Exhibit 10.35

 

SETTLEMENT AND LICENSE AGREEMENT

 

This Settlement and License Agreement (the “Agreement”), made effective the 15th
day of August, 2003 (“Effective Date”), is by and between SPECIALTY
LABORATORIES, INC, a California company having a principal place of business at
2211 Michigan Avenue, Santa Monica, California 90404 (“SPECIALTY”), and BAYER
HEALTHCARE, LLC, a Delaware limited liability company acting through its
Diagnostics Division, having its principal place of business at 511 Benedict
Avenue, Tarrytown, New York 10591, with offices for purposes of this Agreement
at 725 Potter Street, Berkeley, California 94710 (“BAYER”).

 

BACKGROUND:

 

WHEREAS, BAYER has a license, with the right to sublicense, to certain patent
rights relating to Hepatitis C (“HCV”) and Human Immunodeficiency Virus (“HIV”)
owned by Chiron Corporation (“Chiron”) pursuant to that certain Cross License
Agreement dated November 30, 1998, between Chiron and Chiron Diagnostics
Corporation, now BAYER (“Cross-License”); and

 

WHEREAS, SPECIALTY has performed certain nucleic acid clinical assays for HCV
and HIV (collectively, the “Specialty Assays”);

 

WHEREAS, Chiron has alleged that SPECIALTY may have infringed certain of the
Chiron patent rights by the performance of certain Specialty Assays;

 

WHEREAS, the parties mutually desire to resolve and settle their differences
about Chiron’s allegation of infringement by SPECIALTY without the cost, delay
and financial exposure which would be incurred in litigating that claim; and

 

WHEREAS, the parties are, concurrently with this Agreement, entering into an
Amended and Restated Supply Agreement (the “Supply Agreement”); and

 

WHEREAS, BAYER intends and agrees to indemnify SPECIALTY against any such claims
of infringement by Chiron, on the terms and conditions set forth in this
Agreement.

 

NOW THEREFORE, intending to be legally bound, the parties agree as follows:

 

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1.             CONSIDERATION

 

1.1           Cash Payment.  SPECIALTY shall pay to BAYER the amount of [*] (the
“Cash Payment”).

 

A.            The Cash Payment shall first be offset by an amount of [*]
previously received by BAYER from SPECIALTY and being held by BAYER pursuant to
the Addendum to HealthPak Agreement and ASR Supply Agreement Regarding Pricing
of Hepatitis C Products between SPECIALTY and BAYER dated May 26, 2000, as
amended on April 29, 2002 (the “Indemnity Addendum”).

 

B.            The remaining [*] shall be paid to BAYER within sixty (60) days of
the Effective Date.

 

1.2           The consideration paid by SPECIALTY hereunder shall cover any and
all royalty payments which would otherwise be due under the Chiron Patent Rights
(defined below) up to and including October 15, 2003.

 

2.             CONVERSION TO LICENSED PRODUCTS

 

2.1           SPECIALTY shall use its reasonable commercial efforts to convert
as soon as practicable from performing its HIV and HCV genotyping assays to
purchasing the appropriate products from BAYER, under the terms agreed to by
both BAYER and SPECIALTY in the Supply Agreement, which products (the “Licensed
Products”) carry a fully paid license under the Chiron patent rights as listed
in Appendix A hereto and incorporated by reference herein (the “Patent Rights”).

 

2.2           Such conversion shall be completed no later than the close of
business October 15, 2003 (the “Conversion Date”); otherwise, royalties in
accordance with the Sublicense of Section 3 shall be due on applicable assays
performed after the Conversion Date.  In no event shall any failure by SPECIALTY
to convert to the Licensed Products on or prior to the Conversion Date in any
way affect the obligations of BAYER under this Agreement with respect to
activities of SPECIALTY prior to the Conversion Date.

 

3.             SUBLICENSE

 

3.1           Definitions.  The following terms as used in this Agreement shall
have the meanings set forth in this Section 3.1.

 

A.            “Affiliate” means any business entity which directly or indirectly
controls, is controlled by, or is under common control with a party to this

 

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* Information for which confidential treatment has been requested pursuant to
Rule 24(b)(2) of the Securities Exchange Act of 1934, as amended. The omitted
material has been filed separately with the Securities and Exchange Commission.

 

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Agreement.  A business entity shall be deemed to “control” another business
entity if (i) it owns, directly or indirectly, at least fifty percent (50%) of
the issued and outstanding voting securities, capital stock, or other comparable
equity or ownership interest of such business entity, or (ii) it has the de
facto ability to control or direct the management of such business entity.

 

B.            “Blood Screening” means the use of products that detect nucleic
acid sequences(s) of HIV and/or HCV for: (1) the screening of blood, plasma or
blood components intended for transfusion; and (2) confirmatory or supplemental
testing of the same samples otherwise screened for purposes described in
Section 3.1.A(1).  For the avoidance of doubt, Blood Screening specifically
excludes serological, or immunoassay, screening.

 

C.            “In Vitro Diagnostics” means the use of products that detect
nucleic acid sequence(s) of HCV and/or HIV in individual human specimens,
including the use of such products for diagnosis, prognosis, monitoring or
classification purposes, but specifically excluding use for Transplantation
Screening, Blood Screening, and Plasma Fractionation Screening.

 

D.            “Licensed Assays” means nucleic acid clinical assays for HCV and
HIV-1 wherein:

 

(1)           in the case of HCV, such assays are for qualitative, quantitative,
genotyping (i.e., determination of viral type or subtype) or resistance (i.e.,
determination of mutations conferring viral resistance to therapeutics) testing
(i.e., the term “Licensed Assays” does not include HCV phenotyping testing); and

 

(2)           in the case of HIV, such assays are for genotyping/resistance
testing only (i.e., the term “Licensed Assays” does not include HIV qualitative,
quantitative or phenotyping testing).

 

In further limitation of the foregoing, the term “Licensed Assay” specifically
does not include assays performed using products purchased by SPECIALTY from
BAYER (including products purchased by SPECIALTY pursuant to the Supply
Agreement), other Chiron licensees, or other sub-licensees of Bayer authorized
under the terms of the Bayer-Chiron Cross-License Agreement; provided, however,
that such products are used by SPECIALTY to perform the type of testing (i.e.,
qualitative, quantitative, genotyping or resistance) for which they are designed
and labeled.  For the avoidance of doubt, the use of qualitative test
components, sales of which may be included for purposes of determining the
royalty due from a third party licensee of Chiron’s, to perform a genotyping
test shall not result in any reduction in the royalty due from SPECIALTY for the
performance of a Licensed Assay.

 

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E.             “Plasma Fractionation Screening” means use of products that
detect nucleic acid sequence(s) of HCV and/or HIV for the screening of plasma or
other blood components intended for use in the manufacture of blood products
(e.g., without limitation, immunoglobulins).

 

F.             “Transplantation Screening” means the use of products that detect
nucleic acid sequences of HCV and/or HIV for the screening of any biological
materials intended for transfusion or transplantation, in each case from any
donor, including antilogous donors, other than the transfusion or
transplantation of blood or its derivatives, components or replacements.

 

3.2           Grant.  BAYER hereby grants to SPECIALTY a royalty-bearing,
non-transferable, non-exclusive license under the Patent Rights, to perform
Licensed Assays and to provide the results thereof to third parties for In Vitro
Diagnostics (the “License”).  Such License is not sub-licensable and is limited
to the United States.  These licensing terms are not applicable to the
manufacture, use, sale, offer for sale or importation of diagnostics products by
BAYER, other Chiron licensees, or other sub-licensees of Bayer authorized under
the terms of the Bayer-Chiron Cross-License Agreement.

 

3.3           License Fees.  In consideration for the grant of the License under
Section 3.1 above, SPECIALTY shall pay to BAYER the license fees (“License
Fees”) identified in Appendix B, attached hereto and incorporated by reference
herein, in accordance with the following provisions:

 

A.            (i)            SPECIALTY shall pay to BAYER the HCV License Fee
if, but only if, after the Conversion Date, SPECIALTY regularly performs any HCV
Licensed Assays for a cumulative period of [*].  The HCV License Fee shall be
due within sixty (60) days of such occurrence.

 

(ii)           Notwithstanding the provisions of Section 3.3(A)(i) above, the
HCV License Fee shall not be due or payable by SPECIALTY if less than [*] HCV
Licensed Assays were performed under the License within such [*] period.

 

(iii)          Notwithstanding the provisions of Sections 3.3(A)(i) and (ii),
the HCV License Fee shall not be due or payable by SPECIALTY for performance of
HCV Licensed Assays for a period of up to [*] that is caused by the failure of
BAYER to provide adequate supplies of Licensed Products to SPECIALTY in
accordance with the terms of the Supply Agreement (i.e., as forecast and
ordered), or any amendment or replacement of the Supply Agreement.  HCV Licensed
Assays performed

 

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* Information for which confidential treatment has been requested pursuant to
Rule 24(b)(2) of the Securities Exchange Act of 1934, as amended. The omitted
material has been filed separately with the Securities and Exchange Commission.

 

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pursuant to this Section 3.3(A)(iii) shall not be counted in applying the
provisions of Section 3.3(A)(ii), but shall be fully counted against the future
application of Section 3.3(A)(i).  That is, if this Section 3.3(A)(iii) is
invoked and the HCV Licensed Assays continue to be performed after the
expiration of this [*] period, then the HCV License Fee shall become due within
sixty (60) days after the end of the [*] period of this Section 3.3(A)(iii).

 

B.            (i)            SPECIALTY shall pay to BAYER the HIV License Fee
if, but only if, after the Conversion Date, SPECIALTY regularly performs any HIV
Licensed Assays for a cumulative period of [*].  The HIV License Fee shall be
due within sixty (60) days of such occurrence.

 

(ii)           Notwithstanding the provisions of Section 3.3(B)(i) above, the
HIV License Fee shall not be due or payable by SPECIALTY if less than [*] HIV
Licensed Assays were performed under the License within such [*] period.

 

(iii)          Notwithstanding the provisions of Sections 3.3(B)(i) and (ii),
the HIV License Fee shall not be due or payable by SPECIALTY for performance of
HIV Licensed Assays for a period of up to [*] that is caused by the failure of
BAYER to provide adequate supplies of Licensed Products to SPECIALTY in
accordance with the terms of the Supply Agreement (i.e., as forecast and
ordered), or any amendment or replacement of the Supply Agreement.  HIV Licensed
Assays performed pursuant to this Section 3.3(B)(iii) shall not be counted in
applying the provisions of Section 3.3(B)(ii), but shall be fully counted
against the future application of Section 3.3(B)(i).  That is, if this
Section 3.3(B)(iii) is invoked and the HIV Licensed Assays continue to be
performed after the expiration of this [*] period, then the HIV License Fee
shall become due within sixty (60) days after the end of the [*] period of this
Section 3.3(B)(iii).

 

3.4           Royalties.  In consideration for the grant of the License under
Section 3.2 above and subject to the terms herein, SPECIALTY shall make the
royalty payments identified in paragraph 2 of Appendix B to BAYER on a quarterly
basis, within thirty (30) days after the end of the relevant quarter; provided,
however, that no such royalty payments shall be due or payable with respect to
Licensed Assays performed by SPECIALTY pursuant to Sections 3.3(A)(iii) and
3.3(B)(iii) above.  Such payments shall be accompanied by a report as specified
in Section 3.5

 

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* Information for which confidential treatment has been requested pursuant to
Rule 24(b)(2) of the Securities Exchange Act of 1934, as amended. The omitted
material has been filed separately with the Securities and Exchange Commission.

 

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below.  Any late payments shall bear interest at the lesser of (i) two percent
(2%) above the 90 Day US Dollar LIBOR rate as published in the Wall Street
Journal as of the date payment is due; or (ii) the maximum rate permitted by
applicable law.

 

3.5           Records and Reports.  SPECIALTY shall keep complete and accurate
records containing all information required for the computation and verification
of the royalties to be paid hereunder.  SPECIALTY shall, with each royalty
payment, provide a written report for such quarter setting forth the revenue for
each Licensed Assay subject to royalties pursuant to Appendix B, the number of
units of each type of Licensed Assay performed, and the calculation of such
royalties (earned or minimum royalties).  Notwithstanding the foregoing, if
SPECIALTY does not perform any Licensed Assays during any quarterly period, no
quarterly report shall be required of SPECIALTY; however, if no Licensed Assays
have been performed in any calendar year, SPECIALTY shall inform BAYER in
writing that no such Licensed Assays have been performed, such notice to be sent
in lieu of the fourth quarter royalty report for such year.

 

3.6           Audit.  BAYER or Chiron shall have the right to audit the records
of SPECIALTY using an independent certified public accounting firm reasonably
acceptable to SPECIALTY, during reasonable business hours and on reasonable
notice but not more than once per calendar year, solely for the purpose of
verifying the royalties payable pursuant to the License for the eight (8) full
quarters immediately preceding the date of the audit, provided that such
accountants agree to keep all information received strictly confidential and
agree to provide to BAYER or Chiron only the information necessary to verify the
calculation of amounts due hereunder.  If any such audit discloses an
underpayment of five percent (5%) or more for the period of such audit, which
shall be at least four (4) quarters in length, SPECIALTY shall bear the costs of
such audit.  Otherwise such audit shall be at the expense of BAYER or Chiron. 
Underpayments resulting from withholding taxes shall not be deemed underpayments
for the purposes of this Section 3.6.  Under no circumstances shall SPECIALTY
have any obligation to disclose any Protected Health Information (“PHI”), as
defined under the Health Insurance Portability and Accountability Act of 1996,
to BAYER or the selected accounting firm; however, SPECIALTY shall have the
obligation to make available the books of account and records identified above,
with the necessary PHI redacted.

 

3.7           No Implied License.  Except as expressly granted under Paragraph
3.2 above, no other right or license is granted by BAYER to SPECIALTY under any
patent or other intellectual property rights, and the parties intend that no
such grant should be otherwise construed or implied, whether by estoppel or
other manner.

 

4.             REPRESENTATIONS, WARRANTIES AND COVENANTS

 

4.1           Challenge of Patent Rights.

 

A.            SPECIALTY covenants and agrees, on behalf of itself and its
Affiliates, not to initiate or maintain any opposition, challenge, compulsory
license application or the like with respect to the Patent Rights, nor initiate
or maintain any proceeding, civil or otherwise, seeking any monetary or other
remedy against Chiron or any of its licensees in connection with (i)

 

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any licenses in respect of the Patent Rights, or (ii) any act or omission of
Chiron relating thereto.

 

B.            SPECIALTY covenants and agrees, on behalf of itself and its
Affiliates, not to support any third party in any opposition, challenge,
compulsory license application or the like with respect to the Patent Rights nor
support any third party in any proceeding, civil or otherwise, seeking any
monetary or other remedy against Chiron or any of its licensees in connection
with (i) any licenses in respect of the Patent Rights in any jurisdiction; (ii)
the performance of any Licensed Assays under the Patent Rights; or (iii) any act
or omission of Chiron relating thereto.  As used herein, “support” of a third
party challenge or application shall mean any of (i) financial support of a
third party, (ii) delivery of information to a third party under an obligation
of confidentiality, or (iii) active participation in any proceeding initiated by
a third party, where such third party is challenging the validity or
enforceability of any such claims within the Patent Rights or seeking compulsory
licensing of any such claims within the Patent Rights.  BAYER may, from time to
time, reasonably request SPECIALTY to provide written confirmation of the
absence of any such support activities.  As used in this paragraph, the term
“support” shall not include any action which SPECIALTY is obligated to perform
pursuant to a contract in effect as of the Effective Date, or any compulsory
judicial process or proceeding.

 

The provisions of this Section 4.1 do not modify the commercial terms of this
Agreement or the Supply Agreement and do not control any commercial dispute that
may arise between SPECIALTY and BAYER under such agreements or any future
replacements or amendments thereof.  Anything in this Agreement to the contrary
notwithstanding, the sole and exclusive remedy for any violation or alleged
violation of this Section 4.1 by SPECIALTY, shall be the application by BAYER or
its designated appointee to a court of competent jurisdiction either: (i) to
dismiss with prejudice any claim brought by SPECIALTY in violation of this
Section 4.1, or (ii) to grant appropriate injunctive relief against SPECIALTY
enjoining actions that violate this Section 4.1.  SPECIALTY shall not be liable
for monetary or other damages for violation of this provision, except as related
to court-ordered sanctions, as determined by such court in its reasonable
discretion for failure to comply with an injunction previously issued under this
provision, or for sanctions under Federal Rules of Civil Procedure Rule 11 or
any state or local equivalents.  BAYER shall not have the right to terminate
this Agreement or be excused from performing its obligations under this
Agreement because of a violation of this provision; provided, however, that
BAYER retains its rights to terminate the License pursuant to Section 6.  The
provisions of this Section 4.1 shall not apply to and shall not bind any person
or entity which subsequent to the Effective Date becomes an Affiliate of
SPECIALTY through the acquisition (direct or indirect, by purchase of stock,
merger or otherwise) of some or all of the equity securities of SPECIALTY;
provided that SPECIALTY shall continue to be fully bound by this provision
following such acquisition.

 

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4.2           BAYER covenants that, in the event Chiron, its Affiliates,
officers, directors, shareholders or assigns brings any claim against SPECIALTY
relating to or arising from infringement of Chiron patent rights solely with
respect to the HIV and HCV detection aspects of the Specialty Assays performed
on or before the Conversion Date (“Chiron Claim”), BAYER shall indemnify, defend
and save SPECIALTY harmless from and against any and all losses, claims, suits,
damages, liabilities and expenses, including attorneys’ fees, arising from the
Chiron Claims.  In the event of such a Chiron Claim, BAYER agrees to defend the
claim at BAYER’s expense, using legal counsel reasonably acceptable to
SPECIALTY.

 

4.3           BAYER hereby represents and warrants to SPECIALTY that:  (1) BAYER
has obtained a license under the Patent Rights to make, use and sell molecular
diagnostics products for HCV and HIV testing; (2) the products that BAYER will
supply to SPECIALTY under the Supply Agreement are licensed under the Patent
Rights; and (3) the products that BAYER will supply to SPECIALTY under the
Supply Agreement do not, to the knowledge of BAYER, infringe any other party’s
intellectual property rights.

 

4.4           Acknowledgment.  Each of the parties represents and warrants to
the other that in executing this Agreement, each party has relied on the advice
of its own counsel and that the terms and provisions of this Agreement and their
consequences have been completely explained to it by its counsel, each party
fully understands the terms and provisions of this Agreement, and each party
believes that each of said terms and provisions is legal, valid and fully
enforceable in accordance with its express words.

 

4.5           Authority.  Each of the parties represents and warrants that it
has full right and authority to enter into this Agreement on behalf of itself.

 

4.6           Confidential Information.  BAYER and SPECIALTY each covenant,
except as otherwise required by law, that all information obtained by one party
(“receiving party”) from any other party (“disclosing party”) in connection with
this Agreement, including without limitation the terms and conditions of this
Agreement and the Supply Agreement themselves, shall be considered confidential
information and shall not knowingly be disclosed by the receiving party to any
third party.  For purposes of this Section 4.6, “confidential information” shall
not include information which (a) was known to the receiving party prior to
disclosure by the disclosing party; (b) is later obtained from a third party
without an obligation of secrecy; (c) becomes knowledge of the general public
through no fault of the receiving party; or (d) is released from this provision
by mutual agreement of the parties.  The burden of proof that such exception
applies in each case shall be on the receiving party.

 

4.7           In the event that a party is requested or required by law,
regulation or legal process (including, but not limited to, oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand or other process) to disclose all or any part of the
confidential information, such party agrees that: (a) it will provide each of
the other parties with prompt written notice of any such request or requirement
so that the other parties may, where appropriate and feasible, seek an
appropriate protective order or other remedy; (b) it will not oppose, and will
cooperate with the other parties in, seeking such order or remedy; and (c) it
will disclose only that portion of the confidential information which it is
legally compelled to

 

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disclosed, and it will exercise commercially reasonable efforts to obtain
confidential treatment for that portion of the confidential information which is
being disclosed.  Notwithstanding the foregoing, the parties hereby acknowledge
that SPECIALTY may be required to disclose the existence and the terms of this
Agreement in one or more filings with the US Securities and Exchange Commission
(“SEC”), and that any such filings or disclosure shall not be deemed a breach of
this Section 4.7, nor require notice under Section 4.7(a); provided, however,
that SPECIALTY shall use its commercially reasonable efforts to obtain
confidential treatment from the SEC for all the confidential portions of this
Agreement, including but not limited to the dollar amounts and the licensing
terms contained herein.

 

5.             MUTUAL RELEASES

 

5.1           General Release.  In consideration of the Cash Payment to BAYER
under Section 1 above and other valuable consideration as set forth in this
Agreement, each party (the “RELEASING PARTY”) does hereby fully release and
forever discharge the other party, and its Affiliates, officers, directors,
employees, shareholders, attorneys, and assigns thereof, but each only in his,
her or its capacity as such (individually and collectively, the “RELEASED
PARTY”) from any and all costs, claims, demands, attorneys’ fees, actions and
causes of action that have accrued to the RELEASING PARTY with respect only to
any conduct by SPECIALTY that could, in whole or in part, form the basis of a
claim of infringement of the Patent Rights with respect to the Specialty Assays
from the beginning of time through the Conversion Date.

 

5.2           Past and Present Claims.  The RELEASING PARTY acknowledges and
agrees that this Agreement applies to all claims and damages, known or unknown,
that the RELEASING PARTY may have against the RELEASED PARTY as of the
Conversion Date arising out of SPECIALTY’s performance of the Specialty Assays
that in part or in whole would form the basis of a claim for infringement of any
BAYER or Chiron patent rights.

 

5.3           SPECIALTY and BAYER, collectively and individually, hereby
represent, warrant and acknowledge to the others that they have received
independent legal advice from their respective attorneys regarding the
advisability of executing this Agreement and giving the releases provided
herein.  The parties have been fully advised by their respective attorneys of
the contents of Section 1542 of the California Civil Code and that the
section and the benefits thereof are hereby expressly waived.  Section 1542
provides as follows:

 

A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.

 

It is understood and agreed by all the parties that this is a full and final
release of any and all claims described above, and the parties agree that it
shall apply to all known and unknown claims, demands, liabilities, actions or
causes of action which relate to the subject matter of this Agreement.

 

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6.             TERMINATION

 

6.1           The License granted in Section 3 is terminable only upon the
occurrence of any one or more of the following grounds.

 

A.            Material breach of the License of Section 3 of this Agreement by
SPECIALTY or any of its Affiliate, including, without limitation, a breach
resulting from SPECIALTY or its Affiliate’s failure to pay any sums due
hereunder, where such breach shall not have been remedied within thirty (30)
days of the receipt of a written notification identifying the breach and
requiring its remedy; whereupon termination under this Section 6 shall be
effective upon the expiration of such thirty (30) day cure period; or

 

B.            SPECIALTY or any of its Affiliates violates any of the covenants
of Subsections (A) or (B) of Section 4.1 hereof, then, immediately upon receipt
of a written notification from BAYER, the License granted in Section 3 shall
terminate.

 

6.2           Notwithstanding any of the above provisions, BAYER shall retain
the right to collect any and all royalties and License Fees due or accrued prior
to the effective date of any termination of the License.

 

7.             MISCELLANEOUS

 

7.1           Construction.  This Agreement shall not be strictly construed
against any party hereto, whether that party is the drafting party or not, and
shall instead be liberally construed to effectuate the purposes and goals set
forth herein.

 

7.2           Severability.  Should any one or more of the provisions of this
Agreement be held invalid or unenforceable by a court of competent jurisdiction,
it shall be considered severed from this Agreement and shall not serve to
invalidate the remaining provisions thereof.  The parties shall make a good
faith effort to replace any invalid or unenforceable provision with a valid and
enforceable one such that the objectives contemplated by them when entering this
Agreement may be realized.

 

7.3           Independent Contractors.  The parties are independent contractors
and neither shall be liable for the debts, accounts, obligations or other
liabilities of the other, its agents, employees or other independent
contractors.  Neither party shall have the authority or power, express or
implied, to act for or bind the other.

 

7.4           Governing Law.  This Agreement is to be construed and enforced in
accordance with the substantive laws of the State of California, without regard
to its conflict of laws provisions.

 

7.5           Dispute Resolution.  Prior to either party filing suit, in
addition to other dispute resolution discussions that may be engaged in by the
parties, one of the top three executives or the appropriate legal counsel of
each party shall first meet in person (and not by proxy or telephone) and
attempt to resolve any dispute that arises between the parties concerning this

 

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Agreement.  In such event, either party shall have ten (10) business days in
which to notify the other of the initiation of such dispute resolution, upon
such notification, each party shall use its reasonable best efforts to arrange a
meeting in prompt fashion, and, unless the parties agree otherwise, the parties
shall have sixty (60) days from the date of the first meeting to settle such
dispute.  If, after such sixty (60) days period, the parties are unable to
resolve such dispute, any party may bring suit or other legal action as
appropriate in any court of competent jurisdiction.

 

7.6           Assignment.  No party may assign any of its rights or delegate any
of its duties under this Agreement without the prior written consent of the
other parties, except that no such consent is required for assignment to any
Affiliate of a party or to any third party who succeeds to all or substantially
all of the business or assets of the assignor to which this Agreement applies,
whether by merger, acquisition or otherwise.  This Agreement shall be binding on
and inure to the benefit of the successors and permitted assigns of the parties.

 

7.7           Entire Agreement.  This Agreement recites the full and complete
agreement and understanding between the parties regarding the subject matter
thereof, and supercedes any and all prior agreements and understandings between
the parties with respect thereto, whether oral or written, and each party
acknowledges and agrees that in entering into and executing this Agreement, it
is not relying on any statement, representation or promise of the other party
except as expressly set forth herein.

 

7.8           No Third Party Rights.  No provision of this Agreement shall be
deemed or construed in any way to result in the creation of any rights in any
other individual or entity not a party to this Agreement.

 

7.9           Counterparts.  This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one and the same
instrument, and any Party hereto may execute this Agreement by signing any such
counterpart.

 

7.10         No Waiver.  No waiver of any breach or failure by either party to
enforce any of the terms or conditions of this Agreement at any time will, in
any manner, limit or waive such party’s right thereafter to enforce and to
compel strict compliance with every term and condition hereof.

 

7.11         Further Assurances.  The parties shall perform all legally proper
acts and execute all documents as are reasonably needed for carrying out the
intent of this Agreement.

 

7.12         No Admission.  Nothing in this Agreement shall be deemed or
constitute an admission by SPECIALTY that any of the Specialty Assays infringe
or infringed any patent rights or other intellectual property rights of BAYER,
Chiron or any other party.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate
originals by their duly authorized officers or representatives.

 

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BAYER HEALTHCARE LLC
DIAGNOSTICS DIVISION

 

SPECIALTY LABORATORIES, INC.

 

 

 

 

 

 

By:

/s/ Illegible

 

By:

/s/ Thomas Kosco

 

 

 

Title:

Senior VP Business Segment

 

Title:

VP Business Development

 

 

 

Date:

August 15, 2003

 

Date:

August 15, 2003

 

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APPENDIX A:  PATENT RIGHTS

 

For purposes of this Agreement, “Patent Rights” shall mean:  (1) the U.S.
patents listed below; and (2) any and all U.S. patent applications claiming
priority from the U.S. patents listed herein or from their parent applications,
wherein such patent applications have a filing date on or before October 10,
2000.

 

Inventors

 

US Patent No

 

Patent Date

 

 

 

 

 

[*]

 

[*]

 

[*]

 

 

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* Information for which confidential treatment has been requested pursuant to
Rule 24(b)(2) of the Securities Exchange Act of 1934, as amended. The omitted
material has been filed separately with the Securities and Exchange Commission.

 

13

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APPENDIX B:  LICENSE TERMS

 

1.             License Fees:

 

A.            HCV License Fee:  [*]

 

B.            HIV License Fee:  [*]

 

2.           Royalty Rate:

 

A.            For HCV Licensed Assays:  Specialty shall pay the higher of:  (i)
earned royalties of [*]; or (ii) the minimum royalties (“Minimum Royalties”) as
follows.

 

qualitative – [*] per result

 

quantitative - [*] per result

 

genotyping - [*] per result

 

resistance - [*] per result

 

B.            For HIV Licensed Assays:  Specialty shall pay the higher of:  (i)
earned royalties of [*]; or (ii) the Minimum Royalties of [*] per result.

 

 

--------------------------------------------------------------------------------

* Information for which confidential treatment has been requested pursuant to
Rule 24(b)(2) of the Securities Exchange Act of 1934, as amended  The omitted
material has been filed separately with the Securities and Exchange Commission.

 

14

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