Document:

Exhibit
10.34

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT
AGREEMENT (the “Agreement”) is entered into as of September 11, 2003
by and between Specialty Laboratories, Inc., a California corporation (the
“Company”), and Cynthia K. French (“Executive”), and is effective upon
execution by the Executive and approval by the Compensation Committee of the
Company’s Board of Directors (the “Compensation Committee”).

 

1.             Duties and Responsibilities.

 

A.            Executive shall serve as the Company’s Vice-President and
Chief Science Officer or such other title or position as may be designated from
time to time by the Board of Directors.

 

B.            Executive agrees to devote his/her full time and
attention to the Company, to use his/her best efforts to advance the business
and welfare of the Company, to render his/her services under this Agreement
fully, faithfully, diligently, competently and to the best of his/her ability,
and not to engage in any other employment activities to the extent such other
employment interferes with the Company’s business or the performance of the
Executive’s duties hereunder.

 

C.            Executive shall be based at the Company’s office located
in Santa Monica, California (which the Company may move to Valencia,
California), but Executive may be required to travel to other geographic
locations in connection with the performance of his/her Executive duties.

 

2.             Period
of Employment.

 

Executive’s
employment with the Company shall be governed by the provisions of this
Agreement for the period commencing September 11, 2003 and continuing until
this Agreement terminates pursuant to written notification by either the
Company or Executive, which notification may occur at any time for any reason
or no reason.  The period during which
the Executive provides services to the Company pursuant to this Agreement shall
be referenced in this Agreement as the “Employment Period.”

 

3.             Cash Compensation.

 

A.            Executive’s base salary shall be payable in accordance
with the Company’s standard payroll schedule (“Base Salary”).  Executive’s compensation shall be subject to
periodic review by the Company, and may be increased or decreased in the
Company’s discretion with approval of the Compensation Committee.

 

B.            For each fiscal year during the Employment Period,
Executive shall be eligible for an incentive bonus in the Company’s sole
discretion (“Incentive Bonus”).  For
each full fiscal year of employment during the Employment Period, Executive
shall be eligible for an Incentive Bonus, targeted at thirty percent (30%) of
his/her annual base salary.  The
Incentive Bonus amount will be based on a number of factors, including but not
limited to:  (1) the 

 

 

financial performance of the Company as determined and
measured by the Company’s Board of Directors, and (2) Executive’s achievement
of management targets and goals as set by the Company.  The Incentive Bonus amount is intended to
reward contribution to the Company’s performance over an entire fiscal year,
and to encourage continuing contribution, and consequently will be paid only if
Executive is employed and in good standing at the time of bonus payments, which
generally occurs within ninety (90) days after the close of the Company’s
fiscal year.  Determination of the
amount of Incentive Bonus, or whether any Incentive Bonus shall be paid, will be
made in the Company’s sole discretion.

 

C.            The Company shall deduct and withhold from the
compensation payable to Executive hereunder, including the Incentive Bonus (if
any), any and all applicable Federal, state and local income and employment
withholding taxes and any other amounts required or authorized by Executive to
be deducted or withheld by the Company under applicable statutes, regulations,
ordinances or orders governing or requiring the withholding or deduction of
amounts otherwise payable as compensation or wages to employees.

 

4.             Equity
Participation. 

 

Pursuant
to the Company’s 2000 Stock Incentive Plan, Executive may have previously been
granted a specific number of options to purchase shares of the Company’s common
stock (the “Options”), with certain vesting schedules and exercise prices, and
except as specifically detailed herein, such grants remain in effect and are
not affected by this Agreement.

 

5.             Expense
Reimbursement.

 

In
addition to the compensation specified in Section 3, Executive shall be
entitled, in accordance with the Company’s reimbursement policies in effect
from time to time, to receive reimbursement from the Company for reasonable
business expenses incurred by Executive in the performance of his/her duties
hereunder, provided Executive furnishes the Company with vouchers, receipts and
other details of such expenses in the form required by the Company sufficient
to substantiate a deduction for such business expenses under all applicable
rules and regulations of Federal and state taxing authorities.

 

6.             Fringe
Benefits.

 

A.            Executive shall, throughout the Employment Period (after
any applicable waiting period for new employees as specified in Company
policies), be eligible to participate in all group term life insurance plans, group
health plans, accidental death and dismemberment plans and short-term
disability programs and other Executive perquisites which are made available to
the Company’s Executives and for which Executive qualifies.  The Company’s Employee Handbook, copies of
which Executive acknowledges were provided to Executive by Company, set forth
further information concerning these benefits.

 

B.            Executive shall earn vacation time during the Employment
Period at the rate of three (3) weeks per year. Vacation shall accrue and be
taken pursuant to the Company’s vacation benefit policy set forth in the
Company’s Employee/Team Member Handbook, up to a maximum accrual of 160 hours,
or four (4) weeks, of unused vacation time. 
Once this maximum 

 

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accrual is reached, the accrual will stop until
Executive reduces the vacation balance by taking vacation time.

 

7.             Severance Pay for Exercise of the At-Will Clause.

 

A.            Notwithstanding any of the provisions of this Agreement,
Executive’s employment with the Company is “at will”, which means that it is
not for a specific term and may be terminated by either the Company or
Executive at any time, for any reason or no reason, without advance
notice.  Similarly the Company may
change the terms and conditions of Executive’s employment at any time, for any
reason, without advance notice.

 

B.            Should the Company terminate Executive’s employment for
Cause (as defined in Section 9 below), or should Executive voluntarily resign
(other than a resignation for Good Reason (as defined in Section 8 below)), the
Company shall have no obligation to Executive under this Agreement other than
for accrued but unpaid salary and vacation time as of the date of termination.

 

C.            If the Company terminates Executive’s employment other
than for Cause, or if Executive resigns for Good Reason, the Company shall pay
to Executive (in either a lump sum or on a bi-weekly basis, at the sole
discretion of the Company) severance pay in the amount equivalent to nine (9) months
of Executive’s Base Salary immediately preceding such termination of
Executive’s employment, and Company shall also make a lump sum payment
to Executive of an amount equivalent to the payments necessary for continuation
of Executive’s health
benefits for nine (9) months
under COBRA (such payments collectively “Severance Compensation”).  Any election of coverage under COBRA will be
at Executive’s sole discretion and expense. 
Executive must comply with the terms and conditions of COBRA to
establish and maintain eligibility.  In
the event the provisions of this Section 7(C) are implemented, upon the payment
of the Severance Compensation and any accrued but unpaid salary and
vacation time as of the date of termination have been paid to Executive, the
Company shall have no further obligation to Executive under this
Agreement.  The Company shall not provide nor reimburse Executive for any
supplemental insurance products, including life insurance.

 

D.            The Company shall deduct and withhold from the Severance
Compensation any and all applicable Federal, state and local income and
employment withholding taxes and any other amounts required or authorized by
Executive to be deducted or withheld by the Company under applicable statutes,
regulations, ordinances or orders governing or requiring the withholding or
deduction of amounts otherwise payable as compensation or wages to employees.

 

8.             Good Reason.

 

For Purposes of this
Agreement, “Good Reason” shall mean any of the following events or occurrences,
provided that Executive first provides prompt written notice to Company of the
event or occurrence, and Company has not cured such event or occurrence within
fourteen (14) days of receipt of such notice:

 

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A.            A material reduction or alteration in the duties,
responsibilities, status, reporting responsibilities, title, or offices that
Executive had with the Company immediately before the reduction;

 

B.            A reduction by more than 10% of the annual Base Salary
that Executive was eligible to receive from the Company and its affiliates
immediately before the reduction, or any cumulative reductions totaling more
than 10% of the annual Base Salary of Executive as the effective date of this
Agreement;

 

C.            A Change in Control after which the Executive is not
offered the same or equivalent position at no less than ninety percent (90%) of
Executive’s Base Salary immediately preceding such Change of Control;

 

D.            The failure of any successor to the Company by merger,
consolidation or acquisition of all or substantially all of the business or
assets of the Company to assume the Company’s obligations under this Agreement;
or

 

E.             A material breach by the Company of its obligations
under this Agreement.

 

9.             Cause. 

 

For purposes of this Agreement,
“Cause” shall mean a reasonable belief by the Board of Directors (or any of the
Executive’s supervisors) that Executive has engaged in any one or more of the
following:  (i) financial dishonesty,
including, without limitation, misappropriation of a material or substantial
quantity of Company funds or property, or any attempt by Executive to secure
any personal profit related to the business or business opportunities of the
Company without the informed, written approval of the Company’s Board of Directors;
(ii) gross insubordination; (iii) gross negligence or reckless or willful
misconduct in the performance of Executive’s duties; (iv) misconduct which has
a materially adverse effect upon the Company’s business or reputation; (v) the
conviction of, or plea of nolo contendre to, any felony involving moral
turpitude or fraud; (vi) the material breach of any provision of this
Agreement; (vii) a material violation of Company policies including, without
limitation, the Company’s policies on equal employment opportunity and
prohibition of unlawful harassment; or (viii) the death or Disability of the
Executive (as defined below).

 

10.           Failure
to Render Service.

 

In the event Executive
fails for a period of 365 calendar days during any twelve-month period, as a result
of illness, incapacity, Disability (as defined below), injury, or by reason of
any statute law, ordinance, regulation, order, judgment or decree, to render
the services contemplated by this Agreement, Company, by written notice to
Executive, may, to the extent consistent with applicable law, suspend payment
of any salary or other benefits and/or terminate Executive’s employment without
those benefits provided herein.  For
purposes of this Agreement, “Disability” shall mean the absence of the Executive
from this duties with the Company on a full-time basis for 365 consecutive days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the 

 

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Company or its insurers
and acceptable to the Executive or his/her legal representative (such agreement
as to acceptability not to be unreasonably withheld).

 

11.           Special Change In Control Provisions.

 

A.            For purposes of this Agreement, “Change In Control” shall
mean any of the following transactions or events effecting a change in
ownership or control of the Company:

 

(i)         a merger,
consolidation or reorganization approved by the Company’s stockholders, unless
securities representing more than fifty percent (50%) of the total combined
voting power of the voting securities of the successor company are immediately
thereafter beneficially owned, directly or indirectly and in substantially the
same proportion, by the persons who beneficially owned the Company’s
outstanding voting securities immediately prior to such transaction, or

 

(ii)        any stockholder-approved transfer or any other disposition of
all or substantially all of the Company’s assets, or

 

(iii)       the acquisition, directly or indirectly, 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 1934
Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Company’s outstanding securities pursuant to a
tender or exchange offer made directly to the Company’s stockholders, or

 

(iv)      a
change in the composition of the Board such that: (a) five (5) or more Board
members resign or are otherwise removed as Board members within any period of
six (6) consecutive months or less; or (b) five (5) or more Board members opt
not to stand for re-election to the Board within any period of six (6)
consecutive months or less; or (c) the authorized number of Board members is
increased or decreased by five (5) or more members within any period of six (6)
consecutive months or less; or (d) any combination of the foregoing Sections 11(A)(iv)(a-c)
occurs, such that five (5) or more Board member positions are affected by a
combination of resignations/removals, the option not to stand for re-election,
or the increase/decrease of the authorized number of Board members within any
period of six (6) consecutive months or less. 
As an example of the foregoing, and for illustrative purposes only, in
the event that two (2) Board members resign, one (1) Board member opts not to
stand for re-election, and the authorized number of Board members is increased
by two (2) positions, all of which occur within any period of six (6)
consecutive months or less, a Change of Control will be deemed to have
occurred.

 

B.            Change in Control Acceleration. In the
event of a of a Change in Control as described in Section 11(A)(iv) herein, the
Options, to the extent outstanding at the time of such Change in Control, but
not otherwise vested and exercisable for all the shares of Common Stock subject
to those Options will, immediately and automatically as of the effective date
of 

 

5

 

such Change in Control, vest and become exercisable
for all of the shares of Common Stock at the time subject to the Options and
may be exercised for any or all of those shares as fully-vested shares of
Common Stock.  In the event of a Change
of Control other than that described in Section 11(A)(iv) herein, the Options
shall be governed by the terms of the Company’s 2000 Stock Incentive Plan.

 

D.            Termination or Resignation Following Change in Control.  Following a Change in Control, should
Executive’s employment with the Company or successor company terminate by
reason of (i) a resignation for Good Reason within twelve (12) months after a
Change in Control, or (ii) an involuntary termination of Executive’s employment
(other than a termination for Cause) within twelve (12) months after a Change
in Control (“Involuntary Termination”), Executive will become entitled to
receive the severance benefits set forth herein, provided and only if Executive executes and
delivers to the Company or successor company a general release (in form and
substance substantially similar to that in Exhibit A hereto or such other form
as mutually agreed to by Executive and Company or successor company).

 

12.  Additional
Restrictive Covenants.

 

A.            Executive acknowledges and agrees that given the extent
and nature of the confidential and proprietary information he/she will obtain
during the course of his/her employment with the Company, it would be
inevitable that such confidential information would be disclosed or utilized by
the Executive should he/she obtain employment from, or otherwise become
associated with, an entity or person that is engaged in a business or
enterprise that directly competes with the Company.  Consequently, if in any period during which the Executive is
receiving payments from the Company as a severance benefit,  including but not limited to
severance pay pursuant to Section 7, Executive shall, without prior written
consent of the Company’s Board of Directors, directly or indirectly own,
manage, operate, join, control or participate in the ownership, management,
operation or control of, or be employed by, render service to or be connected
in any manner with, any enterprise which is engaged in any business directly
competitive with that of the Company, then Company may, in its sole discretion,
permanently and/or temporarily cancel and/or suspend any remaining severance
payments to Executive.  Cancellation or
suspension of payments to Executive under this Section 12(A) shall not be
deemed a breach of this Agreement by Company. 
The provisions of this Section 12(A) shall not apply to any passive
investment representing an interest of less than two percent (2%) of an outstanding
class of publicly-traded securities of any company or other enterprise.

 

B.            During the Employment Period, and for
any additional period thereafter during which the Executive is receiving
payments from the Company as a severance benefit, including but not limited
to severance pay pursuant to Section 7, Executive shall not
encourage or solicit any of the Company’s employees to leave the
Company’s employ for any reason or interfere in any other manner with
employment relationships at the time existing between the Company and its
employees.  In addition, Executive shall
not solicit, directly or indirectly, business from any client of the Company,
induce any of the Company’s clients to terminate their existing business
relationship with the Company or interfere in any other manner with any existing
business relationship between the Company and any client or other third party.

 

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C.            Executive acknowledges that monetary damages may not be
sufficient to compensate the Company for any economic loss which may be
incurred by reason of his/her breach of the foregoing restrictive
covenants.  Accordingly, in the event of
any such breach, the Company shall, in addition to the termination of this
Agreement and any remedies available to the Company at law, be entitled to
obtain equitable relief in the form of an injunction precluding Executive from
continuing such breach.

 

13.           Proprietary
Information.

 

As a condition of
Executive’s employment with the Company, Executive will execute (or has already
executed) the Company’s standard Confidential Information and Assignment of
Inventions Agreement.  Executive’s
obligations pursuant to the Confidential Information and Assignment of
Inventions Agreement will survive termination of Executive’s employment with
the Company.

 

14.           Successors
and Assigns.

 

This
Agreement is personal in its nature and the Executive shall not assign or
transfer his/her rights under this Agreement. 
The provisions of this Agreement shall inure to the benefit of, and be
binding on each successor of the Company whether by merger, consolidation,
transfer of all or substantially all assets (whether or not such transaction
qualifies as a Change in Control) or otherwise and the heirs and legal
representatives of Executive.

 

15.           Notices.

 

Any notices, demands or
other communications required or desired to be given by any party shall be in
writing and shall be validly given to another party if served either personally
or if deposited in the United States mail, certified or registered, postage
prepaid, return receipt requested.  If
such notice, demand or other communication shall be served personally, service
shall be conclusively deemed made at the time of such personal service.  If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:

 

To the Company:

 

Human Resources
Department

Specialty
Laboratories, Inc.

2211 Michigan
Avenue

Santa Monica,
California 90404

 

To Executive at the
current address as noted in personnel file at Company.

 

Any party may change its address for the purpose of
receiving notices, demands and other communications by providing written notice
to the other party in the manner described in this Section.

 

7

 

16.           Governing
Documents.

 

This
Agreement along with the documents expressly referenced in this Agreement
constitute the entire agreement and understanding of the Company and Executive
with respect to the terms and conditions of Executive’s employment with the
Company and the payment of severance benefits and supersedes all prior and
contemporaneous written or verbal agreements and understandings between
Executive and the Company relating to such subject matter.  This Agreement may only be amended by
written instrument signed by Executive and an authorized officer of the
Company.  Any and all prior agreements,
understandings or representations relating to the Executive’s employment with
the Company are terminated and cancelled in their entirety and are of no
further force or effect.

 

17.           Governing
Law.

 

The
provisions of this Agreement will be construed and interpreted under the laws
of the State of California. If any provision of this Agreement as applied to
any party or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision shall in no way affect (to the maximum extent permissible by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this
Agreement, or the enforceability or invalidity of this Agreement as a
whole.  Should any provision of this
Agreement become or be deemed invalid, illegal or unenforceable in any
jurisdiction by reason of the scope, extent or duration of its coverage, then
such provision shall be deemed amended to the extent necessary to conform to
applicable law so as to be valid and enforceable or, if such provision cannot
be so amended without materially altering the intention of the parties, then
such provision will be stricken and the remainder of this Agreement shall
continue in full force and effect.

 

18.           Remedies.

 

All
rights and remedies provided pursuant to this Agreement or by law shall be
cumulative, and no such right or remedy shall be exclusive of any other.  A party may pursue any one or more rights or
remedies hereunder or may seek damages or specific performance in the event of
another party’s breach hereunder or may pursue any other remedy by law or
equity, whether or not stated in this Agreement.

 

19.           Arbitration.

 

A.            Except as provided for in Section
12(C), and to the fullest extent allowed by law, any controversy or claim
arising out of or relating to Executive’s employment with the Company or
anything set forth herein, shall be settled by final and binding arbitration,
conducted in Los Angeles County, by an arbitrator selected in accordance with
the procedure set forth below.  Possible
disputes covered by the foregoing, include (without limitation) claims pursuant
to Title VII of the Civil Rights Act, the California Fair Employment and
Housing Act and comparable statutes in other states if applicable, the
Americans with Disabilities Act,  the
Age Discrimination in Employment Act, and any other statutes relating to an
employee’s relationship with his/her employer. The Executive and the Company
shall initially confer and attempt to

 

8

 

reach
agreement on the individual to be appointed as the arbitrator.  If no agreement is reached, the Executive
and the Company shall request from the Judicial Arbitration and Mediation
Services (“JAMS”) a list of five (5) retired judges affiliated with JAMS. The
Executive and the Company shall each alternately strike names from such list
until only one (1) name remains, and such person shall thereby be selected as
the arbitrator.  Except as otherwise
provided for herein, such arbitration shall be conducted in conformity with the
procedures specified in the California Arbitration Act (Cal. C.C.P. §§ 1280 et
seq.).  The arbitrator shall
allow the discovery authorized by California Code of Civil Procedure section
1283.05 or any other discovery required by law in arbitration proceedings.  To the extent that anything in this
Agreement conflicts with the arbitration procedures required by applicable law,
the arbitration procedures required by applicable law shall govern.  The arbitrator shall issue a written award
that sets forth the essential findings and conclusions on which the award is
based.  The arbitrator shall have the
authority to award any relief authorized by law in connection with the asserted
claims or disputes.  The arbitrator’s
award shall be subject to correction, confirmation or vacation, as provided by
any applicable law setting forth the standard of judicial review of arbitration
awards.

 

B.            The Company shall bear the entire cost of (i) the
arbitrator’s fee, (ii) any other type of expense or cost that the Executive
would not be required to bear if the Executive were free to bring the dispute
or claim in court and (iii) any other expense or cost that is unique to
arbitration.  The parties intend
that this section describing arbitration shall be valid, binding, enforceable
and irrevocable and shall survive the termination of this Agreement.  Any final decision of the arbitrator so
chosen may be enforced by a court of competent jurisdiction.  The Executive acknowledges and agrees that
he/she is waiving his/her right to a jury trial and agrees that the decision of
the arbitrator shall be final and binding. 
Each party shall pay its own costs and attorneys’ fees, if any.  However, if any party prevails on a
statutory claim which affords the prevailing party attorneys’ fees and costs,
the Arbitrator may award reasonable fees and costs to the prevailing party.  Any dispute as to the reasonableness of any
fee or cost shall be resolved by the Arbitrator.

 

[THE REMINDER OF THIS
PAGE INTENTIONALLY LEFT BLANK]

 

9

 

20.           No Waiver.

 

The
waiver by either party of a breach of any provision of this Agreement shall not
operate as or be construed as a waiver of any later breach of that provision.

 

21.           Counterparts.

 

This
Agreement may be executed in more than one counterpart, each of which shall be
deemed an original, but all of which together shall constitute but one and the
same instrument.

 

	
   

  	
  SPECIALTY LABORATORIES,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Douglas S.
  Harrington

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   Douglas S. Harrington, M.D.

  	
   

  
	
   

  	
   

  
	
   

  	
  Title: 

  	
  Chief Executive
  Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Date: 

  	
   September 12, 2003

  	
   

  
					

 

 

	
   

  	
   

  	
  /s/ Cynthia K. French

  	
   

  
	
   

  	
   

  	
  EXECUTIVE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date: 

  	
   September 22, 2003

  	
   

  
					

 

10

 

Exhibit A

Form of General Release

 

GENERAL RELEASE OF ALL
CLAIMS

 

This General Release of All
Claims (“Agreement”) is voluntarily entered into by «NAME» (“Executive”) and
Specialty Laboratories, Inc. (“Specialty”
or “Company”) to settle fully and finally all obligations and/or differences
between them, disputed and/or undisputed, arising out of, relating to or
resulting from Executive’s employment with Specialty
and separation from employment. 
Executive and Specialty
agree:

 

1.                                                      Executive’s
employment with Specialty will
terminate/terminated effective «TERMDATE». 
On that date Executive’s employment with Specialty will/did automatically and immediately cease for
all purposes except as provided below. 
Also on that date, the Company will/did provide the Executive with a
final paycheck which will include payment for hours worked up through and
including «TERMDATE», plus all earned and untaken vacation.

 

2.                                                      As
full and final settlement of all claims, demands, damages, liabilities and/or
causes of action of any kind whatsoever, known or unknown (“Claims”) that
Executive has or may have against Specialty,
its officers, directors, shareholders, owners, parent companies, subsidiaries, affiliates,
predecessors, successors, assigns, agents, employees and representatives (“Specialty, et al”), and in reliance upon
Executive’s termination of employment, release, covenants and promises
contained herein, Specialty
agrees to provide Executive with the severance benefits provided for and
described in the Employment Agreement between Specialty and Executive
dated September 11, 2003.

 

3.                                                      In
consideration of the above, Executive and Specialty
waive, release and forever discharge each other, et al, from all Claims that
Executive or Specialty has or may
have against each other, et al, arising out of, relating to, or resulting from
any events occurring before the execution of this Agreement, including but not
limited to any Claims arising out of, relating to or resulting from Executive’s
employment with Specialty, the
cessation of that employment, any Claims for violation of Specialty’s policies or procedures,
wrongful termination, breach of contract, breach of the covenant of good faith
and fair dealing, violation of public policy, negligent and/or intentional
infliction of emotional distress and/or stress, negligence, injury to the
psyche and/or internal organs, negligent and/or intentional misrepresentation,
fraud and/or deceit, defamation and/or invasion of privacy, any claims for
physical, mental and/or psychological injuries, attorneys’ fees, costs, any
Claims under the California Labor Code, the California Workers’ Compensation
Act, the California Fair Employment and Housing Act, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1866, the Civil Rights Act of 1991,
the Equal Pay Act, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Family and Medical Leave Act, the California Family
Rights Act, the Consolidated Omnibus Budget Reconciliation Act of 1985 and/or
the Employee Retirement Income Security Act of 1974 and/or any Claims under any
other federal, state of local law, constitution, regulation or ordinance.  Executive and Specialty further agree 

 

11

 

not
to bring, continue or maintain any legal proceedings of any nature whatsoever
against each other, et al, before any court, administrative agency, arbitrator
or any other tribunal or forum by reason of any such Claims.  Specifically included in this release are
all Claims of age discrimination, whether under the Federal Age Discrimination
in Employment Act of 1967, 29 U.S.C. Section 621 et seq., the California Fair
Employment and Housing Act, California Government Code Section 12941 et seq. or
any other law.

 

4.                                                      This
Agreement is intended to be effective as a bar to all Claims as stated in
paragraph 3.  Accordingly, Executive and
Specialty hereby expressly waive
all rights and benefits conferred by Section 1542 of the California Civil Code,
which states:

 

“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.”

 

Executive
and Specialty acknowledge that
they may hereafter discover Claims or facts in addition to or different from
those which they now know or believe to exist with respect to the subject
matter of this Agreement and which, if known or suspected this Agreement, may
have materially affected this settlement. 
Nevertheless, Executive and Specialty
hereby waive any right, claim or cause of action that might arise as
a result of such different or additional claims or facts.  Executive and Specialty acknowledge that they understand the significance
and consequence of such release and such specific waiver of Section 1542.

 

5.                                                      Executive
acknowledges and agrees he/she has signed, or concurrent with this Agreement is
signing, the “Agreement with Respect to Confidential Information, Inventions
and Works of Authorship” (“Confidentiality Agreement”), which is fully
incorporated herein by this reference. 
Executive warrants and represents he/she has not breached any of his
obligations under the Confidentiality Agreement and agrees to abide by all
promises, terms, obligations and covenants agreed to, made and/or assumed by
Executive under the Confidentiality Agreement.

 

6.                                                       Executive
acknowledges and agrees he/she will make only truthful remarks and statements
about and will not disparage Specialty
and/or Specialty’s business
operations, products, services, practices, procedures, policies, officers,
directors, shareholders, agents, employee and representatives.  The Company acknowledges and agrees that no
member of Company senior management will make disparaging or untrue remarks
about Executive.

 

7.                                                      Executive
agrees that upon termination of employment with the Company, Executive will
promptly transfer to the Company, all drawings, manuals, guides, records,
notebooks, papers, writings, computer software or programs in any form and
other documents and materials, including all copies thereof, which are in
Executive’s possession or under Executive’s control, whether or not such items
were prepared by 

 

12

 

Executive,
which would not be in the possession of the Executive except for the employment
of the Executive by the Company.

 

8.                                                      Executive
agrees not to disclose this Agreement or any of its terms to anyone except his
attorney, or tax advisor, if any.

 

9.                                                      Specialty expressly denies any violation
of any of its policies, procedures, state or federal laws or regulations.  Accordingly, while this Agreement resolves
all issues between Executive and Specialty
relating to any alleged violation of Specialty’s
policies or procedures or any state or federal law or regulation, this
Agreement does not constitute an adjudication or finding on the merits and it
is not, and shall not be construed as, an admission by Specialty of any violation of its
policies, procedures, state or federal laws or regulations.

 

10.                                                The
consideration described in paragraph 2 above constitutes the sole and exclusive
consideration provided Executive under this Agreement.  Executive acknowledges and agrees he/she has
received all wages, bonuses, commissions, compensation remuneration, and all
other moneys due him/her arising out of, relating to or resulting from his
employment with Specialty,
including but not limited to all moneys due him/her under any and all benefit
plans established and/or maintained by Specialty.

 

11.                                                Executive
and Specialty each represent and
warrant they have not transferred or assigned to any person or entity any
rights or Claims released herein.

 

12.                                                This
Agreement is binding upon and inures to the benefits of Executive’s spouse,
family, heirs, successors, assigns, executors, administrators and personal
representatives and is binding upon the inures to the benefit of the successors
and assigns of Specialty.

 

13.                                                Except
as explicitly provided herein, neither party will be liable to the other party
for any costs or attorneys’ fees, including any provided by statutes.

 

14.                                                Executive
fully understands, acknowledges and agrees among the various rights and Claims
he/she is waiving, releasing and forever discharging by the execution of this
Agreement are all rights and Claims arising under the Federal Age
Discrimination in Employment Act of 1967, 29 U.S.C. Section 621, et. seq.  Executive further understands, acknowledges
and agrees that:

 

a.             In return for this
Agreement, Executive will receive compensation beyond that which Executive was
already entitled to receive before entering into this Agreement.

 

b.             Executive was given
a copy of this Agreement on                  ,
and informed that Executive has been given forty-five (45) days within which to
consider this Agreement;

 

c.             Executive has
carefully read and fully understands all of the provisions of this Agreement;

 

13

 

d.             Executive is, by
the execution of this Agreement, waiving, releasing and forever discharging Specialty, et al, from all Claims that
he/she has or may have against Specialty,
et al, individually and/or collectively, including but not limited to all
Claims of age discrimination;

 

e.             Executive was
previously advised, and is hereby further advised, in writing to consult with
an attorney before executing this Agreement; and

 

f.              Executive was
informed that Executive has a period of seven (7) days following the execution
of this Agreement by both parties to revoke this Agreement by providing written
notice of such revocation to Specialty’s
Human Resources Department and was previously advised, and is hereby further
advised, in writing that this Agreement shall not become effective or
enforceable until this seven (7) day revocation period has expired without
him/her having exercised his right of revocation; and

 

15.                                                This
is the entire agreement between the parties and supersedes all previous
negotiations, agreements and understandings, with the exception of the
Confidentiality Agreement referenced in Section 5 herein and the surviving
provisions of the Employment Agreement. 
Any oral representations regarding this Agreement shall have no force or
effect.  No modifications of this
Agreement can be made except in writing signed by Executive and an authorized
representative of Specialty.  If any action or other legal proceeding is
brought by either party for damages, specific performance or other injunctive
relief by reason of any asserted violation of this Agreement, the prevailing
party shall be entitled to recover its reasonable costs and attorney fees.

 

16.                                                Executive
acknowledges and agrees that he/she has been advised this Agreement is a final
and binding legal document, that he/she has had reasonable and sufficient time
and opportunity to consult with an attorney of his own choosing before signing
this Agreement and that in signing this Agreement, he/she has acted voluntarily
of his own free will and has not relied upon any representation made by Specialty or any of its agents, employees
or representatives regarding this Agreement’s subject matter or its effect.

 

17.                                                Executive
agrees to return all Company property, including but not limited to all computer
equipment, credit cards, telephone equipment, and dictation equipment.  Executive also agrees to provide a final
reconciliation of all cash advances, travel advances, along with incurred
authorized expenses as substantiated by appropriate receipts.  Executive agrees that failure to return all
Company property and/or provide proper documentation to account for any
outstanding travel or cash advances within seven (7) days of Executive’s
execution of this Agreement shall make this Agreement null and void.

 

18.                                                Executive
agrees that he/she will make himself available at mutually agreeable times as
requested by Specialty to use his
best efforts to cooperate with Specialty
in any litigation or government investigations or proceedings now pending or
which may later 

 

14

 

arise
in which Specialty requires or
desires his cooperation as a witness or otherwise.  Specialty will
reimburse Executive for reasonable travel and other out-of-pocket expenses
incurred as a result of providing such cooperation.  It is understood that Executive’s availability will be for
reasonable periods of time during normal business and employment activities
elsewhere and that his availability for assistance in such litigation
activities on behalf of Specialty
will not unreasonably interfere with his efforts to pursue such other business
and employment activities.

 

19.                                                Any
dispute or controversy between Executive, on the one hand, and Specialty, on the other hand, in any way
arising out of, related to, or connected with this Agreement or the subject
matter thereof, shall be resolved through final and binding arbitration in Los
Angeles, California, pursuant to California Civil Procedure Code §§ 1282 –
1284.2.  In the event of such
arbitration, unless otherwise required by law, each party shall pay its own
attorneys’ fees and costs and Specialty
shall pay the arbitrator’s fees, and any and all other administrative costs of
the arbitration.  Notwithstanding any
provision in this Section 19, neither party shall be prohibited from seeking
injunctive relief as necessary to maintain the status quo pending an
arbitration proceeding regarding the breach or threatened breach of the
Confidentiality Agreement or any other confidentiality obligations owed to the
other party.  The provisions of this
Section 19 supercede and replace in their entirety any prior arbitration
agreement(s) that may exist between Executive and Specialty.

 

20.                                                If
any provision of this Agreement or the application thereof is held invalid the
invalidity shall not affect other provisions or applications of this Agreement
which can be given effect without the invalid provisions or applications and to
this end the provisions of this Agreement are declared to be severable.

 

I
HAVE COMPLETELY AND CAREFULLY READ THE FOREGOING, INCLUDING THE WAIVER AND
RELEASE OF CLAIMS SET FORTH IN PARAGRAPHS 2, 3, 4, 10, 13, AND 14 ABOVE AND
FULLY UNDERSTAND AND VOLUNTARILY AGREE TO ITS TERMS.

 

THIS AGREEMENT CONTAINS A WAIVER OF
CLAIMS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT.  YOU ARE ADVISED TO CONSULT WITH AN ATTORNEY
PRIOR TO SIGNING THIS AGREEMENT.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  «NAME»

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SPECIALTY
  LABORATORIES, INC.

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
							

 

15Exhibit
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:

 

1

 

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 

 

* 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.

 

2

 

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.

 

3

 

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 

 

* 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.

 

4

 

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 

 

* 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.

 

5

 

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) 

 

6

 

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.

 

7

 

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 

 

8

 

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.

 

9

 

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 

 

10

 

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.

 

11

 

	
  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

  
								

 

12

 

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

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  

 

 

* 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

 

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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