DEF 14A 1 a2197696zdef14a.htm DEF 14A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )

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Cephalon, Inc.
(Name of Registrant as Specified In Its Charter)


(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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April 1, 2010

Dear Cephalon Stockholder:

It is my pleasure to invite you to Cephalon's 2010 Annual Meeting of Stockholders. We will hold the meeting on Thursday, May 20, 2010 at 8:30 a.m., Eastern Daylight time, at our corporate headquarters located at 41 Moores Road, Frazer, PA 19355.

During the Annual Meeting, we will discuss each item of business described in the Notice of Annual Meeting of Stockholders and the Proxy Statement that follows, update you on important developments in our business, and respond to any questions that you may have about the Company.

We have elected to take advantage of the Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders on the Internet. These rules allow us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting.

Your vote is important. Whether or not you plan to attend the Annual Meeting, I hope that you will vote as soon as possible. Please review the instructions for each of your voting options described in the Notice of Internet Availability of Proxy Materials.

On behalf of your Board of Directors, thank you for your continued support and interest in Cephalon.



		Very truly yours,

		Frank Baldino, Jr., Ph.D. Chairman and Chief Executive Officer

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CEPHALON, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 20, 2010

TO THE STOCKHOLDERS OF CEPHALON, INC.:

The Annual Meeting of Stockholders of Cephalon, Inc. will be held at the Company's headquarters at 41 Moores Road, Frazer, PA 19355, on Thursday, May 20, 2010, at 8:30 a.m., Eastern Daylight time. At the meeting, the holders of the Company's shares of outstanding common stock will act upon the following matters:

1.: To elect the eight directors named in the attached Proxy Statement;
2.: To approve an amendment to the Company's 2004 Equity Compensation Plan increasing the number of shares of common stock authorized for issuance under the Plan;
3.: To approve the Company's 2010 Employee Stock Purchase Program;
4.: To ratify the appointment of PricewaterhouseCoopers LLP as its independent registered public accountants for the year ending December 31, 2010; and
5.: To transact such other business as may properly come before the Annual Meeting or any postponements or adjournments thereof.

All stockholders of record as of the close of business on March 25, 2010 (the "Record Date") are entitled to notice of the Annual Meeting and to vote at the Annual Meeting and any postponements or adjournments thereof. A list of stockholders of the Company entitled to vote at the Annual Meeting will be available for inspection by any stockholder at the Annual Meeting and during normal business hours at the Company's corporate offices during the 10-day period immediately prior to the date of the Annual Meeting.


		By Order of the Board of Directors,
		GERALD J. PAPPERT Secretary

Frazer, Pennsylvania
April 1, 2010

EACH STOCKHOLDER IS URGED TO VOTE VIA THE INTERNET, BY TELEPHONE OR,
IF YOU HAVE RECEIVED A PRINTED SET OF PROXY MATERIALS, BY COMPLETING,
SIGNING AND RETURNING THE PROXY CARD IN THE ENVELOPE PROVIDED,
IN EACH CASE IN THE MANNER DESCRIBED IN THE NOTICE OF INTERNET
AVAILABILITY OF PROXY MATERIALS. IF A STOCKHOLDER DECIDES
TO ATTEND THE MEETING, HE OR SHE MAY, IF SO DESIRED,
REVOKE THE PROXY AND VOTE THE SHARES IN PERSON.

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About the Meeting		1
	What is the purpose of the Annual Meeting?	1
	Who is entitled to vote at the meeting?	1
	What are the voting rights of the holders of Cephalon common stock?	1
	Why did I receive in the mail a one-page Notice of Internet Availability of Proxy Material instead of a full set of printed proxy material?	1
	How can I get electronic access to the proxy material?	2
	Who can attend the meeting?	2
	What constitutes a quorum?	2
	How do I vote my shares?	2
	Can I change my vote after I have submitted my proxy?	2
	How do I vote my 401(k) shares?	3
	What are the Board's recommendations?	3
	What vote is required to approve each Proposal?	3
Governance of the Company		4
	Who are the current members of the Board?	4
	How often did the Board meet during 2009?	4
	What is the role of the Board's committees?	4
	What is the Board's leadership structure?	5
	What is the Board's role in risk oversight of the Company?	6
	How does the Board select nominees for the Board?	6
	How does the Board determine which directors are considered independent?	7
	What processes and procedures does the Compensation Committee follow in considering and determining executive officer and director compensation?	8
	How are directors compensated?	9
	How do stockholders communicate with the Board?	10
	Does the Company have a "Code of Ethics"?	10
	Does the Company have a policy and procedure related to the review, approval or ratification of transactions with related parties?	10
	Does the Company have a mandatory retirement age for directors?	10
	Does the Company have a Pre-Approval Policy regarding its Independent Registered Public Accounting Firm services?	11
	How much did the Company pay to its Independent Registered Public Accountants for non-audit services?	11
	Where can I find more information about the corporate governance practices of the Company?	11
Report of the Audit Committee		12
Compensation of Executive Officers and Directors		14
	Compensation Discussion and Analysis	14
	Report of the Stock Option and Compensation Committee	30
	Compensation Committee Interlocks and Insider Participation	30
	Executive Compensation Tables	31
	2009 Potential Payments Upon Termination or Change in Control	37
	2009 Non-Employee Director Compensation Table	40
Stock Ownership and Performance		42
	Security Ownership of Certain Beneficial Owners and Management	42
	Section 16(a) Beneficial Ownership Reporting Compliance	45

		Page

Proposal 1—Election of Directors			46
Proposal 2—Approval of Amendment to the 2004 Equity Compensation Plan Increasing the Number of Shares Authorized for Issuance			52
Proposal 3—Approval of the Company's 2010 Employee Stock Purchase Plan			60
Proposal 4—Ratification of Appointment of PricewaterhouseCoopers LLP as Independent Registered Public Accountants for the Year Ending December 31, 2010			64
Other Matters			65
Additional Information			65

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CEPHALON, INC.
41 Moores Road
Frazer, PA 19355

PROXY STATEMENT

This Proxy Statement (the "Proxy Statement") is furnished in connection with the solicitation of proxies by the Board of Directors (the "Board") of Cephalon, Inc. (the "Company" or "Cephalon"), for use at the 2010 Annual Meeting of Stockholders (the "Annual Meeting") to be held at 41 Moores Road, Frazer, Pennsylvania 19355 on Thursday, May 20, 2010, at 8:30 a.m., Eastern Daylight time, and any postponements or adjournments thereof. This Proxy Statement and the accompanying proxy card are being made available via the internet or distributed to stockholders on or about April 1, 2010.

ABOUT THE MEETING

What is the purpose of the Annual Meeting?

At our Annual Meeting, stockholders will act upon the matters outlined in the Notice of Annual Meeting, including the election of the eight directors named in this Proxy Statement, the approval of an amendment to the Company's 2004 Equity Compensation Plan, the approval of the Company's 2010 Employee Stock Purchase Plan and the ratification of the appointment of PricewaterhouseCoopers LLP as its independent registered public accountants for the year ending December 31, 2010. In addition, management will report on the performance of the Company and respond to questions from stockholders.

Who is entitled to vote at the meeting?

Only stockholders of record at the close of business on March 25, 2010, the Record Date for the Annual Meeting, are entitled to receive notice of and to participate in the Annual Meeting. If you were a stockholder of record on that date, you will be entitled to vote all of the shares that you held on that date at the meeting, or any postponements or adjournments of the meeting.

What are the voting rights of the holders of Cephalon common stock?

Each outstanding share of Cephalon common stock will be entitled to one vote on each matter considered at the meeting.

Why did I receive in the mail a one-page Notice of Internet Availability of Proxy Material instead of a full set of printed proxy materials?

Pursuant to rules adopted by the Securities and Exchange Commission (the "SEC"), we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Material (the "Notice") to our stockholders of record and beneficial owners. All stockholders have the ability to access the proxy material on a website referred to in the Notice or request to receive a printed set of the proxy material. Instructions on how to access the proxy material over the Internet or to request a printed copy may be found in the Notice. In addition, stockholders may request to receive proxy material in printed form by mail or electronically by email on an ongoing basis.

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How can I get electronic access to the proxy materials?

The Notice provides you with instructions regarding how to:

•: view our proxy material for the Annual Meeting on the Internet; and
•: instruct us to send our future proxy material to you electronically by email.

Choosing to receive your future proxy material by email will save us the cost of printing and mailing documents to you and will reduce the impact of our Annual Meeting on the environment. If you choose to receive future proxy material by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy material by email will remain in effect until you terminate it.

Who can attend the meeting?

Subject to space availability, all stockholders as of the Record Date, or their duly appointed proxies, may attend the meeting. If you attend, please note that you may be asked to present valid picture identification, such as a driver's license or passport.

Please also note that if you hold your shares in "street name" (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the Record Date and check in at the registration desk at the meeting.

What constitutes a quorum?

The presence at the meeting, in person or by proxy, of the holders of a majority of the aggregate voting power of the common stock outstanding on the Record Date will constitute a quorum, permitting the meeting to conduct its business. As of the Record Date, 75,167,714 shares of common stock, representing the same number of votes, were outstanding. Thus, the presence of the holders of common stock representing at least 37,583,858 votes will be required to establish a quorum.

Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of votes considered to be present at the meeting.

How do I vote my shares?

If you are a registered stockholder (that is, if you hold your stock in certificate form), you may vote by telephone, or electronically through the Internet, by following the instructions provided in the Notice. The deadline for voting by telephone or electronically is 11:59 p.m., Eastern Daylight Time, on May 19, 2010. If your shares are held in "street name," please contact your broker or nominee to determine whether you will be able to vote by telephone or electronically.

If you have received a printed set of proxy materials, and you complete and properly sign the proxy card and return it to the Company, it will be voted as you direct. If you are a registered stockholder and attend the meeting, you may deliver your completed proxy card in person. "Street name" stockholders who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares.

Can I change my vote after I have submitted my proxy?

Yes. Even after you have submitted your proxy, you may revoke or change your vote at any time before the proxy is exercised by filing with the Secretary of the Company either a notice of revocation or a duly executed proxy bearing a later date (or by submitting a new proxy via the Internet or by telephone). If you attend the meeting in person, you may request that the powers of the proxy holders

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be suspended with respect to your shares, although attendance at the meeting will not by itself revoke a previously granted proxy.

How do I vote my 401(k) shares?

If you participate in the Cephalon, Inc. 401(k) Profit Sharing Plan (the "401(k) Plan"), you may give voting instructions as to the number of shares of Cephalon common stock equivalent to the interest in Cephalon common stock credited to your account as of the Record Date. You may provide voting instructions to The Vanguard Group online, by telephone or, if you have received a printed set of proxy materials, by completing and returning the proxy card included therein. The trustee will vote your shares in accordance with your duly executed instructions received by May 19, 2010. If you do not send instructions, the trustee will vote the number of shares equal to the share equivalents credited to your account in the same proportion that it votes shares for which it did receive timely instructions.

What are the Board's recommendations?

Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board. The Board's recommendation is set forth together with the description of each Proposal in this Proxy Statement. In summary, the Board recommends a vote:

•: FOR election of all director nominees (see Proposal 1);
•: FOR the approval of an amendment to the Company's 2004 Equity Compensation Plan (the "2004 Plan") increasing the number of shares authorized for issuance (see Proposal 2);
•: FOR the approval of the Company's 2010 Employee Stock Purchase Plan (see Proposal 3); and
•: FOR the ratification of appointment of PricewaterhouseCoopers, LLP ("PwC") as Independent Registered Public Accountants for the year ending December 31, 2010 (see Proposal 4).

With respect to any other matters that properly come before the meeting, the proxy holders will vote as recommended by the Board or, if no recommendation is given, in their own discretion.

What vote is required to approve each Proposal?

Proposal 1: In an uncontested election of directors, the affirmative vote of a majority of the shares present in person or by proxy at the Annual Meeting is required for the election of directors. A nominee for director shall be elected if the votes cast for the nominee's election exceed the votes cast against the nominees' election. Abstentions and broker non-votes shall not be counted as a vote cast either for or against a nominee's election.

Proposals 2, 3 and 4: The affirmative vote of the majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote on these matters is required to approve each matter. A properly executed proxy marked "Abstain" with respect to a matter will have the effect of a vote against such matter. Broker non-votes are not considered shares entitled to vote and therefore will not be taken into account in determining the outcome of the vote.

Your vote is important. Regardless of whether or not you plan to attend the Annual Meeting, please submit your proxy via the Internet or by telephone or, if you have received a printed set of proxy materials, complete, sign and return the proxy card included therein for delivery prior to May 20, 2010. If you plan to attend the Annual Meeting to vote in person and your shares are registered with the Company's transfer agent in the name of a broker or bank, you must secure a proxy card from the broker or bank assigning voting rights to you for your shares.

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GOVERNANCE OF THE COMPANY

Who are the current members of the Board?

The members of the Board of Directors on the date of this Proxy Statement, and the standing committees of the Board on which they serve, are identified below:

Director	Audit Committee	Corporate Governance and Nominating Committee	Stock Option and Compensation Committee

Frank Baldino, Jr., Ph.D.
William P. Egan†	*
Martyn D. Greenacre		**	*
Vaughn M. Kailian		*	*
Kevin E. Moley	*
Charles A. Sanders, M.D.			**
Gail R. Wilensky, Ph.D.		*
Dennis L. Winger	**

*: Member
**: Chair
†: Presiding Director

Each of the above directors, with the exception of Dr. Baldino, is considered independent. See "How does the Board determine which directors are considered independent?" on page 7.

How often did the Board meet during 2009?

The Board of Directors of the Company met 16 times during the year ended December 31, 2009. The Board's standing Audit, Corporate Governance and Nominating and Stock Option and Compensation Committees met nine, three and six times, respectively, during this same period. Each director attended at least 75% of the total number of meetings of the Board and the Board committee(s) on which he or she served. Under the Company's Corporate Governance Guidelines (the "Guidelines"), each director is expected to regularly attend meetings of the Board and his or her respective committees, with the understanding that on occasion a director may be unable to attend a meeting.

Under a policy adopted by the Corporate Governance and Nominating Committee in 2004, all directors are expected to make every reasonable effort to attend the Annual Meeting of Stockholders. All of the directors of the Company, with the exception of two, attended the 2009 Annual Meeting of Stockholders and we expect that all of the nominees for election will be present for the 2010 Annual Meeting on May 20, 2010.

What is the role of the Board's committees?

The bylaws of the Company provide that the Board may designate committees by resolution, each of which shall consist of one or more directors. The Board presently has standing Audit, Corporate Governance and Nominating, and Stock Option and Compensation Committees.

Audit Committee. The functions of the Audit Committee are described in detail below under the heading "Report of the Audit Committee." The charter of the Audit Committee is available on the Investors section of the Company's website (www.cephalon.com) by selecting "Corporate Governance" and then "Board Committees/Charters." The Audit Committee met nine times during 2009.

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Mr. Winger has chaired the Audit Committee since June 2003. Mr. Winger is qualified as an audit committee financial expert within the meaning of SEC regulations. In addition, the Board has determined, in accordance with the listing standards of the NASDAQ Global Select Market ("NASDAQ"), that Mr. Winger meets the standards of financial sophistication set forth therein and that each other member of the Audit Committee is able to read and understand fundamental financial statements.

All of the members of the Audit Committee are independent within the meaning of SEC regulations, Rule 4200(a) (15) of the NASDAQ listing standards and the Company's Guidelines.

Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee (the "Nominating Committee") is responsible for developing and implementing policies and practices relating to corporate governance, including reviewing and monitoring implementation of the Company's Guidelines. In addition, the Nominating Committee develops and reviews background information on candidates for the Board and makes recommendations to the Board regarding such candidates. The Nominating Committee also prepares and supervises the Board's review of director independence and the Board and its committees' performance evaluations. The charter of the Nominating Committee is available on the Investors section of the Company's website (www.cephalon.com) by selecting "Corporate Governance" and then "Board Committees/Charters." The Nominating Committee met three times during 2009. All of the members of the Nominating Committee are independent within the meaning of SEC regulations, the NASDAQ listing standards and the Company's Guidelines.

Stock Option and Compensation Committee. The Stock Option and Compensation Committee (the "Compensation Committee") annually reviews the performance and total compensation package for the Company's executive officers, including the Chief Executive Officer; considers the modification of existing compensation and employee benefit programs, and the adoption of new plans; administers the terms and provisions of the Company's equity compensation plans; and reviews the compensation and benefits of non-employee directors. The charter of the Compensation Committee is available on the Investors section of the Company's website (www.cephalon.com) by selecting "Corporate Governance" and then "Board Committees/Charters." The Compensation Committee met six times during 2009. All of the members of the Compensation Committee are independent within the meaning of SEC regulations, the NASDAQ listing standards and the Company's Guidelines.

What is the Board's leadership structure?

Dr. Baldino serves as Chairman of the Board and Chief Executive Officer of the Company. In addition, since 2003, the Company has had a Presiding Director, whose primary responsibility is to preside over the executive sessions of the Board in which the Chairman of the Board (if a member of management), management directors and other members of management do not participate. The Board meets in executive session at all regularly scheduled meetings. The Presiding Director also reviews and approves meeting schedules, Board agendas and related information prior to distribution to the Board, and performs such other duties that the Board may from time to time delegate to assist the Board in the fulfillment of its responsibilities. The independent directors of the Board have designated Mr. Egan to serve as Presiding Director in this capacity until Cephalon's 2010 Annual Meeting of Stockholders. The Board believes that this structure is appropriate for the Company because it allows one person to speak for and lead the Company and the Board, while also providing for effective oversight by an independent board through an independent Presiding Director. The Board believes that, as founder of the Company and Chief Executive Officer, Dr. Baldino is in the best position to focus directors' attention on the issues of greatest importance to the Company and its stockholders. At the same time, through frequent meetings of independent directors in executive session, the Board believes that it is able to minimize any conflicts that may result from combining the roles of Chief Executive Officer and Chairman.

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What is the Board's role in risk oversight of the Company?

The Board is active in risk oversight of the Company and discusses the material risks affecting the Company, the biotechnology industry and the general business environment on a regular basis. Each year, the Board approves the Company's annual budget and reviews with management the Company's long-range strategic plans. The Board actively provides guidance regarding the Company's short-term and long-term strategic plans and also analyzes the potential risks and benefits inherent in any such plans. The Board also regularly meets in executive session led by Mr. Egan as Presiding Director to discuss material risks in which management and the Chairman of the Board do not participate. In addition, the Audit Committee oversees the Company's Internal Audit and Compliance functions and receives regular reports regarding those functions' actions. The Stock Option and Compensation Committee and the Corporate Governance and Nominating Committee also regularly meet to discuss short-term and long-term strategic plans and provide oversight for risks relating to each committee's areas of responsibility.

How does the Board select nominees for the Board?

The Nominating Committee considers candidates for Board membership suggested by its members and other Board members, as well as management and stockholders. The Nominating Committee also retains third-party executive search firms to identify candidates from time to time. A stockholder who wishes to recommend a prospective nominee for the Board should notify the Company's Secretary or any member of the Nominating Committee in writing and provide the information set forth in Section 2.10 of the Company's bylaws. The Nominating Committee also will consider whether to nominate any person nominated by a stockholder pursuant to the provisions of the Company's bylaws relating to stockholder nominations as described in "Additional Information—Advance Notice Provisions," on page 65 of this Proxy Statement. The Nominating Committee will apply the same standards in considering a person nominated by a stockholder as it applies to other candidates.

Once the Nominating Committee has identified a prospective nominee, the Nominating Committee makes an initial determination as to whether to conduct a full evaluation of the candidate. This initial determination is based on whatever information is provided to the Nominating Committee with the recommendation of the prospective candidate, as well as the Nominating Committee's own knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others. The preliminary determination is based primarily on the need for additional Board members to fill vacancies or expand the size of the Board and the likelihood that the prospective nominee can satisfy the evaluation factors described below. If the Nominating Committee determines, in consultation with the Chairman of the Board and other Board members as appropriate, that additional consideration is warranted, it may request that a third-party search firm gather additional information about the prospective nominee's background and experience and report its findings to the Nominating Committee. The Nominating Committee then evaluates the prospective nominee against the standards and qualifications set out in the Company's Guidelines, including:

•: the ability of the prospective nominee to represent the best interests of all of the stockholders of the Company;
•: the prospective nominee's standards of integrity, ethics, commitment and independence of thought and judgment;
•: the prospective nominee's record of professional accomplishment in his or her chosen field;
•: the prospective nominee's independence from a material personal, financial or professional interest in any present or potential competitor of the Company;

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•: the prospective nominee's ability to dedicate sufficient time, energy and attention to the diligent performance of his or her duties on the Board and its Committees, including the prospective nominee's service on other public company boards; and
•: the extent to which the prospective nominee contributes to the diverse range of talent, skill and expertise currently present on the Board.

The Nominating Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. In connection with this evaluation, the Nominating Committee determines whether to interview the prospective nominee, and if warranted, one or more members of the Nominating Committee, and others as appropriate, interview prospective nominees in person or by telephone. After completing this evaluation and interview, the Nominating Committee makes a recommendation to the full Board as to the persons who should be nominated by the Board, and the Board determines the nominees after considering the recommendation and report of the Nominating Committee.

As noted above, the Company's Guidelines explicitly consider diversity of personal and professional experience and educational background when evaluating a nominee's potential contribution to the Board. The Nominating Committee and the Board implement the Guidelines (and consideration of diversity set forth therein) as part of the annual evaluation of director nominees.

How does the Board determine which directors are considered independent?

Pursuant to the Company's Guidelines, the Nominating Committee is charged with undertaking an annual review of director independence. Under the Guidelines, at least a majority of the directors must satisfy the "independence" requirements of the Securities Exchange Act of 1934 and NASDAQ, and all members of the Audit Committee must meet the specific independence requirements for audit committee members under the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") and NASDAQ regulations. A copy of these independence standards is available on the Investors section of the Company's website (www.cephalon.com) by selecting "Corporate Governance" and then "Director Independence Standards."

In December 2009, the Nominating Committee undertook its review of director independence. During this review, the Nominating Committee considered whether any transactions and relationships existed between each director or any member of his or her immediate family and the Company and its subsidiaries and affiliates. The Nominating Committee also examined whether any transactions or relationships were present between directors and members of the Company's senior management. The purpose of this review was to determine whether any such transactions or relationships exist and, if so, whether any such transactions or relationships were inconsistent with a determination that the director is independent.

As a result of the review conducted by the Nominating Committee, the Board affirmatively determined that all of the directors nominated for election at the Annual Meeting are independent, with the exception of Dr. Baldino. Dr. Baldino is considered an inside director because of his employment as an executive officer of the Company.

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What processes and procedures does the Compensation Committee follow in considering and determining executive officer and director compensation?

Under its charter, the Compensation Committee has the authority to review and determine executive officer and non-employee director compensation. Specifically, the charter provides that the Compensation Committee shall:

•: review and approve the corporate goals and objectives relevant to the compensation of the Company's executive officers;
•: evaluate the CEO's performance in light of these goals and objectives and, based on this evaluation, set the CEO's compensation level and components;
•: review and approve the compensation level and components for the other executive officers of the Company;
•: approve any employment agreements, consulting arrangements, severance or retirement arrangements and/or change-in-control agreements or provisions covering any current or former executive officer of the Company; and
•: periodically review and make recommendations to the Board regarding director compensation.

The Compensation Committee has the authority to delegate all or a portion of its duties and authority related to executive compensation to subcommittees comprised of members of the Board. In 2009, the Compensation Committee did not exercise this right to delegate authority.

The Compensation Committee has retained Mercer (US) Inc. ("Mercer") to assist in fulfilling the duties noted above. Mercer provides information, analyses, and advice regarding executive and director compensation. The Company also retains Mercer and its related entities to perform other services. To ensure that Mercer's executive compensation advice to the Compensation Committee remains objective and is not influenced by the Company's management, the Compensation Committee has established procedures including: a direct reporting relationship of the individual Mercer consultant providing executive compensation consulting services to the Compensation Committee; a provision in the Compensation Committee's engagement letter with Mercer specifying the information, data, and recommendations that can and cannot be shared with management; an annual update to the Compensation Committee on Mercer's financial relationship with the Company, including a summary of the work performed for the Company during the preceding 12 months; and written assurances from Mercer that, within the Mercer organization, the Mercer consultant who performs executive compensation services for the Company has a reporting relationship and compensation determined separately from Mercer's other lines of business and from its other work for the Company. Notwithstanding the above, with the consent of the chairman of the Compensation Committee, Mercer may, from time to time, contact the Company's executive officers for information necessary to fulfill its executive compensation-related duties and may make reports and presentations to and on behalf of the Compensation Committee that the executive officers also receive.

At the Compensation Committee's direction, Mercer provided the following services for the Compensation Committee during 2009:

•: evaluated the competitive positioning of the Company's named executive officers' base salaries, annual and long-term incentive compensation relative to its Peer Group (as defined on page 17) and the broader industry;
•: advised the Compensation Committee on Chief Executive Officer and other named executive officer target award levels within the annual and long-term incentive program and, as needed, on actual compensation actions;

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•: assessed the alignment of Company compensation levels relative to performance of the Company against its Peer Group and relative to the Company's articulated compensation philosophy;
•: provided ongoing advice as needed on the design of the Company's annual and long-term incentive plans;
•: briefed the Compensation Committee on executive compensation trends among the Company's Peer Group and broader industry;
•: advised the Compensation Committee as requested on the performance measures and performance targets for the Company's management incentive compensation program;
•: evaluated the impact of the Company's equity programs on annual share use, run rate and total dilution, and advised the Compensation Committee on a recommended maximum share limit for use for 2009; and
•: assisted with the preparation of the Compensation Discussion and Analysis section contained in this Proxy Statement.

In the course of conducting its activities, Mercer attended one meeting of the Compensation Committee in 2009 and presented its findings and recommendations for discussion.

In addition to the executive compensation services noted above, Mercer and its affiliates also provided other services to the Company in 2009. The members of the Mercer consulting team giving advice to the Compensation Committee did not provide any other service to the Company. The Company retained other Mercer consultants for services in the U.S. and internationally. While the Compensation Committee did not pre-approve these other services, it relied on the Committee's internal procedures noted above as well as Mercer's internal guidelines and practices to guard against conflicts and ensure the objectivity of their advice. The Compensation Committee believes that the services Mercer provided to the Company did not impact the advice Mercer provided to the Committee on executive compensation matters. The fees paid for Mercer's services in 2009 were as follows:

	2009

Executive Compensation Services	$	71,107
Non-Executive Compensation Services(1)		318,957

TOTAL	$	390,064

(1): Non-executive compensation services include compensation surveys, primarily outside the U.S., and brokerage services provided by Marsh USA Inc., an affiliate of Mercer, related to the Company's liability insurance policies.

All of the decisions with respect to determining the amount or form of executive and director compensation under the Company's executive and director compensation programs are made by the Compensation Committee alone and may reflect factors and considerations other than the information and advice provided by Mercer.

How are directors compensated?

The Company compensates its non-employee directors through a mix of base cash compensation and stock option grants. For a more complete description of our compensation program for non-executive directors, including details of amounts earned in 2009, please see the "2009 Non-Employee Director Compensation Table" beginning on page 40 of this Proxy Statement.

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How do stockholders communicate with the Board?

Stockholders may communicate with the Company's Board by sending their communications to Cephalon, Inc. Board of Directors, c/o Secretary, 41 Moores Road, Frazer, PA 19355. The Nominating Committee has approved a process for handling letters received by the Company and addressed to independent members of the Board. Under that process, the Secretary reviews all such correspondence and forwards to the Board or its committees a summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board or its committees, or that he otherwise determines requires their attention. Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Company's internal audit department and handled in accordance with procedures established by the Audit Committee with respect to such matters.

Does the Company have a "Code of Ethics"?

The Company has implemented its Standards of Global Business Practices that is applicable to all employees of the Company. The Standards of Global Business Practices also covers financial and non-financial business practices and procedures and applies to the Company's Chief Executive Officer, Chief Financial Officer and certain other employees of the Company responsible for accounting and financial reporting. The Standards of Global Business Practices is available on the Investors section of the Company's website (www.cephalon.com) by selecting "Corporate Governance" and then "Standards of Global Business Practices." The Company intends to post amendments to or waivers from its Standards of Global Business Practices (to the extent applicable to the Company's principal executive officer, principal financial officer, or principal accounting officer) at this location on its website.

Does the Company have a policy and procedure related to the review, approval or ratification of transactions with related parties?

Yes. Under its charter, the Audit Committee is responsible for reviewing and approving all related party transactions that would require disclosure under SEC rules. Under these rules and the Company's written policy, a "related party transaction" is a transaction in which the Company participates and in which a related party has a direct or indirect material financial interest, other than transactions involving less than $120,000 in any calendar year. In determining whether to approve or ratify a related party transaction, the Audit Committee will take into account whether the transaction is on terms no less favorable to the Company than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party's interest in the transaction, as well as any other factors the Audit Committee deems appropriate. During 2009, there were no related party transactions that were required to be approved by the Audit Committee or disclosed in this Proxy Statement.

Does the Company have a mandatory retirement age for directors?

No. The Nominating Committee conducts a rigorous evaluation of the Board and its committees that it believes provides a sound basis for determining if each director continues to be an active and positive contributor to the Board. Directors who do not actively and positively contribute to the Board, regardless of age, will not be nominated for re-election at the Annual Meeting.

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Does the Company have a Pre-Approval Policy regarding services of its Independent Registered Public Accounting Firm?

Under Sarbanes-Oxley, the Audit Committee is responsible for the appointment, compensation and oversight of the work of the Company's Independent Registered Public Accounting Firm. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent registered public accounting firm in order to assure that the provision of such services does not impair the auditor's independence from the Company. To implement these provisions of Sarbanes-Oxley, the SEC has issued rules specifying the types of services that an independent registered public accounting firm may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent registered public accounting firm. Accordingly, the Audit Committee has adopted, and the Board has ratified, the Audit and Non-Audit Pre-Approval Policy (the "Pre-Approved Policy") that sets forth the procedures and conditions pursuant to which services proposed to be performed by the independent registered public accounting firm may be pre-approved.

Under the Pre-Approval Policy, the Audit Committee considers whether services performed by the independent registered public accounting firm are consistent with the SEC's rules on auditor independence. The Audit Committee also considers whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Company's business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Company's ability to manage or control risk or improve audit quality. All such factors are considered as a whole, and no one factor is necessarily determinative.

The Pre-Approval Policy provides for the annual pre-approval of specifically described categories of services (Audit, Audit Related, Tax and All Other) to be performed by the independent registered public accounting firm and an expected range of fees associated with each such category. The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifies a different period. If a proposed service has not been pre-approved as part of the annual pre-approval process, the Audit Committee must specifically pre-approve the service and its expected range of fees. The Pre-Approval Policy also delegates pre-approval authority to the Chair of the Audit Committee. There were no exceptions to the Pre-Approval Policy in 2009.

How much did the Company pay to its Independent Registered Public Accountants firm for non-audit services?

During 2009, the Company's independent registered public accounting firm, PwC, performed certain non-audit services for the Company. The Audit Committee has considered whether the provision of these non-audit services is compatible with maintaining PwC's independence. Please see "Proposal 4—Ratification of Appointment of PricewaterhouseCoopers LLP as its Independent Registered Public Accountants for the Year Ending December 31, 2010" beginning on page 64 of this Proxy Statement for further detail regarding aggregate fees billed to us by PwC.

Where can I find more information about the corporate governance practices of the Company?

Cephalon's corporate governance practices and policies are published on the Investors section of the Company's website (www.cephalon.com) by selecting "Corporate Governance."

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NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE FOLLOWING REPORTS OF THE AUDIT COMMITTEE AND THE COMPENSATION COMMITTEE SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee of the Company's Board of Directors is composed of three independent directors and operates under a written charter adopted by the Board that is designed to comply with rules adopted by NASDAQ and the SEC. A copy of the written charter is available on the Investors section of the Company's website (www.cephalon.com) by selecting "Corporate Governance" and then "Board Committees/Charters." The current members of the Audit Committee are Mr. Egan, Ambassador Moley and Mr. Winger (chair).

Management is responsible for the preparation, presentation and integrity of the Company's financial statements, accounting and financial reporting principles, internal controls and procedures designed to ensure compliance with accounting standards, applicable laws and regulations. The Company's independent registered public accountants are responsible for performing an independent audit of the Company's consolidated financial statements in accordance with the generally accepted auditing standards and issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these processes, including the selection of the Company's independent auditors.

The Audit Committee members are not professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management and the independent registered public accountant, nor can the Audit Committee certify that the independent accountant is "independent" under applicable rules. The Audit Committee serves in a Board-level oversight role, in which it provides advice, counsel and direction to management and the auditors on the basis of the information it receives, discussions with management and the auditors and the experience of the Audit Committee's members in business, financial and accounting matters.

In this context, the Audit Committee has met and held discussions with management and the independent auditors, including meetings with the independent accountants during which management was not present. Management represented to the Audit Committee that the Company's consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accountants. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by the statement on Auditing Standards No. 61, as amended, (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

The Company's independent registered public accountants also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accountants' communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent accountants that firm's independence.

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Based upon the Audit Committee's discussion with management and the independent registered public accountants and the Audit Committee's review of the representation of management and the report of the independent registered public accountants to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC.



		Respectfully submitted,
		Audit Committee: William P. Egan Kevin E. Moley Dennis L. Winger (chair)

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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE SUMMARY

Set forth below is the Compensation Discussion & Analysis ("CD&A"), which provides information regarding the executive officer compensation program for 2009 in place for the Company's Chairman and Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and the three most highly-compensated executive officers other than the CEO and CFO (together with the CEO and CFO, the "Named Executive Officers" or "NEOs"). For 2009, our NEOs were:

•: Frank Baldino, Jr., Ph.D., Chairman and Chief Executive Officer;
•: J. Kevin Buchi, Executive Vice President and Chief Financial Officer;
•: Lesley Russell Cooper, MB.Ch.B, MRCP, Executive Vice President, Worldwide Medical & Regulatory Operations;
•: Gerald J. Pappert, Executive Vice President, General Counsel and Secretary; and
•: Robert P. Roche, Jr., Executive Vice President, Worldwide Pharmaceutical Operations.

Cephalon is an international biopharmaceutical company dedicated to the discovery, development and commercialization of innovative products in four core therapeutic areas: central nervous system, pain, oncology and inflammatory disease. We face intense competition and rapid technological change in the pharmaceutical marketplace. Large and small companies, academic institutions, governmental agencies, and other public and private research organizations conduct research, seek patent protection and establish collaborative arrangements for product development in competition with us. It is imperative to our success and long-term viability that our business continues to be managed by highly experienced, focused and capable executives who possess the dedication to oversee our global organization on a day-to-day basis and have the vision to anticipate and respond to market developments. It is also important that we concentrate on retaining and developing the capabilities of our emerging leaders to ensure that we continue to have an appropriate depth of executive talent.

In 2009, we completed several transactions designed to build a portfolio of potential products targeted to treat inflammatory diseases: (i) acquired Arana Therapeutics Limited, an Australian company, whose lead domain antibody compound, CEP-37247, is in Phase II development for patients with certain inflammatory diseases; (ii) acquired an exclusive, worldwide license to the ImmuPharma plc investigational compound, LUPUZOR™, which is in Phase IIb development for the treatment of systemic lupus erythematosus; (iii) purchased an option to acquire privately-held Ception Therapeutics, Inc., whose lead humanized monoclonal antibody compound, reslizumab, is in Phase II development for eosinophilic asthma; and (iv) purchased an option to acquire privately-held BioAssets Development Corporation, which has an intellectual property estate around use of TNF inhibitors for sciatic pain in patients with intervertebral disk herniation, as well as other spinal disorders, which intellectual property we expect to utilize to develop CEP-37247 as a possible treatment of sciatica. For further discussion of the Company's accomplishments in 2009, please refer to the "Bonus Plan" portion of Section III in this CD&A.

A substantial portion of an executive's compensation incorporates performance criteria that support and reward achievement of our annual operating plan and long-term business goals. This CD&A includes information on how compensation decisions are made, the overall objectives of our compensation program, a description of the various components of compensation that we provide, and

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additional information pertinent to understanding our executive officer compensation program. The CD&A is organized into the following sections:

Section I: Governance

This section details our corporate governance policies relating to compensation decisions surrounding the executive officer compensation program. These policies provide a framework for the oversight of management by the Board of Directors.

Section II: Objectives of Our Compensation Program

This section details the purpose and intention of the executive officer compensation program, the guiding principle of which is pay-for-performance. Additionally, our competitive Peer Group is listed.

Section III: Discussion and Analysis of Our 2009 Compensation Program and Awards

In this section, an overview of the elements of the Company's executive officer compensation program is provided. Specifically, we detail the manner in which base pay, bonus targets and long-term incentives are established and how individual performance of our executive officers is assessed.

Section IV: Additional Information Regarding the Compensation Program

This section describes general information on other programs available to our executive officers, including certain perquisites, the deferred compensation program, executive severance agreements and the 401(k) profit sharing plan.

SECTION I: GOVERNANCE

The Compensation Committee consists of three independent members of the Board of Directors and has responsibility for reviewing and approving all compensation decisions for the NEOs. The Compensation Committee submits its decisions to the independent members of the Board for ratification. The Compensation Committee acts pursuant to a charter that has been approved by the Board. Our Human Resources Department supports the Compensation Committee in its work. In addition, the Compensation Committee retains Mercer to advise the Committee on all matters related to the compensation of the NEOs. The following table summarizes the roles of each of the key participants in the executive compensation decision-making process.


Compensation Committee		• Fulfills the Board of Directors' responsibilities relating to compensation of the Company's executive officers.
		• Oversees implementation and administration of the Company's compensation and employee benefits programs, including incentive compensation and equity compensation plans.
		• Reviews and approves Company goals and objectives and, in light of these, evaluates the CEO's performance and sets his annual base salary, annual incentive opportunity, long-term incentive opportunity and any special/supplemental benefits or payments.

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		• Reviews and approves compensation for all other executive officers of the Company including annual base salary, annual incentive opportunity, long-term incentive opportunity and any special/supplemental benefits or payments.
		• Reviews and approves succession plans for the CEO and for other executive officers.
Chairman and CEO		• Presents to the Compensation Committee the performance evaluation of, and compensation recommendations for, each of the other executive officers.
Compensation Consultant		• Reports directly to the Compensation Committee.
		• Assists the Compensation Committee with the review and update of the Peer Group for competitive pay and benchmarking purposes.
		• Reviews relevant market data and advises the Compensation Committee on setting the Chairman and CEO's pay.
		• Reviews relevant market data and compensation recommendations for all other executive officers.
		• Informs the Compensation Committee of regulatory developments and how these may affect the Company's compensation program.

SECTION II: OBJECTIVES OF OUR COMPENSATION PROGRAM

The compensation program for our executive officers is designed to attract, retain and reward talented executives who can contribute to the Company's long-term success and thereby build value for our stockholders. In general terms, the Compensation Committee believes that by placing greater weight on variable pay incentives and long-term compensation than its Peer Group, rather than base salary compensation, it will more effectively align the interests of executives with the Company's stockholders. Furthermore, this emphasis enables the Company to attract executives who are willing to sacrifice current earnings and the retirement benefits generally offered by larger biotechnology and pharmaceutical companies for potential long-term gains in a less stable and riskier environment. The Compensation Committee believes that Cephalon stockholders share a similar risk profile.

The fundamental principle of our compensation program is "Pay-for-Performance" and, as such, we strive to closely align the compensation paid to our executive officers with the performance of the Company on both a short-term and long-term basis. The total compensation program for executive officers consists of the following components:

•: base salary;
•: annual cash incentive award;
•: long-term incentive compensation in the form of stock options and/or restricted stock units; and
•: certain other benefits, including perquisites.

The Compensation Committee believes that our stockholders are best served when we can attract and retain talented executives by providing compensation packages that are competitive but fair. The Compensation Committee seeks to structure a compensation program for executive officers that delivers total compensation that is generally at the 50th percentile of the total compensation delivered

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by certain comparable publicly-traded biotechnology and pharmaceutical companies with which we compete for executive talent (the "Peer Group"). At the same time, the Compensation Committee believes it is important to provide its executive officers with the opportunity to exceed this level for achievement of key strategic initiatives and superior operational performance as evidenced by such benchmarks as revenue and earnings growth, management of capital, and value creation reflected in stock price appreciation relative to the Peer Group.

In 2009, Mercer assisted the Compensation Committee in analyzing the Peer Group for competitive pay and performance benchmarking. The Peer Group was selected based on the following criteria as of December 31, 2008: industry classification (pharmaceutical/biotechnology); total revenues relative to a guideline range of Cephalon's revenue (generally one-half to three times Cephalon's revenues as of December 31, 2008 of $2 billion); and business model (research and development capabilities and proprietary pharmaceutical products). The appropriateness of the Peer Group is reviewed annually by the Compensation Committee against these criteria. Based on this review, companies may be excluded due to acquisitions or changes in trading status or size; likewise, relevant Peer Group companies may be added. In 2009, Valeant Pharmaceuticals was removed from the Peer Group as their 2008 revenue fell to a level below one-half of Cephalon's. Therefore, the Peer Group consisted of the following ten companies:

Company (Ticker Symbol)	Fiscal 2009 Revenue

	(thousands)
Allergan Inc. (AGN)	$	4,503,600
Biogen Idec Inc. (BIIB)	$	4,377,348
Biovail Corp. International (BVF)	$	820,430
Celgene Corp. (CELG)	$	2,689,893
Endo Pharmaceuticals Holdings Inc. (ENDP)	$	1,460,841
Forest Laboratories, Inc. (FRX)	$	3,922,782
Genzyme Corp. (GENZ)	$	4,515,525
Gilead Sciences Inc. (GILD)	$	7,011,383
King Pharmaceuticals Inc. (KG)	$	1,776,500
Sepracor Inc. (SEPR)	$	1,292,289	*

Cephalon, Inc.	$	2,192,308

*: On October 20, 2009, Sepracor Inc. became a wholly owned subsidiary of Dainippon Sumitomo Pharma Co., Ltd. Therefore, 2009 year end financial results are not available. Fiscal 2008 revenue is presented for comparison.

The Peer Group data is supplemented with published survey data for biotechnology and pharmaceutical companies of comparable size to Cephalon (as measured by revenues). The Compensation Committee uses this survey data as a general reference tool in its consideration and analysis of compensation components and levels for the executive officers.

By providing our executives with a mix of equity and cash compensation, the Compensation Committee believes it can better align the interests of our executives with the short- and long-term interests of our stockholders. While there is no pre-established target for the allocation of equity and cash compensation, the Compensation Committee believes that the current mix of compensation elements for the executive officers strikes the correct balance between equity and cash compensation and is aligned with the Company's stated pay philosophy. The Compensation Committee believes that, by delivering the majority of compensation in the form of equity, the level of executive compensation will correlate with the creation of long-term value for our stockholders as measured by stock price appreciation. Depending on whether, and to what extent, established strategic, financial and operational

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goals are achieved, the actual split between cash and equity compensation in any given year could vary from the target levels. For 2009, the mix of compensation between cash and equity as reflected in the Summary Compensation Table was approximately 24% and 76%, respectively, for our CEO, and 35% and 65%, respectively, for the other NEOs. This percentage of equity compensation is higher than that of the Peer Group, but is consistent with the Company's compensation philosophy of placing greater weight on long-term compensation.

The equity component of our compensation program for executive officers historically has taken the form of stock options and restricted stock units ("RSUs"), which we believe are appropriate instruments to drive long-term stockholder value, provide retention incentives to our NEOs and manage our equity shares in an efficient manner. In each case, these awards vest ratably on the first, second, third, and fourth anniversary of the award grant date. For our CEO, approximately 53% of the total value of equity granted in 2009 was in the form of stock options and 47% in RSUs, as reflected in the "2009 Grants of Plan-Based Awards Table" located on page 32 of this Proxy Statement. For the other NEOs, the mix for 2009 was approximately 52% in stock options and 48% in RSUs. In determining the mix of stock options and RSUs, the Compensation Committee considered the following factors: the performance and contribution of the NEOs; the total shares available in the equity pool and the most efficient use of the available shares; Peer Group comparisons; and, finally, retention of the NEOs.

Material Tax and Accounting Implications of the NEO Executive Compensation Program

Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), generally disallows a tax deduction to public companies for certain compensation in excess of $1 million paid to the company's chief executive officer and the three other most highly compensated executive officers. Specified compensation, including qualified performance-based compensation, will not be subject to the deduction limit if certain requirements are met. Where possible, the Compensation Committee generally seeks to structure compensation amounts and plans that meet the requirements for deductibility under this provision. Specifically, the Compensation Committee has taken steps to qualify the stock option awards as performance-based compensation for this purpose. While the Compensation Committee believes it is important to consider Section 162(m), it also believes that stockholder interests are best served by not restricting the Compensation Committee's discretion and flexibility in crafting the executive compensation program, even though such programs may result in non-deductible compensation expenses.

At the Company's 2008 Annual Meeting of Stockholders, stockholders approved an amendment to the 2004 Plan for the establishment of material terms of performance goals that could apply to grants of employee stock awards. The Compensation Committee now has the flexibility to impose and specify specific performance goals that must be met in order for future grants of stock awards to employees to qualify for the qualified performance-based compensation exception under Section 162(m) of the Code.

The Compensation Committee also considers the accounting implications to the Company of its executive compensation decisions, including, among other things, the financial statement impact of equity compensation awards as determined by applicable accounting guidance.

SECTION III: DISCUSSION AND ANALYSIS OF OUR 2009 COMPENSATION PROGRAM AND AWARDS

This section describes and analyzes each of the components of our compensation program for our executive officers, including why the Compensation Committee chooses to include these items in the compensation program, the details of the compensation amounts granted to NEOs in 2009 and the Compensation Committee's rationale for awarding these compensation amounts.

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Cash Compensation

Total cash compensation is delivered in the form of salary and annual cash incentive awards or bonuses under a performance-based Management Incentive Compensation Plan (the "MICP") approved by the Compensation Committee at the beginning of each fiscal year. Base salary is included in the Company's executive compensation package because the Compensation Committee believes it is both necessary and appropriate that some portion of the compensation be provided to its executive officers in a form that is fixed and liquid. Performance-based bonuses under the MICP are included in the package because they permit the Compensation Committee to incentivize our executives, in any particular year, to pursue particular objectives that the Compensation Committee believes are consistent with the overall goals and strategic direction that the Board has set for our Company and that also are aligned with stockholder interests. The components comprising the cash portion of total compensation are described below.

For 2009, base salary of the CEO constituted approximately 50% of total cash compensation (excluding all other compensation); for the other NEOs, base salaries constituted approximately 58% to 70% of the total cash compensation (excluding all other compensation), with bonuses in each case constituting the remaining portion of cash compensation. The Compensation Committee felt that the final split between base salary and bonuses awarded for 2009 under the MICP appropriately reflects the strong individual and Company performance delivered by each of the NEOs.

Salary. The Compensation Committee reviews and approves the salaries of the Company's executive officers on an annual basis, as well as at the time of a promotion or other change in responsibilities. Increases in salary are based on an evaluation of an individual's performance compared to the individual performance goals set forth in the MICP, contribution, and level of pay compared to the Peer Group. For the NEOs other than the CEO, our CEO makes recommendations to the Compensation Committee concerning adjustments to salary. In setting salaries, the Compensation Committee is generally mindful of the overall goal of keeping base salary compensation for the executive officers at the 50^th percentile of base salary compensation paid by companies in the Peer Group. Because over the past few years, the Company's business has become more complex and the industry environment has become more challenging, particular care is taken to ensure that these factors are recognized in the calculation of base salary. Merit increases for the next fiscal year are typically approved in December each year and are effective as of January 1 of the new year. As the value of the annual bonus is expressed as a multiple of base salary, a higher base salary will result in a higher bonus award, assuming the same level of achievement against goals.

Working with Mercer in late 2008, the Compensation Committee reviewed the total compensation package for our CEO and each executive officer for 2009. The analysis included a review of proxy data for our Peer Group as well as market peer company and survey data for comparable positions. The Mercer analysis presented to the committee in late 2008 that the Compensation Committee used to evaluate total target compensation for 2009 reported that on average, base salaries for our executive officers in 2008 approximated the Peer Group median. Based on this analysis, and the Compensation Committee's assessment of the Company's performance against goals for 2008, the Compensation Committee increased our CEO's base salary by 5% to $1,306,800. This is consistent with the 75^th percentile of CEO base salaries paid by our Peer Group. Given Dr. Baldino's tenure at Cephalon and his significance to the Company both internally and externally, the Compensation Committee believes it is appropriate to set Dr. Baldino's base salary in this range. The Compensation Committee also reviewed Dr. Baldino's recommendations and made cash compensation decisions based on each NEO's performance, its assessment of that individual's performance relative to the group and each NEO's compensation in light of competitive market information. The Compensation Committee approved 2009 base salary increases for our NEOs ranging from 4% to 6%, with final salaries ranging from $508,300 to $590,300. Those NEOs who exhibited stronger performance in 2008, and whose

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positions were individually paid under the Peer Group median, received salary increases of between 5% and 6%; other NEOs received 4%.

Bonus Plan. The MICP provides cash compensation to executives only if, and to the extent that, annual performance conditions set by the Compensation Committee are achieved. Whether, and to what extent, bonuses under the MICP are paid depends entirely on the extent to which the established corporate objectives contained within the MICP for that year are attained. The Compensation Committee believes that the achievement of these objectives ultimately will contribute to the long-term success of the Company.

The performance objectives contained within the MICP are developed with input from management, the Compensation Committee and the Board. Based on a review of internal forecasts, management, including the NEOs, develops preliminary recommendations for the Compensation Committee's review. The Compensation Committee reviews management's preliminary recommendations and establishes the final MICP goals and weighting, which are intended to reflect the most important strategic and financial objectives for the Company. The final MICP goals and weightings are then ratified by the full Board.

In establishing final goals, the Compensation Committee strives to ensure the following:

•: the incentives provided pursuant to the MICP are consistent with the strategic goals set by the Board for the Company;
•: the objectives set are sufficiently ambitious to provide a meaningful incentive;
•: the operational goals are strategic, specific and measurable and focus on positioning the Company for long-term growth; and,
•: bonus payments, assuming target levels of performance are attained, will be consistent with the overall philosophy of the executive compensation program established by the Compensation Committee.

The Compensation Committee reserves the discretion to reduce or not pay bonuses under the MICP, even if the relevant performance targets are met, or to increase the bonus amount awarded under the MICP. While the Compensation Committee has exercised its discretion to reduce bonus payments in the past, it did not exercise its authority to alter MICP bonus payments in 2009.

The MICP for 2009 was approved by the Board at its January 2009 meeting. The MICP objectives for 2009 consisted of both financial and operational components, in varying percentages as detailed in the tables below. The Compensation Committee felt that a 40% weighting on operational goals for the CEO provided a strong incentive to focus on attaining goals that further the creation of long-term value for stockholders. The Compensation Committee also believed that the combination of the financial and operational performance objectives within the 2009 MICP created a significantly high hurdle for achievement by the other NEOs.

At the outset of each year, the Compensation Committee sets target bonuses under the MICP for each NEO. In determining the amount of target bonuses under the MICP, the Compensation Committee considers several factors, including:

•: the target bonuses set, and actual bonuses paid, in recent years;
•: the desire to ensure that a substantial portion of total compensation is performance based;
•: the relative importance, in any given year, of the short-term performance objectives established pursuant to the MICP; and
•: the advice of Mercer as to compensation practices at other companies in the Peer Group.

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For 2009, the Compensation Committee set the target bonus under the MICP at 100% of base salary for the CEO and 50% of base salary for the other NEOs. These target levels are consistent with the 50th percentile of the Company's Peer Group. The actual amount of an MICP bonus award is determined by each executive's level of achievement against his or her individual objectives, in combination with the established corporate objectives, set out in the MICP. The MICP provides the Company's executives with the opportunity to earn higher bonuses for exceeding performance objectives and, conversely, provides either a reduced bonus or no bonus at all for missing their objectives. Assuming that the established corporate objectives are met, an executive officer must still achieve a minimum MICP score to be eligible to receive any award. At the end of each fiscal year, the Compensation Committee is responsible for assessing the performance of all executive officers against the MICP performance criteria and determining the level of awards, if any, under the MICP. The Compensation Committee presents its decisions to the independent members of the Board for ratification.

The following tables summarize the components of the 2009 MICP and the actual awards granted by the Compensation Committee for 2009. The first table describes the MICP for the CEO; the next table describes the MICP for the other NEOs.

Chief Executive Officer

	2009 MICP	2009 Actual MICP Results

Financial Goals (60%)	• Total product sales target of $2.197 billion	Weighted average score = 59.9
	• Pro forma net income target of $462 million
Operational Goals (40%)	Performance goals in the areas of clinical (20%), manufacturing (10%) and R&D (10%)	Weighted average score = 40.1
MICP "Score"	Weighted average minimum MICP score of 85 of the above listed components required for CEO to be eligible for an MICP award	100
Target MICP Bonus	100% of 2009 base salary	—
Calculated MICP Percentage	Could range from 0% (for an MICP score below 85) to 300% of base salary (at maximum performance)	100%
Calculated MICP Dollar Value	Could range from $0 (for an MICP score below 85) to $3,920,400 (for maximum performance).	$1,306,800
Actual MICP Award Dollar Value	—	$1,306,800

With respect to the Company's financial goals, the Company's total product sales for 2009 were $2.15 billion, which was below the MICP target by $45 million. The Company achieved 97.9% of its product sales target as a result. For 2009 pro forma net income, the Company exceeded the targeted

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MICP amount by $7.2 million, and achieved 101.6% of this objective. Both of these objectives contributed equally towards the financial goal, resulting in a 30% weighting being applied to each. Product sales contributed a weighted score of 29.4, and pro forma net income contributed a weighted score of 30.5. Pro forma net income is considered a "non-GAAP financial measure" under SEC rules. To arrive at pro forma net income, the Company starts with the Company's audited net income or loss under U.S. generally accepted accounting principles (GAAP) and excludes or includes certain items, including certain one-time or infrequent items that may not affect the Company's operations or that may not meet the strict GAAP definition of unusual, non-recurring items. Each quarter, management reviews with the Audit Committee each proposed pro forma adjustment made to arrive at pro forma net income. Following this, pro forma net income is disclosed and reconciled to GAAP net income or loss by the Company in its quarterly and year-end earnings press releases. In assessing whether the pro forma net income target under the MICP has been met, the Compensation Committee uses the reported pro forma net income disclosed in the Company's year-end financial results press release.

With respect to operational goals, the Compensation Committee determined that all were met, with the exception of certain research and development goals. The Committee's determination was based on its assessment of accomplishments relative to the MICP operational goals. In most cases, operational goals are specific and measureable; however, the Committee occasionally must exercise discretionary judgment regarding the degree to which an objective was met. Below is a summary of accomplishments in each functional area:

Clinical (20% Weighting). The clinical research objectives for 2009 focused on obtaining approval for additional indications for existing products and commencing certain clinical studies. During the year, the Company completed three clinical studies and filed one Supplemental New Drug Application ("sNDA") and one Investigational New Drug application ("IND"). In addition, the Company also submitted the formal Risk Evaluation and Mitigation Strategy ("REMS") program to the FDA for both FENTORA and ACTIQ. As a result of these accomplishments, the Compensation Committee determined that the Company achieved 101.5% of its clinical goal. The 20% weighting applied to this component produced a rating of 20.3 towards the overall MICP score.

Manufacturing (10% Weighting). The manufacturing objectives for 2009 focused on executing organizational changes to improve efficiencies, improving cost of goods, and advancing the development of new drug delivery technologies. In 2009, the Company continued its progress in consolidating operations between its Minnesota and Salt Lake City, Utah facilities, ensured adequate supply of its products, particularly with respect to the launch of NUVIGIL, and made progress in the development of a new drug delivery project. As a result of these accomplishments, the Compensation Committee determined that the Company had achieved 105.25% of its established objectives. The achievement of a score greater than 100% was due largely to the successful support of the Company's launch of NUVIGIL in the second quarter of 2009. The 10% weighting applied to this component produced a rating of 10.5 towards the overall MICP score.

Research and Development (10% Weighting) The research and development objectives for 2009 focused on advancing compounds and supporting clinical initiatives. In 2009, the Company continued to advance its research and development plan by filing two INDs, advancing another compound for IND-enabling activities and continuing to support the clinical activities of compounds for which INDs were filed in 2007 and 2008. Additional INDs had been planned for filing in 2009, and as a result of this shortfall, the Compensation Committee determined that the Company achieved 92.8% of its research and development objectives. The 10% weighting applied to this component produced a rating of 9.3 towards the overall MICP score.

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The scores for the individual operational goals, when combined with the score for the financial goals, produced a total MICP score for 2009 of 100. Based on the chart below, an MICP score of 100 yielded an MICP award percentage of 100% of base salary for Dr. Baldino.

CEO MICP Payout

Other NEOs

	2009 MICP	2009 Actual MICP Results

Financial Goals (30%)	• Total product sales target of $2.197 billion	Weighted average score = 30.1 (See discussion above)
	• Pro forma net income target of $462 million
Individual Performance Goals (70%)	Objectives specific to individual NEO and areas of responsibility are listed below.	MICP score determined for each individual NEO as shown below
MICP "Score"	Weighted average minimum MICP score of 90 of the above listed components required for NEO to be eligible for an MICP award	Scores ranged from 98 to 107
Target MICP bonus	50% of 2009 base salary	—
Calculated MICP Percentages	Could range from 0% (for an MICP score below 90) to 110% of an NEO's base salary (at maximum performance)	Calculated percentages ranged from 43% to 73% of base salary
Calculated MICP Dollar Value	Individual awards could range from $0 (for an MICP score below 90) to approximately $662,300 (for maximum performance).	Calculated values ranged from $253,800 to $402,400
Actual MICP Award Dollar Value	—	Awards granted ranged from $253,800 to $402,400

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The results of the financial goals discussed above were applied towards the MICP score for the other NEOs. Financial goals are weighted at 30% of each NEO's final MICP score, and for 2009 contributed a weighted average score of 30.1. The Compensation Committee then determined the MICP score for the individual performance component for each NEO, which was based on input from the CEO and the level of achievement against the established individual performance goals.

NEOs	Financial Goals (30%)	Individual Goals	Results for Individual Goals (70%)

J. Kevin Buchi	Weighted average score = 30.1	• Manage overall Company budget • Oversee financing and capital management • Manage investor relations • Lead business development activities	2009 was a strong year financially for the Company, with Mr. Buchi managing the budget to exceed the net income objective despite a slight shortfall in revenue. Mr. Buchi led efforts in assessing several potential acquisitions and other business development deals that resulted in several transactions that the Company believes will drive future growth. Mr. Buchi also continued to improve cost controls and was able to raise approximately $700 million through debt and equity funding to support the Company's business development initiatives. MICP score = 108; Weighted average score = 75.6	106	%
Lesley Russell Cooper, MB.Ch.B, MRCP	Weighted average score = 30.1	• Manage worldwide regulatory and clinical operations • Oversee completion of clinical trials and submission of data to FDA • Submit formal REMS program to FDA and implement upon approval	Under Dr. Russell's direction, clinical and regulatory operations completed three key clinical trials in 2009 and one sNDA for NUVIGIL for the treatment of jet lag. Several INDs were also filed and early stage clinical trials commenced. In addition, the formal REMS programs for FENTORA and ACTIQ were submitted on schedule and substantive discussions with the FDA are ongoing. MICP score = 103.8; Weighted average score = 72.7	103	%
Gerald J. Pappert	Weighted average score = 30.1	• Manage and direct all Company litigation matters • Manage Company's intellectual property estate and defense • Oversee government affairs and public policy affecting the biotechnology/pharmaceutical industry	Mr. Pappert led major strategic initiatives in 2009 to reorganize and structure the Company's various litigation matters. He provided advice and counsel to the Company's Board on several matters, including preparation for generic challenges to the NUVIGIL intellectual property estate. MICP score = 110; Weighted average score = 77	107	%
Robert P. Roche, Jr.	Weighted average score = 30.1	• Achieve U.S. and European sales objective • Manage sales and marketing expenses • Oversee new product launches	Under Mr. Roche's direction, the Company successfully launched NUVIGIL. Sales objectives in both the U.S. and Europe were slightly under target, but expenses were managed to achieve the net income objective. MICP score = 97.6; Weighted average score = 68.3	98	%

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The range of MICP scores was 98 to 107, which yielded, based on the chart below, MICP bonuses in the range of 43% to 73% of base salary, depending on the NEO. The dollar amount of awards granted to the other NEOs for 2009 ranged from $253,800 to $402,400.

Other NEO MICP Payout

With respect to Section 162(m) of the Code, payments under the Company's MICP are generally subject to the Section 162(m) limits on deductibility and will not qualify as "performance-based compensation" within the meaning of the applicable regulations as the MICP has not been approved by stockholders.

Long-term Incentive Compensation

The Compensation Committee believes that placing a heavy emphasis on equity compensation will better align the interests of our executive officers with our stockholders.

Types of Equity Awards. Equity awards to our executives are made pursuant to the 2004 Plan, which has been approved by Cephalon stockholders. Our officers and directors are not eligible to participate in the Company's 2000 Equity Compensation Plan for Employees and Key Advisors (the "2000 Plan"). The 2004 Plan provides for awards in the form of incentive stock options and non-qualified stock options (collectively, "stock options") and RSUs. Cephalon chose these types of equity awards to directly align executive incentives with stockholder success and to enhance the retention power of the executive officer compensation program. Stock options directly align the interests of our executives with those of our stockholders; since stock options are granted at a price equal to the closing price of our common stock on the day of the grant, the executives only benefit if the price of our stock increases. RSUs provide a strong retention value, as the executives only receive the shares after restrictions lapse over a four-year period. The mix between these forms of awards changes somewhat from year to year. In determining the mix of stock options to RSUs, the Compensation Committee considers the following factors: the performance and contribution of the executives, including any changes to the scope of their responsibilities; the total shares available in the equity pool and the most efficient use of the available shares; Peer Group comparisons; and, finally, retention of the NEOs.

Equity Compensation Awarded in 2009. In 2009, the Compensation Committee approved, and the independent members of the Board ratified, equity awards to the NEOs that had a total value calculated under the Black-Scholes model equal to approximately 3 times cash compensation (including bonus opportunities, assuming performance at "target" levels) for our CEO and approximately 2 times cash compensation for the other NEOs.

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On December 2, 2009, the Board ratified the Compensation Committee's approval of a grant to our CEO of 160,000 stock options and 80,000 RSUs. The stock options and RSUs awarded to the CEO in December 2009 represent the same number of shares granted in 2008. For each of the other NEOs, the Board also ratified the Compensation Committee's approval of a grant of 50,000 stock options and 15,000 RSUs. The stock options and RSUs awarded to the other NEOs represent the same number of shares granted to each of the other NEOs in 2008. The stock option grants to all NEOs were granted at an exercise price of $56.07, which was the closing price of our common stock on the date of grant. All stock options and RSUs awarded vest over a four-year period, with 25% becoming exercisable on each anniversary of the grant date. The stock options have a 10-year term.

The value of the equity compensation awards granted to the NEOs in 2009 exceeds the 75th percentile of estimated equity values awarded to executives at Peer Group companies. For the stock options, the estimated equity value was calculated based on the methodology defined under generally accepted accounting principles; for RSUs, the estimated value was calculated based on the value of the underlying common stock on the date of grant. In determining the level of equity awards granted to the NEOs in 2009, the Compensation Committee emphasized its desire to retain the current management team, enhance management's focus on the Company's long-term business plan, and encourage creation of long-term stockholder value. The Compensation Committee believes that, by delivering the majority of compensation in the form of equity, the level of executive compensation will correlate with the creation of long-term value for our stockholders as measured by stock price appreciation. Given the Company's history of strong performance both financially and operationally over the past several years, the Compensation Committee chose to grant awards at the 75^th percentile of our Peer Group.

The Company's equity compensation plans satisfy the requirements of Section 162(m) of the Code with respect to stock options, but not with respect to awards of RSUs. Accordingly, compensation recognized by the NEOs in connection with stock options is fully deductible by the Company, but compensation with respect to RSUs is subject to the $1,000,000 limit on deductibility.

Practices Regarding the Grant of Options. The Company generally has followed a practice of making all annual stock option grants to its executive officers on a single date each year, though the Compensation Committee retains the discretion to make additional awards to our executives at other times, in connection with the initial hiring of a new officer, for retention purposes or otherwise. At its last regularly-scheduled meeting (usually in early- to mid-December), the Board ratifies the annual option grants made by the Compensation Committee. The Compensation Committee approves these annual grants, subject to the ratification by the Board, at a meeting prior to the scheduled December Board meeting. Historically, the December Board meeting date has occurred approximately four to six weeks following the issuance of the press release reporting our third quarter financial results for the then-current fiscal year. The dates of the December Board and Compensation Committee meetings are determined at least a year in advance based on the availability of Board members for an in-person meeting. The Compensation Committee believes that it is appropriate that annual awards be made at a time when material information regarding our performance for the current fiscal year has been disclosed. We do not otherwise have any program, plan or practice to time annual option grants to our executives in coordination with the release of material non-public information.

All stock option awards made to our NEOs are made pursuant to the 2004 Plan. As noted above, all options under the 2004 Plan (as well as awards to employees other than our officers under the 2000 Plan) are granted with an exercise price that may not be less than the fair market value of our common stock on the date the grants are ratified by the Board. Fair market value is defined under the 2004 Plan to be the closing sale price of a share of our common stock on the date of grant as reported on NASDAQ. While the Charter of the Compensation Committee permits delegation of the Compensation Committee's authority to grant options in certain circumstances, this delegated authority has never been exercised.

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Risk Assessment of Compensation Policies & Practices. We have reviewed our material compensation policies and practices and concluded that these policies and practices are not reasonably likely to have a material adverse effect on the Company. Specifically, our compensation programs contain many design features that mitigate the likelihood of inducing excessive risk-taking behavior. These features include:

•: a balance of fixed and variable compensation, with variable compensation tied both to short-term objectives and the long-term value of our stock price;
•: long-term incentives granted as equity that vests over multiple years;
•: multiple metrics in our incentive programs that balance top line and bottom line financial objectives;
•: linear payout curves in our incentive program payout formulas, rather than an "all or nothing" approach;
•: caps on payout levels under our short- and long-term incentive plans;
•: reasonable goals and objectives in our incentive programs;
•: the Compensation Committee's ability to exercise downward discretion in determining incentive program payouts;
•: payouts modified based upon individual performance, inclusive of assessments against our Standards of Global Business Practices; and
•: mandatory training on our Standards of Global Business Practices and other policies that educate our employees on appropriate behavior and conduct and the consequences of taking inappropriate actions.

With respect to compensation policies and practices for employees other than our executive officers, we note the following:

•: pay is structured to include both fixed (salary) and variable compensation (cash incentives and equity), with an emphasis on fixed compensation;
•: bonuses under our annual incentive plans have maximum payout levels that are capped;
•: all bonus eligible employees are subject to the same corporate targets as our executive officers;
•: compensation decisions for employees are subject to review at multiple levels in the Company, including by individual managers, business unit management, human resources and executive officers; and
•: individual performance is a significant component of our bonus plans, including performance under the Company's Standards of Global Business Practices.

SECTION IV: ADDITIONAL INFORMATION REGARDING THE COMPENSATION PROGRAM

Perquisites. Our NEOs receive various perquisites provided by or paid for by the Company. These perquisites include automobile allowances, financial and estate planning services, supplemental long-term disability insurance, personal use of the corporate aircraft (subject to the execution of a Time Sharing Agreement as described below) and executive health care benefits.

We provide these perquisites because in many cases the perquisite enables our executives to carry out their responsibilities more efficiently and effectively and thereby is a benefit to the Company. Additionally, perquisites are provided by many companies in the Peer Group to their named executive officers and it is therefore necessary for retention and recruitment purposes that we do the same.

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The Compensation Committee reviews the perquisites provided to the executive officers on a regular basis, in an attempt to ensure that they continue to be appropriate in light of the Compensation Committee's overall goal of designing a compensation program that maximizes the interests of our stockholders.

The benefits are summarized as follows:


	Estate and Financial Planning		The CEO is reimbursed annually for up to $15,000, net of taxes, of individual estate and financial planning advice; the other NEOs are reimbursed annually for up to $10,000, net of taxes.
	Automobile Allowance		NEOs (other than the CEO) receive an annual, taxable, automobile allowance of $13,200. The CEO receives the use of a Company-provided automobile; any personal use of such automobile is imputed to the CEO and included in the Summary Compensation Table.
	Health Care Benefit		NEOs are eligible for reimbursement on an annual basis for up to $1,000, net of taxes, for health care services not otherwise covered under the Company's group health plan. Beginning in 2010, this benefit has been discontinued.
	Long-term Disability		Employees at the Vice President-level and above, including the NEOs, are eligible to receive Company paid supplemental long-term disability coverage that provides coverage of 60% of salary and bonus up to a maximum of $25,000 per month.

We also provide our executive officers with the option to utilize Cephalon's corporate aircraft for personal use, subject to the execution of a Time Sharing Agreement with the Company. Under the Time Sharing Agreement and the Company's internal policies, an executive must reimburse the Company for the personal use of the aircraft by the executive and the executive's guests. It is our intent that, in all cases, the amount reimbursed by the executive for personal use is the greater of the incremental operating costs associated with the use of the aircraft and the amount of income that would be required to be imputed to the executive under Internal Revenue Service regulations, subject in each case to the maximum reimbursement amount permitted under Part 91 of the U.S. Federal Aviation Administration regulations.

Dr. Baldino and Mr. Buchi have reimbursed the Company $63,835 and $844, respectively, for their personal use of the corporate aircraft during 2009. Because the payments made to the Company exceeded the value of the personal use as calculated in accordance with the standard industry fare level, or SIFL, rates set by the IRS, we did not impute any income to Dr. Baldino or Mr. Buchi in 2009. Likewise, for SEC reporting purposes, we have determined that the amount reimbursed to the Company exceeded the estimated incremental cost to the Company of the personal use of the aircraft. For this reason, the Summary Compensation Table shown on page 31 does not include any compensation to Dr. Baldino or Mr. Buchi related to this perquisite.

Deferred Compensation Plan. Our Deferred Compensation Plan allows employees at the level of Vice President and above, including the NEOs, to defer receipt of all or a portion of bonus received under the MICP until either a date specified at election by the employee or retirement. Deferred amounts are credited with an annual fixed rate of return that is set each year by the Compensation Committee. The Compensation Committee determines the interest rate for the Deferred Compensation Plan based on the prime rate plus 1 to 3%. For 2009, the interest rate was 5%; for 2010, the interest rate will remain at 5%. We do not "match" amounts that are deferred by employees pursuant to the Deferred Compensation Plan. Distributions from the plan are paid in a lump sum upon the six-month

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anniversary of the termination of the employee's employment with the Company. Currently, only two NEOs participate in the Deferred Compensation Plan.

The obligations under the Deferred Compensation Plan are not funded by the Company, and therefore participants have an unsecured contractual commitment from the Company to pay the amounts due under the Deferred Compensation Plan. Because the plan is unsecured, the Compensation Committee believes it is appropriate to provide an above-market interest rate to compensate for this risk. When payments are due under the Deferred Compensation Plan, the cash will be distributed from the Company's general assets.

We provide this benefit because the Compensation Committee wishes to permit certain of our employees to defer the obligation to pay taxes on bonuses that they are entitled to receive. The Deferred Compensation Plan permits them to do this, while also receiving interest on deferred amounts, as described above. We believe that provision of this benefit is important as a retention and recruitment tool as many of the companies with which we compete for executive talent provide a similar plan for their senior employees.

The Deferred Compensation Plan was amended and restated in January 2009 to comply with the requirements of Section 409A of the Code.

Executive Severance Agreements. While the Company does not have employment agreements with any of its executive officers, in 2002, the Compensation Committee approved the Company's form of executive severance agreement, and has entered into such an agreement with each of the Company's executive officers. These agreements provide for payments and other benefits if the officer's employment is involuntarily terminated by the Company for any reason other than death or for "Cause" or "Disability," as these terms are defined in the severance agreements. These severance agreements also provide for payments and other benefits upon a qualifying event or circumstances after there has been a "Change in Control" (as defined in the agreements) of the Company. The Compensation Committee reviews and approves the terms of each executive severance agreement prior to execution and believes that the terms contained in these agreements are reasonable and customary for agreements of this type. Additional information regarding the executive severance agreements, including a definition of key terms and a quantification of benefits that would have been received by our NEOs had termination occurred on December 31, 2009, is found under the heading "2009 Potential Payments upon Termination or Change in Control" beginning on page 37 of this Proxy Statement.

The Compensation Committee believes that these severance arrangements are an important part of overall compensation for our executive officers. The Compensation Committee believes that these agreements will help to secure the continued employment and dedication of our executives, notwithstanding any concern that they might have at such time regarding their own continued employment, prior to or following a Change in Control. The Compensation Committee also believes that these agreements are important as a recruitment and retention device, as most of the companies with which we compete for executive talent have similar agreements in place for their executive officers.

The executive severance agreements were amended and restated in June 2008, and further amended on December 31, 2008, to comply with the requirements of Section 409A of the Code.

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401(k) Profit Sharing Plan. Under the 401(k) Plan, a tax-qualified retirement savings plan, all employees located in the United States, including our executive officers, may contribute up to 100% of regular earnings on a before-tax basis into their 401(k) Plan accounts, subject to the limits imposed by the IRS. In addition, under the 401(k) Plan, we may determine to make a matching contribution to a participating employee's account. Historically, we have determined to match an amount equal to one dollar for each dollar contributed by participating employees on the first 6% of their regular earnings, subject to any limitations imposed by the IRS. Because we do not sponsor a defined benefit pension plan, the 401(k) Plan matching contribution allows Cephalon to remain competitive with other companies in its industry that provide retirement savings vehicles for their executives and employees. Cephalon employees are immediately and fully vested in all matching contributions made by the Company under the 401(k) Plan. As of December 31, 2009, approximately 88.3% of the Company's U.S.-based employees were participants in the 401(k) Plan.

REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE

The Stock Option and Compensation Committee of the Board of Directors of Cephalon, Inc. oversees the Company's compensation program on behalf of the Board. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management the Compensation Discussion and Analysis set forth in this Proxy Statement.

In reliance on the review and discussions referred to above, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and the Company's Proxy Statement to be filed in connection with the Company's 2010 Annual Meeting of Stockholders, each of which will be filed with the Securities and Exchange Commission.



		STOCK OPTION AND COMPENSATION COMMITTEE
		Martyn D. Greenacre Vaughn M. Kailian Charles A. Sanders, M.D. (chair)

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are Messrs. Greenacre and Kailian and Dr. Sanders. There are currently no compensation committee interlocks or insider participation on the Compensation Committee.

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Executive Compensation Tables

The following table summarizes the compensation of the Company's NEOs for the periods ended December 31, 2009, 2008 and 2007.

2009 Summary Compensation Table

Name and Principal Position			Salary ($)		Bonus ($)(1)		Stock Awards ($)(2)		Option Awards ($)(3)		Non-Equity Incentive Plan Compensation ($)(4)		Change in Pension Value and Non Qualified Deferred Compensation Earnings ($)(5)		All Other Compensation ($)(6)(7)		Total ($)

Frank Baldino, Jr., Ph.D.		2009	$	1,306,800		—	$	4,485,600	$	4,004,306	$	1,306,800		—	$	45,886	$	11,149,392
	Chairman & CEO	2008	$	1,244,600		—	$	5,860,000	$	5,695,067	$	1,779,800		—	$	63,750	$	14,643,217
		2007	$	1,196,700		—	$	6,088,800	$	6,348,528	$	2,213,900		—	$	76,897	$	15,924,825
J. Kevin Buchi(8)		2009	$	561,500		—	$	841,050	$	896,017	$	393,100		—	$	47,305	$	2,738,972
	Executive Vice President &	2008	$	539,900		—	$	1,098,750	$	1,289,452	$	340,100		—	$	53,677	$	3,321,879
	Chief Financial Officer	2007	$	509,300		—	$	1,141,650	$	1,295,272	$	356,500		—	$	51,976	$	3,354,698
Lesley Russell Cooper, MB.Ch.B, MRCP		2009	$	508,300		—	$	841,050	$	896,017	$	305,000	$	3,711	$	35,127	$	2,589,205
	Executive Vice President, Worldwide	2008	$	479,500		—	$	1,098,750	$	1,289,452	$	350,000	$	30,105	$	40,696	$	3,288,503
	Medical & Regulatory Operations	2007	$	452,400		—	$	1,141,650	$	1,295,272	$	285,000	$	29,037	$	34,622	$	3,237,981
Gerald J. Pappert(9)		2009	$	551,300		—	$	841,050	$	896,017	$	402,400		—	$	41,849	$	2,732,616
	Executive Vice President,	2008	$	336,202	$	25,000	$	1,098,750	$	2,346,790	$	278,300		—	$	22,300	$	4,107,342
	General Counsel & Secretary	2007		—		—		—		—		—		—		—
Robert P. Roche, Jr.(10)		2009	$	590,300		—	$	841,050	$	896,017	$	253,800	$	1,312	$	53,458	$	2,635,937
	Former Executive Vice President,	2008	$	567,600		—	$	1,098,750	$	1,289,452	$	380,300	$	4,881	$	59,247	$	3,400,230
	Worldwide Pharmaceutical Operations	2007	$	556,500		—	$	1,141,650	$	1,295,272	$	139,100		—	$	57,959	$	3,190,481

(1): Amounts in this column would include non-equity guaranteed or discretionary bonuses, hiring bonuses and relocation bonuses. Bonuses awarded under the Company's 2007, 2008 and 2009 MICP are reflected in the column entitled "Non-Equity Incentive Plan Compensation."
(2): The amounts reported in this column represent the grant date fair value of RSU awards, in accordance with current accounting guidance, for the listed fiscal year. The amounts shown were calculated excluding the effect of certain forfeiture assumptions, and are based on a number of key assumptions described in Note 14 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2009. In accordance with current SEC disclosure requirements, RSU awards for fiscal 2008 and fiscal 2007, previously reported as amounts recognized, or "expensed," for the fiscal year, are now being reported above as grant date fair values. For information related to stock awards made to the NEOs in 2009, see the "2009 Grants of Plan-Based Awards Table" beginning on page 32 of this Proxy Statement. The amount of compensation, if any, actually realized by an NEO from the sale of common stock underlying a RSU will depend on numerous factors, including the continued employment of the NEO during the vesting period of the award and the price of common stock underlying the RSU at the date of sale.
(3): The amounts reported in this column represent the grant date fair value of stock option awards granted, in accordance with current accounting guidance, for the listed fiscal year. The amounts shown were calculated excluding the effect of certain forfeiture assumptions, and are based on a number of key assumptions described in Note 14 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2009. In accordance with current SEC disclosure requirements, stock option awards for fiscal 2008 and fiscal 2007, previously reported as amounts recognized, or "expensed," for the fiscal year, are now being reported above as grant date fair values. For information related to stock option awards made to the NEOs in 2009, see the "2009 Grants of Plan-Based Awards Table" beginning on page 32 of this Proxy Statement. The amount of compensation, if any, actually realized by an NEO from the exercise and sale of vested stock options will depend on numerous factors, including the continued employment of the NEO during the vesting period of the award and the amount by which the stock price on the day of exercise and sale exceeds the stock option exercise price.
(4): The amounts shown in this column constitute awards earned in each fiscal year under the MICP; amounts earned under the 2009 MICP were paid on February 18, 2010, unless deferred in accordance with the Deferred Compensation Plan. For a further discussion of these awards, see the Compensation Discussion and Analysis beginning on page 14 of this Proxy Statement.
(5): The amounts shown in this column represent the value of deferred compensation interest amounts above the 120% applicable federal rate.
(6): The amounts in this column include the value of the following perquisites paid to the NEOs in 2009, 2008 and 2007, as applicable. Perquisites are valued at actual amounts paid to each provider of such perquisites. Amounts paid in 2009 are as follows:

Name	Executive Long-Term Disability Insurance Premium ($)		Auto Allowance ($)*		Financial Planning Benefits ($)

Frank Baldino, Jr., Ph.D.	$	5,946	$	10,240	$	15,000	—
J. Kevin Buchi	$	9,405	$	13,200	$	10,000	—
Lesley Russell Cooper MB.Ch.B, MRCP	$	6,877	$	13,200	$	350	—
Gerald J. Pappert	$	3,949	$	13,200	$	10,000	—
Robert P. Roche, Jr.	$	15,558	$	13,200	$	10,000	—

*: For Dr. Baldino, the amount shown reflects the amount of imputed income related to personal use of a company-provided automobile.

(7): For each NEO, amounts include Company matching contributions of $14,700 to the Company's 401(k) Plan made on behalf of the NEOs.

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(8): Mr. Buchi was promoted to Chief Operating Officer of the Company effective February 1, 2010.
(9): Mr. Pappert was hired on May 12, 2008, and thus has no reportable compensation for 2007. His 2008 salary is based on an annualized amount of $525,000 and prorated for his length of service. Mr. Pappert also received a sign-on bonus of $25,000, which is reported in the Bonus column.
(10): Mr. Roche resigned effective February 5, 2010.

2009 Grants of Plan-Based Awards Table



													All Other Option Awards: Number of Securities Underlying Options (#)(3)
			Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)						Estimated Future Payouts Under Equity Incentive Plan Awards								Grant Date Fair Value of Stock and Option Awards ($)(4)
									Estimated Future Payouts Under Equity Incentive Plan Awards						Exercise or Base Price of Option Awards ($/ Sh)(3)
Name	Grant Date		Threshold ($)		Target ($)		Maximum ($)		Threshold (#)	Target (#)	Maximum (#)				Exercise or Base Price of Option Awards ($/ Sh)(3)
Frank Baldino, Jr., Ph.D.		1/1/2009	$	196,000	$	1,306,800	$	3,920,400
		12/2/2009												160,000	$	56.07	$	4,004,306
		12/2/2009										80,000			$	56.07	$	4,485,600
J. Kevin Buchi		1/1/2009	$	84,200	$	280,800	$	617,700
		12/2/2009												50,000	$	56.07	$	896,017
		12/2/2009										15,000			$	56.07	$	841,050
Lesley Russell Cooper, MB.Ch.B, MRCP		1/1/2009	$	76,200	$	254,200	$	559,100
		12/2/2009												50,000	$	56.07	$	896,017
		12/2/2009										15,000			$	56.07	$	841,050
Gerald J. Pappert		1/1/2009	$	82,700	$	275,700	$	606,400
		12/2/2009												50,000	$	56.07	$	896,017
		12/2/2009										15,000			$	56.07	$	841,050
Robert P. Roche, Jr.		1/1/2009	$	88,500	$	295,200	$	649,300
		12/2/2009												50,000	$	56.07	$	896,017
		12/2/2009										15,000			$	56.07	$	841,050

(1): Represents the range of possible payments under the 2009 MICP, which was adopted on January 28, 2009. For 2009, the Compensation Committee granted the following awards to the NEOs under the 2009 MICP, all of which are reported as Non-Equity Incentive Plan Compensation in the Summary Compensation Table located on page 31 of this Proxy Statement: Dr. Baldino: $1,306,800; Mr. Buchi: $393,100; Dr. Russell: $305,000; Mr. Pappert: $402,400; and Mr. Roche: $253,800.
(2): Consists of RSUs awarded during 2009 under the 2004 Plan. The RSUs vest 25% on each of the first through fourth anniversaries of the grant date.
(3): Consists of stock options awarded during 2009 under the 2004 Plan. The stock option awards vest 25% on each of the first through fourth anniversaries of the grant date. The stock options have a ten-year term and an exercise price equal to the closing market price of Cephalon common stock on the date of grant.
(4): Amounts shown for awards of RSUs and stock options are valued based on the aggregate full fair value of the awards granted in 2009 determined pursuant to applicable accounting guidance. See Note 14 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2009 for a discussion of the assumptions used in calculating the grant date fair value pursuant to applicable accounting guidance.

Narrative to Summary Compensation and 2009 Grants of Plan-Based Awards Tables

Salary

We do not have employment agreements with any of our NEOs. Base salaries for each NEO are reviewed and approved on at least an annual basis by the Compensation Committee.

We have entered into executive severance agreements with each of our NEOs. For a more complete description of these agreements, please see "2009 Potential Payments upon Termination or Change in Control" beginning on page 37 of this Proxy Statement.

Awards

In January 2009, our Board approved the 2009 MICP, which provided our NEOs with the opportunity to earn a cash incentive award if certain pre-established objectives were attained. For 2009, most of the NEOs earned a bonus amount that was above the target bonus levels established under the 2009 MICP, but significantly below the maximum payout provided for under the 2009 MICP. The bonus amounts earned by the NEOs are reported as "Non-Equity Incentive Plan Compensation" in the Summary Compensation Table above.

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On December 2, 2009, each of our NEOs received a grant of stock options and RSUs. The stock options and RSUs generally vest on the basis of passage of time and continued employment, with restrictions lapsing with respect to 25% of the award on each of the first four anniversaries of the grant date. Upon vesting, the stock options are exercisable at a price of $56.07, and the RSUs convert into shares of our common stock on a one-to-one basis. The terms of the RSUs do not provide for the right to vote or receive dividends or other distributions in respect of our common stock prior to the lapse of the restrictions. In 2009, Dr. Baldino received a total of 160,000 stock options and 80,000 RSUs. Each of the other NEOs received 50,000 stock options and 15,000 RSUs.

Salary and Bonus in Proportion to Total Compensation

For 2009, approximately 24% of our CEO's total compensation was delivered in the form of base salary and incentive bonus; for the other NEOs, the percentages ranged from approximately 33% to 37% of total compensation. As noted in the "Compensation Discussion and Analysis," we believe that our current compensation program aligns the interests of our NEOs with the interests of our stockholders, while also permitting the Compensation Committee to incentivize the NEOs to pursue specific performance goals. Please see "Compensation Discussion and Analysis" beginning on page 14 of this Proxy Statement for a description of our compensation program and overall compensation philosophy.

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Outstanding Equity Awards at Fiscal Year-End 2009

	Option Awards										Stock Awards

Name	Number of Securities Underlying Unexercised Options(#) Exercisable		Number of Securities Underlying Unexercised Options(#) Unexercisable(1)		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options(#)		Option Exercise Price ($)		Option Expiration Date(2)		Number of Shares or Units of Stock that Have Not Vested (#)(3)		Market Value of Shares or Units of Stock that Have Not Vested ($)(4)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested(#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights that Have Not Vested($)
Frank Baldino, Jr., Ph.D.		150,000		0		—	$	51.125		12/13/2010		201,250	$	12,562,025		—		—
		150,000		0		—	$	71.960		12/20/2011
		300,000		0		—	$	51.170		12/19/2012
		150,000		0		—	$	48.200		12/16/2013
		130,000		0		—	$	48.060		12/15/2014
		160,000		0		—	$	51.080		11/30/2015
		120,000		40,000		—	$	71.070		12/18/2016
		80,000		80,000		—	$	76.110		12/13/2017
		40,000		120,000		—	$	73.250		12/11/2018
		0		160,000		—	$	56.070		12/1/2019
J. Kevin Buchi		30,000		0		—	$	51.125		12/13/2010		37,500	$	2,340,750		—		—
		47,500		0		—	$	71.960		12/20/2011
		55,000		0		—	$	51.170		12/19/2012
		25,000		0		—	$	48.200		12/16/2013
		20,000		0		—	$	48.060		12/15/2014
		50,000		0		—	$	51.080		11/30/2015
		37,500		12,500		—	$	71.070		12/18/2016
		25,000		25,000		—	$	76.110		12/13/2017
		12,500		37,500		—	$	73.250		12/11/2018
		0		50,000		—	$	56.070		12/1/2019
Lesley Russell Cooper, MB.Ch.B, MRCP		10,000		0		—	$	51.125		12/13/2010		37,500	$	2,340,750		—		—
		11,000		0		—	$	71.960		12/20/2011
		3,000		0		—	$	48.200		12/16/2013
		2,600		0		—	$	48.060		12/15/2014
		5,200		0		—	$	51.080		11/30/2015
		37,500		12,500		—	$	71.070		12/18/2016
		25,000		25,000		—	$	76.110		12/13/2017
		12,500		37,500		—	$	73.250		12/11/2018
		0		50,000		—	$	56.070		12/1/2019
Gerald J. Pappert		12,500		37,500			$	67.660		5/21/2018		26,250	$	1,638,525		—		—
		12,500		37,500		—	$	73.250		12/11/2018
		0		50,000		—	$	56.070		12/1/2019
Robert P. Roche, Jr.		48,700		0		—	$	71.960		12/20/2011		37,500	$	2,340,750		—		—
		1,255		0		—	$	48.060		12/15/2014
		12,500		0		—	$	51.080		11/30/2015
		37,500		12,500		—	$	71.070		12/18/2016
		25,000		25,000		—	$	76.110		12/13/2017
		12,500		37,500		—	$	73.250		12/11/2018
		0		50,000		—	$	56.070		12/1/2019

(1): The following table provides information with respect to the vesting dates of each outstanding stock option held by the NEOs as of December 31, 2009. Mr. Roche resigned from the Company effective February 5, 2010. All unvested stock options in his name as of February 5, 2010 were forfeited under the terms of the Company's 2004 Equity Compensation Plan.

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			# of Options Exercisable

Original Grant Date		Stock Option Vesting Date	Dr. Baldino		Mr. Buchi		Dr. Russell		Mr. Roche		Mr. Pappert
May 22, 2008		May 22, 2010		—		—		—		—		12,500
December 2, 2009		December 2, 2010		40,000		12,500		12,500		12,500		12,500
December 11, 2008		December 11, 2010		40,000		12,500		12,500		12,500		12,500
December 13, 2007		December 13, 2010		40,000		12,500		12,500		12,500		—
December 19, 2006		December 19, 2010		40,000		12,500		12,500		12,500		—
May 22, 2008		May 22, 2011		—		—		—		—		12,500
December 2, 2009		December 2, 2011		40,000		12,500		12,500		12,500		12,500
December 11, 2008		December 11, 2011		40,000		12,500		12,500		12,500		12,500
December 13, 2007		December 13, 2011		40,000		12,500		12,500		12,500		—
May 22, 2008		May 22, 2012		—		—		—		—		12,500
December 2, 2009		December 2, 2012		40,000		12,500		12,500		12,500		12,500
December 11, 2008		December 11, 2012		40,000		12,500		12,500		12,500		12,500
December 2, 2009		December 2, 2013		40,000		12,500		12,500		12,500		12,500

	Totals			400,000		125,000		125,000		125,000		125,000

(2): The option grant date for each award listed is 10 years prior to the respective option expiration date.
(3): The following table provides information with respect to the vesting dates of each outstanding RSU award held by the NEOs as of December 31, 2009. Mr. Roche resigned from the Company effective February 5, 2010. All unvested RSU awards in his name as of February 5, 2010 were forfeited under the terms of the Company's 2004 Equity Compensation Plan.

			# of Shares Vested

Original Grant Date		RSUs Vesting Date	Dr. Baldino		Mr. Buchi		Dr. Russell		Mr. Roche		Mr. Pappert
February 1, 2006		February 1, 2010		1,250		—		—		—		—
December 2, 2009		December 2, 2010		20,000		3,750		3,750		3,750		3,750
December 11, 2008		December 11, 2010		20,000		3,750		3,750		3,750		3,750
December 13, 2007		December 13, 2010		20,000		3,750		3,750		3,750		—
December 19, 2006		December 19, 2010		20,000		3,750		3,750		3,750		—
December 2, 2009		December 2, 2011		20,000		3,750		3,750		3,750		3,750
December 11, 2008		December 11, 2011		20,000		3,750		3,750		3,750		3,750
December 13, 2007		December 13, 2011		20,000		3,750		3,750		3,750		—
December 2, 2009		December 2, 2012		20,000		3,750		3,750		3,750		3,750
December 11, 2008		December 11, 2012		20,000		3,750		3,750		3,750		3,750
December 2, 2009		December 2, 2013		20,000		3,750		3,750		3,750		3,750

	Totals			201,250		37,500		37,500		37,500		26,250

(4): Calculated as the number of unvested RSUs multiplied by the closing price of our common stock on December 31, 2009 ($62.42).

2009 Option Exercises and Stock Vested

	Option Awards				Stock Awards

Name	Number of Shares Acquired on Exercise (#)		Value Realized on Exercise ($)		Number of Shares Acquired on Vesting (#)(1)		Value Realized on Vesting ($)
Frank Baldino, Jr., Ph.D.		41,000	$	1,193,305		81,250	$	4,759.888
J. Kevin Buchi		—		—		15,000	$	874,275
Lesley Russell Cooper, MB.Ch.B, MRCP		—		—		11,650	$	688,953
Gerald J. Pappert.		—		—		3,750	$	221,025
Robert P. Roche, Jr.		—		—		15,000	$	874,275

(1): Represents the vesting on various dates in December 2009 of RSUs originally granted in December 2005, 2006, 2007 and 2008, and, for Dr. Baldino, also represents the vesting of RSUs originally granted in February 2006.

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2009 Non-Qualified Deferred Compensation

Name	Executive Contributions in Last FY ($)(1)			Aggregate Earnings in Last FY ($)(2)			Aggregate Balance at Last FYE ($)(3)

Frank Baldino, Jr., Ph.D.		—	—		—	—		—
J. Kevin Buchi		—	—		—	—		—
Lesley Russell Cooper, MB.Ch.B, MRCP		—	—	$	40,236		$	825,067
Gerald J. Pappert		—	—		—	—		—
Robert P. Roche, Jr.	$	190,150	—	$	16,090	—	$	356,541

(1): Amounts shown in this column represent amounts deferred by the NEO in early 2009 from bonus amounts paid under the 2008 MICP. For Mr. Roche, the amount shown is reflected in the 2008 year data contained in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 31 of this Proxy Statement.
(2): Of the amounts reported in this column, $1,312 and $3,711 are included for Mr. Roche and Dr. Russell, respectively, in the "Change in Pension Value and Non Qualified Deferred Compensation Earnings" column of the Summary Compensation Table shown on page 31 of this Proxy Statement.
(3): For Mr. Roche and Dr. Russell, $143,981 and $344,142 have been reported in the Summary Compensation Table in previous years.

The 2009 Non-Qualified Deferred Compensation table above presents amounts deferred under our Deferred Compensation Plan. Employees at the level of Vice President and above, including the NEOs, are permitted to defer receipt of all or a portion of bonus received under the MICP until either a date specified at election by the employee or retirement. Deferred amounts are credited with an annual fixed rate of return that is set each year by the Compensation Committee. The Committee determines the interest rate for the Deferred Compensation Plan based on the prime rate plus 1 to 3%. For 2009, the interest rate was 5%; for 2010, the interest rate will remain at 5%. The Company does not "match" amounts that are deferred by employees pursuant to the Deferred Compensation Plan. Distributions from the Deferred Compensation Plan are paid in a lump sum upon the six-month anniversary of the termination of the employee's employment with the Company.

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2009 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

In 2002, we entered into executive severance agreements with each of our executive officers. These agreements provide for compensation and benefits in the event that the executive's employment with us is terminated prior to a Change in Control of Cephalon or on account of a Change in Control of Cephalon. Any of the following situations would constitute a "Change in Control" under the executive severance agreements:

•: the consummation of certain transactions, including mergers, where more than 50% of the combined voting power of our outstanding securities or the sale of more than 75% of our assets is transferred;
•: the acquisition by any person or entity of the beneficial ownership of securities representing 30% or more of the combined voting power of our then outstanding voting securities; or
•: a change in the composition of our Board over a period of 24 months or less such that a majority of the Board members ceases to be comprised of individuals who either (x) have been Board members continuously since the beginning of such period, or (y) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (x) who were still in office at the time such election or nomination was approved by the Board.

To be covered by the executive severance agreements, an executive must be either terminated without "Cause" or subject to a "Constructive Termination." A termination of an executive for "Cause" would not trigger any liability to an executive under the executive severance agreement. Cause is when an executive has engaged in any act of unethical conduct, willful misconduct, fraud or embezzlement, any unauthorized disclosure of confidential information or trade secrets or any other act that is materially and demonstrably detrimental to the Company.

The definition of a "Constructive Termination" depends on the executive officer. For Dr. Baldino, he would be subject to a constructive termination if:

•: prior to a Change in Control, he voluntarily resigns because either (i) we change his position, resulting in a material reduction in his level of responsibility or (ii) we reduce his base salary by more than 25%; or
•: after or in connection with a Change in Control, he voluntarily resigns because we, or our successor, without his consent, (i) changes his position, resulting in a material reduction in his level of responsibility, (ii) reduces his aggregate level of compensation (including base salary, significant fringe benefits or any non-discretionary and objective-standard incentive payment or bonus award) by more than 10%, or (iii) relocates his place of employment such that Dr. Baldino's commute would increase by more than 50 miles.

For our other executives, each is considered subject to a Constructive Termination if, after or in connection with a Change in Control, the executive voluntarily resigns because we, or our successor, without the executive's consent, (i) changes his or her position which materially reduces the level of responsibility, (ii) reduces his or her aggregate level of compensation (including base salary, significant fringe benefits or any non-discretionary and objective-standard incentive payment or bonus award) by more than 10%, or (iii) relocates the executive's place of employment such that the executive's commute would increase by more than 50 miles.

The executive severance agreements require, as a pre-condition to the receipt of any benefits, that the executive sign a standard form of release waiving any and all current and future claims against the Company relating to his or her employment with, or termination by, the Company.

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Payment Obligations under Executive Severance Agreements upon Termination of Employment of a Named Executive Officer

The following table sets forth our lump-sum payment obligations under the executive severance agreements upon a termination of the employment of our NEOs under various scenarios. The table assumes termination on December 31, 2009 and payment of such termination obligations within a reasonable time thereafter.

		Prior to Change in Control(1)			After or In Connection With Change in Control(2)

Name	Benefit(3)	Agreement Provision	Dollar Value of Benefit		Agreement Provision	Dollar Value of Benefit
Frank Baldino, Jr., Ph.D.	Severance—Base Salary(4)	3x base salary	$	3,920,400	3x base salary	$	3,920,400
	Severance—Bonus(4)	3x target bonus + pro rata bonus for current year		5,227,200	3x target bonus + pro rata bonus for current year		5,227,200
	Stock Options and RSUs(5)	n/a		—	Unvested awards immediately vest		13,578,025
	Medical/Dental Benefits(6)	Coverage for 36 months		79,971	Coverage for 36 months		79,971
	Outplacement Services	Cash payment for outplacement		15,000	Cash payment for outplacement		15,000
	Tax Gross-ups(7)	n/a		—	Amount paid to cover excise tax		—

		Total	$	9,242,571	Total	$	22,820,596

J. Kevin Buchi	Severance—Base Salary(4)	1.5x base salary	$	842,250	3x base salary	$	1,684,500
	Severance—Bonus(4)	n/a		—	3x target bonus + pro rata bonus for current year		1,123,000
	Stock Options and RSUs(5)	n/a		—	Unvested awards immediately vest		2,658,250
	Medical/Dental Benefits(6)	Coverage for 18 months		21,579	Coverage for 36 months		45,547
	Outplacement Services	Cash payment for outplacement		15,000	Cash payment for outplacement		15,000
	Tax Gross-ups(7)	n/a		—	Amount paid to cover excise tax		—

		Total	$	878,829	Total	$	5,526,297

Lesley Russell Cooper, MB.Ch.B, MRCP	Severance—Base Salary(4)	1.5x base salary	$	762,450	3x base salary	$	1,524,900
	Severance—Bonus(4)	n/a		—	3x target bonus + pro rata bonus for current year		1,016,600
	Stock Options and RSUs(5)	n/a		—	Unvested awards immediately vest		2,658,250
	Medical/Dental Benefits(6)	Coverage for 18 months		37,843	Coverage for 36 months		79,874
	Outplacement Services	Cash payment for outplacement		15,000	Cash payment for outplacement		15,000
	Tax Gross-ups(7)	n/a		—	Amount paid to cover excise tax		—
	Other(8)	Distribution of amounts held under Deferred Compensation Plan		825,067	Distribution of amounts held under Deferred Compensation Plan		825,067

		Total	$	1,640,360	Total	$	6,119,691

Gerald J. Pappert	Severance—Base Salary(4)	1.5x base salary	$	826,950	3x base salary	$	1,653,900
	Severance—Bonus(4)	n/a		—	3x target bonus + pro rata bonus for current year		1,102,600
	Stock Options and RSUs(5)	n/a		—	Unvested awards immediately vest		1,956,025
	Medical/Dental Benefits(6)	Coverage for 18 months		37,802	Coverage for 36 months		79,788
	Outplacement Services	Cash payment for outplacement		15,000	Cash payment for outplacement		15,000
	Tax Gross-ups(7)	n/a		—	Amount paid to cover excise tax		1,311,416

		Total	$	879,752	Total	$	6,118,729

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		Prior to Change in Control(1)			After or In Connection With Change in Control(2)

Name	Benefit(3)	Agreement Provision	Dollar Value of Benefit		Agreement Provision	Dollar Value of Benefit
Robert P. Roche, Jr.	Severance—Base Salary(4)	1.5x base salary	$	885,450	3x base salary	$	1,770,900
	Severance—Bonus(4)	n/a		—	3x target bonus + pro rata bonus for current year		1,180,600
	Stock Options and RSUs(5)	n/a		—	Unvested awards immediately vest		2,658,250
	Medical/Dental Benefits(6)	Coverage for 18 months		37,883	Coverage for 36 months		79,960
	Outplacement Services	Cash payment for outplacement		15,000	Cash payment for outplacement		15,000
	Tax Gross-ups(7)	n/a		—	Amount paid to cover excise tax		—
	Other(8)	Distribution of amounts held under Deferred Compensation Plan		356,541	Distribution of amounts held under Deferred Compensation Plan		356,541

		Total	$	1,294,874	Total	$	6,061,251

(1): For termination prior to a Change in Control, an NEO (other than Dr. Baldino) is entitled to benefits under the executive severance agreement if terminated on account of an involuntary termination for any reason other than Cause, Disability or death. Dr. Baldino is entitled to benefits under his executive severance agreement if he is terminated on account of (i) an involuntary termination for any reason other than Cause, Disability or death, or (ii) a voluntary termination for Constructive Termination.
(2): For termination after or in connection with a Change in Control, an NEO is entitled to benefits under the executive severance agreement if the NEO is terminated on account of (i) an involuntary termination for any reason other than Cause, Disability or death, (ii) a voluntary termination for Constructive Termination, (iii) an involuntary termination other than for Cause, Disability or death prior to or in connection with a Change in Control at the request of the acquirer, or (iv) a voluntary termination for any reason other than Cause, Disability or death during the thirty day period immediately following the first anniversary of the occurrence of a Change in Control.
(3): The Company will not pay benefits to an NEO under the executive severance agreement if an NEO is terminated for Cause by the Company.
(4): For termination prior to a Change in Control, the payment due to an NEO (other than Dr. Baldino) is equal to 1.5 times the NEO's then-current base salary. For Dr. Baldino, the payment is equal to the sum of (i) 3 times his then-current base salary, (ii) 3 times his target annual bonus and (iii) the pro rata portion of his target annual bonus earned as of the termination date. For termination after or in connection with a Change in Control, the payment due to an NEO is equal to the sum of (i) 3 times the NEO's then-current base salary, (ii) 3 times the NEO's target annual bonus and (iii) the pro-rata portion of the NEO's target annual bonus earned as of the termination date.
(5): For termination after or in connection with a Change in Control, all unvested stock options and RSUs held by an NEO vest immediately. For stock options, the dollar value is calculated for "in-the-money" options by multiplying the number of accelerated options by the difference of $62.42, the closing price of the Company's common stock on December 31, 2009, and the option exercise price.
(6): Under the executive severance agreement, medical and dental coverage is provided to the NEO and his or her spouse and dependents for a certain period of time, depending on the nature of the NEO's termination. The agreement states that the NEO will receive a cash payment in lieu of such coverage in an amount equal to the NEO's after-tax cost of continuing such coverage, where such coverage may not be continued. For termination prior to a Change in Control, Dr. Baldino and each of the other NEOs will continue to receive medical and dental coverage for 36 months and 18 months, respectively. For termination after or in connection with a Change in Control, each NEO will continue to receive medical and dental coverage for 36 months. Values reported in the table reflect the projected present value based on premium equivalent rates for continued medical and dental coverage for the period specified for each NEO, assuming an annual discount rate of 1.67% and an estimated annual increase in health care costs of 10%.
(7): Under the executive severance agreement, the NEOs are eligible to receive "gross-up" payments for any payments they receive in connection with a Change in Control that would cause the NEO to incur excise taxes under Section 4999 of the Code. For fiscal year 2009, Mr. Pappert would receive a gross-up payment to cover excise tax in the event of a change in control. Because he has been employed by the Company less than five years, his base period includes only his wages paid in 2008 (on an annualized basis) and not a five-year historical average. Accordingly, because Mr. Pappert's base period consists only of 2008, this contributed to the determination that Mr. Pappert would have incurred excise taxes under Section 4999 of the Code and, therefore, resulted in a reportable gross-up payment to cover such taxes.
(8): Represents the distribution to the NEO of amounts owed to them under the Deferred Compensation Plan (see page 36 of this Proxy Statement). Amounts are paid in a lump sum upon the six-month anniversary of the termination of the NEO's employment with the Company.

An NEO is not eligible for the benefits set forth in the executive severance agreement if his or her employment is terminated due to a "Disability." Instead, the NEO will receive disability benefits under any disability program maintained by the Company that covers the NEO. Likewise, in the case of a termination due to death of an NEO, the NEO will receive benefits only under any program (including life insurance) maintained by the Company that covers the NEO.

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2009 NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

Name	Fees Earned or Paid in Cash ($)(1)			Option Awards ($)(2)					Total ($)

William P. Egan	$	132,000	—	$	215,898	—	—	—	$	347,898
Martyn D. Greenacre	$	129,000	—	$	215,898	—	—	—	$	344,898
Vaughn M. Kailian	$	124,000	—	$	215,898	—	—	—	$	339,898
Kevin E. Moley	$	128,000	—	$	215,898	—	—	—	$	343,898
Charles A. Sanders, M.D.	$	127,000	—	$	215,898	—	—	—	$	342,898
Gail R. Wilensky, Ph.D.	$	108,000	—	$	215,898	—	—	—	$	323,898
Dennis L. Winger	$	130,000	—	$	215,898	—	—	—	$	345,898

(1): Consists of the amounts described below under "Cash Compensation." With respect to Mr. Egan, includes $20,000 paid for service as Presiding Director of the Board. With respect to Mr. Greenacre, includes $17,000 paid for service as a committee chairperson of the Corporate Governance and Nominating Committee. With respect to Mr. Moley, includes $20,000 paid for service as a committee chairperson of the Special Investigatory Committee. With respect to Mr. Sanders, includes $17,000 paid for service as a committee chairperson of the Stock Option and Compensation Committee and $15,000 paid for service as a member of the Special Investigatory Committee. With respect to Mr. Winger, includes $20,000 paid for service as the committee chairperson of the Audit Committee and $15,000 paid for service as a member of the Special Investigatory Committee.
(2): On May 12, 2009, each of the non-employee directors received a grant of stock options to purchase 10,000 shares of Cephalon common stock at an exercise price of $66.55 per share, which were immediately exercisable. The fair value of each option award granted to the non-employee directors in 2009 was $215,898, as calculated under applicable accounting guidance, excluding the effect of certain forfeiture assumptions. See Note 14 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2009 for a discussion of the assumptions used in the calculation. The total number of stock option awards outstanding that were granted to non-employee directors as of December 31, 2009 was 545,000.

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Compensation for Service as a Non-Employee Director

The Company compensates its non-employee directors through a mix of cash compensation and stock option grants. The components of the non-employee directors' compensation are as follows:


Cash Compensation:
• Board Service Annual Retainer	$	50,000
• Per Board Meeting Fees
• Attendance in person	$	5,000	/mtg.
• Attendance by telephone	$	2,000	/mtg.
• Committee Service Fees
• Audit Committee Chair Annual Retainer	$	20,000
• Stock Option and Compensation Committee Chair Annual Retainer	$	17,000
• Corporate Governance and Nominating Committee Chair Annual Retainer	$	17,000
• Special Investigatory Committee Chair Annual Retainer	$	20,000
• Committee Member Annual Retainer	$	15,000
• Presiding Director Annual Retainer	$	20,000
Stock Option Compensation:
• Initial Grant (upon first election or appointment to Board)		15,000	shares
• Annual Grant (upon the date of the Annual Meeting)		10,000	shares

Under the 2004 Plan, the initial grant of 15,000 stock options to a non-employee director is made at the time of the earlier to occur of such director's appointment as a director by the Board or first election to the Board by stockholders. This initial award generally vests over a four-year period, with 25% becoming exercisable on each anniversary of the grant date. Upon the date of re-election to the Board at the Annual Meeting, a non-employee director will receive an annual grant of 10,000 stock options that are fully exercisable on the date of grant. The Board of Directors also may grant options to non-employee directors in addition to the automatic grants described above. Stock options granted to non-employee directors have a ten-year term and are granted with an exercise price equal to the fair market value of our common stock on the date of grant.

In May 2009, all non-employee directors each received an annual grant of stock options to purchase 10,000 shares of common stock at an exercise price of $66.55 per share, which were immediately exercisable.

Dr. Baldino receives no additional remuneration for his service as a director. The Company also reimburses directors for travel expenses incurred in connection with attending Board, committee and stockholder meetings and for other Company business-related expenses. The Company does not provide retirement benefits or other perquisites to non-employee directors under any current program.

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STOCK OWNERSHIP AND PERFORMANCE

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the beneficial ownership of the Company's common stock as of February 28, 2010 (except as noted) by (i) the NEOs and the Company's directors; (ii) each person or group that is known to us to be the owners of more than five percent of the outstanding shares of the Company's common stock; and (iii) all executive officers and directors as a group. As of February 28, 2010, there were 74,939,874 shares of common stock outstanding. Except as otherwise noted, the business address of each person shown below is 41 Moores Road, Frazer, PA 19355.

Name			Percentage of Class(3)

Frank Baldino, Jr., Ph.D.		1,629,625	2.14%
J. Kevin Buchi		324,152	*
Lesley Russell Cooper, MB.Ch.B, MRCP		123,164	*
Gerald J. Pappert		27,565
Robert P. Roche, Jr.(4)		136,782	*
William P. Egan		121,661	*
Martyn D. Greenacre		100,200	*
Vaughn M. Kailian		55,000	*
Kevin E. Moley		42,250	*
Charles A. Sanders, M.D.		96,000	*
Gail R. Wilensky, Ph.D.		75,000	*
Dennis L. Winger		75,000	*
Wellington Management Company, LLP(5)		10,420,220	13.90%
	75 State Street Boston, MA 02109
BlackRock, Inc.(6)		10,019,697	13.37%
	55 East 52^nd Street New York, NY 10055
T. Rowe Price Associates, Inc.(7)		5,508,321	7.35%
	100 E. Pratt Street Baltimore, MD 21202
Vanguard Specialized Funds—Vanguard Healthcare Fund(8)		5,464,502	7.29%
	100 Vanguard Blvd. Malvern, PA 19355
FMR LLC(9)		5,333,543	7.12%
	82 Devonshire Street Boston, MA 02109
The Vanguard Group, Inc.(10)		3,863,369	5.16%
	100 Vanguard Blvd. Malvern, PA 19355
All executive officers and directors as a group (18 persons)		3,462,484	4.45%

*: Less than 1%
(1): Beneficial ownership is determined in accordance with the rules of the SEC and means voting or investment power with respect to securities. Except as indicated below, the individuals or groups named in this table have sole voting and investment power with respect to all shares of common stock indicated above.

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(2)

Includes shares that may be acquired upon the exercise of outstanding options that were exercisable within 60 days of February 28, 2010 as follows: Dr. Baldino 1,280,000 shares; Mr. Buchi 302,500 shares; Dr. Russell 106,800 shares; Mr. Roche 123,700 shares; Mr. Pappert 26,250 shares; Mr. Egan 100,000 shares; Mr. Greenacre 100,000 shares; Mr. Kailian 55,000 shares; Mr. Moley 41,250 shares; Dr. Sanders 95,000 shares; Dr. Wilensky 75,000 shares; Mr. Winger 75,000 shares; and all executive officers and directors as a group (18 persons) 2,975,050 shares.

(3)

Shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days of February 28, 2010 and shares of common stock issuable upon the conversion of the Company's convertible subordinated notes are deemed to be outstanding and beneficially owned by the person or group holding such option or notes, as the case may be, for purposes of computing such person's percentage ownership as of February 28, 2010 but are not deemed outstanding for the purpose of computing the percentage ownership of any other person or group as of February 28, 2010.

(4)

Mr. Roche resigned his position with the Company effective February 5, 2010.

(5)

Information is as of December 31, 2009 and is based upon a Schedule 13G, as amended and filed by Wellington Management Company, LLP ("WMC") with the SEC on February 12, 2010. WMC is an investment adviser with respect to 10,420,220 shares that are held of record by clients of WMC. WMC has shared voting power with respect to 3,480,214 shares and shared dispositive power with respect to 10,420,220 shares.

(6)

Information is as of December 31, 2009 and is based upon a Schedule 13G, filed by BlackRock, Inc. ("BlackRock") with the SEC on January 8, 2010. BlackRock is a Delaware corporation and a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G) f the Securities Exchange Act of 1934. BlackRock has sole voting power and sole dispositive power with respect to 10,019,697 shares.

(7)

Information is as of December 31, 2009 and is based upon a Schedule 13G, as amended and filed with the SEC by T. Rowe Price Associates, Inc. ("T. Rowe Price") on February 12, 2010. These securities are owned by various individual and institutional investors, for which T. Rowe Price serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price is deemed to be a beneficial owner of such securities; however, T. Rowe Price expressly disclaims that it is, in fact, the beneficial owner of such securities. T. Rowe Price has sole voting power to vote 1,232,352 shares and sole dispositive power over 5,508,321 shares.

(8)

Information is as of December 31, 2009 and is based upon a Schedule 13G filed with the SEC by Vanguard Specialized Funds—Vanguard Healthcare Fund ("Vanguard SF-VHF"), an Investment Company registered under Section 8 of the Investment Company Act of 1940, on February 4, 2010. Vanguard SF-VHF is the beneficial owner and has sole voting power of 5,464,502 shares as a result of its serving as investment manager of trust accounts owning such shares.

(9)

Information is as of December 31, 2009 and is based upon a Schedule 13G, as amended and filed by FMR LLC ("FMR") and others with the SEC on February 16, 2010 that states the following:

•: Fidelity Management & Research Company ("Fidelity"), a wholly owned subsidiary of FMR and an investment adviser, is the beneficial owner of 5,076,599 shares as a result of acting as investment adviser to various investment companies. The number of shares of common stock of Cephalon, Inc. owned by the investment companies at December 31, 2009 included 10,707 shares of common stock resulting from the assumed conversion of $500,000 principal amount of the Company's 2% convertible notes due June 2015 (21.4133 shares of common stock for each $1,000 principal amount of debenture). The number of shares of common stock owned by the investment companies at December 31, 2009 included 3,768 shares of common stock resulting

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from the assumed conversion of $260,000 principal amount of the Company's 2.5% convertible notes due May 2014 (14.4928 shares of common stock for each $1,000 principal amount of debenture).

•: Edward C. Johnson, 3d, Chairman of FMR, and FMR, through its control of Fidelity and its funds (the "Funds") each has sole dispositive power of the 5,076,599 shares owned by the Funds. Neither FMR nor Edward C. Johnson, 3d, has the sole power to vote or direct the voting of the shares owned directly by the Funds, which power resides with the Funds' Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds' Boards of Trustees.
•: Members of the family of Edward C. Johnson 3d, Chairman of FMR LLC, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders' voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders' voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC.
•: Strategic Advisers, Inc., a wholly-owned subsidiary of FMR and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, provides investment advisory services to individuals. As such, FMR's beneficial ownership includes 5,621 shares of the common stock beneficially owned through Strategic Advisers, Inc.
•: Pyramis Global Advisors, LLC ("PGA LLC"), an indirect wholly-owned subsidiary of FMR and an investment adviser registered under Section 203 of the Investment Advisors Act of 1940, is the beneficial owner of 198,239 shares of the common stock, as a result of its serving as investment advisor to institutional accounts, non-U.S. mutual funds, or investment companies registered under Section 8 of the Investment Company Act of 1940 owning such shares. The number of shares of common stock owned by institutional account(s) at December 31, 2009 included 69,657 shares of common stock resulting from the assumed conversion of $3,253,000 principal amount of the Company's 2% convertible notes due June 2015 (21.4133 shares of Common stock for each $1,000 principal amount of debenture). The number of shares of common stock owned by the institutional account(s) at December 31, 2009 included 25,362 shares of common stock resulting from the assumed conversion of $1,750,000 principal amount of the Company's 2.5% convertible notes due May 2014 (14.4928 shares of common stock for each $1,000 principal amount of debenture).
•: Edward C. Johnson, 3d and FMR, through its control of PGA LLC, each has sole dispositive power over 198,239 shares and sole power to vote or to direct the voting of 198,239 shares owned by the institutional accounts or funds advised by PGA LLC as reported above.
•: Pyramis Global Advisors Trust Company ("PGATC"), an indirect wholly-owned subsidiary of FMR and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is the beneficial owner of 53,084 shares, as a result of its serving as investment manager of institutional accounts owning such shares. The number of shares of common stock owned by institutional account(s) at December 31, 2009 included 6,424 shares of common stock resulting from the assumed conversion of $300,000 principal amount of the Company's 2% convertible notes due June 2015 (21.4133 shares of common stock for each $1,000 principal amount of debenture). The number of shares of common stock owned by the institutional account(s) at December 31, 2009 included 2,609 shares of common stock resulting from the assumed conversion of $180,000 principal amount of the Company's 2.5% convertible notes due May 2014 (14.4928 shares of common stock for each $1,000 principal amount of debenture).

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•: Edward C. Johnson, 3d and FMR, through its control of PGATC, each has sole dispositive power over 53,084 shares and sole power to vote or to direct the voting of 53,084 shares owned by the institutional accounts managed by PGATC as reported above.

(10): Information is as of December 31, 2009 and is based upon a Schedule 13G, as amended and filed with the SEC by The Vanguard Group, Inc. ("Vanguard") on February 8, 2010. Vanguard has sole voting power over 119,146 shares and sole dispositive power over 3,756,723 shares and, through its wholly-owned subsidiary, Vanguard Fiduciary Trust Company ("VFTC"), is the beneficial owner of 106,646 shares as a result of its serving as investment manager of collective trust accounts. VFTC directs the voting of these shares.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that each director and executive officer of the Company, and any other person who owns more than ten percent of the Company's common stock, file with the SEC initial reports of ownership and reports of changes in ownership of common stock of the Company. Such directors, executive officers and greater-than-ten-percent stockholders are required by regulation to furnish the Company with copies of such reports. To the knowledge of the Company, based solely upon its review of reports furnished to it, as well as written representations from its directors and executive officers to the effect that no other such reports were required to be filed, each covered person met all Section 16(a) filing requirements during 2009.

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PROPOSAL 1—ELECTION OF DIRECTORS

Eight directors are to be elected at the 2010 Annual Meeting. The term of each director expires at the next Annual Meeting of Stockholders and each director shall hold office until the election and qualification of his or her respective successor or until his or her earlier death, removal or resignation. The Board consists of such number of directors as is fixed from time to time by resolution adopted by the Board as provided in the Company's bylaws. The Board currently is authorized to have up to eight members.

The nominees for election as directors of the Company are Drs. Baldino, Sanders and Wilensky, Ambassador Moley and Messrs. Egan, Greenacre, Kailian and Winger. All nominees are presently directors of the Company whose current terms expire at the time of the 2010 Annual Meeting. All nominees have consented to be named, and have agreed to serve if elected. If this should not be the case, however, the proxies may be voted for a substitute nominee to be designated by the Board, or, as an alternative, the Board may reduce the number of directors to be elected at the meeting or leave the position(s) vacant.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR EACH OF THE FOLLOWING NOMINEES FOR ELECTION AS DIRECTORS.

Name of Director		Age			Principal Occupations During Past Five Years, Certain Directorships and Certain Experience, Qualifications, Attributes and Skills		Year First Became Director

Frank Baldino, Jr., Ph.D.			56		Dr. Baldino, founder of the Company, has served as Chief Executive Officer and director since the Company's inception. He was appointed Chairman of the Board of Directors in 1999. He currently serves as a director of Acusphere, Inc., a drug delivery company, NicOx S.A., a company engaged in the research, development and commercialization of nitric oxide therapeutics, and Viropharma Inc., an international biopharmaceutical company specializing in proprietary antiviral pharmaceuticals. Dr. Baldino served as a director of Pharmacopeia, Inc., a developer of proprietary technology platforms for pharmaceutical companies, until 2009. Dr. Baldino also holds several adjunct academic appointments and is a trustee of The University of the Sciences and Temple University. With Dr. Baldino's experience as founder, Chairman and CEO, he brings a tremendous knowledge regarding Cephalon from a short- and long-term strategic perspective and from a day-to-day operational perspective. Dr. Baldino serves as a conduit between the Board and management and oversees management's efforts to realize the Board's strategic goals.			1987

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Name of Director		Principal Occupations During Past Five Years, Certain Directorships and Certain Experience, Qualifications, Attributes and Skills

William P. Egan	65	Mr. Egan is a founder and general partner of Alta Communications, a venture capital firm. He founded Alta's predecessor firm, Burr, Egan, Deleage & Co. in 1979 and has identified and backed several of America's leading growth companies in the communications and information industries. Mr. Egan currently serves as a director of CRH plc, a building materials supply company. Mr. Egan's general and industry-specific experience provides valuable business, management and leadership experience. As a venture capitalist, Mr. Egan advises numerous companies regarding business challenges and opportunities and has an excellent sense of the general business and economic environment. Mr. Egan has served as a director of Cephalon for over 20 years, allowing him to understand well the challenges and opportunities Cephalon has faced and will face. In recognition of Mr. Egan's business acumen and tenure as director, the Board selected Mr. Egan to serve as its Presiding Director.	1988
Martyn D. Greenacre	68	Since July 2004, Mr. Greenacre has served as Chairman of BMP Sunstone Corporation, a pharmaceutical company. Mr. Greenacre also has served since 2002 as Chairman of Life Mist Technologies, Inc., a fire suppression equipment company. From 1997 to 2001, Mr. Greenacre served as Chief Executive Officer and director of Delsys Pharmaceutical Corporation, a formulation and drug delivery system company. From 1993 to 1997, Mr. Greenacre served as President and Chief Executive Officer and as a director of Zynaxis Inc., a biopharmaceutical company. From 1989 to 1992, Mr. Greenacre was Chairman Europe, SmithKline Beecham Pharmaceutical company. He joined SmithKline & French in 1973, where he held positions of increasing responsibility in its European organization. Mr. Greenacre currently serves as a director of Acusphere, Inc., a drug delivery company and Curis, Inc., a biotechnology company. Until 2008, Mr. Greenacre served as a director of Immune Response Corp. (a/k/a Orchestra Therapeutics), a vaccine company. Mr. Greenacre has significant healthcare and pharmaceutical industry experience, both serving in leadership positions of several companies and as a director of several companies. In particular, based on his experience as Chairman of BMP Sunstone and as Chairman Europe of SmithKline Beecham, Mr. Greenacre serves as a resource to the Board regarding the Company's international operations, as well

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Name of Director		Principal Occupations During Past Five Years, Certain Directorships and Certain Experience, Qualifications, Attributes and Skills

		as its international opportunities and challenges. Mr. Greenacre has served as a director of Cephalon for almost 20 years, allowing him to understand well the challenges and opportunities Cephalon has faced and will face.	1992
Vaughn M. Kailian	65	Mr. Kailian is a Managing Director of MPM Capital LP, a leading healthcare venture capital firm. He was Vice Chairperson of the Board of Directors of Millennium Pharmaceuticals, Inc. from February 2002 until December 2004. He served as CEO, President and Director of COR Therapeutics, Inc., a biotechnology company, from 1990 until its acquisition by Millennium in 2002. Prior to this, Mr. Kailian was employed by Marion Merrell Dow, Inc., a pharmaceutical company, and its predecessor companies, in various international and U.S. management, marketing and sales positions from 1967 to 1990, including President and General Manager, Merrell Dow USA and Corporate Vice President of Global Commercial Development, Marion Merrell Dow, Inc. Mr. Kailian currently serves on the board of directors of NicOx, S.A., a pharmaceutical company, BIO Ventures for Global Health, a non-profit organization, and BIO (the Biotechnology Industry Organization). From 2006 to 2009 he served as President, Chief Executive Officer and director of Memory Pharmaceuticals, a biopharmaceutical company. From 2004 to 2007, he served as Chairman of the Board of ViaCell, Inc., a biotechnology company. Mr. Kailian has extensive healthcare and pharmaceutical industry experience, both in leadership positions, as a director and as a venture capitalist. Mr. Kailian's tenure as CEO of Cor Therapeutics provides him with valuable business, management and leadership experience. In his current role with MPM Capital, Mr. Kailian is well-positioned to provide advice to the Board regarding general healthcare challenges and opportunities and the business development environment.	2005
Kevin E. Moley	63	Ambassador Moley currently serves as Chairman of the Board of Project Concern International, a not-for-profit organization based in San Diego, California, that provides poverty and health care solutions in fifteen countries serving over three million people. He also serves as a Senior Advisor to the CEO of Healthy Communities Institute, a provider of community health data services, in San Francisco, California. Ambassador Moley served as the U.S. Permanent Representative to the United Nations and Other International Organizations in Geneva from September 2001 to April 2006. Ambassador Moley also

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Name of Director		Principal Occupations During Past Five Years, Certain Directorships and Certain Experience, Qualifications, Attributes and Skills

		served in the administration of George H.W. Bush as an Assistant Secretary of the U.S. Department of Health and Human Services (HHS) from 1989 to 1992 and as the Deputy Secretary of HHS from 1992 to 1993. In addition to his government service, Ambassador Moley was President and Chief Executive Officer of Integrated Medical Systems Inc. from 1996 to 1998 and was a Senior Vice President of PCS Health Systems, Inc. from 1993 to 1996. Ambassador Moley also served on the Board of Directors of Merge Technologies Inc., a developer of medical imaging and information management software and services, from 2006 to 2008 and Aperature Health, Inc., a provider of on-line health and wellness services from 2008 to 2009. Ambassador Moley previously served as a member of the Cephalon Board of Directors from 1994 to 2001. Ambassador Moley's government experience allows him to provide insights regarding regulatory compliance and guidance with respect to government matters. In particular, his services at HHS allows him to advise the Board regarding the formulation of health policy and potential effects on the Company's business. In addition, Mr. Moley's leadership roles at various healthcare companies as an executive officer or director provides him with valuable business, management and leadership experience.	2006
Charles A. Sanders, M.D.	78	Dr. Sanders is retired from Glaxo, Inc., where he served as Chief Executive Officer from 1989 through 1994 and Chairman of the Board from 1992 through 1995. He also served on the Board of Directors of Glaxo plc. Previously, Dr. Sanders held a number of positions at Squibb Corporation, including Vice Chairman. Dr. Sanders currently serves as Lead Director of Vertex Pharmaceuticals, a biotechnology company, Chairman of the Board of Icagen, Inc., a biopharmaceutical company, and as a director of Biodel Inc., a specialty pharmaceutical company, and Biocryst Pharmaceuticals, Inc., a biotechnology company. From 1999 to 2009, he served as lead director of Genentech, Inc., a biopharmaceutical company, and from 1996 to 2006, he served as director for Trimeris, Inc. Dr. Sanders's tenure as Glaxo's CEO and Chairman provides him with valuable business, management and leadership experience as well as the ability to serve as a resource with respect to our international operations. In addition, his service on the boards of pharmaceutical companies of varying sizes provides him with unique insights regarding the pharmaceutical industry and Cephalon-specific challenges and opportunities.	2001

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Name of Director		Principal Occupations During Past Five Years, Certain Directorships and Certain Experience, Qualifications, Attributes and Skills

Gail R. Wilensky, Ph.D.	66	Dr. Wilensky serves as a Senior Fellow at Project HOPE, an international health education foundation, which she joined in 1993. From 2008 to 2009, she was President of the Defense Health Board, a federal advisory committee for the Department of Defense. From 1997 to 2001, Dr. Wilensky chaired the Medicare Payment Advisory Committee, which advises Congress on all issues relating to Medicare. In November 2004, Dr. Wilensky was appointed as the Vice Chair of the Maryland Health Care Commission. From December 2006 to 2008, Dr. Wilensky was a co-chair of a Congressionally-mandated task force on the future of military health care. Dr. Wilensky also is an elected member of the Institute of Medicine and its Governing Council, and serves as a trustee of the Combined Benefits Fund of the United Mineworkers of America and the National Opinion Research Center of the University of Chicago. Dr. Wilensky currently serves as a director of Quest Diagnostics, Inc., a leading provider of diagnostic testing, information and services, SRA International, Inc., a provider of information technology services to the government, UnitedHealth Group, a health care company, and Brainscope, a privately held medical neuro-technology company. From 2000 to 2009, she served as a director of Gentiva Health Services, a specialty pharmaceutical and home health care company; and from 1998 to 2007, Dr. Wilensky served as a director of ManorCare, Inc., a provider of health care services. Dr. Wilensky's extensive government and non-profit experience allows her to provide insights regarding regulatory compliance and guidance with respect to government matters. In particular, her government service allows her to advise the Board regarding the formulation of health policy and potential effects on the Company's business. In addition, due to her service as a director to other companies, Dr. Wilensky contributes advice in best practices in corporate governance and analysis of business challenges and opportunities.	2002
Dennis L. Winger	62	Mr. Winger is designated as the Audit Committee Financial Expert. In 2008, Mr. Winger retired from Applera Corp., a life sciences company, where he was Senior Vice President and Chief Financial Officer responsible for developing financial and business strategies. He served as a member of Applera's Executive Committee. From 1989 to 1997, Mr. Winger served as Senior Vice President, Finance and Administration, and Chief Financial Officer of Chiron Corporation. From

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Name of Director		Age			Principal Occupations During Past Five Years, Certain Directorships and Certain Experience, Qualifications, Attributes and Skills		Year First Became Director

					1982 to 1989, Mr. Winger was with Cooper Companies, Inc., where he held positions of increasing responsibility, including that of Chief Financial Officer. Prior to this, Mr. Winger was with Continental Can Company holding a number of positions including Head of Finance for its international division and General Manager of its Latin American Operations. Mr. Winger currently serves as a director of Vertex Pharmaceuticals Incorporated, a global biotechnology company, Accuray Incorporated, a global company specializing in robotic radio-surgery systems and Nektar Therapeutics, a biopharmaceutical company. Mr. Winger previously served as a director of Cell Genesys, Inc. from 2004 to 2009 and A.P. Pharma Inc. from 1993 to 2006. Mr. Winger also serves on the Board of Trustees of Siena College. Mr. Winger has extensive general business and pharmaceutical industry experience in leadership positions, including chief financial officer. As such, Mr. Winger contributes valuable advice to the Board regarding Cephalon's challenges and opportunities and also complex financial and accounting issues. Based on his experience as a chief financial officer and his service on the audit committees of other companies, the Board has designated Mr. Winger as chairman of the Audit Committee and as the "audit committee financial expert" pursuant to SEC rules and NASDAQ listing standards.			2003

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PROPOSAL 2—APPROVAL OF AMENDMENT TO THE 2004 EQUITY COMPENSATION PLAN
INCREASING THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE

On January 26, 2010, the Compensation Committee adopted, subject to stockholder approval at this Annual Meeting, an amendment to the 2004 Plan that would increase by 1,500,000 shares the total number of shares of common stock authorized for issuance under the 2004 Plan from 14,950,000 shares to 16,450,000 shares. This amendment also provides that no more than 600,000 shares of Company stock from the Plan increase may be issued pursuant to stock awards that are granted under the 2004 Plan after May 20, 2010. The Board of Directors has directed that the proposal to increase the number of shares of common stock authorized for issuance under the 2004 Plan be submitted to the Company's stockholders for their approval ("Proposal 2"). If approved by stockholders, the increase in the number of shares authorized for issuance under the 2004 Plan will become effective on May 21, 2010.

As of March 5, 2010, there were only 875,082 shares available for issuance under the 2004 Plan. The Compensation Committee believes that this number is not sufficient in view of the Company's compensation structure and strategy. The Compensation Committee has concluded that the Company's ability to attract, retain and motivate top quality management and employees is material to the Company's success and would be enhanced by the Company's continued ability to grant equity compensation. In addition, the Compensation Committee believes that the interests of the Company and its stockholders will be advanced if the Company can continue to offer its employees and non-employee directors the opportunity to acquire or increase their proprietary interests in the Company. The Compensation Committee believes that the availability of the additional 1,500,000 shares of common stock will ensure that the Company continues to have a sufficient number of shares of common stock authorized for issuance under the 2004 Plan.

As of March 5, 2010, the total number of shares of common stock to be issued upon the exercise of outstanding options, warrants and rights granted under the Company's equity compensation plans (including the 2004 Plan) was 8,127,912, which is equal to approximately 10.8% percent of the Company's total outstanding shares of common stock as of March 5, 2010.

The material terms of the 2004 Plan are summarized below. This summary of the 2004 Plan is not intended to be a complete description of the 2004 Plan and is qualified in its entirety by the actual text of the 2004 Plan to which reference is made. A copy of the full text of the 2004 Plan, which provides for this increase in the number of shares of common stock, is attached to the electronic copy of this Proxy Statement filed with the SEC and may be accessed from the SEC's website (www.sec.gov).

Material Features of the 2004 Plan

General. The 2004 Plan provides for the grant of incentive stock options and non-qualified stock options (collectively, "Stock Options") and stock awards ("Stock Awards"). The 2004 Plan currently authorizes up to 14,950,000 shares of common stock for issuance, subject to adjustment in certain circumstances as discussed below. Stockholders are being asked to consider and approve an amendment that would, commencing on May 20, 2010, increase the number of shares of common stock available for grants under the 2004 Plan by an additional 1,500,000 shares, so that a total of 16,450,000 may be issued for grants under the 2004 Plan. Under this amendment, no more than 600,000 shares of common stock may be issued pursuant to Stock Awards that are granted under the 2004 Plan after May 20, 2010. If, prior to the end of their original term, Stock Options granted under the 2004 Plan terminate or are cancelled, forfeited, exchanged or surrendered without having been exercised, or if any Stock Awards are forfeited prior to the end of the applicable restriction period, the shares of common stock subject to such grants will again be available for future issuance under the 2004 Plan. Shares of common stock that were subject to Stock Options that expire at the end of their original term without being exercised and shares that were not issued pursuant to a Stock Option that was exercised through the use of shares are not available for future issuance under the 2004 Plan. The 2004 Plan currently

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provides that the maximum aggregate number of shares of common stock that may be granted pursuant to Stock Options to any individual during a calendar year is 500,000 shares.

Administration of the 2004 Plan. The 2004 Plan is administered and interpreted by the Compensation Committee. The Compensation Committee has the sole authority to (i) determine the persons to whom Stock Options and/or Stock Awards may be granted under the 2004 Plan, (ii) determine the type, size and other terms and conditions of each grant, (iii) determine the time when the grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability, (iv) amend the terms of any previously issued grant, so long as no previously granted Stock Option is repriced, replaced, or regranted through cancellation, or by lowering the exercise price of a previously granted Stock Option, unless the stockholders of the Company provide prior approval, and (v) deal with any other matters arising under the 2004 Plan.

Grants. All grants are subject to the terms and conditions set forth in the 2004 Plan and to those other terms and conditions consistent with the 2004 Plan as the Compensation Committee deems appropriate and as are specified in writing by the Compensation Committee to the designated individual (the "Grant Notice"). Grants under the 2004 Plan need not be uniform as among other recipients of the same type of grant.

Eligibility for Participation. All of the employees of the Company and its subsidiaries and advisors and consultants of the Company and its subsidiaries are eligible for grants under the 2004 Plan. The Compensation Committee determines which employees and consultants will receive grants under the 2004 Plan. Non-employee directors of the Company also are eligible to receive grants under the 2004 Plan. As of March 5, 2010, approximately 183 employees and seven non-employee directors were eligible for grants under the 2004 Plan; it is not possible to specify in advance the number of advisors and consultants who may be eligible for grants.

Stock Options. The Compensation Committee may grant Stock Options intended to qualify as incentive stock options ("ISOs") within the meaning of Section 422 of the Code or so-called "non-qualified stock options" that are not intended to so qualify ("NQSOs") or any combination of ISOs or NQSOs. Non-employee directors, consultants and advisors only receive NQSOs.

The Compensation Committee fixes the exercise price per share on the date of grant. The exercise price of any NQSO or ISO granted under the 2004 Plan may not be less than the fair market value of the underlying shares of common stock on the date of grant. The current measure of fair market value on a particular date is the closing sale price of a share of common stock as reported on NASDAQ on that date. However, if the grantee of an ISO is a person who holds more than 10% of the combined voting power of all classes of outstanding stock of the Company, the exercise price per share of an ISO must be at least 110% of the fair market value of a share of common stock on the date of grant. To the extent that the aggregate fair market value of shares of common stock, determined on the date of grant, with respect to which ISOs become exercisable for the first time by a grantee during any calendar year exceeds $100,000, such ISOs must be treated as NQSOs.

The Compensation Committee determines the term of each Stock Option; provided, however, that the exercise period may not exceed ten years from the date of grant and, if the grantee of an ISO is a person who holds more than 10% of the combined voting power of all classes of outstanding stock of the Company, the term may not exceed five years from the date of grant. The vesting period for Stock Options commences on the date of grant and ends on such date as is determined by the Compensation Committee, in its sole discretion, which is specified in the Grant Notice. A grantee may exercise a Stock Option by delivering notice of exercise to the Compensation Committee and paying the exercise price (i) in cash, (ii) with approval of the Compensation Committee, by delivering shares of common stock already owned by the grantee and having a fair market value on the date of exercise equal to the

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exercise price, or through attestation to ownership of such shares, or (iii) by such other method as the Compensation Committee may approve. The grantee must pay, at the time of exercise, the exercise price and the amount of any applicable federal, state or local withholding tax due in connection with such Stock Option exercise at the time specified by the Compensation Committee.

Formula Grants to Non-employee Directors. Non-employee directors of the Company will automatically receive, without the exercise of discretion by the Compensation Committee, annual grants of NQSOs. Under the 2004 Plan, each non-employee director will receive a grant of an NQSO to purchase 15,000 shares of common stock immediately upon his or her first becoming a member of the Board of Directors (whether by election or appointment). This initial grant vests over a four-year period, with 25% becoming exercisable on each anniversary of the grant date. Upon the date of re-election to the Board at the Annual Meeting, a non-employee director will receive an annual grant of a NQSO to purchase 10,000 shares of common stock that is fully exercisable on the date of grant. The date of grant of such annual grants will be the date of the Annual Meeting. The Board of Directors has the authority to determine the terms of these grants to non-employee directors. The Board of Directors may also grant NQSOs to non-employee directors in addition to the automatic grants described above. Currently, seven non-employee directors are entitled to receive automatic grants of NQSOs and are eligible to receive discretionary NQSO grants under the 2004 Plan.

Stock Awards. The Compensation Committee may issue shares of common stock under a Stock Award for such cash consideration, if any, as is determined by the Compensation Committee. Non-employee directors are not eligible for Stock Awards under the 2004 Plan. The number of shares of common stock granted to each grantee is determined by the Compensation Committee. The Grant Notice may provide for a period during which the Stock Award will remain subject to certain restrictions, including restrictions on transferability (the "Restriction Period"). During the Restriction Period, a grantee may not sell, assign, transfer, pledge or otherwise dispose of the shares of common stock to which such Restriction Period applies, except to a successor grantee in the event of the grantee's death. Unless the Compensation Committee determines otherwise, if a grantee's employment terminates or if a grantee who is an advisor or consultant ceases to perform services for the Company during the Restriction Period, the Stock Award terminates with respect to all shares of common stock covered by the Stock Award as to which the restrictions have not lapsed, and those shares of common stock shall be forfeited by the grantee and, if issued, immediately returned to the Company. All restrictions imposed under the Stock Award lapse upon the expiration of the applicable Restriction Period. In addition, the Compensation Committee may determine as to any or all Stock Awards that all restrictions will lapse under such other circumstances as it deems appropriate. The grantee does not have the right to vote or receive dividends or other distributions in respect of any shares of common stock covered by a Stock Award until the applicable Restriction Period has expired, unless the Compensation Committee provides otherwise in the Grant Notice. To ensure enforcement of the restrictions during the Restriction Period, the Company issues certificates for Stock Awards only when the applicable Restriction Period has lapsed.

Amendment and Termination of the 2004 Plan. The Board of Directors and, pursuant to authority delegated to the Compensation Committee by the Board of Directors, the Compensation Committee may amend or terminate the 2004 Plan at any time, subject to stockholder approval if required to comply with the Code, other applicable laws, applicable NASDAQ requirements, or the terms of the 2004 Plan. The 2004 Plan will terminate on February 4, 2014, unless terminated earlier by the Board of Directors or extended by the Board of Directors with approval of the stockholders.

Amendment and Termination of Outstanding Grants. A termination or amendment of the 2004 Plan that occurs after a grant is made will not result in the termination or amendment of the grant unless the grantee consents; provided, however, that the Compensation Committee may revoke any grant the terms of which are contrary to applicable law, or modify any grant to bring it into compliance

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with any then applicable government regulation. The Board of Directors cannot reprice, replace, or regrant any outstanding grant, unless the Company's stockholders consent. The termination of the 2004 Plan will not impair the power and authority of the Compensation Committee with respect to outstanding grants.

Adjustment Provisions. If there is any change in the number or kind of shares of common stock outstanding by reason of (i) a stock dividend, spin-off, recapitalization, stock split, or combination or exchange of such shares, (ii) a merger, reorganization or consolidation of the Company, (iii) reclassification or change in the par value, or (iv) any other extraordinary or unusual event, that, in each case, affects the outstanding shares of common stock as a class without the Company's receipt of consideration, or if the value of outstanding shares of common stock is substantially reduced as a result of a spin-off or the Company's payment of an extraordinary dividend or distribution, the maximum number of shares of common stock available for grants, the maximum limit on the number of shares that may be granted to any individual under the 2004 Plan in any year, the number of shares covered by outstanding grants, the kind of shares issued under the 2004 Plan, and the price per share of such grants will be equitably adjusted by the Compensation Committee, in such manner as the Compensation Committee deems appropriate, to reflect any increase or decrease in the number or kind of issued shares of common stock to preclude, to the extent practicable, the enlargement or dilution of the rights and benefits under the 2004 Plan and such grants.

Corporate Transactions/Change in Control of the Company. In the event of a "Corporate Transaction" (as defined below), unless (i) outstanding Stock Options and Stock Awards are assumed by the successor or parent of the successor, (ii) replaced with shares of the capital stock of the successor or parent having comparable value and terms, (iii) replaced with a cash incentive option or stock that preserves the Stock Option spread or Stock Award value existing at the time of the transaction and provides for subsequent payout in accordance with the same terms and conditions of the Stock Option and Stock Award, (iv) the Stock Option and Stock Award is replaced by a grant under another incentive program which the Compensation Committee determines is reasonably equivalent in value, or (v) the vesting period under the Stock Option or the Stock Award is subject to other limitations imposed by the Compensation Committee at the time of grant, all outstanding Stock Options will automatically accelerate and become immediately exercisable and all restrictions with respect to Stock Awards will lapse.

The 2004 Plan defines "Corporate Transaction" to mean the occurrence of either of the following stockholder-approved transactions to which the Company is a party: (i) a merger or consolidation in which more than 50% of the combined voting power of the Company's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of more than 75% of the Company's assets in a single or related series of transactions. "Change in Control" is generally defined in the 2004 Plan as a change in ownership or control of the Company through (a) the acquisition of more than 30% of the combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders which the Board of Directors does not recommend such stockholders accept; or (b) a change in the composition of the Board of Directors over a 24-month or shorter period such that a majority of the Board of Directors' members cease to continue as members subject to certain conditions described in the 2004 Plan.

In the event of a grantee's cessation of services by reason of an "Involuntary Termination" (as defined below) within 36 months after a Corporate Transaction in which such grantee's outstanding Stock Options were assumed or replaced or Stock Awards were replaced, or within 36 months after a "Change in Control," each Stock Option (or replacements thereof) will automatically accelerate and become fully exercisable and all restrictions applicable to Stock Awards (or replacements thereof) will lapse. The Stock Option will remain exercisable until the earlier of the expiration of the Stock Option term or the one-year period after the date of the Involuntary Termination.

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The 2004 Plan defines "Involuntary Termination" to mean the termination of the service of any grantee of the Company or any successor thereto which occurs by reason of (i) such individual's involuntary dismissal or discharge by the Company or the successor thereto for reasons other than the commission of any act of fraud, embezzlement or dishonesty by the grantee, any unauthorized use or disclosure by such individual of confidential information or trade secrets of the Company or its successor, or any other intentional misconduct by such individual adversely affecting the business or affairs of the Company, or its successor in a material manner, or (ii) such individual's voluntary resignation, in either case following: (a) a change in his or her position with the Company or the successor thereto which materially reduces his or her level of responsibility, (b) a reduction in his or her level of compensation (including base salary, significant fringe benefits or any non-discretionary and objective-standard incentive payment or bonus award) by more than 10% in the aggregate, or (c) a relocation of such individual's place of employment by more than 50 miles, only if such change, reduction or relocation is effected by the Company or the successor thereto without the individual's consent.

With respect to Stock Options granted to non-employee directors, upon the occurrence of a Corporate Transaction or upon Involuntary Termination of a non-employee director within 36 months following a Change in Control, each Stock Option of such non-employee director will automatically accelerate and become fully exercisable and will remain exercisable until the expiration of the option term or earlier surrender of such Stock Option.

The foregoing provisions do not serve to limit the Compensation Committee's ability to take other actions with respect to outstanding Stock Options and Stock Awards, including acceleration of exercisability or vesting, under its broad discretionary authority under the 2004 Plan.

Option and Stock Award Information. As of March 5, 2010, Stock Awards representing an aggregate of 2,724,725 shares of common stock (net of cancellations) had been awarded under the 2004 Plan, of which 849,525 remain subject to restrictions under the 2004 Plan, and Stock Options to purchase an aggregate of 11,350,193 shares of common stock (net of cancellations) had been granted under the 2004 Plan, of which 6,037,620 were outstanding. If the amendment to the 2004 Plan to increase the number of shares authorized to be issued under the 2004 Plan is approved, the total number of shares of common stock that may be issued under the 2004 Plan will be 16,450,000 shares, of which 2,375,082 shares will be available for issuance under the 2004 Plan.

New Plan Benefits. No grants have been made under the 2004 Plan that are subject to stockholder approval at the Annual Meeting. The following table shows the stock options that will be granted to our non-employee directors on the date of the Annual Meeting assuming each director's re-election at the Annual Meeting. Other than these grants, it is not possible at present to predict the number of grants that will be made or who will receive any such grants under the 2004 Plan after the Annual Meeting.

Non-Employee Director	Dollar Value

William P. Egan	*	10,000
Martyn D. Greenacre	*	10,000
Vaughn M. Kailian	*	10,000
Kevin E. Moley	*	10,000
Charles A. Sanders, M.D.	*	10,000
Gail R. Wilensky, Ph.D.	*	10,000
Dennis L. Winger	*	10,000

*: Fair market value to be calculated on date of grant

The closing price of the Company's common stock on March 25, 2010 was $ 70.82 per share.

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Federal Income Tax Consequences. The following is a brief description of the U.S. federal income tax consequences generally arising with respect to grants that may be awarded under the 2004 Plan. This discussion is intended for the information of the stockholders considering how to vote at the Annual Meeting and not as tax guidance to individuals who participate in the 2004 Plan.

The grant of an ISO or NQSO will create no tax consequence for the grantee or the Company. A grantee will not recognize taxable income upon exercising an ISO (except that the alternative minimum tax may apply), and the Company will receive no deduction at that time. Upon exercising an NQSO, the grantee must generally recognize ordinary income equal to the difference between the exercise price and the fair market value of the freely transferable and non-forfeitable shares received. The Company generally will be entitled to a deduction equal to the amount recognized as ordinary income by the grantee.

A grantee's disposition of shares acquired upon the exercise of an option generally will result in capital gain or loss measured by the difference between the sale price and the grantee's tax basis in such shares (the exercise price of the option in the case of shares acquired by exercise of an ISO and held for the applicable ISO holding periods). Generally, there will be no tax consequence to the Company in connection with a disposition of shares acquired under an option, except that the Company will be entitled to a deduction (and the grantee will recognize ordinary income) if shares acquired upon exercise of an ISO are disposed of before the applicable ISO holding periods are satisfied.

With respect to grants of Stock Awards under the 2004 Plan that are either not restricted as to transferability or not subject to a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of the shares received less any amounts paid for the shares. The Company generally will be entitled to a deduction for the same amount. With respect to Stock Awards involving shares that are restricted as to transferability and subject to a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of the shares received at the time that the shares become transferable or not subject to a substantial risk of forfeiture, whichever occurs earlier. The Company generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee. In certain circumstances, a grantee may elect to be taxed at the time of receipt of the grant of such restricted shares rather than upon the lapse of the restriction on transferability or the substantial risk of forfeiture, but if the grantee subsequently forfeits the shares, the grantee would not be entitled to any tax deduction, including a capital loss, for the value of the shares on which the grantee previously paid tax. Such election must be made and filed with the Internal Revenue Service within thirty (30) days after the date of the grant.

Section 162(m) of the Code generally disallows a public corporation's tax deduction for compensation paid to its principal executive officer and any of its three other most highly compensated executive officers (other than its principal executive officer and principal financial officer) in excess of $1,000,000 in any year. Compensation that qualifies as "qualified performance-based compensation" is excluded from the $1,000,000 deductibility cap, and therefore remains fully deductible by the corporation that pays it. The Company intends that Stock Options granted under the 2004 Plan by the Compensation Committee will qualify as "qualified performance-based compensation." At the Company's 2008 Annual Meeting of Stockholders, an amendment to the 2004 Plan was approved allowing for Stock Awards granted under the 2004 Plan to be granted as qualified performance-based compensation, but will only qualify as qualified performance-based compensation when the Compensation Committee conditions such grants on the achievement of specific performance goals in accordance with the requirements of Section 162(m) of the Code.

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Securities Authorized for Issuance under Equity Compensation Plans

The following table gives information about the common stock that may be issued upon the exercise of options, warrants and rights under all of the Company's existing equity compensation plans as of December 31, 2009, the 2004 Plan and the 2000 Plan.

Equity Compensation Plan Information

Plan Category			(b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(1)

Equity compensation plans approved by stockholders	7,147,445	(3)	$	63.38	686,982
Equity compensation plans not approved by stockholders(4)	1,286,467			62.49	3,725

Total	8,433,912	(5)	$	63.25	690,707	(6)

(1): The foregoing does not include stock options assumed under the Anesta Corp. 1993 Stock Option Plan (the "Anesta Plan") as a result of our acquisition of Anesta Corp. in 2000. As of December 31, 2009, there were 483 shares of common stock subject to outstanding stock options under the Anesta Plan, with a weighted average exercise price of these stock options of $31.37 per share. No additional shares are reserved for issuance under the Anesta Plan.
(2): The 2004 Plan permits our Board of Directors or the Compensation Committee to award stock options to participants. Up to 189,200 of the shares remaining available for issuance under equity compensation plans approved by stockholders may be issued as restricted stock units. Restricted stock unit awards are not permitted to be made under the terms of the 2000 Plan.
(3): Includes awards covering 895,250 shares of unvested restricted stock units that are outstanding under the 2004 Plan.
(4): Issued under the 2000 Plan, which does not require the approval of, and has not been approved by, Cephalon stockholders.
(5): As of March 5, 2010, there were 6,037,620 options outstanding with a weighted average price of $63.09 and a remaining term of 6.36 years. Additionally, there were 849,525 shares of unvested restricted stock units outstanding.
(6): Does not include 1,500,000 additional shares of common stock that would be available for issuance if this Proposal 2 is approved. As of March 5, 2010, there were 893,357 shares available for future grant. If the amendment to the 2004 Plan to increase the number of shares authorized to be issued is included, then 2,393,357 shares will be available for future grant, of which 600,000 can be issued as restricted stock awards.

2000 Equity Compensation Plan for Employees and Key Advisors

On December 13, 2000, the Board adopted the 2000 Plan. The 2000 Plan has been amended several times since its adoption, most recently on July 25, 2002. The 2000 Plan provides that options may be granted to the Company's employees who are not officers or directors of the Company and consultants and advisors who perform services for the Company. At the time of its initial approval, the 2000 Plan was not submitted to, nor was it required to be submitted to, the Company's stockholders for

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approval. Amendments to the 2000 Plan, including amendments increasing the number of shares of common stock reserved for issuance under the 2000 Plan, also did not require approval of the Company's stockholders. In light of changes to NASDAQ stockholder approval requirements for stock option plans, the Board has decided that it will not further increase the number of shares authorized for issuance under the 2000 Plan, but will continue to use any shares authorized for issuance under the 2000 Plan for future grants until the 2000 Plan expires according to its terms in 2010.

The purpose of the 2000 Plan is to promote the Company's success by linking the personal interests of the Company's non-executive employees and consultants and advisors to those of the Company's stockholders and by providing grantees with an incentive for outstanding performance. The 2000 Plan currently authorizes the granting of NQSOs only. The 2000 Plan is administered and interpreted by the Compensation Committee of the Board. The Compensation Committee determines the individuals who will receive an NQSO grant under the 2000 Plan, the number of shares of common stock subject to the NQSO, the period during which the NQSO becomes exercisable, the term of the NQSO (but not to exceed 10 years from the date of grant) and the other terms and conditions of the NQSO consistent with the terms of the 2000 Plan. All of the NQSOs that are currently outstanding under the 2000 Plan become exercisable ratably over a four-year period beginning on the date of grant and expire ten years from the date of grant. The exercise price of an NQSO granted under the 2000 Plan will be determined by the Compensation Committee, but may not be less than the fair market value of the underlying stock on the date of grant. A grantee may exercise an NQSO granted under the 2000 Plan by delivering notice of exercise to the Compensation Committee and paying the exercise price (i) in cash, (ii) with approval of the Compensation Committee, by delivering shares of common stock already owned by the grantee and having a fair market value on the date of exercise equal to the exercise price, or through attestation to ownership of such shares, or (iii) through such other method as the Compensation Committee may approve.

The Board has the authority to amend or terminate the 2000 Plan at any time without stockholder approval. The 2000 Plan will terminate on December 12, 2010, unless it is terminated earlier by the Board or is extended by the Board. No amendment or termination of the 2000 Plan may adversely affect any option previously granted under the 2000 Plan without the written consent of the grantee, unless required by applicable law.

The consequences described above under the description of the 2004 Plan with respect to "Corporate Transactions/ Change in Control of the Company" also apply to outstanding NQSOs under the 2000 Plan in the event of a Corporate Transaction or Change in Control.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 2 TO
APPROVE THE AMENDMENT 2010-1 TO THE 2004 EQUITY COMPENSATION PLAN.

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PROPOSAL 3—APPROVAL OF AN EMPLOYEE STOCK PURCHASE PLAN
APPROVAL OF THE CEPHALON, INC. EMPLOYEE STOCK PURCHASE PLAN

On March 29, 2010, our board of directors adopted the Cephalon, Inc. 2010 Employee Stock Purchase Plan (the "ESPP"), subject to stockholder approval at the 2010 annual meeting. If approved by our stockholders, the ESPP will become effective on May 20, 2010.

Our board of directors believes it is in our best interests and the interests of our stockholders to adopt the ESPP. The ESPP is intended to encourage ownership in our common stock by our employees and to provide an additional incentive for them to promote the long-term growth and success of our business. We believe that providing our employees with a convenient method to invest in our common stock will increase the equity stake of our employees and will benefit our stockholders by aligning more closely the interest of participating employees with those of our stockholders. The ESPP complements our overall compensation strategy as discussed under the section entitled "Compensation Discussion & Analysis." Stockholder approval of the ESPP is necessary in order for the ESPP to meet the requirements of Section 423 of the Internal Revenue Code and to comply with the listing maintenance standards of the NASDAQ stock market.

The material terms of the ESPP are summarized below. This summary of the ESPP is not intended to be a complete description of the ESPP and is qualified in its entirety by the actual text of the ESPP to which reference is made. A copy of the full text of the ESPP is attached to the electronic copy of this Proxy Statement filed with the SEC and may be accessed from the SEC's website (www.sec.gov).

Summary of the Cephalon, Inc. 2010 Employee Stock Purchase Plan

Purpose. The ESPP allows employees of our company and our participating subsidiaries to purchase shares of our common stock at a discount through payroll deductions. The purchase price will be 95% of the fair market value of our common stock on the purchase date, unless the plan administrator changes the amount of the discount prior to the beginning of an offering period to another formula allowed under Section 423 of the Internal Revenue Code. The purpose of the ESPP is to provide participating employees with the opportunity to acquire an ownership interest in us. These ownership interests are designed to provide an incentive for participants to help increase our long-term growth and success and provide an opportunity to share in that success as we continue to shape the future of our business.

Administration. The ESPP is administered by a committee appointed by our board of directors for such purpose (referred to as the plan administrator). The plan administrator will have full discretionary authority to interpret and construe any provision of the ESPP and to adopt such rules and regulations for administering the ESPP as it deems necessary.

Shares Available for Issuance Under the ESPP. We have reserved 350,000 shares of our common stock for issuance under the ESPP, subject to adjustment as described below.

Adjustments. In the event of stock splits, stock dividends, recapitalizations, combination of shares, exchange of shares or other events affecting our common stock, the plan administrator will make adjustments as it deems appropriate to the maximum number and class of securities issuable under the ESPP, the maximum number and class of securities purchasable per participant on any purchase date and the number and class of securities and the price per share in effect under each outstanding option, in order to prevent the dilution or enlargement of benefits thereunder.

Eligibility. Each of our employees and employees of our participating subsidiaries that adopt the ESPP who are regularly scheduled to work more than twenty hours per week will be eligible to participate in the ESPP. Under the requirements of the Internal Revenue Code, an employee who owns five percent or more of the total combined voting power of all classes of our stock is not eligible to

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participate. For purposes of determining who is a five percent owner, attribution of ownership rules apply, and shares of stock subject to outstanding options are taken into account. As of February 28, 2010, five named executive officers, four other executive officers and approximately 2,039 employees are eligible to participate in the ESPP.

Offering Period. Under the ESPP, there will be a series of consecutive offering periods. The first offering period is expected to begin on or before September 1, 2010 and will end on December 31, 2010, subject to stockholder approval of the ESPP. Unless the plan administrator determines otherwise prior to the beginning of an offering period, each subsequent offering period will begin at six-month intervals on each January 1 and July 1 (or the next business day, if such date is not a business day) over the term of the ESPP and will last for six months, ending on December 31 or June 30, as the case may be (or the next business day, if such date is not a business day).

Participation. Each eligible employee who elects to participate in an offering period will be granted an option to purchase shares of our common stock on the first day of the offering period. The option will automatically be exercised on the last day of the offering period, which is the purchase date, based on the employee's accumulated contributions to the ESPP. The purchase price of each share of our common stock under the ESPP will be equal to 95% of the closing selling price per share of our common stock on the purchase date. Participants will generally be permitted to allocate up to ten percent of their compensation to purchase our common stock under the ESPP. The plan administrator may change the purchase price formula prior to the beginning of an offering period so long as the purchase price is not less than the minimum price allowed under Section 423 of the Internal Revenue Code (the lesser of 85% of the fair market value of our common stock on the first day of the offering period or 85% of the fair market value of our common stock on the last day of the offering period).

Cessation of Participation. Participants may stop their participation in the ESPP during any offering period by filing the appropriate forms with the plan administrator at least thirty days before the purchase date or other date as the plan administrator determines. A participant who elects to cease participation in the ESPP for a particular offering period may not rejoin that offering period at a later date. Participation ends automatically upon termination of employment or if the participant ceases to be an eligible employee for any reason (including death, disability, termination of employment, or other change in status).

Maximum Number of Purchasable Shares. The maximum number of shares that a participant may purchase on any purchase date is equal to $25,000 divided by the closing selling price per share of our common stock on the first day of the offering period, subject to share adjustments in connection with certain events as described above. The plan administrator may establish different limits before the start of any offering period. In addition, under IRS requirements no participant may purchase more than $25,000 worth of our common stock during each calendar year in which the option is outstanding.

Change in Control. If we experience a change in control (as determined by the plan administrator) while the ESPP is in effect, all outstanding options under the ESPP will automatically be exercised immediately prior to the effective date of the change in control and the purchase price for each share of our common stock under the ESPP on such purchase date will be equal to 95% of the closing selling price per share of our common stock, immediately prior to the change in control (or other formula in effect for the offering period). If a change in control occurs, the limitation on the aggregate number of shares that a participant may purchase on any given purchase date will continue to apply.

Amendment. Our board of directors may amend or terminate the ESPP at any time, with such amendment or termination to become effective immediately following the close of an offering period. However, our board of directors may not amend the ESPP without stockholder approval if such amendment increases the number of shares of our common stock issuable under the ESPP (except for

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permissible adjustments in the event of changes in our capitalization), alters the purchase price formula to reduce the allowable purchase price for shares purchasable under the ESPP, or modifies the eligibility requirements under the ESPP.

Termination. Unless sooner terminated by our board of directors, the ESPP will terminate upon the earlier of (i) the date all shares available for issuance under the ESPP have been issued or (ii) the date all options are exercised in connection with a change in control.

Benefits Under the ESPP. The benefits to be received by our executive officers and employees under the ESPP are not determinable because, under the terms of the ESPP, the amounts of future stock purchases are based upon elections made by eligible employees subject to the terms and limits of the ESPP. Directors who are not employees do not qualify as eligible employees and thus cannot participate in the ESPP. Future purchase prices are not determinable because they will be based upon the closing selling price of our common stock. As of February 28, 2010, five named executive officers, four other executive officers and approximately 2,039 employees are eligible to participate in the ESPP. No shares of our common stock have been issued with respect to the ESPP for which stockholder approval is being sought under this proposal.

The closing selling price per share of our common stock on March 25, 2010, was $ 70.82.

Federal Income Tax Consequences

The following is a brief description of the U.S. federal income tax consequences generally arising with respect to options that may be awarded under the ESPP. The ESPP is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code. The ESPP is not intended to qualify under Section 401 of the Internal Revenue Code and is not subject to the requirements of the Employee Retirement Income Security Act of 1974, as amended. This description of the federal income tax consequences of the ESPP is not a complete description. There may be different tax consequences under certain circumstances, and there may be federal gift and estate tax consequences and state, local and foreign tax consequences. All affected individuals should consult their own advisors regarding their own situation. This discussion is intended for the information of the stockholders considering how to vote at the annual meeting and not as tax guidance to individuals who will participate in the ESPP.

Under the Internal Revenue Code as currently in effect, a participant in the ESPP will not be deemed to have recognized income, nor will we be entitled to a deduction, upon the participant's purchase of our common stock under the ESPP. Instead, a participant will recognize income when he or she sells or otherwise disposes of our common stock or upon his or her death.

If a participant sells our common stock purchased under the ESPP more than two years after the date on which the option to purchase our common stock was granted and more than one year after the purchase of our common stock (the holding period), a portion of the participant's gain will be ordinary income and a portion will be capital gain. The participant will be taxed at ordinary income tax rates on the excess of the value of our common stock on the date on which the option was granted (on the first day of the offering period) over the purchase price, or, if less, the entire gain on the sale. The participant will have additional capital gain or loss equal to the difference, if any, between the proceeds of the sale and the participant's basis in our common stock (the purchase price plus any ordinary income realized). The capital gain rate will depend on how long our common stock is held by the participant. We will not be entitled to any tax deduction with respect to a sale by a participant after the holding period.

If a participant sells our common stock before the expiration of the holding period, the participant generally will be taxed at ordinary income tax rates to the extent that the value of our common stock on the purchase date exceeded the purchase price. We will be entitled to a corresponding deduction.

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The participant will have additional capital gain or loss on the difference between the proceeds of the sale and the participant's basis in our common stock (the purchase price plus any ordinary income realized). The capital gain rate will depend on how long our common stock is held by the participant.

The estate of a participant who dies while holding our common stock purchased under the ESPP will recognize ordinary income in the year of the participant's death in an amount equal to the excess of the value of our common stock on the date on which the option was granted over the purchase price, or, if less, the amount by which the fair market value of our common stock on the date of death exceeds the purchase price.

Vote Required and Recommendation of our Board of Directors

This proposal will be approved if a majority of the votes cast with respect to the proposal, are FOR approval. Abstentions on this proposal are not considered "votes cast" and will have no effect on the outcome of the vote. Similarly, broker non-votes are not considered "votes cast" with respect to this proposal and, therefore, will have no effect on the outcome of the vote.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
PROPOSAL 3 TO APPROVE THE CEPHALON, INC. EMPLOYEE STOCK PURCHASE PLAN.

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PROPOSAL 4—RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE
YEAR ENDING DECEMBER 31, 2010

The Board, on the recommendation of the Audit Committee, has reappointed PwC as the Company's independent registered public accountants (the "independent auditors") for the year ending December 31, 2010, and has further directed that management submit the selection of PwC as independent registered public accountants for ratification by the stockholders at the Annual Meeting. Stockholder ratification of the selection of PwC as the Company's independent auditors is not required by Cephalon's bylaws, Delaware corporate law or otherwise. The Board has elected to seek such ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection of PwC as independent auditors, the Board will reconsider whether to retain that firm for fiscal year 2010.

PwC has audited the Company's financial statements since their appointment in June 2002. Representatives of PwC are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.

The following table sets forth the aggregate fees billed by PwC to the Company for:

	2008		2009

Audit fees(1)	$	2,433,872	$	2,517,679
Audit-Related fees(2)		423,000		568,223
Tax fees(3)		940,206		580,724
All other fees(4)		122,600		—

TOTAL	$	3,919,678	$	3,666,626

(1): Fees for professional services performed by PwC for the audit of the Company's annual financial statements and review of financial statements included in the Company's Form 10-Q filings, and services that are normally provided in connection with statutory regulatory filings or engagements.
(2): Fees for assurance and related services performed by PwC that are reasonably related to the performance of the audit or review of the Company's financial statements. This primarily includes: due diligence work; royalty audits; attestations by PwC that are not required by statute or regulation; and advice on financial accounting/reporting standards.
(3): Fees for professional services performed by PwC with respect to tax compliance ($437,627 in 2008 and $158,371 in 2009) and tax advice ($502,579 in 2008 and $422,353 for 2009). This includes preparation of original and amended tax returns for the Company and its consolidated subsidiaries; transfer pricing assistance, and general tax advice.
(4): Fees for other permissible work performed by PwC that does not meet the above category descriptions.

The Audit Committee's policy is to pre-approve the engagement of PwC to render all audit and tax-related services for the Company, as well as any changes to the terms of the engagement. The Audit Committee also will pre-approve all non-audit related services proposed to the provided by the Company's independent registered public accounting firm. The Audit Committee reviews the terms and description of, and budget for, the engagement. The request for services must be specific as to the particular services to be provided. Requests are aggregated and submitted to the Audit Committee in one of the following ways: requesting approval of services at a meeting of the Audit Committee, through a written consent or by a designated member of the Audit Committee. All services performed by PwC in 2009 were pre-approved by the Audit Committee in accordance with the Audit and Non-Audit Pre-Approval Policy.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 4
TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE
YEAR ENDING DECEMBER 31, 2010

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OTHER MATTERS

The Board is not aware of any matters not set forth herein that may come before the meeting. If, however, further business properly comes before the meeting in accordance with the Company's bylaws, the persons named in the proxies will vote the shares represented thereby in accordance with their judgment on such matters. The chairman of the meeting may refuse to allow the transaction of any business not presented, or to acknowledge the nomination of any person not made, in compliance with the foregoing procedures.

ADDITIONAL INFORMATION

"Householding" of Proxy Materials

Cephalon has adopted a method of delivery for its proxy materials called "householding." Under this method, the Company delivers only one copy of the proxy materials to one or more stockholders who share the same last name and address (and who have chosen not to participate in electronic delivery), unless such stockholders have notified the Company that they wish to continue to receive multiple copies. Cephalon adopted the householding method to reduce the amount of duplicative material that its stockholders receive and to lower printing and mailing costs. Householding is in effect for the 2010 Annual Meeting of Stockholders and will remain in effect for all future Annual Meetings. If you are currently a stockholder sharing an address with another stockholder and wish to receive only one copy of future Proxy materials for your household, please contact the Company in writing or by calling the Company's Investor Relations at 610-883-5894.

If you are a registered stockholder who previously received multiple copies and wish to continue to receive multiple copies of the Company's proxy materials at the same address, additional copies will be provided promptly to you upon request. You may request multiple copies by notifying the Company in writing or verbally that you wish to opt out of the householding program at Investor Relations, Cephalon, Inc., 41 Moores Road, Frazer, Pennsylvania 19355, (610) 738-6376. You may opt out of householding at any time prior to 30 days prior to the mailing of proxy materials in April of each year. If you own the Company's common stock in nominee name (such as through a broker), please notify your broker if you wish to continue to receive multiple copies of the proxy materials.

Proxy Solicitation Costs

Cephalon pays all of the costs of preparing, mailing and soliciting proxies. In addition to the use of the mails, proxies may be solicited by telephone by officers, directors and a small number of regular employees of the Company who will not be specially compensated for such services. The Company also has requested banks, brokers and other custodians, nominees and fiduciaries to solicit proxies from beneficial owners, where appropriate, and will reimburse such persons for reasonable expenses incurred in that regard.

Advance Notice Provisions

Under Section 2.10 of the Company's bylaws, no business may be brought before an Annual Meeting unless it is specified in the notice of the meeting or is otherwise brought before the meeting at the direction of the Board or by a stockholder entitled to vote who has delivered written notice to the Secretary of the Company not earlier than the close of business on the 120^th day nor later than the close of business on the 90^th day prior to the first anniversary of the preceding year's Annual Meeting. In addition, any stockholder who wishes to submit a nomination to the Board must deliver written notice of the nomination within this time period and comply with the information requirements in the bylaws relating to stockholder nominations. See "Governance of the Company—How does the Board select nominees for the Board?" for additional information about stockholder nominations. These

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requirements are separate from and in addition to requirements that a stockholder must meet in order to have a stockholder proposal included in the Company's Proxy Statement.

Stockholder Proposals for the 2011 Annual Meeting

Stockholders interested in submitting a proposal for inclusion in the proxy materials for the Annual Meeting of Stockholders in 2011 may do so by following the procedures prescribed in Rule 14a-8 under the Securities Exchange Act of 1934. To be eligible for inclusion, stockholder proposals must be received by the Secretary of the Company at its corporate offices at 41 Moores Road, Frazer, PA 19355, no later than December 2, 2010.

Annual Report on Form 10-K

The Company will furnish without charge to each person whose proxy is being solicited, upon the request of such person, a paper copy of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, including the financial statements and schedules thereto, but excluding exhibits. Requests for copies of such report should be directed to Investor Relations, Cephalon, Inc., 41 Moores Road, Frazer, Pennsylvania 19355, (610) 738-6376. The Annual Report on Form 10-K accompanies this Proxy Statement, but does not constitute a part of this Proxy Statement.


		By Order of the Board of Directors,
		GERALD J. PAPPERT Secretary
Frazer, Pennsylvania April 1, 2010

Attachment 1

CEPHALON, INC.

2004 EQUITY COMPENSATION PLAN

(As Amended and Restated, Effective as of May 12, 2009)

The purpose of the Cephalon, Inc. 2004 Equity Compensation Plan (the “Plan”) is to provide (i) designated employees of Cephalon, Inc. (the “Company”) and its subsidiaries, (ii) certain consultants and advisors who perform valuable services for the Company or its subsidiaries and (iii) non-employee members of the Board of Directors of the Company (the “Board”), with the opportunity to receive grants of incentive stock options, nonqualified stock options and stock awards, as set forth herein. The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefiting the Company’s stockholders, and will align the economic interests of the participants with those of the stockholders.

1. Administration

(a) Committee. The Plan shall be administered by a committee, which may consist of “outside directors” as defined under section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and related Treasury regulations and “non-employee directors” as defined under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). However, the Board may ratify or approve any grants as it deems appropriate.

(b) Committee Authority. The Committee shall have the sole authority to (i) determine the individuals to whom grants shall be made under the Plan, (ii) determine the type, size and terms of the grants to be made to each such individual, (iii) determine the time when the grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability, (iv) amend the terms of any previously issued grant, so long as no previously granted option is repriced, replaced, or regranted through cancellation, or by lowering the option exercise price of a previously granted option, unless the stockholders of the Company provide prior approval, and (v) deal with any other matters arising under the Plan. Notwithstanding the foregoing, non-employee members of the Board shall be eligible to receive only nonqualified stock options pursuant to the provisions of Section 6 hereof.

(c) Committee Determinations. The Committee shall have full power and authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, in its sole discretion. The Committee’s interpretations of the Plan and all determinations made by the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interest in the Plan or in any awards granted hereunder. All powers of the Committee shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals.

2. Grants

Awards under the Plan may consist of grants of incentive stock options as described in Section 5 (“Incentive Stock Options”), nonqualified stock options as described in Section 5 (“Nonqualified Stock Options”) (Incentive Stock Options and Nonqualified Stock Options are collectively referred to as “Options”) grants or Nonqualified Stock Options to non-employee members of the Board as described in Section 6 and stock awards as described in Section 7 (“Stock Awards”) (hereinafter collectively referred to as “Grants”). All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions consistent with this Plan as the Committee deems appropriate and as are specified in writing by the Committee to the individual in a grant instrument or an amendment to the grant instrument (the “Grant Instrument”). The Committee shall approve the form and provisions of each Grant Instrument. Grants under a particular Section of the Plan need not be uniform as among the grantees.

3. Shares Subject to the Plan

(a) Shares Limits.

(1) Shares Authorized. Subject to adjustment as described below, the aggregate number of shares of common stock of the Company (“Company Stock”) that may be issued or transferred under the Plan is 14,950,000 shares; provided, however, that after May 12, 2009, no more than 600,000 shares of Company Stock may be issued pursuant to Stock Awards that are granted under the Plan after such date.

(2) Annual Individual Maximum. The maximum aggregate number of shares of Company Stock that shall be subject to Grants made under the Plan to any individual during any calendar year shall not exceed 500,000 shares, subject to adjustment as described below.

(3) Source of Shares for Issuance. Shares issuable pursuant to the exercise of Options and the grant of Stock Awards may be delivered out of the authorized but unissued shares of Company Stock or reacquired shares of Company Stock, including shares purchased by the Company on the open market for purposes of the Plan.

(4) Expiration of Options; Canceled, Forfeited, Exchanged, Surrendered Options. With respect to Options granted under the Plan that expire at the end of their original term without having been exercised, the shares of Company Stock subject to such Options will not be available for future issuance or transfer under the Plan. With respect to Options granted under the Plan that terminate or are canceled, forfeited, exchanged or surrendered without having been exercised prior to the end of their original term, or any Stock Awards that are forfeited prior to the end of the applicable Restriction Period (as defined in Section 7), the shares of Company Stock subject to such Grants shall again be available for future issuance or transfer under the Plan.

(b) Adjustments. If there is any change in the number or kind of shares of Company Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock split, or combination or exchange of shares, (ii) by reason of a merger, reorganization or consolidation, (iii) by reason of a reclassification or change in par value, or (iv) by reason of any other extraordinary or unusual event affecting the outstanding Company Stock as a class without the Company’s receipt of consideration, or if the value of outstanding shares of Company Stock is substantially reduced as a result of a spinoff or the Company’s payment of an extraordinary dividend or distribution, the maximum number of shares of Company Stock available for Grants, the maximum number of shares of Company Stock that any individual participating in the Plan may be granted as Options or Stock Awards in any year, the number of shares covered by outstanding Grants, the kind of shares issued under the Plan, and the price per share of such Grants shall be equitably adjusted by the Committee, in such manner as the Committee deems appropriate, to reflect any increase or decrease in the number of, or change in the kind or value of, the issued shares of Company Stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under the Plan and such outstanding Grants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. In addition, in the event of a Change in Control (as defined in Section 11) or Corporate Transaction (as defined in Section 11), the provisions of Section 11 shall apply. Any adjustments to outstanding Grants shall be consistent with section 409A or 422 of the Code, to the extent applicable. Any adjustments determined by the Committee shall be final, binding and conclusive.

4. Eligibility for Participation

(a) Eligible Persons. All employees of the Company and its subsidiaries (“Employees”), including Employees who are officers or members of the Board, and members of the Board who are not Employees (“Non-Employee Directors”) shall be eligible to participate in the Plan; provided, however, that Non-Employee Directors may only receive Nonqualified Stock Options pursuant to Section 6. Consultants and advisors who perform services for the Company or any of its subsidiaries (“Key Advisors”) shall be eligible to participate in the Plan if the Key Advisors render bona fide services to the Company or its subsidiaries, the services are not in connection with the offer and sale of securities in a capital-raising transaction, and the Key Advisors do not directly or indirectly promote or maintain a market for the Company’s securities.

(b) Selection of Grantees. The Committee shall select the Employees and Key Advisors to receive Grants and shall determine the number of shares of Company Stock subject to a particular Grant in such manner as the Committee determines. Grants to Non-Employee Directors shall be governed by Section 6. Employees, Key Advisors and Non-Employee Directors who receive Grants under this Plan shall hereinafter be referred to as “Grantees.”

(c) Prospective Employees and Key Advisors. Option and Stock Awards may be granted to a prospective Employee or Key Advisor conditioned upon, and the date of grant shall be no earlier than, the date such person becomes an Employee or Key Advisor.

5. Granting of Options

(a) Number of Shares. Subject to the limitations set forth in Section 3 and except as provided in Section 6, the Committee shall determine the number of shares of Company Stock that will be subject to each Grant of Options to Employees, Non-Employee Directors and Key Advisors.

(b) Type of Option and Price.

(i) The Committee may grant Incentive Stock Options that are intended to qualify as “incentive stock options” within the meaning of section 422 of the Code or Nonqualified Stock Options that are not intended so to qualify or any combination of Incentive Stock Options and Nonqualified Stock Options, all in accordance with the terms and conditions set forth herein. Incentive Stock Options may be granted only to Employees. Nonqualified Stock Options may be granted to Employees, Non-Employee Directors and Key Advisors.

(ii) The purchase price (the “Exercise Price”) of Company Stock subject to an Option shall be determined by the Committee and may be equal to or greater than the Fair Market Value (as defined below) of a share of Company Stock on the date the Option is granted; provided, however, that an Incentive Stock Option may not be granted to an Employee who, at the time of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company, unless the Exercise Price per share is not less than 110% of the Fair Market Value of Company Stock on the date of grant.

(iii) If the Company Stock is publicly traded, then the Fair Market Value per share shall be determined as follows: (x) if the principal trading market for the Company Stock is a national securities exchange or the Nasdaq National Market, the last reported sale price thereof on the relevant date or (if there were no trades on that date) the latest preceding date upon which a sale was reported, or (y) if the Company Stock is not principally traded on such exchange or market, the mean between the last reported “bid” and “asked” prices of Company Stock on the relevant date, as reported on Nasdaq or, if not so reported, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as applicable and as the Committee determines. If the Company Stock is not publicly traded or, if publicly traded, is not subject to reported transactions or “bid” or “asked” quotations as set forth above, the Fair Market Value per share shall be as determined by the Committee.

(c) Option Term. The Committee shall determine the term of each Option. The term of any Option shall not exceed ten years from the date of grant. However, an Incentive Stock Option that is granted to an Employee who, at the time of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company, or any parent or subsidiary of the Company, may not have a term that exceeds five years from the date of grant.

(d) Exercisability of Options. Options shall become exercisable in accordance with such terms and conditions, consistent with the Plan, as may be determined by the Committee and specified in the Grant Instrument. The Committee may impose such additional restrictions or conditions on the exercisability of Options or on the shares of Company Stock issuable upon exercise of the Options as it shall determine and specify in the Grant Instrument. The Committee may accelerate the exercisability of any or all outstanding Options at any time for any reason.

(e) Exercise of Options. A Grantee may exercise an Option that has become exercisable, in whole or in part, by delivering a notice of exercise to the Company. The Grantee shall pay the Exercise Price for an Option as specified by the Committee (x) in cash, (y) with the approval of the Committee, by delivering shares of Company Stock owned by the Grantee and having a Fair Market Value on the date of exercise equal to the Exercise Price or by attestation (on a form prescribed by the Committee) to ownership of shares of Company Stock having a Fair Market Value on the date of exercise equal to the Exercise Price, or (z) to the extent permitted by applicable law, by such other method as the Committee may approve. Shares of Company Stock used to exercise an Option shall have been held by the Grantee for the requisite period of time to avoid adverse accounting consequences to the Company with respect to the Option. The Grantee shall pay the Exercise Price and the amount of any withholding tax due (pursuant to Section 9) as specified by the Committee.

(f) Limits on Incentive Stock Options. Each Incentive Stock Option shall provide that, if the aggregate Fair Market Value of the stock on the date of the grant with respect to which Incentive Stock Options are exercisable for the first time by a Grantee during any calendar year, under the Plan or any other stock option plan of the Company or a parent or subsidiary, within the meaning of section 424(f) of the Code, exceeds $100,000, then the Option, as to the excess, shall be treated as a Nonqualified Stock Option. An Incentive Stock Option shall not be granted to any person who is not an Employee of the Company or a parent or subsidiary.

6. Option Grants to Non-Employee Directors

A Non-Employee Director shall be entitled to receive Nonqualified Stock Options in accordance with this Section 6.

(a) Initial Grant. Each Non-Employee Director who first becomes a member of the Board will receive a grant of a Nonqualified Stock Option to purchase 15,000 shares of Company Stock, immediately upon his or her becoming a member of the Board, according to such terms as the Board, in its sole discretion, may deem appropriate.

(b) Annual Grants. On each date that the Company holds its annual meeting of stockholders each Non-Employee Director in office immediately after the annual election of directors (including any directors first elected at such meeting) will receive a grant of a Nonqualified Stock Option to purchase 10,000 shares of Company Stock according to such terms as the Board, in its sole discretion, may deem appropriate. The date of grant of such annual Grants shall be the date of such annual meeting of stockholders.

(c) Discretionary Grants. In addition to the grants provided under Sections 6(a) and 6(b), Non-Employee Directors shall be eligible to receive grants of Nonqualified Stock Options under the Plan at such times, in such amounts and according to such terms as the Board, in its sole discretion, may deem appropriate.

(d) Acceleration. Upon the occurrence of a Corporate Transaction or upon Involuntary Termination (as defined in Section 11) of a director within thirty-six (36) months following a Change in Control, each Nonqualified Stock Option of such director shall automatically accelerate and become fully exercisable as to all shares subject to such option and shall remain exercisable until the expiration of the option term or earlier surrender of such option.

(e) Except as otherwise provided in this Section 6, the Nonqualified Stock Options granted to Non-Employee Directors shall be subject to the provisions of this Plan applicable to Nonqualified Stock Options granted to other persons.

7. Stock Awards

The Committee may issue or transfer shares of Company Stock to an Employee, or Key Advisor under a Stock Award, upon such terms as the Committee deems appropriate. The following provisions are applicable to Stock Awards:

(a) General Requirements. Shares of Company Stock issued or transferred pursuant to Stock Awards may be issued or transferred for such cash consideration, if any, and subject to such restrictions, if any, as determined by the Committee. The Committee may establish conditions under which restrictions on Stock Awards shall lapse over a period of time or according to such other criteria as the Committee deems appropriate. The period of time during which the Stock Award will remain subject to restrictions will be designated in the Grant Instrument as the “Restriction Period.”

(b) Number of Shares. Subject to the limitations set forth in Section 3, the Committee shall determine the number of shares of Company Stock to be issued or transferred pursuant to a Stock Award and the restrictions applicable to such shares.

(c) Requirement of Employment or Service. If the Grantee ceases to be employed by, or provide service to, the Company or any of its subsidiaries or any other entity owned or controlled by the Company, during a period designated in the Grant Instrument as the Restriction Period, or if other specified conditions are not met, the Stock Award shall terminate as to all shares covered by the award as to which the restrictions have not lapsed, and those shares of Company Stock shall be immediately forfeited and returned to the Company. The Committee may, however, provide for complete or partial exceptions to this requirement as it deems appropriate.

(d) Restrictions on Transfer and Legend on Stock Certificate. During the Restriction Period, a Grantee may not sell, assign, transfer, pledge or otherwise dispose of the shares of the Stock Award except to a Successor Grantee under Section 10(a). Each certificate for Stock Awards shall contain a legend giving appropriate notice of the restrictions in the Grant. The Grantee shall be entitled to have the legend removed from the stock certificate covering the shares subject to restrictions when all restrictions on such shares have lapsed. The Committee may determine that the Company will not issue certificates for Stock Awards until all restrictions on such shares have lapsed, or that the Company will retain possession of certificates for Stock Awards until all restrictions on such shares have lapsed.

(e) Right to Vote and to Receive Dividends. Except as otherwise determined by the Committee and specified in the Grant Instrument, during the Restriction Period, the Grantee shall not have the right to vote shares subject to Stock Awards or to receive any dividends or other distributions paid on such shares, until all restrictions on such shares have lapsed.

(f) Lapse of Restrictions. All restrictions imposed on Stock Awards shall lapse upon the expiration of the applicable Restriction Period and the satisfaction of all conditions imposed by the Committee. The Committee may determine, as to any or all Stock Awards, that the restrictions shall lapse without regard to any Restriction Period.

8. Qualified Performance-Based Compensation. The Committee may determine that Stock Awards granted to an Employee shall be considered “qualified performance-based compensation” under section 162(m) of the Code. The following provisions shall apply to Grants of Stock Awards that are to be considered “qualified performance-based compensation” under section 162(m) of the Code:

(a) Performance Goals.

(i) When Stock Awards that are to be considered “qualified performance-based compensation” are granted, the Committee shall establish in writing (A) the objective performance goals that must be met, (B) the performance period during which the performance will be measured, (C) the threshold, target and maximum amounts that may be paid if the performance goals are met, and (D) any other conditions that the Committee deems appropriate and consistent with the Plan and section 162(m) of the Code.

(ii) The business criteria may relate to the Grantee’s business unit or the performance of the Company and its parents and subsidiaries as a whole, or any combination of the foregoing. The Committee shall use objectively determinable performance goals based on one or more of the following criteria: stock price, earnings per share, net earnings, operating earnings, earnings before income taxes, EBITDA (earnings before income tax expense, interest

expense, and depreciation and amortization expense), return on assets, stockholder return, return on equity, growth in assets, unit volume, sales or market share, or strategic business criteria consisting of one or more objectives based on meeting specified revenue goals, market penetration goals, geographic business expansion goals, cost targets or goals relating to acquisitions or divestitures.

(b) Establishment of Goals. The Committee shall establish the performance goals in writing either before the beginning of the performance period or during a period ending no later than the earlier of (i) 90 days after the beginning of the performance period or (ii) the date on which 25% of the performance period has been completed, or such other date as may be required or permitted under applicable regulations under section 162(m) of the Code. The performance goals shall satisfy the requirements for “qualified performance-based compensation,” including the requirement that the achievement of the goals be substantially uncertain at the time they are established and that the goals be established in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the performance goals have been met. The Committee shall not have discretion to increase the amount of compensation that is payable upon achievement of the designated performance goals.

(c) Announcement of Grants. The Committee shall certify and announce the results for each performance period to all Grantees after the announcement of the Company’s financial results for the performance period. If and to the extent that the Committee does not certify that the performance goals have been met, the grants of Stock Awards for the performance period shall be forfeited or shall not be made, as applicable.

(d) Death, Disability or Other Circumstances. The Committee may provide that Stock Awards shall be payable or restrictions on such Grants shall lapse, in whole or in part, in the event of the Grantee’s death or Disability during the performance period, or under other circumstances consistent with the Treasury regulations and rulings under section 162(m) of the Code.

9. Withholding of Taxes

(a) Required Withholding. All Grants under the Plan shall be subject to applicable federal (including FICA), state and local tax withholding requirements. The Company may require that the Grantee or other person receiving or exercising Grants pay to the Company the amount of any federal, state or local taxes that the Company is required to withhold with respect to such Grants, or the Company may deduct from other wages paid by the Company the amount of any withholding taxes due with respect to such Grants.

(b) Election to Withhold Shares. If the Committee so permits, a Grantee may elect to satisfy the Company’s income tax withholding obligation with respect to a Grant by having shares withheld up to an amount that does not exceed the Grantee’s minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities. The election must be in a form and manner prescribed by the Committee and may be subject to the prior approval of the Committee.

10. Transferability of Grants

(a) Nontransferability of Grants. Except as provided below, only the Grantee may exercise rights under a Grant during the Grantee’s lifetime. A Grantee may not transfer those rights except by will or by the laws of descent and distribution or, with respect to Grants other than Incentive Stock Options, if permitted in any specific case by the Committee, pursuant to a domestic relations order (as defined under the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the regulations thereunder). When a Grantee dies, the personal representative or other person entitled to succeed to the rights of the Grantee (“Successor Grantee”) may exercise such rights. A Successor Grantee must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Grantee’s will or under the applicable laws of descent and distribution.

(b) Transfer of Nonqualified Stock Options. Notwithstanding the foregoing, the Committee may provide, in a Grant Instrument, that a Grantee may transfer Nonqualified Stock Options to family members, or one or more trusts or other entities for the benefit of or owned by family members, consistent with applicable securities laws, according to such terms as the Committee may determine; provided that the Grantee receives no consideration for the transfer of an Option and the transferred Option shall continue to be subject to the same terms and conditions as were applicable to the Option immediately before the transfer.

11. Certain Corporate Transactions and Changes in Control

(a) Change in Control. As used in Section 11(d) below, a “Change in Control” shall be deemed to have occurred if there is a change in ownership or control of the Company effected through either of the following transactions:

(i) the direct or indirect acquisition by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than thirty percent (30%) of the combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders which the Board does not recommend such stockholders to accept; or

(ii) a change in the composition of the Board over a period of twenty-four (24) months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (x) have been Board members continuously since the beginning of such period, or (y) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (x) who were still in office at the time such election or nomination was approved by the Board.

(b) Corporate Transaction. As used in Section 11(d) below, “Corporate Transaction” shall mean either of the following stockholder-approved transactions to which the Company is a party:

(i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the combined voting power of the Company’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or

(ii) the sale, transfer or other disposition of more than 75% of the Company’s assets in a single or related series of transactions.

(c) Involuntary Termination. As used in Section 11(d) below, “Involuntary Termination” shall mean the termination of the service of any Grantee of the Company or any successor thereto which occurs by reason of:

(i) such individual’s involuntary dismissal or discharge by the Company or the successor thereto for reasons other than Misconduct (as defined below), or

(ii) such individual’s voluntary resignation, in either case following:

(A) a change in his or her position with the Company or the successor thereto which materially reduces his or her level of responsibility,

(B) a reduction in his or her level of compensation (including base salary, significant fringe benefits or any non-discretionary and objective-standard incentive payment or bonus award) by more than ten percent (10%) in the aggregate; or

(C) a relocation of such individual’s place of employment by more than fifty (50) miles, only if such change, reduction or relocation is effected by the Company or the successor thereto without the individual’s consent.

For purposes of this definition, the term “Misconduct” means the commission of any act of fraud, embezzlement or dishonesty by the Grantee, any unauthorized use or disclosure by such individual of confidential information or trade secrets of the Company or its successor, or any other intentional misconduct by such individual adversely affecting the business or affairs of the Company or its successor in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company or its successor may consider as grounds for the dismissal or discharge of any Grantee or its successor.

(d) Consequences of Certain Corporate Transactions and Changes in Control

(i) In the event of any Corporate Transaction, each Option which is at the time outstanding under this Plan and each Stock Award to which the restrictions have not lapsed shall automatically accelerate so that each such Option shall, immediately prior to the specified effective date for such Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such Option and may be exercised for all or any portion of such shares as fully-vested shares and all restrictions applicable to the shares of Common Stock subject to such Stock Award shall lapse. However, the vesting of an outstanding Grant under this Plan shall not so accelerate nor shall the restrictions so lapse if and to the extent:

(A) such Grant is, in connection with such Corporate Transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with an option or stock award for shares of the capital stock of the successor corporation or parent thereof having comparable value and terms;

(B) such Grant is to be replaced with a cash incentive option or award of the successor corporation which preserves the Option spread or Stock Award value existing at the time of such Corporate Transaction and provides for subsequent payout in accordance with the same terms and conditions, including without limitation, the same vesting schedule applicable to such Grant;

(C) such Grant is to be replaced by a grant under another incentive program which the Committee determines is reasonably equivalent in value; or

(D) the acceleration of the vesting period under such Option or the lapse of restrictions with respect to such Stock Award is subject to other limitations imposed by the Committee at the time of the Grant. The determination of comparability under clauses 10(d)(i)(A), (B) or (C) above shall be made by the Committee, and its determination shall be final, binding and conclusive.

(ii) Upon a Grantee’s cessation of service by reason of an Involuntary Termination within thirty-six (36) months after a Corporate Transaction in which his or her outstanding options or grants are assumed or replaced pursuant to clause 10(d)(i)(A), (B) or (C) above, each such option or grant under clause 10(d)(i)(A) shall automatically accelerate and become fully exercisable and all restrictions applicable to such grants shall lapse, with respect to the total number of shares of stock at the time subject to such option or grant and the cash incentive program under clause 10(d)(i)(B) or other incentive program under clause 10(d)(i)(C) shall become fully vested. In addition, upon a Grantee’s cessation of service by reason of an Involuntary Termination within 36 months after a Change in Control, each Option shall automatically accelerate and become fully exercisable and all restrictions applicable to Stock Awards shall lapse, with respect to the total number of shares of Company Stock at the time subject to such Grant. The Option as so accelerated shall remain exercisable until the earlier of the expiration of the option term or the expiration of the one (1)-year period measured from the date of such Involuntary Termination.

(iii) Immediately following the consummation of a Corporate Transaction, all outstanding Grants under this Plan shall terminate and cease to remain outstanding, except to the extent assumed by the successor corporation or its parent company.

(iv) Each outstanding Grant under this Plan that is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the Grantee, upon consummation of such Corporate Transaction, had (in the case of an Option) such person exercised the Option immediately prior to such Corporate Transaction. In the case of an Option, appropriate adjustments shall also be made to the exercise price payable per share, provided the aggregate exercise price payable for such securities shall remain the same. In addition, the class and number of shares available for issuance under the Plan on both an aggregate and participant basis following the consummation of such Corporate Transaction shall be appropriately adjusted.

(v) The provisions of Section 11(d)(i) shall not operate as a limitation on the Committee’s discretionary authority, exercisable either at the time of the Grant or at any time while the Grant remains outstanding, to provide for the automatic acceleration of one or more outstanding Options, or the lapse of all restrictions applicable to a Stock Award upon the occurrence of any change in the Company’s organization, ownership or structure not otherwise within the definition of a Corporate Transaction or a Change in Control. The Committee also shall have full power and authority to condition any such option acceleration, restriction lapse and the termination of any outstanding repurchase rights upon the Grantee’s cessation of service by reason of an Involuntary Termination within a specified period following any such event. Any Options accelerated in connection with any such event shall remain fully exercisable until the expiration or sooner termination of the option term or the surrender of such option.

(vi) The acceleration or substitution of Grants under this Section 11 shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

(vii) The portion of any Incentive Stock Option accelerated under this Section 11(d) in connection with a Corporate Transaction or Change in Control intended to comply with section 424 of the Code shall remain exercisable as an incentive stock option under the Federal tax laws only to the extent the dollar limitation specified in Section 5(f) is not exceeded. To the extent such dollar limitation is exceeded, such option shall be exercisable as a nonqualified stock option under the Federal tax laws.

12. Limitations on Issuance or Transfer of Shares.

No Company Stock shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance or transfer of such Company Stock have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Grant made to any Grantee hereunder on such Grantee’s undertaking in writing to comply with such restrictions on his or her subsequent disposition of such shares of Company Stock as the Committee shall deem necessary or advisable, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Company Stock issued or transferred under the Plan will be subject to such stop-transfer orders and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon.

13. Amendment and Termination of the Plan

(a) Amendment. The Board may amend or terminate the Plan at any time; provided, however, that the Board shall not amend the Plan without stockholder approval if such approval is required in order to comply with the Code or other applicable laws, or to comply with applicable stock exchange requirements.

(b) Stockholder Re-Approval Requirement. If Stock Awards are granted as “qualified performance-based compensation” under Section 8 above, the Plan must be reapproved by the stockholders no later than the first stockholders meeting that occurs in the fifth year following the year in which the stockholders previously approved the provisions of Section 8, if required by section 162(m) of the Code or the regulations thereunder.

(c) Termination of Plan. The Plan shall terminate on the day immediately preceding the tenth anniversary of February 5, 2004, unless the Plan is terminated earlier by the Board or is extended by the Board with the approval of the stockholders.

(d) Termination and Amendment of Outstanding Grants. A termination or amendment of the Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee unless the Grantee consents or unless the Committee acts under Section 19(b). The termination of the Plan shall not impair the power and authority of the Committee with respect to an outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended under Section 19(b) or may be amended by agreement of the Company and the Grantee consistent with the Plan, so long as no previously granted Option is repriced, replaced, or regranted through cancellation, or by lowering the Exercise Price of a previously granted Option, unless the stockholders of the Company provide prior approval.

(e) Governing Document. The Plan shall be the controlling document. No other statements, representations, explanatory materials or examples, oral or written, may amend the Plan in any manner. The Plan shall be binding upon and enforceable against the Company and its successors and assigns.

14. Funding of the Plan

This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under this Plan. In no event shall interest be paid or accrued on any Grant, including unpaid installments of Grants.

15. Rights of Participants

Nothing in this Plan shall entitle any Employee, Key Advisor, Non-Employee Director or other person to any claim or right to be granted a Grant under this Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the employ of the Company or any other employment rights.

16. No Fractional Shares

No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any Grant. The Committee shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

17. Headings

Section headings are for reference only. In the event of a conflict between a title and the content of a Section, the content of the Section shall control.

18. Effective Date of the Plan.

The Plan, as amended and restated, is effective as of May 12, 2009.

19. Miscellaneous

(a) Grants in Connection with Corporate Transactions, Changes in Control and Otherwise. Nothing contained in this Plan shall be construed to (i) limit the right of the Committee to make Grants under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including Grants to employees thereof who become Employees of the Company, or for other proper corporate purposes, or (ii) limit the right of the Company to grant stock options or make other awards outside of this Plan. Without limiting the foregoing, the Committee may make a Grant to an employee of another corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company or any of its subsidiaries in substitution for a stock option or Stock Award grant made by such corporation. The terms and conditions of the substitute grants may vary from the terms and conditions required by the Plan and from those of the substituted stock incentives. The Committee shall prescribe the provisions of the substitute grants.

(b) Compliance with Law. The Plan, the exercise of Options and the obligations of the Company to issue or transfer shares of Company Stock under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. With respect to persons subject to section 16 of the Exchange Act, it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. In addition, it is the intent of the Company that Incentive Stock Options comply with the applicable provisions of section 422 of the Code, that Grants of “qualified performance-based compensation” comply with the applicable provisions of section 162(m) of the Code and that, to the extent applicable, Grants comply with the requirements of section 409A of the Code. To the extent that any legal requirement of section 16 of the Exchange Act or section 422, 162(m) or 409A of the Code as set forth in the Plan ceases to be required under section 16 of the Exchange Act or section 422, 162(m) or 409A of the Code, that Plan provision shall cease to apply. The Committee may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation, so long as no previously granted Option is repriced, replaced, or regranted through cancellation, or by lowering the Exercise Price of a previously granted Option, unless the stockholders of the Company provide prior approval. The Committee may also adopt rules regarding the withholding of taxes on payments to Grantees. The Committee may, in its sole discretion, agree to limit its authority under this Section.

(c) Governing Law. The validity, construction, interpretation and effect of the Plan and Grant Instruments issued under the Plan shall be governed and construed by and determined in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to the conflict of laws provisions thereof.

AMENDMENT 2010-1

TO THE

CEPHALON, INC.

2004 EQUITY COMPENSATION PLAN

WHEREAS, Cephalon, Inc. (the “Company”) maintains the Cephalon, Inc. 2004 Equity Compensation Plan (the “2004 Plan”) for the benefit of its eligible employees, certain consultants and advisors who perform services for the Company, and non-employee members of the Company’s Board of Directors (the “Board”);

WHEREAS, pursuant to Section 12(a) of the 2004 Plan, the Board may amend the 2004 Plan at any time;

WHEREAS, pursuant to Section 141 of the Delaware General Corporation Law, the Board has delegated its authority to amend or modify any of the Company’s existing equity compensation plans, including the 2004 Plan, to the Stock Option and Compensation Committee of the Board of Directors (the “Committee”), as more fully described in Section III of the Committee’s charter; and

WHEREAS, the Committee desires to amend the 2004 Plan to increase, up to an additional 1,500,000 shares, the aggregate number of shares of Company common stock (“Company Stock”) authorized for issuance under the 2004 Plan, so that a total of 16,450,000 shares of Company Stock are authorized for issuance under the 2004 Plan, and to provide that after May 20, 2010, no more than 600,000 shares of Company Stock may be issued pursuant to stock awards that are granted under the 2004 Plan after such date.

NOW, THEREFORE, in accordance with the foregoing, the 2004 Plan shall be amended as follows:

1. Effective May 21, 2010, Section 3(a)(1) of the 2004 Plan shall be amended in its entirety to read as follows, subject to the approval of the Company’s stockholders:

“(1) Shares Authorized. Subject to adjustment as described below, the aggregate number of shares of common stock of the Company (“Company Stock”) that may be issued or transferred under the Plan is 14,950,000 shares and, (i) effective May 21, 2010, the aggregate number of shares that may be issued or transferred under the Plan shall be increased by 1,500,000 so that the total number of shares of Company stock authorized for issuance or transfer under the Plan is 16,450,000; provided, however, that after May 21, 2010, no more than 600,000 shares of Company Stock may be issued pursuant to Stock Awards that are granted under the Plan after such date.”

2. As thus amended, the 2004 Plan is hereby ratified, republished and reconfirmed and said 2004 Plan and this amendment thereto hereby constitute the 2004 Plan.

IN WITNESS WHEREOF, and as evidence of the adoption of Amendment 2010-1 to the 2004 Plan as set forth herein, the Committee has caused this Amendment 2010-1 to be executed this 27th day of January 2010.

CEPHALON, INC.


BY:	/s/ Carl A. Savini

TITLE:		Executive Vice President and Chief Administrative Officer

Attachment 2

CEPHALON, INC.
2010 EMPLOYEE STOCK PURCHASE PLAN

TABLE OF CONTENTS

		Page

1.	Purpose of the Plan	1

2.	Definitions	1

3.	Administration of the Plan	2

4.	Stock Subject to the Plan	2

5.	Offering Periods	3

6.	Eligibility	3

7.	Payroll Deductions	3

8.	Purchase Rights	4

9.	Accrual Limitations	7

10.	Effective Date and Term of the Plan	8

11.	Amendment and Termination	8

12.	General Provisions	8

Schedule A		A-1

1. PURPOSE OF THE PLAN

The Cephalon, Inc. 2010 Employee Stock Purchase Plan is intended to promote the interests of the Company (as defined in Article 2) by providing Eligible Employees (as defined in Article 2) of a Participating Employer (as defined in Article 2) with the opportunity to acquire a proprietary interest in the Company through participation in an employee stock purchase plan designed to qualify under section 423 of the Internal Revenue Code of 1986, as amended. The Plan (as defined in Article 2) is not intended and shall not be construed as constituting an “employee benefit plan” within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.

2. DEFINITIONS

(a) “1933 Act” shall mean the Securities Act of 1933, as amended.

(b) “Board” shall mean the Company’s Board of Directors.

(c) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(d) “Common Stock” shall mean the common stock of the Company.

(e) “Company Affiliate” shall mean any parent or subsidiary corporation of the Company (as determined in accordance with Code section 424), whether now existing or subsequently established.

(f) “Company” shall mean Cephalon, Inc., and any corporate successor to all or substantially all of the assets or voting stock of Cephalon, Inc. that shall adopt the Plan.

(g) “Compensation” shall mean the regular base salary paid to a Participant by one or more Participating Employers during the Participant’s period of participation in an Offering Period under the Plan. Such Compensation shall be calculated before deduction of (A) any income or employment tax withholdings or (B) any contributions made by the Participant to any Code section 401(k) salary deferral plan, any Code section 125 cafeteria benefit program or any Code section 132(f)(4) transportation fringe benefit program now or hereafter established by a Participating Employer. However, Compensation shall not include any contributions made by a Participating Employer on the Participant’s behalf to any employee benefit or welfare plan now or hereafter established (other than Code section 401(k), Code section 125, or Code section 132(f)(4) contributions deducted from such Compensation).

(h) “Effective Date” shall mean May 20, 2010, subject to stockholder approval of the Plan.

(i) “Eligible Employee” shall mean any person who is employed by a Participating Employer as an employee on a basis under which he or she is regularly expected to render more than twenty hours of service per week for earnings to be considered wages under Code section 3401(a). Notwithstanding any provision contained in the Plan to the contrary, any individual who is classified by a Participating Employer as an independent contractor or who is otherwise treated by a Participating Employer as other than an employee on its payroll records, shall not be an Eligible Employee.

(j) “ESPP Brokerage Account” shall mean the brokerage account in which the shares of Common Stock purchased on behalf of each Participant are deposited.

(k) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(l) “Fair Market Value” per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

(m) If the Common Stock is at the time traded on a national securities exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange and published in The Wall Street Journal or such other source as the Board deems reliable. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(n) If the Common Stock is not publicly traded or, if publicly traded, is not subject to reported transactions as set forth above, the Fair Market Value per share shall be as determined by the Plan Administrator on the basis of available prices for such Common Stock or in such manner as may be authorized by applicable regulations under the Code.

(o) “Offering Period” shall mean the period during which shares of Common Stock shall be offered for purchase under the Plan as described in Section 5.

(p) “Participant” shall mean any Eligible Employee of a Participating Employer who is actively participating in the Plan.

(q) “Participating Employer” shall mean the Company and such Company Affiliates as may be authorized from time to time by the Board to extend the benefits of the Plan to their Eligible Employees. The Participating Employers in the Plan are listed in the attached Schedule A.

(r) “Plan” shall mean the Cephalon, Inc. 2010 Employee Stock Purchase Plan, as set forth in this document, and as amended from time to time.

(s) “Plan Administrator” shall mean the committee appointed by the Board to administer the Plan.

(t) “Purchase Date” shall mean the last business day of each Offering Period. The initial Purchase Date shall be December 31, 2010.

3. ADMINISTRATION OF THE PLAN

The Plan Administrator shall have full discretionary authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary in order to comply with the requirements of Code section 423. Decisions of the Plan Administrator shall be final and binding on all parties having an interest in the Plan. As a condition of participating in the Plan, all Participants must acknowledge, in writing or by completing the enrollment forms to participate in the Plan, that all decisions and determinations of the Plan Administrator shall be final and binding on the Participant, his or her beneficiaries and any other person having or claiming an interest under the Plan on behalf of the Participant. The Plan Administrator may delegate its ministerial duties to one or more subcommittees or to a third party administrator, as it deems appropriate.

4. STOCK SUBJECT TO PLAN

(a) Number of Shares. Subject to adjustment as described below, the aggregate number of shares of Common Stock that may be issued or transferred under the Plan is 350,000 shares. The stock purchasable under the Plan may be shares of authorized but unissued or reacquired Common Stock, including shares of Common Stock purchased on the open market.

(b) Adjustment. If there is any change in the number or kind of shares of Common Stock outstanding by reason of any stock split or reverse stock split, stock dividend, spinoff, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the

Company’s receipt of consideration, the Plan Administrator shall make appropriate adjustments to (i) the maximum number and class of securities issuable under the Plan, (ii) the maximum number and class of securities purchasable per Participant on any Purchase Date, and (iii) the number and class of securities and the price per share in effect under each outstanding purchase right, in order to prevent the dilution or enlargement of benefits thereunder. In addition, the Plan Administrator shall have discretion to make the foregoing equitable adjustments in any circumstances in which an adjustment is not mandated by this Section 4(b) or applicable law. Any adjustments made by the Plan Administrator shall be consistent with Code section 423 and shall be final, binding and conclusive.

5. OFFERING PERIODS

(a) Offer of Shares. Shares of Common Stock shall be offered for purchase under the Plan through a series of consecutive Offering Periods until such time as the Plan terminates as set forth in Section 10(b).

(b) Duration of Offering Period. Each Offering Period shall be of such duration (not to exceed twenty-seven months) as shall be determined by the Plan Administrator prior to the beginning of such Offering Period. Unless the Plan Administrator determines otherwise, before the beginning of the Offering Period, Offering Periods shall commence at six-month intervals on each January 1 and July 1 (or the next business day, if such date is not a business day) over the term of the Plan, and each Offering Period shall last for six months, ending on December 31 or June 30, as the case may be (or the next business day, if such date is not a business day). Accordingly, unless the Plan Administrator determines otherwise, two separate Offering Periods shall commence in each calendar year during which the Plan remains in existence.

6. ELIGIBILITY

(a) Commencement of Participation. Each individual who is an Eligible Employee on the start date of any Offering Period under the Plan may enter that Offering Period on such start date. The Plan Administrator may provide in the enrollment forms that a Participant who is enrolled on the last day of an Offering Period will automatically be enrolled in the next following Offering Period on the same terms and conditions, including the authorized rate of payroll deductions.

(b) Limitation on Participation. Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if such individual would, immediately after the grant, own (within the meaning of Code section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or any Company Affiliate.

(c) Enrollment Forms. Except as otherwise provided in Section 6(a) above, in order to participate in the Plan for a particular Offering Period, an Eligible Employee must complete enrollment forms prescribed by the Plan Administrator (including a stock purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designee) at such time on or before the beginning of that Offering Period as determined by the Plan Administrator. An Eligible Employee who is actively participating in the Plan shall automatically be enrolled as a Participant for the next Offering Period, unless the Eligible Employee elects otherwise at least [seven] days prior to the beginning of the next Offering Period (or by such other date as the Plan Administrator determines) by filing the appropriate form with the Plan Administrator (or its designee).

7. PAYROLL DEDUCTIONS

(a) Elections. The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock during an Offering Period may be any multiple of one percent of the Compensation paid to the Participant during each Offering Period, up to a maximum of ten percent of Compensation. The deduction rate so authorized shall continue in effect throughout the Offering Period, except to the extent such rate is changed in accordance with the following guidelines:

(b) The Participant may, at any time during the Offering Period, reduce his or her rate of payroll deduction, to become effective as soon as possible after filing the appropriate form with the Plan Administrator. The Participant may not effect more than one such reduction per Offering Period.

(c) Prior to the commencement of any new Offering Period, a Participant may increase the rate of his or her payroll deduction by filing the appropriate form with the Plan Administrator. The new rate (which may not exceed ten percent of Compensation) shall become effective on the start date of the first Offering Period following the filing of such form.

(d) Commencement. Payroll deductions shall begin on the first pay day as of which commencement is administratively feasible following the beginning of the Offering Period and shall (unless sooner terminated by the Participant) continue through the pay day ending with or immediately prior to the last day of that Offering Period. The amounts so collected shall be credited to a book account established on the Company’s records for the Participant. No interest shall accrue on the balance from time to time outstanding in such account. The amounts collected from the Participant shall not be required to be held in any segregated account or trust fund and may be commingled with the general assets of the Company and used for general corporate purposes.

(e) Cessation of Payroll Deductions. Payroll deductions shall automatically cease upon the termination of the Participant’s purchase right in accordance with the Plan.

(f) Other Forms of Contributions. The Plan Administrator may allow contributions to be made under the Plan in a form other than payroll deductions, consistent with Code Section 423, in which case references in the Plan to payroll deductions shall include such other contributions.

8. PURCHASE RIGHTS

(a) Grant of Purchase Rights. A Participant shall be granted a separate purchase right for each Offering Period in which he or she is enrolled under the Plan. The purchase right shall be granted on the start date of the Offering Period and shall provide the Participant with the right to purchase shares of Common Stock upon the terms set forth below. The Participant shall execute a stock purchase agreement embodying such terms and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable.

(b) Exercise of the Purchase Right. Each purchase right shall be automatically exercised on the Purchase Date for the Offering Period, and shares of Common Stock shall accordingly be purchased on behalf of each Participant on the Purchase Date. The purchase shall be effected by applying the Participant’s payroll deductions for the Offering Period to the purchase of shares of Common Stock at the purchase price in effect for the Participant for that Purchase Date.

(c) Purchase Price. Unless the Plan Administrator determines otherwise prior to the beginning of the Offering Period, the purchase price per share at which Common Stock will be purchased on the Participant’s behalf on each Purchase Date shall be equal to 95% of the Fair Market Value per share of Common Stock on the Purchase Date. The Plan Administrator may change the purchase price formula prior to the beginning of an Offering Period, provided that the purchase price may not be less than the minimum price allowable under Code section 423.

(d) Number of Purchasable Shares. The number of shares of Common Stock purchasable by a Participant on each Purchase Date shall be the number of shares obtained by dividing the amount collected from the Participant through payroll deductions or lump sum contributions by check, as applicable, during the Offering Period by the purchase price in effect for the Participant for that Purchase Date. However, unless the Plan Administrator determines otherwise before the Offering Period, the maximum number of shares of Common Stock that may be purchased by a Participant on any Purchase Date for an Offering Period shall be the number of shares equal to $25,000 divided by the Fair Market Value of Common Stock on the start date of the Offering Period, subject to adjustment as described in Section 4(b) and the accrual limitation under Article 9 below. The Plan

Administrator shall have the discretionary authority, exercisable prior to the start of any Offering Period, to increase or decrease the limitations on the number of shares that may be purchased by a Participant on each Purchase Date, subject to the accrual limitation under Article 9 below.

(e) Excess Payroll Deductions. If at any time the Plan Administrator determines that only whole shares may be purchased, any payroll deductions that are not applied to the purchase of shares of Common Stock on any Purchase Date because they are not sufficient to purchase a whole share of Common Stock shall be held for the purchase of Common Stock on the next Purchase Date, unless the Participant requests a refund. However, any payroll deductions not applied to the purchase of Common Stock by reason of the limitations on the maximum number of shares purchasable per Participant shall be promptly refunded.

(f) Suspension of Payroll Deductions. In the event that a Participant is, by reason of the accrual limitations in Article 9, precluded from purchasing additional shares of Common Stock on a Purchase Date, then no further payroll deductions shall be collected from such Participant with respect to that Purchase Date. The Participant may elect to resume participation for an Offering Period scheduled to end in the following calendar year by making a timely filing of the prescribed enrollment forms, before the beginning of such Offering Period.

(g) Withdrawal from Offering Period. The following provisions shall govern the Participant’s withdrawal from an Offering Period:

(i) A Participant may withdraw from the Offering Period in which he or she is enrolled by filing the appropriate form with the Plan Administrator (or its designee) at least thirty days prior to the Purchase Date (or such other date as the Plan Administrator determines), and no further payroll deductions shall be collected from the Participant with respect to that Offering Period. Any payroll deductions collected during the Offering Period in which such withdrawal occurs shall, at the Participant’s election, be promptly refunded or held for the purchase of shares on the Purchase Date. If no such election is made at the time of such withdrawal, then the payroll deductions collected from the Participant during the Offering Period in which such withdrawal occurs shall be promptly refunded.

(ii) The Participant’s withdrawal from an Offering Period shall be irrevocable, and the Participant may not subsequently rejoin that Offering Period at a later date. In order to resume participation in any subsequent Offering Period, the Participant must re-enroll in the Plan (by making a timely filing of the prescribed enrollment forms) on or before the beginning of that Offering Period.

(h) Termination of Purchase Right. The following provisions shall govern the termination of outstanding purchase rights:

(i) If a Participant ceases to be an Eligible Employee for any reason (including death, disability or change in status) while his or her purchase right remains outstanding, the Participant’s purchase right shall immediately terminate, and all of the Participant’s payroll deductions for the Offering Period in which the purchase right so terminates shall be promptly refunded to the Participant.

(j) If a Participant ceases to remain in active service by reason of an approved unpaid leave of absence, then the Participant shall have the right to elect to (A) withdraw all the payroll deductions collected to date on his or her behalf for that Offering Period or (B) have such funds held for the purchase of shares on his or her behalf on the Purchase Date, provided, however, if the Participant does not make such election at least thirty days prior to the Purchase Date, such funds shall be used for the purchase of shares on his or her behalf on the Purchase Date. In no event, however, shall any further payroll deductions be collected on the Participant’s behalf during such leave. Upon the Participant’s return to active service (x) within three months following the commencement of such leave or (y) prior to the expiration of any longer period for which such Participant has a right to reemployment with the Company provided by statute or contract, his or her payroll deductions under the Plan shall automatically resume

at the rate in effect at the time the leave began if the return to service is in the same Offering Period (or, if in a different Offering Period, if Participants are automatically enrolled in the subsequent Offering Period), unless the Participant withdraws from the Plan prior to his or her return. An individual who returns to active employment following a leave of absence that exceeds in duration the applicable (x) or (y) time period will be treated as a new Eligible Employee for purposes of subsequent participation in the Plan and may re-enroll in the Plan (by making a timely filing of the prescribed enrollment forms) for a subsequent Offering Period.

(k) Change in Control. Unless the Plan Administrator determines otherwise, immediately prior to the effective date of any change in control of the Company, as determined by the Plan Administrator, each outstanding purchase right shall automatically be exercised by applying the payroll deductions of each Participant for the Offering Period in which the change in control occurs to the purchase of shares of Common Stock at a purchase price per share equal to 95% of the Fair Market Value per share of Common Stock immediately prior to the effective date of the change in control (or such other purchase formula as shall be in effect for the Offering Period, as determined by the Plan Administrator before the Offering Period). The applicable limitation on the number of shares of Common Stock purchasable per Participant shall continue to apply to any such purchase. The Company shall use its best efforts to provide at least ten days’ prior written notice of the occurrence of any change in control, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights prior to the effective date of the change in control.

(l) Proration of Purchase Rights. If the total number of shares of Common Stock to be purchased pursuant to outstanding purchase rights on any particular date exceeds the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each Participant, to the extent in excess of the aggregate purchase price payable for the Common Stock pro-rated to such Participant, shall be promptly refunded.

(m) Assignability. A purchase right shall be exercisable only by the Participant and shall not be assignable or transferable by the Participant.

(n) Stockholder Rights. A Participant shall have no stockholder rights with respect to the shares subject to his or her outstanding purchase right until the shares are purchased on the Participant’s behalf in accordance with the provisions of the Plan and the Participant has become a holder of record of the purchased shares.

(o) ESPP Brokerage Account. The shares of Common Stock purchased on behalf of each Participant shall be deposited directly into a brokerage account which the Company shall establish for the Participant at a Company-designated brokerage firm. The account will be known as the ESPP Brokerage Account. The following policies and procedures shall be in place for any shares deposited into the Participant’s ESPP Brokerage Account until those shares have been held for the requisite period necessary to avoid a disqualifying disposition under U.S. federal tax laws:

(i) Unless the shares are sold, the shares must be held in the ESPP Brokerage Account until the later of the following two periods: (x) the end of the two-year period measured from the start date of the Offering Period in which the shares were purchased and (y) the end of the one-year period measured from the actual Purchase Date of those shares.

(ii) Unless the shares are sold, the deposited shares shall not be transferable (either electronically or in certificate form) from the ESPP Brokerage Account until the required holding period for those shares is satisfied. Such limitation shall apply both to transfers to different accounts with the same ESPP broker and to transfers to other brokerage firms. After the required holding period, the shares may be transferred (either electronically or in certificate form) to other accounts or to other brokerage firms.

(iii) The foregoing procedures shall not in any way limit when the Participant may sell his or her shares. These procedures are designed solely to assure that any sale of shares prior to the satisfaction of the required holding period is made through the ESPP Brokerage Account. In addition, the Participant may request a stock certificate or share transfer from his or her ESPP Brokerage Account prior to the satisfaction of the required holding period should the Participant wish to make a gift of any shares held in that account. However, shares may not be transferred (either electronically or in certificate form) from the ESPP Brokerage Account for use as collateral for a loan, unless those shares have been held for the required holding period.

(iv) The foregoing procedures shall apply to all shares purchased by the Participant under the Plan, whether or not the Participant continues in employee status.

9. ACCRUAL LIMITATIONS

(a) Dollar Limitation. Notwithstanding anything in the Plan to the contrary, no Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent that such accrual, when aggregated with (i) rights to purchase Common Stock accrued under any other purchase right granted under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of Code section 423) of the Company or any Company Affiliate, would otherwise permit the Participant to purchase more than $25,000 worth of stock of the Company or any Company Affiliate (determined on the basis of the Fair Market Value per share on the date or dates such rights are granted) for each calendar year in which such rights are at any time outstanding.

(b) Application of Dollar Limitation. For purposes of applying such accrual limitations to the purchase rights granted under the Plan, the following provisions shall apply:

(i) The right to acquire Common Stock under each outstanding purchase right shall accrue on each Purchase Date on which such right remains outstanding.

(ii) No right to acquire Common Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire Common Stock under one or more other purchase rights at a rate equal to $25,000 worth of Common Stock (determined on the basis of the Fair Market Value per share on the date or dates of grant) for each calendar year in which such rights were at any time outstanding.

(iii) If a purchase right is outstanding in more than one calendar year, then Common Stock purchased pursuant to the exercise of such purchase right shall be applied first, to the extent allowable under this Article, against the $25,000 limitation for the earliest year in which the purchase right was outstanding, then, against the $25,000 limitation for each succeeding year, in order.

(c) Refund. If by reason of such accrual limitations, any purchase right of a Participant does not accrue for a particular Offering Period, then the payroll deductions that the Participant made during that Offering Period with respect to such purchase right shall be promptly refunded.

(d) Conflict. In the event there is any conflict between the provisions of this Article and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article shall be controlling.

10. EFFECTIVE DATE AND TERM OF THE PLAN

(a) Effective Date. The Plan shall become effective at the Effective Date, provided that no purchase rights granted under the Plan shall be exercised, and no shares of Common Stock shall be purchased hereunder, until (i) the Plan shall have been approved by the stockholders of the Company and (ii) the Company shall have complied with all applicable requirements of the 1933 Act (including the registration of the shares of Common Stock issuable under the Plan on a Form S-8 registration statement filed with the Securities and Exchange Commission), all applicable listing requirements of any stock exchange on which the Common Stock is listed for trading and all other applicable requirements established by law or regulation have been met. In the event such stockholder approval is not obtained, or such compliance is not effected, within twelve months after the date on which the Plan is adopted by the Board, the Plan shall terminate and have no further force or effect, and all sums collected from Participants during the initial Offering Period hereunder shall be promptly refunded.

(b) Term. Unless sooner terminated by the Board, the Plan shall terminate upon the first to occur of (i) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan or (ii) the date on which all purchase rights are exercised in connection with a change in control. No further purchase rights shall be granted or exercised, and no further payroll deductions shall be collected, under the Plan following such termination.

11. AMENDMENT AND TERMINATION

(a) Amendment; Termination. The Board may alter, amend, suspend or terminate the Plan at any time, to become effective immediately following the close of any Offering Period. In the event of Plan termination, any outstanding payroll deductions that are not used to purchase Common Stock on a Purchase Date pursuant to the Plan shall be promptly refunded to such Participants.

(b) Stockholder Approval. In no event may the Board effect any of the following amendments or revisions to the Plan without the approval of the Company’s stockholders: (i) increase the number of shares of Common Stock issuable under the Plan, except for permissible adjustments in the event of certain changes in the Company’s capitalization, (ii) alter the purchase price formula so as to reduce the allowable purchase price for the shares of Common Stock purchasable under the Plan or (iii) modify the eligibility requirements for participation in the Plan.

12. GENERAL PROVISIONS

(a) Death. In the event of the death of a Participant, the Company shall deliver any shares of Common Stock, cash or both shares of Common Stock and cash held for the benefit of Participant to the executor or administrator of the estate of the Participant.

(b) Expenses. All costs and expenses incurred in the administration of the Plan shall be paid by the Company; however, each Plan Participant shall bear all costs and expenses incurred by such individual in the sale or other disposition of any shares purchased under the Plan.

(c) No Right of Employment. Nothing in the Plan shall confer upon the Participant any right to continue in the employ of the Company or any Company Affiliate or interfere with or otherwise restrict in any way the rights of the Company (or any Company Affiliate) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person’s employment at any time for any reason, with or without cause.

(d) Withholding. If and to the extent that any stock purchases or sales under this Plan are subject to federal, state or local taxes, the Company is authorized to withhold all applicable taxes from shares issuable under the Plan or from other compensation payable to the Participant.

(e) Transferability. Neither payroll deductions credited to a Participant nor any rights with regard to the exercise a purchase right under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will or the laws of descent and distribution) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 8(g).

(f) Voting. The Participant shall have no voting rights in shares that he or she may purchase pursuant to the Plan until such shares of Common Stock have actually be purchased by the Participant.

(g) Governing Law. The validity, construction, interpretation and effect of the Plan shall be governed and construed by and determined in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to the conflict of laws provisions thereof.

Schedule A

Participating Employers

Anesta Corp.

Arana Therapeutics, Inc.

Cephalon, Inc.

CIMA LABS INC.

(This page has been left blank intentionally.)

CEPHALON, INC.

41 MOORES ROAD
FRAZER, PA 19355

PLEASE SEE BELOW FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS. IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT MAIL BACK THIS PROXY CARD.

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Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Daylight Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.

ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS

If you would like to reduce the costs incurred by Cephalon, Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access stockholder communications electronically in future years.

VOTE BY PHONE - 1-800-690-6903

Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Daylight Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Cephalon, Inc., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:

				KEEP THIS PORTION FOR YOUR RECORDS
				DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

CEPHALON, INC.

The Board of Directors recommends a vote FOR all director nominees and FOR proposals 2, 3 and 4

Vote on Directors

1. ELECTION OF DIRECTORS

		For	Against	Abstain
Nominees:

1a.	Frank Baldino, Jr., Ph.D.	o	o	o

1b.	William P. Egan	o	o	o

1c.	Martyn D. Greenacre	o	o	o

1d.	Vaughn M. Kailian	o	o	o

1e.	Kevin E. Moley	o	o	o

1f.	Charles A. Sanders, M.D.	o	o	o

1g.	Gail R. Wilensky, Ph.D.	o	o	o

1h.	Dennis L. Winger	o	o	o


		For	Against	Abstain
Vote on Proposals

2.	APPROVAL OF AMENDMENT TO THE 2004 EQUITY COMPENSATION PLAN INCREASING THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE.	o	o	o

3.	APPROVALOFCEPHALON,INC.’S 2010 EMPLOYEE STOCK PURCHASE PLAN.	o	o	o

4.	RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 2010.	o	o	o

5.	IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.

THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER. WHERE NO DIRECTION IS GIVEN, WHEN A DULY EXECUTED PROXY IS RETURNED, SUCH SHARES WILL BE VOTED AT THE MEETING FOR ALL NOMINEES NAMED IN ITEM 1 AND FOR EACH OTHER ITEM, AND WILL GRANT AUTHORITY TO THE PROXYHOLDER TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.

THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING, PROXY STATEMENT AND ANNUAL REPORT OF CEPHALON, INC.

For address changes and/or comments, please check this box and write them on the back where indicated.		o

Materials Election
As of July 1, 2007, SEC rules permit companies to send you a notice that proxy information is available on the Internet, instead of mailing you a complete set of materials. Check the box to the right if you want to receive a complete set of future proxy materials by mail, at no cost to you. If you do not take action you may receive only a Notice.		o

	Yes	No
Please indicate if you plan to attend this meeting.
	o	o

(NOTE: Please sign exactly as your name(s) appear(s) hereon. All holders must sign. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. If a corporation, please sign in full corporate name, by authorized officer. If a partnership, please sign in partnership name by authorized person.)


	Signature [PLEASE SIGN WITHIN BOX]		Date		Signature (Joint Owners)		Date

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:

The Notice and Proxy Statement, Form 10-K and Annual Report are available at www.proxyvote.com.

PROXY

CEPHALON, INC.

PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, MAY 20, 2010

The undersigned hereby appoints Frank Baldino, Jr., Ph.D. and Gerald J. Pappert, or either one of them acting singly in the absence of the other, with full power of substitution, the proxy or proxies of the undersigned to attend the Annual Meeting of Stockholders of Cephalon, Inc. to be held on May 20, 2010, and any postponements or adjournments thereof, to vote all shares of stock that the undersigned would be entitled to vote if personally present in the manner indicated below, and on any other matters properly brought before the Annual Meeting of Stockholders to be held on May 20, 2010, or any postponements or adjournments thereof, all as set forth in the proxy statement dated April 1, 2010.

This proxy also provides voting instructions for shares of stock held by Vanguard Fiduciary Trust Company, as trustee of the Cephalon, Inc. 401(k) Profit Sharing Plan (the “Plan”), and directs Vanguard Fiduciary Trust Company to vote at the Annual Meeting all of the shares of employer stock which are allocated to the undersigned’s account in the Plan in the manner directed on the reverse side of this card.

This proxy/voting instruction card is solicited on behalf of the Board of Directors of Cephalon, Inc. pursuant to a separate Notice of Annual Meeting and Proxy Statement dated April 1, 2010, receipt of which is hereby acknowledged. When properly executed, this proxy will be voted as directed, or, if no direction is given, will be voted for all nominees named in Item 1 and for each other Item, and will grant authority to the proxyholder to vote upon such other business as may properly come before the Meeting or any postponements or adjournments thereof.

Address Changes/Comments:

(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)