] completion of [********] described in
[********] for cause for a [********] as needed in the event that [********] for
needing [********] that would reasonably be expected to [********] and (ii) use
its Diligent Efforts [********]; and

(b) With respect to [********] each Licensed Product, in the event that GSK is
(i) not using Diligent Efforts to [********] such Licensed Product [********] or
(ii) not [********] such Licensed Product [********] where such failure to
[********] would [********] a failure to exercise Diligent Efforts [********]
then: (A) all licenses from Targacept to GSK with respect to such Licensed
Product [********] shall terminate (as if [********] as applied to such Licensed
Product); (B) such Licensed Product shall be a [********] with respect to
[********] and Targacept shall have the same licenses from GSK and the same
obligations to GSK with respect to such Licensed Product [********] as Targacept
has for [********]; and (C) Targacept or any Affiliate or licensee thereof shall
have [********]. [********] in a manner consistent with [********] for the
Licensed Product, to the extent such [********] is (1) [********] or [********],
as the case may be [********] and (2) timely provided to Targacept
(collectively, the “[********] Conditions”), until [********] of such [********]
is completed [********] (but not longer than [********] from the date
[********]); provided that if: (x) the [********] Conditions apply; (y) after
[********] of such [********] Licensed Product is completed in [********], such
[********] is commercialized by Targacept or any Affiliate or licensee thereof
[********] in a manner that materially and adversely affects [********]; and
(z) GSK provides written notice accompanied by documentary evidence to such
effect to Targacept (and, if the commercializing party, any Affiliate or
licensee thereof), then Targacept or, if the commercializing party, any
Affiliate or licensee thereof shall, to the extent permitted under applicable
law, reasonably promptly (taking into account the then-existing circumstances)
modify the manner of its commercialization such that it no longer has such
material adverse effect [********] or [********], as the case may be, or shall
forfeit the rights arising under this Section 5.3.3(b) in [********]. For
clarity, and without limiting any other provision of this Agreement, any dispute
regarding the application or enforcement of this Section 5.3.3(b) shall be
subject to the provisions of Section 14.1.

Notwithstanding the foregoing and for the avoidance of doubt, Targacept
acknowledges and agrees that in the event it (or its Affiliates or licensee)
commercializes a Returned Licensed Product [********] pursuant to this
Section 5.3.3, then, subject to applicable law, Targacept shall, or shall cause
its Affiliates or licensee to, sell Returned Licensed Product [********] and
shall not

EXECUTION VERSION    -70-   

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sell such Returned Licensed Product to any Third Party that Targacept (or its
Affiliates or licensee) reasonably believes is going to sell such Returned
Licensed Product, directly or indirectly, [********], unless mutually agreed in
writing by the Parties. If Targacept (or its Affiliate or licensee) becomes
aware that any of its customers has [********] such Returned Licensed Product
[********] or [********] such Returned Licensed Product [********], or knows or
should know that a customer intends to [********] such Returned Licensed Product
[********] or [********] such Returned Licensed Product [********], Targacept
shall, or shall cause its Affiliates and licensees to, to the extent permitted
under applicable law, use commercially reasonable efforts to cause such customer
to cease such [********] activities.

5.3.4 Pharmacovigilance. Except as otherwise provided in Section 3.8.2, after
GSK exercises its Program Option with respect to any Program, GSK shall be
responsible for maintaining a safety database with respect to the Product
Candidates in such Program and reporting all adverse drug reaction experiences
related to any such Product Candidate in connection with the activities of GSK
under this Agreement to the applicable Regulatory Authorities in the countries
in the Territory in which such Product Candidate is being Developed, in
accordance with the laws and regulations of the relevant countries and
Regulatory Authorities and GSK’s internal policies.

5.4 Targacept Co-Promotion Rights.

5.4.1 Scope and Exercise.

(a) Subject to Section 13.1, with respect to each Co-promotion Product, at any
time prior to the date that the FDA [********] for such Co-promotion Product,
Targacept shall have the option to Co-promote such Co-promotion Product (the
“Co-promotion Right”) for the Pain Indication only to specialists and hospital
physicians in the United States [********] (the “Target Professionals”), by
providing up to [********] percent ([********]%) (as determined in good faith by
Targacept) of the requisite detailing effort (as determined in good faith by
GSK) to the Target Professionals as set forth in the Product Marketing Plan for
such Co-promotion Product. The specific terms of Targacept’s Co-promotion shall
be set forth in a definitive Co-promotion agreement, which will incorporate and
be consistent with all of the terms and conditions described in this Section 5.4
and include such other reasonable and customary terms as would be typically be
included in a co-promotion agreement governing a similar relationship and shall
provide that no breach by Targacept of any Co-promotion Agreement shall be
deemed a breach of this Agreement (the “Co-promotion Agreement”). The
Co-promotion Agreement will be drawn up by both Parties in good faith following
exercise by

EXECUTION VERSION    -71-   

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Targacept of the Co-promotion right with respect to any Co-promotion Product and
shall be consistent with the Product Marketing Plan. Targacept’s Co-promotion
right shall be [********] activities to be described in the Co-promotion
Agreement, and shall not include [********] GSK shall provide to Targacept for
its review and comment the Product Marketing Plan for each Co-promotion Product
a reasonable time prior to execution of the applicable Co-promotion Agreement,
which comments it shall consider in good faith, and shall thereafter provide
updates at least [********]. GSK will book sales for each Co-promotion Product,
manage distribution and managed care contracting and will [********] for the
Co-promotion Product.

(b) At least (i) [********] prior to the launch of a Co-promotion Product for
which Targacept has exercised its Co-promotion Right and in any event prior to
execution of the applicable Co-promotion Agreement, GSK shall provide Targacept
in writing its proposed detail allocation and geographic responsibilities for
such Co-promotion Product and other relevant information sufficient to enable
Targacept to understand the actual level of Co-promotion activity it will be
required to provide and afford Targacept adequate time to recruit, evaluate and
hire its sales force and have it trained and (ii) [********] prior to the
planned launch of such Co-promotion Product, Targacept shall have employed a
sufficient number of sales representatives as would reasonably be expected to be
required to fulfill its obligations under the Co-promotion Agreement, or may
waive its right to Co-promote the Co-promotion Product. GSK, at its sole
expense, will develop and supply all promotional and marketing materials used to
promote the Co-promotion Product in the United States (provided that the
quantities of such promotional and marketing materials for each Co-promotion
Product shall be allocated to the Parties in proportion to the number of
representatives engaged by each Party to Co-promote such Co-promotion Product),
as well as all product-specific training materials and trainers for the training
of the Targacept sales representatives (excluding [********] which shall be
[********] Targacept). Targacept will use only GSK-approved promotional messages
and materials and will comply with the GSK commercial practices and policies in
effect during the Co-promotion period as such are communicated in writing to
Targacept. Subject to the preceding sentence, Targacept’s Co-promotion
activities will be conducted in accordance with all applicable laws and
regulations (including, without limitation, those promulgated by the FDA and the
Division of Drug Marketing and Communications). Targacept shall be responsible
for ensuring that its sales force representatives have comparable levels of
knowledge, experience and skills as other sales representatives employed by GSK
and

EXECUTION VERSION    -72-   

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[********], at the time of such training (in each case, to the extent that GSK
provides such information to Targacept in writing). Targacept’s sales force
representatives shall attend, as appropriate in view of GSK’s policies and
practices, such training seminars as are held for GSK’s own sales force
representatives. Targacept must commit to detailing the applicable Co-promotion
Product in [********] at least for a period of [********] from the date of
launch thereof in the United States. Targacept shall not have the right to
conduct any of its Co-promotion activities or responsibilities [********].
Subject to Targacept’s right to provide the level of Co-promotion specified in
Section 5.4.1(a) to the Target Professionals, GSK shall not be restricted in its
promotional and selling efforts to any specialist, hospital or general practice
physicians, and Targacept shall have no rights to detail or otherwise promote
Licensed Products to family practitioners, internal medicine or any other
general practice physicians. For clarity, Targacept’s Co-promotion Rights shall
apply only to Co-promotion Products and [********] for the Pain Indication.

5.4.2 Sales Force Costs paid by Targacept; [********] Payments by GSK. Except as
provided in Section 5.4.1, Targacept shall be responsible for all costs
associated with establishing and maintaining its sales force to conduct such
Co-promotion activities. This will include, but not be limited to, the costs of
recruiting, non-product specific training, salaries, and performance incentives
or bonuses as appropriate. As the [********] to Targacept for its activities
hereunder with regards to Co-promotion, GSK shall pay Targacept [********] as
defined in the Product Marketing Plan [********] at that time and [********] of
Targacept’s [********] for the Co-promotion Product.

5.4.3 [********]. In no event shall Targacept’s Co-promotion Right or any
license granted to Targacept under Section 5.1.5 or under any Co-Promotion
Agreement be [********] in any way by Targacept.

5.5 Returned Licensed Products.

5.5.1 Termination of Development by GSK. In the event that GSK exercises its
Program Option with respect to any Program and thereafter determines in good
faith, for any reason, to cease the Development and commercialization of a
Product Candidate or Licensed Product in such Program, either [********] or
[********], (i) GSK shall provide Targacept written notice of such intent in
accordance with Section 12.3 and shall be deemed to have terminated all of its
rights to such Product Candidate (and any product containing or comprising such
Product Candidate) or Licensed Product and (ii) thereupon, such Product
Candidate (or

EXECUTION VERSION    -73-   

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product containing or comprising such Product Candidate) or Licensed Product
shall be deemed a “Returned Licensed Product,” subject to the provisions of this
Section 5.5, and shall no longer be a Licensed Product.

5.5.2 Effects of Termination; License to Targacept. Upon any such termination
(a) all licenses in and to the Targacept Technology for such Returned Licensed
Product granted to GSK by Targacept, [********], as applicable, shall be
immediately terminated (as if [********], in the case of [********] were
[********] as applied to such Licensed Product) and (b) GSK (i) shall promptly
return to Targacept all Information (including, without limitation, data and
materials) transferred by Targacept to GSK (if GSK’s rights terminate [********]
or, if not, shall cooperate with Targacept in good faith to ensure Targacept’s
uninterrupted ability to continue to Develop and commercialize such Returned
Licensed Product), (ii) hereby grants to Targacept, conditional upon the
occurrence of such termination, an exclusive license (solely for the purposes
set forth below and even as to GSK) [********] or, if applicable, [********] to
the GSK Patents (and to GSK’s interest in the Collaboration Patents, if any),
and a non-exclusive worldwide license to the other GSK Technology, with the
right to grant sublicenses, in each case that pertains specifically (but not
necessarily exclusively) to such Returned Licensed Product and was actually
generated by GSK, or is necessary or reasonably useful, in connection with the
Development or commercialization of such Returned Licensed Product, to research,
develop, have developed, make, have made, use, import, offer to sell and sell
(including, without limitation, through distributors or wholesalers) such
Returned Licensed Product; (iii) shall, if GSK’s rights terminate [********],
transfer to Targacept, at no cost (except for any finished product, which shall
be transferred at cost), all readily available bulk drug substance or drug
product material of the applicable Returned Licensed Product in its possession
and other related materials, (iv) shall provide Targacept with copies of all
Clinical Study data and results, and all other information, regulatory filings,
and the like developed by or for the benefit of GSK relating to such Returned
Licensed Product, (v) assign to Targacept any regulatory filings or trademarks
[********] or, if applicable, [********] related to such Returned Licensed
Product; (vi) only if GSK (and not a Third Party) has manufactured for
commercial launch such Returned Licensed Product, supply Targacept with its
reasonable requirements for such Returned Licensed Product (or intermediate
thereof) [********] or, if applicable, [********] (which amounts shall be
consistent with GSK’s historical usage of each such Returned Licensed Product
[********] or, if applicable, [********]) for up to [********] following such
termination at a transfer price equal to GSK’s cost of goods for the supply of
such Returned Licensed Product (or intermediate thereof) plus [********] percent
([********]), or, alternatively, in the event that GSK has contracted with a
Third Party manufacturer for its pre-launch or

EXECUTION VERSION    -74-   

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commercial supply, promptly after Targacept’s request, assign such supply
agreement or reasonably facilitate a new supply agreement between Targacept and
such Third Party manufacturer; (vii) promptly after Targacept’s request, provide
to Targacept or its designee all pertinent information in its possession with
respect to the manufacture of each such Returned Licensed Product (or
intermediate thereof) as of the effective date of such termination; and
(viii) promptly after Targacept’s request, assign to Targacept all agreements
between GSK and any Third Party with respect to the conduct of Clinical Studies
for such Returned Licensed Product with respect to [********] or, if applicable,
[********], including agreements or contracts with contract research
organizations, clinical sites and investigators, unless expressly prohibited by
any such agreement (in which case GSK shall cooperate with Targacept in all
reasonable respects to secure the consent of such Third Party to such
assignment). Notwithstanding anything to the contrary in this Agreement, the
terms and conditions of Section 7.1 shall not apply to any Returned Licensed
Product.

ARTICLE 6

MILESTONES AND ROYALTIES; PAYMENTS

6.1 Upfront Payment to Targacept. GSK shall pay a one-time-only non-refundable,
non-creditable fee of Twenty Million Dollars ($20,000,000) no later than ten
(10) days after receipt by GSK of an invoice from Targacept on or after the
Effective Date (the “Upfront Payment”). The Upfront Payment is in partial
consideration for the rights granted to GSK arising with respect to the Research
Programs and, if applicable, Early Development Programs during the Initial Term.

6.2 Purchase of Targacept Stock. GSK shall purchase from Targacept the number of
shares of the common stock, par value $0.001 per share, of Targacept determined
as provided in the Stock Purchase Agreement, such purchase to be on the terms
and conditions set forth in the Stock Purchase Agreement. Any premium paid by
GSK with respect to such shares of Targacept common stock shall be in partial
consideration for the rights granted to GSK arising with respect to the Research
Programs and, if applicable, Early Development Programs during the Initial Term.

 

EXECUTION VERSION    -75-   

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6.3 Program Option Exercise Fees.

6.3.1 For the Pain 1 Program. Upon the exercise of the Program Option by GSK for
the Pain 1 Program, GSK shall pay to Targacept a non-creditable, non-refundable
option exercise fee (the “Pain 1 Program Option Exercise Fee”) of (i) [********]
Dollars ($[********]), if paid following completion of the PoC Trial for
TC-2696, or otherwise (ii) [********] Dollars ($[********]) within [********] of
receipt by GSK of an invoice from Targacept after written notice by GSK to
Targacept of exercise of the relevant Program Option.

6.3.2 For Other Programs. Upon the exercise of a Program Option by GSK for any
Program other than the Pain 1 Program in accordance with Article 4, GSK shall
pay to Targacept a non-creditable, non-refundable option exercise fee (the
“General Program Option Exercise Fee” and, together with the Pain 1 Program
Option Exercise Fee, a “Program Option Exercise Fee“) of [********] Dollars
($[********]) within [********] of receipt by GSK of an invoice from Targacept
after written notice by GSK to Targacept of exercise of the relevant Program
Option,.

6.3.3 Credit Against Program Option Exercise Fee in One Specific Circumstance.
In the event that the four (4) Programs other than the Pain 1 Program and Pain 2
Program (for the purposes of this Section, the “Other Four Programs”) all result
at the end of the Research Term only in Leads which [********] (the “Credit
Outcome”), then GSK shall automatically have and shall be entitled to apply a
credit in the amount of [********] only against the next Program Option Exercise
Fee that becomes payable with respect to the Other Four Programs. GSK’s right to
this credit shall expire at such time as any of the Other Four Programs
generates a Lead (the “Subject Lead”) which does not [********] as another Lead
that is both (i) generated in any other of the Other Four Programs and (ii) not
a Related Compound to such Subject Lead. For clarity, (i) the credit described
in this Section 6.3.3, if any, shall be the only reduction in the amounts
otherwise due Targacept hereunder as a result of the Credit Outcome and (ii) the
Credit Outcome does not constitute a breach of this Agreement by Targacept.

6.4 Milestone Payments for Achievement of Milestone Events. GSK shall pay to
Targacept each of the milestone payments as set forth in Section 6.5 upon
achievement by Targacept (or any Affiliate or licensee thereof) or GSK (or any
Affiliate or Sublicensee thereof), as applicable, of the corresponding Milestone
Event and within [********] (i) of receipt by GSK of an invoice from Targacept
therefor, in the case of Targacept or any Affiliate or licensee thereof
achieving the Milestone Event, or (ii) after the achievement of the Milestone
Event by GSK or any Affiliate or Sublicensee thereof. Each such milestone
payment shall be non-creditable and non-refundable. Each Party shall notify the
other Party promptly upon the achievement of any Milestone Event.

 

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6.4.1 On Milestone Payments- In General. No milestone payments are owed for any
Milestone Event that is not achieved, and each milestone payment shall be
payable [********] for each Collaboration Compound or Licensed Product to
achieve the corresponding Milestone Event (except for milestones achieved for
such Collaboration Compound or Licensed Product [********] as provided in
Section 6.5). In the case where one Progressed Compound, Product Candidate or
Licensed Product is substituted for (but not added to) another Progressed
Compound, Product Candidate or Licensed Product for Development or
commercialization for the same Indication, then the milestones with respect to
the substitute Progressed Compound, Product Candidate or Licensed Product are
[********] payable for Milestone Events [********] achieved by such substitute
Progressed Compound, Product Candidate or Licensed Product [********] achieved
(and the applicable milestone payment made) with respect to the [********]
Progressed Compound, Product Candidate or Licensed Product, except where
expressly provided otherwise in this Agreement (including, without limitation,
clause (x) of Section 3.2.3). By way of illustration and without limitation, if
(i) a Product Candidate in an Indication has achieved [********] but [********]
and (ii) another Product Candidate for the same Indication achieves [********],
the milestone payment [********] payable as a result of the [********] of such
other Product Candidate will be deemed to [********]. In addition, no milestone
payment is owed on the basis of the achievement of any Milestone Event with
respect to any [********] for the same Collaboration Compound or same Licensed
Product if such Milestone Event has already been achieved (and the applicable
milestone payment made) with respect to such Collaboration Compound or Licensed
Product; provided however, that multiple milestone payments shall be due with
respect to the same Milestone Event if achieved with respect to [********] with
respect to the same Collaboration Compound or Licensed Product if such Milestone
Event is achieved with respect to a [********], to the extent such [********] is
compensable pursuant to Section 6.5.

6.4.2 Determination whether to Pay One-Time [********] Fee. GSK shall notify
Targacept in writing of its determination whether to pay the One-Time [********]
Fee within [********] following the date on which all data and results from the
Ongoing Trial reasonably expected to be pertinent to such determination are
first provided or made available to GSK.

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6.5 Milestone Payments and Royalties: (amounts are in millions of Dollars)

 

Milestone Events

(Pre-PoC and Post PoC)

 

Programs

Pre-PoC Milestone Events for the
Leading Compound or, for Pain 1,
for both TC-2696 and TC-6499

 

Pain 1 Program,

TC-2696

 

Pain 1 Program,

TC-6499

 

Each of the Five

Other Programs

Achievement of [********]

      [********]

Achievement of [********]

      [********]

Initiation of [********]

    [********]   [********]

[********]

    [********]   [********]

Determination to Pay One-Time [********] Fee*

  [********]    

Pre-PoC Milestone Events for
Backup Compounds/Follow-On
Compound[********]

 

Pain 1 Program,

TC-2696

 

Pain 1 Program,

TC-6499

 

Each of the Five

Other Programs

Achievement of [********]

      [********]

Achievement of [********]

      [********]

Initiation of [********]

      [********]

[********]

      [********]

Program Option Exercise
Fee[********]

 

Pain 1 Program

 

Each of the Five

Other Programs

  [********], [********]   [********]

EXECUTION VERSION    -78-   

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Post-PoC Milestone Events for the Leading
Compound[********]

 

Pain 1 Program[********]

 

Each of the Five Other Programs

Initiation of [********]

  [********]   [********]

[********] for [********] of [********]

  [********]   [********]

[********] of [********] in [********]

  [********]   [********]

[********] of [********] in [********]

  [********]   [********]

[********] of [********] in [********]

  [********]   [********]

[********] of [********] in [********]

  [********]   [********]

[********] of [********] in [********]

  [********]   [********]

Post-PoC Milestone Events for TC-6499 and
Follow-On Compounds[********]

 

TC-6499

 

Each of the Five Other Programs

Initiation of [********], whichever occurs [********]   [********]   [********]
[********] for [********] of [********]   [********]   [********] [********] of
[********] in [********]   [********]   [********] [********] of [********] in
[********]   [********]   [********] [********] of [********] in [********]  
[********]   [********] [********] of [********] in [********]   [********]  
[********] [********] of [********] in [********]   [********]   [********]

EXECUTION VERSION    -79-   

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Sales Milestones (annual worldwide
Net Sales by Program)

 

Pain 1 Program, Leading

Compound[********]

 

Pain 1 Program,

TC-6499[********]

 

Each of the Five

Other Programs

³[********] and <[********]

  [********]   [********]   [********]

³[********] and <[********]

  [********]   [********]   [********]

³[********] and <[********]

  [********]   [********]   [********]

³[********]

  [********]   [********]   [********]

Royalties on annual worldwide Net
Sales of Licensed Products

 

Pain 1 Program, Leading

Compound[********]

 

Pain 1 Program,

TC- 6499[********]

 

Each of the Five

Other Programs

<[********]

  [********]   [********]   [********]

[********] - [********]

  [********]   [********]   [********]

>[********]

  [********]   [********]   [********]

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* If GSK (a) does not pay the One-Time [********] Fee as provided in
Section 6.4.2 or (b) GSK pays the One-Time [********] Fee as provided in
Section 6.4.2 (x) but TC-2696 does not satisfy the PoC Criteria following
completion of the PoC Trial or (y) TC-2696 satisfies the PoC Criteria following
completion of the PoC Trial but GSK does not exercise its Program Option prior
to the end of the applicable Option Period, then (i) TC-2696 shall no longer be
subject to any Program Option, (ii) TC-2696 shall, notwithstanding any provision
of this Agreement to the contrary, be expressly excluded from all restrictions
or exclusivity obligations hereunder (including, without limitation, Indication
Exclusivity, MoA Exclusivity and Compound Exclusivity), (iii) TC-2696 shall,
solely for purposes of [********] be treated as a [********] and (iv) for
clarity, TC-6499 shall be the Leading Compound in the Pain 1 Program).

 

** For each Program other than the Pain 2 Program, each of these [********]
Milestone Events is payable, [********] one (1) or two (2) Backup Compounds only
or one (1) Follow-On Compound [********] one (1) Backup Compound and one
(1) Follow-On Compound, [********]. For the Pain 2 Program, each of these
[********] Milestone Events is payable, [********] one (1) or two (2) Backup
Compounds [********] one (1) Backup Compound and up to [********] Follow-On
Compounds [********] if applicable).

EXECUTION VERSION    -80-   

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+ Payable with respect to TC-6499 only if it is not the Leading Compound in the
Pain 1 Program (it being the case that, if TC-6499 is the Leading Compound in
the Pain 1 Program, the amounts/rates applicable to the Leading Compound in the
Pain 1 Program would apply to TC-6499) and payable with respect to any Follow-On
Compound only if it is not the Leading Compound in its Program (it being the
case that, if a Follow-On Compound becomes the Leading Compound in a Program,
the amounts/rates applicable to the Leading Compound in such Program would
instead apply).

 

^ For each Product Candidate or Licensed Product, fully payable with respect the
[********]; payable [********] with respect to a [********]; and payable at a
[********] with respect to a [********], whether Targacept or GSK (or either of
their Affiliates, licensees or Sublicensees) achieves the Milestone Event;
provided that Targacept shall [********] that is an Indication [********]
Program defined in part by that same Indication with respect to which such
Milestone Event has been achieved.

 

^^ Paid [********] each Program, [********] Progressed Compounds in such
Program, and [********] pursued with such Progressed Compounds by Targacept or
GSK.

 

^^^ Each of these Milestone Events would also be payable with respect to
[********] that is progressed [********] a Leading Compound (it being understood
that [********] a Leading [********] the Leading Compound and is eligible for
milestones subject to Section 6.4.1).

6.6 Royalty Payments to Targacept. Subject to the provisions of Section 6.6.1,
GSK shall pay to Targacept the royalties on annual worldwide Net Sales of each
Licensed Product based on the royalty rates set forth in Section 6.5.

6.6.1 Application of Royalty Rates. All royalties payable under this Article 6
shall be subject to the provisions of this Section 6.6.1 and shall only be
payable as follows and on a Licensed Product-by-Licensed Product and
country-by-country basis (subject to Section 6.6.1(g)). With respect to each
Licensed Product:

(a) If at the time of the First Commercial Sale in a particular country, there
is an issued Patent owned or Controlled by Targacept [********] with a Valid
Claim covering [********] (where, in the case of [********], any [********] for
which such Licensed Product is [********] as approved by [********] covered by
such Valid Claim) of such Licensed Product in such country,

EXECUTION VERSION    -81-   

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then a royalty with respect to Net Sales in such country shall be payable by GSK
at the full rates set forth in Section 6.5, as applicable, and shall be payable
until the later of (i) the expiration of the last-to-expire Valid Claim as
described above or (ii) fifteen (15) years after such First Commercial Sale, but
such rates shall be reduced by [********] percent ([********]%) during the
period, if any, after expiration of the last-to-expire Valid Claim as described
above but before the end of such fifteen (15)-year period.

(b) In the absence of a Valid Claim as described in Section 6.6.1(a) at the time
of the First Commercial Sale in a particular country, but where at the time of
the First Commercial Sale Targacept owns or Controls (solely or jointly with
GSK) a pending Patent in such country with a claim covering [********] (where,
in the case of [********], any [********] for which such Licensed Product is
[********], as approved by [********] covered by a claim of the pending Patent),
then a royalty with respect to Net Sales in such country shall be payable by GSK
at rate(s) which are [********] reduced from the rate(s) set forth in
Section 6.5 that would otherwise be applicable and shall be payable for a period
of [********] years after the date of such First Commercial Sale in such
country; provided, however, that any such pending Patent shall no longer qualify
under this paragraph if (i) it is finally rejected by the U.S. or other
applicable foreign patent office, in an order or decision from which no appeal
can be taken or from which no appeal was timely taken, during such [********]
year period, (ii) it is [********] (unless such Patent [********] attributable
in whole or in part to [********]) or (iii) it has not been prosecuted in good
faith by Targacept (unless GSK has assumed responsibility for Prosecution and
Maintenance thereof, if and to the extent permitted under Article 8). The
payments representing the remaining [********] that would otherwise have been
payable shall be deposited into a Third Party escrow account to be maintained by
GSK on behalf of Targacept (with interest from such account being reinvested
into such account). Upon the issuance of a Patent with a Valid Claim of the type
described in Section 6.6.1(a) prior to expiration of [********] years after the
date of such First Commercial Sale of such Licensed Product in such country, the
remaining [********] (and accrued interest) shall be promptly paid to Targacept.
Thereafter, the full royalty rates set forth in Section 6.6.1(a) shall apply for
the remainder of the period for payment applicable under Section 6.6.1(a) as if
the previously pending Patent had issued at the time of the First Commercial
Sale in such country. In the event a Valid Claim of the type described in
Section 6.6.1(a) does not issue within such [********]-year period, GSK shall
retain all such amounts paid into escrow. Notwithstanding the foregoing, in the
event that, and for so long as Generic Incursion exists with respect to such
Licensed Product in such country, there shall be a [********] reduction on the
escrowed portion and a [********] discount on the non-escrowed portion such
that, together, the escrowed portion and the non-escrowed portion represent a
[********] reduction from the rate(s) set forth in Section 6.5 that would
otherwise be applicable.

EXECUTION VERSION    -82-   

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(c) In the absence of a Valid Claim as described in Section 6.6.1(a) or a
pending Patent as described in Section 6.6.1(b) at the time of the First
Commercial Sale in a particular country, but where a Valid Claim of an issued
Patent [********] owned or Controlled by Targacept [********] in such country
[********] with a claim [********] such Licensed Product but [********] (but not
[********]), then a royalty with respect to Net Sales in such country shall be
payable by GSK at rate(s) which are [********] reduced from the rate(s) set
forth in Section 6.5 that would otherwise be applicable and shall be payable for
[********] after the date of such First Commercial Sale; provided, however, the
obligation to pay any royalty under this Section 6.6.1(c) shall cease
immediately and entirely if Generic Incursion exists with respect to such
Licensed Product in such country.

(d) If and for so long as none of Section 6.6.1(a), (b) or (c) applies, but
where at the time of the First Commercial Sale in a particular country a Valid
Claim of an issued Patent exists which is owned or Controlled by Targacept
(solely or jointly with GSK) covering the [********] of such Licensed Product in
such country, then a royalty with respect to Net Sales in such country shall be
payable by GSK at rate(s) which are [********] reduced from the rate(s) set
forth in Section 6.5 that would otherwise be applicable and shall be payable
until the later of expiration of the last-to-expire Valid Claim or [********]
years after such First Commercial Sale, but such reduced rate(s) shall be
further reduced by an additional [********] during the period, if any, after
expiration of the last-to-expire Valid Claim as described above but before the
end of such [********]-year period.

(e) No royalty is payable under Section 6.6 in the event that none of periods
for payment in Sections 6.6.1(a), (b), (c) or (d) apply at the time of sale and
in the country of sale for a given Licensed Product.

(f) Meaning of Generic Incursion. In the event that, with respect to any
particular Licensed Product in any particular country, a Generic Product is sold
in such country, then at the end of the first [********] period during which one
or more Third Parties sell a number of units of such Generic Product in such
country that is [********] percent ([********]%) or more of the aggregate number
of units of such Licensed Product sold in such country during such period, based
upon mutually acceptable Third Party objective data sources, “Generic Incursion”
exists.

EXECUTION VERSION    -83-   

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(g) Reconciling Reduced Royalty Rate in any Country with Royalty Tiers on Annual
Worldwide Net Sales. In determining the royalty rate(s) payable to Targacept by
GSK with respect to Net Sales of a Licensed Product in any country with respect
to which a reduction in the otherwise applicable royalty rate(s) applies
pursuant to Sections 6.6.1(a), (b), (c) or (d), the distribution of Net Sales of
such Licensed Product in such country across each of the applicable royalty
tiers set forth in Section 6.5 shall be deemed to be in the same proportion as
the distribution of Net Sales of such Licensed Product in all countries across
each of the applicable royalty tiers set forth in Section 6.5.

(h) The term “annual,” as used in this Article 6, shall mean a calendar year
running from January 1 (or, with respect to the year in which a Product is first
launched, the date of the first Commercial Sale of such Product in the first
country in which a First Commercial Sale occurs) through December 31.

(i) In the event there is any disagreement between the Parties under this
Section as to whether any Valid Claim or claim of a pending Patent “covers” any
composition of matter, method of use, method of manufacture, etc., the Parties
shall attempt to resolve such dispute first in the Joint Patent Committee and
then via a mutually-acceptable Third Party expert using the same process as
provided in Section 8.1.3 with respect to inventorship disputes.

(j) Acknowledgement. The Parties recognize and acknowledge that each of the
following, separately and together, has substantial economic benefit to GSK:
(i) Targacept’s expertise concerning the discovery and optimization of compounds
that may become Hits, Leads, Development Candidates, Progressed Compounds and
Option Compounds; (ii) the rights granted to GSK arising with respect to the
Research Programs and any Early Development Programs; (iii) the disclosure to
GSK of results obtained in the Research Programs and any Early Development
Programs by Targacept; (iv) the licenses granted to GSK hereunder, with respect
to Targacept Technology that are not within the claims of any Targacept Patents
or Collaboration Patents owned by Targacept, effective upon exercise by GSK of a
Program Option; (v) the licenses granted to GSK under Targacept Patents or
Collaboration Patents owned by Targacept, effective upon exercise by GSK of a
Program Option; (vi) the restrictions on Targacept pursuant to Section 7.1; and
(vii) the exclusivity afforded to GSK by each of the foregoing. The Parties
agree that the royalty rates set forth in Section 6.5 and 6.6.1 reflect an
efficient and reasonable blended allocation of the values provided by Targacept
to GSK.

EXECUTION VERSION    -84-   

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6.7 Refused Candidate Royalties; Returned Licensed Products and GSK Reverse
Royalty.

6.7.1 Refused Candidate Royalties. In the event that Targacept or its Affiliates
or Sublicensees commercializes any Refused Candidate Product, it shall pay to
GSK a royalty of [********] percent ([********]%) on annual, worldwide Net Sales
of such Refused Candidate Product (“Refused Candidate Royalties”); provided,
however, that in no event shall the [********] Refused Candidate Royalties with
respect to any Refused Candidate Product [********] Targacept hereunder with
respect to [********] by the corresponding Refused Candidate [********] only if
such Refused Candidate’s Program is [********] after the last day of the
applicable Option Period, or, if earlier, the date on which GSK notified
Targacept that it would not exercise the applicable Program Option, pursuant to
the terms hereof, [********] with respect to [********] by all other
Collaboration Compounds in such Program.

6.7.2 GSK Reverse Royalty on Returned Licensed Products. In the event that
Targacept or its Affiliates or Sublicensees commercializes any Returned Licensed
Product, it shall pay to GSK the following (as applicable, the “GSK Reverse
Royalty”):

(i) [********] percent ([********]%) of annual worldwide Net Sales of such
Returned Licensed Product during [********] post first commercial launch in any
country in the Territory; and

(ii) [********] percent ([********]%) of annual worldwide Net Sales of such
Returned Licensed Product during [********] post first commercial launch in any
country in the Territory; and

(iii) [********] percent ([********]%) on annual worldwide Net Sales of such
Returned Licensed Product during [********] post first commercial launch in any
country in the Territory.

References in this Section 6.7.2 any year “post first commercial launch” mean a
period of 365 consecutive days (or 366 consecutive days in a leap year)
beginning on the day of the First Commercial Sale in the first country in which
a First Commercial Sale occurs.

6.8 Third Party Intellectual Property.

(a) Targacept shall be solely financially responsible for satisfying in full all
costs, fees and payments of all types and kinds,

EXECUTION VERSION    -85-   

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including, without limitation, upfront payments, annual payments, milestone
payments and royalty payments (collectively, “Third Party Intellectual Property
License Fees”) that are or may be owed under one or more licenses from a Third
Party for intellectual property (“Third Party Intellectual Property Licenses”)
if such licenses (i) are Controlled by Targacept and existing as of the
Effective Date, regardless of the type of intellectual property involved, or
(ii) are unanimously identified by the Joint Patent Committee prior to the
exercise by GSK of its Program Option for a given Program as being licenses that
are necessary for the successful Development or commercialization of Licensed
Products under such Program.

(b) GSK shall not have any obligation whatsoever with respect to any Third Party
Intellectual Property License Fees specifically relating to any Third Party
Intellectual Property Licenses obtained with respect to sales of Refused
Candidate Products or Returned Licensed Products sold by Targacept, its
Affiliates or Sublicensees as permitted hereunder. It is contemplated that any
such payments would be made by Targacept directly to the relevant Third Party in
accordance with the provisions of the applicable Third Party Intellectual
Property Licenses.

(c) Except as described in Section 6.8(a) or (b) or in Section 6.9, to the
extent that after GSK exercises its Program Option for a given Program, either
GSK or the Joint Patent Committee identifies other patents, know-how, or other
intellectual property owned or Controlled by a Third Party and covering or
claiming any Product Candidate or Licensed Product in such Program or the
manufacture or use thereof in the Field, where one or more Third Party
Intellectual Property Licenses is reasonably considered by GSK necessary to
prevent GSK from infringing such Third Party’s Patents by the manufacture, use,
import or sale of the Product Candidate or Licensed Product in the Field, GSK
and Targacept shall (i) cooperate in good faith to negotiate a reasonable Third
Party Intellectual Property License with such Third Party and (ii) [********]
such Third Party Intellectual Property License Fees, provided however, that,
with respect to any Licensed Product, GSK shall pay all such Third Party
Intellectual Property License Fees but shall have the right to deduct [********]
percent ([********]%) [********] of such Third Party Intellectual Property
License Fees paid for any Calendar Quarter from the otherwise applicable
royalties payable to Targacept for such Calendar Quarter, except that in no
event shall the royalties otherwise payable to Targacept for any Calendar
Quarter be reduced by more than [********] percent ([********]%). GSK shall have
the right to carry forward and apply any such unused offset or deduction to
which GSK is entitled against royalties payable to Targacept for future Calendar
Quarters until the full amount of offset or deduction to which GSK is entitled
is fully satisfied.

EXECUTION VERSION    -86-   

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6.9 Third Party Licenses Needed for Use of Platform Technology in the Conduct of
the Research Program. Targacept shall have sole financial responsibility for
satisfying in full all Third Party Intellectual Property License Fees, and all
other obligations, liabilities or claims of any kind owed to any Third Party in
order to obtain and maintain any licenses or other rights necessary in order for
Targacept to screen its compound library in order to research, identify and
optimize Hits, Leads and other Collaboration Compounds and to progress the same
into Development Candidates, or to use its PENTADTM platform technology or any
other proprietary platform technology to be used by Targacept in order to
research, identify and optimize Hits, Leads and other Collaboration Compounds
into Development Candidates as contemplated for the conduct of the Research
Programs hereunder.

6.10 Payments.

6.10.1 Commencement of Royalty Payments. Beginning with the Calendar Quarter in
which the First Commercial Sale in the first country in which a First Commercial
Sale occurs for a Product and for each Calendar Quarter thereafter, royalty
payments shall be made by GSK to Targacept pursuant to Sections 6.5 and 6.6, or
by Targacept to GSK pursuant to Section 6.7.1 within [********] following the
end of each such Calendar Quarter. Each royalty payment shall be accompanied by
a report (the “Payment Report”), summarizing the total Net Sales on a
country-by-country basis of the Licensed Product during such calendar quarter in
Dollars and the calculation of royalties due thereon. In addition, the Payment
Report shall, with respect to Net Sales in the United States, Japan and the
Major Countries in the EU, include an itemization of the deductions applied to
determine such Net Sales. Notwithstanding the foregoing, in the event that no
royalties are payable in respect of a given Calendar Quarter, the Party making
the payments (the “Payor”) shall submit a royalty report so indicating.

6.10.2 Mode of Payment. All payments under this Agreement shall be payable, in
full, in Dollars, regardless of the country(ies) in which sales are made. For
the purposes of computing Net Sales of Products sold in a currency other than
Dollars, such currency shall be converted into Dollars as calculated at the
actual average rates of exchange for the pertinent quarter or year to date, as
the case may be, as used by GSK in producing its quarterly and annual accounts,
as confirmed by GSK’s auditor (or, in the case of Refused Candidate Products and
Returned Licensed Products, as used by Targacept in producing its quarterly and
annual accounts, as

EXECUTION VERSION    -87-   

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confirmed by Targacept’s auditor. All payments owed under this Agreement will be
made by wire transfer from either SB or GGL pursuant to wiring instructions
provided in writing from time to time by Targacept to SB, without deduction of
exchange, collection or other charges; provided that GGL shall execute the wire
transfer for the Upfront Payment and for the purchase of the shares of Targacept
common stock under Section 6.2.

All invoices provided to GSK should include Targacept’s bank details, the
contact name for issue resolution and be marked for the attention of GSK’s
Project Director), whose name has been provided to Targacept by Licensee.

6.10.3 Records Retention. Commencing with the First Commercial Sale of a
Licensed Product in the first country in which a First Commercial Sale occurs,
the Payor shall keep complete and accurate records for a period of [********]
calendar years after the year in which such sales occurred, such records to be
in sufficient detail to permit the Party receiving Royalties (the “Payee”) to
confirm the completeness and accuracy of the information presented in each
Payment Report.

6.11 Audits. During the Term and for a period of [********] years thereafter, at
the request and expense of the Payee, the Payor shall permit an independent,
certified public accountant of nationally recognized standing appointed by the
Payee, and reasonably acceptable to the Payor, at reasonable times and upon
reasonable notice, but in no case no more than once per calendar year, to
examine such records as may be necessary for the sole purpose of verifying the
calculation and reporting of Net Sales and the correctness of any royalty
payments made under this Agreement for any period within the preceding
[********] years. Results of any such examination shall be made available to
both Payor and Payee. The independent, certified public accountant shall
disclose to the Payee only the royalty amounts which it believes to be due and
payable hereunder to the Payee and shall disclose no other information revealed
in such audit. Any and all records examined by such independent, certified
public accountant shall be deemed the Payor’s Confidential Information which may
not be disclosed by said independent, certified public accountant to any Third
Party. If, as a result of any inspection of the books and records of the Payor,
it is shown that a Payee’s payments under this Agreement were less than the
amount which should have been paid, then the Payor shall make all payments
required to be made to eliminate the discrepancy within [********]. The Payee
shall pay for such audit, except that, in the event that the royalty payments
made by the Payor were less than [********] percent ([********]%) of the amounts
that should have been paid during the period in question, the Payor shall pay
the reasonable costs of the audit.

EXECUTION VERSION    -88-   

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6.12 Taxes.

6.12.1 Sales or Other Transfers. The recipient of any transfer under this
Agreement of Targacept Technology, GSK Technology, Information, Product
Candidates, Licensed Products or Returned Licensed Products, as the case may be,
shall be solely responsible for any sales, use, value added, excise or other
taxes applicable to such transfer.

6.12.2 Withholding.

(a) In the event that the Payor is required to withhold any tax in any country
regarding any payment to the Payee due to the laws of such country, the required
amount shall be deducted from the payment to be made by the Payor and paid to
the applicable taxing authority of such country before any penalty or interest
shall attach thereto or accrue thereon, and the Payor shall promptly notify the
Payee of such withholding. Also, in the event such taxing authority routinely
provides a tax receipt upon payment, the Payor will procure a tax receipt
evidencing payments of such taxes and forward it to the Payee promptly. Each of
Payor and Payee agrees to cooperate with the other in claiming exemptions and
rate reductions from such deductions or withholdings under any agreement or
treaty from time to time in effect. However, any such deduction or withholding
shall be an expense of and borne solely by the Payee.

(b) (i) Targacept hereby warrants that it is a resident for tax purposes in the
United States and that it is entitled to relief from United Kingdom income tax
under the terms of the Convention Between the Government of the United States of
America and the Government of the United Kingdom of Great Britain and Northern
Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion With Respect to Taxes on Income and on Capital Gains (the “Treaty”).
Targacept shall notify GSK immediately in writing in the event that Targacept
ceases to be entitled to such relief.

(ii) GGL hereby warrants that it is a resident for tax purposes in the United
Kingdom and that it is entitled to relief from United States income tax under
the terms of the Treaty. GSK shall notify Targacept immediately in writing in
the event that the GGL ceases to be entitled to such relief.

(c) (i) Pending receipt of formal certification from the UK Inland Revenue, GSK
may pay royalty income and any other payments under this Agreement to Targacept
by deducting tax, if required under applicable law, at a rate that does not
exceed the rate specified for such specific item of income in the Treaty.
Targacept agrees to indemnify and hold harmless GSK against any

EXECUTION VERSION    -89-   

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loss, damage, expense or liability arising from a any ultimate and final
determination by a UK taxing authority alleging that GSK was not entitled to
deduct withholding tax on such payments at source at a rate specified in the
Treaty.

(ii) Pending delivery by GSK of the appropriate U.S. form (currently a Form W-8)
to the U.S. Internal Revenue Service, Targacept may to GSK pay royalty income
and any other payments under this Agreement, if any, by deducting tax, if
required under applicable law, at a rate that does not exceed the rate specified
for such specific item of income in the Treaty. GSK agrees to indemnify and hold
harmless Targacept against any loss, damage, expense or liability arising from
any ultimate and final determination by a U.S. taxing authority alleging that
Targacept was not entitled to deduct withholding tax on such payments at source
at a rate specified in the Treaty.

(d) (i) If, as a result of an assignment by Targacept pursuant to Section 14.3,
any payments that are the financial responsibility of GSK to the assignee become
subject to U.S. withholding tax, then, as part of claiming a reduced rate of
withholding under any tax treaty to which the United States is a party, the
assignee shall sign the appropriate U.S. form prior to any payments being made
by GSK, in order for the assignee to secure any applicable reduced treaty rate
of withholding.

(ii) If, as a result of an assignment by GSK pursuant to Section 14.3, any
payments that are the financial responsibility of Targacept to the assignee
become subject to U.S. withholding tax, then, as part of claiming a reduced rate
of withholding under any tax treaty to which the United States is a party, the
assignee shall sign the appropriate U.S. form prior to any payments being made
by Targacept, in order for the assignee to secure any applicable reduced treaty
rate of withholding.

(e) (i) If, as a result of an assignment by Targacept pursuant to Section 14.3,
any payments made by the assignee to GSK that are subject to a withholding tax
greater than the amount that would have been withheld if an assignment had not
been made, then (i) the sum payable shall be increased as necessary so that
after the assignee makes all required deductions or withholdings, GSK receives
an amount equal to the sum it would have received had no assignment been made
(taking into account any tax credit available as a result of such excess
withholding amount) and (ii) the assignee will make such deductions or
withholdings and pay to the applicable taxing authority the full amount deducted
or withheld before penalties attach thereto or interest accrues thereon. In the
event such taxing authority routinely provides a tax receipt upon payment, the
assignee will procure tax receipts for any such

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withholding evidencing payment of such taxes, which will be forwarded to GSK.
The assignee shall assist GSK in claiming exemption from such deductions or
withholdings under any applicable double taxation or similar agreement or
treaty.

(ii) If, as a result of an assignment by GSK pursuant to Section 14.3, any
payments made by the assignee to Targacept that are subject to a withholding tax
greater than the amount that would have been withheld if an assignment had not
been made, then (i) the sum payable shall be increased as necessary so that
after the assignee makes all required deductions or withholdings, Targacept
receives an amount equal to the sum it would have received had no assignment
been made (taking into account any tax credit available as a result of such
excess withholding amount) and (ii) the assignee will make such deductions or
withholdings and pay to the applicable taxing authority the full amount deducted
or withheld before penalties attach thereto or interest accrues thereon. In the
event such taxing authority routinely provides a tax receipt upon payment, the
assignee will procure tax receipts for any such withholding evidencing payment
of such taxes, which will be forwarded to Targacept. The assignee shall assist
Targacept in claiming exemption from such deductions or withholdings under any
applicable double taxation or similar agreement or treaty.

ARTICLE 7

EXCLUSIVITY

7.1 Covenant of Exclusivity Upon Targacept. Subject to Sections 7.2(c) and (d):

(a) Indication Exclusivity. With respect to each of the Indications of Pain,
Parkinson’s Disease, Smoking Cessation, Obesity and Addiction, from the
Effective Date until the later to occur of (x) the end of the Initial Term or
(y) the date that there are no longer any research, Development or material
commercialization activities under this Agreement by either GSK or Targacept
with respect to any Collaboration Compounds in the Program that includes such
Indication (the “Indication Exclusivity Period”), Targacept shall work
exclusively with GSK (and shall not work independently or for or with any Third
Party or provide any license to or for the benefit of any Third Party, in each
case other than subcontractors) for the purpose of the identification, research,
optimization, development or commercialization for such Indication of any
compounds that derive [********] conducted by Targacept in such Indication in
any material respect relevant for drug development from [********] any NNR
Subtype. For clarity,

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neither this Section 7.1(a) nor any other provision hereof shall be deemed to
restrict or limit Targacept’s rights (i) to identify, research, optimize,
develop or commercialize any compound that derives [********] conducted by
Targacept in [********] (but excluding [********] as a [********]) in any
material respect relevant for drug development from [********] any NNR Subtype,
either independently or for or with any Third Party, or (ii) to provide any
license to or for the benefit of any Third Party for the purposes set forth in
clause (i). It is understood by the Parties that compounds that do not derive
[********] conducted by Targacept in an Indication in any material respect
relevant for drug development from [********] an NNR Subtype are not restricted
by this Agreement in any way.

(b) Protein Target Profile Exclusivity. For each Program, from the start of
Research Program activities for such Program until the earlier of (i) [********]
from Effective Date or (ii) the date that the first Lead is identified under
such Program (the “PTP Exclusivity Period”), Targacept will be under the
obligation to work exclusively with GSK (and not independently or with or for
any Third Party and not to grant any licenses to any Third Party, in each case
other than subcontractors) for the purpose of the identification, research,
optimization, development or commercialization of any compound with the same
Protein Target Profile (i.e., the [********] that the applicable combination of
NNR Subtypes, but irrespective of the manner or degree of [********]) of such
Program.

(c) MoA Exclusivity. For each Program (other than the Pain 1 Program, for which
there shall be no MoA Exclusivity Period), during the MoA Exclusivity Period,
Targacept shall work exclusively with GSK and shall not work independently or
for or with any Third Party or provide any license to or for the benefit of a
Third Party, in each case other than subcontractors, for the purpose of the
identification, optimization, research, development or commercialization of any
compound with the same or substantially the same Mechanism of Action at the
applicable Protein Target Profile as any Collaboration Compound (1) selected as
[********] by Targacept or (2) nominated by Targacept as and determined by the
JSC to be [********], as applicable. The parties understand that the applicable
MoA of a [********] (or [********]) may, by mutual written agreement of the
Parties only, reflect a PTP which differs from the PTP for such Program as of
the Effective Date. “MoA Exclusivity Period” means:

(1) with respect to any such [********] in a particular Program, the period from
the date of identification of such [********] until the earlier of
(A) expiration of the Early Development Program Term for such Program or, if
none, the Research Program for such Program or (B) when development of such
[********] is terminated; or

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(2) with respect to any such [********] in a particular Program, the period from
the date of its determination as such by the JSC following nomination by
Targacept until the earliest of: (A) the date on which it is determined whether
the [********] has [********]; (B) when development of such [********] is
terminated; or (C) if such [********] becomes a Product Candidate (i.e., upon
exercise of the applicable Program Option by GSK), [********] after such
[********] reaches(d) the Candidate Selection Stage, unless GSK (or, in the
conduct of Targacept Post-Exercise Activities, Targacept) is then conducting
Clinical Trials of such [********], in which case until such time as neither GSK
nor Targacept is conducting Clinical Trials of such [********]; provided that,
for clarity, a Collaboration Compound determined to be a [********] prior to
[********] that does not continue to qualify as a [********] upon [********]
shall, upon [********], cease to have an MoA Exclusivity Period.

For clarity, the Parties understand and agree that the obligation of exclusivity
upon Targacept during the MoA Exclusivity Period shall apply for any and all
potential indications and uses and shall not be limited to just the Indication
that corresponds to the particular Program of [********] in question.

(d) Compound Exclusivity. With respect to each Program, for so long during the
Term as any research, development or material commercialization activities
(including, without limitation, material promotional activities) are being
conducted for any Exclusivity Compound in such Program by Targacept in such
Program’s Research Program or Early Development Program or by GSK (i.e., by GSK
after the exercise of a Program Option) in the Product Candidate
Commercialization Program (the “Compound Exclusivity Period”), Targacept hereby
covenants that it shall not, either independently or for or with any Third Party
(other than subcontractors), research, develop or commercialize any Exclusivity
Compound or Related Exclusivity Compound or provide any license to any Third
Party (other than subcontractors) to any Targacept Technology specifically
pertaining to any Exclusivity Compound or Related Exclusivity Compound for the
purpose of the research, optimization, development or commercialization of any
Exclusivity Compound or Related Exclusivity Compound, in each case other than in
the conduct of a Research Program, Early Development Program or, with respect to
a Co-promotion Product following the exercise of Co-promotion Right as permitted
hereunder, Product Candidate Commercialization Program.

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“Exclusivity Compound” means, with respect to each Program: (i) prior to the
exercise by GSK of its Program Option for such Program, any (A) [********]
Collaboration Compound in such Program or (B) only until such time as the
[********] is selected by Targacept in a particular Program, [********] in such
Program; and (ii) after the exercise by GSK of its Program Option for such
Program, any Product Candidate in such Program or Licensed Product resulting
from such Program; provided that in no event shall a Refused Candidate, Refused
Candidate Product or Returned Licensed Product be an Exclusivity Compound.

“Related Exclusivity Compound” means, with respect to each Exclusivity Compound,
(i) all Related Compounds which represent any ester, salt, crystalline
polymorph, hydrate or solvate of such Exclusivity Compound or that have
substantially the same [********] as such Exclusivity Compound [********] such
Exclusivity Compound’s Program and (ii) after the exercise by GSK of its Program
Option for such Exclusivity Compound’s Program, all other Collaboration
Compounds in such Program (A) for which [********] as of the date of exercise by
GSK of such Program Option, or (B) that first met [********] prior to the date
of exercise by GSK of such Program Option and all Related Compounds with respect
to the Collaboration Compounds described in clause (ii) above which represent
any ester, salt, crystalline polymorph, hydrate or solvate thereof or that have
substantially the same [********] such Collaboration Compounds at the applicable
[********].

Notwithstanding the above, in the event (x) GSK terminates a given Program
earlier than the end of the Compound Exclusivity Period described above, other
than for an uncured material breach by Targacept, or (y) the Early Development
Program Term (or, if none, Research Program Term) for a given Program otherwise
expires without the exercise by GSK of its Program Option, the Compound
Exclusivity Period for all Exclusivity Compounds or Related Exclusivity
Compounds with respect to such Program shall thereupon terminate.

7.2 Covenant of Exclusivity Upon GSK.

(a) Limited Non-Compete. Subject to Section 7.2(b), GSK hereby covenants that,
for [********] after the Effective Date, GSK shall not initiate any research,
discovery, identification, synthesis, development or commercialization
activities with respect to, or designed to identify, any compound that meets the
same [********] as a Program for exploitation for the same Indication as such

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Program (a “New GSK NNR Program”); provided that this Section 7.2(a) shall not
apply to the initiation by GSK of a new program as the result of [********] as
provided in [********]. This covenant shall end after the expiration of such
[********], unless, on a Program-by-Program basis, Targacept has [********] for
the Indication of such Program. If Targacept [********] in a Program, then the
obligation upon GSK [********]. At the end of the additional [********] period,
if applicable, the exclusivity obligation upon GSK shall end.

(b) Exception. The Parties understand and agree that, solely in the event that
(i) [********] of a compound that is the subject of [********] activities active
as of [********] that meets the [********] as a Program, other than where an
objective of such [********] was to [********] that comprise the [********] as a
Program, [********] (ii) [********] to evaluate the potential of such compound
for [********] other than [********] that such compound [********]
Section 7.2(a) shall not apply to such compound.

(c) GSK Internal NNR Activities. Without limiting the restrictions in
Section 7.2(a), in the event that GSK initiates any research, synthesis,
development or commercialization activities with any compound that [********] in
any material respect relevant for drug development [********] for exploitation
for [********] with respect to such [********] shall terminate. It is understood
by the Parties that research, synthesis, development or commercialization
activities of GSK with any compound that does not [********] in any material
respect relevant for drug development [********] does not trigger application of
this Section 7.2(c).

(d) In-licensing NNR-modulators. GSK shall have the right at all times during
the Term to in-license any compound that derives [********] in any material
respect relevant for drug development from [********] any NNR Subtype or
combination of NNR Subtypes from a Third Party (or to collaborate with a Third
Party with respect to the same), even if the progression of any such compound by
GSK independently or with a Third Party would compete with a Program. In such
event and as applicable, if any such in-licensed NNR-modulating compound:

(1) is in development or commercialization for, or GSK thereafter conducts
research, synthesis, development or commercialization activities for, [********]
with respect to such [********] shall terminate;

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(2) has the [********] as any one or more Programs and is, at the time of such
in-license, [********] that is [********] in such Program(s), [********] with
respect to such Program(s), if not yet expired, shall terminate; and

(3) has [********] as any [********] in any Program subject to [********] and
is, at the time of such in-license, [********] that is [********] applicable to
such compound(s), if not yet expired, shall terminate.

It is understood by the Parties that any compound in-licensed by GSK that does
not [********] in any material respect relevant for drug development [********]
does not trigger application of this Section 7.2(d).

(e) If pursuant to Sections 7.2(c) or 7.2(d), any GSK internal NNR activities or
the in-license by GSK from a Third Party of any NNR-modulating compound would
have the effect of terminating [********] under this Article 7, then GSK’s
obligations to Targacept under Section 7.2(a) shall terminate immediately.

ARTICLE 8

OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS

8.1 Ownership.

8.1.1 Targacept Technology and GSK Technology. As between the Parties, Targacept
shall own and retain all of its rights, title and interest in and to the
Targacept Know-How and Targacept Patents and GSK shall own and retain all of its
rights, title and interest in and to the GSK Know-How and GSK Patents, subject
to any rights or licenses expressly granted by one Party to the other Party
under this Agreement.

8.1.2 Collaboration Technology. As between the Parties, GSK shall be the sole
owner of any Collaboration Technology discovered, developed, invented or created
solely by or on behalf of GSK or its Affiliates and shall retain all of its
rights, title and interest thereto, subject to (i) any rights or licenses
expressly granted by GSK to Targacept under this Agreement and
(ii) Section 10.4.1. As between the Parties, Targacept shall be the sole owner
of any Collaboration Technology discovered, developed, invented or created
solely by or on behalf of Targacept or its Affiliates and shall retain all of
its rights, title and interest thereto, subject to any rights or licenses
expressly granted to GSK under this Agreement. Any Collaboration Technology that
is discovered,

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developed, invented or created jointly by or on behalf of GSK or its Affiliates
and Targacept or its Affiliates shall be owned jointly by GSK and Targacept on
an equal and undivided basis, and all rights, title and interest thereto shall
be jointly owned by the Parties on an equal and undivided basis, subject to any
rights or licenses expressly granted by one Party to the other Party under this
Agreement. Except as expressly provided in this Agreement, neither Party shall
have any obligation to account to the other for profits with respect to, or to
obtain any consent of the other Party to license or exploit, jointly-owned
Collaboration Technology, by reason of joint ownership thereof, and each Party
hereby waives any right it may have under the laws of any jurisdiction to
require any such consent or accounting. Each Party shall promptly disclose to
the other Party in writing, and shall cause its Affiliates to so disclose, the
discovery, development, invention or creation of any jointly-owned Collaboration
Technology.

8.1.3 Inventorship. In case of a dispute in the Joint Patent Committee (or
otherwise between Targacept and GSK) over inventorship and, as a result, whether
(i) any particular Collaboration Technology is solely owned by one Party or the
other or jointly owned by both Parties or (ii) whether any particular
Information is Targacept Know-How, GSK Know-How or Collaboration Know-How, such
dispute shall be resolved by patent counsel reasonably acceptable to the
Parties; provided that, with respect to any proposed patent counsel, each Party
shall disclose to the other Party any relationship that such Party has or, to
its knowledge in good faith, has had with such proposed patent counsel. Expenses
of such patent counsel shall be shared equally by the Parties.

8.2 Prosecution and Maintenance of Patents.

8.2.1 Patent Filings. The Party responsible for Prosecution and Maintenance of
any Collaboration Patents as set forth in Sections 8.2.2 and 8.2.3 shall use
commercially reasonable efforts to obtain patent protection for Progressed
Compounds and Licensed Products, if and as applicable, using counsel of its own
choice but reasonably acceptable to the other Party (provided that GSK
acknowledges and agrees that it has been advised of Targacept’s patent counsel
as of the Effective Date and that such patent counsel is reasonably acceptable
to GSK), in the Major Countries and such other countries as the responsible
Party shall see fit.

8.2.2 Joint Collaboration Patents. The responsibility and strategy for
Prosecution and Maintenance of Collaboration Patents claiming any jointly-owned
Collaboration Know-How (“Joint Collaboration Patents”) shall be mutually agreed
by GSK and Targacept through the Joint Patent Committee. The Parties shall
cooperate through the Joint Patent Committee to prepare and prosecute patent
applications for Joint Collaboration Patents in a manner so as to obtain patent
protection for the applicable subject matter, subject to Section 8.2.4.

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8.2.3 Solely Owned Collaboration Patents. GSK or Targacept, as the case may be,
shall control the Prosecution and Maintenance of Collaboration Patents claiming
any Collaboration Know-How owned solely by such Party in accordance with
Section 8.1.2, in each case using counsel of its choice and in such countries as
such Party determines is appropriate, in accordance with and subject to
Section 8.2.4 if applicable.

8.2.4 Other Matters Pertaining to Prosecution and Maintenance of Patents.

(a) The Parties shall coordinate through the Joint Patent Committee the
Prosecution and Maintenance of (i) Joint Collaboration Patents or (ii) Patents
claiming solely owned Collaboration Know-How directed to composition of, or
method of making or using, a Progressed Compound that has at least reached the
Candidate Selection Stage or, after exercise by GSK of a Program Option, a
Product Candidate or Licensed Product (the Patents in clause (ii), “Compound
Patents”); provided that, in the event of any dispute in the Joint Patent
Committee regarding the Prosecution and Maintenance of Joint Collaboration
Patents or Compound Patents (other than Compound Patents that are also GSK
Patents), Targacept shall have the final say except (A) as to whether generally
to Prosecute and Maintain Joint Collaboration Patents or Compound Patents in a
particular country in which GSK agrees to bear all costs for Prosecution and
Maintenance and (B) that, subject to Section 8.2.5, GSK shall have the final say
after its exercise of a Program Option with respect to those claims in any such
Joint Collaboration Patent or Compound Patent that solely cover the composition
of matter of, or method of making or using, a Product Candidate in the Program
as to which GSK has exercised its Program Option. Each Party shall keep the
other Party informed as to material developments with respect to the Prosecution
and Maintenance of such Joint Collaboration Patents or Compound Patents for
which such Party has responsibility for Prosecution and Maintenance pursuant to
Sections 8.2.2, 8.2.3 or 8.2.4(c), including without limitation, by providing
copies of any office actions or office action response or other correspondence
that such Party provides to or receives from any patent office, including notice
of all interferences, reissues, re-examinations, oppositions or requests for
patent term extensions, and by providing the other Party the timely opportunity
to have reasonable input into the strategic aspects of such Prosecution and
Maintenance, subject to Section 8.2.5. Without limiting the foregoing, neither
Party shall file a new application for such a Joint Collaboration Patent or
Compound Patent

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unless it has first disclosed the same to the other Party. Targacept shall have
no further obligations under this Section 8.2.4(a) with respect to a given
Patent to the extent such Patent contains only claims covering one or more
Refused Candidates, Refused Candidate Products or Returned Licensed Products,
except, with respect to a Joint Collaboration Patent, as the Joint Patent
Committee may otherwise determine is necessary to enable either Party to satisfy
its legal obligations as a joint inventor.

(b) If, during the Term, the Party responsible for Prosecution and Maintenance
of a Joint Collaboration Patent or a Compound Patent (the “Prosecuting Party”)
intends to allow such Patent to lapse or become abandoned without having first
filed a continuation or substitution, the Prosecuting Party shall notify the
other Party of such intention at least [********] prior to the date upon which
such Patent shall lapse or become abandoned, and such other Party shall
thereupon have the right, but not the obligation, to assume responsibility for
the Prosecution and Maintenance thereof at its own expense with counsel of its
own choice.

(c) Following the exercise by GSK of its Program Option for a Program, if GSK,
in good faith, is no longer satisfied with the performance of external counsel
used by Targacept with respect to any Compound Patent that claims the
composition of, or method of making or using, a Product Candidate (or Licensed
Product) subject to the Program Option so exercised and does not also claim or
cover the composition of, or method of making or using, any compound that is not
a Related Exclusivity Compound with respect to such Product Candidate, GSK has
the right to assume responsibility for Prosecution and Maintenance of such
Compound Patent at GSK’s sole expense using an external law firm mutually and
reasonably acceptable to the Parties, subject to Section 8.2.5.

8.2.5 Existing Obligations for Multi-Purpose Patents; Sublicense Agreements. The
Parties acknowledge and agree that: (i) the Patents identified on Schedule 8.2.5
claim or cover subject matter that is subject to [********] while also claiming
or covering [********]; (ii) Targacept has licensed certain method of use
patents with respect to TC-2696 under the Sublicense Agreements; and (iii) to
the extent of any conflict between (A) the rights of GSK or responsibilities of
Targacept hereunder with respect to such Patents (to the extent [********]
becomes a Product Candidate), or any other Patent during the Term that claims or
covers subject matter that is subject to [********], and (B) Targacept’s
obligations existing as of the Effective Date under [********] or the provisions
of the Sublicense Agreements, [********] the applicable Sublicense Agreement, as
the case may be, shall take precedence and control.

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8.3 Patent Costs.

8.3.1 Collaboration Technology. Except as provided in Sections 8.3.3 or
8.2.4(a)(A), each Party shall be responsible for Patent Costs associated with
the Prosecution and Maintenance hereunder of any Collaboration Patents that it
owns solely. Targacept and GSK shall [********] the Patent Costs associated with
the Prosecution and Maintenance of Joint Collaboration Patents, unless the
Parties otherwise agree; provided that either Party may decline to pay its share
of costs for filing, prosecuting and maintaining any Joint Collaboration Patents
in a particular country or particular countries, in which case the declining
Party shall, and shall cause its Affiliates to, assign to the other Party (or,
if such assignment is not possible, grant a fully-paid exclusive license in) all
of their rights, titles and interests in and to such Joint Collaboration
Patents.

8.3.2 Targacept Patents and GSK Patents. Except as provided in Section 8.3.3 or
Section 8.2.4(a)(A), Targacept shall be responsible for [********] percent
([********]%) of the Patent Costs incurred by Targacept prior to and after the
Effective Date in all countries in the Territory with respect to which Patent
Costs are incurred with respect to any Targacept Patents. GSK shall be
responsible for [********] percent ([********]%) of the Patent Costs incurred by
GSK prior to and after the Effective Date in all countries in the Territory with
respect to GSK Patents.

8.3.3 Patent Costs Following GSK’s Exercise of Program Option. Notwithstanding
Sections 8.3.1 and 8.3.2, following GSK’s exercise of a Program Option, GSK
shall be responsible for one hundred percent (100%) of Patent Costs (but subject
to a reasonable reduction in the event that a Patent in question claims subject
matter that is licensed to a Third Party) going forward that are associated with
the Prosecution and Maintenance of all Targacept Patents and Collaboration
Patents that contain claims covering Product Candidates or Licensed Products
subject to the Program Option so exercised. In addition, the Parties, through
the Joint Patent Committee, will cooperate to determine if and when any
divisional applications shall be filed with respect to such Targacept Patents
and Collaboration Patents.

8.4 Defense of Claims Brought by Third Parties.

8.4.1 Collaboration Compounds. If a Third Party initiates an action, suit or
proceeding (in any case, a “Proceeding”) claiming that a patent or other right
owned by it is infringed by the manufacture, use, sale or importation of any
Collaboration Compound with respect to a Program as to which GSK has not
exercised its Program Option (except for a Refused Candidate or

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Refused Candidate Product, which shall be subject to Section 8.4.3), Targacept
shall have the first right, but not the obligation, to defend against such
Proceeding [********]. In the event Targacept elects to defend against such
Proceeding, Targacept shall have the sole right to direct the defense and to
elect whether to settle such claim. In the event that Targacept elects not to
defend against a particular Proceeding, then it shall so notify GSK in writing
within [********] after it first received written notice of the actual
initiation of such Proceeding and, during such [********] period, shall take
such reasonable measures as may be necessary to preserve GSK’s legal right to
defend against such Proceeding. In such event, GSK shall have the right, but not
the obligation, subject to Section 8.2.5, to defend against such Proceeding
[********] and thereafter shall have the right to direct the defense thereof,
including, without limitation the right to settle such claim (but only with the
consent of Targacept, not to be unreasonably withheld). In any event, the
Parties shall reasonably assist one another and cooperate in any such litigation
at the other’s request without expense to the requesting Party. Each Party may
at its own expense and with its own counsel join any defense directed by the
other Party. Each Party shall provide the other Party with prompt written notice
of the commencement of any such Proceeding, or of any allegation of infringement
of which such Party becomes aware, and shall promptly furnish the other Party
with a copy of each communication relating to the alleged infringement that is
received by such Party.

8.4.2 Licensed Products. If a Third Party initiates a Proceeding claiming that a
patent or other right owned by it is infringed by the manufacture, use, sale or
importation of any Product Candidate or Licensed Product (except for a Returned
Licensed Product which shall be subject to Section 8.4.3), GSK shall have the
first right, but not the obligation, to defend against any such Proceeding
[********]. In the event GSK elects to defend against such Proceeding, GSK shall
have the sole right to direct the defense and to elect whether to settle such
claim (but only with the consent of Targacept, not to be unreasonably withheld).
In the event that GSK elects not to defend against a particular proceeding, then
it shall so notify Targacept in writing within [********] after it first
received written notice of the actual initiation of such Proceeding and, during
such sixty-day period, shall take such reasonable measures as may be necessary
to preserve Targacept’s legal right to defend against such Proceeding. In such
event, Targacept shall have the right, but not the obligation, to defend against
such proceeding [********] and thereafter shall have the sole right to direct
the defense thereof, including, without limitation the right to settle such
claims. In any event, the Parties shall reasonably assist one another and
cooperate in any such litigation at the other’s request without expense to the
requesting Party. Each Party may at its own

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expense and with its own counsel join any defense directed by the other Party.
Each Party shall provide the other Party with prompt written notice of the
commencement of any such Proceeding, or of any allegation of infringement of
which such Party becomes aware, and shall promptly furnish the other Party with
a copy of each communication relating to the alleged infringement that is
received by such Party.

8.4.3 Refused Candidates, Refused Candidate Products and Returned Licensed
Products.

(a) If a Third Party initiates a Proceeding claiming that a patent or other
right owned by it is infringed by the manufacture, use, sale or importation of
any Refused Candidate, Refused Candidate Product or Returned Licensed Product,
Targacept shall have the sole and exclusive right, but not the obligation, to
defend against such Proceeding at its sole cost and expense. GSK shall provide
Targacept with prompt written notice of the commencement of any such Proceeding,
or of any allegation of infringement of which GSK becomes aware, and shall
promptly furnish Targacept with a copy of each communication relating to the
alleged infringement that is received by GSK.

(b) For any Competitive Infringement of a Targacept Patent or a Collaboration
Patent with respect to a Refused Candidate, Refused Candidate Product or
Returned Licensed Product, Targacept shall have the sole and exclusive right,
but not the obligation, to institute, prosecute, and control a Proceeding with
respect thereto (including, without limitation, with respect to any invalidity
or unenforceability defense or counterclaim in connection therewith), by counsel
of its own choice and shall be entitled to retain one hundred percent (100%) of
any recovery.

(c) For any Competitive Infringement of a GSK Patent with respect to a Refused
Candidate, Refused Candidate Product or Returned Licensed Product, GSK shall
have the first right, but not the obligation, subject to Section 8.2.5, to
institute, prosecute, and control a Proceeding with respect thereto (including,
without limitation, with respect to any invalidity or unenforceability defense
or counterclaim in connection therewith) by counsel of its own choice at its own
expense, and Targacept shall have the right to be represented in that action by
counsel of its own choice at its own expense. If GSK fails to initiate a
Proceeding within a period of [********] after receipt or delivery by it of
written notice of such Competitive Infringement pursuant to Section 8.5.1
(subject to a [********] extension to conclude negotiations, if GSK has
commenced good faith negotiations with an alleged infringer for elimination of
such Competitive Infringement pursuant to Section 8.5.1 within such [********]
period),

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Targacept shall have the right, but not the obligation, to initiate and control
a Proceeding by counsel of its own choice, and GSK shall have the right to be
represented in any such action by counsel of its own choice at its own expense.
Any damages or other monetary awards recovered shall be shared as follows:
(i) the amount of such recovery actually received by the Party controlling such
action shall first be applied to the Parties’ reasonable out-of-pocket costs
incurred in connection with such Proceeding (which amounts shall be allocated
pro rata if insufficient to cover the totality of such expenses); and then
(ii) any remaining proceeds shall be allocated between the Parties [********]
percent ([********]%) to Targacept and [********] percent ([********]%) to GSK.
Where GSK exercises the first prosecution right set forth in this
Section 8.4.3(c), it shall cooperate in good faith with Targacept or any Third
Party to which Targacept has licensed rights to such Refused Candidate, Refused
Candidate Product or Returned Licensed Product in all reasonable respects to
determine and pursue the most reasonable method of eliminating the Competitive
Infringement (and in responding to an invalidity or unenforceability defense or
counterclaim in connection therewith) in view of the parties’ respective
interests.

8.5 Enforcement of Patents.

8.5.1 Duty to Notify of Competitive Infringement. If either Party learns of an
infringement, unauthorized use, misappropriation or threatened infringement by a
Third Party with respect to any Collaboration Patent, Targacept Patent or,
solely for purposes of Section 8.4.3, GSK Patents, by reason of the manufacture,
use or sale of a product identical to or substantially similar to any
Collaboration Compound or Product within the Territory (“Competitive
Infringement”), such Party shall promptly notify the other Party and shall
provide such other Party with available evidence of such Competitive
Infringement.

8.5.2 Prior to Exercise of Program Option. For any Competitive Infringement with
respect to a Collaboration Compound that occurs prior to GSK’s exercise of its
Program Option for the applicable Program, if at all, Targacept shall have the
first right, but not the obligation, to institute, prosecute, and control a
Proceeding with respect to any such Competitive Infringement (including, without
limitation, with respect to any invalidity or unenforceability defense or
counterclaim in connection therewith), by counsel of its own choice, and GSK
shall have the right to be represented in that action by counsel of its own
choice at its own expense. If Targacept fails to initiate a Proceeding within a
period of [********] after receipt of written notice of such Competitive
Infringement (subject to a [********] extension to conclude negotiations, if
Targacept has commenced good faith negotiations with an alleged infringer for
elimination of such Competitive Infringement within such [********] period),
then GSK shall have the right, but not the

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obligation, subject to Section 8.2.5, to initiate and control a Proceeding by
counsel of its own choice, and Targacept shall have the right to be represented
in any such action by counsel of its own choice at its own expense. Where GSK
exercises the right set forth in this Section 8.5.2, it shall cooperate in good
faith with Targacept or any Third Party to which Targacept has licensed
Targacept Patents or Collaboration Patents outside of the Field in all
reasonable respects to determine and pursue the most reasonable method of
eliminating the Competitive Infringement (and in responding to an invalidity or
unenforceability defense or counterclaim in connection therewith) in view of the
parties’ respective interests.

8.5.3 Following Exercise of Program Option. For any Competitive Infringement
with respect to a Product Candidate or Licensed Product, GSK shall have the
first right, but not the obligation, subject to Section 8.2.5, to institute,
prosecute, and control a Proceeding with respect thereto (including, without
limitation, with respect to any invalidity or unenforceability defense or
counterclaim in connection therewith) by counsel of its own choice at its own
expense, and Targacept shall have the right, at its own expense, to be
represented in that action by counsel of its own choice. If GSK fails to
initiate a Proceeding within a period of [********] after receipt of written
notice of such Competitive Infringement (subject to a [********] extension to
conclude negotiations, if GSK has commenced good faith negotiations with an
alleged infringer for elimination of such Competitive Infringement within such
[********] period, Targacept shall have the right to initiate and control a
Proceeding by counsel of its own choice, and GSK shall have the right to be
represented in any such action by counsel of its own choice at its own expense.
Where GSK exercises the right set forth in this Section 8.5.3, it shall
cooperate in good faith with Targacept or any Third Party to which Targacept has
licensed Targacept Patents or Collaboration Patents outside of the Field in all
reasonable respects to determine and pursue the most reasonable method of
eliminating the Competitive Infringement (and in responding to an invalidity or
unenforceability defense or counterclaim in connection therewith) in view of the
parties’ respective interests.

8.5.4 Share of Recoveries. If one Party initiates a Proceeding in accordance
with this Section 8.5, the second Party agrees to be joined as a party plaintiff
where necessary and to give the first Party reasonable assistance and authority
to file and prosecute the Proceeding. The costs and expenses of the Party
initiating the Proceeding under this Section 8.5 shall be borne by such Party,
and any damages or other monetary awards recovered shall be shared as follows:
(i) the amount of such recovery actually received by the Party controlling such
action shall first be applied to the Parties’ reasonable out-of-pocket costs
incurred in connection with such

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Proceeding (which amounts shall be allocated pro rata if insufficient to cover
the totality of such expenses); and then (ii) any remaining proceeds shall be
allocated between the Parties (A) if the Competitive Infringement related solely
to Product Candidate(s) or Licensed Product(s), such that the Party initiating
the Proceeding (as a practical matter, disregarding where a Party is joined as a
plaintiff solely to ensure standing) under this Section 8.5 retains [********]
percent ([********]%) and the other Party retains [********] percent
([********]%) of such amount, or (B) if the Competitive Infringement related
solely to Collaboration Compounds that occurred prior to GSK’s exercise of its
Program Option for the applicable Program, retained one hundred percent
(100%) by Targacept. A settlement or consent judgment or other voluntary final
disposition of a suit under this Section 8.5 may be entered into without the
consent of the Party not bringing the suit; provided that such settlement,
consent judgment or other disposition does not admit the invalidity or
unenforceability of the relevant Patent, Targacept Technology or GSK Technology
and provided further, that any rights granted under the relevant Patent to
continue the infringing activity in such settlement, consent judgment or other
disposition shall be limited to those rights that the granting Party otherwise
has the right to grant.

8.5.5 Other Infringement. Subject to Sections 8.5.1 through 8.5.4 above, with
respect to the infringement of a jointly-owned Collaboration Patent which is not
a Competitive Infringement, each Party may proceed in such manner as the law
permits. Each Party shall bear its own expenses and any recovery obtained by
either Party may be retained by such Party unless otherwise agreed. In addition,
Targacept shall retain all rights to pursue an infringement of any Patent solely
owned by Targacept which is other than a Competitive Infringement, and GSK shall
retain all rights to pursue an infringement of any Patent solely owned by GSK
which is other than a Competitive Infringement.

8.5.6 35 USC 271(e)(2) Infringement. Notwithstanding anything to the contrary in
this Section 8.5, but subject to Section 8.2.5, for infringement under 35 USC
271(e)(2) where GSK has exercised its Program Option and is the holder of an NDA
for a Product that is the subject of such infringement, and for so long as GSK
maintains or retains its exclusive license granted upon exercise of such Program
Option, GSK has the sole right to initiate legal action to enforce all Targacept
Patents and Collaboration Patents licensed to it pursuant to Section 5.1.2
against infringement or misappropriation by Third Parties or defend any
declaratory judgment action relating thereto at its sole expense.

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8.5.7 Patent Listing. To the extent required or permitted by law, GSK will use
commercially reasonable efforts to promptly, accurately and completely list,
with the applicable Regulatory Authorities during the Term, all applicable
Patents for any Licensed Product that GSK intends to, or has begun to
commercialize, and that have become the subject of an NDA submitted to FDA, such
listings to include all so-called “Orange Book” listings required under the
Hatch-Waxman Act and all so called “Patent Register” listings as required in
Canada. Prior to such listings, the Parties will meet, through the Joint Patent
Committee, to evaluate and identify all applicable Patents. Notwithstanding the
preceding sentence, GSK will retain final decision making authority as to the
listing of all applicable Patents for such Product, regardless of which Party
owns such Patent, subject to Section 8.2.5.

8.5.8 CREATE Act. Notwithstanding anything to the contrary in this Section 8.5,
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 this Section 8.5 without the
prior written consent of the other Party, which shall not be unreasonably
withheld, conditioned or delayed. With respect to any such permitted election,
the Parties shall use reasonable 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.

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ARTICLE 9

CONFIDENTIALITY

9.1 Confidentiality; Exceptions. Except to the extent expressly authorized by
this Agreement or otherwise agreed in writing, the Parties agree that, during
the Term and for a period of [********] thereafter, the receiving Party (the
“Receiving Party”) shall keep confidential and shall not publish or otherwise
disclose or use for any purpose other than as provided for in this Agreement any
Information or other confidential and proprietary information and materials,
patentable or otherwise (including, without limitation, 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 the Disclosing Party and the pricing thereof (collectively,
“Confidential Information”), in any form (written, oral, photographic,
electronic, magnetic, or otherwise), which is disclosed or made available to it
by the other Party (the “Disclosing Party”) or otherwise received or accessed by
a Receiving Party in the course of performing its obligations or exercising its
rights under this Agreement, except to the extent that it can be established by
the Receiving Party that such Confidential Information:

(a) was in the lawful knowledge and possession of the Receiving Party prior to
the time it was disclosed or made available to, or learned 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 or other
documentary proof of actual use by the Receiving Party;

(b) was available to the public generally or otherwise part of the public domain
at the time of its disclosure to the Receiving Party;

(c) became available to the public generally or otherwise part of the public
domain after its disclosure and 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
to others.

9.2 Authorized Disclosure. Except as expressly provided otherwise in this
Agreement, a Receiving Party may use and disclose Confidential Information of
the Disclosing Party as follows: (i) to its employees, consultants, Affiliates,
subcontractors or other Third

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Parties, under written confidentiality obligations at least as restrictive as
those in this Agreement, in connection with the performance of its obligations
or exercise of rights granted or reserved pursuant to this Agreement (including,
without limitation, the rights to conduct the Research Programs, Early
Development Programs and Targacept Post-Exercise Activities, Develop Product
Candidates, Refused Candidates or Returned Licensed Products, commercialize
Products and to grant licenses and sublicenses hereunder); (ii) to the extent
such disclosure is reasonably necessary in filing or prosecuting patent,
copyright and trademark applications, prosecuting or defending litigation,
complying with applicable rules and regulations of regulatory authorities
(including, without limitation, stock exchange rule or listing requirements),
obtaining Regulatory Approvals, conducting preclinical activities or clinical
trials, marketing Products, or otherwise required by law; provided, however,
that if a Receiving Party is required by law or regulation to make any
disclosure of a Disclosing Party’s Confidential Information it will, except
where impracticable (by way of example only, in the event of medical emergency),
give reasonable advance notice to the Disclosing Party of such disclosure
requirement and an opportunity to comment on any such required disclosure, take
into account such comments in good faith and, except to the extent inappropriate
in the case of patent applications, cooperate in reasonable respects with the
Disclosing Party’s efforts to secure confidential treatment of such Confidential
Information required to be disclosed; (iii) in communication with actual or
potential investors, consultants, professional advisors, bankers, acquirors,
acquirees or merger partners on a need to know basis, in each case under
appropriate confidentiality provisions substantially equivalent to those of this
Agreement; or (iv) to the extent mutually agreed in writing by the Parties.
Without limiting the generality of the foregoing, each Party shall take such
action, and shall cause its Affiliates and Sublicensees to take such action, to
preserve the confidentiality of the other Party’s Confidential Information as
such Party would customarily take to preserve the confidentiality of its own
Confidential Information and shall, in any event, use at least reasonable care
to preserve the confidentiality the other Party’s Confidential Information.

9.3 Press Release; Disclosure of Agreement. On or promptly after the Effective
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. Neither Party shall be free
to issue any other press release or similar public announcement regarding the
Agreement (it being understood that publication in scientific journals,
presentation at scientific conferences and meetings and the like are intended to
be covered by Section 9.6 and

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not subject to this Section 9.3), except with the other Party’s consent, or as
permitted pursuant to Section 9.2; provided that, notwithstanding the foregoing,
Targacept shall not require the consent of GSK for any press release or similar
public announcement (but shall provide any such release to GSK for its review
and consider any comments timely received in good faith) (i) for the [********]
or [********] or (ii) [********]. The Parties agree to consult with each other
reasonably and in good faith with respect to the text and timing of any such
press releases prior to the issuance thereof, and a Party may not unreasonably
withhold, condition or delay consent to any such release. The principles to be
observed by Targacept and GSK in any such permitted public disclosures with
respect to this Agreement shall be: accuracy, the requirements of
confidentiality under this Article 9, and the normal business practice in the
pharmaceutical industry for disclosures by companies of comparable size to GSK
and Targacept, respectively. Notwithstanding the foregoing, to the extent
information regarding this Agreement has already 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 also be permitted to disclose the terms of this Agreement, in each case
under appropriate confidentiality provisions substantially equivalent to those
of this Agreement to any actual or potential investors, consultants, bankers,
acquirors, acquirees, merger partners, and professional advisors. Each Party
shall give the other Party a reasonable opportunity to review the first filing
with the United States Securities and Exchange Commission describing the terms
of this Agreement prior to submission of such filings and 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 without limitation the provisions of this
Agreement for which confidential treatment should be sought.

9.4 Termination of Prior Agreement. This Agreement supersedes the
Confidentiality Agreement executed by Targacept and GSK dated September 4, 2003
(including any and all amendments thereto). All information exchanged between
the Parties under that Agreement shall be deemed Confidential Information
hereunder and shall be subject to the terms of this Article 9.

9.5 Remedies. Each Party shall be entitled to seek, in addition to any other
right or remedy it may have at law or in equity, a temporary injunction, without
the posting of any bond or other security, enjoining or restraining the other
Party from any violation or threatened violation of this Article 9.

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9.6 Publications.

9.6.1 Publications by Targacept. Targacept may publish or present data or
results relating to any Research Program or Early Development Program (or any
compound evaluated therein) in scientific journals or conferences, subject to
the prior review and comment by GSK as follows. Targacept shall provide GSK with
the opportunity to review any such proposed abstract, manuscript or presentation
by delivering a copy thereof to GSK no less than [********] before its intended
submission for publication or presentation. GSK shall have [********] from its
receipt of any such abstract, manuscript or presentation in which to notify
Targacept in writing of any specific objections to the disclosure of
Confidential Information of either party. In the event GSK objects to the
disclosure in writing within such [********] period, (i) Targacept shall not
submit the publication or abstract or make the presentation containing the
objected-to information until the Parties have agreed to such content (except
that, if the Parties cannot agree promptly, Targacept shall have decision-making
authority [********] for the applicable Program and GSK shall have
decision-making authority [********] for the applicable Program), (ii) Targacept
shall delete from the proposed disclosure any GSK Confidential Information upon
the reasonable request of GSK and (iii) if GSK reasonably determines that the
such abstract, manuscript or presentation contains patentable subject matter,
Targacept shall delay such publication for up to an additional [********] to
enable the pursuit of appropriate patent protection. Once any such abstract or
manuscript is accepted for publication, Targacept will provide GSK with a copy
of the final version of the manuscript or abstract. The Parties acknowledge that
publications relating to TC-2696 or TC-6499 submitted for publication by
Targacept prior to the Effective Date shall not be subject to the above review
procedure. For clarity, this Section 9.6.1 shall not apply to any proposed
abstract, manuscript or presentation that relates to compounds that are not
Collaboration Compounds.

9.6.2 Publications by GSK. After exercise of a Program Option, GSK may publish
or present data or results relating to a Product Candidate or Licensed Product
in scientific journals or at scientific conferences, subject to the prior review
and comment by Targacept as follows (and further subject to Section 3.4.2). GSK
shall provide Targacept with the opportunity to review any such proposed
abstract, manuscript or presentation by delivering a copy thereof to Targacept
no less than [********] before its intended submission for publication or
presentation. Targacept shall have [********] from its receipt of any such
abstract, manuscript or presentation in which to notify GSK in writing of any
specific objections to the disclosure of Confidential Information of Targacept
(including Targacept Know-How or Collaboration Know-How owned solely by
Targacept). In the event Targacept objects to the disclosure in writing within
such [********] period, (i) GSK shall not submit the publication or abstract or
make the presentation

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containing the objected-to information until the Parties have agreed to the
content of the proposed disclosure, (ii) GSK shall delete from the proposed
disclosure any Targacept Confidential Information upon the reasonable request by
Targacept and (iii) if Targacept reasonably determines that such abstract,
manuscript or presentation contains patentable subject matter, GSK shall delay
such publication for up to an additional [********] to enable Targacept seek
appropriate patent protection. Once any such abstract or manuscript is accepted
for publication, GSK will provide Targacept with a copy of the final version of
the manuscript or abstract.

9.6.3 General. Notwithstanding Sections 9.6.1 and 9.6.2, 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 the other Party for review for a later submission for
publication. 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 customary standards. 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 9.6 to the extent that GSK or
Targacept (as the case may be) has the right to do so.

ARTICLE 10

REPRESENTATIONS AND WARRANTIES

10.1 Representations and Warranties of Both Parties. Each Party hereby
represents and warrants to the other Party, as of the Effective Date, that:

10.1.1 such Party is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof;

10.1.2 such Party has taken all necessary action on its part to authorize the
execution and delivery of this Agreement and the performance of its obligations
hereunder;

10.1.3 this Agreement has been duly executed and delivered on behalf of such
Party and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with the terms hereof (subject to the effects of
bankruptcy, insolvency or other laws of general application affecting the
enforcement of creditor rights, to judicial principles affecting the
availability of specific performance and to general principles of equity,
whether enforceability is considered a proceeding at law or equity);

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10.1.4 the execution, delivery and performance of this Agreement by such Party
does not conflict with any agreement, instrument or understanding, oral or
written, to which it is a party or by which it is bound or violate any law or
regulation of any court, governmental body or administrative or other agency
having jurisdiction over such Party;

10.1.5 no government authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, under any
applicable laws, rules or regulations currently in effect, is or will be
necessary for, or in connection with, the transaction contemplated by this
Agreement or the Stock Purchase Agreement, or for the performance by it of its
obligations under this Agreement or the Stock Purchase Agreement, except as may
be required under the Stock Purchase Agreement; and

10.1.6 it has not, to its knowledge and without any duty of inquiry, employed or
used a contractor or consultant that has employed any individual or entity
debarred by the FDA (or subject to a similar sanction of EMEA) or, to its
knowledge and without any duty of inquiry, any individual who or entity which is
the subject of an FDA debarment investigation or proceeding (or similar
proceeding of EMEA), in the conduct of the Preclinical Activities or Clinical
Studies of Collaboration Compounds as of the Effective Date.

10.2 Representations and Warranties of Targacept. Targacept hereby represents
and warrants to GSK, as of the Effective Date, that:

10.2.1 to its knowledge without having conducted any special inquiry and without
any further duty of inquiry, Targacept has, or shall have at the time of
exercise of a Program Option by GSK, the right to grant all rights and licenses
to the Targacept Technology that it purports to grant to GSK under this
Agreement effective upon exercise of such Program Option

10.2.2 to its knowledge without having conducted any special inquiry and without
any further duty of inquiry, Targacept does not require any licenses or other
intellectual property rights from any Third Parties in order to conduct
research, discovery, and Development activities in any Research Program or Early
Development Program;

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10.2.3 to its knowledge without having conducted any special inquiry and without
any further duty of inquiry, Targacept has no present knowledge (i) from which
it concludes that any of the Targacept Patents are invalid or unenforceable or
(ii) of any settled, pending or threatened (in writing) claim or lawsuit or
legal proceeding of a Third Party against Targacept alleging that its PentadTM
technology platform infringes or misappropriates in part or in whole the
intellectual property or intellectual property rights of such Third Party; and

10.2.4 to its knowledge without having conducted any special inquiry and without
any further duty of inquiry, there are no additional licenses (beyond those that
would be granted to GSK under Article 5 upon the exercise of a Program Option)
under any intellectual property that is owned or Controlled by Targacept or its
Affiliates as of the Effective Date that would be required in order for GSK to
further Develop and commercialize any Product Candidate or Licensed Product as
contemplated under this Agreement pursuant to the exercise by GSK of any of its
Program Options;

10.2.5 to its knowledge without having conducted any special inquiry and without
any further duty of inquiry, Targacept has disclosed to GSK all material data
and Information and all material correspondence to or from any Regulatory
Authority, regardless of whether such data, correspondence and Information would
have a positive or negative impact on the potential commercial, scientific or
strategic value or attractiveness of the Collaboration Compounds in existence
and actually made as of the Effective Date, that is in Targacept’s reasonable
business judgment material and relevant to a reasonable assessment of the
scientific, commercial, safety, and regulatory liabilities of such Collaboration
Compounds.

10.3 Targacept Covenants. Targacept hereby covenants to GSK that:

10.3.1 all employees, consultants and agents of Targacept or its Affiliates
working in any Research Program or Early Development Program shall be under the
obligation to assign all right, title and interest in and to their inventions
conceived and discoveries made within the scope of their employment, whether or
not patentable, if any, to Targacept as the sole owner thereof;

10.3.2 Targacept shall not to its knowledge, without any duty of inquiry, employ
or use any contractor or consultant that employs any individual or entity
debarred by the FDA (or subject to a similar sanction of EMEA), or, to its
knowledge and without any duty of inquiry, any individual who or entity which is
the subject of an FDA debarment investigation or proceeding (or similar
proceeding of EMEA), in the conduct of the Preclinical Activities or Clinical
Studies of Collaboration Compounds;

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10.3.3 Targacept shall: (i) perform its activities pursuant to this Agreement in
compliance in all material respects with good laboratory and clinical practices
and cGMP, in each case to the extent customary for any particular activity and
as applicable under the laws and regulations of the country and the state and
local government wherein such activities are conducted; (ii) with respect to the
care, handling and use in research and development activities hereunder of any
animals by or on behalf of Targacept, comply (and shall ensure compliance by any
of its subcontractors) in all material respects at all times with all applicable
federal, state and local laws, regulations and ordinances and with current best
practices for comparable-sized pharmaceutical companies for the proper care,
handling and use of animals in research and development activities, subject to
GSK’s reasonable right of inspection, and (iii) promptly and in good faith
undertake reasonable corrective steps and measures to remedy the situation to
the extent that any significant deficiencies are identified as the result of any
such inspection;

10.3.4 at all times during the Term, it shall not affirmatively take any
discretionary action (including, as non-limiting examples, by [********])
[********] to [********] or [********] (as defined thereunder), or any
definition or any other provision thereof, in a manner that would reduce, limit
or interfere with the scope of the Field hereunder or the license rights or the
scope of the licenses granted to GSK hereunder as the result of, and effective
only as of, any Program Option exercise;

10.3.5 it shall notify GSK via the JSC and obtain the consent of GSK via the
JSC, at the time of or prior to providing to GSK or nominating to the JSC, any
Hits or Leads that have the same [********] as any compounds licensed or subject
to future license under [********];

10.3.6 if requested by GSK in writing, Targacept will take reasonable, good
faith measures to help to facilitate a [********] between [********] in the
event that [********] desires to pursue the Development or commercialization of
any [********] hereunder for any secondary use that would be [********] in the
[********];

10.3.7 it shall disclose to GSK and exchange all data and Information and all
correspondence to or from any Regulatory Authority then available, regardless of
whether such data, correspondence and Information would have a positive or
negative impact on the potential commercial, scientific or strategic value or
attractiveness of the Progressed Compounds, that is in Targacept’s

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reasonable business judgment material to a reasonable assessment of the
scientific, commercial, safety, and regulatory liabilities of the Progressed
Compounds to be considered by GSK in deciding whether or not to exercise its
Program Option with respect to any Program;

10.3.8 it shall not during the Term grant any right or license to any Third
Party relating to any of the Targacept Technology that would conflict or
interfere with or encumber any of the rights or licenses that would be granted
to GSK effective upon exercise of a Program Option, including also, without
limitation, any liens, mortgages, security interests or another similar interest
that would give the holder the right to convert the interest into ownership; and

10.3.9 in the event that Targacept has knowledge, at any time during (i) the
Term, that any of the Targacept Patents are invalid or unenforceable or (ii) the
Collaboration Term, of any settled, pending or threatened (in writing) claim or
lawsuit or legal proceeding of a Third Party against Targacept alleging that its
PentadTM technology platform infringes or misappropriates in part or in whole
the intellectual property or intellectual property rights of such Third Party,
Targacept shall promptly inform GSK in writing of the same.

10.4 GSK Covenants. GSK hereby covenants to Targacept that:

10.4.1 neither it nor its Affiliates shall conduct any research or Development
activities or otherwise conduct activities under any Research Program or Early
Development Program hereunder (other than Supplemental Activities) without
Targacept’s prior written consent;

10.4.2 all employees, consultants and agents of GSK or its Affiliates working
under this Agreement shall be under the obligation to assign all right, title
and interest in and to their inventions conceived and discoveries made within
the scope of their employment, whether or not patentable, if any, to GSK as the
sole owner thereof; or

10.4.3 neither it nor its Affiliates shall conduct any activity, either on its
own, or with, for the benefit of, or sponsored by, any Third Party, that is
designed to research, develop or commercialize, or grant any license or other
intellectual property rights to any Third Party for the purpose of researching,
developing, commercializing or otherwise exploiting in any material respect, in
each case in the Territory, any Collaboration Compound (including, without
limitation, Development Candidate, Backup Compound, Follow-On Compound, Option
Compound, Related Compound, Product Candidate or Licensed Product) outside of
the Field. In the event that GSK desires to [********] would be consistent with
the covenant in this paragraph, Targacept shall reasonably cooperate with GSK
[********] in good faith with GSK.

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10.5 Disclaimer; No Guarantee of Success. EXCEPT AS OTHERWISE EXPRESSLY SET
FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY
WARRANTY OF ANY KIND WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS OR
OTHER SUBJECT MATTER OF THIS AGREEMENT AND EACH PARTY HEREBY DISCLAIMS ALL
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR THAT ANY
PATENTS ARE VALID OR ENFORCEABLE OR THAT THEIR EXERCISE DOES NOT OR WILL NOT
INFRINGE ANY PATENT RIGHTS OF THIRD PARTIES. A holding of invalidity or
unenforceability of any Patent shall not affect any obligation already accrued
hereunder, but shall only affect the payment of royalties otherwise due under
this Agreement, if and to the extent provided in Article 6. GSK understands that
the Collaboration Compounds are the subject of ongoing research and Development
and that Targacept cannot assure the safety, tolerability, potency, efficacy or
usefulness of any Collaboration Compound. Accordingly, (i) nothing contained in
this Agreement shall be construed as a guarantee or warranty of Targacept that
(A) any Research Program or Early Development Program will yield any Hit, Lead,
Development Candidate, Option Compound, Backup Compound, Follow-on Compound,
Product Candidate or Licensed Product that is or will be commercially
exploitable in any respect or otherwise be successful or (B) any Collaboration
Compound will achieve the [********] or satisfy the PoC Criteria, and (ii) it is
understood and agreed that each goal or objective set forth herein, whether
relating to a Program, Research Program, Early Development Program, TPP or
otherwise, may not be met and Targacept shall not be deemed to have breached
this Agreement or any obligation hereunder for failure to achieve any such goal
or objective. Without limiting the generality of the foregoing, Targacept makes
no representations, warranties or covenants except as expressly set forth in
this Article 10 concerning the Targacept Technology or the Collaboration
Technology.

ARTICLE 11

INDEMNIFICATION; INSURANCE

11.1 Indemnification by GSK. GSK shall indemnify, defend and hold harmless
Targacept and its Affiliates, and its and their respective directors, officers,
employees and agents (and, if TC-2696 becomes a Product Candidate, its licensors
and their respective

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trustees, officers, directors, employees, agents and affiliates), from and
against any and all liabilities, damages, losses to third parties, costs and
expenses, including, but not limited to, the reasonable fees of attorneys and
other professionals (collectively “Losses”), arising out of or resulting from
any and all Third Party suits, claims, actions, proceedings or demands
(“Claims”) based upon:

11.1.1 the negligence, recklessness or wrongful intentional acts or omissions of
GSK or its Affiliates, or its or their respective directors, officers, employees
and agents, in connection with GSK’s performance of its obligations or exercise
of its rights under this Agreement;

11.1.2 a breach of any representation, warranty or express covenant made by GSK
under Article 10 or any other provision under this Agreement (other than
6.12.2); or

11.1.3 the Development actually conducted by or on behalf of GSK or its
Affiliates or Sublicensees (including, without limitation, any Supplemental
Activities, but excluding any Development carried out by or on behalf of
Targacept hereunder), the handling and storage by or on behalf of GSK or its
Affiliates or Sublicensees of any chemical agents or other compounds by or on
behalf of GSK or its Affiliates or Sublicensees, or the manufacture, marketing,
commercialization or sale by GSK or its Affiliates or Sublicensees of any
Product Candidate, Licensed Product or any product derived from a Product
Candidate or Licensed Product;

except, in each case above, to the extent such Claim or Losses arose out of or
resulted from the breach of this Agreement or any Co-promotion Agreement by, or
the negligence, recklessness or wrongful intentional acts or omissions of,
Targacept or its Affiliates, and their respective directors, officers, employees
and agents;

11.2 Indemnification by Targacept. Targacept shall indemnify, defend and hold
harmless GSK and its Affiliates, and their respective directors, officers,
employees and agents, from and against any and all Losses, arising out of or
resulting from any and all Third Party Claims based upon:

11.2.1 the negligence, recklessness or wrongful intentional acts or omissions of
Targacept or its Affiliates, or its or their respective directors, officers,
employees and agents, in connection with Targacept’s performance of its
obligations or exercise of its rights under this Agreement;

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11.2.2 a breach of any representation, warranty or express covenant made by
Targacept under Article 10 or any other provision under this Agreement (other
than 6.12.2);

11.2.3 the research or Development actually conducted by or on behalf of
Targacept (excluding any Supplemental Activities or other Development carried
out by GSK or its Affiliates or Sublicensees), or the storage or handling of any
Collaboration Compound by Targacept or its Affiliates or Sublicensees, or the
manufacture, marketing, commercialization, importation or sale of Refused
Candidates, Refused Candidate Products, Returned Licensed Products or any
product derived therefrom by Targacept or its Affiliates or Sublicensees; or

11.2.4 the infringement or misappropriation of the intellectual property rights
of any Third Party resulting from the use of the Pentad Technology or any other
proprietary platform technology of Targacept actually used in the conduct of any
Research Program;

except, in the case of Sections 11.2.1, 11.2.2 or 11.2.3, to the extent such
Claim or Losses arose out of or resulted from the breach of this Agreement or
any Co-promotion Agreeement by, or the negligence, recklessness or wrongful
intentional acts or omissions of, GSK or its Affiliates, or their respective
directors, officers, employees and agents.

11.3 Procedure. In the event that either Party or other person entitled to
indemnification under Section 11.1 or Section 11.2 (in any case, an “Indemnitee”
and, collectively, a Party’s “Indemnitees”) is seeking such indemnification,
such Indemnitee shall promptly notify, in writing, the indemnifying Party of the
Claim as soon as reasonably practicable after such Indemnitee receives notice of
such Claim, such notice to contain a description of the 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); provided that (i) each Party may provide such notice on its
behalf and on behalf of its Indemnitees to the other Party and (ii) in the event
of a delay in providing such notice, the indemnifying Party shall not be liable
for any Losses that would not have occurred if such notice had been provided
promptly. Each Indemnitee shall thereafter furnish promptly to the indemnifying
Party copies of all papers and official documents received in respect of the
Claim or any Losses and shall permit the indemnifying Party to assume direction
and control of the defense of the Claim (including the sole right to settle it
at the sole discretion of the indemnifying Party, taking into consideration in
good faith any reasonable concerns or objections raised by the Indemnitee;
provided that such settlement does not impose any obligation on, or otherwise
adversely affect, the Indemnitee or other Party). If the indemnifying Party
assumes the defense of a Claim, except as provided in Section 11.4, the
indemnifying Party

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shall not be liable to the other Party or any of its Indemnitees for any legal
expenses subsequently incurred by such other Party or Indemnitee(s) in
connection with the analysis, defense or settlement of the 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 any Indemnitee(s) from and against the Claim,
the other Party shall reimburse the indemnifying Party for any and all actual
costs and expenses (including the reasonable fees of attorneys and other
professionals) and any Losses actually paid by the indemnifying Party in its
defense of the Claim with respect to such Indemnitee(s).

11.4 Participation in Defense. Any Indemnitee seeking indemnity hereunder 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, however, that such
employment shall be at the Indemnitee’s own expense unless (i) the employment
thereof has been specifically authorized by the indemnifying Party in writing,
(ii) the indemnifying Party has failed to assume the defense and employ counsel
(in which case the other Party shall control the defense) or (iii) the named
parties to such Claim include both the indemnifying Party and the Indemnitee and
the Indemnitee reasonably concludes, based on advice from counsel, that the
indemnifying Party and the Indemnitee have conflicting interests that make
separate counsel with respect to such Claim advisable.

11.5 Cooperation. The Party seeking indemnification shall, and shall cause each
of its Indemnitees to, (i) cooperate as reasonably requested (at the expense of
the indemnifying Party) in the defense of the applicable Claim and
(ii) undertake all reasonable steps to mitigate any Losses with respect to such
Claim.

11.6 Insurance.

11.6.1 Targacept’s Insurance Obligations. Targacept shall maintain, at its cost,
with effect from prior to the date of first administration of any Progressed
Compound, Product Candidate, Refused Candidate, Refused Candidate Product,
Returned Licensed Product and any product incorporating any of the foregoing)
for testing in humans hereunder and during the Term thereafter, adequate
insurance against liability and other risks associated with its activities
contemplated by this Agreement, including but not limited to its Clinical
Studies and its indemnification obligations herein, in such amounts and on such
terms as are customary for prudent practices for companies of comparable size to
Targacept in the pharmaceutical industry for the activities to be conducted by
it under this

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Agreement. At a minimum, Targacept shall maintain, in force from thirty
(30) days following the Effective Date and thereafter during the Term, at its
cost, a general liability insurance policy providing coverage of at least Ten
Million Dollars ($10,000,000) per occurrence and annual aggregate, provided that
such coverage is increased to at least Twenty Million Dollars ($20,000,000) per
occurrence and Fifty Million Dollars ($50,000,000) annual aggregate before
Targacept makes any First Commercial Sale of any Refused Candidate Product or
Returned Licensed Product hereunder. Targacept shall furnish to GSK evidence of
such insurance, upon request.

11.6.2 GSK’s Insurance Obligations. GSK hereby represents and warrants to
Targacept that it is self-insured against liability and other risks associated
with its activities and obligations under this Agreement in such amounts and on
such terms as are customary for prudent practices for global pharmaceutical
companies and agrees that it shall remain so insured throughout the Term. GSK
shall furnish to Targacept evidence of such self-insurance, upon request.

11.7 LIMITATION OF CONSEQUENTIAL DAMAGES. EXCEPT FOR A BREACH OF ARTICLE 9 OR
FOR ANY CLAIMS OF A THIRD PARTY WHICH ARE SUBJECT TO INDEMNIFICATION UNDER THIS
ARTICLE 11, NEITHER TARGACEPT NOR GSK, NOR ANY OF THEIR RESPECTIVE AFFILIATES OR
SUBLICENSEES WILL BE LIABLE TO THE OTHER PARTY TO THIS AGREEMENT, ITS AFFILIATES
OR ANY OF THEIR SUBLICENSEES FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL,
SPECIAL, RELIANCE OR PUNITIVE DAMAGES OR LOST OR IMPUTED PROFITS OR ROYALTIES,
LOST DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, WHETHER
LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT PRODUCT
LIABILITY), INDEMNITY OR CONTRIBUTION, AND IRRESPECTIVE OF WHETHER THAT PARTY OR
ANY REPRESENTATIVE OF THAT PARTY HAS BEEN ADVISED OF, OR OTHERWISE MIGHT HAVE
ANTICIPATED THE POSSIBILITY OF, ANY SUCH LOSS OR DAMAGE.

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ARTICLE 12

TERM AND TERMINATION

12.1 Term; Expiration. This Agreement shall become effective as of the Effective
Date and, unless earlier terminated pursuant to this Article 12 or by mutual
agreement of the Parties, shall continue in force and effect until expiration as
described in this Section 12.1 as follows:

(a) on a Licensed Product-by-Licensed Product and country-by-country basis, on
the date of final payment of all payment obligations of GSK under Article 6 as
such obligations may become due and accrued under this Agreement with respect to
such Licensed Product in such country; and

(b) in its entirety upon (i) expiration of the Collaboration Term, if GSK has
not validly exercised at least one (1) Program Option prior to such expiration
in accordance with the terms hereof, or such Program Option has not become
exercisable, or otherwise (ii) the expiration of the last Licensed Product Term.

With respect to each Licensed Product and each country, the period, if any, from
the date of the First Commercial Sale of such Licensed Product in such country
until the date of expiration pursuant to clause (a) above shall be the “Licensed
Product Term.” The period from the Effective Date until the date of expiration
of the Agreement, or termination of this Agreement in its entirety pursuant to
Article 12, shall be the “Term.”

12.1.1 Effect of Expiration of a Licensed Product Term or the Term.

(a) Following the expiration of the Licensed Product Term with respect to a
particular Licensed Product in a particular country, if any, subject to the
terms and conditions of this Agreement, GSK shall have an exclusive, fully-paid
and royalty-free right and license, with the right to grant sublicenses, under
all of Targacept’s rights in and to the Targacept Technology solely as necessary
to continue to make, have made, use, sell, offer to sell and import such
Licensed Product in the Field in such country, for so long as it continues to do
so.

(b) Following expiration of the Term (but, for clarity, not by termination
pursuant to Section 12.2, 12.3 or 12.4), subject to the terms and conditions of
this Agreement, (i) GSK shall have an exclusive, fully-paid and royalty-free
right and license, with the right to grant sublicenses, under all of Targacept’s
rights in and to Targacept Technology solely as necessary to continue to

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make, have made, use, sell, offer to sell and import Product Candidates and
Licensed Products in the Field in the Territory, for so long as it continues to
do so, and (ii) Targacept shall have, subject to Section 13.1(d) if applicable,
an exclusive, fully-paid and royalty-free right and license, with the right to
grant sublicenses, under all of GSK’s rights in and to the GSK Technology solely
as necessary to continue to make, have made, use, sell, offer to sell, and
import Refused Candidates, Refused Candidate Products and Returned Licensed
Products in the Territory for so long as it continues to do so.

12.2 Termination for Cause.

12.2.1 Material Breach other than for Diligence. Except with respect to a
Targacept Diligence Failure Event, which shall be governed by Section 3.3.2 and
3.3.3, or a GSK Diligence Failure Event, which shall be governed by
Section 12.2.2 and 12.2.3, in each case and not by this Section 12.2.1, either
Party (the “Non-breaching Party”) may, without prejudice to any other remedies
available to it at law or in equity, terminate this Agreement, on a
Program-by-Program basis or, if appropriate based on the particular obligation
breached and the nature and magnitude of the breach to protect the interest of
the Non-breaching Party, in its entirety, in the event (i) the other Party (the
“Breaching Party”) shall have materially breached the performance of any of its
material obligations hereunder and (ii) such breach shall have continued for
(A) [********] (or, in the case of a payment breach, [********] or, if such
[********] period would expire [********]) after written notice thereof is given
to the Breaching Party referencing this Section 12.2.1, describing in reasonable
detail the alleged material breach and stating its intention to pursue a remedy
under this Section 12.2.1 if not cured and (B) except in the case of a payment
breach, if the Breaching Party has during such [********] period commenced and
diligently continued conducting activities designed to cure such breach but such
cure is not possible during such [********] period, the Breaching Party shall
have an additional [********] in which to cure the breach. Subject to
Section 12.2.3, termination of this Agreement or any Program, as applicable, 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.

12.2.2 Termination by Targacept due to GSK Diligence Failure Event. In the event
that there is a material breach by GSK of (i) its obligation to use its Diligent
Efforts to Develop or commercialize a particular Option Compound or [********]
that achieves [********] (but, with respect to [********], only where GSK has
[********] with respect to such [********] pursuant to

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Section 5.3.2) as and into a Licensed Product in the Field or
(ii) Section 5.3.3(a), Targacept shall have the right to allege a failure of
diligence on the part of GSK (a “GSK Diligence Failure Event”) by written notice
to GSK referencing this Section 12.2.2, describing in reasonable detail the
alleged GSK Diligence Failure Event and stating its intention to pursue a remedy
under this Section 12.2.2 if not cured; provided that in no event shall any act
or failure to act by GSK following receipt of such notice from Targacept
constitute an admission or create any implication that a GSK Diligence Failure
Event has in fact occurred. Subject to Section 12.2.3, upon receipt of such
notice of a GSK Diligence Failure Event, GSK shall have a period of [********]
in which to cure the GSK Diligence Failure Event or, if GSK has during such
[********] period commenced and diligently continued conducting activities
designed to cure the GSK Diligence Failure Event but such cure is not possible
during such [********] period, GSK shall have an additional [********] in which
to cure such GSK Diligence Failure Event. Upon conclusion of the cure period, as
may be extended as described above, if GSK has not cured such GSK Diligence
Failure Event, Targacept shall have the right, exercisable not later than
[********] after the end of the cure period, to immediately terminate all
licenses hereunder with respect to [********] with respect to which [********]
and [********] that had been [********] as [********], in which case
Section 12.5.3(b) shall apply. The provisions of this Section 12.2.2 (and
Section 12.5.3(b) and the other provisions referenced in this Section 12.2.2)
shall represent the sole and exclusive remedy to Targacept with respect to a GSK
Diligence Failure Event.

12.2.3 Disagreement. If the Parties in good faith dispute whether there has been
a material breach as alleged pursuant to Section 12.2.1 or whether such material
breach has been cured or cured on a timely basis, the Non-breaching Party may
contest the allegation in accordance with Section 14.1. Likewise, if GSK in good
faith disputes either an alleged GSK Diligence Failure Event or whether the
alleged GSK Diligence Failure Event has been cured or cured on a timely basis,
GSK shall have the right to pursue such dispute in accordance with Section 14.1.

12.3 Unilateral Termination Rights. GSK shall have the right, at its sole
discretion, exercisable at any time during the Term, to terminate this Agreement
(i) in its entirety or (ii) with respect to a particular Program, for any reason
or no reason at all, upon ninety (90) days written notice to Targacept
referencing this Section 12.3 and stating its intention to terminate this
Agreement or the particular Program, without incurring any additional liability,
penalty, cost or expense, other than any costs or expenses which are due and
accrued as of the effective date of such termination. Targacept shall have the
right, at its sole discretion, to terminate this

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Agreement with immediate effect with respect to a particular Program upon
written notice to GSK if, with respect to any Patent owned or Controlled by
Targacept (solely or jointly with GSK) that covers the composition of matter or
a method of using or making a Progressed Compound, Product Candidate or Licensed
Product in such Program, GSK files an action for a declaratory judgment of
invalidity of such Patent, initiates a re-examination proceeding with respect to
such Patent, or otherwise challenges the scope, validity or enforceability of
such Patent.

12.4 Termination for Insolvency.

12.4.1 Either Party may terminate this Agreement, if, at any time, the other
Party shall file in any court or agency pursuant to any statute or regulation of
any state or country, a petition in bankruptcy or insolvency or for
reorganization or for an arrangement or for the appointment of a receiver or
trustee of the Party or of substantially all of its assets, or if the other
Party proposes a written agreement of composition or extension of substantially
all of its debts, or if the other Party shall be served with an involuntary
petition against it, filed in any insolvency proceeding, and such petition shall
not be dismissed within sixty (60) days after the filing thereof, or if the
other Party shall propose or be a party to any dissolution or liquidation, or if
the other Party shall make an assignment of substantially all of its assets for
the benefit of creditors.

12.4.2 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”) 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.
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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12.5 Effect of Termination.

12.5.1 Upon Termination of Agreement in its Entirety.

(a) In the event of a termination of this Agreement in its entirety by GSK
pursuant to Section 12.2.1, 12.3(i) or 12.4 or by Targacept pursuant to
Section 12.2.1 or 12.4:

(i) the effective date of such termination shall be deemed the last day of the
Collaboration Term, unless already expired; and

(ii) GSK shall thereupon have no further Program Options, except as expressly
provided in Section 12.5.1(c)(ii).

(b) In the event of a termination of this Agreement in its entirety by GSK
pursuant to Section 12.3(i) or by Targacept pursuant to Section 12.2.1 or 12.4,
in addition to the consequences set forth in Section 12.5.1(a):

(i) with respect to any Program as to which, as of the effective date of such
termination, GSK has validly exercised its Program Option: (A) all rights and
licenses granted by Targacept hereunder with respect to such Program (including,
without limitation, the Product Candidates in such Program) shall terminate;
(B) the Product Candidates and any corresponding Licensed Products in such
Program shall be [********]; and (C) each provision of this Agreement that
addresses the rights and obligations of the Parties with respect to [********]
(including, without limitation, Sections [********]) shall survive such
termination;

(ii) with respect to any Program as to which, as of the effective date of such
termination, GSK has not validly exercised its Program Option or such Program
Option has not become exercisable, (A) Targacept shall have the right, but not
the obligation, to declare the Leading Compound in such Program and [********]
in such Program (or, solely in the case of the Pain 2 Program, [********])
selected by Targacept to be [********] by written notice to GSK and (B) in such
event, each provision of this Agreement that addresses the rights and
obligations of the Parties with respect to [********] (including, without
limitation, Sections [********]) shall survive such termination; provided that,
in the absence of such a declaration by Targacept, no Collaboration Compound in
such Program shall be a [********] (or, for clarity, a [********]);

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(iii) the effective date of such termination shall be deemed the last day of all
unexpired Indication Exclusivity Periods, PTP Exclusivity Periods, MoA
Exclusivity Periods and Compound Exclusivity Periods; and

(iv) with respect to any Compound Patent for which GSK is controlling
Prosecution and Maintenance pursuant to Section 8.2.4 or any other Targacept
Patent or Collaboration Patent with respect to which GSK is controlling
Prosecution and Maintenance, (A) Targacept may, in its sole discretion, assume
control of such Prosecution and Maintenance by written notice to GSK and (B) in
such event, GSK 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 agreements, documents and instruments as
may be necessary for, or as Targacept may reasonably request to carry out more
effectively, the purpose of this Section 12.5.1(b)(iv).

(c) In the event of a termination of this Agreement in its entirety by GSK
pursuant to Section 12.2.1 or 12.4, in addition to the consequences set forth in
Section 12.5.1(a):

(i) with respect to any Program as to which, as of the effective date of such
termination, GSK has validly exercised its Program Option, each provision of
this Agreement that addresses the rights and obligations of the Parties with
respect to Product Candidates and Licensed Products (including, without
limitation, Sections 5.1.2, 5.1.3, 8.4 and 8.5) shall survive such termination
solely with respect to any Product Candidates in and Licensed Products resulting
from such Program; and

(ii) each Option Period for a Program Option that has commenced and is unexpired
as of the effective date of such termination by GSK shall continue in accordance
with the terms hereof and, if validly exercised as provided in this Agreement,
Section 12.5.1(c)(i) shall thereupon apply;

(iii) except as provided in this Section 12.5.1(c)(iii), the effective date of
such termination shall be deemed the last day of all unexpired Indication
Exclusivity Periods, PTP Exclusivity Periods, MoA Exclusivity Periods and
Compound Exclusivity Periods; provided that, notwithstanding the foregoing, the
Indication Exclusivity Period with respect to each Program for which
Section 12.5.1(c)(i) applies, and each MoA Exclusivity Period and each Compound
Exclusivity Period, in each case if any, with respect to a Product Candidate in
such Program, shall survive such termination for their stated durations; and

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(iv) with respect to any Compound Patent for which GSK is controlling
Prosecution and Maintenance pursuant to Section 8.2.4, or any other Targacept
Patent or Collaboration Patent with respect to which GSK is controlling
Prosecution and Maintenance, in each case other than with respect to a Product
Candidate or Licensed Product resulting from a Program for which
Section 12.5.1(c)(i) applies, (A) Targacept may, in its sole discretion, assume
control of such Prosecution and Maintenance by written notice to GSK and (B) in
such event, GSK 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 agreements, documents and instruments as
may be necessary for, or as Targacept may reasonably request to carry out more
effectively, the purpose of this Section 12.5.1(c)(iv).

12.5.2 Upon Termination of Agreement with respect to a Particular Program.

(a) In the event of a termination of this Agreement with respect to a particular
Program by GSK pursuant to Section 12.2.1 or 12.3(ii) or by Targacept pursuant
to Section 12.2.1 or 12.3:

(i) the effective date of such termination shall be deemed the last day of such
Program’s Research Program Term or, if any, Early Development Program Term,
unless in each case already expired; and

(ii) GSK shall thereupon have no further Program Option with respect to such
Program.

(b) In the event of a termination of this Agreement with respect to a particular
Program by GSK pursuant to Section 12.3(ii) or by Targacept pursuant to
Section 12.2.1 or 12.3, in addition to the consequences set forth in
Section 12.5.2(a):

(i) if, as of the effective date of such termination, GSK has validly exercised
its Program Option for such Program: (A) all licenses granted by Targacept
hereunder with respect to such Program (including, without limitation, the
Product Candidates in such Program) shall terminate (but, for clarity, all other
licenses granted by Targacept hereunder shall survive such termination and
continue in effect in accordance with the terms hereof); and (B) the Product
Candidates in such Program shall be [********], subject to Sections [********];

EXECUTION VERSION    -127-   

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(ii) if, as of the effective date of such termination, GSK has not validly
exercised its Program Option for such Program or such Program Option has not
become exercisable: (A) Targacept shall have the right, but not the obligation,
to declare the Leading Compound in such Program and [********] in such Program
(or, solely in the case of the Pain 2 Program, [********] other Collaboration
Compounds) selected by Targacept to be Refused Candidates by written notice to
GSK; provided that, in the absence of such a declaration by Targacept, no
Collaboration Compound in such Program shall be a [********] (or, for clarity,
[********]); and (B) for clarity, GSK shall have no Program Option for such
Program, but shall continue to be eligible for its potential Program Option, and
its rights and responsibilities upon exercise thereof, for each other Program;

(iii) the effective date of such termination shall be deemed the last day of the
Indication Exclusivity Period with respect to the Indication corresponding to
such Program, the PTP Exclusivity Period applicable to such Program and each MoA
Exclusivity Period and each Compound Exclusivity Period, in each case if any,
with respect to a compound in such Program; and

(iv) with respect to any Compound Patent with respect to a compound in such
Program for which GSK is controlling Prosecution and Maintenance pursuant to
Section 8.2.4, or any other Targacept Patent or Collaboration Patent covering a
compound in such Program, or a method of making or using such compound, for
which GSK is controlling Prosecution and Maintenance, (A) Targacept may, in its
sole discretion, assume control of such Prosecution and Maintenance by written
notice to GSK and (B) in such event, GSK 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 agreements,
documents and instruments as may be necessary for, or as Targacept may
reasonably request to carry out more effectively, the purpose of this
Section 12.5.2(b)(iii).

(c) In the event of a termination of this Agreement with respect to a particular
Program by GSK pursuant to Section 12.2.1, in addition to the consequences set
forth in Section 12.5.2(a):

(i) if, as of the effective date of such termination, the Option Period for such
Program has commenced, GSK shall have the right to exercise its Program Option
for the remainder of the Option Period and, if GSK validly exercises or has
validly exercised its Program Option for such Program, each provision of this
Agreement that addresses the rights and obligations of the

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Parties with respect to Product Candidates and Licensed Products (including,
without limitation, Sections 5.1.2, 5.1.3, 8.4 and 8.5) shall survive such
termination with respect to any Product Candidates in and Licensed Products
resulting from such Program; and

(ii) solely if Section 12.5.2(c)(i) applies, the Indication Exclusivity Period
with respect to such Program and each MoA Exclusivity Period and each Compound
Exclusivity Period, in each case if any, with respect to a compound in such
Program, shall survive such termination for their stated durations;

(iii) unless Section 12.5.2(c)(i) applies, with respect to any Compound Patent
with respect to a compound in such Program for which GSK is controlling
Prosecution and Maintenance pursuant to Section 8.2.4, or any other Targacept
Patent or Collaboration Patent covering a compound in such Program, or a method
of making or using such compound, for which GSK is controlling Prosecution and
Maintenance, (A) Targacept may, in its sole discretion, assume control of such
Prosecution and Maintenance by written notice to GSK and (B) in such event, GSK
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 agreements, documents and instruments as may be necessary
for, or as Targacept may reasonably request to carry out more effectively, the
purpose of this Section 12.5.2(c)(iii).

12.5.3 GSK Diligence Failure Event. In the event of a GSK Diligence Failure
Event that is uncured by the end of the applicable cure period, in addition to
the consequences set forth in Section 12.2.2:

(a) the Product Candidates in the Program with respect to which the GSK
Diligence Failure Event occurred shall be [********], subject to Sections
[********], which shall survive; provided that, notwithstanding anything to the
contrary set forth herein, the [********] to such terminated Product Candidates
or Licensed Products shall be [********];

(b) the effective date of such termination shall be deemed the last day of the
Indication Exclusivity Period with respect to the Indication corresponding to
the Program with respect to which the GSK Diligence Failure Event occurred, the
PTP Exclusivity Period applicable to such Program and each MoA Exclusivity
Period and each Compound Exclusivity Period, in each case if any, with respect
to a compound in such Program; and

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(c) with respect to any Compound Patent with respect to a compound in the
Program with respect to which the GSK Diligence Failure Event occurred for which
GSK is controlling Prosecution and Maintenance pursuant to Section 8.2.4, or any
other Targacept Patent or Collaboration Patent covering a compound in such
Program, or a method of making or using such compound, for which GSK is
controlling Prosecution and Maintenance, (A) Targacept may, in its sole
discretion, assume control of such Prosecution and Maintenance by written notice
to GSK and (B) in such event, GSK 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 agreements, documents and
instruments as may be necessary for, or as Targacept may reasonably request to
carry out more effectively, the purpose of this Section 12.5.3(c).

12.5.4 Regulatory Filings. Upon termination of this Agreement in its entirety
pursuant to Sections 12.2.1 or 12.4 by Targacept or by GSK pursuant to
Section 12.3, or with respect to any termination of this Agreement with respect
to a particular Program, other than by GSK pursuant to Section 12.2.1, GSK shall
promptly assign and deliver to Targacept all material documents, safety data,
regulatory filings, manufacturing information, trademarks as well as any other
material information, data and materials reasonably requested by Targacept, to
the extent pertaining specifically (but not necessarily exclusively) to any
Product Candidate (or, if applicable, other Collaboration Compound) or Licensed
Product (or to any Product Candidate (or, if applicable, other Collaboration
Compound) or Licensed Product in the particular Program terminated) and
necessary or reasonably useful for Development or commercial use and
exploitation. In addition, GSK shall provide reasonable transitional support to
enable the orderly and uninterrupted Development and commercialization of each
such Product Candidate (or, if applicable, other Collaboration Compound) or
Licensed Product, such support, with respect to a Licensed Product, to be not
less than [********] and Targacept was not previously promoting or otherwise
responsible for marketing the Licensed Product;

provided that, to the extent any of the foregoing is inconsistent with
Section 5.5.2 or any other provision of this Article 12, Section 5.5.2 or such
other provision of this Article 12 shall take precedence and control.

12.5.5 Accrued Rights; Surviving Provisions of the Agreement.

(a) Except as provided in Sections 3.3.2 or 12.2.2, expiration or termination of
this Agreement (in its entirety or with respect to any particular Program) shall
be without prejudice to any rights or remedies provided at law or equity that
either Party may

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otherwise have. Such expiration or termination shall not relieve either Party
from obligations that are expressly indicated to survive expiration or
termination of this Agreement.

(b) In addition to the provisions of this Agreement that survive termination of
this Agreement pursuant to Sections 12.5 or 13.1, the provisions of Articles 1,
9, 11, 12, 13 and 14, and Sections 3.4.2, 4.3.1, 4.3.2, 5.1.3, 5.1.4, 5.1.6,
5.1.8, 5.3.4, 5.5.1, 5.5.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.11, 6.12, 8.1,
8.2.2, 8.2.3, 8.2.4(a) and (b) (solely as applied to Joint Collaboration
Patents), 8.2.5, 8.3.1, 8.3.2, 8.3.3, 8.4, 8.5 and 10.5 shall survive (i) the
expiration of this Agreement or termination of this Agreement in its entirety
pursuant to Sections 12.2.1, 12.3(i) or 12.4 or 13.1 or (ii) as applied to any
Program terminated pursuant to Section 12.2.1, 12.3(ii) or 12.3 or any Program
subject to an uncured GSK Diligence Failure Event under Section 12.2.2 (except
to the extent otherwise provided in Section 12.5.2), in each case for the
duration stated or, where no duration is stated, indefinitely.

(c) With respect to any termination of this Agreement with respect to a
particular Program (and, for clarity, not with respect to any termination of
this Agreement in its entirety) or any Program subject to an uncured GSK
Diligence Failure Event under Section 12.2.2, all provisions of this Agreement
shall continue in full force and effect as applied to all Programs not subject
to such termination.

ARTICLE 13

CHANGE OF CONTROL PROVISIONS

13.1 Change of Control of Targacept. In the event that there is a Change of
Control of Targacept at any time during the Term, GSK shall, to the extent the
Rights (as defined in this Section 13.1 below) are not applicable or not
exercised, have the rights set forth below, each right to be exercisable at
GSK’s sole discretion for a [********] period beginning [********] after the
closing of the transaction resulting in such Change of Control. A “Change of
Control” is a transaction in which (i) Targacept sells or otherwise transfers
all or substantially all of its assets that relate to this Agreement to, or
merges or consolidates with, any entity (other than a wholly-owned subsidiary of
Targacept) or otherwise effects any other transaction or series of transactions
such that as a result of any such sale, merger, consolidation or other
transaction, the stockholders of Targacept immediately prior to the closing
thereof, in the aggregate, do not own, directly or indirectly, neither
beneficially nor legally, at least fifty percent (50%) of the outstanding voting

EXECUTION VERSION    -131-   

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securities or capital stock of the surviving, continuing or purchasing entity
(the “Successor”) immediately following the closing of such sale, merger,
consolidation or other transaction or series of transactions, and (ii) the
Successor or any affiliate thereof is [********] companies [********] the most
recently completed calendar year for which [********] is readily available from
[********] or such other source as may be agreed by the Parties.

(a) to terminate any or all Co-promotion Rights of Targacept, regardless of
whether a definitive Co-promotion agreement has been entered into by the Parties
pursuant to Article 5;

(b) to terminate any or all of Targacept’s rights to conduct any Targacept
Post-Exercise Activities for any Product Candidate beyond the Candidate
Selection Stage, or otherwise to conduct any Clinical Studies for any Follow-On
Compound or Backup Compound;

(c) to terminate any or all of Targacept’s rights with respect to the Joint
Program Subcommittee, and GSK shall assume all JPS responsibility;

(d) to require the Successor to re-negotiate the scope (i.e, to limit to include
only necessary patent licenses and not any trade secret or know-how licenses)
and the [********] of all licenses that are granted from GSK to Targacept (i.e.,
to be negotiated [********]) hereunder to the relevant GSK Patents or
Collaboration Patents owned solely by GSK, if any;

(e) to require that the Successor must maintain the conduct of each Research
Program and each Early Development Program hereunder with at least the same
level of Diligent Efforts as was employed by Targacept, including without
limitation, FTE allocation and dedication levels, financial resource dedication
and allocation levels, and technical and scientific expert/specialist allocation
and dedication levels, as was employed by Targacept during the [********] prior
to such Change of Control, with the uncured failure by the Successor to maintain
at least the same levels as described in this paragraph being a material breach
of this Agreement; and

(f) to have an exclusive first right to negotiate with the Successor in good
faith, and on commercially reasonable terms, taking into account the total
amounts paid to date by GSK under this Agreement to Targacept and the stage of
Development of the Program, to obtain for any Program hereunder an “Early
In-License,” whereby GSK would exercise such Program’s Program

EXECUTION VERSION    -132-   

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Option under Section 4.3.1(b) with the Option Exercise Fee reduced, taking into
account the total amounts paid to date by GSK under this Agreement to Targacept
and the stage of Development of the Program, thereby terminating any further
obligations or rights of the Successor to conduct any further activities with
respect to such Program.

Notwithstanding the foregoing provisions of this Section 13.1, with respect to
any Change of Control that is consummated after [********] (or such earlier time
as may be agreed by GSK in writing), during the period beginning with the date
on which the Change of Control is consummated (the “Change of Control Date”) and
ending [********] thereafter, Targacept or the Successor [********] shall have
the right, but not the obligation, to provide written notice to GSK that it is
exercising its rights described below (the “Rights”). If Targacept or the
Successor provides such notice, within [********] thereafter, Targacept or the
Successor shall pay to GSK an amount equal to [********] the Change of Control
Date with respect to [********] the Change of Control Date, in which event:

(A) with respect to any Program as to which GSK has exercised its Program Option
as of the Change of Control Date, the rights of GSK under Section 5.1.2, solely
as apply with respect to the Product Candidates and Licensed Products in such
Program, shall survive;

(B) with respect to any Program as to which, as of the Change of Control Date,
(x) GSK has not exercised its Program Option and (y) a Research Program Term or
Early Development Program Term remains in effect, the Leading Compound and up to
[********] (or, in the case of the Pain 1 Program, up to one (1), but only if
the Pain 1 Program includes both TC-2696 and TC-6499 as of the Change of Control
Date) other Collaboration Compounds in such Program to be selected [********] by
written notice [********] given within [********] after receipt of the payment
described in the paragraph leading in to clause (A) above shall, if not already
Progressed Compounds be deemed to be Progressed Compounds and to be Product
Candidates and the rights and licenses under Section 5.1.2 that would have been
granted to GSK effective upon exercise of the Program Option for such Program
shall thereupon be deemed granted by Targacept or the Successor, as applicable,
to GSK and shall survive; provided that, for clarity and notwithstanding the
provisions of Article 6 or Section 12.5.5(b), GSK shall have no financial
obligation thereafter to Targacept or the Successor with respect to the further
Development or commercialization any such Progressed Compound and Product
Candidate;

(C) neither Targacept nor the Successor shall have any further obligation to
conduct any Research Program or Early Development Program and the Change of
Control Date shall be the deemed last day of the Research Term and Early
Development

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Term, except that, with respect to any Program subject to clause (B) above for
which, as of the Change of Control Date, there is a Leading Compound for which
GSK has paid the milestone for the Milestone Event [********] that has not
reached [********], Targacept or the Successor shall, unless notified otherwise
in writing by GSK, [********] Research Program for such Program (and the
applicable Research Program Term shall [********]) [********] the Development
Candidate Activities for such Leading Compound (such Leading Compound to be
subject to clause (B) above); and

(D) effective [********] after the Change of Control Date, the Agreement would
terminate, subject to the surviving rights and obligations of the Parties as
expressly provided in clauses (A), (B) or (C) above or in Section 12.5.5(b)
(including, for clarity but without limitation, the various sections of Article
6 listed therein).

ARTICLE 14

MISCELLANEOUS

14.1 Dispute Resolution.

14.1.1 Non-Binding Mediation. Prior to the commencement of any litigation with
respect to this Agreement, the Executive Officer of the Party considering
commencement of such litigation shall notify the Executive Officer of the other
Party that such litigation is being contemplated. For at least [********]
following the delivery of such notice, the Parties’ Executive Officers shall
make themselves available to discuss the dispute, difference or question, as the
case may be (the “Unresolved Matter”), and use good faith efforts to resolve
such Unresolved Matter. If the Unresolved Matter is not resolved within such
[********], the Parties agree to submit it for non-binding mediation (with the
understanding that the role of the mediator shall not be to render a decision
but to assist the Parties in reaching a mutually acceptable resolution) in
Washington D.C. (or such other location as may be mutually agreed upon by the
Parties), for a period of not more than [********], unless extended by the
mutual written agreement of the Parties. If the Unresolved Matter is not
resolved within such [********], as may be extended, Section 14.1.2 shall apply.

14.1.2 Binding Arbitration. In the event of any Unresolved Matter that is not
resolved with mediation as set forth in Section 14.1.1, either Party may submit
such Unresolved Matter to arbitration pursuant to this Section 14.1.2. The
arbitration

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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 14.1.2.

(a) The arbitration shall be conducted by a panel of three (3) persons who shall
have sufficient scientific background and experience in drug development or
commercialization, as applicable, to resolve the Unresolved Matter 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 preceding proviso, within [********] after
initiation of arbitration, each Party shall select one person to act as an
Expert and the two Party-selected Experts shall select a third Expert within
[********] 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. or New York, New York. 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 Unresolved
Matter within [********] 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.

(c) Either Party may apply to the Expert(s) for interim injunctive relief until
the arbitration decision is rendered or the Unresolved Matter 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 Unresolved Matter pursuant to this Section 14.1.2. 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 law, regulation or stock exchange rule or listing
requirement, 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 Unresolved Matter would be barred by the applicable Delaware
statute of limitations.

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(e) The Parties hereby agree that (i) in the event of an Unresolved Matter
involving the alleged breach of this Agreement (including whether a Party has
satisfied its diligence obligations hereunder), neither Party may terminate this
Agreement under Article 12 until resolution of the Unresolved Matter pursuant to
this Section 14.1.2 and (ii) any disputed performance or suspended performance
pending the resolution of an Unresolved Matter that the Expert(s) determine to
be required to be performed by a Party must be completed within a reasonable
time period following the final decision of the Expert(s).

(f) 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, free of any tax or other
deduction.

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

For the avoidance of doubt, the Parties understand and agree that, except as
provided in the proviso hereinbelow, (x) the dispute resolution process outlined
in this Section 14.1 shall not be applicable to any matter for which a Party has
final decision-making authority as expressly set forth in Sections 2.3.4(a),
2.3.4(b) or 2.3.5 and (y) the final decision of such Party on such matter shall
not be subject to any review under this Section 14.1; provided that,
notwithstanding the foregoing, either Party may pursue the dispute resolution
procedures of this Section 14.1 with respect to whether, for any particular
matter, such final decision-making authority was exercised in breach of
Section 2.3.4(c).

14.2 Governing Law. This Agreement and any dispute arising from the performance
or breach hereof shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware, U.S.A., without reference to conflicts
of laws principles.

14.3 Assignment. Neither this Agreement nor any obligation hereunder shall be
assignable by either Party to any Third Party without the prior written consent
of the other Party, which shall not be unreasonably withheld, conditioned or
delayed. Notwithstanding the foregoing, either Party may assign this Agreement
and the rights, affirmative obligations and interests of such Party, in whole or
in part, without any consent of the other Party, to an Affiliate or to a Third
Party that acquires all or substantially all of the business or assets of such
Party to which this Agreement pertains (whether by merger, reorganization,
acquisition, sale or

EXECUTION VERSION    -136-   

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otherwise) and agrees in writing to be bound by the terms and conditions of this
Agreement. No assignment shall be valid or effective unless and until the
assignee or transferee shall agree in writing to be bound by the provisions of
this Agreement.

14.4 Reserved.

14.5 Force Majeure. No Party shall be held liable or responsible to the other
Party nor be deemed to be in default under, or in breach of any provision of,
this Agreement for failure or delay in fulfilling or performing any obligation
of this Agreement when such failure or delay is due to force majeure, and
without the fault or negligence of the Party so failing or delaying. For
purposes of this Agreement, force majeure is defined as causes beyond the
reasonable control of the Party, including, without limitation: acts of God;
acts, regulations, or laws of any government; war; civil commotion; destruction
of production facilities or materials by fire, flood, earthquake, explosion or
storm; labor disturbances; epidemic; and failure of public utilities or common
carriers. In such event Targacept or GSK, as the case may be, shall promptly
notify the other Party of such inability and of the period for which such
inability is expected to continue. The Party giving such notice shall thereupon
be excused from such of its obligations under this Agreement as it is thereby
disabled from performing for so long as it is so disabled for up to a maximum of
ninety (90) days, after which time Targacept or GSK, the Party not affected by
the force majeure, may terminate this Agreement. To the extent possible, each
Party shall use reasonable efforts to minimize the duration of any force
majeure.

14.6 Notices. Any notice or request required or permitted to be given under or
in connection with this Agreement shall be deemed to have been sufficiently
given if in writing and personally delivered or sent by certified mail (return
receipt requested), facsimile transmission (receipt verified), or overnight
express courier service (signature required), prepaid, to the Party for which
such notice is intended, at the address set forth for such Party below:

EXECUTION VERSION    -137-   

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If to Targacept, addressed to:    Targacept, Inc.    200 East First Street   
Winston-Salem, NC 27101    Attention: Vice President, Business and Commercial   
Development    Attention: General Counsel    Telephone: (336) 480-2100   
Telecopy: (336) 480-2103 If to GSK, addressed to:    Attention: Vice President,
Business Development    Center of Excellence for External Drug Discovery   
GlaxoSmithKline    2301 Renaissance Boulevard    Mail Code RN0210    King of
Prussia, PA 19406    Telephone: (610) 787-4093    Telecopy: (610) 787-4105

with a copy to:

   Attention: Vice President and Associate General Counsel,    R&D Legal
Operations    GlaxoSmithKline    2301 Renaissance Boulevard    Mail Code RN0220
   King of Prussia, PA 19406    Telecopy: (610) 787-7084

or to such other address for such Party as it shall have specified by like
notice to the other Party, provided that notices of a change of address shall be
effective only upon receipt thereof. If delivered personally or by facsimile
transmission, the date of delivery shall be deemed to be the date on which such
notice or request was given. If sent by overnight express courier service, the
date of delivery shall be deemed to be the next business day after such notice
or request was deposited with such service. If sent by certified mail, the date
of delivery shall be deemed to be the third business day after such notice or
request was deposited with the U.S. Postal Service.

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14.7 Export Clause. Each Party acknowledges that the laws and regulations of the
United States restrict the export and re-export of commodities and technical
data of United States origin. Each Party agrees that it will not export or
re-export restricted commodities or the technical data of the other party in any
form without any appropriate United States and foreign government licenses.

14.8 Waiver. Neither Party may waive or release any of its rights or interests
in this Agreement except in writing. The failure of either Party to assert a
right hereunder or to insist upon compliance with any term or condition of this
Agreement shall not constitute a waiver of that right or excuse a similar
subsequent failure to perform any such term or condition. No waiver by either
Party of any condition or term in any one or more instances shall be construed
as a continuing waiver of such condition or term or of another condition or
term.

14.9 Severability. If any provision hereof should be held invalid, illegal or
unenforceable in any jurisdiction, the Parties shall negotiate in good faith a
valid, legal and enforceable substitute provision that most nearly reflects the
original intent of the Parties. All other provisions hereof shall remain in full
force and effect in such jurisdiction and shall be liberally construed in order
to carry out the intentions of the Parties as nearly as may be possible. Such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction.

14.10 Entire Agreement; Amendment. This Agreement, together with the Schedules
and Exhibits hereto, and the Stock Purchase Agreement set forth all the
covenants, promises, agreements, warranties, representations, conditions and
understandings between the Parties with respect to the subject matter hereof and
supersede and terminate all prior agreements and understandings, written or
oral, between the Parties with respect to such subject matter. No subsequent
alteration, amendment, change or addition to this Agreement shall be binding
upon the Parties unless reduced to writing and signed by an authorized
representative of each Party.

14.11 Independent Contractors. Nothing herein shall be construed to create any
relationship of employer and employee, agent and principal, partnership or joint
venture between the Parties. Each Party is an independent contractor. Neither
Party shall assume, either directly or indirectly, any liability of or for the
other Party. Neither Party shall have the authority to bind or obligate the
other Party, and neither Party shall represent that it has such authority.

14.12 Headings. Headings used herein are for convenience only and shall not in
any way affect the construction of or be taken into consideration in
interpreting this Agreement.

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14.13 Books and Records. Any books and records to be maintained under this
Agreement by a Party or its Affiliates or Sublicensees shall be maintained in
accordance with U.S. Generally Accepted Accounting Principles in the case of
Targacept, and shall be maintained in accordance with International Financial
Reporting Standards (IFRS) in the case of GSK, consistently applied, except that
the same need not be audited.

14.14 Further Actions. Each Party shall execute, acknowledge and deliver such
further instruments, and do all such other acts, as may be necessary or
appropriate in order to carry out the expressly stated purposes and the clear
intent of this Agreement.

14.15 Parties in Interest. All of the terms and provisions of this Agreement
shall be binding upon, and shall inure to the benefit of and be enforceable by
the Parties hereto and their respective successors and permitted assigns.

14.16 Construction of Agreement. The terms and provisions of this Agreement
represent the results of negotiations between the Parties and their
representatives, each of which has been represented by counsel of its own
choosing and neither of which has acted under duress or compulsion, whether
legal, economic or otherwise. Accordingly, each of the Parties hereby waives the
application in connection with the interpretation and construction of this
Agreement of any rule of law to the effect that ambiguous or conflicting terms
or provisions contained in this Agreement shall be interpreted or construed
against the Party whose attorney prepared the Agreement as executed or any
earlier draft of this Agreement. In addition, unless the context otherwise
requires, the use of the term “subject to” shall mean “subject always to.”

14.17 Supremacy. In the event of any direct conflict between this Agreement and
any Research Plan or Early Development Plan or the Product Candidate
Commercialization Program, the terms of this Agreement shall control.

14.18 Counterparts. This Agreement may be signed in counterparts, each and every
one of which shall be deemed an original, notwithstanding variations in format
or file designation which may result from the electronic transmission, storage
and printing of copies of this Agreement from separate computers or printers.
Facsimile signatures and signatures transmitted via pdf shall be treated as
original signatures.

*—*—*—*

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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:  

/s/ J. Donald deBethizy

Name:   J. Donald deBethizy Title:   President and CEO Date:   July 27, 2007

 

SmithKline Beecham Corporation,

d/b/a GlaxoSmithKline

By:  

/s/ Donald F. Parman

Name:   Donald F. Parman Title:   Vice President & Secretary Date:  

 

 

Glaxo Group Limited By:  

/s/ Paul Williamson

Name:   Paul Williamson Title:   For and on behalf of Edinburgh Pharmaceutical
Industries Limited Corporate Director Date:  

 

 

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

Schedule 1.49

Framework

These guidelines derive from work published on the structural properties of
known drugs.1,2 The guidelines presented below set forth a method to dissect a
compound or molecule for the purpose of assignment to a series. Compounds
defined as a [********] will share a common Framework composed of one or more
[********] along with [********], together comprising [********]. The following
terms enable the analysis.

[********] means [********] in a compound or the [********]. In the event a
compound has both, the [********] will be determined from [********], unless
[********] are contained in the [********].

[********] is a [********] for which the following atomic properties are
defined: [********]. These properties apply only to [********]. [********] are
not to be included in the [********]. In cases where [********] occur in a
[********], it is accepted that [********], all of which may act as [********],
would be considered as part of the [********] assuming that the remainder of
[********] does not change.

[********] mean [********] within the compound and [********]. For example
[********] are all single [********]. [********] will be treated as two separate
[********].

[********] is the [********] that contains a key [********], for example
[********]. In general, [********] do not constitute [********], unless they
contain one of these [********]. In cases where [********] meet this criteria,
the [********] will be determined based on the following rank priority:
[********].

[********] are atoms that are [********], with these entities being a relevant
component of a [********]. [********] is not considered.

[********] are any [********] that are not essential to [********].

[********] is a [********] that is part of a [********]. [********] are
considered [********], such that [********] does not result in a [********].

Framework is the guiding principle used to establish into which [********] each
compound [********]. A compound’s Framework will be assigned based on
application of the following rules, in sequence:

 

  1. Determine all [********]

 

  2. Identify all [********]

EXECUTION VERSION      

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  3. Identify all [********]

 

  4. Eliminate all [********]

 

  5. Specify [********]

 

  6. Apply [********] to [********] and [********].

 

  7. Apply [********] to all other [********]

[********]

[********]

[********]

EXECUTION VERSION      

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Schedule 1.82

Mechanism of Action

 

       

[********]

       

[********]

 

[********]

 

[********]

 

[********]

Program

 

[********]

Indication

 

NNR Subtypes in
PTP^

 

[********]

 

[********][********]

 

[********][********]

 

[********]

Pain 2   [********]   [********]   [********] Parkinson’s Disease   [********]  
[********]   Smoking Cessation   [********]   [********]   Obesity   [********]
  [********]   Addiction   [********]   [********]       [********]   [********]
  [********]       [********][********]

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^ subject to change solely by mutual written agreement of the Parties

^^ whichever one or more of [********] Targacept determines to be applicable to
a particular NNR Subtype and Program

^^^ solely for determining whether two compounds have “substantially the same”
Mechanism of Action; to determine whether a compound (“Compound B”) has
substantially the same Mechanism of Action as another compound (“Compound A”),
(1) determine the absolute values of Compound A on the Criteria (via the
corresponding Measurement(s)) set forth above, (2) apply the respective
[********] set forth on this Schedule 1.82 [********] those absolute values and
(3) determine the absolute values of Compound B on the Criteria (via the
corresponding Measurement(s)) set forth above; if, with respect to each
Measurement, the absolute values of Compound B are within the applicable
[********] set forth on this Schedule 1.82 [********] the absolute values of
Compound A, Compound B has substantially the same Mechanism of Action as
Compound A.

EXECUTION VERSION      

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Schedule 8.2.5

Multi-Purpose Patents

 

Country

 

Filing Date

 

Application #

 

Patent #

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

EXECUTION VERSION      

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

Country

 

Filing Date

 

Application #

 

Patent #

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

EXECUTION VERSION      

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

Country

 

Filing Date

 

Application #

 

Patent #

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

EXECUTION VERSION      

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

Country

 

Filing Date

 

Application #

 

Patent #

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]  

[********]

  [********]   [********]   [********]

EXECUTION VERSION