Document:

Form of Indemnification Agreement

 EXHIBIT 10.1 
  
 INDEMNIFICATION AGREEMENT 
  
 THIS AGREEMENT (the “Agreement”) is made and entered into as of
                                 , 2006 between Targacept, Inc., a Delaware
corporation (the “Company”), and                             , a director, officer or member
of the executive committee of the Company (“Indemnitee”). 
  
 WITNESSETH THAT: 
  
 WHEREAS, Indemnitee performs a valuable
service for the Company; and 
  
 WHEREAS, the Board of Directors of the
Company (the “Board”) has adopted bylaws (the “Bylaws”) providing for or permitting the indemnification of officers, directors and employees of the Company to the fullest extent permitted by the Delaware General Corporation Law,
as amended (the “DGCL”); and 
  
 WHEREAS, the Bylaws and the DGCL,
by their nonexclusive nature, permit agreements between the Company and its officers, directors and employees with respect to indemnification; and 
  
 WHEREAS, in order to induce Indemnitee to continue to serve as a director, officer or member of the executive (management) committee of the Company, the Company has
agreed to enter into this agreement with Indemnitee; 
  
 NOW, THEREFORE, in
consideration of Indemnitee’s continued service as a director, officer or member of the executive committee of the Company after the date hereof, the parties agree as follows: 
  
 1. Definitions. For purposes of this Agreement: 
  
 (a) “Change of Control” means: 
  
 (i) The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
twenty percent (20%) or more of (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided that, notwithstanding the foregoing, none of the following acquisitions shall constitute a Change of Control:
(1) an acquisition directly from the Company or from other stockholders that (x) was approved in advance by the Board and (y) would not constitute a Change of Control under Section 1(a)(iii); (2) an acquisition by the
Company; (3) an acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by, or under common control with, the Company; or (4) an acquisition by an entity with respect to
which the criteria set forth in Section 1(a)(iii)(A), (B) and (C) are met; or 
  
 (ii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”); provided that, notwithstanding the
foregoing, a Business Combination shall not constitute a Change of Control if: (A) the individuals and entities who are the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively,
immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the then outstanding shares of common stock and of the combined voting power of the then 

 
outstanding voting securities entitled to vote generally in the election of directors of the resulting, continuing or surviving entity in such Business Combination
(including, if applicable, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportion as
existed immediately prior to such Business Combination; (B) no Person (excluding the resulting, continuing or surviving entity in such Business Combination or any employee benefit plan (or related trust) of such resulting, continuing or
surviving entity) beneficially owns, directly or indirectly, twenty percent (20%) or more of the then outstanding shares of common stock or of the combined voting power of the then outstanding voting securities of the resulting, continuing or
surviving entity in such Business Combination, except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors of the resulting, continuing or surviving
entity in such Business Combination are members of the Board at the time of the execution of the definitive agreement providing for such Business Combination or of its authorization and approval by the Board; or 
  
 (iii) Approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company. 
  
 (b) “Company Position” means the
status of a person as a present or former director, officer, employee or agent of the Company or any other Enterprise. 
  
 (c) “Disinterested Director” means a director of the Company who is not and was not a party to the matter in respect of which indemnification or
advancement of Expenses is sought by Indemnitee. 
  
 (d)
“Enterprise” shall mean the Company or any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise for which Indemnitee serves, or did serve, at the request of the Company as a director, officer,
employee or agent. 
  
 (e) “Exchange Act” means the Securities
Exchange Act of 1934, as amended. 
  
 (f) “Expenses” shall include
all judgments, fines, ERISA excise taxes or penalties, amounts paid in settlement, reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of a type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating in, or being or
preparing to be a witness in a Proceeding. 
  
 (g) “Independent
Counsel” means a law firm, a partner or member of a law firm or an independent practitioner who (i) is experienced in matters of corporate law and (ii) would not, under the applicable standards of professional conduct then prevailing,
have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee’s rights under this Agreement. 
  
 (h) “Person” means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act). 
  
 (i) “Proceeding” includes any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding in which Indemnitee was, is or will be involved as a party or otherwise, whether brought by
or in the right of the Company or otherwise, whether 

  

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civil, criminal, administrative or investigative, whether pending before or after the date of this Agreement and whether or not he is acting or serving in any such
capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement, but specifically excluding an action initiated by an Indemnitee pursuant to Section 8 to enforce his rights under this
Agreement. 
  
 2. Indemnity of Indemnitee. The Company hereby agrees
to indemnify and hold harmless Indemnitee to the fullest extent permitted by the provisions of the DGCL, as may be amended from time to time. Without limiting the generality of the foregoing: 
  
 (a) Proceedings Other Than Proceedings by or in the Right of the Company. If
Indemnitee was, is or is threatened to be made a party to, or a participant in, any Proceeding (other than a Proceeding by or in the right of the Company) by reason of his Company Position, the Company shall indemnify him against all Expenses
actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding (including, without limitation, any claim, issue or matter included therein) if he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. 
  
 (b) Proceedings by or in the Right of the Company. If Indemnitee was, is or is threatened to be made a party to, or a participant in, any Proceeding by or in
the right of the Company by reason of his Company Position, the Company shall indemnify him against all Expenses actually and reasonably incurred by him, or on his behalf, in connection with the defense or settlement of such Proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company; provided, however, if required by applicable law, no indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.

  
 (c) Indemnification for Expenses of a Party who is Wholly or
Partially Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Company Position, a party to, and is successful in defending (on the merits or otherwise), any Proceeding, the
Company shall indemnify him to the maximum extent permitted by law against all Expenses actually and reasonably incurred by him, or on his behalf, in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful,
on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with
each successfully resolved claim, issue or matter. For purposes of this Section 2(c) and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter. 
  
 3. Additional
Indemnity. In addition to, and without regard to any limitations on, the indemnification provided for in Section 2, the Company shall indemnify and hold harmless Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf if, by reason of his Company Position, he was, is or is threatened to be made, a party to, or participant in, any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising
out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Company’s obligations pursuant to this Agreement, other than those specified in Section 12, shall be that the Company shall
not be obligated to make any 

  

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payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 7 and 8) to be unlawful under Delaware
law. 
  
 4. Contribution in the Event of Joint Liability. 

 
 (a) Whether or not the indemnification provided in Sections 2 and 3 is available, in
respect of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such Proceeding without
requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any Proceeding in which the Company is
jointly liable with Indemnitee (or would be if joined in such Proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee. 
  
 (b) Without diminishing or impairing the obligations of the Company set forth in Section 4(a), if, for any reason, Indemnitee
shall elect or be required to pay all or any portion of any judgment or settlement in any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall contribute to the amount of
Expenses actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with
Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such Proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may,
to the extent required by law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
Proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such Expenses, as well as any other equitable considerations which are required to be considered under applicable law. The relative fault
of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined
by reference to, among other things, the degree to which their respective actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is
active or passive. 
  
 (c) The Company shall fully indemnify and hold
harmless Indemnitee from any claims of contribution that may be brought by any one or more officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee. 
  
 5. Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his Company Position, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or
on his behalf in connection therewith. 
  
 6. Advancement of
Expenses. Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred in connection with any Proceeding by or on behalf of Indemnitee by reason of his Company Position within twenty (20) calendar
days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding; provided that: (i) no determination has
been made that the facts then known would preclude indemnification pursuant to the terms of this Agreement; and (ii) Indemnitee (A) affirms in such written request that he acted in 

  

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good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Company (and, in the case of a criminal Proceeding, that
he had no reasonable cause to believe his conduct was unlawful), (B) undertakes in such written request to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified against such Expenses
and (C) provides appropriate supporting documentation for the Expenses for which he is seeking indemnification. Any advances and undertakings to repay pursuant to this Section 6 shall be unsecured and interest free. Notwithstanding the
foregoing, the obligation of the Company to advance Expenses pursuant to this Section 6 shall be subject to the condition that, if, when and to the extent that the Company determines that Indemnitee would not be permitted to be indemnified
under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby expressly agrees to reimburse the Company) within thirty (30) days of such determination for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Company that
Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any advance of Expenses until a final judicial determination is made with respect thereto
(and as to which all rights of appeal therefrom have been exhausted or lapsed). 
  
 7. Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public
policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement: 
  
 (a) To obtain indemnification under this Agreement (including, without limitation, the
advancement of Expenses and contribution by the Company), Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested
indemnification. 
  
 (b) Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 7(a), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made: (i) by Independent Counsel, if requested by Indemnitee
with its written request for indemnification; or (ii) if no request is made by the Indemnitee for a determination by Independent Counsel, (A) by the Board (or the Board of Directors of the resulting, continuing or surviving entity
following a Change of Control), by a majority vote of a quorum consisting of Disinterested Directors, (B) if such a quorum is not obtainable or if such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to
the Board (or the Board of Directors of the resulting, continuing or surviving entity following a Change of Control), a copy of which shall be delivered to the Indemnitee, or (C) if a quorum of Disinterested Directors so directs, by the
stockholders of the Company. 
  
 (c) In the event the determination of
entitlement to indemnification or advancement of Expenses is to be made by Independent Counsel at the request of the Indemnitee, the Independent Counsel shall be selected by the Board, unless there shall have occurred, within two (2) years
prior to the date of the commencement of the Proceeding with respect to which indemnification or advancement of Expenses is claimed, a Change of Control, in which case the Independent Counsel shall be selected by the Indemnitee, unless the
Indemnitee shall request that such selection be made 

  

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by the Board. Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to
the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the criteria of
“Independent Counsel” as defined in Section 1, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If
a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within twenty
(20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 7(a), no Independent Counsel shall have been selected without objection, either the Company or Indemnitee may petition the Court of
Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under
Section 7(b). The Company shall pay any and all reasonable fees and expenses incurred by such Independent Counsel in connection with acting pursuant to Section 7(b), and the Company shall pay all reasonable fees and expenses incident to
the procedures of this Section 7(c), regardless of the manner in which such Independent Counsel was selected or appointed. 
  
 (d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to rebut this presumption shall have the burden of proof. 
  
 (e) Indemnitee shall be deemed to have acted in good faith if his action is based on the records or books of account of the Enterprise, including financial
statements, or on information supplied to Indemnitee by the officers or other employees of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the
Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. The parties acknowledge and agree that the foregoing does not represent an exclusive list of the means by
which Indemnitee may be deemed to have acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company. In addition, the knowledge or actions, or failure to act, of any director, officer,
agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. 
  
 (f) If the person, persons or entity empowered or selected under Section 7 to determine whether Indemnitee is entitled to indemnification shall not have made a
determination within thirty (30) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification
absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement, in light of the context in which it was made, not materially misleading, in connection with the request
for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that (A) such 30-day period may be extended for a reasonable time, not to exceed an additional fifteen (15) days, if the
person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation or information relating thereto and (B) the foregoing provisions
of this Section 7(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 7(b) and (1)

  

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within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve to
submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made at such meeting, or (2) a special meeting of
stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made at
such meeting. 
  
 (g) Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information that is not privileged or
otherwise protected from disclosure, available to Indemnitee without undue effort or expense and reasonably necessary to such determination. Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good
faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person,
persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

  
 (h) The Company acknowledges that a settlement or other disposition
short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any Proceeding to which Indemnitee is a party is resolved in any manner other than by adverse
judgment against Indemnitee (including, without limitation, settlement of such Proceeding with or without payment of money or other consideration), it shall be presumed that Indemnitee has been successful on the merits or otherwise in such
Proceeding. Anyone seeking to rebut this presumption shall have the burden of proof. 
  
 8. Remedies of Indemnitee. 
  
 (a) In the event
that (i) a determination is made pursuant to Section 7 that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 6, (iii) no determination of
entitlement to indemnification is made pursuant to Section 7(b) within ninety (90) days after receipt by the Company of the written request for indemnification, or (iv) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 7, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of
Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Indemnitee shall commence such proceeding seeking an adjudication within one hundred eighty (180) days following
the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 8(a). The Company shall not oppose Indemnitee’s right to seek any such adjudication. 
  
 (b) In the event that a determination shall have been made pursuant to
Section 7(b) that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 8 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by
reason of the adverse determination under Section 7(b). 
  
 (c) If a
determination shall have been made pursuant to Section 7(b) that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any 

  

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judicial proceeding commenced pursuant to this Section 8, absent a prohibition of such indemnification under applicable law. 
  
 (d) In the event that Indemnitee, pursuant to this Section 8, seeks a judicial
adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors’ and officers’ liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance
(but subject to the same conditions as are set forth in Section 6 with regard to the advancement of Expenses), any and all expenses (of the types described in the definition of Expenses in Section 1) actually and reasonably incurred by him
in connection with such judicial adjudication. 
  
 (e) The Company shall be
precluded from asserting in any judicial proceeding commenced pursuant to this Section 8 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is
bound by all the provisions of this Agreement. 
  
 9. Nonexclusivity;
Survival of Rights; Insurance; Subrogation. 
  
 (a) The rights of
indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of incorporation of the Company (as may be amended or restated from
time to time), the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this
Agreement in respect of any action taken or omitted by such Indemnitee in his Company Position prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater
indemnification than would be afforded currently under this Agreement, it is the intent of the parties that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to
be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. 
  
 (b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or
fiduciaries of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or
fiduciary under such policy or policies. 
  
 (c) Except as provided in the
last sentence of this Section 9(c), in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers and take all action
reasonably necessary to secure such rights, including execution of such documents as are reasonably necessary to enable the Company to bring suit to enforce such rights. Notwithstanding the foregoing, no right of recovery of Indemnitee pursuant to
any (i) director liability insurance policy that covers Indemnitee and is purchased separately by Indemnitee, by any fund or other entity of which Indemnitee is a partner, member or stockholder or that employs Indemnitee or by any of their
respective affiliates or (ii) indemnification from any fund or other entity of which Indemnitee is a partner, member or stockholder or that employs Indemnitee or from any of its affiliates shall be subject to subrogation under this
Section 9(c). 
  

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 (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that Indemnitee has otherwise actually received such amount under any insurance policy, contract, agreement or otherwise. 
  
 10. Mutual Acknowledgment. The Company and Indemnitee acknowledge that, in certain instances, Federal law or applicable public policy (pursuant to the
immediately following sentence) may prohibit the Company from indemnifying its directors, officers, employees, controlling persons, fiduciaries or other agents or affiliates under this Agreement or otherwise. Indemnitee understands and acknowledges
that the Company may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s rights under public
policy to indemnify Indemnitee. 
  
 11. Duration of Agreement. All
agreements and obligations of the Company contained herein shall continue during the period Indemnitee is a director, officer or member of the executive committee of the Company (or is or was serving at the request of the Company as a director,
officer, employee or agent of any other Enterprise) and shall continue thereafter if and while Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 8) by reason of his Company Position, whether or not he is
acting or serving in any such capacity at the time of initiation of the Proceeding, while the Proceeding is pending or at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the
business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives. 
  
 12. Exceptions. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement:

  
 (a) Excluded Action or Omissions. To indemnify the Indemnitee in
respect of any intentional malfeasance by the Indemnitee or any act undertaken by the Indemnitee where the Indemnitee did not in good faith believe the Indemnitee was acting in the best interests of the Company, or for any other acts, omissions or
transactions from which the Indemnitee may not be relieved of liability under applicable law. 
  
 (b) Claims Initiated by Indemnitee. To indemnify or advance Expenses to Indemnitee with respect to any Proceeding initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to
a Proceeding to establish or enforce a right to indemnity under any agreement or insurance policy or under the Company’s certificate of incorporation or Bylaws now or hereafter in effect relating to indemnification, (ii) in specific cases
if the Board has approved the initiation or bringing of such Proceeding, or (iii) as otherwise required under Section 145 of the DGCL, regardless of whether such Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be. 
  
 (c)
Lack of Good Faith. To indemnify Indemnitee with respect to any (i) Proceeding instituted by Indemnitee as contemplated by Section 12(b)(i) or (ii) proceeding instituted by Indemnitee under Section 8 to enforce its rights
under this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or 
  

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 (d) Claims Under Section 16(b). To indemnify Indemnitee for any Expenses and disgorgement of profits
arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Exchange Act or any similar successor statute. 
  
 13. Enforcement. 
  
 (a) The Company expressly (i) confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce
Indemnitee to serve as a director, officer or member of the executive committee of the Company and (ii) acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer or member of the executive committee of the
Company. 
  
 (b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. 
  
 14. Severability. If any provision or provisions of this Agreement shall be held
by a court of competent jurisdiction to be invalid, void, illegal or otherwise unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation,
each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain
enforceable to the fullest extent permitted by law; and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be
invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Without limiting the generality of the foregoing, this Agreement is intended to confer
upon Indemnitee indemnification rights to the fullest extent permitted by applicable law. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the
extent necessary to resolve such conflict. 
  
 15. Modification and
Waiver. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both parties. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 
  
 16. Notice By Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation,
subpoena, complaint, indictment, information or other document relating to any Proceeding or matter that may be subject to indemnification hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may
have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company. 
  
 17. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if
(i) delivered by hand and received by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it
is so mailed: 
  
 (a) If to Indemnitee, to the address set forth below
Indemnitee’s signature hereto. 
  

 10 

 (b) If to the Company, to: 
  
 Targacept, Inc. 
 200 East First Street, Suite 300 
 Winston-Salem, NC 27101-4165 
 Attention: Chief Financial Officer 
  
 or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be. 
  
 18. Counterparts. This Agreement may be executed in two counterparts, each of
which shall for all purposes be deemed to be an original and both of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the
existence of this Agreement. 
  
 19. Headings. The headings of the
paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 
  
 20. Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware without application of the principles of conflicts of laws thereof. 
  
 21. Gender. Use of the masculine pronoun herein shall be deemed to include also the corresponding feminine pronoun. 
  
 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the
day and year first above written. 
  
 COMPANY: 

 
 TARGACEPT, INC. 
  
 By:                                      
                 
         Name:                             
            
         Title:
                                        
   
  
 INDEMNITEE: 
  
 Name:
                                        
         
  
 Address:                                     
        
  
  

	 	

  

	 	

  

	 	

  
  

 11Amended and Restated Targacept, Inc. 2000 Equity Incentive Plan

 EXHIBIT 10.5 
  
  
 2000 EQUITY INCENTIVE PLAN 
  
 OF 
  
 TARGACEPT, INC. 
  
 (As Amended and Restated Through March 15, 2006) 

 2000 EQUITY INCENTIVE PLAN 
 OF 
 TARGACEPT, INC. 
 (As Amended and Restated Through March 15, 2006) 
  
 1. Purpose

  
 The purpose of the 2000 Equity Incentive Plan of Targacept,
Inc., as amended and restated through March 15, 2006 (the “Plan”), is to encourage and enable selected employees, directors, independent contractors, consultants and advisors of Targacept, Inc. (the “Corporation”) and
related corporations to acquire or to increase their holdings of common stock of the Corporation, $0.001 par value per share (the “Common Stock”), 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 benefits (collectively referred to herein as “Awards”) to selected participants, including the granting of incentive stock options (“Incentive Options”) intended to qualify under
Section 422 of the Code, nonqualified stock options (“Nonqualified Options”), stock appreciation rights (“SARs”), stock awards in the form of bonus stock (“Bonus Stock”) and restricted stock awards
(“Restricted Stock Awards”), and performance awards in the form of performance shares (“Performance Shares”) and performance units (“Performance Units”). Incentive Options and Nonqualified Options shall be referred to
herein collectively as “Options.” Bonus Stock and Restricted Stock Awards shall be referred to herein collectively as “Stock Awards.” Performance Shares and Performance Units shall be referred to herein collectively as
“Performance Awards.” 
  
 2. Administration of the Plan 

 
 (a) The Plan shall be administered by the Board of Directors of the Corporation (the
“Board”) unless the Board, in its sole discretion, delegates all or part of its administrative authority with respect to the Plan to a committee of the Board (the “Committee”). For purposes herein, the Board, and, upon its
delegation of the administrative responsibilities for the Plan to the Committee, the Committee, shall be referred to as the “Administrator.” In the event that the Corporation shall become subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Committee shall be comprised solely of two or more “non-employee directors,” as said term is defined in Rule 16b-3 under the Exchange Act, unless the Board
determines that such committee composition is not necessary or advisable. Further, in the event that the Corporation becomes subject to the requirements of Section 162(m) of the Code, the Committee shall, unless the Board determines otherwise,
be comprised solely of two or more “outside directors,” as such term is defined under Section 162(m) or the regulations thereunder, or otherwise in accordance with Section 162(m) and such regulations. 
  
 (b) 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.
Subject to the provisions of the Plan, the Administrator shall have full and sole 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 and shares of Common
Stock subject to an Award; (ii) to prescribe the form or forms of the agreements (as defined in Section 11) 

 
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 and agreements evidencing Awards granted under the Plan, to establish and 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, the Administrator shall also have authority, in its sole discretion, to accelerate the date that any Award which was not otherwise exercisable or vested shall become
exercisable or vested in whole or in part without any obligation to accelerate such date with respect to any other Award granted to any recipient. In addition, the Administrator shall have the authority and discretion to establish terms and
conditions of Awards as the Administrator determines to be necessary or appropriate to conform to the applicable requirements or practices of jurisdictions outside of the United States. All determinations of the Administrator with respect to the
Plan will be final and binding on the Corporation and all persons having or claiming an interest in any Award granted under the Plan. 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 or any Award or agreement. 
  
 (c) Notwithstanding the other provisions of Section 2, the Administrator may delegate to the Chief Executive Officer or President 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 2(b) with respect to such Awards, to eligible individuals; provided, however, that, such delegation shall be subject to applicable law and any terms or
conditions established by the Administrator and, to the extent required by Section 16 of the Exchange Act or Section 162(m) of the Code, the individual, 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 in Section 21(b)). To the extent that the Administrator has delegated authority
to grant Awards pursuant to this Section 2(c) to the Chief Executive Officer or President, references to the Administrator shall include references to such person, subject, however, to the requirements of the Plan, Rule 16b-3 and other
applicable law. 
  
 3. Effective Date 
  
 The effective date of the Plan shall be August 22, 2000 (the “Effective
Date”). The Plan was amended effective December 18, 2001, May 15, 2002, November 26, 2002, August 20, 2003, and March 16, 2005, and further amended and restated on March 15, 2006. If and to the
extent required under Code section 409A, amendments contained in the Plan, as amended and restated on March 15, 2006, shall be effective as of January 1, 2005. Awards may be granted under the Plan on and after the Effective Date, but no
Awards will be granted after August 21, 2010. 
  
 4. Shares of Stock Subject to
the Plan; Award Limitations 
  
 (a) Subject to adjustment as
provided in Section 4(c), the maximum number of shares of Common Stock that may be issued pursuant to Awards shall not exceed 1,878,888 shares (adjusted to reflect February 2005 reverse stock split). To the extent required pursuant to
Section 162(m) of the Code, during any 12-month period, (i) no Participant may receive shares of Common Stock pursuant to the grant of awards under the Plan for more than 600,000 shares of Common Stock, and (ii) no Participant may
receive awards under the Plan payable in cash having an aggregate dollar value in excess of $600,000, subject to adjustment as provided in Section 4(c) herein. Shares issued and delivered under the Plan shall be authorized but unissued shares
of the Corporation, treasury shares, or shares purchased on the open market or by private purchase. 
  
 (b) The Corporation hereby reserves sufficient authorized shares of Common Stock to meet the grant of Awards hereunder. Any shares subject to an Award that is
subsequently forfeited, expires or 

  

 2 

 is terminated may again be the subject of an Award granted under the Plan. To the extent that any shares of Common Stock subject to
an Award are not delivered to a Participant (or his beneficiary) because the Award is forfeited, canceled, settled in cash, or used to satisfy applicable tax withholding obligations, such shares shall not be deemed to have been issued for purposes
of determining the maximum number of shares of Common Stock available for issuance under the Plan. If the purchase price of an Award granted under the Plan is satisfied by tendering or withholding shares of Common Stock, only the number of shares
issued net of the shares of Common Stock tendered or withheld shall be deemed issued for purposes of determining the maximum number of shares of Common Stock available for issuance under the Plan. 
  
 (c) If there is any change in the shares of Common Stock because of a reorganization,
recapitalization, merger, consolidation, stock dividend, stock split, reverse stock split, subdivision, combination, reclassification or other change in the capital stock structure of the Corporation or a related corporation 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 or to any provisions of this Plan as the Administrator deems equitable to
prevent dilution or enlargement of Awards. 
  
 5. Eligibility 
  
 An Award may be granted only to a person* who satisfies the following eligibility requirements on the date the Award is granted: 
  
 (a) The person is either (i) an employee of the Corporation or a related entity, (ii) a director of the Corporation or a
related entity, or (iii) an independent contractor, consultant or advisor (collectively, “independent contractors”) providing bona fide services to the Corporation or a related entity not in connection with the offer and sale of
securities in a capital raising transaction. For this purpose, an individual shall be considered to be an “employee” only if there exists between the individual and the Corporation or a related entity the legal and bona fide relationship
of employer and employee (subject to Code Section 409A); provided, however, that with respect to Incentive Options, “employee” means any person who is considered an employee of the Corporation or any parent corporation or subsidiary
corporation for purposes of Treas. Reg. Section 1.421-1(h) (or any successor provision related thereto). 
  
 (b) With respect to the grant of Incentive Options, the person is an individual employee who does not own, immediately before the time that the Incentive Option is
granted, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Corporation. Notwithstanding the foregoing, an individual who owns more than ten percent of the total combined voting power of the
Corporation may be granted an Incentive Option if the option price (as determined pursuant to Section 6(b)), is at least 110% of the fair market value of the Common Stock (as defined in Section 6(b)(ii)), and the option period (as defined
in Section 6(c)(i)) does not exceed five years. For this purpose, an individual will be deemed to own stock that is attributable to him under Section 424(d) of the Code. 
  
 (c) The person, being otherwise eligible under this Section 5, is selected by the Administrator as a person to whom or to which
an Award shall be granted (a “Participant”). 
  

 *Each reference in the Plan to “individual” or “individuals,” when used to refer to a Participant(s) or a potential Participant(s) in the Plan (other than
references contained in Section 5, which are addressed above), shall be deemed to be a reference to “person” or ”persons.” 
  
  

 3 

 6. 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, upon such terms and at such times as the Administrator shall determine. Both Incentive Options and Nonqualified Options may be granted under the Plan; provided, however, that Incentive Options may only be granted to
employees of the Corporation or a related corporation. 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. 
  
 (b) Option Price: The price per share at
which an Option may be exercised (the “option price”) shall be established by the Administrator at the time the Option is granted and shall be set forth in the terms of the agreement evidencing the grant of the Option; provided that,
(i) in no event shall the option price be less than the par value per share of the Common Stock; and (ii) in the case of an Incentive Option, the option price shall be no less than 100% of the fair market value per share of the Common
Stock on the date the Option is granted. In addition, the following rules shall apply: 
  
 (i) 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. 
  
 (ii) For the purposes of the Plan, the
“fair market value” per share of the Common Stock shall be determined in good faith by the Administrator and, except as may otherwise be determined by the Administrator, 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 of the shares on the New York Stock Exchange or
the American Stock Exchange (as applicable) on the date immediately preceding the date the Option is granted, or, if there is no transaction on such date, then on the trading date nearest preceding the date the Option is granted 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, the fair market value shall be the closing sales price for such stock (or the
average of closing bid and asked prices, if no sales were reported) as quoted on such system on the date immediately preceding the date the Option is granted 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 (ii) to the extent, if any, required by Code Section 409A, fair market value shall be determined in accordance with Section 409A. 
  
 (iii) In no event shall there first become exercisable by an employee in any one calendar year Incentive Options
granted by the Corporation or any related corporation with respect to shares having an aggregate fair market value (determined at the time an Incentive Option is granted) greater than $100,000; provided that, if such limit is exceeded, then the
first $100,000 of shares to become exercisable in such calendar year will be Incentive Options and the Options (or portion thereof) for shares with a value in excess of $100,000 that first became exercisable in that calendar year will be
Nonqualified Options. In the event the Code or the 

  

 4 

 
regulations promulgated thereunder are amended after the effective date of this Plan to provide for a different limit on the fair market value of shares permitted to
be subject to Incentive Options, then such different limit shall be automatically incorporated herein and will apply to any Incentive Option granted after the date of such amendment. 
  
 (c) Option Period and Limitations on the Right to Exercise Options 
  
 (i) The term of an Option (the “option period”) shall be
determined by the Administrator at the time the Option is granted. With respect to Incentive Options, such period shall not extend more than ten years from the date on which the Option is granted (unless otherwise limited by Section 5(b)). Any
Option or portion thereof not exercised before expiration of the option period shall terminate. The period or periods during which an Option may be exercised and other terms and conditions to exercise shall be determined by the Administrator.

  
 (ii) An Option may be exercised by giving written notice
to the Corporation at such place as the Administrator or its designee shall direct. 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 the payment of such purchase price. Unless an individual option agreement provides otherwise, such payment may be in the form of cash or check, and, where expressly approved by the Administrator, payment may also be made: 
  
 (A) By delivery (by either actual delivery or attestation) of shares of
Common Stock (valued at the date of exercise at their fair market value by the Administrator by applying the provisions of Section 6(b)(ii)) that have been owned by the Participant for more than six months (or such other time period as may be
stated in the award agreement) and are otherwise acceptable to the Administrator; 
  
 (B) By withholding shares of Common Stock (valued at the date of exercise at their fair market value by the Administrator by applying the provisions
of Section 6(b)(ii)) otherwise issuable upon exercise of the Option; 
  
 (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; or 
  
 (D) By any combination of the foregoing. 
  
 For the purposes herein, 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 of 1933, as amended (the “Securities Act”), or (ii) if the Administrator otherwise determines that there is an established
public market for the Common Stock. 
  
 (iii) Unless an
individual agreement provides otherwise (subject to any requirements under Code Section 409A), 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 5(a), and has been an employee continuously since the date the Option was granted, subject to the following: 
  

 5 

 (A) An Option shall not be affected by any change in the terms, conditions or status of the
Participant’s employment, provided that the Participant continues to be an employee of the Corporation or a related corporation (other than as provided under Code Section 409A). 
  
 (B) 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 other bona fide leave of absence, provided that the period of such leave does not exceed ninety days, or, if longer, as long as the Participant’s right to re-employment 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. For purposes of the Plan, except as may be otherwise required or permitted
under Code Section 409A, “disability” shall have the meaning ascribed to the term in any stockholders agreement, employment agreement, consulting agreement or other similar agreement, if any, to which the Participant is a party, or if
no such agreement applies, “disability” shall mean the inability of the Participant 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 determine whether a Participant is disabled within the meaning of this paragraph, and, if applicable, the date of a
Participant’s termination of employment of service for any reason (the “termination date”). 
  
 (C) Unless an individual agreement provides otherwise (subject to any requirements under Code Section 409A), if the employment of a Participant
is terminated because of disability within the meaning of subparagraph (B), or if the Participant dies while he is an employee or dies within ninety (90) days after the termination of his employment because of disability, the Option may be
exercised only to the extent exercisable on the date of the Participant’s termination date, except that, subject to any requirements under Code Section 409A, the Administrator may in its 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 one year
next succeeding the termination date or such other time period as may be specified in the applicable 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. 
  
 (D) Unless an individual agreement provides otherwise (subject to any requirements under Code Section 409A), if the employment of the
Participant is terminated for any reason other than disability (as defined in subparagraph (B)), death or for “cause,” his Option may be exercised to the extent exercisable on the Participant’s termination date, except that,
subject to any requirements under Code Section 409A, the Administrator may in its discretion accelerate the date for exercising all or any part of the Option which was not otherwise exercisable on the date of such termination of employment. 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 ninety (90) days next succeeding the termination date or such other time period as may be
specified in the applicable 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 

  

 6 

 
in (X) or (Y) of this subparagraph (D), the Participant shall be treated as having died while employed under subparagraph (C) immediately preceding
(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. 
  
 (E) Unless an individual agreement provides otherwise (subject to any requirements under Code Section 409A), if the employment of the Participant is terminated for “cause,” his Option shall lapse and no longer be
exercisable as of the effective time of his termination of employment, as determined by the Administrator. For purposes of the Plan, (X) the Participant’s termination shall be for “cause” if such termination results from the
Participant’s termination for “cause” under his employment, consulting or other agreement with the Corporation or a related corporation, if any; or (Y) if the Participant has not entered into any such employment, consulting or
other agreement, then the Participant’s termination shall be for “cause” if termination results due to the Participant’s (i) dishonesty or conviction of a crime; (ii) failure to perform his duties for the Corporation or
a related corporation to the satisfaction of the Corporation; or (iii) engaging in 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. 
  
 (F) Notwithstanding the foregoing, the Administrator shall have authority, in its discretion, to extend the period during which an Option may be
exercised or modify the other terms and conditions of exercise, or both, provided that (i) such extension or modification is otherwise in compliance with Code Section 409A and (ii) in the event that any such extension or modification
shall cause an Incentive Option to be designated as a Nonqualified Option, no such extension or modification shall be made without the written consent of the Participant. 
  
 (iv) Unless an individual agreement provides otherwise (subject to any requirements under Code Section 409A), an
Option granted to a Participant who was a non-employee director or an independent contractor of the Corporation or a related corporation 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 6(c)(iii)) may be exercised only to the extent exercisable on the date of the Participant’s termination of service to the Corporation or a related corporation (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 ninety (90) days next succeeding the termination date or such other time period as may be specified in the applicable
agreement; or (Y) the close of the option period. If the services of such a Participant are terminated for cause (as defined in Section 6(c)(iii)(E)), his Option shall lapse and no longer be exercisable as of the effective time of his
termination of services, as determined by the Administrator. Notwithstanding the foregoing, the Administrator may in its discretion (subject to any requirements under Code Section 409A) 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 of exercise, or any combination of the foregoing. 
  
 (v) A Participant or his legal representatives, legatees or
distributees shall not be deemed to be the holder of any shares subject to an Option and shall not have any rights as a 

  

 7 

 
stockholder unless and until certificates for such shares are delivered to him or them under the Plan. 
  
 (vi) A certificate or certificates for shares of Common Stock acquired upon exercise of an Option shall be 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 payment of the purchase price. 
  
 (d) Nontransferability of Options 
  
 (i) 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 Treasury Regulation 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 its sole discretion
in a manner consistent with the registration provisions of the Securities Act. An Option shall be exercisable during the Participant’s lifetime only by him, his guardian or legal representative or the transferee in any transfer permitted by
this Section 6(d)(i). The designation of a beneficiary does not constitute a transfer. 
  
 (ii) If a Participant is subject to Section 16 of the Exchange Act, shares of Common Stock acquired upon exercise of an Option may not, without
the consent of the Administrator, be disposed of by the Participant until the expiration of six months after the date the Option was granted. 
  
 7. 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 an optionee of an Option (hereinafter called a “Related Option”) with respect to all or a portion of the shares of Common Stock
subject to the Related Option (a “Tandem SAR”) or may be granted separately to an eligible key employee (a “Freestanding SAR”). Subject to the limitations of the Plan, SARs shall be exercisable in whole or in part upon such terms
and conditions as are provided in the agreement relating to the grant of the SAR. 
  
 (b) Tandem SARs: A Tandem 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. The base price of a Tandem SAR shall be equal to the option price of the related Tandem Option; provided, however, that Tandem SARs must be granted in accordance with Code Section 409A. Tandem 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. For purposes of determining the number of shares of Common Stock that remain subject to such Related Option and for purposes of determining the number of shares of Common Stock in respect of which
other Awards may be granted, upon the exercise of Tandem SARs, the Related Option shall be considered to have been surrendered to the extent of the number of shares of Common Stock with respect to which such Tandem SARs are exercised. Upon the
exercise or termination of the Related Option, the Tandem SARs with respect thereto shall be canceled automatically to the extent of the number of shares of Common Stock 

  

 8 

 
with respect to which the Related Option was so exercised or terminated. Subject to the limitations of the Plan, upon the exercise of a Tandem SAR, the Participant
shall be entitled to receive from the Corporation, for each share of Common Stock with respect to which the Tandem SAR is being exercised, consideration equal in value to the excess of the fair market value of a share of Common Stock on the date of
exercise over the Related Option price per share; provided, that the Administrator may, in any agreement granting Tandem SARs, establish a maximum value payable for such SARs. 
  
 (c) Freestanding SARs: Unless an individual agreement provides otherwise, the base price of a Freestanding SAR shall be not
less than 100% of the fair market value of the Common Stock (as determined in accordance with Section 6(b)(ii)) on the date of grant of the Freestanding SAR. Subject to the limitations of the Plan, upon the exercise of a Freestanding SAR, the
Participant shall be entitled to receive from the Corporation, for each share of Common Stock with respect to which the Freestanding SAR is being exercised, consideration equal in value to the excess of the fair market value of a share of Common
Stock on the date of exercise over the base price per share of such Freestanding SAR; provided, that the Administrator may, in any agreement granting Freestanding SARs, establish a maximum value payable for such SARs. 
  
 (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 are provided in the agreement relating to the grant of the SAR. The period during which an SAR may be exercisable shall not exceed ten years from the date of grant or, in the case of Tandem SARs,
such shorter option period as may apply to the Related Option. Any SAR or portion thereof not exercised before expiration of the period stated in the agreement relating to the grant of the SAR shall terminate. 
  
 (ii) SARs may be exercised by giving written notice to the Corporation
at such place as the Administrator shall direct. The date of exercise of the SAR shall mean the date on which the Corporation shall have received notice from the Participant of the exercise of such SAR. 
  
 (iii) No SAR may be exercised unless the Participant is, at the time of
exercise, an eligible Participant, as described in Section 5, and has been a Participant continuously since the date the SAR was granted, subject to the provisions of Sections 6(c)(iii) and (iv). 
  
 (e) Consideration: The consideration to be received upon the exercise of the SAR
by the Participant shall be paid in cash, shares of Common Stock (valued at fair market value on the date of exercise of such SAR in accordance with Section 6(b)(ii)) or a combination of cash and shares of Common Stock, as elected by the
Administrator, subject to the terms of the Plan and the applicable agreement. SARs shall be structured in a manner designed to be exempt from, or to comply with, the requirements of Code Section 409A. Subject to the foregoing, the
Corporation’s obligation arising upon the exercise of the SAR may be paid currently or on a deferred basis with such interest or earnings equivalent (if any) as the Administrator may determine. A certificate or certificates for shares of Common
Stock acquired upon exercise of an SAR for shares shall be 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. 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. 
  
 (f) Limitations: The applicable SAR agreement shall contain such terms,
conditions and limitations consistent with the Plan as may be specified by the Administrator. Unless otherwise so 

  

 9 

 
provided in the applicable agreement or the Plan, any such terms, conditions or limitations relating to a Tandem SAR shall not restrict the exercisability of the
Related Option. 
  
 (g) Nontransferability: 
  
 (i) SARs shall not be transferable (including by sale, assignment,
pledge or hypothecation) other than by will or the laws of intestate succession (except to the extent, if any, that a Related Option is a Nonqualified Option and is transferable pursuant to Section 6(d)). The designation of a beneficiary does
not constitute a transfer. SARs may be exercised during the Participant’s lifetime only by him or by his guardian or legal representative. 
  
 (ii) If the Participant is subject to Section 16 of the Exchange Act, shares of Common Stock acquired upon exercise of an SAR may not, without
the consent of the Administrator, be disposed of by the Participant until the expiration of six months after the date the SAR was granted. 
  
 8. Stock Awards 
  
 (a) Grant and Vesting of Stock Awards: Subject to the terms of the Plan, the Administrator may in its sole and absolute discretion grant Stock Awards to such
eligible individuals, for such numbers of shares, upon such terms and at such times as the Administrator shall determine. Stock Awards shall be payable in shares of Common Stock. The Administrator may grant Stock Awards in the form of shares of
Bonus Stock that vest immediately upon grant and that are not subject to any forfeiture conditions. The Administrator also may grant Stock Awards in the form of Restricted Stock Awards that are subject to certain conditions, which conditions must be
met in order for the Stock Award to vest and be earned (in whole or in part) and no longer subject to forfeiture. Such conditions may include but are not limited to continued service for a certain period of time, attainment of performance
objectives, retirement, displacement, disability, death, or a combination of these factors. Performance objectives may vary from Participant to Participant and between groups of Participants and shall be based on such corporate, business unit and/or
individual performance factors and criteria as the Administrator in its sole discretion may deem appropriate, which factors may include but are not limited to cash flow, return on equity, return on assets, total return to stockholders, earnings per
share, clinical development milestones, operations expense efficiency milestones or any combination of the foregoing. The Administrator also shall (subject to any restrictions imposed under Code Section 409A) determine the nature, length and
starting date, if any, during which a Stock Award may vest (the “restriction period”). The Administrator shall have sole authority (subject to any restrictions imposed under Code Section 409A) to determine whether and to what degree
Stock Awards have vested and been earned and to establish and interpret the terms and conditions of Stock Awards and the provisions herein. The Administrator shall also have authority, in its sole discretion (subject to any restrictions imposed
under Code Section 409A), to accelerate the date that any Award which was not otherwise vested shall become vested in whole or in part without any obligation to accelerate such date with respect to any other Award granted to any recipient.

  
 (b) Forfeiture of Stock Awards: Unless an individual agreement
provides otherwise (subject to any requirements under Code Section 409A), if the employment or service of a Participant shall terminate for any reason and all or part of a Stock Award has not vested pursuant to the terms of the Plan and related
agreement, such Award, to the extent not then vested, shall be forfeited immediately upon such termination and the Participant shall have no further rights with respect thereto. 
  
 (c) Dividend and Voting Rights; Share Certificates: Unless an individual agreement provides otherwise, (i) a Participant
shall have no dividend rights, voting rights, or other rights as a stockholder with respect to shares subject to a Stock Award that has not yet vested and been earned; (ii) a 

  

 10 

 
certificate or certificates for shares of Common Stock subject to a Stock Award shall be issued in the name of the Participant (or his beneficiary) and distributed to
the Participant (or his beneficiary) as soon as practicable after the shares subject to the Award shall be earned and vested; and (iii) no certificate shall be issued hereunder in the name of the Participant (or his beneficiary) except to the
extent the shares represented thereby have been earned and vested. Notwithstanding the foregoing, if the individual agreement provides that the shares subject to a Stock Award shall be issued prior to the vesting of the Award, the Corporation shall
have the right to retain custody of the certificates evidencing the shares subject to the Stock Award and to require the Participant to deliver to the Corporation a stock power, endorsed in blank, with respect to such Award. 
  
 (d) Nontransferability: 
  
 (i) Stock Awards that have not vested and been earned 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 its sole discretion in a manner consistent with the registration
provisions of the Securities Act. The recipient of a Stock 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 transfer of shares subject to a Stock Award following vesting of the Award may be subject to such restrictions on transfer as may be imposed pursuant to Section 17 or pursuant to other restrictions established by the Corporation.

  
 (ii) If a recipient of a Stock Award is subject to
Section 16 of the Exchange Act, shares of Common Stock subject to such Award may not, without the consent of the Administrator, be sold or otherwise disposed of within six months following the date of grant of such Award. 
  
 9. Performance Awards 
  
 (a) Grant and Earning of Performance Awards: Subject to the terms of the Plan, Performance Awards in the form of either
Performance Shares or Performance Units, or a combination thereof, may be granted to Participants upon such terms and at such times as shall be determined by the Administrator. An award of Performance Shares is a grant of a right to receive shares
of Common Stock or the cash value thereof (or a combination thereof) which is contingent upon the achievement of performance or other objectives during a specified period. An award of Performance Units is a grant of a right to receive a designated
dollar value amount of Common Stock which is contingent upon the achievement of performance or other objectives during a specified period. Subject to Section 4(a), above, the Administrator shall have complete discretion in determining the
number of Performance Units or Performance Shares granted to each 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, completion of
the performance period, or a combination of such conditions. The Administrator shall determine the performance objectives to be used in valuing Performance Awards and shall (subject to the requirements of Code Section 409A) determine the
extent, if any, to which such Awards have been earned and are payable. Performance objectives may vary from Participant to Participant and between groups of Participants and shall be based on such corporate, business unit and/or individual
performance factors and criteria as the Administrator in its sole discretion may deem appropriate, which factors may include but are not limited to cash flow, return on equity, return on assets, total return to stockholders, earnings per share,
clinical development milestones, operations expense efficiency milestones or any combination of the foregoing. The Administrator shall have sole authority to 

  

 11 

 
interpret the terms and conditions of Performance Awards and the provisions herein and to determine the form and terms of payment of Performance Awards. The
Administrator, in its sole and absolute discretion, may (subject to any restrictions imposed under Code Section 409A) 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. 
  
 (b) 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 installments on such terms as may be established by the Administrator. 
  
 (c) Forfeiture of Performance Awards: Unless an individual agreement provides otherwise (subject to any requirements under Code Section 409A), 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 related agreement, 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. 
  
 (d) Dividend and Voting Rights; Share Certificates: Unless an individual agreement provides otherwise, (i) a Participant shall have no dividend rights,
voting rights, or other rights as a stockholder with respect to shares, if any, subject to a Performance Award that has not yet been earned; (ii) a certificate or certificates for shares of Common Stock, if any, subject to a Performance Award
shall be issued in the name of the Participant (or his beneficiary) and distributed to the Participant (or his beneficiary) as soon as practicable after the Award has been earned; and (iii) no certificate shall be issued hereunder in the name
of the Participant (or his beneficiary) except to the extent that the Award has been earned. 
  
 (e) Nontransferability: 
  
 (i)
Performance Awards which 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. 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 transfer of shares subject to a Performance Award following vesting of the
Award may be subject to such restrictions on transfer as may be imposed pursuant to Section 17 or pursuant to other restrictions established by the Corporation. 
  
 (ii) If a recipient of a Performance Award is subject to Section 16 of the Exchange Act, shares of Common Stock,
if any, subject to such Award may not, without the consent of the Administrator, be sold or otherwise disposed of within six months following the date of grant of such Award. 
  
 10. Withholding 
  
 Prior to the delivery 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 local, state, federal or foreign withholding 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, in its sole discretion, permit the recipient to satisfy such obligation in whole or in part, and any other local, state, federal or foreign income tax 

  

 12 

 
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 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. 
  
 11. Agreement 
  
 The grant of any Award under the Plan shall be evidenced by the execution of an agreement (the “agreement”) between the Corporation and the Participant.
Such agreement shall state terms, conditions and restrictions applicable to the Award and any may state such other terms, conditions and restrictions, including but not limited to terms, conditions and restrictions applicable to shares subject to an
Award, as may be established by the Administrator. 
  
 12. Code Section 162(m)
Performance-Based Compensation Compliance 
  
 To the extent that
Section 162(m) of the Code is applicable, the Administrator shall have discretion to determine the extent, if any, that Awards conferred under the Plan to covered employees, as such term is defined in Section 21(b), are intended to comply
with the qualified performance-based compensation exception to employer compensation deductions set forth in Section 162(m) of the Code. 
  
 13. 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 the Plan shall be construed in favor of the Plan transactions meeting the requirements of Rule 16b-3 or any successor rules thereto. If any Plan provision is later
found not to be in compliance with Section 16 of the Exchange Act, the provisions shall be deemed null and void. 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. 
  
 14. No Right or Obligation of Continued Employment or Service

  
 Nothing contained in the Plan shall confer upon a Participant
the right to continue in the employment or service of the Corporation or a related corporation as an employee, director or independent contractor or 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 provided in the Plan or a related agreement, (i) all rights of a Participant with respect to that portion of his Award which has not yet been exercised, vested or earned
shall terminate upon termination of employment or service of the Participant with the Corporation or a related corporation, and (ii) Awards granted under the Plan to a Participant shall not be affected by any change in the duties or position of
the Participant, as long as such individual remains an employee of or in service to the Corporation or a related corporation. 
  
 15. Unfunded Plan; Not a Retirement Plan 
  
 (a) 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 related corporation including, without limitation, any specific funds, assets or other property which the Corporation or any related corporation, 

  

 13 

 
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 amounts, if
any, distributable or payable under the Plan, unsecured by any assets of the Corporation or any related corporation. Nothing contained in the Plan shall constitute a guarantee that the assets of such corporations shall be sufficient to pay any
benefits to any person. 
  
 (b) In no event shall any amounts accrued,
distributable or payable under the Plan be treated as compensation for the purpose of determining the amount of contributions or benefits to which any person shall be entitled under any retirement plan sponsored by the Corporation or a related
corporation that is intended to be a qualified plan within the meaning of Section 401(a) of the Code. 
  
 16. Amendment and Termination of the Plan and Awards 
  
 (a) The Plan and any Award granted pursuant to the Plan may be amended or terminated at any time by the Board of Directors of the Corporation; provided, that (i) amendment or termination of an Award shall not, without the
consent of the recipient of an Award, adversely affect the rights of the recipient with respect to an outstanding Award, and (ii) approval of an amendment to the Plan by the stockholders of the Corporation shall only be required in the event
stockholder approval of any such amendment is required by applicable law, rule or regulation. 
  
 (b) Notwithstanding (a) herein, if an Award so provides, the Administrator shall have unilateral authority to amend the Plan or any Award without the consent of the Participant (and without stockholder approval, unless
such approval is required by applicable law, rule or regulation) 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 422,
Code Section 409A and federal securities laws). 
  
 17. Restrictions on Shares;
Corporation’s Right of Repurchase 
  
 (a) The Administrator may
impose such restrictions on Awards and any shares representing Awards hereunder as it may deem advisable, including without limitation restrictions under the Securities Act, under the requirements of any stock exchange or similar organization and
under any blue sky, state or foreign securities laws applicable to such shares. Notwithstanding any other Plan provision to the contrary, the Corporation shall not be obligated to issue or deliver shares of Common Stock under the Plan or 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 will be under no obligation to register shares of Common Stock with the Securities and Exchange Commission or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities
laws, foreign 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 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. 
  
 (b) As a condition to the issuance and delivery of Common Stock hereunder, or the grant of any benefit pursuant to the terms of the Plan, and unless an individual
agreement provides otherwise, the Corporation may require a Participant or other person to become a party to a stockholders agreement (including but not limited to that certain Stockholders Agreement dated as of August 22, 2000, by and among
Targacept, Inc. and its stockholders, as it may be amended), buy-sell agreement, redemption agreement, repurchase agreement or other agreement between the Corporation and stockholders of the 

  

 14 

 
Corporation or among stockholders of the Corporation or such other agreements imposing such restrictions as may be required by the Corporation. 
  
 18. Significant Transactions 
  
 Notwithstanding any other provision of the Plan to the contrary, and unless an
individual agreement provides otherwise or unless otherwise required under Code Section 409A, in the event of a Significant Transaction (as defined in Section 18(d)): 
  
 (a) All Options and SARs outstanding as of the date of such Significant Transaction of shall become fully exercisable, whether or not
then otherwise exercisable; 
  
 (b) Any restrictions including but not
limited to the restriction period or performance period applicable to any Stock Award or Performance Award shall be deemed to have expired, and such Awards shall become fully vested, earned and payable to the fullest extent of the original grant of
the applicable Award; and 
  
 (c) Notwithstanding the foregoing, in the
event of a merger, share exchange, sale or disposal of substantially all of the assets of the Corporation, reorganization or other business combination affecting the Corporation or a related corporation, the Administrator may, in its sole and
absolute discretion, determine that any or all Awards granted pursuant to the Plan shall not vest, be earned 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 or equivalent terms as Awards granted under the Plan), as in the opinion of
the Administrator is 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, the Committee authorized to make the determinations provided
for in this Section 18(c) 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 sale, merger, share exchange, reorganization or other business combinations
affecting the Corporation or a related corporation. 
  
 (d) For the purposes
herein, a “Significant Transaction” shall be deemed to have occurred upon the occurrence of any of the following: 
  
 (i) The closing of a firm commitment underwritten public offering of the Corporation’s Common Stock pursuant to an effective registration
statement under the Securities Act (except that the foregoing shall not constitute a “Significant Transaction” with respect to Awards granted on and after August 20, 2003); 
  
 (ii) The date any entity or person that (A) does not beneficially own Common Stock as of the effective date of
the Plan and does not have any affiliate that beneficially owns Common Stock as of the effective date of the Plan shall have become the beneficial owner of, or shall have obtained voting control over, fifty percent (50%) or more of the
outstanding Common Stock of the Corporation or (B) beneficially owns Common Stock as of the effective date of the Plan or has one or more affiliates that beneficially own Common Stock as of the effective date of the Plan, together with its
affiliates, shall have become the beneficial owner of, or shall have obtained voting control over, sixty-seven percent (67%) or more of the outstanding Common Stock of the Corporation; or 
  
 (iii) The date the stockholders of the Corporation approve a definitive
agreement (X) to merge or consolidate the Corporation with or into another corporation, in which the 

  

 15 

 
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 holders of Common Stock immediately prior to the merger or consolidation have the same proportionate ownership of Common Stock of the
surviving corporation immediately after the merger as immediately before, or (Y) to sell or otherwise dispose of all or substantially all the assets of the Corporation. 
  
 (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, the term “affiliate” shall have the meaning given the term in Rule 12b-2 under the Exchange Act and the term “beneficial owner” shall have the meaning given the term in Rule 13d-3 under the Exchange Act.)

  
 19. 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. 
  
 20.
Stockholder Approval 
  
 The initial adoption of the Plan was
subject to approval by the stockholders of the Corporation, which approval was received within twelve (12) months of the effective date of the Plan. Any Awards granted prior to such stockholder approval were conditioned upon and effective only
upon approval of the Plan by such stockholders on or before such date. 
  
 21. Certain
Definitions 
  
 For purposes of the Plan, the following terms shall
have the meaning indicated unless otherwise provided herein: 
  
 (a)
“Code” shall mean the Internal Revenue Code of 1986, as amended. Any reference herein to a specific Code section shall be deemed to include all related regulations or other guidance with respect to such Code section. 
  
 (b) “Covered employee” shall have the meaning given the term in
Section 162(m) of the Code or the regulations thereunder. 
  
 (c)
“Parent” or “parent corporation” shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation if each corporation other than the Corporation owns stock possessing 50% or
more of the total combined voting power of all classes of stock in another corporation in the chain. 
  
 (d) “Predecessor” or “predecessor corporation” means a corporation which was a party to a transaction described in Section 424(a) of the
Code (or which would be so described if a substitution or assumption under that Section had occurred) with the Corporation, or a corporation which is a parent or subsidiary of the Corporation, or a predecessor of any such corporation. 
  
 (e) “Related corporation” means any parent, subsidiary or predecessor of the
Corporation. 
  

 16 

 (f) “Subsidiary” or “subsidiary corporation” means any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation if each corporation other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in another
corporation in the chain. 
  
 22. Code Section 409A Compliance

  
 (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, to
the extent practicable, comply with Code Section 409A, and the Plan and any such Award shall, to the extent practicable, be construed in accordance therewith. Deferrals pursuant to an Award otherwise exempt from Code Section 409A in a
manner that would cause Code Section 409A to apply shall not be permitted unless such deferrals are otherwise in compliance with Section 409A. Without in any way limiting the effect of the foregoing, in the event that Code
Section 409A requires 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, then neither the Corporation, the Board, the Committee 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 22(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, 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 from 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. 
  
 (ii) Specified Employees: With
respect to Participants who are “specified employees” (as defined in Code Section 409A), a distribution due to separation from service may not be made before the date that is six months after the date of separation from service (or,
if earlier, the date of death of the Participant), except as may be otherwise permitted pursuant to Code Section 409A. 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. 
  
 (iii) No Acceleration: Unless permissible under Code Section 409A, 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)); 
  

 17 

 (B) As necessary to comply with a certificate of divestiture (as defined in Code
Section 1043(b)(2)); 
  
 (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 on wages attributable to additional Code Section 3401 wages and taxes; 
  
 (D) To pay any portion of an Award that is required to be included in income as a result of a violation of Code Section 409A; and 

 
 (E) To pay an Award not greater than $10,000, provided that
(X) such payment occurs on or before the later of December 31 of the calendar year in which occurs the Participant’s termination of employment or the 15th day of the third month following the Participant’s termination of
employment and (Y) all Awards granted the Participant are (or have previously been) terminated on or before the date of payment. 
  
 (iv) Short-Term Deferrals: Except to the extent otherwise required or permitted under Code Section 409A (and unless an individual
agreement or other instrument provides otherwise), distributions pursuant to Awards otherwise subject to Code Section 409A 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 Award 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 Award 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. Notwithstanding the foregoing, a Participant may
cancel a deferral election upon (X) a hardship distribution pursuant to Code Section 401(k), related regulations or other guidance, or (Y) upon application for a distribution under section 22(b)(i)(F) (unforeseeable emergency).

  
 (B) In the case of the first year in which the
Participant becomes eligible to participate 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), 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 performance period. 
  
 (D) In the case of any Award
subject to a substantial risk of forfeiture (as defined in Code Section 409A), the election described in (A) may be made within 30 days of the date the Participant first obtains a legally binding right to the Award, 

  

 18 

 
provided that the Award requires the Participant to perform at least 12 months of service after such election is made. 
  
 (vi) Changes to Elections: 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; 
  
 (B) Where the payment is to
be made for reasons other than death, disability or unforeseeable emergency, as those terms are defined in Section 22(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 a specified time or pursuant to a fixed schedule, as such terms are defined in Section 22(b)(i), above, may not be made less than 12 months prior to the date of the first
scheduled payment hereunder. 
  
 Notwithstanding anything else in this
Section 22(b)(vi) to the contrary and consistent with Code Section 409A, the Administrator may elect, or may allow the Participant to elect, on or before December 31, 2006, the time or form of payment of amounts subject to Code
Section 409A, provided that any such election occurring in 2006 shall apply only to amounts that are not otherwise payable in 2006 and does not cause an amount to be paid in 2006 that would not otherwise be payable in that year. 
  
 (vii) Delay of Time of Payment: Notwithstanding
Section 22(b)(i), above, the payment of any Award shall be delayed for the following reasons: 
  
 (A) Where the Corporation reasonably anticipates that any deduction provided to it by payment of the Award to the Participant will be limited or
eliminated by Code Section 162(m); in such a case, payment will be made as of the earlier of when the Administrator reasonably anticipates that the Corporation’s deduction under Code Section 162(m) will not be so limited or the
calendar year in which the Participant separates from service; 
  
 (B) Where the Corporation reasonably anticipates the payment of the Award will violate a term of a loan arrangement or any other similar contractual provision and the violation will cause material harm to the Corporation; in such a case,
payment will be made at the earliest date at which the Administrator reasonably anticipates that payment will not cause such a violation; and 
  
 (C) Where the Corporation reasonably anticipates that payment of the Award will violate federal securities laws or other applicable laws; in such a
case, payment will be made at the earliest date when the Administrator reasonably anticipates that payment will not cause such a violation. 
  
 (viii) Termination of Awards Subject to Code Section 409A: As permitted by the Administrator in its sole discretion, and in accordance
with Code Section 409A, the Corporation 

  

 19 

 
may terminate an Award that is subject to Code Section 409A and distribute benefits to Participants. 
  
 (ix) Dividends and Dividend Equivalents: Any dividends or dividend equivalent rights related to an Award shall
be structured in a manner so as to avoid causing the Award to be subject to Code Section 409A or shall otherwise be structured so that the Award and dividends or dividend equivalents are in compliance with Code Section 409A. 
  
 IN WITNESS WHEREOF, this 2000 Equity Incentive Plan of Targacept, Inc., as amended and
restated through March 15, 2006, is, by the authority of the Board of Directors of the Corporation, executed in behalf of the Corporation, effective the             day of
            , 2006. 
  
 TARGACEPT, INC. 
  
  
 By:
                                        
                         
             Donald J. deBethizy, President 
  
  
  
 ATTEST: 
  
  
 _____________________________________________ 
 Secretary 
  
 [Corporate Seal] 
  

 20

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