[********] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

EXCLUSIVE LICENSE AGREEMENT

THIS AGREEMENT (the Agreement) by and between YALE UNIVERSITY, a corporation organized and existing under and by virtue of a charter granted by the general assembly of the Colony and State of Connecticut and located in New Haven, Connecticut (YALE), and Targacept, Inc., a corporation organized and existing under the laws of the State of Delaware with principal offices located in Winston-Salem, North Carolina (LICENSEE), is effective as of the date of final signature below (EFFECTIVE DATE).

ARTICLE 1 BACKGROUND

1.1. In the course of research conducted under YALE auspices, Drs. Tony George, Kristi Sacco, and Jennifer Vessicchio, in the Department of Psychiatry at YALE (the INVENTORS), have produced an invention entitled Mecamylamine and Other Nicotinic Antagonists for Augmentation of SSRI, MAOIs, TCA and Other Antidepressants (OCR 1625) (the INVENTION).

1.2. The INVENTORS have assigned to YALE all of all INVENTORS right, title and interest in and to the INVENTION and any resulting patents.

1.3. YALE wishes to have the INVENTION and any resulting patents commercialized to benefit the public good.

1.4. LICENSEE has agreed with YALE to induce YALE to enter into this Agreement that it shall, solely to the extent expressly provided in Article 7, act diligently to develop and commercialize the LICENSED PRODUCTS for public use.

1.5. YALE is willing to grant a license to LICENSEE, subject to the terms and conditions of this Agreement.

1.6. In consideration of these statements and mutual promises, YALE and LICENSEE agree to the terms of this Agreement.

ARTICLE 2 DEFINITIONS

The following terms used in this Agreement shall be defined as set forth below:

2.1. AFFILIATE shall mean, with respect to any entity (including, without limitation, either party hereto), any entity or person that directly or indirectly controls, is controlled by or is under common control with such entity. For purposes of this definition, control means possession of the power to direct the management of an entity, whether through ownership of more than fifty percent (50%) of voting securities, by contract or otherwise.

2.2. CONFIDENTIAL INFORMATION shall mean all information disclosed by one party to the other during the negotiation of, or under, this Agreement in any manner, whether orally,

visually or in tangible form, that directly relates to LICENSED PATENTS, LICENSED PRODUCTS or LICENSED METHODS or the Agreement itself, unless such information is subject to an exception described in Article 8.2; provided, however, that CONFIDENTIAL INFORMATION that is disclosed in tangible form shall be marked Confidential at the time of disclosure and CONFIDENTIAL INFORMATION that is disclosed orally or visually shall be identified as confidential at the time of disclosure and subsequently reduced to writing (including, for this purpose, email), marked confidential and delivered to the other party within thirty (30) days after such disclosure. Subject to Article 8.2, CONFIDENTIAL INFORMATION shall include, without limitation, materials, know-how and data, technical or non-technical, trade secrets, inventions, methods and processes, whether or not patentable.

2.3. EARNED ROYALTY is defined in Article 6.1.

2.4. EFFECTIVE DATE is defined in the introductory paragraph of this Agreement.

2.5. FIELD shall mean all therapeutic uses in humans.

2.6. FIRST SALE shall mean, with respect to a LICENSED PRODUCT or LICENSED METHOD, the first sale, that results in NET SALES, to a third party of such LICENSED PRODUCT or LICENSED METHOD after all regulatory approvals necessary for the commercialization of such LICENSED PRODUCT or LICENSED METHOD in the country in which such sale is made have been obtained. For purposes of clarity, for each LICENSED PRODUCT developed by LICENSEE, there can only be one FIRST SALE under this Agreement.

2.7. INSOLVENT shall mean that LICENSEE is insolvent as defined by the United States Bankruptcy Code, as amended from time to time

2.8. INVENTION and INVENTOR are defined in Article 1.1.

2.9. LICENSE refers to the license granted under Article 3.1.

2.10. LICENSED INFORMATION shall mean all preclinical and clinical data controlled by Yale as of the EFFECTIVE DATE and directly relating to the INVENTION.

2.11. LICENSED METHODS shall mean any method, procedure, service or process the practice of which, in the absence of a license from YALE, would infringe a VALID CLAIM of a LICENSED PATENT.

2.12. LICENSED PATENTS shall mean: (i) the patent applications listed in Appendix A, together with all continuations, divisionals and continuations-in-part that include any claim that is directed to subject matter described in the patent applications listed on Appendix A (collectively, the Applications); (ii) all patents issuing from or claiming priority to any of the Applications during the TERM, together with all reissues, re-examinations or extensions thereof or substitutes therefor (the Patents) and (iii) the relevant international counterparts of each of the Applications and Patents. Appendix A is incorporated into this Agreement herein by reference.

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