Vice President, Business Development Employment Agreement

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 Thomas J. Kosco ("Executive"), and is effective upon execution by the Executive and approval by the Compensation Committee of the Company92s Board of Directors (the "Compensation Committee").



1. Duties and Responsibilities .



A. Executive shall serve as the Company92s Vice-President, Business Development 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 Company92s business or the performance of the Executive92s duties hereunder.



C. Executive shall be based at the Company92s 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 .



Executive92s 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. Executive92s base salary shall be payable in accordance with the Company92s standard payroll schedule ("Base Salary"). Executive92s compensation shall be subject to periodic review by the Company, and may be increased or decreased in the Company92s 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 Company92s 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 twenty percent (20%) 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 Company92 s Board of Directors, and (2) Executive92s achievement of management targets and goals as set by the Company. The Incentive Bonus amount is intended to reward contribution to the Company92s 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 Company92s fiscal year. Determination of the amount of Incentive Bonus, or whether any Incentive Bonus shall be paid, will be made in the Company92s 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 Company92s 2000 Stock Incentive Plan, Executive may have previously been granted a specific number of options to purchase shares of the Company92s 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 Company92s 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 Company92s Executives and for which Executive qualifies. The Company92s 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 Company92s vacation benefit policy set forth in the Company92s 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, Executive92s 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 Executive92s employment at any time, for any reason, without advance notice.



B. Should the Company terminate Executive92s 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 Executive92s 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 Executive92 s Base Salary immediately preceding such termination of Executive92s employment, and Company shall also make a lump sum payment to Executive of an amount equivalent to the payments necessary for continuation of Executive92s health benefits for nine (9) months under COBRA (such payments collectively "Severance Compensation"). Any election of coverage under COBRA will be at Executive92s 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 Executive92s 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 Company92s 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 Executive92s 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 Company92s Board of Directors; (ii) gross insubordination; (iii) gross negligence or reckless or willful misconduct in the performance of Executive92s duties; (iv) misconduct which has a materially adverse effect upon the Company92s 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 Company92s 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 Executive92s 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 Company92s 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 Company92s 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 Company92s 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 Company92s outstanding securities pursuant to a tender or exchange offer made directly to the Company92s 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/decreas ...