Document:

2000 EQUITY INCENTIVE PLAN (Restricted Stock Award)

  
 Exhibit 10.5(c)

  
 2000 EQUITY INCENTIVE PLAN 
 OF TARGACEPT, INC. 
  
 Restricted Stock Award Agreement 
 (Service-Based Award) 
  

					
	Name of Participant:	 	 _____________________________
	  	 
			
	Grant Date:	 	 _____________________________
	  	 
			
	Number of Shares:	 	 _____________________________
	  	 
			
	Vesting Begins:	 	 _____________________________
	  	 

  
 THIS AGREEMENT
(together with Schedule A attached hereto, this “Agreement”), made the              day of
                                        
         (as defined below, the “Grant Date”), between Targacept, Inc., a Delaware corporation (the “Corporation”), and
                    , an employee of, or a director or other individual in service to, the Corporation or a related corporation (the
“Participant”); 
  
 R E C
I T A L S : 
  
 In
furtherance of the purposes of the 2000 Equity Incentive Plan of Targacept, Inc., as amended and as may be hereafter amended (the “Plan”), and in consideration of
                                        
Dollars ($            ) paid to the Corporation and such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Corporation and the
Participant hereby agree as follows: 
  
 1. Incorporation of
Plan. The rights and duties of the Corporation and the Participant under this Agreement shall in all respects be subject to and governed by the provisions of the Plan, the terms of which are incorporated herein by reference. In the event of any
conflict between the provisions in the Agreement and those of the Plan, the provisions of the Plan shall govern. Unless otherwise defined herein, capitalized terms in this Agreement shall have the same definitions as set forth with the Plan.

  
 2. Terms of Award. The following terms used in this
Agreement shall have the meanings set forth in this Section 2: 
  

	 	(a)	The “Participant” is
                                    .

  

	 	(b)	The “Grant Date” is
                                    .

  

	 	(c)	The “Restriction Period” is the period beginning on the Grant Date and ending on
                                     

 

	 	(d)	The number of shares of Restricted Stock subject to the restricted award granted under this Agreement shall be
                     shares (the “Shares”). 

  
 3. Grant of Restricted Award. Subject to the terms of this Agreement and the Plan, the Corporation hereby grants the
Participant an award (the “Award”) for that number of Shares of Restricted Stock as is set forth in Section 2. 
  

 4. Certificates; Dividends and Voting Rights. A certificate evidencing the Shares shall be issued
by the Corporation in the Participant’s name, or at the option of the Corporation, in the name of a nominee of the Corporation, pursuant to which the Participant shall have voting rights and shall be entitled to receive all dividends unless and
until the Shares are forfeited pursuant to the provisions of this Agreement. The certificate shall bear a legend evidencing the nature of the Shares, and the Corporation may cause the certificate to be delivered upon issuance to the Secretary of the
Corporation or to such other depository as may be designated by the Corporation as a depository for safekeeping until the forfeiture occurs or the Award is vested and earned pursuant to the terms of the Plan and this Award. Upon request of the
Administrator, the Participant shall deliver to the Corporation a stock power, endorsed in blank, relating to the Shares. Upon the vesting of the Award, the Corporation shall cause a new certificate or certificates to be issued without legend in the
name of the Participant for the Shares. 
  
 5. Vesting of
Award. 
  

	 	(a)	Subject to the terms of the Plan and the Agreement, the Award shall be deemed earned and vested upon such date or dates, and subject to such conditions, as are described on Schedule
A. Without limiting the effect of the foregoing, the Shares subject to the Award may vest in installments over a period of time, if so provided in Schedule A. 

  

	 	(b)	Notwithstanding any other provision of Section 5 herein, the Administrator has sole authority to determine whether and to what degree the Award has vested and been earned and to
interpret the terms and conditions of this Agreement and the Plan. 

  
 6. Forfeiture of Award. Except as may be otherwise provided in the Plan, in the event that (i) the employment or service of the Participant is terminated or (ii) the Participant fails to attend (either in
person or by conference telephone) at least 75% of the regular meetings of the Board of Directors in the one-year period ending
                    , and the Participant has not yet earned all or part of the Award pursuant to Section 5 and Schedule A herein, then the
Award, to the extent not earned as of the Participant’s termination date, shall be forfeited immediately upon such termination, and the Participant shall have no further rights with respect to the Award or the Shares underlying that portion of
the Award that has not yet been earned and vested. The Participant expressly acknowledges and agrees that the termination of his employment or service for any reason other than death or disability shall result in forfeiture of the Award and the
Shares to the extent the Award has not been earned and vested as of the date of his termination of service or employment. 
  
 7. No Right of Continued Employment or Service. Nothing contained in this Agreement or the Plan shall confer upon the Participant any right to
continue in the employment or service of the Corporation or a related corporation or to interfere in any way with the right of the Corporation or a related corporation to terminate the Participant’s employment or service at any time. Except as
otherwise expressly provided in the Plan or Section 6 or any other provision of this Agreement, all rights of the Participant with respect to the Award shall terminate upon termination of the employment or service of the Participant with the
Corporation or a related corporation. 
  
 8. Nontransferability
of Award. The Award shall not be transferable other than by will or the laws of intestate succession. The designation of a beneficiary does not constitute a transfer. The Participant shall not sell, transfer, assign, pledge or otherwise encumber
(“transfer”) the Shares 

  

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subject to the Award unless and until all conditions to vesting have been met and such Shares have been issued and any such proposed transfer is permitted
pursuant to the Plan and this Agreement. 
  
 9. Representations
and Warranties of Participant. The Participant represents and warrants to the Corporation that: 
  

	 	(a)	Agrees to Terms of the Plan and Agreement. The Participant has received a copy of the Plan, has read and understands the terms of the Plan and this Agreement, and agrees to
be bound by their terms and conditions. The Participant acknowledges that there may be adverse tax consequences upon acquisition or disposition of the shares subject to the Award, and that the Participant should consult a tax advisor prior to such
acquisition or disposition. 

  

	 	(b)	Purchase for Own Account for Investment. Any Shares of Common Stock acquired pursuant to the Award shall be acquired for the Participant’s own account for investment
purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). The Participant has no present intention of selling or
otherwise disposing of all or any portion of the Shares subject to the Award. 

  

	 	(c)	Access to Information. The Participant has had access to all information regarding the Corporation and its present and prospective business, assets, liabilities and financial
condition that the Participant reasonably considers important in making a decision to acquire the Shares subject to the Award, and the Participant has had ample opportunity to ask questions of, and to receive answers from, the Corporation’s
representatives concerning such matters and this investment. 

  

	 	(d)	Understanding of Risks. The Participant is fully aware of: (i) the highly speculative nature of the investment in the shares of Common Stock; (ii) the financial hazards
involved in investment in the Common Stock; (iii) the lack of liquidity of the Shares subject to the Award and the restrictions on transferability of such Shares; (iv) the qualifications and backgrounds of the management of the Corporation; and (v)
the tax consequences of investment in the shares of Common Stock. The Participant is capable of evaluating the merits and risks of this investment, has the ability to protect his own interests in this transaction and is financially capable of
bearing a total loss from this investment. 

  

	 	(e)	No General Solicitation. At no time was the Participant presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of
general advertising or solicitation in connection with the offer, sale or purchase of the Shares subject to the Award. 

  

	 	(f)	 Compliance with Securities Laws. The Shares subject to the Award have not been registered with the Securities and Exchange Commission (“SEC”) under
the Securities Act and, notwithstanding any other provision of this Agreement or the Plan to the contrary, the right to acquire any shares subject to this Award is expressly conditioned upon compliance with the Securities Act and all applicable
state 

  

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securities laws. The Participant agrees to cooperate with the Corporation to ensure compliance with such laws. 

  

	 	(g)	No Transfer Unless Registered or Exempt. None of the Corporation’s securities is presently publicly traded, and the Corporation has made no representation, covenant or
agreement as to whether there will be a public market for any of its securities. The Participant understands that he may not transfer any Shares subject to the Award unless such Shares are registered under the Securities Act and qualified under
applicable state securities laws or unless, in the opinion of counsel to the Corporation, exemptions from such registration and qualification requirements are available. The Participant understands that only the Corporation may file a registration
statement with the SEC and that the Corporation is under no obligation to do so with respect to the Shares subject to the Award. The Participant has also been advised that exemptions from registration and qualification may not be available or may
not permit the Participant to transfer all or any of the Shares subject to the Award in the amounts or at the times proposed by him. The Participant also agrees in connection with any registration of the Corporation’s securities that, upon the
request of the Corporation or the underwriters managing any public offering of the Corporation’s securities, the Participant will not sell or otherwise dispose of any shares without the prior written consent of the Corporation or such
underwriters, as the case may be, for such period of time (not to exceed 180 days) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Corporation or the underwriters may
specify. 

  

	 	(h)	Income Tax Consequences. The Corporation has made no warranties or representations to the Participant with respect to the income tax consequences of the transactions
contemplated by this Agreement, and the Participant is in no manner relying on the Corporation or its representatives for an assessment of such tax consequences. 

  
 10. Other Restrictions on Award and Shares. 
  

	 	(a)	As a condition to the issuance and delivery of shares subject to the Award, or the grant of any benefit pursuant to the terms of the Plan, the Corporation may require the
Participant or other person to become a party to a stockholders agreement, buy-sell agreement, redemption agreement, repurchase agreement or other agreement between the Corporation and stockholders of the Corporation or among stockholders of the
Corporation or such other agreements imposing such restrictions as may be required by the Corporation. Without in any way limiting the effect of the foregoing, the Participant hereby expressly acknowledges and agrees that the Corporation shall
require, prior to the issuance of any shares pursuant to this Agreement, that the Participant become a party to that certain Second Amended and Restated Stockholders Agreement dated as of November 26, 2002, by and among Targacept, Inc. and the
stockholders thereof, as amended. 

  

	 	(b)	 The Corporation may impose such restrictions on the Award and any Shares issuable pursuant to the Award as it may deem advisable, including without limitation
restrictions under the federal securities laws, or the requirements of any stock 

  

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exchange or similar organization or any blue sky or state securities laws applicable to such Shares. Notwithstanding any other provision in the Plan or the
Agreement to the contrary, the Corporation shall not be obligated to issue, deliver or transfer shares of Common Stock, to make any other distribution of benefits, or to take any other action, unless such delivery, distribution or action is in
compliance with all applicable laws, rules and regulations (including but not limited to the requirements of the Securities Act). The Corporation will be under no obligation to register the shares of Common Stock with the SEC or to effect compliance
with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or similar organization, and the Corporation will have no liability for any inability or failure to do so. The Corporation may cause
a restrictive legend to be placed on any certificate issued pursuant to the Award in such form as may be prescribed from time to time by applicable laws and regulations or as may be advised by legal counsel. 

  
 11. Withholding. The Participant acknowledges that the Corporation
shall require the Participant to pay the Corporation the amount of any federal, state, local or other tax or other amount required by any governmental authority to be withheld and paid over by the Corporation to such authority for the account of the
Participant, and the Participant agrees, as a condition to the grant of the Award and delivery of the shares, to satisfy such obligations. 
  
 12. Administration. The authority to construe and interpret this Agreement and the Plan, and to administer all aspects of the Plan, shall be vested
in the Administrator (as such term is defined in the Plan), and the Administrator shall have all powers with respect to this Agreement as are provided in the Plan. Any interpretation of the Agreement by the Administrator and any decision made by it
with respect to the Agreement is final and binding. 
  
 13.
Superseding Agreement; Binding Effect. This Agreement supersedes any statements, representations or agreements of the Corporation with respect to the grant of the Award or any related rights, and the Participant hereby waives any rights or
claims related to any such statements, representations or agreements. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective executors, administrators, next-of-kin, successors and assigns.

  
 14. Governing Law. Except as otherwise provided in the
Plan or herein, this Agreement shall be construed and enforced according to the laws of the State of Delaware, without regard to the principles of conflict of laws. 
  
 15. Amendment and Termination; Waiver. Subject to the terms of the Plan, this Agreement may be modified or amended
only by the written agreement of the parties hereto. The waiver by the Corporation of a breach of any provision of the Agreement by the Participant shall not operate or be construed as a waiver of any subsequent breach by the Participant.

  
 16. No Rights as Stockholder. Except as may be provided
in Section 4 herein, the Participant and his legal representative, legatees or distributees shall not be deemed to be the holder of any shares subject to the Award and shall not have any rights of a stockholder unless and until certificates for such
shares have been issued and delivered to him or them. 
  

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 17. Notices. Except as may be otherwise provided by the Plan, any written notices provided for in
this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business
days after mailed but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Corporation’s records, or if to the Corporation, at the
Corporation’s principal office. 
  
 18. Severability.
The provisions of this Agreement are severable and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. 
  
 IN WITNESS WHEREOF, this Agreement has been executed in behalf of the
Corporation and by the Participant on the day and year first above written. 
  

			
	TARGACEPT, INC.
		
	 By:
	 	 
	 Name:
	 	 
	 Title:
	 	 

  

	
	 Attest:

	
	  
	 Secretary

	
	 [Corporate Seal]

  

	
	PARTICIPANT
	
	 
	_____________________

  

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 2000 EQUITY INCENTIVE PLAN

 OF TARGACEPT, INC. 
  
 Restricted Stock Award Agreement 
 (Service-Based Award) 
  
 SCHEDULE A

	Grant	Date:                     . 

  
 Number of Shares Subject to Award:
                     shares. 
  
 Restriction Period: The Shares subject to the Award shall vest and be earned in installments, as provided below, subject to Section 6 and such other terms and conditions
as may be imposed by the Plan and this Agreement: 
  

			
	 Date of Vesting

	  	 Percentage of Shares Vested

	 ___________________
	  	 100.00%2005 STOCK INCENTIVE PLAN

  
 Exhibit 10.6

  
 TARGACEPT, INC. 
  
 2005 STOCK INCENTIVE PLAN 
  

  
 TARGACEPT, INC.

 2005 STOCK INCENTIVE PLAN 
  

	1.	Definitions 

  
 In addition to other terms defined herein, the following terms shall have the meanings given below: 
  
 (a) Administrator means the Board, and, upon its delegation of all or
part of its authority to administer the Plan to the Committee, the Committee. 
  
 (b) Affiliate means any Parent or Subsidiary of the Corporation, and also includes any other business entity which is controlled by, under common control with or controls the Corporation; provided, however,
that the term “Affiliate” shall be construed in a manner in accordance with the registration provisions of applicable federal securities laws. 
  
 (c) Annual Option means an Option granted on an annual basis to a Nonemployee Director of the Corporation as provided in Section 8. 

  
 (d) Award means, individually or collectively, a grant
under the Plan of an Option (including an Incentive Option, Nonqualified Option or a Director Option); a Stock Appreciation Right (including a Related SAR or a Freestanding SAR); a Restricted Award (including a Restricted Stock Award or a Restricted
Unit Award); a Performance Award (including a Performance Share Award or a Performance Unit Award); a Phantom Stock Award; a Dividend Equivalent Award; or any other award granted under the Plan. 
  
 (e) Award Agreement means an agreement (which may be in written or
electronic form, in the Administrator’s discretion, and which includes any amendment or supplement thereto) between the Corporation and a Participant specifying the terms, conditions and restrictions of an Award granted to the Participant. An
Agreement may also state such other terms, conditions and restrictions, including but not limited to terms, conditions and restrictions applicable to shares or any other benefit underlying an Award, as may be established by the Administrator.

  
 (f) Board or Board of Directors means the Board
of Directors of the Corporation. 
  
 (g) Cause shall mean,
unless the Administrator determines otherwise, a Participant’s termination of employment or service resulting from the Participant’s (i) termination for “cause” as defined under the Participant’s employment, consulting or
other agreement with the Corporation or an Affiliate, if any, or (ii) if the Participant has not entered into any such employment, consulting or other agreement (or if any such agreement does not address the effect of a “cause”
termination), then the Participant’s termination shall be for “Cause” if termination results due to the Participant’s (A) dishonesty; (B) refusal to perform his duties for the Corporation; (C) engaging in fraudulent conduct; or
(D) engaging in any conduct that could be materially damaging to the Corporation without a reasonable good faith belief that such conduct 

  

 
was in the best interest of the Corporation. The determination of “Cause” shall be made by the Administrator and its determination shall be final
and conclusive. 
  
 (h) Change in Control: 
  
 (i) General: Except as may be otherwise provided in
an individual Award Agreement or as may be otherwise required in order to comply with Code Section 409A, a Change in Control shall be deemed to have occurred on the earliest of the following dates: 
  
 (A) The date any entity or person shall have become the
beneficial owner of, or shall have obtained voting control over, thirty percent (30%) or more of the outstanding Common Stock of the Corporation; 
  
 (B) The date the stockholders of the Corporation approve a definitive agreement (X) to merge or consolidate the Corporation with or into
another corporation or other business entity (each, a “corporation”), in which the Corporation is not the continuing or surviving corporation or pursuant to which any shares of Common Stock of the Corporation would be converted into cash,
securities or other property of another corporation, other than a merger or consolidation of the Corporation in which the holders of Common Stock immediately prior to the merger or consolidation continue to own at least 50% of Common Stock, or if
the Corporation is not the surviving corporation, the common stock (or other voting securities) of the surviving corporation immediately after the merger as immediately before; provided, however, that if consummation of such merger or consolidation
is subject to the approval of federal, state or other regulatory authorities, then, unless the Administrator determines otherwise, a “Change in Control” shall not be deemed to occur until the later of the date of stockholder approval of
such merger or consolidation or the date of final regulatory approval of such merger or consolidation; or (Y) to sell or otherwise dispose of all or substantially all the assets of the Corporation; or 
  
 (C) The date there shall have been a change in a majority of
the Board of Directors of the Corporation within a 12-month period unless the nomination for election by the Corporation’s stockholders of each new Director was approved by the vote of two-thirds of the members of the Board (or a committee of
the Board, if nominations are approved by a Board committee rather than the Board) then still in office who were in office at the beginning of the 12-month period. 
  
 (For the purposes herein, the term “person” shall mean any individual, corporation, partnership,
group, association or other person, as such term is defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the
Corporation or any subsidiary thereof, and the term “beneficial owner” shall have the meaning given the term in Rule 13d-3 under the Exchange Act.) 
  

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 (D) The Administrator shall have full and final authority, in its discretion, to
determine whether a Change in Control of the Corporation has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto. 
  
 (ii) Definition Applicable to Awards subject to Code
Section 409A: Notwithstanding the preceding provisions of Section 1(h)(i), in the event that any Awards granted under the Plan are deemed to be deferred compensation subject to the provisions of Code Section 409A, then distributions related to
such Awards may be permitted, in the Administrator’s discretion, upon the occurrence of one or more of the following events (as they are defined and interpreted under Code Section 409A, related regulations, or other guidance): (A) a change in
the ownership of the Corporation, (B) a change in effective control of the Corporation, or (C) a change in the ownership of a substantial portion of the assets of the Corporation. 
  
 (i) Code means the Internal Revenue Code of 1986, as amended. 
  
 (j) Committee means the Compensation Committee of the Board appointed
to administer the Plan. 
  
 (k) Common Stock means the
common stock of Targacept, Inc., $0.001 par value. 
  
 (l)
Corporation means Targacept, Inc., a Delaware corporation, together with any successor thereto. 
  
 (m) Covered Employee shall have the meaning given the term in Section 162(m) of the Code and related regulations. 
  
 (n) Director means a member of the Board or of the board of directors
of an Affiliate. 
  
 (o) Director Option means an Option
granted to a Nonemployee Director of the Corporation as provided in Section 8. Director Options may be Initial Options or Annual Options as provided in Section 8.  
  
 (p) Disability shall, except as may be otherwise determined by the Administrator or required under Code Section 409A
or related regulations or other guidance, have the meaning given in any employment agreement, consulting agreement or other similar agreement, if any, to which a Participant is a party, or, if there is no such agreement (or if any such agreement
does not address the effect of termination due to disability), “Disability” shall mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected
to result in death, or which has lasted or can be expected to last for a continuous period of not less than 12 months. The Administrator shall have discretion to determine if a termination due to Disability has occurred. 
  
 (q) Displacement shall, as applied to any Participant, be as defined
in any employment agreement, consulting agreement or other similar agreement, if any, to which the Participant is a party, or, if there is no such agreement (or if any such agreement does not address 

  

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the effect of a termination due to displacement), “Displacement” shall mean the termination of the Participant’s employment or service due to
the elimination of the Participant’s job or position without fault on the part of the Participant (as determined by the Administrator).  
  
 (r) Dividend Equivalent Award means a right granted to a Participant pursuant to Section 13 to receive the equivalent value (in cash or shares of
Common Stock) of dividends paid on Common Stock. 
  
 (s)
Effective Date means the effective date of the Plan, as provided in Section 4. 
  
 (t) Employee means any person who is an employee of the Corporation or any Affiliate (including entities which become Affiliates after the Effective Date of the Plan). For this purpose, an individual shall be
considered to be an Employee only if there exists between the individual and the Corporation or an Affiliate the legal and bona fide relationship of employer and Employee; provided, however, that, with respect to Incentive Options,
“Employee” means any person who is considered an employee of the Corporation or any Parent or Subsidiary for purposes of Treas. Reg. Section 1.421-1(h) (or any successor provision related thereto). 
  
 (u) Exchange Act means the Securities Exchange Act of 1934, as
amended. 
  
 (v) Fair Market Value per share of the Common
Stock shall be established in good faith by the Administrator and, except as may otherwise be determined by the Administrator, the Fair Market Value shall be determined in accordance with the following provisions: (A) if the shares of Common Stock
are listed for trading on the New York Stock Exchange or the American Stock Exchange, the Fair Market Value shall be the closing sales price per share of the shares on the New York Stock Exchange or the American Stock Exchange (as applicable) on the
date immediately preceding the date an Option is granted or other determination is made (such date of determination being referred to herein as a “valuation date”), or, if there is no transaction on such date, then on the trading date
nearest preceding the valuation date for which closing price information is available, and, provided further, if the shares are quoted on the Nasdaq National Market or the Nasdaq SmallCap Market of the Nasdaq Stock Market but are not listed for
trading on the New York Stock Exchange or the American Stock Exchange, the Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system on the date immediately or nearest
preceding the valuation date for which such information is available; or (B) if the shares of Common Stock are not listed or reported in any of the foregoing, then the Fair Market Value shall be determined by the Administrator based on such
valuation measures or other factors as it deems appropriate (provided, however, that, (i) with respect to the grant of Incentive Options, the Fair Market Value shall be determined by the Administrator in accordance with the applicable provisions of
Section 20.2031-2 of the Federal Estate Tax Regulations, or in any other manner consistent with the Code Section 422 and accompanying regulations; and (ii) to the extent, if any, required by Code Section 409A, Fair Market Value shall be determined
in accordance with Section 409A, related regulations or other guidance). 
  
 (w) Freestanding SAR means an SAR that is granted without relation to an Option, as provided in Section 9. 
  

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 (x) Incentive Option means an Option that is designated by the Administrator as an Incentive
Option pursuant to Section 7 and intended to meet the requirements of incentive stock options under Code Section 422 and related regulations. 
  
 (y) Independent Contractor means an independent contractor, consultant or advisor providing services to the Corporation or an Affiliate.

  
 (z) Initial Option means an Option granted to a
Nonemployee Director of the Corporation upon initial election or appointment to the Board, as provided in Section 8. 
  
 (aa) Nonemployee Director means a Director of the Board who is not an Employee of the Corporation or an Affiliate and who is eligible to receive a
Director Option pursuant to Section 8.  
  
 (bb)
Nonqualified Option means an Option granted under Section 7 or Section 8 that is not intended to qualify as an incentive stock option under Code Section 422 and related regulations. 
  
 (cc) Option means a stock option granted under Section 7 or Section 8
that entitles the holder to purchase from the Corporation a stated number of shares of Common Stock at the price set forth in an Award Agreement.  
  
 (dd) Option Period means the term of an Option, as provided in Section 7(d) and Section 8(f). 
  
 (ee) Option Price means the price at which an Option may be exercised,
as provided in Section 7(b) and Section 8(e). 
  
 (ff)
Parent means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code. 
  
 (gg) Participant means an individual employed by, or providing services to, the Corporation or an Affiliate who satisfies the requirements of
Section 6 and is selected by the Administrator to receive an Award under the Plan. 
  
 (hh) Performance Award means a Performance Share Award and/or a Performance Unit Award, as provided in Section 11. 
  
 (ii) Performance Measures mean one or more performance factors which may be established by the Administrator with respect to an Award. Performance
factors may be based on such corporate, business unit or division and/or individual performance factors and criteria as the Administrator in its discretion may deem appropriate; provided, however, that, such performance factors shall be limited to
one or more of the following (as determined by the Administrator in its discretion): (i) cash flow; (ii) return on equity; (iii) return on assets; (iv) earnings per share; (v) achievement of clinical development or regulatory milestones; (vi)
operations expense efficiency milestones; (vii) consolidated earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); (viii) net income; (ix) operating income; (x) book value 

  

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per share; (xi) return on investment; (xii) return on capital; (xiii) improvements in capital structure; (xiv) expense management; (xv) profitability of an
identifiable business unit or product; (xvi) maintenance or improvement of profit margins; (xvii) stock price or total stockholder return; (xviii) market share; (xix) revenues or sales; (xx) costs; (xxi) working capital; (xxii) economic wealth
created; (xxiii) strategic business criteria; (xxiv) efficiency ratio(s); (xxv) achievement of division, group, function or corporate financial, strategic or operational goals; and (xxvi) comparisons with stock market indices or performances of
metrics of peer companies. To the extent that Section 162(m) of the Code is applicable, the Administrator shall, within the time and in the manner prescribed by Section 162(m) of the Code and related regulations, define in an objective fashion the
manner of calculating the Performance Measures it selects to use for Participants during any specific performance period. Such performance factors may be adjusted or modified due to extraordinary items, transactions, events or developments, or in
recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Corporation or the financial statements of the Corporation, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting
principles or business conditions, in each case as determined by the Administrator.  
  
 (jj) Performance Share means an Award granted under Section 11, in an amount determined by the Administrator and specified in an Award Agreement,
stated with reference to a specified number of shares of Common Stock, that entitles the holder to receive shares of Common Stock, a cash payment or a combination of Common Stock and cash (as determined by the Administrator), subject to the terms of
the Plan and the terms and conditions established by the Administrator. 
  
 (kk) Performance Unit means an Award granted under Section 11, in an amount determined by the Administrator and specified in an Award Agreement, that entitles the holder to receive Shares of Common Stock, a cash payment or a
combination of Common Stock and cash (as determined by the Administrator), subject to the terms of the Plan and the terms and conditions established by the Administrator. 
  
 (ll) Phantom Stock Award means an Award granted under Section 12, entitling a Participant to a payment in cash,
shares of Common Stock or a combination of cash and Common Stock (as determined by the Administrator), following the completion of the applicable vesting period and compliance with the terms of the Plan and other terms and conditions established by
the Administrator. The unit value of a Phantom Stock Award shall be based on the Fair Market Value of a share of Common Stock. 
  
 (mm) Plan means the Targacept, Inc. 2005 Stock Incentive Plan, as it may be hereafter amended and/or restated. 
  
 (nn) Prior Plan or Prior Plans means the 2000 Equity Incentive
Plan of Targacept, Inc., as amended, and any other employee stock incentive plan maintained by the Corporation prior to the Effective Date of the Plan. 
  

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 (oo) Public Offering Date means the date on which the Underwriting Agreement between the
Corporation and the managing underwriters of the Corporation’s initial public offering of its Common Stock is executed and delivered. 
  
 (pp) Related SAR means an SAR granted under Section 9 that is granted in relation to a particular Option and that can be exercised only upon the
surrender to the Corporation, unexercised, of that portion of the Option to which the SAR relates. 
  
 (qq) Restricted Award means a Restricted Stock Award and/or a Restricted Stock Unit Award, as provided in Section 10. 
  
 (rr) Restricted Stock Award means shares of Common Stock awarded to a
Participant under Section 10. Shares of Common Stock subject to a Restricted Stock Award shall cease to be restricted when, in accordance with the terms of the Plan and the terms and conditions established by the Administrator, the shares vest and
become transferable and free of substantial risks of forfeiture. 
  
 (ss) Restricted Stock Unit means a Restricted Award granted to a Participant pursuant to Section 10 which is settled (i) by the delivery of one share of Common Stock for each Restricted Stock Unit, (ii) in cash in an amount equal to
the Fair Market Value of one share of Common Stock for each Restricted Stock Unit, or (iii) in a combination of cash and Shares equal to the Fair Market Value of one share of Common Stock for each Restricted Stock Unit, as determined by the
Administrator. A Restricted Stock Unit Award represents the promise of the Corporation to deliver shares, cash or a combination thereof, as applicable, at the end of the Restriction Period, subject to compliance with the terms of the Plan and the
terms and conditions established by the Administrator. 
  
 (tt)
Retirement shall, as applied to any Participant, be as defined in any employment agreement, consulting agreement or other similar agreement, if any, to which the Participant is a party, or, if there is no such agreement (or if any such
agreement does address the effect of termination due to retirement), “Retirement” shall mean retirement in accordance with the retirement policies and procedures established by the Corporation, as determined by the Administrator. 

  
 (uu) SAR means a stock appreciation right granted under
Section 9 entitling the Participant to receive, with respect to each share of Common Stock encompassed by the exercise of such SAR, the excess of the Fair Market Value on the date of exercise over the SAR base price, subject to the terms of the Plan
and any other terms and conditions established by the Administrator. References to “SARs” include both Related SARs and Freestanding SARs, unless the context requires otherwise. 
  
 (vv) Securities Act means the Securities Act of 1933, as amended. 
  
 (ww) Subsidiary means a “subsidiary corporation,” whether
now or hereafter existing, as defined in Section 424(f) of the Code. 
  

 7 

 (xx) Termination Date means the date of termination of a Participant’s employment or service
for any reason, as determined by the Administrator in its discretion. 
  

	2.	Purpose 

  
 The purpose of the Plan is to encourage and enable selected Employees, Directors and Independent Contractors of the Corporation and its Affiliates to
acquire or to increase their holdings of Common Stock of the Corporation and other proprietary interests in the Corporation in order to promote a closer identification of their interests with those of the Corporation and its stockholders, thereby
further stimulating their efforts to enhance the efficiency, soundness, profitability, growth and stockholder value of the Corporation. This purpose will be carried out through the granting of Awards to selected Employees, Independent Contractors
and Directors, including the granting to selected Participants of Options in the form of Incentive Stock Options and Nonqualified Options; SARs in the form of Related SARs and Freestanding SARs; Restricted Awards in the form of Restricted Stock
Awards and Restricted Stock Units; Performance Awards in the form of Performance Shares and Performance Units; Phantom Stock Awards; Director Options in the form of Initial Options and Annual Options; and/or Dividend Equivalent Awards. 

  

	3.	Administration of the Plan 

  
 (a) The Plan shall be administered by the Board of Directors of the Corporation or, upon its delegation, by the Committee. Unless the Board determines
otherwise, the Committee shall be comprised solely of two or more “non-employee directors,” as such term is defined in Rule 16b-3 under the Exchange Act, or as may otherwise be permitted under Rule 16b-3. Further, to the extent required by
Section 162(m) of the Code and related regulations, the Plan shall be administered by a committee comprised of two or more “outside directors” (as such term is defined in Section 162(m) or related regulations) or as may otherwise be
permitted under Section 162(m) and related regulations. For the purposes of the Plan, the term “Administrator” shall refer to the Board and, upon its delegation to the Committee of all or part of its authority to administer the Plan, to
the Committee. Notwithstanding the foregoing, the Board shall have sole authority to grant discretionary Awards (that is, Awards other than Director Options) to Directors who are not employees of the Corporation or its Affiliates. 
  
 (b) Subject to the provisions of the Plan, the Administrator shall have full
and final authority in its discretion to take any action with respect to the Plan including, without limitation, the authority (i) to determine all matters relating to Awards, including selection of individuals to be granted Awards, the types of
Awards, the number of shares of the Common Stock, if any, subject to an Award, and all terms, conditions, restrictions and limitations of an Award; (ii) to prescribe the form or forms of Award Agreements evidencing any Awards granted under the Plan;
(iii) to establish, amend and rescind rules and regulations for the administration of the Plan; and (iv) to construe and interpret the Plan, Awards and Award Agreements made under the Plan, to interpret rules and regulations for administering the
Plan and to make all other determinations deemed necessary or advisable for administering the Plan. Except to the extent otherwise required under Code Section 409A or related regulations or other guidance, (i) the Administrator shall have the
authority, in its sole discretion, to accelerate the date that any Award which was 

  

 8 

 
not otherwise exercisable, vested or earned shall become exercisable, vested or earned in whole or in part without any obligation to accelerate such date
with respect to any other Award granted to any recipient; and (ii) the Administrator also may in its sole discretion modify or extend the terms and conditions for exercise, vesting or earning of an Award. The Administrator may determine that a
Participant’s rights, payments and/or benefits with respect to an Award (including but not limited to any shares issued or issuable and/or cash paid or payable with respect to an Award) shall be subject to reduction, cancellation, forfeiture or
recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but shall not be limited to, termination of employment for cause, violation
of policies of the Corporation or an Affiliate, breach of non-solicitation, noncompetition, confidentiality or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is determined by the Administrator
to be detrimental to the business or reputation of the Corporation or any Affiliate. In addition, the Administrator shall have the authority and discretion to establish terms and conditions of Awards (including but not limited to the establishment
of subplans) as the Administrator determines to be necessary or appropriate to conform to the applicable requirements or practices of jurisdictions outside of the United States. In addition to action by meeting in accordance with applicable laws,
any action of the Administrator with respect to the Plan may be taken by a written instrument signed by all of the members of the Board or Committee, as appropriate, and any such action so taken by written consent shall be as fully effective as if
it had been taken by a majority of the members at a meeting duly held and called. No member of the Board or Committee, as applicable, shall be liable while acting as Administrator for any action or determination made in good faith with respect to
the Plan, an Award or an Award Agreement. The members of the Board or Committee, as applicable, shall be entitled to indemnification and reimbursement in the manner provided in the Corporation’s certificate of incorporation and bylaws and/or
under applicable law.  
  
 (c) Notwithstanding the other
provisions of Section 3, the Administrator may delegate to one or more officers of the Corporation the authority to grant Awards, and to make any or all of the determinations reserved for the Administrator in the Plan and summarized in Section 3(b)
with respect to such Awards (subject to any restrictions imposed by applicable laws, rules and regulations and such terms and conditions as may be established by the Administrator); provided, however, that, to the extent required by Section 16 of
the Exchange Act or Section 162(m) of the Code, the Participant, at the time of said grant or other determination, (i) is not deemed to be an officer or director of the Corporation within the meaning of Section 16 of the Exchange Act; and (ii) is
not deemed to be a Covered Employee as defined under Section 162(m) of the Code and related regulations. To the extent that the Administrator has delegated authority to grant Awards pursuant to this Section 3(c) to one or more officers of the
Corporation, references to the Administrator shall include references to such officer or officers, subject, however, to the requirements of the Plan, Rule 16b-3, Section 162(m) of the Code and other applicable laws, rules and regulations. 

  

	4.	Effective Date 

  
 The Effective Date of the Plan shall be the day prior to the Public Offering Date. Awards may be granted under the Plan on and after the Effective Date,
but not after the date that 

  

 9 

 
is the tenth anniversary less one day after the Effective Date. Awards that are outstanding at the end of the Plan term (or such earlier termination date as
may be established by the Board pursuant to Section 15(a)) shall continue in accordance with their terms, unless otherwise provided in the Plan or an Award Agreement.  
  

	5.	Shares of Stock Subject to the Plan; Award Limitations 

  
 (a) Shares of Stock Subject to the Plan: Subject to adjustments as provided in Section 5(d), the aggregate number of shares of Common Stock that
may be issued pursuant to Awards granted under the Plan shall not exceed the sum of (i) 3,300,000 shares, plus (ii) no more than 40,286 shares of Common Stock remaining available for issuance as of the Effective Date of the Plan under any Prior
Plan, plus (iii) no more than 986,073 shares of Common Stock if and to the extent that any of such shares are subject to an award granted under a Prior Plan, which award is forfeited, cancelled, terminated, expires or lapses for any reason without
the issuance of shares pursuant to the award. Shares delivered under the Plan shall be authorized but unissued shares, treasury shares or shares purchased on the open market or by private purchase. The Corporation hereby reserves sufficient
authorized shares of Common Stock to meet the grant of Awards hereunder. 
  
 (b) Award Limitations: Notwithstanding any provision in the Plan to the contrary, the following limitations shall apply to Awards granted under the Plan, in each case subject to adjustments pursuant to Section
5(d): 
  
 (i) The maximum number of shares of
Common Stock that may be issued under the Plan pursuant to the grant of Incentive Options shall not exceed 4,326,359 shares, or such lesser number of shares as may be available under the Plan pursuant to Section 5(a) herein; 
  
 (ii) In any calendar year, no Participant may be granted
Options and SARs that are not related to an Option for more than 500,000 shares of Common Stock; 
  
 (iii) No Participant may be granted Awards in any calendar year for more than 500,000 shares of Common Stock; and 
  
 (iv) No Participant may be paid more than $1,000,000 with
respect to any cash-settled award or awards which were granted during any single calendar year.  
  
 (For purposes of Section 5(b)(ii) and (iii), an Option and Related SAR shall be treated as a single Award.) 
  
 (c) Shares Not Subject to Limitations: The following will not be applied to the share limitations of Section 5(a) above: (i) dividends, including
dividends paid in shares, or dividend equivalents paid in cash in connection with outstanding Awards; (ii) Awards which by their terms are settled in cash rather than the issuance of shares; (iii) any shares subject to an Award under the Plan which
Award is forfeited, cancelled, terminated, expires or lapses for any reason; and (iv) any shares surrendered by a Participant or withheld by the Corporation to pay the Option Price or purchase price for an Award or shares or used to satisfy any tax
withholding requirement 

  

 10 

 
in connection with the exercise, vesting or earning of an Award if, in accordance with the terms of the Plan, a Participant pays such Option Price or
purchase price or satisfies such tax withholding by either tendering previously owned shares or having the Corporation withhold shares. 
  
 (d) Adjustments: If there is any change in the outstanding shares of Common Stock because of a merger, consolidation or reorganization involving
the Corporation or an Affiliate, or if the Board of Directors of the Corporation declares a stock dividend, stock split distributable in shares of Common Stock, reverse stock split, combination or reclassification of the Common Stock, or if there is
a similar change in the capital stock structure of the Corporation or an Affiliate affecting the Common Stock, the number of shares of Common Stock reserved for issuance under the Plan shall be correspondingly adjusted, and the Administrator shall
make such adjustments to Awards and to any provisions of this Plan as the Administrator deems equitable to prevent dilution or enlargement of Awards or as may be otherwise advisable. 
  

	6.	Eligibility 

  
 An Award may be granted only to an individual who satisfies all of the following eligibility requirements on the date the Award is granted: 
  
 (a) The individual is either (i) an Employee, (ii) a Director, or (iii) an
Independent Contractor. 
  
 (b) With respect to the grant of
Incentive Options, the individual is otherwise eligible to participate under Section 6, is an Employee of the Corporation or a Parent or Subsidiary and does not own, immediately before the time that the Incentive Option is granted, stock possessing
more than 10% of the total combined voting power of all classes of stock of the Corporation or a Parent or Subsidiary. Notwithstanding the foregoing, an Employee who owns more than 10% of the total combined voting power of the Corporation or a
Parent or Subsidiary may be granted an Incentive Option if the Option Price is at least 110% of the Fair Market Value of the Common Stock, and the Option Period does not exceed five years. For this purpose, an individual will be deemed to own stock
which is attributable to him under Section 424(d) of the Code. 
  
 (c) With respect to the grant of substitute awards or assumption of awards in connection with a merger, consolidation, acquisition, reorganization or similar business combination involving the Corporation or an Affiliate, the recipient is
otherwise eligible to receive the Award and the terms of the award are consistent with the Plan and applicable laws, rules and regulations (including, to the extent necessary, the federal securities laws registration provisions and Section 424(a) of
the Code). 
  
 (d) The individual, being otherwise eligible under
this Section 6, is selected by the Administrator as an individual to whom an Award shall be granted (as defined above, a “Participant”). 
  

 11 

	7.	Options 

  
 (a) Grant of Options: Subject to the limitations of the Plan, the Administrator may in its sole and absolute discretion grant Options to such
eligible individuals in such numbers, subject to such terms and conditions, and at such times as the Administrator shall determine. Both Incentive Options and Nonqualified Options may be granted under the Plan, as determined by the Administrator;
provided, however, that Incentive Options may only be granted to Employees of the Corporation or a Parent or Subsidiary. To the extent that an Option is designated as an Incentive Option but does not qualify as such under Section 422 of the Code,
the Option (or portion thereof) shall be treated as a Nonqualified Option. An Option may be granted with or without a Related SAR. 
  
 (b) Option Price: The Option Price shall be established by the Administrator and stated in the Award Agreement evidencing the grant of the Option;
provided, that (i) the Option Price of an Incentive Option shall be no less than 100% of the Fair Market Value per share of the Common Stock as determined on the date the Option is granted (or 110% of the Fair Market Value with respect to Incentive
Options granted to an Employee who owns stock possessing more than 10% of the total voting power of all classes of stock of the Corporation or a Parent or Subsidiary, as provided in Section 6(b)); (ii) the Option Price of a Nonqualified Option shall
be no less than 85% of the Fair Market Value per share of the Common Stock on the date the Option is granted; and (iii) in no event shall the Option Price per share of any Option be less than the par value per share of the Common Stock.
Notwithstanding the foregoing, the Administrator may in its discretion authorize the grant of substitute or assumed options of an acquired entity with an Option Price not equal to at least 100% of the Fair Market Value on the date of grant, if such
options are assumed or substituted in accordance with Section 424(a) and related regulations and if the option price of any such assumed or substituted option was at least equal to 100% of the fair market value of the underlying stock on the
original date of grant.  
  
 (c) Date of Grant: An
Incentive Option shall be considered to be granted on the date that the Administrator acts to grant the Option, or on any later date specified by the Administrator as the effective date of the Option. A Nonqualified Option shall be considered to be
granted on the date the Administrator acts to grant the Option or any other date specified by the Administrator as the date of grant of the Option. 
  
 (d) Option Period and Limitations on the Right to Exercise Options: 
  
 (i) The Option Period shall be determined by the Administrator at the time the Option is granted and shall
be stated in the Award Agreement. With respect to Incentive Options, the Option Period shall not extend more than 10 years from the date on which the Option is granted (or five years with respect to Incentive Options granted to an Employee who owns
stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation or a Parent or Subsidiary, as provided in Section 6(b)). Any Option or portion thereof not exercised before expiration of the Option Period
shall terminate. The period or periods during which, and conditions pursuant to which, an Option may become exercisable shall be determined by the Administrator in its discretion, subject to the terms of the Plan. 
  

 12 

 (ii) An Option may be exercised by giving written notice to the Corporation in form
acceptable to the Administrator at such place and subject to such conditions as may be established by the Administrator or its designee. Such notice shall specify the number of shares to be purchased pursuant to an Option and the aggregate purchase
price to be paid therefor and shall be accompanied by payment of such purchase price. The total number of shares that may be acquired upon exercise of an Option shall be rounded down to the nearest whole share. No fractional shares shall be issued.
Unless an Award Agreement provides otherwise, such payment shall be in the form of cash or cash equivalent; provided that, where permitted by the Administrator and applicable laws, rules and regulations (and subject to such terms and conditions as
may be established by the Administrator), payment may also be made: 
  
 (A) By delivery (by either actual delivery or attestation) of shares of Common Stock owned by the Participant for at least six months (or for such other time period determined by the Administrator) and otherwise
acceptable to the Administrator; 
  
 (B) By
shares of Common Stock withheld upon exercise; 
  
 (C) With respect only to purchases upon exercise of an Option after a public market for the Common Stock exists, by delivery of written notice of exercise to the Corporation and delivery to a broker of written notice of exercise and
irrevocable instructions to promptly deliver to the Corporation the amount of sale or loan proceeds to pay the Option Price; 
  
 (D) By such other payment methods as may be approved by the Administrator and which are acceptable under applicable law; or 
  
 (E) By any combination of the foregoing methods. 

 
 Shares tendered or withheld in payment on the exercise of an Option shall
be valued at their Fair Market Value on the date of exercise, as determined by the Administrator. For the purposes of the Plan, a “public market” for the Common Stock shall be deemed to exist (i) upon consummation of a firm commitment
underwritten public offering of the Common Stock pursuant to an effective registration statement under the Securities Act, or (ii) if the Administrator otherwise determines that there is an established public market for the Common Stock. 

  
 (iii) Unless the Administrator determines
otherwise, no Option granted to a Participant who was an Employee at the time of grant shall be exercised unless the Participant is, at the time of exercise, an Employee as described in Section 6(a), and has been an Employee continuously since the
date the Option was granted, subject to the following: 
  
 (A) The employment relationship of a Participant shall be treated as continuing intact for any period that the Participant is on military or sick leave or 

  

 13 

 
other bona fide leave of absence, provided that the period of such leave does not exceed 90 days, or, if longer, as long as the Participant’s right to
reemployment is guaranteed either by statute or by contract. The employment relationship of a Participant shall also be treated as continuing intact while the Participant is not in active service because of Disability. The Administrator shall have
sole authority to determine whether a Participant is disabled and, if applicable, the Participant’s Termination Date. 
  
 (B) Unless the Administrator determines otherwise, if the employment of a Participant is terminated because of Disability or death, the
Option may be exercised only to the extent exercisable on the Participant’s Termination Date, except that the Administrator may in its sole discretion accelerate the date for exercising all or any part of the Option which was not otherwise
exercisable on the Termination Date. The Option must be exercised, if at all, prior to the first to occur of the following, whichever shall be applicable: (X) the close of the one-year period following the Termination Date (or such other period
stated in the Award Agreement); or (Y) the close of the Option Period. In the event of the Participant’s death, such Option shall be exercisable by such person or persons as shall have acquired the right to exercise the Option by will or by the
laws of intestate succession. 
  
 (C) Unless the
Administrator determines otherwise, if the employment of the Participant is terminated for any reason other than Disability, death or for “Cause,” his Option may be exercised to the extent exercisable on his Termination Date, except that
the Administrator may in its sole discretion accelerate the date for exercising all or any part of the Option which was not otherwise exercisable on the Termination Date. The Option must be exercised, if at all, prior to the first to occur of the
following, whichever shall be applicable: (X) the close of the period of three months next succeeding the Termination Date (or such other period stated in the Award Agreement); or (Y) the close of the Option Period. If the Participant dies following
such termination of employment and prior to the earlier of the dates specified in (X) or (Y) of this subparagraph (C), the Participant shall be treated as having died while employed under subparagraph (B) (treating for this purpose the
Participant’s date of termination of employment as the Termination Date). In the event of the Participant’s death, such Option shall be exercisable by such person or persons as shall have acquired the right to exercise the Option by will
or by the laws of intestate succession. 
  
 (D)
Unless the Administrator determines otherwise, if the employment of the Participant is terminated for “Cause,” his Option shall lapse and no longer be exercisable as of his Termination Date, as determined by the Administrator. 

  
 (E) Notwithstanding the foregoing, the
Administrator may, in its sole discretion (subject to any requirements imposed under Code Section 409A, related regulations or other guidance), accelerate the date for exercising all or any part of an Option which was not otherwise exercisable on
the Termination Date, extend 

  

 14 

 
the period during which an Option may be exercised, modify the terms and conditions to exercise, or any combination of the foregoing. 
  
 (iv) Unless the Administrator determines otherwise, an
Option granted to a Participant who was a Director but who was not an Employee at the time of grant may be exercised only to the extent exercisable on the Participant’s Termination Date (unless the termination was for Cause), and must be
exercised, if at all, prior to the first to occur of the following, as applicable: (X) the close of the period of six months next succeeding the Termination Date (or such other period stated in the Award Agreement); or (Y) the close of the Option
Period. If the services of a Participant are terminated for Cause, his Option shall lapse and no longer be exercisable as of his Termination Date, as determined by the Administrator. Notwithstanding the foregoing, the Administrator may in its sole
discretion (subject to any requirements imposed under Code Section 409A, related regulations or other guidance) accelerate the date for exercising all or any part of an Option which was not otherwise exercisable on the Termination Date, extend the
period during which an Option may be exercised, modify the other terms and conditions to exercise, or any combination of the foregoing. 
  
 (v) Unless the Administrator determines otherwise, an Option granted to a Participant who was an Independent Contractor at the time of
grant (and who does not thereafter become an Employee, in which case he shall be subject to the provisions of Section 7(d)(iii)) may be exercised only to the extent exercisable on the Participant’s Termination Date (unless the termination was
for Cause), and must be exercised, if at all, prior to the first to occur of the following, as applicable: (X) the close of the period of three months next succeeding the Termination Date (or such other period stated in the Award Agreement); or (Y)
the close of the Option Period. If the services of a Participant are terminated for Cause, his Option shall lapse and no longer be exercisable as of his Termination Date, as determined by the Administrator. Notwithstanding the foregoing, the
Administrator may in its sole discretion (subject to any requirements imposed under Code Section 409A, related regulations or other guidance) accelerate the date for exercising all or any part of an Option which was not otherwise exercisable on the
Termination Date, extend the period during which an Option may be exercised, modify the other terms and conditions to exercise, or any combination of the foregoing. 
  
 (e) Notice of Disposition: If shares of Common Stock acquired upon exercise of an Incentive Option are disposed of
within two years following the date of grant or one year following the transfer of such shares to a Participant upon exercise, the Participant shall, promptly following such disposition, notify the Corporation in writing of the date and terms of
such disposition and provide such other information regarding the disposition as the Administrator may reasonably require. 
  
 (f) Limitation on Incentive Options: In no event shall there first become exercisable by an Employee in any one calendar year Incentive Options
granted by the Corporation or any Parent or Subsidiary with respect to shares having an aggregate Fair Market Value (determined at the time an Incentive Option is granted) greater than $100,000. To the extent that any Incentive 

  

 15 

 
Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered a Nonqualified Option. 
  
 (g) Nontransferability: Incentive Options shall not be transferable
(including by sale, assignment, pledge or hypothecation) other than by will or the laws of intestate succession or, in the Administrator’s discretion, as may otherwise be permitted in accordance with Treas. Reg. Section 1.421-1(b)(2) or any
successor provision thereto. Nonqualified Options shall not be transferable (including by sale, assignment, pledge or hypothecation) other than by will or the laws of intestate succession, except as may be permitted by the Administrator in a manner
consistent with the registration provisions of the Securities Act. Except as may be permitted by the preceding sentence, an Option shall be exercisable during the Participant’s lifetime only by him or by his guardian or legal representative.
The designation of a beneficiary in accordance with Section 19(g) does not constitute a transfer. 
  

	8.	Director Options 

  
 (a) General: Each Nonemployee Director who is otherwise eligible under this Section 8 shall be granted a Director Option or Director Options as
provided in Section 8. Director Options shall be designated as Nonqualified Options. Director Options shall be subject to the other terms and conditions of the Plan except as otherwise provided in Section 8. 
  
 (b) Eligibility: A Director Option may be granted only to an
individual who is a Nonemployee Director of the Corporation on the date the Director Option is granted. A Nonemployee Director may also be eligible for other Awards (including but not limited to Options granted pursuant to Section 7), subject to the
terms of the Plan and the Administrator’s discretion. 
  
 (c)
Grant of Initial Options Upon Initial Election or Appointment to the Board: Each Nonemployee Director who is first elected or appointed to the Board after the Public Offering Date shall receive an Initial Option to purchase 25,000 shares of
Common Stock. The date of grant of such an Initial Option shall be the fifth business day after the date of the annual meeting of stockholders as to those Nonemployee Directors who are first elected at an annual meeting of stockholders and the fifth
business day after the date of election or appointment to the Board as to those Nonemployee Directors who are first elected or appointed to the Board other than at an annual meeting of stockholders. In addition, a Nonemployee Director who serves as
chairman of the Board shall also receive an Initial Option for 10,000 shares when first elected or appointed as chairman. The date of grant of such Initial Option shall be the fifth business day after the date on which the Director is first elected
or appointed as chairman of the Board. 
  
 (d) Grant of Annual
Options: Each Nonemployee Director also shall be granted, on an annual basis commencing with the 2005 annual meeting of stockholders, a Director Option to purchase 7,500 shares of Common Stock (or, a Director Option for 12,500 shares, in the
case of the chairman of the Board), provided that the Nonemployee Director continues to serve as a member of the Board as of the date of grant. The date of grant of such an Annual Option shall be the fifth business day after the date of the annual
or other stockholders meeting at which directors are elected. For the avoidance of doubt, a Nonemployee Director elected for the first time to the 

  

 16 

 
Board at an annual meeting of stockholders shall only receive an Initial Option in connection with such election, and shall not receive an Annual Option on
the fifth business day following such meeting as well. 
  
 (e)
Option Price: The price per share of Common Stock at which a Director Option may be exercised shall be 100% of the Fair Market Value per share of the Common Stock on the date the Option is granted. 
  
 (f) Option Period and Limitations on the Right to Exercise Options:

  
 (i) The Option Period of a Director Option
shall be 10 years from the date of grant. Initial Options shall become exercisable as provided in Section 8(f)(i)(A), and Annual Options shall become exercisable as provided in Section 8(f)(i)(B). To the extent that all or part of an Option becomes
exercisable but is not exercised, such Option shall accumulate and be exercisable by the Director in whole or in part at any time before the expiration of the Option Period. The total number of shares that may be acquired upon the exercise of an
Initial Option or Annual Option shall be rounded down to the nearest whole share. No fractional shares shall be issued. Any Director Option or portion thereof not exercised before expiration of the Option Period shall terminate. 
  
 (A) Initial Options. An Initial Option shall vest and
become exercisable with respect to one-third of the shares subject to the Option on the first anniversary of the date of grant, provided that the Nonemployee Director remains in service on such anniversary date. An Initial Option shall vest and
become exercisable with respect to the remaining two-thirds of the shares subject to the Option in pro rata quarterly installments over the second and third years following the date of grant so that an Initial Option will be vested and exercisable
in full on the third anniversary of the date of grant, provided that the Nonemployee Director remains in service as a Director during such periods. 
  
 (B) Annual Options. An Annual Option granted shall vest and become exercisable on the first anniversary of the date of grant,
provided that the Nonemployee Director remains in service as a Director on such anniversary date. 
  
 (ii) Unless the Administrator determines otherwise, a Director Option granted to a Nonemployee Director at the time of grant may be
exercised only to the extent exercisable on the Nonemployee Director’s Termination Date (unless the termination was for Cause), and must be exercised, if at all, prior to the first to occur of the following, as applicable: (X) the close of the
period of six months next succeeding the Termination Date (or such other period stated in the Award Agreement); or (Y) the close of the Option Period. If the services of a Nonemployee Director are terminated for Cause, his Director Option shall
lapse and no longer be exercisable as of his Termination Date, as determined by the Administrator. 
  
 (iii) A Director Option shall be exercised by giving written notice to the Administrator or its designee at such time and place as the
Administrator shall direct. 

  

 17 

 
Such notice shall specify the number of shares to be purchased pursuant to the Director Option and the aggregate purchase price to be paid therefor, and
shall be accompanied by the payment of such purchase price. Payment shall be made in accordance with Section 7(d)(ii). 
  
 (g) Nontransferability: A Director Option shall not be transferable (including by sale, assignment, pledge or hypothecation) other than by will or
the laws of intestate succession, except as may be permitted by the Administrator in a manner consistent with the registration provisions of the Securities Act. Except as may be permitted by the preceding sentence, a Director Option shall be
exercisable during the Nonemployee Director’s lifetime only by him or by his guardian or legal representative. The designation of a beneficiary in accordance with Section 19(g) does not constitute a transfer. 
  

	9.	Stock Appreciation Rights 

  
 (a) Grant of SARs: Subject to the limitations of the Plan, the Administrator may in its sole and absolute discretion grant SARs to such eligible
individuals, in such numbers, upon such terms and at such times as the Administrator shall determine. SARs may be granted to the holder of an Option (a “Related Option”) with respect to all or a portion of the shares of Common Stock
subject to the Related Option (a “Related SAR”) or may be granted separately to an eligible individual (a “Freestanding SAR”). The base price per share of an SAR shall be no less than 100% the Fair Market Value per share of the
Common Stock on the date the SAR is granted.  
  
 (b)
Related SARs: A Related SAR may be granted either concurrently with the grant of the Related Option or (if the Related Option is a Nonqualified Option) at any time thereafter prior to the complete exercise, termination, expiration or
cancellation of such Related Option; provided, however, that Related SARs must be granted in accordance with Code Section 409A, related regulations and other guidance. The base price of a Related SAR shall be equal to the Option Price of the Related
Option. Related SARs shall be exercisable only at the time and to the extent that the Related Option is exercisable (and may be subject to such additional limitations on exercisability as the Administrator may provide in the agreement), and in no
event after the complete termination or full exercise of the Related Option. Notwithstanding the foregoing, a Related SAR that is related to an Incentive Option may be exercised only to the extent that the Related Option is exercisable and only when
the Fair Market Value exceeds the Option Price of the Related Option. Upon the exercise of a Related SAR granted in connection with a Related Option, the Option shall be canceled to the extent of the number of shares as to which the SAR is
exercised, and upon the exercise of a Related Option, the Related SAR shall be canceled to the extent of the number of shares as to which the Related Option is exercised or surrendered. 
  
 (c) Freestanding SARs: An SAR may be granted without relationship to an Option (as defined above, a
“Freestanding SAR”) and, in such case, will be exercisable upon such terms and subject to such conditions as may be determined by the Administrator, subject to the terms of the Plan. 
  

 18 

 (d) Exercise of SARs: 
  
 (i) Subject to the terms of the Plan, SARs shall be exercisable in whole or in part upon such terms and
conditions as may be established by the Administrator and stated in the applicable Award Agreement. The period during which an SAR may be exercisable shall not exceed 10 years from the date of grant or, in the case of Related SARs, such shorter
Option Period as may apply to the Related Option. Any SAR or portion thereof not exercised before expiration of the period established by the Administrator shall terminate. 
  
 (ii) SARs may be exercised by giving written notice to the Corporation in form acceptable to the
Administrator at such place and subject to such terms and conditions as may be established by the Administrator or its designee. Unless the Administrator determines otherwise, the date of exercise of an SAR shall mean the date on which the
Corporation shall have received proper notice from the Participant of the exercise of such SAR. 
  
 (iii) Each Participant’s Award Agreement shall set forth the extent to which the Participant shall have the right to exercise an SAR
following termination of the Participant’s employment or service with the Corporation. Such provisions shall be determined in the sole discretion of the Administrator, need not be uniform among all SARs issued pursuant to this Section 9, and
may reflect distinctions based on the reasons for termination of employment. Notwithstanding the foregoing, unless the Administrator determines otherwise, no SAR may be exercised unless the Participant is, at the time of exercise, an eligible
Participant, as described in Section 6, and has been a Participant continuously since the date the SAR was granted, subject to the provisions of Sections 7(d)(iii), (iv) and (v). 
  
 (e) Payment Upon Exercise: Subject to the limitations of the Plan, upon the exercise of an SAR, a Participant shall
be entitled to receive payment from the Corporation in an amount determined by multiplying (i) the difference between the Fair Market Value of a share of Common Stock on the date of exercise of the SAR over the base price of the SAR by (ii) the
number of shares of Common Stock with respect to which the SAR is being exercised. Notwithstanding the foregoing, the Administrator in its discretion may limit in any manner the amount payable with respect to an SAR. The consideration payable upon
exercise of an SAR shall be paid in cash, shares of Common Stock (valued at Fair Market Value on the date of exercise of the SAR) or a combination of cash and shares of Common Stock, as determined by the Administrator. Notwithstanding the foregoing,
to the extent required to ensure that an SAR is not subject to, or complies with, Code Section 409A, related regulations, and other guidance, (i) an SAR shall be settled solely for shares of Common Stock of the Corporation, which Common Stock is
traded on an established securities market, and which SAR does not include any feature for the deferral of compensation other than the deferral of recognition of income until the exercise of the SAR; or (ii) an SAR shall be structured in a manner
designed to be exempt from, or to comply with, the requirements of Code Section 409A. No fractional shares of Common Stock will be issuable upon exercise of the SAR and, unless otherwise provided in the applicable Agreement, the Participant will
receive cash in lieu of fractional shares. 
  

 19 

 (f) Nontransferability: Unless the Administrator determines otherwise, (i) SARs shall not be
transferable (including by sale, assignment, pledge or hypothecation) other than by will or the laws of intestate succession, and (ii) SARs may be exercised during the Participant’s lifetime only by him or by his guardian or legal
representative. The designation of a beneficiary in accordance with Section 19(g) does not constitute a transfer. 
  

	10.	Restricted Awards 

  
 (a) Grant of Restricted Awards: Subject to the limitations of the Plan, the Administrator may in its sole and absolute discretion grant Restricted
Awards to such individuals in such numbers, upon such terms and at such times as the Administrator shall determine. Such Restricted Awards may be in the form of Restricted Stock Awards and/or Restricted Stock Units that are subject to certain
conditions, which conditions must be met in order for the Restricted Award to vest and be earned (in whole or in part) and no longer subject to forfeiture. Restricted Stock Awards shall be payable in shares of Common Stock. Restricted Stock Units
shall be payable in cash or whole shares of Common Stock, or partly in cash and partly in whole shares of Common Stock, in accordance with the terms of the Plan and the discretion of the Administrator. The Administrator shall determine the nature,
length and starting date of the period, if any, during which a Restricted Award may be earned (the “Restriction Period”), and shall determine the conditions which must be met in order for a Restricted Award to be granted or to vest or be
earned (in whole or in part), which conditions may include, but are not limited to, payment of a stipulated purchase price, attainment of performance objectives, continued service or employment for a certain period of time (or a combination of
attainment of performance objectives and continued service), Retirement, Displacement, Disability, death, or any combination of such conditions. Notwithstanding the foregoing, Restricted Awards that vest based solely on continued service or the
passage of time shall be subject to a minimum Restriction Period of one year (except in the case of (i) Restricted Awards assumed or substituted in connection with mergers, acquisitions or other business transactions, (ii) Restricted Awards granted
in connection with the recruitment or hiring of a Participant, and/or (iii) Restricted Awards granted pursuant to any incentive compensation or bonus program established by the Corporation). In the case of Restricted Awards based upon
performance criteria, or a combination of performance criteria and continued service, the Administrator shall determine the Performance Measures applicable to such Restricted Awards (subject to Section 1(ii)).  
  
 (b) Vesting of Restricted Awards: Subject to the terms of the Plan and
Code Section 409A, related regulations or other guidance, the Administrator shall have sole authority to determine whether and to what degree Restricted Awards have vested and been earned and are payable and to establish and interpret the terms and
conditions of Restricted Awards. The Administrator may (subject to any restrictions imposed under Code Section 409A, related regulations or other guidance) accelerate the date that any Restricted Award granted to a Participant shall be deemed to be
vested or earned in whole or in part, without any obligation to accelerate such date with respect to other Restricted Awards granted to any Participant. 
  
 (c) Forfeiture of Restricted Awards: Unless the Administrator determines otherwise, if the employment or service of a Participant shall be
terminated for any reason and all or any part of a Restricted Award has not vested or been earned pursuant to the terms of the Plan and the 

  

 20 

 
individual Award, such Award, to the extent not then vested or earned, shall be forfeited immediately upon such termination and the Participant shall have no
further rights with respect thereto. 
  
 (d) Dividend and
Voting Rights; Share Certificates: The Administrator shall have sole discretion to determine whether a Participant shall have dividend rights, voting rights or other rights as a stockholder with respect to shares subject to a Restricted Award
which has not yet vested or been earned. If the Administrator so determines, a certificate or certificates for shares of Common Stock subject to a Restricted Award may be issued in the name of the Participant as soon as practicable after the Award
has been granted; provided, however, that, notwithstanding the foregoing, the Administrator shall have the right to retain custody of certificates evidencing the shares subject to a Restricted Award and to require the Participant to deliver to the
Corporation a stock power, endorsed in blank, with respect to such Award, until such time as the Restricted Award vests (or is forfeited) and is no longer subject to a substantial risk of forfeiture. 
  
 (e) Nontransferability: Unless the Administrator determines otherwise,
Restricted Awards that have not vested shall not be transferable (including by sale, assignment, pledge or hypothecation) other than by will or the laws of intestate succession, and the recipient of a Restricted Award shall not sell, transfer,
assign, pledge or otherwise encumber shares subject to the Award until the Restriction Period has expired and until all conditions to vesting have been met. The designation of a beneficiary in accordance with Section 19(g) does not constitute a
transfer. 
  

	11.	Performance Awards 

  
 (a) Grant of Performance Awards: Subject to the terms of the Plan, the Administrator may in its discretion grant Performance Awards to such
eligible individuals upon such terms and conditions and at such times as the Administrator shall determine. Performance Awards may be in the form of Performance Shares and/or Performance Units. An Award of a Performance Share is a grant of a right
to receive shares of Common Stock, the cash value thereof, or a combination thereof (in the Administrator’s discretion), which is contingent upon the achievement of performance or other objectives during a specified period and which has a value
on the date of grant equal to the Fair Market Value of a share of Common Stock. An Award of a Performance Unit is a grant of a right to receive shares of Common Stock or a designated dollar value amount of Common Stock which is contingent upon the
achievement of performance or other objectives during a specified period, and which has an initial value determined in a dollar amount established by the Administrator at the time of grant. Subject to Section 5(b), the Administrator shall have
complete discretion in determining the number of Performance Units and/or Performance Shares granted to any Participant. The Administrator shall determine the nature, length and starting date of the period during which a Performance Award may be
earned (the “Performance Period”), and shall determine the conditions which must be met in order for a Performance Award to be granted or to vest or be earned (in whole or in part), which conditions may include but are not limited to
specified performance objectives, continued service or employment for a certain period of time, or a combination of such conditions. Subject to Section 

  

 21 

 
1(ii), the Administrator shall determine the Performance Measures to be used in valuing Performance Awards. 
  
 (b) Earning of Performance Awards: Subject to the terms of the Plan
and the requirements of Code Section 409A, related regulations or other guidance, the Administrator shall have sole authority to determine whether and to what degree Performance Awards have been earned and are payable and to interpret the terms and
conditions of Performance Awards and the provisions of Section 11. The Administrator, in its sole and absolute discretion, may (subject to any restrictions imposed under Code Section 409A, related regulations or other guidance) accelerate the date
that any Performance Award granted to a Participant shall be deemed to be earned in whole or in part, without any obligation to accelerate such date with respect to other Awards granted to any Participant. 
  
 (c) Form of Payment: Payment of the amount to which a Participant
shall be entitled upon earning a Performance Award shall be made in cash, shares of Common Stock, or a combination of cash and shares of Common Stock, as determined by the Administrator in its sole discretion. Payment may be made in a lump sum or in
installments upon such terms as may be established by the Administrator. 
  
 (d) Forfeiture of Performance Awards: Unless the Administrator determines otherwise, if the employment or service of a Participant shall terminate for any reason and the Participant has not earned all or part
of a Performance Award pursuant to the terms of the Plan and individual Award, such Award, to the extent not then earned, shall be forfeited immediately upon such termination and the Participant shall have no further rights with respect thereto.

  
 (e) Nontransferability: Unless the Administrator
determines otherwise, Performance Awards that have not been earned shall not be transferable (including by sale, assignment, pledge or hypothecation) other than by will or the laws of intestate succession, and the recipient of a Performance Award
shall not sell, transfer, assign, pledge or otherwise encumber any shares subject to the Award until the Performance Period has expired and until the conditions to earning the Award have been met. The designation of a beneficiary in accordance with
Section 19(g) does not constitute a transfer. 
  

	12.	Phantom Stock Awards 

  
 (a) Grant of Phantom Stock Awards: Subject to the terms of the Plan, the Administrator may in its discretion grant Phantom Stock Awards to such
eligible individuals, in such numbers, upon such terms and at such times as the Administrator shall determine. A Phantom Stock Award is an Award to a Participant of a number of hypothetical share units with respect to shares of Common Stock, with a
value based on the Fair Market Value of a share of Common Stock. 
  
 (b) Vesting of Phantom Stock Awards: Subject to the terms of the Plan and the requirements of Code Section 409A, related regulations or other guidance, the Administrator shall have sole authority to determine whether and to what
degree Phantom Stock Awards have vested and are payable and to interpret the terms and conditions of Phantom Stock Awards. 
  

 22 

 (c) Forfeiture of Phantom Stock Awards: Unless the Administrator determines otherwise, if the
employment or service of a Participant shall be terminated for any reason and all or any part of a Phantom Stock Award has not vested and become payable pursuant to the terms of the Plan and the individual Award, such Award, to the extent not then
vested or earned, shall be forfeited immediately upon such termination and the Participant shall have no further rights with respect thereto. 
  
 (d) Payment of Phantom Stock Awards: Upon vesting of all or a part of a Phantom Stock Award and satisfaction of such other terms and conditions as
may be established by the Administrator, the Participant shall be entitled to a payment of an amount equal to the Fair Market Value of one share of Common Stock with respect to each such Phantom Stock unit which has vested. Payment may be made, in
the discretion of the Administrator, in cash or in shares of Common Stock valued at their Fair Market Value on the applicable vesting date or dates (or other date or dates determined by the Administrator), or in a combination thereof. The
Administrator may, however, establish a limitation on the amount payable in respect of each share of Phantom Stock. Payment may be made in a lump sum or upon such terms as may be established by the Administrator. 
  
 (e) Nontransferability: Unless the Administrator determines otherwise,
(i) Phantom Stock Awards that have not vested shall not be transferable (including by sale, assignment, pledge or hypothecation) other than by will or the laws of intestate succession, (ii) Phantom Stock Awards may be exercised during the
Participant’s lifetime only by him or by his guardian or legal representative, and (iii) shares of Common Stock (if any) subject to a Phantom Stock Award may not be sold, transferred, assigned, pledged or otherwise encumbered until the Phantom
Stock Award has vested and all other conditions established by the Administrator have been met. The designation of a beneficiary in accordance with Section 19(g) does not constitute a transfer. 
  

	13.	Dividends and Dividend Equivalents 

  
 The Administrator may, in its sole discretion, provide that Awards granted under the Plan earn dividends or dividend equivalents. Such dividends or
dividend equivalents may be paid currently or may be credited to a Participant’s account. Any crediting of dividends or dividend equivalents may be subject to such restrictions and conditions as the Administrator may establish, including
reinvestment in additional shares of Common Stock or share equivalents. 
  

	14.	No Right or Obligation of Continued Employment or Service 

  
 Neither the Plan, the grant of an Award nor any other action related to the Plan shall confer upon the Participant any right to continue in the service of
the Corporation or an Affiliate as an Employee, Director or Independent Contractor or to interfere in any way with the right of the Corporation or an Affiliate to terminate the Participant’s employment or service at any time. 

  

	15.	Amendment and Termination of the Plan 

  
 (a) Amendment and Termination of Plan: The Plan may be amended, altered and/or terminated at any time by the Board; provided, that (i) approval of
an amendment to the Plan by 

  

 23 

 
the stockholders of the Corporation shall be required to the extent, if any, that stockholder approval of such amendment is required by applicable law, rule
or regulation; and (ii) except for adjustments made pursuant to Section 5(d), the Option Price for any outstanding Option or base price of any outstanding SAR may not be decreased after the date of grant, nor may any outstanding Option or SAR be
surrendered to the Corporation as consideration for the grant of a new Option or SAR with a lower Option Price or base price than the original Option or SAR, as the case may be, without stockholder approval of any such action. No action to amend or
terminate the Plan shall permit the acceleration of the time or schedule of any payment of amounts deemed to involve the deferral of compensation under Code Section 409A, except as may be otherwise permitted under Section 409A, related regulations
or other guidance. 
  
 (b) Amendment of Awards: The
Administrator may amend, alter or terminate any Award granted under the Plan, prospectively or retroactively, but such amendment, alteration or termination of an Award shall not, without the consent of the recipient of an outstanding Award,
materially adversely affect the rights of the recipient with respect to the Award. 
  
 (c) Unilateral Authority of Administrator to Modify Plan and Awards: Notwithstanding Section 15(a) and Section 15(b) herein, the following provisions shall apply: 
  
 (i) The Administrator shall have unilateral authority to
amend the Plan and any Award (without Participant consent and without stockholder approval, unless such stockholder approval is required by applicable laws, rules or regulations) to the extent necessary to comply with applicable laws, rules or
regulations or changes to applicable laws, rules or regulations (including but not limited to Code Section 409A and Code Section 422 or related regulations or other guidance and federal securities laws). 
  
 (ii) The Administrator shall have unilateral authority to
make adjustments to the terms and conditions of Awards in recognition of unusual or nonrecurring events affecting the Corporation or any Affiliate, or the financial statements of the Corporation or any Affiliate, or of changes in accounting
principles, if the Administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or necessary or appropriate to comply
with applicable accounting principles. 
  
 (d) Cash
Settlement: Notwithstanding any provision of the Plan, an Award or an Award Agreement to the contrary, the Administrator may (subject to any requirements imposed under Code Section 409A, related regulations or other guidance) cause any Award (or
portion thereof) granted under the Plan to be canceled in consideration of an alternative award or cash payment of an equivalent cash value, as determined by the Administrator in its sole discretion, made to the holder of such canceled Award.

  

	16.	Restrictions on Awards and Shares 

  
 The Corporation may impose such restrictions on Awards, shares and any other benefits underlying Awards hereunder as it may deem advisable, including
without limitation restrictions under the federal securities laws, the requirements of any stock exchange or similar organization 

  

 24 

 
and any blue sky, state or foreign securities laws applicable to such securities. Notwithstanding any other Plan provision to the contrary, the Corporation
shall not be obligated to issue, deliver or transfer shares of Common Stock under the Plan, make any other distribution of benefits under the Plan, or take any other action, unless such delivery, distribution or action is in compliance with all
applicable laws, rules and regulations (including but not limited to the requirements of the Securities Act). The Corporation may cause a restrictive legend to be placed on any certificate issued pursuant to an Award hereunder in such form as may be
prescribed from time to time by applicable laws and regulations or as may be advised by legal counsel. 
  

	17.	Change in Control 

  
 (a) Notwithstanding any other provision of the Plan to the contrary, and except as may be otherwise provided in an Award Agreement or required under Code
Section 409A, related regulations or other guidance, in the event of a Change in Control: 
  
 (i) All Options and SARs outstanding as of the date of such Change in Control shall become fully exercisable, whether or not then
otherwise exercisable. 
  
 (ii) Any restrictions,
including but not limited to the Restriction Period, Performance Period, performance criteria and/or vesting conditions applicable to any Restricted Award, Performance Award and/or Phantom Stock Award, shall be deemed to have been met, and such
Awards shall become fully vested, earned and payable to the fullest extent of the original grant of the applicable Award. 
  
 (b) Notwithstanding the foregoing, in the event of a merger, share exchange, reorganization, sale of all or substantially all of the assets of the
Corporation or other similar transaction or event affecting the Corporation or its stockholders or an Affiliate, the Administrator may, in its sole and absolute discretion, determine that any or all Awards granted pursuant to the Plan shall not vest
or become exercisable on an accelerated basis, if the Corporation or the surviving or acquiring corporation, as the case may be, shall have taken such action, including but not limited to the assumption of Awards granted under the Plan or the grant
of substitute awards (in either case, with substantially similar terms or equivalent economic benefits as Awards granted under the Plan), as the Administrator determines to be equitable or appropriate to protect the rights and interests of
Participants under the Plan. For the purposes herein, if the Committee is acting as the Administrator authorized to make the determinations provided for in this Section 17(b), the Committee shall be appointed by the Board of Directors, two-thirds of
the members of which shall have been Directors of the Corporation prior to the merger, share exchange, reorganization or other business combination affecting the Corporation or an Affiliate.  
  

	18.	Compliance with Code Section 409A 

  
 (a) General: Notwithstanding any other provision in the Plan or an Award to the contrary, if and to the extent that Section 409A of the Code is
deemed to apply to the Plan or any Award granted under the Plan, it is the general intention of the Corporation that the Plan and all such Awards shall comply with Code Section 409A, related regulations or other guidance, and 

  

 25 

 
the Plan and any such Award shall, to the extent practicable, be construed in accordance therewith. Deferrals of shares issuable pursuant to an Option, an
SAR settled in shares of Common Stock, a Restricted Award or any other Award otherwise exempt from Code Section 409A in a manner that would cause Code Section 409A to apply shall not be permitted. Without in any way limiting the effect of the
foregoing, in the event that Code Section 409A, related regulations or other guidance require that any special terms, provisions or conditions be included in the Plan or any Award, then such terms, provisions and conditions shall, to the extent
practicable, be deemed to be made a part of the Plan or Award, as applicable. Further, in the event that the Plan or any Award shall be deemed not to comply with Code Section 409A or any related regulations or other guidance, then neither the
Corporation, the Administrator nor its or their designees or agents shall be liable to any Participant or other person for actions, decisions or determinations made in good faith. 
  
 (b) Specific Terms Applicable to Awards Subject to Code Section 409A: Without limiting the effect of Section 18(a),
above, and notwithstanding any other provision in the Plan to the contrary, the following provisions shall, to the extent required under Code Section 409A, related regulations or other guidance, apply with respect to Awards deemed to involve the
deferral of compensation under Code Section 409A: 
  
 (i) Distributions: Distributions may be made with respect to Awards subject to Code Section 409A not earlier than upon the occurrence of one or more of the following events: (A) separation of service; (B) disability; (C) death; (D) a
specified time or pursuant to a fixed schedule; (E) a change in the ownership or effective control of the Corporation, or in the ownership of a substantial portion of the assets of the Corporation; or (F) the occurrence of an unforeseeable
emergency. Each of the preceding distribution events shall be defined and interpreted in accordance with Code Section 409A and related regulations or other guidance. 
  
 (ii) Key Employees: With respect to Participants who are “key employees” (as defined in
Code Section 409A, related regulations or other guidance), a distribution due to separation of service may not be made before the date that is six months after the date of separation of service (or, if earlier, the date of death of the Participant),
except as may be otherwise permitted pursuant to Code Section 409A, related regulations or other guidance. To the extent that a Participant is subject to this section and a distribution is to be paid in installments, through an annuity, or in some
other manner where payment will be periodic, the Participant shall be paid, during the seventh month following separation from service, the aggregate amount of payments he would have received but for the application of this section; all remaining
payments shall be made in their ordinary course. The previous sentence shall be applicable only if and to the extent that it complies with Code Section 409A, related regulations and other applicable guidance. 
  
 (iii) No Acceleration: Unless permissible under Code
Section 409A, related regulations or other guidance, acceleration of the time or schedule of any payment under the Plan is prohibited, except that, to the extent permitted by the Administrator and to the extent such exceptions do not violate Code
Section 409A, the following accelerations may be permitted in an Award: 
  
 (A) As necessary to fulfill a domestic relations order (as defined in Code Section 414(p)(1)(B)); 
  

 26 

 (B) As necessary to comply with a certificate of divestiture (as defined in Code Section
1043(b)(2)); and 
  
 (C) To pay the Federal
Insurance Contributions Act tax imposed under Code Sections 3101 and 3121(v)(2) on amounts deferred under the Plan (the “FICA Amount”), including the income tax at source on wages imposed under Code Section 3401 on the FICA Amount, and to
pay the additional income tax at source of wages attributable to additional Code Section 3401 wages and taxes. 
  
 (iv) Short-Term Deferrals: Except to the extent otherwise required or permitted under Code Section 409A, related regulations or
other guidance, the Administrator shall (unless an individual Award Agreement provides otherwise) provide that distributions pursuant to Awards must be made no later than the later of (A) the date that is 2-1/2 months from the end of the
Participant’s first taxable year in which the amount is no longer subject to a substantial risk of forfeiture; or (B) the date that is 2-1/2 months from the end of the Corporation’s first taxable year in which the amount is no longer
subject to a substantial risk of forfeiture. 
  
 (v) Deferral Elections:  
  
 (A) In the sole discretion of the Administrator, a Participant may be permitted to make an election as to the time and form of any distribution from an Award, provided that, except as specified in (B) and (C) below, such election is made
not later than the close of the taxable year preceding the taxable year in which the services for which the Award is granted are to be performed, or at such other time or times as may be permitted under Code Section 409A, related regulations or
other guidance. 
  
 (B) In the case of the first
year in which the Participant becomes eligible to participant in the Plan, the election described in (A) may be made with respect to services to be performed subsequent to the election within 30 days after the date the Participant becomes eligible
to participate in the Plan. 
  
 (C) In the case
of any performance-based compensation (as that term is defined in Code Section 409A, related regulations or other guidance), where such compensation is based on services performed over a period of at least 12 months, the election described in (A)
may be made no later than six months before the end of the period. 
  
 (vi) To the extent that the Administrator, in its sole discretion, permits a subsequent election to delay a payment or change the form of payment that has been specified under (A), (B) or (C) above, the following
provisions shall apply: 
  
 (A) Such election may
not take effect until 12 months after the date on which the election is made; 
  

 27 

 (B) Where the payment is to be made for reasons other than death, disability or
unforeseen hardship, as those terms are defined in Section 18(b)(i), above, the first payment with respect to which such election is made must be deferred for a period of not less than five years from the date such payment would otherwise have been
made; and 
  
 (C) Any election related to a
payment based upon separation from service, as that term is defined in Section 18(b)(i), above, may not be made less than 12 months prior to the date of the first scheduled payment hereunder. 
  

	19.	General Provisions 

  
 (a) Stockholder Rights: Except as otherwise determined by the Administrator (and subject to the provisions of Section 10(d) regarding Restricted
Awards), a Participant and his legal representative, legatees or distributees shall not be deemed to be the holder of any shares subject to an Award and shall not have any rights of a stockholder unless and until certificates for such shares have
been issued and delivered to him or them under the Plan. A certificate or certificates for shares of Common Stock acquired upon exercise of an Option or SAR shall be promptly issued in the name of the Participant (or his beneficiary) and distributed
to the Participant (or his beneficiary) as soon as practicable following receipt of notice of exercise and, with respect to Options, payment of the Option Price (except as may otherwise be determined by the Corporation in the event of payment of the
Option Price pursuant to Section 7(d)(ii)(C)). Except as otherwise provided in Section 10(d) regarding Restricted Awards, a certificate for any shares of Common Stock issuable pursuant to a Restricted Award, Performance Award or Phantom Stock Award
shall be promptly issued in the name of the Participant (or his beneficiary) and distributed to the Participant (or his beneficiary) after the Award (or portion thereof) has vested or been earned. In no event will the issuance of certificates
pursuant to the exercise of Options, settlement of SARs in shares of Common Stock, vesting of Restricted Awards or vesting of other Awards otherwise exempt from Code Section 409A be delayed in a manner that would cause the Award to be construed to
involve the deferral of compensation under Code Section 409A. 
  
 (b) Withholding: The Corporation shall withhold all required local, state, federal, foreign and other taxes and any other amount required to be withheld by any governmental authority or law from any amount payable in cash with
respect to an Award. Prior to the delivery or transfer of any certificate for shares or any other benefit conferred under the Plan, the Corporation shall require any recipient of an Award to pay to the Corporation in cash the amount of any tax or
other amount required by any governmental authority to be withheld and paid over by the Corporation to such authority for the account of such recipient. Notwithstanding the foregoing, the Administrator may establish procedures to permit a recipient
to satisfy such obligation in whole or in part, and any local, state, federal, foreign or other income tax obligations relating to such an Award, by electing (the “election”) to have the Corporation withhold shares of Common Stock from the
shares to which the recipient is entitled. The number 

  

 28 

 
of shares to be withheld shall have a Fair Market Value as of the date that the amount of tax to be withheld is determined as nearly equal as possible to
(but not exceeding) the amount of such obligations being satisfied. Each election must be made in writing to the Administrator in accordance with election procedures established by the Administrator. 
  
 (c) Section 16(b) Compliance: To the extent that any Participants in
the Plan are subject to Section 16(b) of the Exchange Act, it is the general intention of the Corporation that transactions under the Plan shall comply with Rule 16b-3 under the Exchange Act and that the Plan shall be construed in favor of such Plan
transactions meeting the requirements of Rule 16b-3 or any successor rules thereto. Notwithstanding anything in the Plan to the contrary, the Administrator, in its sole and absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to Participants who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Participants. 
  
 (d) Code Section 162(m) Performance-Based Compensation. To the extent
to which Section 162(m) of the Code is applicable, the Corporation intends that compensation paid under the Plan to Covered Employees will, to the extent practicable, constitute “qualified performance-based compensation” within the meaning
of Section 162(m) and related regulations, unless otherwise determined by the Administrator. Accordingly, Awards granted to Covered Employees which are intended to qualify for the performance-based exception under Code Section 162(m) and related
regulations shall be deemed to include any such additional terms, conditions, limitations and provisions as are necessary to comply with the performance-based compensation exemption of Section 162(m), unless the Administrator, in its discretion,
determines otherwise. 
  
 (e) Unfunded Plan; No Effect on Other
Plans: 
  
 (i) The Plan shall be unfunded,
and the Corporation shall not be required to create a trust or segregate any assets that may at any time be represented by Awards under the Plan. The Plan shall not establish any fiduciary relationship between the Corporation and any Participant or
other person. Neither a Participant nor any other person shall, by reason of the Plan, acquire any right in or title to any assets, funds or property of the Corporation or any Affiliate, including, without limitation, any specific funds, assets or
other property which the Corporation or any Affiliate, in their discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the Common Stock or other amounts, if any, payable under
the Plan, unsecured by any assets of the Corporation or any Affiliate. Nothing contained in the Plan shall constitute a guarantee that the assets of such entities shall be sufficient to pay any benefits to any person. 
  
 (ii) The amount of any compensation deemed to be received by
a Participant pursuant to an Award shall not constitute compensation with respect to which any other employee benefits of such Participant are determined, including, without limitation, benefits under any bonus, pension, profit sharing, life
insurance or salary continuation 

  

 29 

 
plan, except as otherwise specifically provided by the terms of such plan or as may be determined by the Administrator. 
  
 (iii) The adoption of the Plan shall not affect any other
stock incentive or other compensation plans in effect for the Corporation or any Affiliate, nor shall the Plan preclude the Corporation from establishing any other forms of stock incentive or other compensation for employees or service providers of
the Corporation or any Affiliate. 
  
 (f) Applicable Law:
The Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions of any state, and in accordance with applicable federal laws of the United States. 
  
 (g) Beneficiary Designation: The Administrator may permit a
Participant to designate in writing a person or persons as beneficiary, which beneficiary shall be entitled to receive settlement of Awards (if any) to which the Participant is otherwise entitled in the event of death. In the absence of such
designation by a Participant, and in the event of the Participant’s death, the estate of the Participant shall be treated as beneficiary for purposes of the Plan, unless the Administrator determines otherwise. The Administrator shall have sole
discretion to approve and interpret the form or forms of such beneficiary designation. A beneficiary, legal guardian, legal representative or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan
and any Award Agreement applicable to the Participant, except to the extent that the Plan and/or Award Agreement provide otherwise, and to any additional restrictions deemed necessary or appropriate by the Administrator. 
  
 (h) Gender and Number: Except where otherwise indicated by the
context, words in any gender shall include any other gender, words in the singular shall include the plural and words in the plural shall include the singular. 
  

(i) Severability: If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 
  
 (j) Rules of Construction: Headings are given to the sections of this Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation or other provision of law shall be construed to refer to any amendment to or successor of such provision of law. 
  
 (k) Successors and Assigns: The Plan shall be binding upon the Corporation, its successors and assigns, and Participants, their executors,
administrators and permitted transferees and beneficiaries. 
  
 (l) Right of Offset: Notwithstanding any other provision of the Plan or an Award Agreement, the Corporation may reduce the amount of any payment or benefit otherwise payable to or on behalf of a Participant by the amount of any
obligation of the Participant to the Corporation that is or becomes due and payable. 
  
 (m) Effect of Changes in Status: Unless an individual Award Agreement provides otherwise or the Administrator, in its sole discretion, determines otherwise, an Award shall not 

  

 30 

 
be affected by any change in the terms, conditions or status of the Participant’s employment or service, provided that the Participant continues to be
in the employ of, or in service to, the Corporation or an Affiliate. Without limiting the foregoing, the Administrator has sole discretion to determine, at the time of grant of an Award or at any time thereafter, the effect, if any, on Awards
granted to a Participant if the Participant’s status as an Employee, Director or Independent Contractor changes, including but not limited to a change from full-time to part-time, or vice versa, or if other similar changes in the nature or
scope of the Participant’s employment or service occur. 
  
 IN WITNESS WHEREOF, this Targacept, Inc. 2005 Stock Incentive Plan, is, by the authority of the Board of Directors of the Corporation, executed in behalf of the Corporation, the
                     day of
                    , 2005. 
  

			
	TARGACEPT, INC.
		
	By:	 	 

			
	 Name:
	 	 

			
	 Title:
	 	 

  

	
	 ATTEST:

	
	  
	 Secretary

	
	 [Corporate Seal]

  

 31

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