Document:

EX-10.26

 EXHIBIT 10.26 

UNITED STATES DISTRICT COURT 
 SOUTHERN DISTRICT OF NEW
YORK 
  

			
	  

UNITED STATES OF AMERICA ex rel. J. DOE, STATE OF NEW YORK ex rel. J. DOE, STATE of CALIFORNIA ex rel. J. DOE, STATE OF TEXAS ex
rel. J. DOE, STATE OF MICHIGAN ex rel. J. DOE,
  

Plaintiffs,
  

v.
  

PROGENITY, INC.,
  

Defendant.
  
	  	16 Civ. 9051 (LAP)
	  

UNITED STATES OF AMERICA,
  

Plaintiff-Intervenor,
  

v.
  

PROGENITY, INC.,
  

Defendant.
  
	  	

 STIPULATION AND ORDER OF SETTLEMENT AND DISMISSAL 

WHEREAS, this Stipulation and Order of Settlement and Dismissal (“Stipulation”) is entered into by and among Plaintiff the United
States of America (the “United States” or “Government”), by its attorney, Audrey Strauss, Acting United States Attorney for the Southern District of New York, and on behalf of the Office of Inspector General of the Department of
Health and Human Services (“OIG-HHS”) and the Defense Health Agency (“DHA”), acting on 

 
behalf of the TRICARE Program (“TRICARE”); Relator Demetria Katsanos (the “Relator”), by her authorized representative; and Defendant Progenity, Inc. (“Progenity”)
(together with the Government and the Relator, the “Parties”), by its authorized representatives; 
 WHEREAS, Progenity is a
company headquartered in California that provides molecular laboratory testing services to patients, through their healthcare providers, focusing on prenatal testing for genetic and chromosomal abnormalities; 

WHEREAS, prior to August 2013, Progenity operated under the name Ascendant MDx, Inc.; 

WHEREAS, throughout the period referenced in this Stipulation, Progenity provided services that were reimbursed by Federal healthcare
programs, including Medicaid, TRICARE, the Federal Employee Health Benefit Program (“FEHBP”), and the United States Department of Veterans Affairs healthcare program (“VA”); 

WHEREAS, on or about November 21, 2016, the Relator filed a complaint in the United States District Court for the Southern District of
New York pursuant to the qui tam provisions of the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq. (the “Relator Complaint”), alleging, inter alia, that Progenity engaged in illegal kickback schemes
to induce physicians to order Progenity tests; 
 WHEREAS, prior to the filing of the Relator Complaint, the United States Attorney’s
Office for the Southern District of California (“USAO SDCA”) and its law enforcement partners were investigating Progenity’s use of Current Procedural Terminology (“CPT”) code 88271 in the submission of claims to TRICARE and
the FEHBP seeking reimbursement for certain cell-free DNA sequencing-based non-invasive prenatal tests (“NIPTs”) that can screen for chromosomal aneuploidies and subchromosomal microdeletions to
determine the risk that a fetus 

  
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will be born with certain genetic disorders or abnormalities through analysis of fetal DNA present in the woman’s blood; 

WHEREAS, contemporaneously herewith, the USAO SDCA has entered into a non-prosecution agreement as
well as a separate civil settlement agreement with Progenity to resolve claims relating to the submission of false claims to TRICARE and the FEHBP seeking reimbursement for NIPTs, under which Progenity has agreed to pay a sum of $16,400,000; 

WHEREAS, in addition to investigating the allegations in the Relator Complaint, the United States Attorney’s Office for the Southern
District of New York also initiated an investigation into Progenity’s use of CPT code 88271 in the submission of claims to Medicaid and the VA seeking reimbursement for NIPTs; 

WHEREAS, the Government alleges that from March 2014 through April 2016, in violation of the FCA, Progenity knowingly and willfully submitted
false claims to Medicaid and the VA by fraudulently using CPT code 88271 to seek reimbursement for NIPTs when this code misrepresented the services Progenity actually provided, and, as a result, Progenity received payments for non-reimbursable tests, or received substantially higher payments than it was entitled to receive for the genetic testing services provided (“Miscoding Covered Conduct”); 

WHEREAS, the Government further alleges that, in violation of the Anti-Kickback Statute (the “AKS”), 42 U.S.C. §§ 13320a-7b(b), Progenity knowingly and willfully induced physicians to order Progenity tests for Federal healthcare program beneficiaries by: (1) from January 2012 through March 2016, offering and providing
remuneration in the form of above fair market value payments, or “draw fees,” to physicians or physician offices for blood specimens collected for Progenity tests; (2) from January 2012 through December 2018, offering and providing
remuneration in the form of meals and happy hours for physicians and their 

  
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employees; and (3) from January 2012 through April 2018, routinely offering to reduce or waive, and routinely reducing or waiving, coinsurance and deductible payments that Federal healthcare
program beneficiaries were required to pay without making individualized determinations of financial need or reasonable collection efforts. As a result of the foregoing, Progenity submitted false claims for payment to Federal healthcare programs.
The conduct described in this paragraph is referred to as the “Kickback Covered Conduct”; 
 WHEREAS, contemporaneous with the
filing of this Stipulation, the Government, through the Office of the United States Attorney for the Southern District of New York, is filing a Notice of Election to Partially Intervene and a Complaint-In-Intervention in the above-referenced qui tam action (“Government Complaint”), in which it is asserting claims under the FCA against Progenity for the Miscoding Covered Conduct
and the Kickback Covered Conduct; 
 WHEREAS, Progenity intends on entering into separate settlement agreements (“State
Settlements”) with various states that participate in Medicaid (“States”) to resolve claims related to the Miscoding Covered Conduct and the Kickback Covered Conduct and has agreed to pay a total of $13,150,684 to the States pursuant
to the State Settlements; 
 WHEREAS, in connection with settlement discussions and in order to allow the Government to assess
Progenity’s ability to make payments to resolve this matter, Progenity has submitted information concerning its financial condition to the Government, including but not limited to information relating to its assets, liabilities, expenses,
revenues, profits, and financial projections (the “Progenity Financial Information”); 

  
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 WHEREAS, the Parties have, through this Stipulation, reached a mutually agreeable resolution
addressing the claims asserted against Progenity in the Government Complaint and the Relator Complaint; 
 WHEREAS, the Relator’s claim
to a share of the proceeds from the settlement of claims arising from the Relator Complaint will be the subject of a separate agreement between the Relator and the United States, and the Relator acknowledges that this claim is limited to a share of
the proceeds for the settlement of claims related to the Kickback Covered Conduct; 
 NOW, THEREFORE, upon the Parties’ agreement, IT
IS HEREBY ORDERED that: 
 TERMS AND CONDITIONS 

1. The Parties agree that this Court has subject matter jurisdiction over this action and consent to this Court’s exercise of personal
jurisdiction over each of them. 
 2. Progenity admits, acknowledges, and accepts responsibility for the following conduct: 

Miscoding: 

	 	a.	 CPT codes are part of a numerical coding system that physicians and laboratories must use on claim forms to
bill payors for healthcare services and to receive payments. The CPT code affects the rate that the payor will reimburse the provider. When there is no existing CPT code that accurately describes a specific service or test, an unlisted or
miscellaneous CPT code should be used for a provider to seek reimbursement. 

  

	 	b.	 From March 2014 through April 2016, Progenity knowingly submitted false claims for payment to Medicaid and the
VA by using CPT code 88271 to obtain reimbursement for NIPTs. 

  

	 	c.	 Progenity improperly used CPT code 88271, which applies to fluorescence in situ hybridization
(“FISH”) procedures, knowing that its genetic tests were cell-free DNA sequencing-based NIPTs that are not FISH procedures and that CPT code 88271 did not accurately represent the tests performed. 

 

	 	d.	 Until January 2015, there was no CPT code specific to NIPTs. In the absence of a designated code prior to
January 2015, Progenity used CPT code 88271 when 

  
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seeking reimbursement for certain NIPTs, instead of the miscellaneous CPT code 81479. The Medicaid reimbursement rate for CPT code 88271 during the relevant period was substantially more than the
reimbursement rate for the miscellaneous CPT code 81479. 

  

	 	e.	 On January 2, 2015, a new CPT code, 81420 (Genomic Sequencing Procedures and Other Molecular Multianalyte
Assays), became active. Upon its implementation, CPT code 81420 became the correct code that Progenity should have used to bill for its NIPTs. However, Progenity knew that it would receive significantly higher reimbursement amounts by using CPT code
88271, and continued to knowingly submit false claims to Medicaid and the VA using the incorrect CPT code 88271. 

  

	 	f.	 In addition, Progenity knew that the Medicaid programs for some states, such as Texas, Kansas, and New York,
explicitly excluded reimbursement for certain NIPTs, such as those that tested for microdeletions, and allowed reimbursement for other NIPTs only if the patient had one or more high-risk factors, such as being over the age of 35 or having an
ultrasound result showing an increased risk of aneuploidy. Progenity submitted claims seeking reimbursement for tests provided to Medicaid beneficiaries in these states even though it was aware that the tests were not eligible for coverage.

  

	 	g.	 As a result of fraudulently using CPT code 88721 and misrepresenting the type of test performed when submitting
claims for payment to Medicaid and the VA for NIPTs, Progenity received payments for non-reimbursable tests, or received substantially higher payments than it was entitled to receive for the genetic testing
services provided. 

 Draw Fee Payments: 

 

	 	h.	 From January 2012 through March 2016, Progenity knowingly made “draw fee” payments to physicians or
physicians’ offices for the collection of blood specimens for Progenity tests performed on Federal healthcare program beneficiaries. In total, Progenity paid over $1.7 million in draw fees during this period. 

 

	 	i.	 Progenity entered into agreements with physicians that specified the amount it would receive for each specimen
collected for Progenity tests, and then paid the physician or physician’s office for those draws at the agreed-upon amount. 

  

	 	j.	 The draw fees paid by Progenity exceeded the fair market value of the services performed when collecting blood
specimens. Progenity frequently paid physicians $20 or more for each blood draw. Progenity paid dozens of physicians and physician offices thousands of dollars in above fair market draw fee payments during the relevant time period.

  
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 Meals and Happy Hours: 

 

	 	k.	 From 2012 through 2018, Progenity knowingly provided meals and happy hours to physicians who ordered Progenity
tests for Federal healthcare program beneficiaries, as well to individuals who worked in physicians’ offices. The value of these meals and happy hours exceeded Stark Law limits. In total, Progenity expended millions of dollars on food and
drinks for physicians and their staff during this period. 

  

	 	l.	 Progenity’s sales management directed sales representatives to make frequent contact with physicians’
practices, and sales representatives were permitted to provide meals and happy hours in order to facilitate these contacts. Sales staff purchased food and drinks for physicians and their staff at gatherings that often involved little or no
educational or informational content. These gatherings included happy hours at bars and other establishments. 

  

	 	m.	 During the vast majority of the relevant period, Progenity did not have effective systems in place to ensure
that the company’s expenses for meals and happy hours for physicians and their employees complied with the Stark Law and the AKS. For example, Progenity did not (i) reliably track the amount it spent on meals and happy hours for physicians
or their staff; (ii) maintain accurate sign-in sheets reflecting attendance at Progenity-sponsored gatherings; (iii) keep records of materials or topics that were discussed during Progenity-sponsored
gatherings; and (iv) implement and enforce limits on the total nonmonetary compensation that could be provided to physicians. 

Waiver of Patient Coinsurance and Deductible Payments: 

 

	 	n.	 From January 2012 through April 2018, Progenity knowingly routinely reduced or waived Federal healthcare
program beneficiaries’ coinsurance and deductible payments without making the required individualized determinations of financial need or reasonable collection efforts. Progenity offered to reduce or waive coinsurance and deductible payments as
part of its sales efforts. 

  

	 	o.	 Some of the Progenity tests were costly and required significant patient payments. To market its costly tests,
sales representatives informed physicians and their staff, as well as patients, that Progenity would waive coinsurance and deductibles, or limit the patient’s payment to a certain maximum out-of-pocket amount regardless of the actual coinsurance or deductible amount. Progenity often referred to this practice as the “Peace of Mind” program. Progenity used the Peace of Mind program to
induce physicians to prescribe, and patients to consent to, Progenity tests. 

 3. Progenity shall pay to the United States
the sum of $19,449,316 plus applicable interest (the “Settlement Amount”) to be paid in six installments according to the schedule set 

  
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forth below. Progenity shall make the below-referenced payments in accordance with instructions to be provided by the Financial Litigation Unit of the United States Attorney’s Office for the
Southern District of New York. Of the Settlement Amount, $9,724,658 plus applicable interest constitutes restitution to the United States. The sum of $9,664,998 plus applicable interest is being paid to resolve claims for the Miscoding Covered
Conduct, and the sum of $9,784,318 plus applicable interest is being paid to resolve claims for the Kickback Covered Conduct. The Government will allocate each installment payment proportionally between the amount being paid to resolve claims for
the Miscoding Covered Conduct and the amount being paid to resolve claims for the Kickback Covered Conduct. 
 a. Within fourteen
(14) business days of the Effective Date (defined below in Paragraph 34), Progenity shall pay the United States the sum of $9,073,361.77. 

b. On or before December 31, 2020, Progenity shall pay the United States the sum of $1,587,699.27, plus interest which shall be compounded
annually at a rate of 1.25% accruing from the Effective Date. 
 c. On or before December 31, 2021, Progenity shall pay the United
States the sum of $1,984,624.08, plus interest which shall be compounded annually at a rate of 1.25% accruing from the Effective Date. 
 d.
On or before December 31, 2022, Progenity shall pay the United States the sum of $2,778,473.71, plus interest which shall be compounded annually at a rate of 1.25% accruing from the Effective Date. 

e. On or before December 31, 2023, Progenity shall pay the United States the sum of $3,175,398.53, plus interest which shall be compounded
annually at a rate of 1.25% accruing from the Effective Date. 

  
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 f. On or before December 31, 2024, Progenity shall pay the United States the sum of
$849,758.64, plus interest which shall be compounded annually at a rate of 1.25% accruing from the Effective Date. 
 4. In the event that,
during any calendar year from 2020 through 2023, Progenity receives any civil settlements, damages awards, or tax refunds which exceed the aggregate value of $5,000,000 in a calendar year (referred to herein as a “Windfall Event”),
Progenity shall pay to the United States 26% of the value of the Windfall Event. This payment shall be made within 15 days of the occurrence of the Windfall Event, and Progenity shall promptly notify the United States of the Windfall Event and its
value prior to making the payment. Each payment made pursuant to this provision will proportionately reduce the amount due in the last remaining installment payment set forth in Paragraph 3 above. (For example, if Progenity were to receive
$10,000,000 from a future Windfall Event that occurred in calendar year 2020, Progenity would be required to pay $2,600,000 to the United States within 15 days of the occurrence of the Windfall Event, and this payment would proportionately reduce
future installment payments so that Progenity would no longer need to make the payment required in Paragraph 3(f) above, and the payment required in Paragraph 3(e) would be reduced to $1,425,157.17.) The aggregate amount of accelerated payments made
pursuant to this Paragraph for the life of this Stipulation shall not exceed $4,200,000. This provision shall no longer be operative after the Settlement Amount due under Paragraph 3 has been fully paid ($19,449,316 plus applicable interest). 

5. Harry G. Stylli, the Chief Executive Officer of Progenity, has executed a guaranty agreement with the United States personally guarantying
up to $2,000,000 of the Settlement Amount owed to the United States by Progenity, a copy of which is attached hereto as Exhibit A. 

  
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 6. Progenity shall execute and agree to the entry of a consent judgment in favor of the
Government and against Progenity in the amount of $19,449,316, a copy of which is attached hereto as Exhibit B (the “Progenity Consent Judgment”). The Government may use the Progenity Consent Judgment to obtain a security interest in any
asset or property of Progenity, but shall not engage in other collection activity with respect to the Progenity Consent Judgment so long as Progenity fully complies with the terms of this Stipulation. Should Progenity comply fully with the payment
schedule set forth above as well as the other terms of this Stipulation, the Progenity Consent Judgment shall be deemed to be satisfied in full. Within thirty (30) calendar days after Progenity makes the final payment under the payment
schedule, and upon Progenity’s request, the Government shall file with the Clerk of the Court and deliver to Progenity a Full Satisfaction of Judgment. In the event that Progenity fully pays the Settlement Amount faster than as provided in the
payment schedule set forth above, and fully complies with all other terms of the Stipulation, the Progenity Consent Judgment shall be deemed to be satisfied in full and, upon Progenity’s request, the Government shall file with the Clerk of the
Court and deliver to Progenity a Full Satisfaction of Judgment. Should Progenity fail to comply fully with the payment schedule set forth above or any other term of this Stipulation, Progenity shall be in default of this Stipulation, in which case
the Government may take any of the actions set forth in Paragraph 16 below. 
 7. Progenity agrees to cooperate fully and truthfully with the
United States’ investigation of individuals and entities not released in this Stipulation. Upon reasonable notice, Progenity shall encourage, and agrees not to impair, the cooperation of Progenity’s directors, officers, and employees, and
shall use its best efforts to make available, and encourage, the cooperation of former directors, officers, and employees for interviews and testimony, consistent 

  
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with the rights and privileges of such individuals. Progenity further agrees to furnish to the United States, upon request, complete and unredacted copies of all
non-privileged documents, reports, memoranda of interviews, and records in its possession, custody, or control concerning any investigation of the Miscoding Covered Conduct and Kickback Covered Conduct that it
has undertaken, or that has been performed by another on its behalf. 
 8. Subject to the exceptions in Paragraphs 14 and 21 below
(concerning excluded claims and bankruptcy proceedings), and conditioned upon Progenity’s full compliance with the terms of this Stipulation, including full payment of the Settlement Amount to the United States pursuant to Paragraphs 3 and 4
above, the United States releases Progenity, including Progenity’s subsidiaries and corporate predecessors, successors, and assigns, including Molecular Diagnostic Health Sciences, LLC, Progenity Holding Company, Inc., SPX3, Inc., Avero
Laboratory Holdings LLC, Progenity UK Limited, and Progenity Pty Ltd, from any civil or administrative monetary claim that the United States has for the Miscoding Covered Conduct and the Kickback Covered Conduct under the FCA, the Civil Monetary
Penalties Law, 42 U.S.C. § 1320a-7a, the Program Fraud Civil Remedies Act, 31 U.S.C. § 3801-3812, the civil monetary provisions of the Stark Law, 42 U.S.C. §§ 1395nn(g)(3) and (4), and the
common law theories of fraud, payment by mistake, and unjust enrichment. For avoidance of doubt, this Stipulation does not release any current or former officer, director, employee, or agent of Progenity from liability of any kind. 

9. In consideration of Progenity’s obligations in this Settlement Stipulation and the Corporate Integrity Agreement (“CIA”)
entered into between OIG-HHS and Progenity, and conditioned upon Progenity’s full payment of the Settlement Amount, and except as expressly reserved in this Paragraph and in Paragraph 14 (concerning
excluded claims), the OIG-HHS 

  
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agrees to release and refrain from instituting, directing, or maintaining any administrative action seeking exclusion from Medicare, Medicaid, and other Federal healthcare programs (as defined in
42 U.S.C. § 1320a-7b(f)) against Progenity under 42 U.S.C. § 1320a-7a (Civil Monetary Penalties Law) or 42 U.S.C. §
1320a-7(b)(7) (permissive exclusion for fraud, kickbacks, and other prohibited activities) for the Miscoding Covered Conduct and the Kickback Covered Conduct. The
OIG-HHS expressly reserves all rights to comply with any statutory obligations to exclude Progenity from Medicare, Medicaid, and other Federal healthcare programs under 

42 U.S.C. § 1320a-7(a) (mandatory exclusion) based upon the Miscoding Covered Conduct and the Kickback Covered
Conduct. Nothing in this Paragraph precludes the OIG-HHS from taking action against entities or persons, or for conduct and practices, for which claims have been reserved in Paragraph 14 below. 

10. In consideration of the obligations of Progenity set forth in this Settlement Stipulation, and conditioned upon Progenity’s full
payment of the Settlement Amount, and except as expressly reserved in this Paragraph and in Paragraph 14 (concerning excluded claims), DHA agrees to release and refrain from instituting, directing, or maintaining any administrative action seeking
exclusion from TRICARE against Progenity under 32 C.F.R. § 199.9 for the Kickback Covered Conduct. DHA expressly reserves authority to exclude Progenity from TRICARE under 32 C.F.R. §§ 199.9 (f)(1)(i)(A), (f)(1)(i)(B), and (f)(1)(iii)
(mandatory exclusion), based upon the Kickback Covered Conduct. Nothing in this Paragraph precludes DHA or TRICARE from taking action against entities or persons, or for conduct and practices, for which claims have been reserved in Paragraph 14
below. 
 11. Progenity fully and finally releases the United States and its agencies, officers, employees, servants, and agents from any
claims (including attorneys’ fees, costs, and expenses 

  
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of every kind and however denominated) that Progenity has asserted, could have asserted, or may assert in the future against the United States and its agencies, officers, employees, servants, or
agents related to the Miscoding Covered Conduct and Kickback Covered Conduct and the United States’ investigation, prosecution and settlement thereof. 

12. Conditioned on Progenity’s timely payment of the full Settlement Amount pursuant to Paragraphs 3 and 4 above, the Relator, for herself
and her heirs, successors, attorneys, agents, and assigns, releases Progenity, including its subsidiaries and corporate predecessors, successors and assigns, as well as all of their current and former officers, directors, employees, attorneys, and
other agents, from any and all manner of claims, proceedings, liens, and causes of action of any kind or description that the Relator has against Progenity; provided, however, that nothing in this Stipulation shall preclude the Relator from seeking
to recover her reasonable expenses and attorneys’ fees and costs pursuant to 31 U.S.C. § 3730(d). Defendant’s payment to the Relator for expenses, attorney’s fees, and costs pursuant to 31 U.S.C. § 3730(d) shall be addressed
by separate agreement. 
 13. In consideration of the execution of this Stipulation by the Relator and the Relator’s release as set
forth in Paragraph 12 above, Progenity, including Progenity’s subsidiaries, predecessors, and corporate successors and assigns, as well as all of their current and former officers, directors, employees, attorneys, and other agents release the
Relator and her successors, heirs, assigns, attorneys, and other agents, from any and all manner of claims, proceedings, liens, and causes of action of any kind or description that Progenity has against the Relator related to or arising from the
Relator Complaint. 

  
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 14. Notwithstanding the release given in Paragraph 8, or any other term of this Stipulation,
the following claims of the Government are specifically reserved and are not released by this Stipulation: 
  

	 	a.	 any liability arising under Title 26, United States Code (Internal Revenue Code); 

 

	 	b.	 any criminal liability; 

 

	 	c.	 except as explicitly stated in this Stipulation, any administrative liability, including mandatory exclusion
from Federal healthcare programs; 

  

	 	d.	 any liability to the United States (or its agencies) for any conduct other than the Miscoding Covered Conduct
and the Kickback Covered Conduct; 

  

	 	e.	 any liability based upon obligations created by this Stipulation; and 

 

	 	f.	 any liability of individuals. 

15. Progenity has provided the Progenity Financial Information to the United States, and the United States has relied on the accuracy and
completeness of that information in reaching this Stipulation. Progenity warrants that the Progenity Financial Information is complete, truthful, and accurate. If the United States learns of any misrepresentation or inaccuracy in the Progenity
Financial Information, or of assets in which Progenity had an interest at the time of this Stipulation that were not disclosed in the Progenity Financial Information, and if such nondisclosure or misrepresentation changes either the estimated net
worth, annual net income, or assets set forth in the Progenity Financial Information by 5% or more, the United States may at its option: (i) rescind this Stipulation and reinstate the claims asserted against Progenity in the Government
Complaint, or (ii) let the Stipulation stand and collect the full Settlement Amount plus one hundred percent (100%) of the value of the net worth, net income or 

  
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assets that were previously not disclosed. Progenity agrees not to contest any collection action undertaken by the United States pursuant to this provision, and immediately to pay the United
States all reasonable costs incurred in such an action, including attorneys’ fees and expenses. 
 16. Progenity shall be in default of
this Stipulation if it fails to make the required payments set forth in Paragraphs 3 and 4 above on or before the due date for such payments, or if it fails to comply materially with any other term of this Stipulation (“Default”). The
Government shall provide written notice to Progenity of any Default in the manner set forth in Paragraph 33 below. Progenity shall then have an opportunity to cure the Default within ten (10) calendar days from the date of delivery of the
notice of Default. In the event that a Default is not fully cured within ten (10) calendar days of the delivery of the notice of Default (“Uncured Default”), interest shall accrue at the rate of 12% per annum compounded daily on the
remaining unpaid principal balance of the settlement amount set forth in Paragraph 3 above, beginning ten (10) calendar days after mailing of the notice of Default. The United States may also, at its option, (a) rescind this Stipulation
and reinstate the claims asserted against Progenity in the Government Complaint; (b) seek specific performance of this Stipulation; (c) offset the remaining unpaid balance of the Settlement Amount set forth in Paragraph 3 above from any
amounts due and owing Progenity by any department, agency, or agent of the United States; or (d) exercise any other rights granted by law, or under the terms of this Stipulation, or recognizable at common law or in equity. Progenity shall not
contest any offset imposed or any collection undertaken by the Government pursuant to this Paragraph, either administratively or in any Federal or State court. In addition, Progenity shall pay the Government all reasonable costs of collection and
enforcement under this Paragraph, including attorneys’ fees and expenses. In the event that the United States opts to rescind this Stipulation pursuant to this Paragraph, Progenity shall not 

  
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plead, argue, or otherwise raise any defenses under the theories of statute of limitations, laches, estoppel, or similar theories, to any civil or administrative claims that relate to the
Miscoding Covered Conduct or Kickback Covered Conduct. 
 17. The Relator and her heirs, successors, attorneys, agents, and assigns shall not
object to this Stipulation; the Relator agrees and confirms that the terms of this Stipulation are fair, adequate, and reasonable under all the circumstances, pursuant to 31 U.S.C. § 3730(c)(2)(B). 

18. Progenity waives and shall not assert any defenses it may have to any criminal prosecution or administrative action relating to the
Miscoding Covered Conduct or the Kickback Covered Conduct that may be based in whole or in part on a contention that, under the Double Jeopardy Clause in the Fifth Amendment of the Constitution, or under the Excessive Fines Clause in the Eighth
Amendment of the Constitution, this Stipulation bars a remedy sought in such criminal prosecution or administrative action. 
 19. Progenity,
having truthfully admitted to the conduct set forth in Paragraph 2 above (the “Admitted Conduct”), agrees that it shall not, through its attorneys, agents, officers, or employees, make any public statement, including but not limited to any
statement in a press release, social media forum, or website, that contradicts or is inconsistent with the Admitted Conduct or suggests that the Admitted Conduct is not wrongful (a “Contradictory Statement”). Any Contradictory Statement by
Progenity or its attorneys, agents, officers, or employees shall constitute a violation of this Stipulation, thereby authorizing the Government to pursue any of the remedies set forth in Paragraph 16 above, or seek other appropriate relief from the
Court. Before pursuing any remedy, the Government shall notify Progenity that it has determined that Progenity has made a Contradictory Statement. Upon receiving such notice from the 

  
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Government, Progenity may cure the violation by repudiating the Contradictory Statement in a press release or other public statement within four business days. If Progenity learns of a
potential Contradictory Statement by its attorneys, agents, officers, or employees, Progenity must notify the Government of the statement within 24 hours. The decision as to whether any statement constitutes a Contradictory Statement or will be
imputed to Progenity for the purpose of this Stipulation, or whether Progenity adequately repudiated a Contradictory Statement to cure a violation of this Stipulation, shall be within the sole discretion of the Government. Consistent with this
provision, Progenity may raise defenses and/or assert affirmative claims or defenses in any proceedings brought by private and/or public parties, so long as doing so would not contradict the Admitted Conduct. 

20. Progenity represents and warrants that it has reviewed its financial situation, that it is currently not insolvent as such term is defined
in 11 U.S.C. § 101(32), and that it reasonably believes it shall remain solvent following payment to the Government of the Settlement Amount referenced in Paragraph 3 above. Further, the Parties warrant that, in evaluating whether to
execute this Stipulation, they (a) have intended that the mutual promises, covenants, and obligations set forth constitute a contemporaneous exchange for new value given to Progenity, within the meaning of 11 U.S.C. § 547(c)(1); and
(b) have concluded that these mutual promises, covenants, and obligations do, in fact, constitute such a contemporaneous exchange. Further, the Parties warrant that the mutual promises, covenants, and obligations set forth herein are intended
to and do, in fact, represent a reasonably equivalent exchange of value that is not intended to hinder, delay, or defraud any entity to which Progenity was or became indebted to on or after the date of this Stipulation, within the meaning of 11
U.S.C. § 548(a)(1). 

  
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 21. If within 91 days of the Effective Date of this Stipulation or any payment made under
this Stipulation, Progenity commences any case, action, or other proceeding under any law relating to bankruptcy, insolvency, reorganization, or relief of debtors, or a third party commences any case, action, or other proceeding under any law
related to bankruptcy, insolvency, reorganization, or relief of debtors (a) seeking an order for relief of Progenity’s debts, or seeking to adjudicate Progenity as bankrupt or insolvent; or (b) seeking appointment of a receiver,
trustee, custodian, or other similar official for Progenity or for all or part of Progenity’s assets, Progenity agrees as follows: 

	 	a.	 Progenity’s obligations under this Stipulation may not be avoided pursuant to 11 U.S.C. § 547, and
Progenity shall not argue or otherwise take the position in any such case, action, or proceeding that (i) Progenity’s obligations under this Stipulation may be avoided under 11 U.S.C. § 547; (ii) Progenity is insolvent at the time
this Stipulation was entered into; or (iii) the mutual promises, covenants, and obligations set forth in this Stipulation do not constitute a contemporaneous exchange for new value given to Progenity. 

	 	b.	 If any of Progenity’s obligations under this Stipulation are avoided for any reason, including, but not
limited to, through the exercise of a trustee’s avoidance powers under the Bankruptcy Code, the Government, at its option, may rescind the release in this Stipulation and bring any civil and/or administrative claim, action, or proceeding
against Progenity for the claims that would otherwise be covered by the release in Paragraph 8 above. Progenity agrees that (i) any such claim, action, or proceeding brought by the Government would not be subject to an “automatic
stay” pursuant to 

  
 18 

	 	
11 U.S.C. § 362(a) as a result of the case, action, or proceeding described in the first sentence of this Paragraph, and Progenity shall not argue or otherwise contend that the
Government’s claim, action, or proceeding is subject to an automatic stay; (ii) Progenity shall not plead, argue, or otherwise raise any defenses under the theories of statute of limitations, laches, estoppel, or similar theories, to any
claim, action, or proceeding that is brought by the Government within 60 calendar days of written notification to Progenity that the release has been rescinded pursuant to this Paragraph, except to the extent such defenses were available on the date
the Relator Complaint was filed; and (iii) the Government has an undisputed, noncontingent, and liquidated allowed claim against Progenity in the amount of the Settlement Amount set forth in Paragraph 3 above and the Government may pursue its
claim in the case, action, or proceeding described in the first sentence of this Paragraph, as well as in any other case, action, or proceeding, and shall be allowed to offset the remaining unpaid balance of its claim from any amounts due and owing
Progenity by any department, agency, or agent of the United States without seeking further authorization from any court under 11 U.S.C. § 362(a)(7). 

  

	 	c.	 Progenity acknowledges that the agreements in this Paragraph are provided in exchange for valuable
consideration provided in this Stipulation. 

 22. Progenity agrees to the following: 

 

	 	a.	 Unallowable Costs Defined: All costs (as defined in the Federal Acquisition Regulation, 48 C.F.R. § 31.205-47; and in Titles XVIII and XIX of the Social 

  
 19 

	 	
Security Act, 42 U.S.C. §§ 1395-1395kkk-1 and 1396-1396w-5; and the regulations and official program
directives promulgated thereunder) incurred by or on behalf of Progenity, including Progenity’s present or former officers, directors, employees, and agents in connection with: 

 

	 	(1)	 the matters covered by this Stipulation; 

 

	 	(2)	 the United States’ audit(s) and civil investigation(s) of matters covered by this Stipulation;

  

	 	(3)	 Progenity’s investigation, defense, and corrective actions undertaken in response to the United
States’ audit(s) and civil investigation(s) in connection with matters covered by this Stipulation (including attorneys’ fees); 

  

	 	(4)	 the negotiation and performance of this Stipulation; 

 

	 	(5)	 any payment Progenity makes to the United States pursuant to this Stipulation and any payment Progenity may
make to the Relator, including expenses, costs, and attorneys’ fees; and 

  

	 	(6)	 the negotiation of, and obligations undertaken pursuant to the CIA to: 

(i) retain an independent review organization to perform annual reviews as described in the CIA; and (ii) prepare and submit reports to
the OIG-HHS, are unallowable costs for government contracting purposes (hereinafter referred to as “Unallowable Costs”). 
  

	 	b.	 Future Treatment of Unallowable Costs: Unallowable Costs shall be separately determined and accounted for by
Progenity, and Progenity shall not 

  
 20 

	 	
charge such Unallowable Costs directly or indirectly to any contracts with the United States. 

  

	 	c.	 Treatment of Unallowable Costs Previously Submitted for Payment: Within 90 days of the Effective Date of this
Stipulation, Progenity shall identify and repay by adjustment to future claims for payment or otherwise any Unallowable Costs (as defined in this Paragraph) included in payments previously sought by Progenity from the United States. Progenity agrees
that the United States, at a minimum, shall be entitled to recoup from Progenity any overpayment plus applicable interest and penalties as a result of the inclusion of such Unallowable Costs on previously-submitted requests for payment. Any payments
due shall be paid to the United States pursuant to the direction of the Department of Justice and/or the affected agencies. The United States, including the Department of Justice and/or the affected agencies, reserves its right to audit, examine, or
re-examine Progenity’s books and records and to disagree with any calculation submitted by Progenity or any of Progenity’s subsidiaries or affiliates regarding any Unallowable Costs included in
payments previously sought by Progenity, or the effect of any such Unallowable Costs on the amounts of such payments. 

  

	 	d.	 Nothing in this Stipulation shall constitute a waiver of the rights of the United States to audit, examine, or re-examine Progenity’s books and records to determine that no Unallowable Costs have been claimed in accordance with the provisions of this Paragraph. 

  
 21 

 23. This Stipulation is intended to be for the benefit of the Parties only. The Parties do
not release any claims against any other person or entity except as otherwise provided herein. 
 24. Progenity agrees that it waives and
shall not seek payment for any of the health care billings covered by this Stipulation from any healthcare beneficiaries or their parents, sponsors, legally responsible individuals, or third party payors based upon the claims defined as Miscoding
Covered Conduct and Kickback Covered Conduct. 
 25. Each Party shall bear its own legal and other costs incurred in connection with this
matter, including the preparation and performance of this Stipulation; provided, however, nothing in this Stipulation shall preclude the Relator from seeking to recover her expenses or attorneys’ fees and costs from Progenity pursuant to 31
U.S.C. § 3730(d). Defendant’s payment to the Relator for expenses, attorney’s fees, and costs pursuant to 31 U.S.C. § 3730(d) shall be addressed by separate agreement. 

26. Any failure by the Government to insist upon the full or material performance of any of the provisions of this Stipulation shall not be
deemed a waiver of any of the provisions hereof, and the Government, notwithstanding that failure, shall have the right thereafter to insist upon the full or material performance of any and all of the provisions of this Stipulation. 

27. This Stipulation is governed by the laws of the United States. The exclusive jurisdiction and venue for any dispute relating to this
Stipulation is the United States District Court for the Southern District of New York. For purposes of construing this Stipulation, this Stipulation shall be deemed to have been drafted by all Parties to this Stipulation and shall not, therefore, be
construed against any Party for that reason in any subsequent dispute. 

  
 22 

 28. This Stipulation constitutes the complete agreement between the Parties with respect to
the subject matter hereof. This Stipulation may not be amended except by written consent of the Parties. 
 29. The undersigned counsel and
other signatories represent and warrant that they are fully authorized to execute this Stipulation on behalf of the persons and the entities indicated below. 

30. This Stipulation is binding on Progenity’s successors, transferees, heirs, and assigns. 

31. This Stipulation is binding on the Relator’s successors, transferees, heirs, and assigns. 

32. This Stipulation may be executed in counterparts, each of which constitutes an original and all of which constitute one and the same
Stipulation. E-mails that attach signatures in PDF form or facsimiles of signatures shall constitute acceptable, binding signatures for purposes of this Stipulation. 

33. Any notice pursuant to this Stipulation shall be in writing and shall, unless expressly provided otherwise herein, be delivered by hand,
express courier, or e-mail transmission followed by postage-prepaid mail, and shall be addressed as follows: 

TO THE UNITED STATES: 
 Jeffrey K.
Powell, Esq. 
 Kirti Vaidya Reddy, Esq. 

Assistant United States Attorneys 

United States Attorney’s Office 

Southern District of New York 
 86
Chambers Street, Third Floor 
 New York, New York 10007 

  
 23 

 TO DEFENDANT PROGENITY, INC.: 

M. Kendall Day, Esq. 
 Jonathan M.
Phillips, Esq. 
 Gibson, Dunn & Crutcher LLP 

1050 Connecticut Avenue, N.W. 

Washington, D.C. 20036-5306 
 TO
RELATOR: 
 Robert W. Sadowski, Esq. 

800 Third Avenue, 28th Floor 

New York, NY 10022 
 34. The
effective date of this Stipulation is the date upon which the Stipulation is approved by the Court (the “Effective Date”). 

  
 24 

 Agreed to by: 

THE UNITED STATES OF AMERICA 
 Dated: July
21, 2020 
  

			
		 	AUDREY STRAUSS
		 	Acting United States Attorney for the
		 	Southern District of New York
		
	By:	 	 /s/ Kirti Vaidya Reddy

		 	Jeffrey K. Powell
		 	Kirti Vaidya Reddy
		 	 Assistant United States Attorneys
 86 Chambers
Street, Third Floor

		 	New York, New York 10007

 Dated: July 20, 2020  

 

			
		 	 Office of the Inspector General, the U.S.

Department of Health and Human Services

		
	By:	 	 /s/ Lisa M. Re

		 	Lisa M. Re
		 	Assistant Inspector General
		 	for Legal Affairs

  
 25 

 DEFENDANT 

Dated: July 21, 2020 
  

			
		 	DEFENDANT PROGENITY, INC.
		
	By:	 	 /s/ Clarke Neumann

		 	Clarke Neumann
		 	General Counsel
		 	GIBSON, DUNN & CRUTCHER LLP
		
	By:	 	 /s/ M. Kendall Day

		 	M. Kendall Day
		 	Jonathan M. Phillips
		 	1050 Connecticut Avenue, N.W.
		 	Washington, D.C. 20036-5306
		
		 	Attorneys for Progenity, Inc.

  
 26 

 RELATOR 

Dated: July 20, 2020 
  

			
		 	DEMETRIA KATSANOS
		
	By:	 	 /s/ Demetria Katsanos

		 	Demetria Katsanos
		
		 	ROBERT W. SADOWSKI PLLC
		
	By:	 	 /s/ Robert W. Sadowski

		 	Robert W. Sadowski, Esq.
		 	800 Third Avenue, 28th Floor
		 	New York, NY 10022
		
		 	Attorney for Relator

  

			
	SO ORDERED:
	
	 /s/ Loretta A. Preska

	HON. LORETTA A. PRESKA
	UNITED STATES DISTRICT JUDGE
		
	Dated:	 	 _July 23, 2020

		 	New York, New York

  
 27EX-10.27

 EXHIBIT 10.27 

SETTLEMENT AGREEMENT 
 This
Settlement Agreement (“Agreement”) is entered into among the United States of America, acting through the United States Department of Justice and on behalf of the Defense Health Agency (“DHA”), acting on behalf of the TRICARE
Program (“TRICARE”), and the Office of Personnel Management (“OPM”), which administers the Federal Employees Health Benefits Program (“FEHBP”), (collectively, “the United States”), and Progenity, Inc.
(“Progenity”) (hereafter collectively referred to as “the Parties”), through their authorized representatives. 

RECITALS 
 A. At relevant
times herein, Progenity was organized as a corporation under the laws of the State of Delaware, was a participating provider in federally-funded health care programs including TRICARE and FEHBP, and specialized in providing genetic testing
laboratory services. 
 B. The United States contends that Progenity submitted or caused to be submitted claims for payment to TRICARE, 10
U.S.C. §§ 1071-1110b, and the FEHBP, 5 U.S.C. §§ 8901-8914. 
 C. The United
States contends that it has certain civil claims against Progenity arising from the submission of claims for reimbursement to TRICARE and FEHBP for medical services, as follows: 

1. Progenity specializes in providing cell-free DNA technology or non-invasive prenatal genetic testing
(“NIPT”) services to screen for chromosomal disorders including Down Syndrome. 
 2. Between April 1, 2013 and April 30,
2016, there existed an established Current Procedural Terminology (“CPT”) code of 88271 for genetic testing procedures known as 

 
“FISH” (fluorescence in situ hybridization) procedures. FISH procedures “map” the genetic material in a person’s cells while NIPT conducts testing on fragments of DNA in
maternal plasma. During this time period, NIPT was not a covered service of TRICARE or FEHBP, as it was considered a laboratory-developed test and did not have FDA approval. 

3. Until January 2, 2015, there was no CPT code specific to NIPT. On January 2, 2015, a new CPT code, 81420 (Genomic Sequencing
Procedures and Other Molecular Multianalyte Assays) became active. 
 4. Between April 1, 2013 and April 30, 2016, Progenity
knowingly submitted false claims for payment to TRICARE and FEHBP by using CPT code 88271 to obtain reimbursement for NIPTs. Progenity used CPT code 88271, a FISH code, despite knowing that its NIPTs are not FISH procedures. Progenity also
misrepresented the number of units of service when it submitted claims under CPT code 88271 in order to receive a higher reimbursement rate. 

5. Progenity continued to knowingly submit false claims to TRICARE and FEHBP using the 88271 code after the new CPT code 81420 became active in
order to receive higher reimbursement amounts. 
 The conduct described above in Recital C is referred to below as the “Covered Conduct.” 

D. This Settlement Agreement is neither an admission of liability by Progenity nor a concession by the United States that its claims are not
well founded. 
 E. To avoid the delay, uncertainty, inconvenience, and expense of protracted litigation of the above claims, and in
consideration of the mutual promises and obligations of this Settlement Agreement, the Parties agree and covenant as follows: 

  
 2 

 TERMS AND CONDITIONS 

1. Progenity shall pay to the United States Sixteen Million, Four Hundred Thousand Dollars ($16,400,000), plus any interest in accordance with
Paragraph 1.a. and 1.b. below and the Note referenced therein (the “Settlement Amount”), of which Nine Million, Nine Hundred Eighty-Seven Thousand, and Six Hundred and Ninety-Three Dollars ($9,987,693) constitutes restitution to the United
States. Progenity will make a payment in the amount of Seven Million, Six Hundred and Sixty-Eight Thousand, One Hundred and Thirty-Five Dollars and Thirty Cents ($7,668,135.30) no later than ten days after the effective date of this agreement by
electronic funds transfer pursuant to written instructions to be provided by the Office of the United States Attorney for the Southern District of California. 

a. Over a period of 5 years, Progenity will pay the remaining Eight Million, Seven Hundred Thirty-One
Thousand, Eight Hundred Sixty-Four Dollars and Seventy Cents ($8,731,864.70), plus interest at 1.25% per annum, pursuant to the promissory note (Note) in the form of Appendix A, that Progenity agrees to execute contemporaneously with this settlement
agreement. 
 b. The Note shall be partially secured pursuant to the Guaranty Agreement, in the form of Appendix B, that Progenity agrees to
cause to be issued contemporaneously with this Settlement Agreement. Progenity may, with the prior written approval of the United States, cause to be issued a substitute Guaranty Agreement of like terms and conditions. If the Guaranty Agreement
expires before the entire outstanding balance due under the Note is paid, Progenity shall cause to be issued a substitute Guaranty Agreement of like terms and conditions. 

c. Interest shall accrue on the unpaid settlement amount as indicated in the Note. 

  
 3 

 2. Subject to the exceptions in Paragraph 5 (concerning excluded claims) below, and
conditioned upon Progenity’s full payment of the Settlement Amount and subject to Paragraph 23, below (concerning bankruptcy proceedings commenced within 91 days of the Effective Date of this Agreement or any payment made under this Agreement),
the United States releases Progenity from any civil or administrative monetary claim the United States has for the Covered Conduct under the False Claims Act, 31 U.S.C. §§ 3729-3733; the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a; the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801-3812; or the common law theories of payment by mistake, unjust enrichment, and fraud. 

3. In consideration of the obligations of Progenity set forth in this Agreement, and conditioned upon Progenity’s full payment of the
Settlement Amount, and except as expressly reserved in this Paragraph and in Paragraph 5 (concerning excluded claims), DHA agrees to release and refrain from instituting, directing, or maintaining any administrative action seeking exclusion from
TRICARE against Progenity under 32 C.F.R. § 199.9 for the Covered Conduct. DHA expressly reserves authority to exclude Progenity from TRICARE under 32 C.F.R. §§ 199.9 (f)(1)(i)(A), (f)(1)(i)(B), and (f)(1)(iii) (mandatory exclusion),
based upon the Covered Conduct. Nothing in this Paragraph precludes DHA or TRICARE from taking action against entities or persons, or for conduct and practices, for which claims have been reserved in Paragraph 5, below. 

4. In consideration of the obligations of Progenity in this Agreement, and conditioned upon Progenity’s full payment of the Settlement
Amount, OPM agrees to release and refrain from instituting, directing, or maintaining any administrative action seeking exclusion from FEHBP against Progenity under 5 U.S.C. § 8902a or 5 C.F.R. Part 890 Subpart J or Part 919 for the Covered
Conduct, except as reserved in this Paragraph and in Paragraph 5 (concerning excluded claims), below, and except if excluded by the OIG-HHS pursuant to 42 

  
 4 

 
U.S.C. § 1320a-7(a). OPM expressly reserves all rights to comply with any statutory obligation to debar Progenity from the FEHBP under 5 U.S.C. §
8902a(b) (mandatory exclusion) based upon the Covered Conduct. Nothing in this Paragraph precludes OPM from taking action against entities or persons, or for conduct and practices, for which claims have been reserved in Paragraph 5, below. 

5. Notwithstanding the releases given in paragraph 2 of this Agreement, or any other term of this Agreement, the following claims of the United
States are specifically reserved and are not released: 
  

	 	a.	 Any liability arising under Title 26, U.S. Code (Internal Revenue Code); 

 

	 	b.	 Any criminal liability; 

 

	 	c.	 Except as explicitly stated in this Agreement, any administrative liability, including mandatory or
permissive exclusion from Federal health care programs; 

  

	 	d.	 Any liability to the United States (or its agencies) for any conduct other than the Covered Conduct;

  

	 	e.	 Any liability based upon obligations created by this Agreement; and 

 

	 	f.	 Any liability of individuals. 

6. Progenity has provided sworn financial disclosure statements (Financial Statements) to the United States and the United States has relied on
the accuracy and completeness of those Financial Statements in reaching this Agreement. Progenity warrants that the Financial Statements are complete, truthful, and accurate. If the United States learns of asset(s) in which Progenity had an interest
at the time of this Agreement that were not disclosed in the Financial Statements, or if the United States learns of any misrepresentation by Progenity on, or in connection with, the Financial Statements, and if such nondisclosure or

  
 5 

 
misrepresentation changes the estimated net worth set forth in the Financial Statements by 5% or more, the United States may at its option: (a) rescind this Agreement and file suit based on
the Covered Conduct, or (b) let the Agreement stand and collect the full Settlement Amount plus one hundred percent (100%) of the value of the net worth of Progenity previously undisclosed. Progenity agrees not to contest any collection action
undertaken by the United States pursuant to this provision, and immediately to pay the United States all reasonable costs incurred in such an action, including attorney’s fees and expenses. 

7. In the event that the United States, pursuant to Paragraph 6 (concerning disclosure of assets), above, opts to rescind this Agreement,
Progenity agrees not to plead, argue, or otherwise raise any defenses under the theories of statute of limitations, laches, estoppel, or similar theories, to any civil or administrative claims that (a) are filed by the United States within 60
calendar days of written notification to Progenity that this Agreement has been rescinded, and (b) relate to the Covered Conduct, except to the extent these defenses were available on August 31, 2019. 

8. Progenity waives and shall not assert any defenses Progenity may have to any criminal prosecution or administrative action relating to the
Covered Conduct that may be based in whole or in part on a contention that, under the Double Jeopardy Clause in the Fifth Amendment of the Constitution, or under the Excessive Fines Clause in the Eighth Amendment of the Constitution, this Agreement
bars a remedy sought in such criminal prosecution or administrative action. 
 9. Progenity fully and finally releases the United States, its
agencies, officers, agents, employees, and servants, from any claims (including attorney’s fees, costs, and expenses of every kind and however denominated) that Progenity has asserted, could have asserted, or may assert in the future against
the United States, its agencies, officers, agents, employees, and 

  
 6 

 servants, related to the Covered Conduct and the United States’ investigation and prosecution thereof.

 10. The Settlement Amount shall not be decreased as a result of the denial of claims for payment now being withheld from payment by any
TRICARE carrier or payer, or any FEHB carrier or payer related to the Covered Conduct; and Progenity agrees not to resubmit to any TRICARE carrier or payer or any FEHB carrier or payer any previously denied claims related to the Covered Conduct,
agrees not to appeal any such denials of claims, and agrees to withdraw any such pending appeals. 
 11. Progenity agrees to the following:

 a. Unallowable Costs Defined: All costs (as defined in the Federal Acquisition Regulation, 48 C.F.R. § 31.205-47; and in Titles XVIII and XIX of the Social Security Act, 42 U.S.C. §§ 1395-1395lll-1 and 1396-1396w-5; and the
regulations and official program directives promulgated thereunder) incurred by or on behalf of Progenity, its present or former officers, directors, employees, shareholders, and agents in connection with: 

 

	 	(1)	 the matters covered by this Agreement and any Plea Agreement; 

 

	 	(2)	 the United States’ audit(s) and civil and any criminal investigation(s) of the matters covered by this
Agreement; 

  

	 	(3)	 Progenity’s investigation, defense, and corrective actions undertaken in response to the United
States’ audit(s) and civil and any criminal investigation(s) in connection with the matters covered by this Agreement (including attorney’s fees); 

  

	 	(4)	 the negotiation and performance of this Agreement and any Plea Agreement; and 

  
 7 

  

	 	(5)	 the payment Progenity makes to the United States pursuant to this Agreement and any payments that Progenity may
make to Relator, including costs and attorneys’ fees. 

 are unallowable costs for government contracting purposes and under TRICARE
and FEHBP (hereinafter referred to as Unallowable Costs). 
 b. Future Treatment of Unallowable Costs: Unallowable Costs shall be
separately determined and accounted for by Progenity, and Progenity shall not charge such Unallowable Costs directly or indirectly to any contracts with the United States or any State Medicaid program, or seek payment for such Unallowable Costs
through any cost report, cost statement, information statement, or payment request submitted by Progenity or any of its subsidiaries or affiliates to TRICARE or FEHBP. 

c. Treatment of Unallowable Costs Previously Submitted for Payment: Progenity further agrees that within 90 days of the Effective Date
of this Agreement it shall identify to applicable TRICARE fiscal intermediaries, carriers, and/or contractors, and FEHBP fiscal agents, any Unallowable Costs (as defined in this Paragraph) included in payments previously sought from the United
States, or any State Medicaid program, including, but not limited to, payments sought in any cost reports, cost statements, information reports, or payment requests already submitted by Progenity or any of its subsidiaries or affiliates, and shall
request, and agree, that such cost reports, cost statements, information reports, or payment requests, even if already settled, be adjusted to account for the effect of the inclusion of the Unallowable Costs. Progenity agrees that the United States,
at a minimum, shall be entitled to recoup from Progenity any overpayment plus applicable interest and penalties as a result of the inclusion of such Unallowable Costs on previously-submitted cost reports, information reports, cost statements, or
requests for payment. 

  
 8 

 Any payments due after the adjustments have been made shall be paid to the United States
pursuant to the direction of the Department of Justice and/or the affected agencies. The United States reserves its rights to disagree with any calculations submitted by Progenity or any of its subsidiaries or affiliates on the effect of inclusion
of Unallowable Costs (as defined in this Paragraph) on Progenity or any of its subsidiaries or affiliates’ cost reports, cost statements, or information reports. 

d. Nothing in this Agreement shall constitute a waiver of the rights of the United States to audit, examine, or
re-examine Progenity’s books and records to determine that no Unallowable Costs have been claimed in accordance with the provisions of this Paragraph. 

12. Progenity agrees to cooperate fully and truthfully with the United States’ investigation of individuals and entities not released in
this Agreement. Upon reasonable notice, Progenity shall encourage, and agrees not to impair, the cooperation of its directors, officers, and employees, and shall use its best efforts to make available, and encourage, the cooperation of former
directors, officers, and employees for interviews and testimony, consistent with the rights and privileges of such individuals. Progenity further agrees to furnish to the United States, upon request, complete and unredacted copies of all non-privileged documents, reports, memoranda of interviews, and records in its possession, custody, or control concerning any investigation of the Covered Conduct that it has undertaken, or that has been performed
by another on its behalf. 
 13. This Agreement is intended to be for the benefit of the Parties only. The Parties do not release any claims
against any other person or entity, except to the extent provided for in Paragraph 14 (waiver for beneficiaries paragraph), below. 
 14.
Progenity agrees that it waives and shall not seek payment for any of the health care billings covered by this Agreement from any health care beneficiaries or their parents, 

  
 9 

 sponsors, legally responsible individuals, or third party payors based upon the claims defined as Covered
Conduct. 
 15. Progenity warrants that it has reviewed its financial situation and that it currently is solvent within the meaning of 11
U.S.C. §§ 547(b)(3) and 548(a)(1)(B)(ii)(I), and shall remain solvent following payment to the United States of the Settlement Amount. Further, the Parties warrant that, in evaluating whether to execute this Agreement, they (a) have
intended that the mutual promises, covenants, and obligations set forth constitute a contemporaneous exchange for new value given to Progenity, within the meaning of 11 U.S.C. § 547(c)(1), and (b) conclude that these mutual promises,
covenants, and obligations do, in fact, constitute such a contemporaneous exchange. Further, the Parties warrant that the mutual promises, covenants, and obligations set forth herein are intended to and do, in fact, represent a reasonably equivalent
exchange of value that is not intended to hinder, delay, or defraud any entity to which Progenity was or became indebted to on or after the date of this transfer, within the meaning of 11 U.S.C. § 548(a)(1). 

16. If within 91 days of the Effective Date of this Agreement or of any payment made under this Agreement, Progenity commences, or a third
party commences, any case, proceeding, or other action under any law relating to bankruptcy, insolvency, reorganization, or relief of debtors (a) seeking to have any order for relief of Progenity’s debts, or seeking to adjudicate Progenity
as bankrupt or insolvent; or (b) seeking appointment of a receiver, trustee, custodian, or other similar official for Progenity or for all or any substantial part of Progenity’s assets, Progenity agrees as follows: 

a. Progenity’s obligations under this Agreement may not be avoided pursuant to 11 U.S.C. § 547, and Progenity shall not argue or
otherwise take the position in any such case, proceeding, or action that: (i) Progenity’s obligations under this Agreement may be avoided under 11 U.S.C. § 547; (ii) Progenity was insolvent at the time this Agreement was

  
 10 

 
entered into, or became insolvent as a result of the payment made to the United States; or (iii) the mutual promises, covenants, and obligations set forth in this Agreement do not constitute
a contemporaneous exchange for new value given to Progenity. 
 b. If Progenity’s obligations under this Agreement are avoided for any
reason, including, but not limited to, through the exercise of a trustee’s avoidance powers under the Bankruptcy Code, the United States, at its sole option, may rescind the releases in this Agreement and bring any civil and/or administrative
claim, action, or proceeding against Progenity for the claims that would otherwise be covered by the releases provided in Paragraph 2 above. Progenity agrees that (i) any such claims, actions, or proceedings brought by the United States are not
subject to an “automatic stay” pursuant to 11 U.S.C. § 362(a) as a result of the action, case, or proceedings described in the first clause of this Paragraph, and Progenity shall not argue or otherwise contend that the United
States’ claims, actions, or proceedings are subject to an automatic stay; (ii) Progenity shall not plead, argue, or otherwise raise any defenses under the theories of statute of limitations, laches, estoppel, or similar theories, to any
such civil or administrative claims, actions, or proceeding that are brought by the United States within 30 calendar days of written notification to Progenity that the releases have been rescinded pursuant to this Paragraph, except to the extent
such defenses were available on August 31, 2019; and (iii) the United States has a valid claim against Progenity in the amount of $29,963,079, and the United States may pursue its claim in the case, action, or proceeding referenced in the
first clause of this Paragraph, as well as in any other case, action, or proceeding. 
 c. Progenity acknowledges that its agreements in this
Paragraph are provided in exchange for valuable consideration provided in this Agreement. 
 17. Each Party shall bear its own legal and
other costs incurred in connection with this matter, including the preparation and performance of this Agreement. 

  
 11 

 18. Each party and signatory to this Agreement represents that it freely and voluntarily
enters in to this Agreement without any degree of duress or compulsion. 
 19. This Agreement is governed by the laws of the United States.
The exclusive jurisdiction and venue for any dispute relating to this Agreement is the United States District Court for the Southern District of California. For purposes of construing this Agreement, this Agreement shall be deemed to have been
drafted by all Parties to this Agreement and shall not, therefore, be construed against any Party for that reason in any subsequent dispute. 

20. This Agreement constitutes the complete agreement between the Parties. This Agreement may not be amended except by written consent of the
Parties. 
 21. The undersigned counsel represent and warrant that they are fully authorized to execute this Agreement on behalf of the
persons and entities indicated below. 
 22. This Agreement may be executed in counterparts, each of which constitutes an original and all of
which constitute one and the same Agreement. 
 23. This Agreement is binding on Progenity’s successors, transferees, heirs, and
assigns. 
 24. All parties consent to the United States’ disclosure of this Agreement, and information about this Agreement, to the
public. 
 25. This Agreement is effective on the date of signature of the last signatory to the Agreement (Effective Date of this
Agreement). Facsimiles and electronic transmissions of signatures shall constitute acceptable, binding signatures for purposes of this Agreement. 

  
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 THE UNITED STATES OF AMERICA 

 

									
	DATED: July 21, 2020	 		 		 	BY:	 	 /s/ Paul Starita

		 		 		 	Paul Starita
		 		 		 	Assistant United States Attorney
		 		 		 	United States Attorney’s Office
		 		 		 	for the Southern District of California
					
	DATED: July 23, 2020	 		 		 	BY:	 	 /s/ Paul Nicholas Bley

		 		 	For:	 	Salvatore M. Maida
		 		 		 	General Counsel
		 		 		 	Defense Health Agency
		 		 		 	United States Department of Defense
					
	DATED: July 20, 2020	 		 		 	BY:	 	 /s/ Edward M. Deharde

		 		 		 	Edward M. Deharde
		 		 		 	Assistant Director of Federal Employee
		 		 		 	Insurance Operations
		 		 		 	Healthcare and Insurance
		 		 		 	United States Office of Personnel Management
					
	DATED: July 20, 2020	 		 		 	BY:	 	 /s/ Paul St. Hillaire

		 		 		 	Paul St. Hillaire
		 		 		 	Assistant Inspector General
		 		 		 	for Legal & Legislative Affairs
		 		 		 	Office of the Inspector General
		 		 		 	United States Office of Personnel Management

  
 13 

 DEFENDANT 

 

							
	DATED: July 21, 2020	 		 	BY:	 	 /s/ Clarke Neumann

		 		 	Clarke Neumann, Esq.
		 		 	Senior Vice President, General Counsel and Secretary
		 		 	Progenity, Inc.
		 		 	4330 La Jolla Village Drive Suite 200
		 		 	San Diego, CA 92122
				
	DATED: July 21, 2020	 		 	BY:	 	 /s/ M. Kendall Day

		 		 	M. Kendall Day, Esq.
		 		 	Jonathan Phillips, Esq.
		 		 	Gibson, Dunn, & Crutcher
		 		 	1050 Connecticut Avenue, N.W.
		 		 	Washington, DC 20036-5306
		 		 	Attorneys for Progenity, Inc.

  
 14

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