Document:

Amendment No. 1, dated March 13, 2008, to Employment Agreement

 Exhibit 10.7 
 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 
 THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT dated
March 13, 2008 (this “Amendment”) amends the Employment Agreement dated February 8, 2002 (the “Agreement”) by and between Targacept, Inc., a Delaware corporation (the “Company”), and Alan
A. Musso (“Employee”). 
 R E C I T A L S : 
 WHEREAS the Agreement includes certain provisions pursuant to which Employee may be entitled to severance and other benefits upon termination of his
employment with the Company (collectively, the “Potential Severance Benefits”); and 
 WHEREAS the Company and Employee
propose to amend the Agreement to avoid adverse tax treatment of the Potential Severance Benefits under Internal Revenue Code Section 409A, related regulations and other guidance and to modify or incorporate certain additional terms.

 NOW, THEREFORE, in furtherance of the purposes described herein and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Employee hereby agree as follows: 
 1. Section 3(b) of the Agreement is hereby amended by
deleting the second sentence thereof in its entirety and replacing it with the following: 
 “The eligibility for the target bonus shall
be based upon the achievement of performance objectives established by the Board of Directors (or a compensation committee thereof) in consultation with Employer’s chief executive officer and shall be payable within thirty (30) days of the
end of each fiscal year.”; 
 2. Section 3(f) of the Agreement is hereby amended by deleting the first sentence thereof in its
entirety and replacing it with the following: 
 “Employee shall also be entitled to holidays, sick leave and other time off and to
participate in those life, health or other insurance plans and other employee pension and welfare benefit programs, plans, practices and benefits generally made available from time to time to similarly situated executives of Employer; provided that
nothing herein shall obligate Employer to continue any of such benefits for Employee if discontinued for all other similarly situated executives of Employer.” 
 3. Sections 5(a) and 8 of the Agreement are hereby amended by deleting the words “or The Nasdaq National Market” therefrom and replacing them with “(including, without limitation, the Nasdaq Stock
Market)”; 
 4. In consideration of the benefits to Employee resulting from this Amendment, Section 5(c) of the Agreement is hereby
amended by adding the following after the end of the first sentence thereof. 

 “The foregoing restrictions of this Section 5(c) shall apply only to those customers, clients
or patrons whom Employee solicited, called upon, or contacted on Employer’s behalf during the two (2) year period immediately preceding the termination of Employee’s employment under this Agreement.”; 
 5. Section 6 of the Agreement is hereby amended by deleting the text thereof in its entirety and replacing it with the following: 
 “Upon the “disability” of Employee, this Agreement may be terminated by action of the Board upon 30 days prior written notice (the
“Disability Notice”), such termination to become effective only if such disability continues. If, prior to the effective time of the Disability Notice, Employee shall recover from such disability and return to the full-time active
discharge of his duties, then the Disability Notice shall be of no further force and effect and Employee’s employment shall continue as if the same had been uninterrupted. If Employee shall not so recover from his disability and return to his
duties, then his services shall terminate at the effective time of the Disability Notice with the same force and effect as if that date had been the end of the Term originally provided for hereunder. Such termination shall not prejudice any benefits
payable to Employee that are fully vested as of the date of such termination. Prior to the effective time of the Disability Notice, Employee shall continue to earn all compensation to which Employee would have been entitled as if he had not been
disabled, such compensation to be paid at the time, in the amounts, and in the manner provided in Section 3(a). A “disability” of Employee shall be deemed to exist at all times that Employee is considered by the insurer which has
issued any policy of disability insurance owned by Employer or for which premiums are paid by Employer (the “Employer Policy”) to be totally disabled under the terms of such policy. In the event there is no Employer Policy,
“disability” shall mean the inability, by reason of physical or mental incapacity, impairment or infirmity, of Employee to perform, upon request, his regular duties required herein for six consecutive months, and the determination of the
existence or nonexistence of disability shall be made by a medical doctor who is licensed to practice medicine in the State of North Carolina mutually acceptable to the Board and to Employee (or, if Employee is incapacitated, his spouse).”;

 6. Section 7(d) of the Agreement is hereby amended by deleting clause (ii) thereof in its entirety and replacing it with the
following: 
 “(ii) Employee within one (1) year following the first occurrence of Good Reason, Employee shall be entitled to the
following:”; 
 7. Section 7(d)(A) of the Agreement is hereby amended by deleting the text thereof in its entirety and replacing it
with the following: 
 “severance, payable monthly, equal to Employee’s then current base salary for nine (9) months following
such termination or, if shorter, until such time as Employee secures other employment (the “Severance Period”); provided that, in the event the aggregate amount payable in the Severance Period based on the foregoing would exceed the
greater of: 
  

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	 	(1)	two times the lesser of: 

 (x) the sum of
Employee’s annualized compensation based upon his annual base salary for his taxable year preceding his taxable year in which his employment hereunder terminates (adjusted for any increase during that year that was expected to continue
indefinitely if Employee’s employment had not terminated); or 
 (y) the maximum amount that may be taken into account
under a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the “Code”), for the year in which Employee’s employment hereunder is terminated; or 
  

	 	(2)	the maximum amount that would be exempt under Section 409A of the Code; 

 then, Employer (or its successor) shall pay the amount of such excess to Employee in a lump sum on the date that is two and one-half months following the end of Employer’s (or its successor’s) taxable year
during which the termination of Employee’s employment occurs;”; 
 8. Section 7(d)(D) of the Agreement is hereby amended by
deleting the text thereof in its entirety and replacing it with the following: 
 “outplacement counseling services selected by Employee,
up to a maximum of $10,000 and provided that (1) such expense is incurred by Employee on or before the second anniversary of December 31 of the year during which the termination of Employee’s employment occurs and (2) such amount
is paid by Employer on or before the third anniversary of December 31 of the year during which the termination of Employee’s employment occurs.”; 
 9. Section 7(e) of the Agreement is hereby by amended by deleting the text thereof in its entirety and replacing it with the following: 
 “If Employer (or its successor) terminates Employee’s employment for Just Cause, Employee shall forfeit any unexercised vested stock options at
the date of termination. If Employee terminates his employment or if Employer (or its successor) terminates Employee’s employment without Just Cause, Employee shall have, with respect to each vested stock option, until the earlier of
(i) three (3) months or ninety (90) days (whichever is applicable to the plan pursuant to which the stock option was granted) from the date of termination or (ii) the last day of the applicable option period or option term, to
exercise such vested stock option.”; 
 10. Section 7(f) of the Agreement is hereby amended by (i) deleting the period at the
end of clause (B) thereof and replacing it with the word “or” and (ii) deleting the period at the end of clause (C) thereof and replacing it with the following: 
 “; provided that “Good Reason” pursuant to any of clauses (A), (B) or (C) above shall be conditional on (i) Employee having
provided written notice to Employer (or its successor) of the initial existence of any or all of the foregoing events within ninety (90) days of the initial existence of such event and (ii) such event continuing to exist thirty
(30) days after the date of such written notice from Employee.”; 
  

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 11. Section 7(g) of the Agreement is hereby amended by deleting the second sentence thereof in its
entirety and replacing it with the following: 
 “Employee agrees that (i) the payment of any severance or other benefits pursuant
to this Section 7 shall be contingent on the delivery by Employee to Employer of a release and waiver of legal claims related to the employment relationship between Employee and Employer in a form reasonably acceptable to Employer and
(ii) the payments and benefits provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might otherwise have or claim by operation of law, by implied contract or otherwise, except for
rights which he may have under any employee benefit plan of Employer.”; 
 12. The Agreement is hereby amended by adding the following
as Section 7(h) thereof: 
 “(h) To the extent applicable, Employer and Employee intend that this Agreement comply with
Section 409A of the Code. The parties hereby agree that this Agreement shall at all times be construed in a manner to comply with Section 409A and that should any provision be found not in compliance with Section 409A, the parties are
hereby contractually obligated to execute any and all amendments to this Agreement deemed necessary and required by legal counsel to achieve compliance with Section 409A. In the event amendments are required to be made to this Agreement to
comply with Section 409A, Employer shall use its best efforts to provide Employee with substantially the same payments he would have been entitled to pursuant to this Agreement had Section 409A not applied, but in a manner that is
compliant with Section 409A. The manner in which the immediately preceding sentence shall be implemented shall be the subject of good faith negotiations of the parties. The parties also agree that in no event shall any payment required to be
made pursuant to this Agreement that is considered deferred compensation within the meaning of Section 409A be accelerated in violation of Code Section 409A.”; 
 13. Section 9(b) of the Agreement is hereby amended by inserting the following after the first sentence thereof: 
 “To the extent necessary, the terms of Section 7(d)(B) shall be deemed incorporated into any option or similar agreement evidencing an award
made to Employee prior to or after the date hereof.”; 
 14. Section 9(j) of the Agreement is hereby amended by deleting the text
thereof in its entirety and replacing it with the following: 
 “Except as otherwise provided in this Section 9(j), any controversy
or claim arising out of or relating to this Agreement shall be settled by arbitration in accordance with Commercial Arbitration Rules of the American Arbitration Association then in effect, and judgment upon the award rendered by the arbitration
panel, which shall consist of three members, may be entered in any court having jurisdiction. Any arbitration shall be held in Winston-Salem, North Carolina, unless otherwise agreed in writing by the parties. One arbitrator shall be selected by
Employee, one arbitrator shall be selected by Employer, and the third arbitrator shall be selected by the two arbitrators selected by Employee and Employer. Notwithstanding the foregoing, any claim or dispute with respect to or arising out of any of
the covenants in Section 5 or the last sentence of Section 8, or any statutory or common law claim of patent infringement, misappropriation of trade secrets, unfair competition, unfair or deceptive trade practices, interference with
contract, or interference with actual or prospective economic or business relations, shall be excluded from this Section 9(j).”; 
  

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 15. As amended by this Amendment, the Agreement shall continue in full force and effect; and 

16. This Amendment shall be construed and enforced according to the laws of the State of North Carolina, without regard to the principles of conflicts
of laws. 
 [signature page follows] 
  

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 IN WITNESS WHEREOF, this Amendment has been executed in behalf of the Company and Employee on the day and
year first above written. 
  

			
	TARGACEPT, INC.
		
	By:	 	 /s/ J. Donald deBethizy

	Name:	 	J. Donald deBethizy
	Title:	 	President and Chief Executive Officer
	
	EMPLOYEE
		
		 	 /s/ Alan A. Musso

		 	Alan A. Musso

  

 6Employment Agreement, by and between the Company and Peter A. Zorn

 Exhibit 10.8 
 EMPLOYMENT AGREEMENT 
 THIS EMPLOYMENT AGREEMENT (“Agreement”) is made as of
March 13, 2008 by and between TARGACEPT, INC., a Delaware corporation (“Employer”), and Peter A. Zorn, an individual resident of Massachusetts (“Employee”); 
 RECITALS: 
 WHEREAS, Employer
considers the availability of Employee’s services to be important to the management and conduct of Employer’s business and desires to secure the continued availability of Employee’s services; and 
 WHEREAS, Employee is willing to make his services available to Employer on the terms and subject to the conditions set forth herein; 
 NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 
 1. Employment. For the Term (as defined in Section 2), Employee shall be employed as Vice President, Legal Affairs and General Counsel.
Employee hereby accepts and agrees to such employment, subject to the general supervision of the Board of Directors of Employer (the “Board”), the Chief Executive Officer and President. Employee shall perform such duties and shall
have such powers, authority and responsibilities as are customary for one holding the position of Vice President, Legal Affairs and General Counsel of a business similar to Employer and shall additionally render such other services and duties as may
be reasonably assigned to him from time to time by the Board, the Chief Executive Officer or the President. 
 2. Term of Employment.
This Agreement shall commence as of the date first written above (the “Effective Date”) and continue until terminated as provided in Section 6 or Section 7 (such period, the “Term”). Any termination of
this Agreement shall not affect the parties’ continuing obligations under Section 5, which shall survive any such termination. 
 3. Compensation. 
 (a) For all services rendered by Employee to Employer under this Agreement, Employer shall pay to
Employee, during the Term, a base annual salary of not less than $246,010, payable in arrears in accordance with the customary payroll practices of Employer. During the Term, Employee’s annual base salary shall be reviewed and subject to
increase in accordance with Employer’s standard policies and procedures. Without limiting the generality of the foregoing, Employee’s base annual salary shall be increased annually to the extent necessary to stay in line with the median
base salary of employees of a similar level in comparable companies as described in the then current Radford Biotechnology Compensation Report. 
 (b) Employee shall be eligible to earn an annual bonus during the Term of up to 30% of Employee’s annual base salary, or such higher amount as determined by the Board of Directors (or a compensation committee thereof). The eligibility
for the target 

 
bonus shall be based upon the achievement of performance objectives established by the Board of Directors (or a compensation committee thereof) in
consultation with Employer’s chief executive officer and shall be payable within thirty (30) days of the end of each fiscal year. 
 (c) All amounts payable hereunder shall be subject to such deductions and withholdings as shall be required by law, if any. 
 (d)
Employee shall also be entitled to holidays, sick leave and other time off and to participate in those life, health or other insurance plans and other employee pension and welfare benefit programs, plans, practices and benefits generally made
available from time to time to similarly situated executives of Employer; provided that nothing herein shall obligate Employer to continue any of such benefits for Employee if discontinued for all other similarly situated executives of Employer.
Without limiting the foregoing, Employee shall be entitled to paid vacation during each fiscal year of the Term of twenty (20) days. 
 4. Reimbursement of Expenses. Employer shall pay or reimburse Employee for all reasonable travel and other expenses incurred by Employee in performing his obligations under this Agreement and also, to the extent consistent with
Employer’s policy, for any dues and costs of appropriate professional organization and continuing professional education, in each case subject to such reasonable documentation and substantiation as Employer shall require. 
 5. Covenants of Employee. 
 (a)
Covenant Not to Compete. Employee covenants that during the “Noncompetition Period” (as defined in Section 5(g)) and within the “Noncompetition Area” (as defined in Section 5(h)), he shall not, directly or
indirectly, as principal, agent, officer, director, shareholder, member, employee, consultant or trustee, or through the agency of any person, firm, corporation, partnership, limited liability company, association or other entity (collectively,
“Entity”), engage in the “Business” (as defined in Section 5(i)). Without limiting the generality of the foregoing, Employee agrees that during the Noncompetition Period and within the Noncompetition Area, he shall
not be (i) the owner of the outstanding capital stock or other equity interests of any Entity (other than Employer or its affiliates) that, directly or indirectly, engages in the Business; or (ii) an officer, director, partner, manager,
member, consultant or employee of any Entity that, directly or indirectly, engages in the Business; provided, that this Section 5(a) shall not prevent Employee from (A) being an employee of any area or division of any Entity to the extent
that such area or division does not, directly or indirectly, engage in the Business or (B) beneficially owning less than 1% of the stock of a corporation traded on a national securities exchange (including, without limitation, The Nasdaq Stock
Market). 
 (b) Nondisclosure Covenant. The parties acknowledge that Employer and its affiliates are enterprises whose success is
attributable largely to the ownership, use and development of certain valuable confidential and proprietary information (the “Proprietary Information”), and that Employee’s employment with Employer will involve access to and
work with such information. Employee acknowledges that his relationship with Employer is a confidential relationship, and agrees that (i) he shall keep and maintain the Proprietary Information in strictest confidence, and (ii) he shall
not, either directly or indirectly, use any 

 
Proprietary Information for his own benefit, or divulge, disclose or communicate any Proprietary Information in any manner whatsoever to any person or Entity
other than to employees or agents of Employer having a need to know such Proprietary Information to perform their responsibilities on behalf of Employer, and to other persons or Entities in the normal course of Employer’s business. This
nondisclosure obligation shall apply to all Proprietary Information, whether or not Employee participated in the development thereof. Upon termination of his employment with Employer for any reason, Employee will return to Employer all Proprietary
Information in any medium and all other documents, data, materials or property of Employer (including any copies thereof) in his possession. For purposes of this Agreement, the term “Proprietary Information” shall include any and
all proprietary information related to the business of Employer and its affiliates and stockholders, or to any of their products, services, sales or operations, which is not generally known to the public, specifically including (but without
limitation): trade secrets, processes, formulae, compounds and properties thereof, data, files, research results, computer programs and related source codes and object codes, improvements, inventions, techniques, marketing plans, strategies,
forecasts, copyrightable material, suppliers, methods and manner of operations; information relating to the identity, needs and location of all past, present and prospective customers; and information with respect to the internal affairs of Employer
and its affiliates. Such Proprietary Information may or may not contain legends or other written notice that it is of a confidential or proprietary nature. The parties stipulate that, as between them, the above-described matters are important and
confidential and gravely affect the successful conduct of the business of Employer and its affiliates and that any breach of the terms of this Section 5(b) shall be a material breach of this Agreement. 
 (c) Nonsolicitation Covenant. Employee covenants that during the Noncompetition Period he shall not, directly or indirectly, on behalf of himself
or any Entity, call upon any of the customers or clients of Employer (or potential customers or clients whose business Employee solicited on behalf of Employer or about whose needs Employee gained information during his employment with Employer) for
the purpose of soliciting or providing any product or service similar to that provided by Employer, nor will he, in any way, directly or indirectly, on behalf of himself or any Entity solicit, divert or take away, or attempt to solicit, divert, or
take away any of the customers, clients, business or patrons of Employer (or potential customers or clients whose business Employee solicited on behalf of Employer or about whose needs Employee gained information during his employment with
Employer). The foregoing restrictions of this Section 5(c) shall apply only to those customers, clients, or patrons whom Employee solicited, called upon, or contacted on Employer’s behalf during the two (2) year period immediately
preceding the termination of Employee’s employment under this Agreement. Employee further covenants that during the Noncompetition Period he shall not, directly or indirectly, on behalf of himself or any Entity, solicit, induce or encourage any
person to leave the employ of Employer. 
 (d) Inventions. All inventions, designs, formulae, processes, discoveries, drawings,
improvements and developments made by Employee, either solely or in collaboration with others, during his employment with Employer, whether or not during working hours, and relating to any methods, apparatus, products, compounds, services or
deliverables which are made, furnished, sold, leased, used or developed by Employer or its affiliates or which pertain to the Business (the “Developments”) shall become and remain the sole property of Employer. Employee shall
disclose promptly in writing to Employer all such Developments. 

 
Employee acknowledges and agrees that all Developments shall be deemed “works made for hire” within the meaning of the United States Copyright Act,
as amended. If, for any reason, such Developments are not deemed works made for hire, Employee hereby assigns to Employer all of his right, title and interest (including, but not limited to, copyright and all rights of inventorship) in and to such
Developments. At the request and expense of Employer, whether during or after employment with Employer, Employee shall make, execute and deliver all application papers, assignments or instruments, and perform or cause to be performed such other
lawful acts as Employer may deem necessary or desirable in making or prosecuting applications, domestic or foreign, for patents (including reissues, continuations and extensions thereof) and copyrights related to such Developments or in vesting in
Employer full legal title to such Developments. Employee shall assist and cooperate with Employer or its representatives in any controversy or legal proceeding relating to such Developments, or to any patents, copyrights or trade secrets with
respect thereto. If for any reason Employee refuses or is unable to assist Employer in obtaining or enforcing its rights with respect to such Developments, he hereby irrevocably designates and appoints Employer and its duly authorized agents as his
agents and attorneys-in-fact to execute and file any documents and to do all other lawful acts necessary to protect Employer’s rights in the Developments. Employee expressly acknowledges that the special foregoing power of attorney is coupled
with an interest and is therefore irrevocable and shall survive (i) his death or incompetency, (ii) the termination of his employment with Employer and (iii) the termination of this Agreement. 
 (e) Independent Covenants. Each of the covenants on the part of Employee contained in Sections 5(a), (b), (c) and (d) of this Agreement
shall be construed as an agreement independent of each other such covenant. The existence of any claim or cause of action of Employee against Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Employer of any such covenant. 
 (f) Reasonableness; Injunction. Employee acknowledges that his covenants contained in
Section 5 of this Agreement are reasonably necessary for the protection of Employer and its affiliates and their businesses, and that such covenants are reasonably limited with respect to the activities prohibited, the duration thereof, the
geographic area thereof, the scope thereof and the effect thereof on Employee and the general public. Employee further acknowledges that violation of the covenants would immeasurably and irreparably damage Employer and its affiliates, and by reason
thereof Employee agrees that for violation or threatened violation of any of the provisions of this Agreement, Employer shall, in addition to any other rights and remedies available to it, at law or otherwise, be entitled to an injunction to be
issued by any court of competent jurisdiction enjoining and restraining Employee from committing any violation or threatened violation of this Agreement. Employee consents to the issuance of such injunction. Furthermore, Employer shall, in addition
to any other rights or remedies available to it, at law or otherwise, be entitled to reimbursement of court costs, attorneys’ fees and other expenses incurred as a result of a breach of this Agreement. Employee agrees to reimburse Employer for
such expenses promptly following a final determination that he has breached this Agreement. 
 (g) Noncompetition Period.
“Noncompetition Period” shall mean the period commencing on the Effective Date and continuing until nine (9) months following termination of this Agreement. 

 (h) Noncompetition Area. The “Noncompetition Area” shall consist of the entire
world. 
 (i) Business. For the purposes of this Agreement, the “Business” shall mean the business of developing,
manufacturing, marketing or selling therapeutic products that use synthetic nicotinic cholinergic compounds. 
 6. Disability.
Upon the “disability” of Employee, this Agreement may be terminated by action of the Board upon 30 days prior written notice (the “Disability Notice”), such termination to become effective only if such disability
continues. If, prior to the effective time of the Disability Notice, Employee shall recover from such disability and return to the full-time active discharge of his duties, then the Disability Notice shall be of no further force and effect and
Employee’s employment shall continue as if the same had been uninterrupted. If Employee shall not so recover from his disability and return to his duties, then his services shall terminate at the effective time of the Disability Notice with the
same force and effect as if that date had been the end of the Term originally provided for hereunder. Such termination shall not prejudice any benefits payable to Employee that are fully vested as of the date of such termination. Prior to the
effective time of the Disability Notice, Employee shall continue to earn all compensation to which Employee would have been entitled as if he had not been disabled, such compensation to be paid at the time, in the amounts, and in the manner provided
in Section 3(a). A “disability” of Employee shall be deemed to exist at all times that Employee is considered by the insurer which has issued any policy of disability insurance owned by Employer or for which premiums are paid
by Employer (the “Employer Policy”) to be totally disabled under the terms of such policy. In the event there is no Employer Policy, “disability” shall mean the inability, by reason of physical or mental incapacity,
impairment or infirmity, of Employee to perform, upon request, his regular duties required herein for six (6) consecutive months, and the determination of the existence or nonexistence of disability shall be made by a medical doctor who is
licensed to practice medicine in the State of North Carolina mutually acceptable to the Board and to Employee (or, if Employee is incapacitated, his spouse).  
 7. Termination. 
 (a) If Employee shall die during the Term, this Agreement and the employment
relationship hereunder will automatically terminate on the date of death, which date shall be the last day of the Term; provided that such termination shall not prejudice any benefits payable to Employee or Employee’s beneficiaries that are
fully vested as of the date of death. 
 (b) Employer may terminate Employee’s employment under this Agreement at any time with or
without Just Cause. Any termination without Just Cause shall be effective only on thirty (30) days prior written notice to Employee. Any termination with Just Cause shall be effective immediately or at such other time set by the Board.
“Just Cause” shall mean: (i) Employee’s willful and material breach of this Agreement and his continued failure to cure such breach to the reasonable satisfaction of the Board within thirty (30) days following written
notice of such breach to Employee from the Board; (ii) Employee’s conviction of, or entry of a plea of guilty or nolo contendere to a felony or a misdemeanor involving moral turpitude, (iii) Employee’s willful commission of an
act of fraud, breach of trust, or dishonesty including, without limitation, embezzlement, that results in material damage or harm to the 

 
business, financial condition or assets of Employer; (iv) Employee’s intentional damage or destruction of substantial property of Employer;
(v) Employee’s violation of Employer’s policies prohibiting employment discrimination or workplace harassment; or (vi) Employee’s commission of any act (or omission) contrary to the ethical or professional standards
generally expected of Employer or of Employee’s profession. Just Cause shall be determined by the Board in its reasonable discretion and the particulars of any determination shall be provided to Employee in writing. At any time within ninety
(90) days of receipt by Employee in writing of such determination, Employee may object to such determination in writing and submit the determination to arbitration in accordance with Section 9(j). If such determination is overturned in
arbitration, Employee will be treated as having been terminated without Just Cause and shall be entitled to the benefits of Section 7(d). 
 (c) Employee may voluntarily terminate his employment with Employer on thirty (30) days prior written notice to Employer. 
 (d) Upon any termination pursuant to this Section 7, Employee shall be entitled to receive a lump sum equal to any base salary, target bonus and other compensation earned and due but not yet paid through the effective date of
termination. In addition, if this Agreement and Employee’s employment hereunder is terminated by (i) Employer (or its successor) other than for Just Cause or (ii) Employee within one (1) year following the first occurrence of
Good Reason, Employee shall be entitled to the following: 
 (A) severance, payable monthly, equal to Employee’s then current base
salary for nine (9) months following such termination or, if shorter, until such time as Employee secures other employment (the “Severance Period”); provided that, in the event the aggregate amount payable in the Severance
Period based on the foregoing would exceed the greater of: 
 (1) two times the lesser of: 
 (x) the sum of Employee’s annualized compensation based upon his annual base salary for his taxable year preceding his taxable year
in which his employment hereunder terminates (adjusted for any increase during that year that was expected to continue indefinitely if Employee’s employment had not terminated); or 
 (y) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue
Code of 1986, as amended (the “Code”), for the year in which Employee’s employment hereunder is terminated; or 
 (2) the maximum amount that would be exempt under Section 409A of the Code; 
 then, Employer (or its successor) shall pay the amount of such
excess to Employee in a lump sum on the date that is two and one-half months following the end of Employer’s (or its successor’s) taxable year during which the termination of Employee’s employment occurs; 

 (B) six (6) months acceleration of unvested stock options to purchase capital stock or restricted
stock of the Employer held by Employee; 
 (C) the health care (including medical and dental) and life insurance benefits coverage provided
to Employee at his date of termination shall be continued at the same level and in the same manner as if his employment had not terminated (subject to the customary changes in such coverages if Employee reaches age 65 or similar events), for the
Severance Period, followed by COBRA election rights. Any additional coverages Employee had at termination, including dependent coverage, will also be continued for such period on the same terms. Any costs Employee was paying for such coverages at
the time of termination shall continue to be paid by Employee. If the terms of any benefit plan referred to in this section do not permit continued participation by Employee, then Employer will arrange for other coverage providing substantially
similar benefits at the same contribution level of Employee, and 
 (D) outplacement counseling services selected by Employer, up to a
maximum of $10,000 and provided that (1) such expense is incurred by Employee on or before the second anniversary of December 31 of the year during which the termination of Employee’s employment occurs and (2) such amount is paid
by Employer on or before the third anniversary of December 31 of the year during which the termination of Employee’s employment occurs. 
 (e) If Employer (or its successor) terminates Employee’s employment for Just Cause, Employee shall forfeit any unexercised vested stock options at the date of termination. If Employee terminates his employment or if Employer (or its
successor) terminates Employee’s employment without Just Cause, Employee shall have, with respect to each vested stock option, until the earlier of (i) three (3) months or ninety (90) days (whichever is applicable to the plan
pursuant to which the stock option was granted) from the date of termination or (ii) the last day of the applicable option period or option term, to exercise such vested stock option. 
 (f) For purposes hereof, “Good Reason” shall mean the occurrence of any of the following events without Employee’s express written
consent: 
 (A) the breach by Employer (or any successor entity) of any material provision of this Agreement; 
 (B) any purported termination of the employment of Employee by Employer (or any successor entity) which is not effected in accordance with
this Agreement; or 
 (C) any failure of the Employer (or any successor entity) to pay Employee any amounts of base salary or
bonus compensation that have become due and payable to Employee within thirty (30) days after Employee has given Employer (or any successor entity) notice of demand therefor; 

 provided that “Good Reason” pursuant to any of clauses (A), (B) or (C) above shall be conditional on
(i) Employee having provided written notice to Employer (or its successor) of the initial existence of any or all of the foregoing events within ninety (90) days of the initial existence of such event and (ii) such event continuing to
exist thirty (30) days after the date of such written notice from Employee. 
 (g) Except as otherwise provided in this Section 7,
upon termination of this Agreement for any reason, Employee shall not be entitled to any form of severance benefits, including benefits otherwise payable under any of Employer’s regular severance plans or policies, or any other payment
whatsoever. Employee agrees that (i) the payment of any severance or other benefits pursuant to this Section 7 shall be contingent on the delivery by Employee to Employer of a release and waiver of legal claims related to the employment
relationship between Employee and Employer in a form reasonably acceptable to Employer and (ii) the payments and benefits provided hereunder, subject to the terms and conditions hereof, shall be in full satisfaction of any rights which he might
otherwise have or claim by operation of law, by implied contract or otherwise, except for rights which he may have under any employee benefit plan of Employer. 
 (h) To the extent applicable, Employer and Employee intend that this Agreement comply with Section 409A of the Code. The parties hereby agree that this Agreement shall at all times be construed in a manner to
comply with Section 409A and that should any provision be found not in compliance with Section 409A, the parties are hereby contractually obligated to execute any and all amendments to this Agreement deemed necessary and required by legal
counsel to achieve compliance with Section 409A. In the event amendments are required to be made to this Agreement to comply with Section 409A, Employer shall use its best efforts to provide Employee with substantially the same
payments he would have been entitled to pursuant to this Agreement had Section 409A not applied, but in a manner that is compliant with Section 409A. The manner in which the immediately preceding sentence shall be implemented shall be the
subject of good faith negotiations of the parties. The parties also agree that in no event shall any payment required to be made pursuant to this Agreement that is considered deferred compensation within the meaning of Section 409A be
accelerated in violation of Code Section 409A. 
 8. Best Efforts of Employee. Employee agrees that he will at all times
faithfully, industriously and to the best of his ability, experience and talents perform all the duties that may be required of him pursuant to the express and implicit terms hereof, to the reasonable satisfaction of Employer, commensurate with his
position, and to comply with all rules, regulations and policies established or issued by Employer. Such duties shall be rendered at such place as Employer designates and Employee acknowledges that he may be required to travel as shall reasonably be
required to promote the business of Employer. To the extent reasonably required by the duties assigned to him, Employee shall devote substantially all his professional time, attention, knowledge and skills to the business and interest of Employer
and Employer shall be entitled to all the benefits, profits and other issue arising from or incident to all work, service and advice of Employee. Employee pledges that during the Term, Employee shall not, directly or indirectly, engage in any
business which could detract from Employee’s ability to apply his best efforts to the performance of his duties hereunder. Employee further agrees to obtain prior written consent before engaging in any other occupation, and he agrees to refrain
from taking advantage of any corporate opportunities of the Employer. During the Term, Employee shall not be interested, 

 
directly or indirectly, in any manner as partner, manager, officer, director, shareholder, member, adviser, consultant, employee or in any other capacity in
any other business; provided, that nothing herein contained shall be deemed to prevent or limit the right of Employee to beneficially own less than 1% of the stock of a corporation traded on a national securities exchange (including, without
limitation, The Nasdaq Stock Market) as long as such passive investment does not interfere with or conflict with the performance of services to be rendered hereunder. 
 9. Miscellaneous. 
 (a) This Agreement shall be governed by and construed in accordance with the laws
of the State of North Carolina without regard to conflicts of law principles thereof. 
 (b) This Agreement constitutes the entire Agreement
between Employee and Employer with respect to the subject matter hereof, and supersedes in their entirety any and all prior oral or written agreements, understandings or arrangements between Employee and Employer or any of its affiliates relating to
the terms of Employee’s employment by Employer, and all such agreements, understandings and arrangements are hereby terminated and are of no force and effect. To the extent necessary, the terms of Section 7(d)(B) shall be deemed
incorporated into any option or similar agreement evidencing an award made to Employee prior to or after the date hereof. Employee hereby expressly disclaims any rights under any such agreements, understandings and arrangements. This Agreement may
not be amended or terminated except by an agreement in writing signed by both parties. 
 (c) This Agreement may be executed in two
counterparts, each of which shall be deemed and original and all of which, taken together, shall constitute one and the same instrument. 
 (d) Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and delivered in person or by nationally recognized overnight courier service or deposited in the mails, postage
prepaid, return receipt requested, addressed as follows: 
 To Employer: 
 Targacept, Inc. 
 200 East First Street, Suite
300 
 Winston-Salem, North Carolina 27101 
 Attn: President 
 To Employee: 
 Peter A. Zorn 
 19 Liberty Road 
 Bedford, Massachusetts 01730 

 Notices given in person or by overnight courier service shall be deemed given when delivered in person or the day after
delivery to the courier addressed to the address required by this Section 9(d), and notices given by mail shall be deemed given three days after deposit in the mails. Either party hereto may designate by written notice to the other party in
accordance herewith any other address to which notices addressed to him shall be sent. 
 (e) The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. It is understood and agreed that no failure or delay by Employer or Employee in exercising any
right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.

 (f) This Agreement may not be assigned by Employee without the written consent of Employer. This Agreement shall be binding on any
successors or assigns of either party hereto. 
 (g) For purposes of this Agreement, employment of Employee by any affiliate of Employer
shall be deemed to be employment by Employer hereunder, and a transfer of employment of Employee from one such affiliate to another shall not be deemed to be a termination of employment of Employee by Employer or a cessation of the Term, it being
the intention of the parties hereto that employment of Employee by any affiliate of Employer shall be treated as employment by Employer and that the provisions of this Agreement shall continue to be fully applicable following any such transfer.

 (h) The respective rights and obligations of the parties hereunder shall survive any termination of the Term or Employee’s employment
with Employer to the extent necessary to preserve such rights and obligations for their stated durations. 
 (i) In the event that it shall
become necessary for either party to retain the services of an attorney to enforce any terms under this Agreement, the prevailing party, in addition to all other rights and remedies hereunder or as provided by law, shall be entitled to reasonable
attorneys’ fees and costs of suit. Employer shall reimburse Employee for the reasonable fees and expenses of counsel to Employee for the original negotiation of this Agreement. 
 (j) Except as otherwise provided in this Section 9(j), any controversy or claim arising out of or relating to this Agreement shall be settled by
arbitration in accordance with Commercial Arbitration Rules of the American Arbitration Association then in effect, and judgment upon the award rendered by the arbitration panel, which shall consist of three members, may be entered in any court
having jurisdiction. Any arbitration shall be held in Winston-Salem, North Carolina, unless otherwise agreed in writing by the parties. One arbitrator shall be selected by Employee, one arbitrator shall be selected by Employer, and the third
arbitrator shall be selected by the two arbitrators selected by Employee and Employer. Notwithstanding the foregoing, any claim or dispute with respect 

 
to or arising out of any of the covenants in Section 5 or the last sentence of Section 8, or any statutory or common law claim of patent
infringement, misappropriation of trade secrets, unfair competition, unfair or deceptive trade practices, interference with contract, or interference with actual or prospective economic or business relations, shall be excluded from this
Section 9(j). 
 [THE NEXT PAGE IS THE SIGNATURE PAGE] 

 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above
written. 
  

			
	TARGACEPT, INC.
		
	By:	 	 /s/ J. Donald deBethizy

		 	J. Donald deBethizy, Ph.D.
		 	President and CEO
	
	EMPLOYEE:
		
		 	 /s/ Peter A. Zorn

		 	Peter A. Zorn

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