Document:

2005 STOCK INCENTIVE PLAN (Employees)

 Exhibit 10.6(a) 
  
 TARGACEPT, INC. 
 2005 STOCK INCENTIVE PLAN 
  
 Incentive Stock
Option Agreement 
 (Employees) 
  
 THIS AGREEMENT (together with Schedule A, attached hereto, the “Agreement”), effective as of the date specified as the “Grant
Date” on Schedule A attached hereto, between TARGACEPT, INC., a Delaware corporation (the “Corporation”), and the individual identified on Schedule A attached hereto, an Employee of the Corporation or an Affiliate (the
“Participant”); 
  
 R E C I
T A L S : 
  
 In furtherance of the
purposes of the Targacept, Inc. 2005 Stock Incentive Plan, as it may be hereafter amended (the “Plan”), the Corporation and the Participant hereby agree as follows: 
  
 1. Incorporation of Plan. The rights and duties of the Corporation and the Participant under this Agreement shall in
all respects be subject to and governed by the provisions of the Plan, the terms of which are incorporated herein by reference. In the event of any conflict between the provisions in the Agreement and those of the Plan, the provisions of the Plan
shall govern. Unless otherwise defined herein, capitalized terms in this Agreement shall have the same definitions as set forth in the Plan. 
  
 2. Grant of Option; Term of Option. The Corporation hereby grants to the Participant pursuant to the Plan, as a matter of separate inducement and
agreement in connection with his or her employment or service to the Corporation, and not in lieu of any salary or other compensation for his or her services, the right and Option (the “Option”) to purchase all or any part of such
aggregate number of shares (the “Shares”) of common stock of the Corporation (the “Common Stock”) at a purchase price (the “Option Price”) as specified on Schedule A, attached hereto, and subject to such other terms and
conditions as may be stated herein or in the Plan or on Schedule A. The Participant expressly acknowledges that the terms of Schedule A shall be incorporated herein by reference and shall constitute part of this Agreement. The Corporation and the
Participant further acknowledge and agree that the signatures of the Corporation and the Participant on the Grant Notice contained in Schedule A shall constitute their acceptance of all of the terms of this Agreement and their agreement to be bound
by the terms of this Agreement. The Option (or any portion thereof) shall be designated as an Incentive Option, as stated on Schedule A. To the extent that the Option or any portion thereof is designated as an Incentive Option and such Option
does not qualify as an Incentive Option, the Option or portion thereof shall be treated as a Nonqualified Option. Except as otherwise provided in the Plan or this Agreement, this Option will expire if not exercised in full by the Expiration Date
specified on Schedule A. 
  
 3. Exercise of Option. Subject
to the terms of the Plan and this Agreement, the Option shall become exercisable on the date or dates, and subject to such conditions, as are set forth on Schedule A attached hereto. To the extent that an Option which is exercisable is not
exercised, such Option shall accumulate and be exercisable by the Participant in whole or in part at any time prior to expiration of the Option, subject to the terms of the Plan and this Agreement. The Participant expressly acknowledges that the
Option may vest and be exercisable only upon such terms and conditions as are provided in this Agreement and the Plan. Upon the exercise of an Option in whole or in part and payment of the Option Price in accordance with the provisions of the
Plan and this Agreement, the Corporation shall, as soon thereafter as practicable, deliver to the Participant a certificate or certificates for the Shares purchased. Payment of the Option Price may be made (i) in cash or by cash equivalent; and,
where permitted by applicable law, payment may also be made (ii) by delivery (by either actual delivery or attestation) of shares of Common Stock owned by the Participant at the time of exercise for a period of at least six 

  

 
months (or such other time period necessary to avoid variable accounting or other accounting consequences deemed unacceptable to the Corporation); (iii) by
shares of Common Stock withheld upon exercise but only if and to the extent that payment by such method does not result in variable accounting or other accounting consequences deemed unacceptable to the Corporation; (iv) in the event that a Public
Market (as defined in the Plan) 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; (v) by such other payment methods as may be approved by the Administrator and which are acceptable under applicable law; or (vi) by any combination of the foregoing methods. Shares delivered
or withheld in payment of the Option Price shall be valued at their Fair Market Value on the date of exercise, as determined by the Administrator by applying the provisions of the Plan.  
  
 4. No Right of Employment or Service; Forfeiture of Option. Neither
the Plan, this Agreement nor any other action related to the Plan shall confer upon the Participant any right to continue in the employment or service of the Corporation or an Affiliate or interfere with the right of the Corporation or an Affiliate
to terminate the Participant’s employment or service at any time. Except as otherwise expressly provided in the Plan or this Agreement or as determined by the Administrator, all rights of the Participant with respect to the Option shall
terminate upon termination of the employment of the Participant with the Corporation or an Affiliate. 
  
 5. Termination of Employment. Unless the Administrator determines otherwise, the Option shall not be exercised unless the Participant is, at the
time of exercise, an Employee and has been an Employee continuously since the date the Option was granted, subject to the following: 
  
 (a) The employment relationship of the 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 90 days, or, if longer, as long as the Participant’s right to reemployment is guaranteed either by statute or by contract. The
employment relationship of the Participant shall also be treated as continuing intact while the Participant is not in active service because of Disability. The Administrator shall have sole authority to determine whether the Participant is disabled
and, if applicable, the Participant’s Termination Date. 
  
 (b) Unless the Administrator determines otherwise, if the employment of the Participant is terminated because of Disability or death, the Option may be exercised only to the extent vested and exercisable on the
Participant’s 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 12 months next succeeding the Termination Date; or (Y) the close
of the Option Period. In the event of the Participant’s death, the Option shall be exercisable by such person or persons as shall have acquired the right to exercise the Option by will or by the laws of intestate succession. 
  
 (c) Unless the Administrator determines otherwise, if the
employment of the Participant is terminated for any reason other than Disability, death or for Cause, the Option may be exercised to the extent vested and exercisable on his or her Termination Date. The Option must be exercised, if at all, prior to
the first to occur of the following, whichever shall be applicable: (X) the close of the period of three months next succeeding the Termination Date; or (Y) the close of the Option period. If the Participant dies following such termination of
employment and prior to the date specified in (X) of this subparagraph (c), the Participant shall be treated as having died while employed under subparagraph (b) 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, the 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. 
  

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 (d) Unless the Administrator determines otherwise, if the employment of the Participant
is terminated for Cause, the Option shall lapse and no longer be exercisable as of his or her Termination Date, as determined by the Administrator. 
  
 6. Notice of Disposition. To the extent that this Option is designated as an Incentive Option, if Shares of Common Stock acquired upon exercise of
the Option are disposed of within two years following the date of grant or one year following the transfer of such Shares to the Participant upon exercise, the Participant shall, promptly following such disposition, notify the Corporation in writing
of the date and terms of such disposition and provide such other information regarding the disposition as the Administrator may reasonably require. 
  
 7. Limitation on Incentive Options. In no event shall there first become exercisable by the Participant in any one calendar year Incentive Options
granted by the Corporation or any Parent or Subsidiary with respect to shares having an aggregate Fair Market Value (determined at the time an Incentive Option is granted) greater than $100,000. To the extent that any Incentive Options are first
exercisable by the Participant in excess of such limitation, the excess shall be considered a Nonqualified Option. 
  
 8. Nontransferability of Option. To the extent that this Option is designated as an Incentive Option, the Option shall not be transferable
(including by sale, assignment, pledge or hypothecation) other than by will or the laws or intestate succession, or, in the Administrator’s discretion, as may otherwise be permitted in accordance with Section 422 of the Code and related
regulations. To the extent that this Option is treated as a Nonqualified Option, the Option shall not be transferable (including by sale, assignment, pledge or hypothecation) other than by will or the laws of intestate succession, except as may be
permitted by the Administrator in a manner consistent with the registration provisions of the Securities Act of 1933, as amended (the “Securities Act”). Except as may be permitted by the preceding, the Option shall be exercisable during
the Participant’s lifetime only by him or her or by his or her guardian or legal representative. The designation of a beneficiary in accordance with the Plan does not constitute a transfer. 
  
 9. Superseding Agreement; Binding Effect. This Agreement supersedes
any statements, representations or agreements of the Corporation with respect to the grant of the Option or any related rights, and the Participant hereby waives any rights or claims related to any such statements, representations or agreements.
This Agreement does not supersede or amend any existing confidentiality agreement, nonsolicitation agreement, noncompetition agreement, employment agreement or any other similar agreement between the Participant and the Corporation, including, but
not limited to, any restrictive covenants contained in such agreements. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective executors, administrators, heirs, successors and assigns.

  
 10. Governing Law. Except as otherwise provided in the
Plan or herein, this Agreement shall be construed and enforced according to the laws of the State of Delaware, without regard to the conflict of laws provisions of any state, and in accordance with applicable federal laws of the United States.

  
 11. Amendment and Termination; Waiver. Subject to the
terms of the Plan, this Agreement may be modified or amended only by the written agreement of the parties hereto. The waiver by the Corporation of a breach of any provision of the Agreement by the Participant shall not operate or be construed as a
waiver of any subsequent breach by the Participant. Notwithstanding the foregoing, the Administrator shall have unilateral authority to amend the Plan and this Agreement (without Participant consent) to the extent necessary to comply with applicable
law or changes to applicable law (including but in no way limited to Code Section 409A and related regulations or other guidance and federal securities laws). 
  

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 12. No Rights as Stockholder. The Participant and his or her legal representatives, legatees and
distributees shall not be deemed to be the holder of any Shares subject to the Option and shall not have any rights of a stockholder unless and until certificates for such Shares have been issued and delivered to him or her or them. 
  
 13. Withholding; Tax Matters. 
  
 (a) The Participant acknowledges that the Corporation shall
require the Participant to pay the Corporation in cash the amount of any tax or other amount required by any governmental authority to be withheld and paid over by the Corporation to such authority for the account of the Participant, and the
Participant agrees, as a condition to the grant of the Option and delivery of the Shares or any other benefit, to satisfy such obligations. Notwithstanding the foregoing, the Corporation may establish procedures to permit the Participant to satisfy
such obligations in whole or in part, and any other local, state, federal, foreign or other income tax obligations relating to the Option, by electing (the “election”) to have the Corporation withhold shares of Common Stock from the Shares
to which the Participant 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. 
  
 (b) The Participant acknowledges that the Corporation has made no warranties or representations to the
Participant with respect to the tax consequences (including, but not limited to, income tax consequences) related to the transactions contemplated by this Agreement, and the Participant is in no manner relying on the Corporation or its
representatives for an assessment of such tax consequences. The Participant acknowledges that there may be adverse tax consequences upon acquisition or disposition of the Shares subject to the Option and that the Participant should consult a tax
advisor prior to such exercise or disposition. The Participant acknowledges that he or she has been advised that he or she should consult with his own attorney, accountant, and/or tax advisor regarding the decision to enter into this Agreement and
the consequences thereof. The Participant also acknowledges that the Corporation has no responsibility to take or refrain from taking any actions in order to achieve a certain tax result for the Participant. 
  
 14. Administration. The authority to construe and interpret this
Agreement and the Plan, and to administer all aspects of the Plan, shall be vested in the Administrator, and the Administrator shall have all powers with respect to this Agreement as are provided in the Plan. Any interpretation of the Agreement by
the Administrator and any decision made by it with respect to the Agreement is final and binding. 
  
 15. Notices. Except as may be otherwise provided by the Plan or determined by the Administrator, any written notices provided for in this Agreement
or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after
mailed but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated on Schedule A (or such other address as may be designated by the Participant in a manner
acceptable to the Administrator), or, if to the Corporation, at the Corporation’s principal office, attention Chief Financial Officer, Targacept, Inc. Notice may also be provided by electronic submission, if and to the extent permitted by the
Administrator. 
  

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 16. Severability. The provisions of this Agreement are severable and if any one or more provisions
may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. 
  
 17. Restrictions on Option and Shares. The Corporation may impose such restrictions on the Option and the Shares or other benefits underlying the
Option as it may deem advisable, including without limitation restrictions under the federal securities laws, the requirements of any stock exchange or similar organization and any blue sky, state or foreign securities laws applicable to such Option
or Shares. Notwithstanding any other provision in the Plan or the Agreement to the contrary, the Corporation shall not be obligated to issue, deliver or transfer shares of Common Stock, to make any other distribution of benefits, or to take any
other action, unless such delivery, distribution or action is in compliance with all applicable laws, rules and regulations (including but not limited to the requirements of the Securities Act). The Corporation may cause a restrictive legend to be
placed on any certificate for Shares issued pursuant to the exercise of the Option in such form as may be prescribed from time to time by applicable laws and regulations or as may be advised by legal counsel. 
  
 18. Cash Settlement. Notwithstanding any other provision of the Plan
or this Agreement to the contrary, the Administrator may (subject to any requirements imposed under Code Section 409A, related regulations or other guidance) cause the Option or portion thereof to be cancelled in consideration of an alternative
option or cash payment of an equivalent cash value, as determined by the Administrator in its sole discretion, made to the Participant. 
  
 19. Effect of Changes in Status. Unless the Administrator, in its sole discretion, determines otherwise, the 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 in the employ of the Corporation or an Affiliate. Without limiting the foregoing, the Administrator has sole discretion to
determine, at the time of grant of the Option or at any time thereafter, the effect, if any, on the Option if the Participant’s status as an Employee changes, including but not limited to a change from full-time to part-time, or vice versa, or
if other similar changes in the nature or scope of the Participant’s employment occur. 
  
 20. Right of Offset. Notwithstanding any other provision of the Plan or the Agreement, the Corporation may reduce the amount of any payment otherwise payable to or on behalf of the Participant by the amount of
any obligation of the Participant to the Corporation that is then due and payable and the Participant shall be deemed to have consented to such reduction. 
  
 21. Counterparts; Further Instruments. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. The parties hereto agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.

  
 [Signatures of the Corporation and the Participant follow on
Schedule A/Grant Notice.] 
  

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 TARGACEPT, INC.

 2005 STOCK INCENTIVE PLAN 
  
 Incentive Stock Option Agreement 
 (Employees) 
  
 Schedule A/Grant Notice

  
 1. Pursuant to the terms and conditions of the
Corporation’s 2005 Stock Incentive Plan (the “Plan”), you (the “Participant”) have been granted an option (the “Option”) to purchase
             shares (the “Shares”) of our Common Stock as outlined below. 
  

					
	Name of Participant:	  	_____________________________	  	 
	Address:	  	_____________________________	  	 
	 	  	_____________________________	  	 
	 	  	_____________________________	  	 
	Grant Date:	  	______________________, 20 ____	  	 
	Number of Shares Subject to Option:	  	_____________________________	  	 
	Option Price:	  	$____________________________	  	 
	Type of Option:	  	 Incentive Stock Option
	  	 
	Expiration Date (Last day of Option Period):	  	______________________, 20 ____	  	 
	Vesting Schedule/Conditions:	  	_____________________________	  	 
	 	  	_____________________________	  	 
	 	  	_____________________________	  	 

  
 2. By my signature
below, I, the Participant, hereby acknowledge receipt of this Grant Notice and the Option Agreement (the “Agreement”) dated                 
    , 200    , between the Participant and Targacept, Inc. (the “Corporation”) which is attached to this Grant Notice. I understand that the Grant Notice and other provisions of
Schedule A herein are incorporated by reference into the Agreement and constitute a part of the Agreement. By my signature below, I further agree to be bound by the terms of the Plan and the Agreement, including but not limited to the terms of
this Grant Notice and the other provisions of Schedule A contained herein. The Corporation reserves the right to treat the Option and the Agreement as cancelled, void and of no effect if the Participant fails to return a signed copy of the Grant
Notice within 30 days of grant date stated above. 
  

									
					
	 Signature:
	 	 	 	 	 	 Date:
	 	 
				
	 	 	 	 	 	 	 Agreed to by:

				
	 	 	 	 	 	 	 TARGACEPT, INC.

					
	 	 	 	 	 	 	 By:
	 	 
	 	 	 	 	 	 	 	 	     J. Donald deBethizy

	 	 	 	 	 	 	 	 	     President & CEO

  

	
	 Attest:

	
	  
	 Alan A. Musso

	 Vice President, Chief Financial Officer & Secretary

  
 Note: If there are any
discrepancies in the name or address shown above, please make the appropriate corrections on this form. Please retain a copy of the Agreement, including this Grant Notice, for your files.2005 STOCK INCENTIVE PLAN, NONQUALIFIED

 Exhibit 10.6(b) 
  
 TARGACEPT, INC. 
 2005 STOCK INCENTIVE PLAN 
  
 Nonqualified Stock
Option Agreement 
 (Employees) 
  
 THIS AGREEMENT (together with Schedule A, attached hereto, the “Agreement”), effective as of the date specified as the “Grant Date” on
Schedule A attached hereto, between TARGACEPT, INC., a Delaware corporation (the “Corporation”), and the individual identified on Schedule A attached hereto, an Employee of the Corporation or an Affiliate (the “Participant”);

  
 R E C I T A L
S : 
  
 In furtherance of the purposes of the Targacept,
Inc. 2005 Stock Incentive Plan, as it may be hereafter amended (the “Plan”), the Corporation and the Participant hereby agree as follows: 
  
 1. Incorporation of Plan. The rights and duties of the Corporation and the Participant under this Agreement shall in all respects be subject to and
governed by the provisions of the Plan, the terms of which are incorporated herein by reference. In the event of any conflict between the provisions in the Agreement and those of the Plan, the provisions of the Plan shall govern. Unless otherwise
defined herein, capitalized terms in this Agreement shall have the same definitions as set forth in the Plan. 
  
 2. Grant of Option; Term of Option. The Corporation hereby grants to the Participant pursuant to the Plan, as a matter of separate inducement and
agreement in connection with his or her employment or service to the Corporation, and not in lieu of any salary or other compensation for his or her services, the right and Option (the “Option”) to purchase all or any part of such
aggregate number of shares (the “Shares”) of common stock of the Corporation (the “Common Stock”) at a purchase price (the “Option Price”) as specified on Schedule A, attached hereto, and subject to such other terms and
conditions as may be stated herein or in the Plan or on Schedule A. The Participant expressly acknowledges that the terms of Schedule A shall be incorporated herein by reference and shall constitute part of this Agreement. The Corporation and the
Participant further acknowledge and agree that the signatures of the Corporation and the Participant on the Grant Notice contained in Schedule A shall constitute their acceptance of all of the terms of this Agreement and their agreement to be bound
by the terms of this Agreement. The Option (or any portion thereof) shall be designated as a Nonqualified Option, as stated on Schedule A. Except as otherwise provided in the Plan or this Agreement, this Option will expire if not exercised in
full by the Expiration Date specified on Schedule A. 
  
 3.
Exercise of Option. Subject to the terms of the Plan and this Agreement, the Option shall become exercisable on the date or dates, and subject to such conditions, as are set forth on Schedule A attached hereto. To the extent that an Option
which is exercisable is not exercised, such Option shall accumulate and be exercisable by the Participant in whole or in part at any time prior to expiration of the Option, subject to the terms of the Plan and this Agreement. The Participant
expressly acknowledges that the Option may vest and be exercisable only upon such terms and conditions as are provided in this Agreement and the Plan. Upon the exercise of an Option in whole or in part and payment of the Option Price in
accordance with the provisions of the Plan and this Agreement, the Corporation shall, as soon thereafter as practicable, deliver to the Participant a certificate or certificates for the Shares purchased. Payment of the Option Price may be made (i)
in cash or by cash equivalent; and, where permitted by applicable law, payment may also be made (ii) by delivery (by either actual delivery or attestation) of shares of Common Stock owned by the Participant at the time of exercise for a period of at
least six months (or such other time period necessary to avoid variable accounting or other accounting consequences deemed unacceptable to the Corporation); (iii) by shares of Common Stock withheld upon exercise but only if and to the extent that

  

 
payment by such method does not result in variable accounting or other accounting consequences deemed unacceptable to the Corporation; (iv) in the event that
a Public Market (as defined in the Plan) 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; (v) by such other payment methods as may be approved by the Administrator and which are acceptable under applicable law; or (vi) by any combination of the foregoing methods.
Shares delivered or withheld in payment of the Option Price shall be valued at their Fair Market Value on the date of exercise, as determined by the Administrator by applying the provisions of the Plan. 
  
 4. No Right of Employment or Service; Forfeiture of Option. Neither
the Plan, this Agreement nor any other action related to the Plan shall confer upon the Participant any right to continue in the employment or service of the Corporation or an Affiliate or interfere with the right of the Corporation or an Affiliate
to terminate the Participant’s employment or service at any time. Except as otherwise expressly provided in the Plan or this Agreement or as determined by the Administrator, all rights of the Participant with respect to the Option shall
terminate upon termination of the employment of the Participant with the Corporation or an Affiliate. 
  
 5. Termination of Employment. Unless the Administrator determines otherwise, the Option shall not be exercised unless the Participant is, at the
time of exercise, an Employee and has been an Employee continuously since the date the Option was granted, subject to the following: 
  
 (a) The employment relationship of the 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 90 days, or, if longer, as long as the Participant’s right to reemployment is guaranteed either by statute or by contract. The
employment relationship of the Participant shall also be treated as continuing intact while the Participant is not in active service because of Disability. The Administrator shall have sole authority to determine whether the Participant is disabled
and, if applicable, the Participant’s Termination Date. 
  
 (b) Unless the Administrator determines otherwise, if the employment of the Participant is terminated because of Disability or death, the Option may be exercised only to the extent vested and exercisable on the
Participant’s 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 12 months next succeeding the Termination Date; or (Y) the close
of the Option Period. In the event of the Participant’s death, the Option shall be exercisable by such person or persons as shall have acquired the right to exercise the Option by will or by the laws of intestate succession. 
  
 (c) Unless the Administrator determines otherwise, if the
employment of the Participant is terminated for any reason other than Disability, death or for Cause, the Option may be exercised to the extent vested and exercisable on his or her Termination Date. The Option must be exercised, if at all, prior to
the first to occur of the following, whichever shall be applicable: (X) the close of the period of three months next succeeding the Termination Date; or (Y) the close of the Option period. If the Participant dies following such termination of
employment and prior to the date specified in (X) of this subparagraph (c), the Participant shall be treated as having died while employed under subparagraph (b) 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, the Option shall be exercisable by such person or persons as shall have acquired the right to exercise the Option by will or by the laws of intestate
succession. 
  
 (d) Unless the Administrator
determines otherwise, if the employment of the Participant is terminated for Cause, the Option shall lapse and no longer be exercisable as of his or her Termination Date, as determined by the Administrator. 
  

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 6. Nontransferability of Option. The Option shall not be transferable (including by sale,
assignment, pledge or hypothecation) other than by will or the laws of intestate succession, except as may be permitted by the Administrator in a manner consistent with the registration provisions of the Securities Act of 1933, as amended (the
“Securities Act”). Except as may be permitted by the preceding sentence, the Option shall be exercisable during the Participant’s lifetime only by him or her or by his or her guardian or legal representative. The designation of a
beneficiary in accordance with the Plan does not constitute a transfer. 
  
 7. Superseding Agreement; Binding Effect. This Agreement supersedes any statements, representations or agreements of the Corporation with respect to the grant of the Option or any related rights, and the Participant hereby waives any
rights or claims related to any such statements, representations or agreements. This Agreement does not supersede or amend any existing confidentiality agreement, nonsolicitation agreement, noncompetition agreement, employment agreement or any other
similar agreement between the Participant and the Corporation, including, but not limited to, any restrictive covenants contained in such agreements. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their
respective executors, administrators, heirs, successors and assigns. 
  
 8. Governing Law. Except as otherwise provided in the Plan or herein, this Agreement shall be construed and enforced according to the laws of the State of Delaware, without regard to the conflict of laws provisions of any state, and
in accordance with applicable federal laws of the United States. 
  
 9. Amendment and Termination; Waiver. Subject to the terms of the Plan, this Agreement may be modified or amended only by the written agreement of the parties hereto. The waiver by the Corporation of a breach of any provision of the
Agreement by the Participant shall not operate or be construed as a waiver of any subsequent breach by the Participant. Notwithstanding the foregoing, the Administrator shall have unilateral authority to amend the Plan and this Agreement (without
Participant consent) to the extent necessary to comply with applicable law or changes to applicable law (including but in no way limited to Code Section 409A and related regulations or other guidance and federal securities laws). 
  
 10. No Rights as Stockholder. The Participant and his or her legal
representatives, legatees and distributees shall not be deemed to be the holder of any Shares subject to the Option and shall not have any rights of a stockholder unless and until certificates for such Shares have been issued and delivered to him or
her or them. 
  
 11. Withholding; Tax Matters. 

 
 (a) The Participant acknowledges that the Corporation
shall require the Participant to pay the Corporation in cash the amount of any tax or other amount required by any governmental authority to be withheld and paid over by the Corporation to such authority for the account of the Participant, and the
Participant agrees, as a condition to the grant of the Option and delivery of the Shares or any other benefit, to satisfy such obligations. Notwithstanding the foregoing, the Corporation may establish procedures to permit the Participant to satisfy
such obligations in whole or in part, and any other local, state, federal, foreign or other income tax obligations relating to the Option, by electing (the “election”) to have the Corporation withhold shares of Common Stock from the Shares
to which the Participant 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. 
  
 (b) The Participant acknowledges that the Corporation has made no warranties or representations to the
Participant with respect to the tax consequences (including, but not limited to, income tax consequences) related to the transactions contemplated by this Agreement, and the 

  

 3 

 
Participant is in no manner relying on the Corporation or its representatives for an assessment of such tax consequences. The Participant acknowledges that
there may be adverse tax consequences upon acquisition or disposition of the Shares subject to the Option and that the Participant should consult a tax advisor prior to such exercise or disposition. The Participant acknowledges that he or she has
been advised that he or she should consult with his own attorney, accountant, and/or tax advisor regarding the decision to enter into this Agreement and the consequences thereof. The Participant also acknowledges that the Corporation has no
responsibility to take or refrain from taking any actions in order to achieve a certain tax result for the Participant. 
  
 12. Administration. The authority to construe and interpret this Agreement and the Plan, and to administer all aspects of the Plan, shall be vested
in the Administrator, and the Administrator shall have all powers with respect to this Agreement as are provided in the Plan. Any interpretation of the Agreement by the Administrator and any decision made by it with respect to the Agreement is final
and binding. 
  
 13. Notices. Except as may be otherwise
provided by the Plan or determined by the Administrator, any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by
postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailed but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address
indicated on Schedule A (or such other address as may be designated by the Participant in a manner acceptable to the Administrator), or, if to the Corporation, at the Corporation’s principal office, attention Chief Financial Officer, Targacept,
Inc. Notice may also be provided by electronic submission, if and to the extent permitted by the Administrator. 
  
 14. Severability. The provisions of this Agreement are severable and if any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. 
  
 15. Restrictions on Option and Shares. The Corporation may impose such restrictions on the Option and the Shares or other benefits underlying the
Option as it may deem advisable, including without limitation restrictions under the federal securities laws, the requirements of any stock exchange or similar organization and any blue sky, state or foreign securities laws applicable to such Option
or Shares. Notwithstanding any other provision in the Plan or the Agreement to the contrary, the Corporation shall not be obligated to issue, deliver or transfer shares of Common Stock, to make any other distribution of benefits, or to take any
other action, unless such delivery, distribution or action is in compliance with all applicable laws, rules and regulations (including but not limited to the requirements of the Securities Act). The Corporation may cause a restrictive legend to be
placed on any certificate for Shares issued pursuant to the exercise of the Option in such form as may be prescribed from time to time by applicable laws and regulations or as may be advised by legal counsel. 
  
 16. Cash Settlement. Notwithstanding any other provision of the Plan
or this Agreement to the contrary, the Administrator may (subject to any requirements imposed under Code Section 409A, related regulations or other guidance) cause the Option or portion thereof to be cancelled in consideration of an alternative
option or cash payment of an equivalent cash value, as determined by the Administrator in its sole discretion, made to the Participant. 
  
 17. Effect of Changes in Status. Unless the Administrator, in its sole discretion, determines otherwise, the 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 in the employ of the Corporation or an Affiliate. Without limiting the foregoing, the Administrator has sole discretion to
determine, at the time of grant of the Option or at any time thereafter, the effect, if any, on the Option if the Participant’s status as an Employee changes, including but not limited to a change from full-time to part-time, or vice versa, or
if other similar changes in the nature or scope of the Participant’s employment occur. 
  

 4 

 18. Right of Offset. Notwithstanding any other provision of the Plan or the Agreement, the
Corporation may reduce the amount of any payment otherwise payable to or on behalf of the Participant by the amount of any obligation of the Participant to the Corporation that is then due and payable and the Participant shall be deemed to have
consented to such reduction. 
  
 19. Counterparts; Further
Instruments. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties hereto agree to execute such further
instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 
  
 [Signatures of the Corporation and the Participant follow on Schedule A/Grant Notice.] 
  

 5 

  
 TARGACEPT, INC.

 2005 STOCK INCENTIVE PLAN 
  
 Nonqualified Stock Option Agreement 
 (Employees) 
  
 Schedule A/Grant Notice

  
 1. Pursuant to the terms and conditions of the
Corporation’s 2005 Stock Incentive Plan (the “Plan”), you (the “Participant”) have been granted an option (the “Option”) to purchase
                 shares (the “Shares”) of our Common Stock as outlined below. 
  

			
	Name of Participant:	  	______________________________
	Address:	  	______________________________
	 	  	______________________________
	 	  	______________________________
	Grant Date:	  	______________________, 20 _____
	Number of Shares Subject to Option:	  	______________________________
	Option Price:	  	$_____________________________
	Type of Option:	  	 Nonqualified Stock Option

	Expiration Date (Last day of Option Period):	  	______________________, 20 _____
	Vesting Schedule/Conditions:	  	______________________________
	 	  	______________________________
	 	  	______________________________

  
 2. By my signature
below, I, the Participant, hereby acknowledge receipt of this Grant Notice and the Option Agreement (the “Agreement”) dated
                             , 200    , between the Participant and
Targacept, Inc. (the “Corporation”) which is attached to this Grant Notice. I understand that the Grant Notice and other provisions of Schedule A herein are incorporated by reference into the Agreement and constitute a part of the
Agreement. By my signature below, I further agree to be bound by the terms of the Plan and the Agreement, including but not limited to the terms of this Grant Notice and the other provisions of Schedule A contained herein. The Corporation
reserves the right to treat the Option and the Agreement as cancelled, void and of no effect if the Participant fails to return a signed copy of the Grant Notice within 30 days of grant date stated above. 
  

									
					
	 Signature:
	 	 	 	 	 	 Date:
	 	 
				
	 	 	 	 	 	 	 Agreed to by:

				
	 	 	 	 	 	 	 TARGACEPT, INC.

					
	 	 	 	 	 	 	 By:
	 	 
	 	 	 	 	 	 	 	 	     J. Donald deBethizy

	 	 	 	 	 	 	 	 	     President & CEO

				
	 Attest:
	 	 	 	 	 	 
					
	 	 	 	 	 	 	 	 	 
	 Alan A. Musso
	 	 	 	 	 	 
	 Vice President, Chief Financial Officer & Secretary
	 	 	 	 	 	 

  
 Note: If there are any
discrepancies in the name or address shown above, please make the appropriate corrections on this form. Please retain a copy of the Agreement, including this Grant Notice, for your files.

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