Document:

Exhibit
10.5

 

THIS WARRANT AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO CERAGENIX
PHARMACEUTICALS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

 

	
   

  	
  Right to Purchase                     
  shares of Common Stock of Ceragenix Pharmaceuticals, Inc. (subject to
  adjustment as provided herein)

  

 

CLASS A COMMON STOCK PURCHASE WARRANT

 

	
  No.

  	
   

  	
  Issue Date:

  

 

CERAGENIX PHARMACEUTICALS,
INC., a corporation organized under the laws of the State of Delaware (the “Company”),
hereby certifies that, for value received,                                                       ,
                                                      ,
Fax:                               
or its permitted assigns (the “Holder”), is entitled, subject to the terms set
forth below, to purchase from the Company at any time after the Issue Date
until 5:00 p.m., E.S.T on August 20, 2013 (the “Expiration Date”), up
to                     
fully paid and nonassessable shares of Common Stock at a per share purchase
price of $0.80.  The aforedescribed
purchase price per share, as adjusted from time to time as herein provided, is
referred to herein as the “Purchase Price.” 
The number and character of such shares of Common Stock and the Purchase
Price are subject to adjustment as provided herein.  The Company may reduce the Purchase Price
without the consent of the Holder. 
Capitalized terms used and not otherwise defined herein shall have the
meanings set forth in that certain Subscription Agreement (the “Subscription Agreement”), dated November 28,
2005, as amended, entered into by the Company and Holders of the Class A Warrants.

 

As
used herein the following terms, unless the context otherwise requires, have
the following respective meanings:

 

(a)                                  The term “Company”
shall include Ceragenix Pharmaceuticals, Inc. and any corporation which
shall succeed or assume the obligations of Ceragenix Pharmaceuticals, Inc.
hereunder.

 

(b)                                 The term “Common
Stock” includes (a) the Company’s Common Stock, $0.0001 par value per
share, as authorized on the date of the Subscription Agreement, and (b) any
other securities into which or for which any of the securities described in (a) may
be converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.

 

(c)                                  The term “Other
Securities” refers to any stock (other than Common Stock) and other securities
of the Company or any other person (corporate or otherwise) which the holder of
the Warrant at any time shall be entitled to receive, or shall have received,
on the exercise of the Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange for
or in replacement of Common Stock or Other Securities pursuant to Section 5
or otherwise.

 

(d)                                 The term “Warrant
Shares” shall mean the Common Stock issuable upon exercise of this Warrant.

 

1.                                       Exercise of
Warrant.

 

1.1.                              Number of
Shares Issuable upon Exercise.  From and after the Issue Date through and
including the Expiration Date, the Holder hereof shall be entitled to receive,
upon exercise of this 

 

1

 

Warrant in whole in accordance with the terms of subsection 1.2 or
upon exercise of this Warrant in part in accordance with subsection 1.3,
shares of Common Stock of the Company, subject to adjustment pursuant to Section 4.

 

1.2.                              Full Exercise.  This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the “Subscription Form”) duly
executed by such Holder and surrender of the original Warrant within four (4) days
of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.

 

1.3.                              Partial
Exercise.  This
Warrant may be exercised in part (but not for a fractional share) by surrender
of this Warrant in the manner and at the place provided in subsection 1.2
except that the amount payable by the Holder on such partial exercise shall be
the amount obtained by multiplying (a) the number of whole shares of
Common Stock designated by the Holder in the Subscription Form by (b) the
Purchase Price then in effect.  On any
such partial exercise, the Company, at its expense, will forthwith issue and
deliver to or upon the order of the Holder hereof a new Warrant of like tenor,
in the name of the Holder hereof or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may request, the whole number of shares of
Common Stock for which such Warrant may still be exercised.

 

1.4.                              Fair Market
Value. Fair Market Value of a share of Common Stock as of a particular date
(the “Determination Date”) shall mean:

 

(a)                                  If the Company’s
Common Stock is traded on an exchange or is quoted on the National Association
of Securities Dealers, Inc. Automated Quotation (“NASDAQ”), National
Market System, the NASDAQ SmallCap Market or the American Stock Exchange, LLC,
then the closing or last sale price, respectively, reported for the last
business day immediately preceding the Determination Date;

 

(b)                                 If the Company’s
Common Stock is not traded on an exchange or on the NASDAQ National Market
System, the NASDAQ SmallCap Market or the American Stock Exchange, Inc.,
but is traded in the over-the-counter market, then the average of the closing
bid and ask prices reported for the last business day immediately preceding the
Determination Date;

 

(c)                                  Except as
provided in clause (d) below, if the Company’s Common Stock is not
publicly traded, then as the Holder and the Company agree, or in the absence of
such an agreement, by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass
on the matter to be decided; or

 

(d)                                 If the
Determination Date is the date of a liquidation, dissolution or winding up, or
any event deemed to be a liquidation, dissolution or winding up pursuant to the
Company’s charter, then all amounts to be payable per share to holders of the
Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per share in
respect of the Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.

 

1.5.                              Company
Acknowledgment. The Company will, at the time of the exercise of
the Warrant, upon the request of the Holder hereof acknowledge in writing its
continuing obligation to afford to such Holder any rights to which such Holder
shall continue to be entitled after such exercise in 

 

2

 

accordance with the provisions of this Warrant. If the Holder shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such Holder any such rights.

 

1.6.                              Trustee for
Warrant Holders. In the event that a bank or trust company shall
have been appointed as trustee for the Holder of the Warrants pursuant to
Subsection 3.2, such bank or trust company shall have all the powers and
duties of a warrant agent (as hereinafter described) and shall accept, in its
own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this Section 1.

 

1.7                                 Delivery of
Stock Certificates, etc. on Exercise. The Company agrees that
the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) business days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder hereof, or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may
direct in compliance with applicable securities laws, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such Holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such Holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share of Common Stock,
together with any other stock or other securities and property (including cash,
where applicable) to which such Holder is entitled upon such exercise pursuant
to Section 1 or otherwise.

 

2.                                       Cashless
Exercise.

 

(a)                                  Except as
described below, if a Registration Statement (as defined in the Subscription
Agreement) (“Registration Statement”) is effective and the Holder may sell its
shares of Common Stock upon exercise hereof pursuant to the Registration
Statement, this Warrant may be exercisable in whole or in part for cash only as
set forth in Section 1 above.  If no
such Registration Statement is available during the time that such Registration
Statement is required to be effective pursuant to the terms of the Subscription
Agreement, then payment upon exercise may be made at the option of the Holder
either in (i) cash, wire transfer or by certified or official bank check
payable to the order of the Company equal to the applicable aggregate Purchase
Price, (ii) by cashless exercise in accordance with Section (b) below
or (iii) by a combination of any of the foregoing methods, for the number
of Common Stock specified in such form (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common
Stock issuable to the holder per the terms of this Warrant) and the holder
shall thereupon be entitled to receive the number of duly authorized, validly
issued, fully-paid and non-assessable shares of Common Stock (or Other
Securities) determined as provided herein.

 

(b)                                 If the Fair
Market Value of one share of Common Stock is greater than the Purchase Price
(at the date of calculation as set forth below), in lieu of exercising this
Warrant for cash, the holder may elect to receive shares equal to the value (as
determined below) of this Warrant (or the portion thereof being cancelled) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Subscription Form in which event the Company shall
issue to the holder a number of shares of Common Stock computed using the
following formula:

 

X=Y (A-B)

 A

 

Where            X=                                the number of
shares of Common Stock to be issued to the holder

 

3

 

Y=                                 the number of
shares of Common Stock purchasable under the Warrant or, if only a portion of
the Warrant is being exercised, the portion of the Warrant being exercised (at
the date of such calculation)

 

A=                               the Fair Market
Value of one share of the Company’s Common Stock (at the date of such
calculation)

 

B=                                 Purchase Price
(as adjusted to the date of such calculation)

 

(c)                                  The Holder may
employ the cashless exercise feature described in Section (b) above
only during the pendency of a Non-Registration Event as described in Section 11
of the Subscription Agreement.  For
purposes of Rule 144 promulgated under the 1933 Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the Issue Date.

 

3.                                       Adjustment for
Reorganization, Consolidation, Merger, etc.

 

3.1.                              Reorganization,
Consolidation, Merger, etc.  In case at any time or from time to time, the
Company shall (a) effect a reorganization, (b) consolidate with or
merge into any other person or (c) transfer all or substantially all of
its properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, as a
condition to the consummation of such a transaction, proper and adequate
provision shall be made by the Company whereby the Holder of this Warrant, on
the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which such Holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be,
if such Holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 4.

 

3.2.                              Dissolution.  In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the Holder of the Warrants after the
effective date of such dissolution pursuant to this Section 3 to a bank or
trust company (a “Trustee”) having its principal office in New York, NY,
as trustee for the Holder of the Warrants.

 

3.3.                              Continuation of
Terms.  Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force
and effect and the terms hereof shall be applicable to the Other Securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any Other Securities, including, in the case of any
such transfer, the person acquiring all or substantially all of the properties
or assets of the Company, whether or not such person shall have expressly
assumed the terms of this Warrant as provided in Section 4.  In the event this Warrant does not continue
in full force and effect after the consummation of the transaction described in
this Section 3, then only in such event will the Company’s securities and
property (including cash, where applicable) receivable by the Holder of the
Warrants be delivered to the Trustee as contemplated by Section 3.2.

 

3.4                                 Share Issuance.  Until the Expiration Date, if the Company
shall issue any Common Stock except for the Excepted Issuances (as defined in Section 12(a) of
the Subscription Agreement), prior to the complete exercise of this Warrant for
a consideration less than the Purchase 

 

4

 

Price that would be in effect at the time of such issue, then, and
thereafter successively upon each such issue, the Purchase Price shall be
reduced to such other lower issue price. 
For purposes of this adjustment, the issuance of any security or debt
instrument of the Company carrying the right to convert such security or debt
instrument into Common Stock or of any warrant, right or option to purchase
Common Stock shall result in an adjustment to the Purchase Price upon the
issuance of the above-described security, debt instrument, warrant, right, or
option and again at any time upon any subsequent issuances of shares of Common
Stock upon exercise of such conversion or purchase rights if such issuance is
at a price lower than the Purchase Price in effect upon such issuance.  The reduction of the Purchase Price described
in this Section 3.4 is in addition to the other rights of the Holder
described in the Subscription Agreement.

 

4.                                       Extraordinary
Events Regarding Common Stock.  In the event that the Company shall (a) issue
additional shares of the Common Stock as a dividend or other distribution on
outstanding Common Stock, (b) subdivide its outstanding shares of Common
Stock, or (c) combine its outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock, then, in each such event, the
Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be adjusted to a number determined by multiplying the number
of shares of Common Stock that would otherwise (but for the provisions of this Section 4)
be issuable on such exercise by a fraction of which (a) the numerator is
the Purchase Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Purchase Price in effect on
the date of such exercise.

 

5.                                       Certificate as
to Adjustments.  In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Company at its
expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the
terms of the Warrant and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration
received or receivable by the Company for any additional shares of Common Stock
(or Other Securities) issued or sold or deemed to have been issued or sold, (b) the
number of shares of Common Stock (or Other Securities) outstanding or deemed to
be outstanding, and (c) the Purchase Price and the number of shares of
Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. The Company will forthwith mail a copy
of each such certificate to the Holder of the Warrant and any Warrant Agent of
the Company (appointed pursuant to Section 11 hereof).

 

6.                                       Reservation of
Stock, etc. Issuable on Exercise of Warrant; Financial Statements.   The Company will at all times reserve and
keep available, solely for issuance and delivery on the exercise of the
Warrants, all shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of the Warrant. 
This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to
the holders of the Company’s Common Stock.

 

7.                                       Assignment;
Exchange of Warrant.  Subject to
compliance with applicable securities laws, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”).
On the surrender for exchange of this Warrant, with the Transferor’s
endorsement in the form of Exhibit B attached hereto (the “Transferor
Endorsement Form”) and together with an opinion of counsel reasonably
satisfactory to the Company that the transfer of this Warrant will be in
compliance 

 

5

 

with applicable securities laws, the Company at its expense, twice,
only, but with payment by the Transferor of any applicable transfer taxes, will
issue and deliver to or on the order of the Transferor thereof a new Warrant or
Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified
in such Transferor Endorsement Form (each a “Transferee”), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant so surrendered by the
Transferor.  No such transfers shall
result in a public distribution of the Warrant.

 

8.                                       Replacement of
Warrant.  On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of
any such mutilation, on surrender and cancellation of this Warrant, the Company
at its expense, twice only, will execute and deliver, in lieu thereof, a new
Warrant of like tenor.

 

9.                                       Registration
Rights.  The Holder of this Warrant has
been granted certain registration rights by the Company.  These registration rights are set forth in
the Subscription Agreement.  The terms of
the Subscription Agreement are incorporated herein by this reference.

 

10.                                 Maximum
Exercise.  The Holder
shall not be entitled to exercise this Warrant on an exercise date, in
connection with that number of shares of Common Stock which would be in excess
of the sum of (i) the number of shares of Common Stock beneficially owned
by the Holder and its affiliates on an exercise date, and (ii) the number
of shares of Common Stock issuable upon the exercise of this Warrant with respect
to which the determination of this limitation is being made on an exercise
date, which would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock on such
date.  For the purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and Regulation 13d-3 thereunder. 
Subject to the foregoing, the Holder shall not be limited to aggregate
exercises which would result in the issuance of more than 4.99%.  The restriction described in this
paragraph may be waived, in whole or in part by the Holder, upon sixty-one
(61) days prior notice from the Holder to the Company.  The Holder may decide whether to convert a
Note or exercise this Warrant to achieve an actual 4.99% ownership position.

 

11.                                 Warrant Agent.  The Company may, by written notice to the
Holder of the Warrant, appoint an agent (a “Warrant Agent”) for the purpose of
issuing Common Stock (or Other Securities) on the exercise of this Warrant
pursuant to Section 1, exchanging this Warrant pursuant to Section 7,
and replacing this Warrant pursuant to Section 8, or any of the foregoing,
and thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such Warrant Agent.

 

12.                                 Transfer on the
Company’s Books.  Until this
Warrant is transferred on the books of the Company, the Company may treat the
registered holder hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.

 

13.                                 Notices.   All notices, demands,
requests, consents, approvals, and other communications required or permitted
hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air
courier service with charges prepaid, or (iv) transmitted by hand
delivery, telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice.  Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business
day following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon

 

6

 

actual
receipt of such mailing, whichever shall first occur or (c) three business
days after deposited in the mail if delivered pursuant to subsection (ii) above.
 The addresses for such communications
shall be: (i) if to the Company to: Ceragenix Pharmaceuticals, Inc.,
1444 Wazee Street, Suite 210, Denver, CO 80202, Attn: Steven S. Porter,
CEO, telecopier: (303) 534-1860, with a copy by telecopier only to: George A.
Hagerty, Esq., Hogan & Hartson LLP, 1200 Seventeenth Street, Suite 1500,
Denver, CO 80202, telecopier: (303) 877-7333, and (ii) if to the Holder,
to the addresses and telecopier number set forth in the first paragraph of this
Warrant, with an additional copy by telecopier only to: Grushko &
Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier
number: (212) 697-3575.

 

14.                                 Miscellaneous. 
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be construed and enforced in accordance with and governed by the
laws of New York.  Any dispute relating
to this Warrant shall be adjudicated in New York County in the State of New
York.  The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof.  The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.

 

7

 

IN
WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.

 

	
   

  	
  CERAGENIX PHARMACEUTICALS,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
                              Name: 
  Jeff Sperber

  
	
   

  	
                              Title:   
  CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
  Witness:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
				

 

8

 

Exhibit A

FORM OF
SUBSCRIPTION

(to be signed only on exercise of Warrant)

 

TO:  CERAGENIX PHARMACEUTICALS, INC.

 

The undersigned, pursuant to the provisions
set forth in the attached Warrant (No.        ),
hereby irrevocably elects to purchase (check applicable box):

 

                         shares
of the Common Stock covered by such Warrant; or

 

                                                the maximum
number of shares of Common Stock covered by such Warrant pursuant to the
cashless exercise procedure set forth in Section 2.

 

The undersigned herewith makes payment of the
full purchase price for such shares at the price per share provided for in such
Warrant, which is $                      .  Such payment takes the form of (check
applicable box or boxes):

 

                                                $                    
in lawful money of the United States; and/or

 

                                                the
cancellation of the Warrant to the extent necessary, in accordance with the
formula set forth in Section 2, to exercise this Warrant with respect to
the maximum number of shares of Common Stock purchasable pursuant to the
cashless exercise procedure set forth in Section 2.

 

The undersigned requests that the
certificates for such shares be issued in the name of, and delivered to                                                                                                           
whose address is

 

 

Number of Shares of Common Stock Beneficially
Owned on the date of exercise: Less than five percent (5%) of the outstanding
Common Stock of Ceragenix Pharmaceuticals, Inc.

 

The undersigned represents and warrants that
the representations and warranties in Section 4 of the Subscription Agreement
(as defined in this Warrant) are true and accurate with respect to the
undersigned on the date hereof.

 

The undersigned represents and warrants that
all offers and sales by the undersigned of the securities issuable upon
exercise of the within Warrant shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933, as amended (the “Securities Act”),
or pursuant to an exemption from registration under the Securities Act.

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to
  name of holder as

  specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Address)

  

 

9

 

Exhibit B

 

FORM OF
TRANSFEROR ENDORSEMENT

(To be signed only on transfer of Warrant)

 

For
value received, the undersigned hereby sells, assigns, and transfers unto the
person(s) named below under the heading “Transferees” the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of CERAGENIX PHARMACEUTICALS, INC. to which the within
Warrant relates specified under the headings “Percentage Transferred” and “Number
Transferred,” respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the
books of CERAGENIX PHARMACEUTICALS, INC. with full power of substitution in the
premises.

 

	
  Transferees

  	
   

  	
  Percentage Transferred

  	
   

  	
  Number Transferred

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

	
  Dated: 

  	
                              ,

  	
   

  	
   

  
	
   

  	
  (Signature must conform to
  name of holder as

  specified on the face of the warrant)

  
	
   

  	
   

  
	
  Signed in the presence of:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
             (Name)

  	
   

  
	
   

  	
              (address)

  
	
   

  	
   

  
	
  ACCEPTED AND AGREED:

  	
   

  
	
  [TRANSFEREE]

  	
   

  
	
   

  	
              (address)

  
	
   

  	
   

  
	
   

  	
   

  
	
             (Name)Exhibit 10.1

 

SETTLEMENT
AGREEMENT

 

I.              PARTIES

 

This Settlement Agreement (“Agreement”) is
entered into among the United States of America, acting through the United
States Department of Justice and the United States Attorney’s Office for the
Eastern District of Pennsylvania, the Office of Inspector General (“OIG-HHS”)
of the Department of Health and Human Services (“HHS”), TRICARE Management
Activity (“TMA”) and the United States Office of Personnel Management (“OPM”)
(collectively the “United States”); the Relators as identified in Paragraphs B
through E of the Preamble to this Agreement (“Relators”); and Cephalon, Inc.
(“Cephalon”). Collectively, all of the above will be referred to as “the
Parties.”

 

II.            PREAMBLE

 

As a preamble to this Agreement, the Parties
agree to the following:

 

A.                                   At
all relevant times, Cephalon, a Delaware corporation headquartered in Frazer,
Pennsylvania, distributed, marketed and sold pharmaceutical products in the
United States including drugs sold under the trade names of Actiq, Gabitril and
Provigil.

 

B.                                     Lucia
Paccione filed a qui  tam action in the United States District
Court for the Eastern District of Pennsylvania captioned United States of
America ex rel. Lucia Paccione v. Cephalon, Inc., Civil Action No. 03-6268.

 

C.                                     Joseph
Piacentile filed a qui  tam action in the United States District
Court for the Eastern District of Pennsylvania captioned United States of
America and the States of California, Delaware, Florida, Hawaii, Illinois,
Louisiana, Massachusetts, Nevada, New Hampshire, New Mexico, Texas, Tennessee
and Virginia and the District of Columbia ex rel. Joseph Piacentile v. Cephalon, Inc.,
Civil Action No. 03-6277.

 

 

D.                                    Bruce
Boise filed a qui  tam action in the United States District Court
for the Eastern District of Pennsylvania captioned United States of America;
the States of California, Delaware, Florida, Hawaii, Illinois, Massachusetts,
Nevada, New Mexico, Tennessee, Texas, Virginia, the District of Columbia, and
New York; ex rel. Bruce Boise v. Cephalon, Inc., Civil Action No. 04-4401.

 

E.                                      Michael
Makalusky filed a qui  tam action in the United States District
Court for the District of Massachusetts captioned United States of America
ex rel. Michael Makalusky v. Cephalon, Inc., that action was
transferred to the United States District Court for the Eastern District of
Pennsylvania as Civil Action No. 05-1904.

 

The qui  tam actions identified
in Paragraphs (B) through (E) will be referred to collectively as the
“Civil Actions.”

 

F.                                      Cephalon
has entered into a plea agreement with the United States Attorney for the
Eastern District of Pennsylvania and has agreed to plead guilty, pursuant to
Fed.R.Crim.P. 11 to an Information to be filed in United States v. Cephalon, Inc.
(the “Federal Criminal Action”) that will allege that Cephalon introduced drugs
into interstate commerce and caused the introduction into interstate commerce
of drugs that were misbranded within the meaning of 21 U.S. C. §§ 331(a),
333(a)(1) and 352(f)(1), in that Actiq, Gabitril and Provigil were
marketed for medical indications that were not approved by the FDA.

 

G.                                     Cephalon
has entered into or will be entering into separate settlement agreements,
described in Paragraph 1(b) below (hereinafter referred to as the “Medicaid
State Settlement Agreements”) with the 50 states and the District of Columbia 

 

2

 

(hereinafter referred to as the
“Medicaid Participating States”) in settlement of the Covered Conduct;

 

H.                                    The
United States and the Medicaid Participating States allege that Cephalon caused
claims for payment for Actiq, Gabitril and Provigil to be submitted to the
Medicaid Program, Title XIX of the Social Security Act, 42 U.S.C. §§ 1396-1396v
(“the Medicaid Program”);

 

I.                                         The
United States further alleges the Cephalon caused claims for payment for Actiq,
Gabitril and Provigil to be submitted to the Medicare program, Title XVIII of
the Social Security Act, 42 U.S. C. §§ 1395-1395ggg; the TRICARE program, 10
U.S.C. § 1071-1109; the Federal Employees Health Benefits Program (“FEHB”), 5
U.S.C. §§ 8901-8914; the Federal Employees’ Compensation Act Program; the
Postal Service Workers’ Compensation Program; and the Energy Employees’
Occupational Illness Compensation Program; and caused purchases of Actiq,
Gabitril and Provigil by the Department of Veterans Affairs (“DVA”); the
Defense Logistics Agency (“DLA”); the Bureau of Prisons (“BOP”) and the Public
Health Service Entities.

 

J.                                        The
United States and the Medicaid Participating States contend they have certain
civil claims against Cephalon, as specified in Paragraph 2 below, for engaging
in the following conduct concerning the marketing, promotion and sale of Actiq,
Gabitril and Provigil (hereinafter referred to as the “Covered Conduct”):

 

Between January 1, 2001 and December 31, 2006 for Actiq and
Provigil and between January 1, 2001 and February 18, 2005 for
Gabitril, Cephalon knowingly and willfully promoted the sale and use of Actiq,
Gabitril and Provigil for certain uses for which the Food and Drug Administration
had not approved (i.e. “unapproved uses”). The promotion of Actiq, Gabitril and
Provigil for these unapproved uses violated the Food Drug and Cosmetic Act 

 

3

 

21 U.S.C. § 331 (a), 21 U.S.C. § 352(f). In addition, certain of these
unapproved uses were not medically accepted indications for which the United
States and State Medicaid programs approved reimbursement. As a result of
Cephalon’s conduct, Cephalon knowingly caused false and/or fraudulent claims to
be submitted to the United States and the Medicaid programs and caused the
Department of Veterans Affairs, the Defense Logistics Agency, the Public Health
Entities and the Bureau of Prisons to purchase Actiq, Gabitril and Provigil for
unapproved uses.

 

K.                                    The
United States also contends that it has certain administrative claims against
Cephalon as specified in Paragraphs 4-6 below, for engaging in the Covered
Conduct.

 

L.                                      This
Agreement is made in compromise of disputed claims. This settlement agreement
is neither an admission of facts nor liability by Cephalon nor a concession by
the United States that its claims are not well founded. With the exception of
such admissions that are made in connection with any guilty plea by Cephalon in
connection with the Federal Criminal action, Cephalon expressly denies the
allegations of the United States and the Relators as set forth herein and in
the Civil Actions and denies that it has engaged in any wrongful conduct in
connection with the Covered Conduct. Neither this agreement, its execution, nor
the performance of any obligation under it, including any payment, nor the fact
of settlement, is intended to be, or shall be understood as, an admission of
liability or wrongdoing, or other expression reflecting upon the merits of the
dispute by Cephalon.

 

M.                                 To
avoid the delay, expense, inconvenience, and uncertainty of protracted
litigation of these claims, the Parties mutually desire to reach a full and
final settlement as set forth below.

 

4

 

III.           TERMS AND CONDITIONS

 

1.                                       Cephalon
agrees to pay to the United States and the Medicaid Participating States,
collectively, the sum of Three Hundred Seventy-Five Million Dollars
($375,000,000), plus accrued interest in the amount of 4.0% per annum from January 1,
2008, and continuing until and including the day before complete payment is
made (the “Settlement Amount”). Payments shall be made as follows:

 

(a)                                  Cephalon
shall pay to the United States the sum of Two Hundred Fifty-Six Million, Two
Hundred Ninety-Eight Thousand, Five Hundred and Seventeen Dollars
($256,298,517), plus accrued interest in an amount of 4.0% per annum from January 1,
2008, and continuing until and including the day before complete payment is
made (the “Federal Settlement Amount”). The Federal Settlement Amount shall be
paid by electronic funds transfer pursuant to written instructions to be
provided by the United States. Cephalon agrees to make this electronic funds
transfer no later than seven days after the Effective Date of this Agreement.

 

(b)                                 Cephalon
shall pay to the Medicaid Participating States the sum of One Hundred Sixteen
Million, Eight Hundred Thirty-Three Thousand, Four Hundred and Fifty-Five
Dollars ($116,833,455), plus interest accrued thereon at a rate of 4.0% per
annum from January 1, 2008, continuing until and including the day before
complete payment is made (the “Medicaid State Settlement Amount”), under the
terms and conditions of the Medicaid State Settlement Agreements that Cephalon
will enter into with the Medicaid Participating States. This Medicaid State
Settlement Amount shall be paid by electronic funds transfer pursuant to
written payment instructions from the negotiating team for the Medicaid
Participating States.

 

5

 

(c)                                  Cephalon
shall pay to the Public Health Service Entities the sum of One Million, Eight
Hundred Sixty-Eight Thousand and Twenty-Eight Dollars ($1,868,028), plus
interest accrued thereon at a rate of 4.0% per annum from January 1, 2008,
continuing until and including the day before complete payment is made (the “Public
Health Settlement Amount”) as provided in the written instructions agreed to by
the parties. Cephalon shall distribute each affected Public Health Service
entity its proportionate share of the Public Health Settlement Amount within 60
days of the Effective Date of this Agreement.

 

(d)                                 Contingent
upon the United States receiving the Federal Settlement Amount from Cephalon,
the United States agrees to pay, as soon as feasible after receipt, Forty-Six
Million, Four Hundred Sixty-Nine Thousand, Nine Hundred Seventy-Eight Dollars
($46,469,978) to Relator Paccione, plus the pro rata share of the actual
accrued interest paid to the United States by Cephalon on the amount set forth
in paragraph 1(a) above. (“Relators’ Share”).

 

(e)                                  Relators
have entered into a separate agreement concerning the allocation of the
Relators’ Share among themselves.

 

2.                                       Subject
to the exceptions in Paragraph 7 below (concerning excluded claims), in
consideration of the obligations of Cephalon in this Agreement, conditioned
upon Cephalon’s full payment of the Settlement Amount, and subject to Paragraph
17 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 (on behalf of itself, its officers, agents, agencies, and
departments) agrees to release Cephalon, its predecessors, affiliates,
divisions, parents, subsidiaries, 

 

6

 

successors and assigns, and their current and former directors,
officers and employees from any civil or administrative monetary claim the
United States has or may have for the Covered Conduct under the False Claims
Act, 31 U.S.C. §§ 3729-3733; the Program Fraud Civil Remedies Act, 31 U.S.C. §§
3801-12; the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a; any statutory
provision applicable to federally-funded programs in this agreement for which
the Civil Division of the Department of Justice has actual and present
authority to assert and compromise pursuant to 28 C.F.R. Part O, Subpart
I, Section 0.45(D) (1995) or the common law theories of payment by
mistake, unjust enrichment and fraud.

 

3.                                       Subject
to the exceptions in Paragraph 7 (concerning excluded claims), below, in
consideration of the obligations of Cephalon in this Agreement, conditioned
upon Cephalon’s full payment of the Settlement Amount, Relators, for themselves
and for their heirs, successors, attorneys, agents, and assigns, agree to
release Cephalon, its parents, subsidiaries, related entities, officers,
directors, trustees, agents, servants, employees, representatives, attorneys,
consultants, successors, heirs, executors, administrators and assigns, individually
and collectively, current or former, from any civil monetary claim the United
States has or may have for the Covered Conduct under the False Claims Act, 31
U.S.C. §§ 3729-3733, but expressly reserve claims they may assert under 31
U.S.C. § 3730(d) for expenses, attorney fees and costs.

 

4.                                       In
consideration of the obligations of Cephalon set forth in this Agreement, and
the Corporate Integrity Agreement entered into between OIG-HHS and Cephalon,
conditioned on Cephalon’s payment in full of the Settlement Amount, and subject
to Paragraph 17 below (concerning bankruptcy proceedings commenced within 

 

7

 

91 days of the Effective Date of this Agreement or any payment under
this Agreement), the OIG-HHS agrees to release and refrain from instituting,
directing, or maintaining any administrative action seeking exclusion from the
Medicare, Medicaid, or other Federal health care programs (as defined in 42
U.S.C. § 1320a-7b(f)) against Cephalon 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 or other prohibited activities), for the Covered
Conduct, except as reserved in Paragraph 7, (concerning excluded claims),
below, and as reserved in this Section.

 

In consideration of the obligations of
Cephalon set forth in this Agreement, and the Corporate Integrity Agreement
entered into between OIG-HHS and Cephalon, conditioned on Cephalon’s payment in
full of the Settlement Amount, and subject to Paragraph 17 below (concerning
bankruptcy proceedings commenced within 91 days of the Effective Date of this
Agreement or any payment under this Agreement), the OIG-HHS agrees to release
and refrain from instituting, directing, or maintaining any administrative
action seeking exclusion from the Medicare, Medicaid, or other Federal health
care programs (as defined in 42 U.S.C. § 1320a-7b(f) against Cephalon
under 42 U.S.C. § 1320a-7(b)(1) permissive exclusion for conviction
relating to fraud) or 42 U.S.C. § 1320a-7(b)(3) (permissive exclusion for
misdemeanor conviction relating to controlled substance), based on the Federal
Criminal Action referenced in Paragraph F, except as reserved in paragraph 7
(concerning excluded claims), below, and as reserved in this Section.

 

The OIG-HHS expressly reserves all rights to
comply with any statutory obligations to exclude Cephalon from the Medicare,
Medicaid, or other Federal health 

 

8

 

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

 

5.                                       In
consideration of the obligations of Cephalon set forth in this Agreement,
conditioned upon Cephalon’s full payment of the Settlement Amount, and subject
to Paragraph 17, below (concerning bankruptcy proceedings commenced within 91
days of the Effective Date of this Agreement or any payment under this
Agreement), TMA agrees to release and refrain from instituting, directing, or
maintaining any administrative action seeking exclusion from the TRICARE
Program against Cephalon under 32 C.F.R. § 199.9 for the Covered Conduct,
except as reserved in Paragraph 7, (concerning excluded claims) below, and as
reserved in this Paragraph. TMA expressly reserves its authority to exclude
Cephalon under 32 C.F.R. § 199.9(f)(1)(i)(A), (f)(1)(i)(B), and (f)(1)(iii),
based upon the Covered Conduct. Nothing in this Paragraph precludes TMA or the
TRICARE Program from taking action against entities or persons, or for conduct
and practices, for which claims have been reserved in Paragraph 7 below.

 

6.                                       In
consideration of the obligations of Cephalon set forth in this Agreement and
conditioned upon Cephalon’s full payment of the Settlement Amount, and subject
to Paragraph 17 below (concerning bankruptcy proceedings commenced within 91
days of the Effective Date of this Agreement or any payment under this
Agreement), OPM agrees to release and refrain from instituting, directing, or
maintaining any administrative action against Cephalon under 5 U.S.C. § 8902a(b) or
5 C.F.R. Part 970 for the Covered Conduct, except as reserved in Paragraph
7, (concerning excluded 

 

9

 

claims) below, and except if required by 5 U.S.C. § 8902a(b). 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
7 below.

 

7.                                       Notwithstanding
any term of this Agreement, specifically reserved and excluded from the scope
and terms of this Agreement as to any entity or person (including Cephalon and
Relators) are the following claims of the United States:

 

(a)                                  Any
criminal, civil, or administrative 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 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 such obligations as are created by this Agreement;

 

(f)                                    Any
liability for express or implied warranty claims or other claims for defective
or deficient products and services, including quality of goods and services;

 

(g)                                 Any
liability for personal injury or property damage or for other consequential
damages arising from the Covered Conduct;

 

(h)                                 Any
liability for failure to deliver items or services due; or

 

10

 

(i)                                     Any
liability of individuals, including officers and employees.

 

8.                                       Relators,
their heirs, successors, attorneys, agents, and assigns agree not to object to
this Agreement and agree and confirm that this Agreement is fair, adequate, and
reasonable under all the circumstances, pursuant to 31 U.S.C. § 3730(c)(2)(B).
Conditioned upon Relator Paccione’s receipt of the Relators’ Share, Relators,
for themselves individually, and for their heirs, successors, agents, and
assigns, fully and finally release, waive, and forever discharge the United
States, its officers, agents, and employees from any claims arising from or
relating to 31 U.S.C. § 3730; from any claims arising from the filing of the
Civil Actions identified in Paragraphs II (B) through II (E); from any
other claims for a share of the Settlement Amount; and in full settlement of
any claims Relators may have under this Agreement. This Agreement does not
resolve or in any manner affect any claims the United States has or may have
against the Relators arising under Title 26, U.S. Code (Internal Revenue Code),
or any claims arising under this Agreement.

 

9.                                       Relators,
on behalf of themselves, their heirs, successors, attorneys, agents, and
assigns, agree that each party retains all of its rights pursuant to the False
Claims Act on the issue of expenses, attorneys’ fees, and costs under 31 U.S.C.
§ 3730(d) and that no agreements concerning Relators’ expenses, attorneys’
fees or costs have been reached to date.

 

10.                                 Cephalon
waives and shall not assert any defenses it may have to criminal prosecution or
administrative action relating to the Covered Conduct based in whole or in part
on a contention that, under the Double Jeopardy Clause of the Fifth 

 

11

 

Amendment of the Constitution, or the Excessive Fines Clause of the
Eighth Amendment of the Constitution, this Agreement bars a remedy sought in
such criminal prosecution or administrative action.

 

11.                                 Cephalon
fully and finally releases, waives and discharges the United States, its
agencies, employees, servants, and agents from any claims (including attorneys’
fees, costs, and expenses of every kind and however denominated) that Cephalon
has asserted, could have asserted, or may assert in the future against the
United States, its agencies, employees, servants, and agents, related to or
arising from the Covered Conduct or the United States’ investigation and
prosecution of the Civil Actions identified in Paragraphs II (B) through
(E).

 

12.                                 The
Settlement Amount that Cephalon must pay pursuant to Paragraph 1 above shall
not be decreased as a result of the denial of claims for payment now being
withheld from payment by any State or Federal payer, related to the Covered
Conduct; and Cephalon shall not resubmit to any State or Federal payer any
previously denied claims, which denials were based on the Covered Conduct, and
shall not appeal or cause the appeal of any such denials of claims.

 

13.                                 Cephalon
agrees to the following:

 

(a)                                  Unallowable
Costs Defined. All costs (as defined in the Federal Acquisition Regulation
(“FAR”), 48 C.F.R. § 31.205-47 and in Titles XVIII and XIX of the Social
Security Act, 42 U.S.C. §§ 1395-1395hhh and 1396-1396v, and the regulations and
official program directives promulgated thereunder) incurred by or on behalf of
Cephalon, its predecessors, parents, divisions, subsidiaries, or affiliates,
and its present or former officers, directors, employees, and agents in
connection with the 

 

12

 

following shall be “unallowable costs” on Government contracts with
DVA, DLA, BOP, and other agencies and under the Medicare Program, Medicaid
Program, TRICARE Program, and FEHB: (1) the matters covered by this
Agreement; (2) the United States’ audit and civil and criminal
investigation relating to matters covered by this Agreement; (3) Cephalon’s
investigation, defense, and any corrective actions undertaken in response to
the United States’ civil and criminal investigations in connection with the
matters covered by this Agreement (including attorneys’ fees); (4) the
negotiation and performance of this Agreement and the Medicaid State Settlement
Agreement; (5) the payments made to the United States or any State
pursuant to this Agreement or the Medicaid State Settlement Agreement and any
payments that Cephalon may make to any qui tam plaintiffs; and (6) the
negotiation of and obligations undertaken pursuant to the CIA to: (a) retain
an independent review organization to perform annual reviews as described in Section III
of the CIA; and (b) prepare and submit reports to OIG-HHS. However,
nothing in this Paragraph affects the status of costs that are not allowable
based on any other authority applicable to Cephalon (All costs described or set
forth in this Paragraph are hereafter, “Unallowable Costs”).

 

(b)                                 Future
Treatment of Unallowable Costs. If applicable, these Unallowable Costs
shall be separately estimated and accounted for by Cephalon and Cephalon 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 Cephalon, its predecessors, parents,
divisions, subsidiaries, or affiliates to Medicare, Medicaid, TRICARE, FEHB,
DLA, BOP or DVA.

 

13

 

(c)                                  Treatment
of Unallowable Costs Previously Submitted for Payment. If applicable,
Cephalon further agrees that, within 60 days of the Effective Date of this
Agreement, it shall identify to applicable Medicare and TRICARE fiscal
intermediaries, carriers, and/or contractors, and Medicaid, DVA, DLA, BOP and
FEHB 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 Cephalon, its predecessors, parents, divisions, 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. Cephalon agrees that the United States, at a minimum, shall be entitled
to recoup from Cephalon 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. 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 of the affected agencies. The United States reserves its
rights to disagree with any calculations submitted by Cephalon, its
predecessors, parents, divisions, subsidiaries or affiliates on the effect of
inclusion of Unallowable Costs on Cephalon’s or its predecessors’, parents’,
divisions’, 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 examine or re-examine Cephalon’s books and records to 

 

14

 

determine that no Unallowable Costs have been claimed in accordance
with the provisions of this Paragraph.

 

14.                                 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 15 (Waiver for Beneficiaries paragraph), below.

 

15.                                 Cephalon
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, sponsors, legally responsible individuals, or third party payors based
upon the claims defined as Covered Conduct.

 

16.                                 Cephalon
warrants that it has reviewed its financial situation and that it is currently
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 of the
Settlement Amount. Further, their Parties expressly warrant that, in evaluating
whether to execute this Agreement, they (a) have intended that the mutual
promises, covenants, and obligations set forth herein constitute a
contemporaneous exchange for new value given to Cephalon, 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 that Cephalon was or became indebted to on or after the
date of this transfer, within the meaning of 11 U.S.C. § 548(a)(1).

 

15

 

17.                                 If
within 91 days of the Effective Date of this Agreement or of any payment made
under this Agreement, Cephalon 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 Cephalon’s debts, or seeking to adjudicate Cephalon as bankrupt or
insolvent; or (b) seeking appointment of a receiver, trustee, custodian,
or other similar official for Cephalon or for all or any substantial part of
Cephalon’s assets, Cephalon agrees as follows:

 

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

 

(b)                                 In
the event that Cephalon’s obligations hereunder are avoided for any reason,
including, but not limited to, 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 Cephalon for the claims that would
otherwise be covered by the releases provided in this Agreement. If the United
States chooses to do so, Cephalon agrees that, for purposes only of any case,
action, or proceeding referenced in the first clause of this Paragraph, (i) any
such claims, actions or proceedings brought by the 

 

16

 

United States (including any proceedings to exclude Cephalon from
participation in Medicare, Medicaid, or other federal health care programs) are
not subject to an “automatic stay” pursuant to 11 U.S.C. Section 362(a) as
a result of the action, case or proceeding described in the first clause of
this Paragraph, and that Cephalon will not argue or otherwise contend that the
United States’ claims, actions or proceedings are subject to an automatic stay;
(ii) that Cephalon will 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 proceedings
which are brought by the United States within 30 calendar days of written
notification to Cephalon that the releases herein have been rescinded pursuant
to this Paragraph, except to the extent such defenses were available before June 24,
2005; and (iii) the United States and the Participating States have valid
claims against Cephalon in the aggregate amount of at least $375,000,000, plus
applicable multipliers and penalties , and they may pursue their claims, inter
alia, in the case, action or proceeding referenced in the first clause of this
Paragraph, as well as in any other case, action, or proceeding; and

 

(c)                                  Cephalon
acknowledges that its agreements in this Paragraph are provided in exchange for
valuable consideration provided in this Agreement.

 

18.                                 The
United States will file a Notice of Intervention with the executed copy of this
Agreement. Within five business days after payment of the Federal Settlement
Amount and the Medicaid State Settlement Amount, the United States and the
Relators will file Stipulations of Dismissal with Prejudice of the Civil
Actions defense, pursuant to the terms of this Agreement.

 

17

 

19.                                 Except
as expressly provided to the contrary in this Agreement, each Party shall bear
its own legal and other costs incurred in connection with this matter,
including the preparation and performance of this Agreement.

 

20.                                 Cephalon
represents that this Agreement is freely and voluntarily entered into without any
degree of duress or compulsion whatsoever.

 

21.                                 Relators
represent that this Agreement is freely and voluntarily entered into without
any degree of duress or compulsion whatsoever.

 

22.                                 This
Agreement is governed by the laws of the United States. The Parties agree that
the exclusive jurisdiction and venue for any dispute arising between and among
the Parties under this Agreement (including Relators’ claims under 31 U.S.C. §
3730(d) for expenses, attorneys’ fees, and costs) shall be the United
States District Court for the Eastern District of Pennsylvania, except that
disputes arising under the CIA shall be resolved exclusively through the
dispute resolution provisions set forth in the CIA.

 

23.                                 For
purposes of construction, 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.

 

24.                                 This
Agreement constitutes the complete agreement between the Parties. This
Agreement may not be amended except by written consent of the Parties.

 

25.                                 The
individuals signing this Agreement on behalf of Cephalon represent and warrant
that they are authorized by Cephalon to execute this Agreement. The individual(s) signing
this Agreement on behalf of Relators represent and warrant that they are
authorized by that Relator to execute this Agreement. The United States 

 

18

 

signatories represent that they are signing this Agreement in their
official capacities and that they are authorized to execute this Agreement.

 

26.                                 This
Agreement may be executed in counterparts, each of which constitutes an
original and all of which constitute one and the same Agreement.

 

27.                                 This
Agreement is binding on Cephalon’s successors, transferees, heirs, and assigns.

 

28.                                 This
Agreement is binding on Relators’ successors, transferees, heirs, and assigns.
29. All Parties consent to the United States’ disclosure of this Agreement, and
information about this Agreement, to the public.

 

29.                                 This
Agreement is effective on the date of signature of the last signatory to the
Agreement (the “Effective Date”). Facsimiles of signatures shall constitute
acceptable binding signatures for purposes of this Agreement.

 

19

 

	
   

  	
  UNITED STATES OF AMERICA

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Laurie Magid

  	
  Dated: September 29, 2008

  
	
   

  	
  LAURIE MAGID

  	
   

  
	
   

  	
  Acting United States Attorney

  United States Attorney’s Office

  Eastern District of Pennsylvania

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Virginia Gibson

  	
  Dated: September 29, 2008

  
	
   

  	
  VIRGINIA GIBSON

  	
   

  
	
   

  	
  Chief, Civil Division

  United States Attorney’s Office

  Eastern District of Pennsylvania

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Marilyn May

  	
  Dated: September 29, 2008

  
	
   

  	
  MARILYN MAY

  	
   

  
	
   

  	
  Assistant U.S. Attorney

  United States Attorney’s Office

  Eastern District of Pennsylvania

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Patricia Davis

  	
  Dated: September 29, 2008

  
	
   

  	
  PATRICIA DAVIS

  	
   

  
	
   

  	
  Trial Attorney

  Commercial Litigation Branch

  Civil Division

  United States Department of Justice

  	
   

  

 

20

 

	
  By:

  	
  /s/ Gregory E. Demske

  	
  Dated: September 29, 2008

  
	
   

  	
  GREGORY E. DEMSKE

  	
   

  
	
   

  	
  Assistant Inspector General for Legal Affairs

  Office of Counsel to the Inspector General

  Office of Inspector General

  U.S. Department of Health and Human Services

  	
   

  

 

21

 

	
  By:

  	
  /s/ Laurel C. Gillespe

  	
  Dated: September 29, 2008

  
	
   

  	
  LAUREL C. GILLESPE

  	
   

  
	
   

  	
  Deputy General Counsel TRICARE Management

  Activity United States Department of Defense

  	
   

  

 

22

 

	
  By:

  	
  /s/ Lorraine E. Dettman

  	
  Dated: September 29, 2008

  
	
   

  	
  LORRAINE E. DETTMAN

  	
   

  
	
   

  	
  Assistant Director for Insurance Services

  Programs United States Office of Personnel

  Management

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ J. David Cope

  	
  Dated: September 29, 2008

  
	
   

  	
  J. DAVID COPE

  	
   

  
	
   

  	
  Assistant Inspector General for Legal Affairs

  United States Office of Personnel Management

  	
   

  

 

23

 

	
   

  	
  CEPHALON, INC

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Gerald J. Pappert

  	
  Dated: September 29, 2008

  
	
   

  	
  GERALD J. PAPPERT, ESQ.

  	
   

  
	
   

  	
  Executive Vice President and General Counsel

  Cephalon, Inc.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ J. Sedwick Sollers

  	
  Dated: September 25, 2008

  
	
   

  	
  J. SEDWICK SOLLERS, III, ESQ.

  	
   

  
	
   

  	
  King & Spalding, LLP

  Counsel to Cephalon, Inc.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Mark A. Jensen

  	
  Dated: September 25, 2008

  
	
   

  	
  MARK A. JENSEN, ESQ.

  	
   

  
	
   

  	
  King & Spalding, LLP

  Counsel to Cephalon, Inc.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Eric Sitarchuk

  	
  Dated: September 29, 2008

  
	
   

  	
  ERIC SITARCHUK, ESQ.

  	
   

  
	
   

  	
  MORGAN, LEWIS & BOCKIUS, LLP

  Counsel to Cephalon, Inc.

  	
   

  

 

24

 

	
   

  	
  RELATOR

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Lucia Paccione

  	
  Dated: September 29, 2008

  
	
   

  	
  LUCIA PACCIONE

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Brian P. Kenney

  	
  Dated: September 29, 2008

  
	
   

  	
  BRIAN P. KENNEY

  	
   

  
	
   

  	
  Kenney, Lennon & Egan

  Counsel for Lucia Paccione

  	
   

  

 

25

 

	
   

  	
  RELATOR

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Joseph
  Piacentile

  	
  Dated: September 29, 2008

  
	
   

  	
  JOSEPH
  PIACENTILE

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Kirk E.
  Chapman

  	
  Dated: September 29, 2008

  
	
   

  	
  KIRK E.
  CHAPMAN

  	
   

  
	
   

  	
  Milberg
  Weiss Bershad & Shulman LLP

  	
   

  
	
   

  	
  Counsel for Joseph Piacentile

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ David
  Stone

  	
  Dated: September 29, 2008

  
	
   

  	
  DAVID STONE

  	
   

  
	
   

  	
  Boies,
  Schiller and Flexner, LLP Counsel for

  	
   

  
	
   

  	
  Joseph
  Piacentile

  	
   

  

 

26

 

	
   

  	
  RELATOR

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Bruce
  Boise

  	
  Dated: September 29, 2008

  
	
   

  	
  BRUCE BOISE

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Peter W.
  Chatfield

  	
  Dated: September 29, 2008

  
	
   

  	
  PETER W.
  CHATFIELD

  	
   

  
	
   

  	
  Philips &
  Cohen LLP

  	
   

  
	
   

  	
  Counsel for Bruce Boise

  	
   

  

 

27

 

	
   

  	
  RELATOR

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Michael
  Makalusky

  	
  Dated: September 29, 2008

  
	
   

  	
  MICHAEL
  MAKALUSKY

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Frederic
  Ellis

  	
  Dated: September 29, 2008

  
	
   

  	
  FREDERIC
  ELLIS

  	
   

  
	
   

  	
  Ellis &
  Rapacki LLP

  	
   

  
	
   

  	
  Counsel for
  Michael Makalusky

  	
   

  

 

28

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