Document:

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                          SPECIALTY LABORATORIES, INC.

                            2000 STOCK INCENTIVE PLAN

                                   ARTICLE ONE

                               GENERAL PROVISIONS

         I.       PURPOSE OF THE PLAN

                  This 2000 Stock Incentive Plan is intended to promote the
interests of Specialty Laboratories, Inc., a Delaware corporation, by providing
eligible persons in the Corporation's service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in such service.

                  Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.

         II.      STRUCTURE OF THE PLAN

                  A.       The Plan shall be divided into five separate
equity incentives programs:

                           -        the Discretionary Option Grant Program
         under which eligible persons may, at the discretion of the Plan
         Administrator, be granted options to purchase shares of Common Stock,

                           -        the Salary Investment Option Grant Program
         under which eligible employees may elect to have a portion of their
         base salary invested each year in special option grants,

                           -        the Stock Issuance Program under which
         eligible persons may, at the discretion of the Plan Administrator, be
         issued shares of Common Stock directly, either through the immediate
         purchase of such shares or as a bonus for services rendered the
         Corporation (or any Parent or Subsidiary),

                           -        the Automatic Option Grant Program under
         which eligible non-employee Board members shall automatically receive
         option grants at designated intervals over their period of continued
         Board service, and

                           -        the Director Fee Option Grant Program under
         which non-employee Board members may elect to have all or any portion
         of their annual retainer fee otherwise payable in cash applied to a
         special stock option grant.

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                  B.       The provisions of Articles One and Seven shall apply
to all equity programs under the Plan and shall govern the interests of all
persons under the Plan.

         III.     ADMINISTRATION OF THE PLAN

                  A.       The Primary Committee shall have sole and
exclusive authority to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders. Administration of the
Discretionary Option Grant and Stock Issuance Programs with respect to all
other persons eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or
the Board may retain the power to administer those programs with respect to
all such persons. However, any discretionary option grants or stock issuances
for members of the Primary Committee must be authorized by a disinterested
majority of the Board.

                  B.       Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and may
be removed by the Board at any time. The Board may also at any time terminate
the functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.

                  C.       Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Discretionary Option
Grant and Stock Issuance Programs and to make such determinations under, and
issue such interpretations of, the provisions of those programs and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Discretionary Option Grant and Stock
Issuance Programs under its jurisdiction or any stock option or stock issuance
thereunder.

                  D.       The Primary Committee shall have the sole and
exclusive authority to determine which Section 16 Insiders and other highly
compensated Employees shall be eligible for participation in the Salary
Investment Option Grant Program for one or more calendar years. However, all
option grants under the Salary Investment Option Grant Program shall be made in
accordance with the express terms of that program, and the Primary Committee
shall not exercise any discretionary functions with respect to the option grants
made under that program.

                  E.       Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member of
the Primary Committee or the Secondary Committee shall be liable for any act or
omission made in good faith with respect to the Plan or any option grants or
stock issuances under the Plan.

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                  F.       Administration of the Automatic Option Grant and
Director Fee Option Grant Programs shall be self-executing in accordance with
the terms of those programs, and no Plan Administrator shall exercise any
discretionary functions with respect to any option grants or stock issuances
made under those programs.

         IV.      ELIGIBILITY

                  A.       The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as follows:

                                    (i)      Employees,

                                    (ii)     non-employee members of the Board
         or the board of directors of any Parent or Subsidiary, and

                                    (iii)    consultants and other independent
         advisors who provide services to the Corporation (or any Parent or
         Subsidiary).

                  B.       Only Employees who are Section 16 Insiders or other
highly compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.

                  C.       Each Plan Administrator shall, within the scope of
its administrative jurisdiction under the Plan, have full authority to
determine, (i) with respect to the option grants under the Discretionary Option
Grant Program, which eligible persons are to receive such grants, the time or
times when those grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.

                  D.       The Plan Administrator shall have the absolute
discretion either to grant options in accordance with the Discretionary Option
Grant Program or to effect stock issuances in accordance with the Stock Issuance
Program.

                  E.       The individuals who shall be eligible to participate
in the Automatic Option Grant Program shall be limited to (i) those individuals
who first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant

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under the Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic option
grants under the Automatic Option Grant Program while he or she continues to
serve as a non-employee Board member.

                  F.       All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.

         V.       STOCK SUBJECT TO THE PLAN

                  A.       The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed One
Million Eight Hundred Twenty-Seven Thousand Four Hundred (1,827,400) shares.
Such reserve shall consist of (i) the number of shares estimated to remain
available for issuance, as of the Plan Effective Date, under the Predecessor
Plan as last approved by the Corporation's stockholders, including the shares
subject to outstanding options under the Predecessor Plan, (ii) plus an
additional increase of approximately 400,000 shares to be approved by the
Corporation's stockholders prior to the Underwriting Date.

                  B.       The number of shares of Common Stock available for
issuance under the Plan shall automatically increase on the first trading day of
January each calendar year during the term of the Plan, beginning with calendar
year 2001, by an amount equal to three percent (3%) of the total number of
shares of Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year, but in no event shall any such annual
increase exceed 500,000 shares.

                  C.       No one person participating in the Plan may receive
stock options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares of Common Stock in the aggregate per
calendar year.

                  D.       Shares of Common Stock subject to outstanding options
(including options transferred to this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation, at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock

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issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section II of Article Five or Section III of Article Six of the Plan shall NOT
be available for subsequent issuance under the Plan.

                  E.       If any change is made to the Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made by the Plan Administrator to (i) the maximum number
and/or class of securities issuable under the Plan, (ii) the maximum number
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year, (iii) the number and/or class of
securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan, (v) the number and/or class of
securities and exercise price per share in effect under each outstanding option
transferred to this Plan from the Predecessor Plan and (vi) the maximum number
and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section V.B of
this Article One. Such adjustments to the outstanding options are to be effected
in a manner which shall preclude the enlargement or dilution of rights and
benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.

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                                   ARTICLE TWO

                       DISCRETIONARY OPTION GRANT PROGRAM

         I.       OPTION TERMS

                  Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

                  A.       EXERCISE PRICE.

                           1.       The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the option grant date.

                           2.       The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Seven and the documents evidencing the option, be payable in one or
more of the forms specified below:

                                    (i)      cash or check made payable to the

         Corporation,

                                    (ii)     shares of Common Stock held for the
         requisite period necessary to avoid a charge to the Corporation's
         earnings for financial reporting purposes and valued at Fair Market
         Value on the Exercise Date, or

                                    (iii)    to the extent the option is
         exercised for vested shares, through a special sale and remittance
         procedure pursuant to which the Optionee shall concurrently provide
         irrevocable instructions to (a) a Corporation-designated brokerage firm
         to effect the immediate sale of the purchased shares and remit to the
         Corporation, out of the sale proceeds available on the settlement date,
         sufficient funds to cover the aggregate exercise price payable for the
         purchased shares plus all applicable Federal, state and local income
         and employment taxes required to be withheld by the Corporation by
         reason of such exercise and (b) the Corporation to deliver the
         certificates for the purchased shares directly to such brokerage firm
         in order to complete the sale.

                  Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

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                  B.       EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in excess
of ten (10) years measured from the option grant date.

                  C.       EFFECT OF TERMINATION OF SERVICE.

                           1.       The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of Service
or death:

                                    (i)      Any option outstanding at the time
         of the Optionee's cessation of Service for any reason shall remain
         exercisable for such period of time thereafter as shall be determined
         by the Plan Administrator and set forth in the documents evidencing the
         option, but no such option shall be exercisable after the expiration of
         the option term.

                                    (ii)     Any option held by the Optionee at
         the time of death and exercisable in whole or in part at that time may
         be subsequently exercised by the personal representative of the
         Optionee's estate or by the person or persons to whom the option is
         transferred pursuant to the Optionee's will or the laws of inheritance
         or by the Optionee's designated beneficiary or beneficiaries of that
         option.

                                    (iii)    Should the Optionee's Service be
         terminated for Misconduct or should the Optionee otherwise engage in
         Misconduct while holding one or more outstanding options under this
         Article Two, then all those options shall terminate immediately and
         cease to be outstanding.

                                    (iv)     During the applicable post-Service
         exercise period, the option may not be exercised in the aggregate for
         more than the number of vested shares for which the option is
         exercisable on the date of the Optionee's cessation of Service. Upon
         the expiration of the applicable exercise period or (if earlier) upon
         the expiration of the option term, the option shall terminate and cease
         to be outstanding for any vested shares for which the option has not
         been exercised. However, the option shall, immediately upon the
         Optionee's cessation of Service, terminate and cease to be outstanding
         to the extent the option is not otherwise at that time exercisable for
         vested shares.

                           2.       The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:

                                    (i)      extend the period of time for which
         the option is to remain exercisable following the Optionee's cessation
         of Service from the limited exercise period otherwise in effect for
         that option to such greater period of time as the Plan Administrator
         shall deem appropriate, but in no event beyond the expiration of the
         option term, and/or

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                                    (ii)     permit the option to be exercised,
         during the applicable post-Service exercise period, not only with
         respect to the number of vested shares of Common Stock for which such
         option is exercisable at the time of the Optionee's cessation of
         Service but also with respect to one or more additional installments in
         which the Optionee would have vested had the Optionee continued in
         Service.

                  D.       STOCKHOLDER RIGHTS. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.

                  E.       REPURCHASE RIGHTS. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the document
evidencing such repurchase right.

                  F.       LIMITED TRANSFERABILITY OF OPTIONS. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or the
laws of inheritance following the Optionee's death. Non-Statutory Options shall
be subject to the same restriction, except that a Non-Statutory Option may be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's family or to a trust established exclusively for one
or more such family members or to Optionee's former spouse, to the extent such
assignment is in connection with the Optionee's estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. Notwithstanding the foregoing, the Optionee may also
designate one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.

         II.      INCENTIVE OPTIONS

                  The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall NOT be subject to the terms of this Section II.

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                  A.       ELIGIBILITY. Incentive Options may only be granted to
Employees.

                  B.       DOLLAR LIMITATION. The aggregate Fair Market Value of
the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

                  C.       10% STOCKHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.

         III.     CORPORATE TRANSACTION/CHANGE IN CONTROL

                  A.       In the event of any Corporate Transaction, each
outstanding option under the Discretionary Option Grant Program shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become exercisable for all the
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully vested shares of Common Stock. However,
an outstanding option shall NOT become exercisable on such an accelerated basis
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, to be assumed by the successor corporation (or parent thereof) or
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.

                  B.       All outstanding repurchase rights under the
Discretionary Option Grant Program shall automatically terminate, and the shares
of Common Stock subject to those terminated rights shall immediately vest in
full, in the event of any Corporate Transaction, except to the extent: (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed by the Plan Administrator at
the time the repurchase right is issued.

                  C.       Immediately following the consummation of the
Corporate Transaction, all outstanding options under the Discretionary Option
Grant Program shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof).

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                  D.       Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments to reflect such Corporate Transaction shall
also be made to (i) the exercise price payable per share under each outstanding
option, PROVIDED the aggregate exercise price payable for such securities shall
remain the same, (ii) the maximum number and/or class of securities available
for issuance over the remaining term of the Plan and (iii) the maximum number
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year and (iv) the maximum number and/or
class of securities by which the share reserve is to increase automatically each
calendar year. To the extent the actual holders of the Corporation's outstanding
Common Stock receive cash consideration for their Common Stock in consummation
of the Corporate Transaction, the successor corporation may, in connection with
the assumption of the outstanding options under the Discretionary Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Corporate Transaction.

                  E.       The Plan Administrator shall have the discretionary
authority to structure one or more outstanding options under the Discretionary
Option Grant Program so that those options shall, immediately prior to the
effective date of such Corporate Transaction, become exercisable for all the
shares of Common Stock at the time subject to those options and may be exercised
for any or all of those shares as fully vested shares of Common Stock, whether
or not those options are to be assumed in the Corporate Transaction. In
addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall not be assignable
in connection with such Corporate Transaction and shall accordingly terminate
upon the consummation of such Corporate Transaction, and the shares subject to
those terminated rights shall thereupon vest in full.

                  F.       The Plan Administrator shall have full power and
authority to structure one or more outstanding options under the Discretionary
Option Grant Program so that those options shall become exercisable for all the
shares of Common Stock at the time subject to those options in the event the
Optionee's Service is subsequently terminated by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Corporate Transaction in which those options
are assumed and do not otherwise accelerate. In addition, the Plan Administrator
may structure one or more of the Corporation's repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.

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                  G.       The Plan Administrator shall have the discretionary
authority to structure one or more outstanding options under the Discretionary
Option Grant Program so that those options shall, immediately prior to the
effective date of a Change in Control, become exercisable for all the shares of
Common Stock at the time subject to those options and may be exercised for any
or all of those shares as fully vested shares of Common Stock. In addition, the
Plan Administrator shall have the discretionary authority to structure one or
more of the Corporation's repurchase rights under the Discretionary Option Grant
Program so that those rights shall terminate automatically upon the consummation
of such Change in Control, and the shares subject to those terminated rights
shall thereupon vest in full. Alternatively, the Plan Administrator may
condition the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.

                  H.       The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Nonstatutory Option under the Federal tax laws.

                  I.       The outstanding options shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.

         IV.      CANCELLATION AND REGRANT OF OPTIONS

                  The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new options covering the same or
a different number of shares of Common Stock but with an exercise price per
share based on the Fair Market Value per share of Common Stock on the new grant
date.

         V.       STOCK APPRECIATION RIGHTS

                  A.       The Plan Administrator shall have full power and
authority to grant to selected Optionees tandem stock appreciation rights and/or
limited stock appreciation rights.

                  B.       The following terms shall govern the grant and
exercise of tandem stock appreciation rights:

                                    (i)      One or more Optionees may be
         granted the right, exercisable upon such terms as the Plan
         Administrator may establish, to elect between the exercise of the
         underlying option for shares of Common Stock and

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         the surrender of that option in exchange for a distribution from the
         Corporation in an amount equal to the excess of (a) the Fair Market
         Value (on the option surrender date) of the number of shares in
         which the Optionee is at the time vested under the surrendered
         option (or surrendered portion thereof) over (b) the aggregate
         exercise price payable for such shares.

                                    (ii)     No such option surrender shall be
         effective unless it is approved by the Plan Administrator, either at
         the time of the actual option surrender or at any earlier time. If the
         surrender is so approved, then the distribution to which the Optionee
         shall be entitled may be made in shares of Common Stock valued at Fair
         Market Value on the option surrender date, in cash, or partly in shares
         and partly in cash, as the Plan Administrator shall in its sole
         discretion deem appropriate.

                                    (iii)    If the surrender of an option is
         not approved by the Plan Administrator, then the Optionee shall retain
         whatever rights the Optionee had under the surrendered option (or
         surrendered portion thereof) on the option surrender date and may
         exercise such rights at any time prior to the LATER of (a) five (5)
         business days after the receipt of the rejection notice or (b) the last
         day on which the option is otherwise exercisable in accordance with the
         terms of the documents evidencing such option, but in no event may such
         rights be exercised more than ten (10) years after the option grant
         date.

                  C.       The following terms shall govern the grant and
exercise of limited stock appreciation rights:

                                    (i)      One or more Section 16 Insiders may
         be granted limited stock appreciation rights with respect to their
         outstanding options.

                                    (ii)     Upon the occurrence of a Hostile
         Take-Over, each individual holding one or more options with such a
         limited stock appreciation right shall have the unconditional right
         (exercisable for a thirty (30)-day period following such Hostile
         Take-Over) to surrender each such option to the Corporation. In return
         for the surrendered option, the Optionee shall receive a cash
         distribution from the Corporation in an amount equal to the excess of
         (A) the Take-Over Price of the shares of Common Stock at the time
         subject to such option (whether or not the option is otherwise at that
         time vested and exercisable for those shares) over (B) the aggregate
         exercise price payable for those shares. Such cash distribution shall
         be paid within five (5) days following the option surrender date.

                                    (iii)    At the time such limited stock
         appreciation right is granted, the Plan Administrator shall pre-approve
         any subsequent exercise of that right in accordance with the terms of
         this Paragraph C. Accordingly, no further approval of the Plan
         Administrator or the Board shall be required at the time of the actual
         option surrender and cash distribution.

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                                  ARTICLE THREE

                     SALARY INVESTMENT OPTION GRANT PROGRAM

         I.       OPTION GRANTS

                  The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years (if any) for which the Salary
Investment Option Grant Program is to be in effect and to select the Section 16
Insiders and other highly compensated Employees eligible to participate in the
Salary Investment Option Grant Program for such calendar year or years. Each
selected individual who elects to participate in the Salary Investment Option
Grant Program must, prior to the start of each calendar year of participation,
file with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Option Grant Program on the first trading day in January of the
calendar year for which the salary reduction is to be in effect.

         II.      OPTION TERMS

                  Each option shall be a Non-Statutory Option evidenced by one
or more documents in the form approved by the Plan Administrator; PROVIDED,
however, that each such document shall comply with the terms specified below.

                  A.       EXERCISE PRICE.

                           1.       The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.

                           2.       The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

                  B.       NUMBER OF OPTION SHARES. The number of shares of
Common Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):

                           X = A DIVIDED BY (B x 66-2/3%), where

                           X is the number of option shares,

                                      13
<PAGE>

                           A is the dollar amount by which the Optionee's base
                  salary is to be reduced for the calendar year pursuant to his
                  or her election under the Salary Investment Option Grant
                  Program, and

                           B is the Fair Market Value per share of Common Stock
                  on the option grant date.

                  C.       EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.

                  D.       EFFECT OF TERMINATION OF SERVICE. Should the Optionee
cease Service for any reason while holding one or more options under this
Article Three, then each such option shall remain exercisable, for any or all of
the shares for which the option is exercisable at the time of such cessation of
Service, until the EARLIER of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or the laws of inheritance or by the designated beneficiary
or beneficiaries of the option. Such right of exercise shall lapse, and the
option shall terminate, upon the EARLIER of (i) the expiration of the ten
(10)-year option term or (ii) the three (3)-year period measured from the date
of the Optionee's cessation of Service. However, the option shall, immediately
upon the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.

         III.     CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER

                  A.       In the event of any Corporate Transaction while the
Optionee remains in Service, each outstanding option held by such Optionee under
this Salary Investment Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become exercisable for all the shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully vested shares of Common Stock. Each such outstanding option
shall terminate immediately following the Corporate Transaction, except to the
extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed shall remain exercisable for the
fully vested shares until the EARLIER of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.

                                      14
<PAGE>

                  B.       In the event of a Change in Control while the
Optionee remains in Service, each outstanding option held by such Optionee under
this Salary Investment Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Change in Control, become exercisable for all the shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully vested shares of Common Stock. The option shall remain so exercisable
until the EARLIEST to occur of (i) the expiration of the ten (10)-year option
term, (ii) the expiration of the three (3)-year period measured from the date of
the Optionee's cessation of Service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.

                  C.       Upon the occurrence of a Hostile Take-Over while the
Optionee remains in Service, such Optionee shall have a thirty (30)-day period
in which to surrender to the Corporation each outstanding option held by him or
her under the Salary Investment Option Grant Program. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to the surrendered option (whether or not the option is
otherwise at the time exercisable for those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the Corporation.
The Primary Committee shall, at the time the option with such limited stock
appreciation right is granted under the Salary Investment Option Grant Program,
pre-approve any subsequent exercise of that right in accordance with the terms
of this Paragraph C. Accordingly, no further approval of the Primary Committee
or the Board shall be required at the time of the actual option surrender and
cash distribution.

                  D.       Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, PROVIDED the aggregate exercise
price payable for such securities shall remain the same. To the extent the
actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Corporate
Transaction, the successor corporation may, in connection with the assumption of
the outstanding options under the Salary Investment Option Grant Program,
substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such
Corporate Transaction.

                  E.       The grant of options under the Salary Investment
Option Grant Program shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

                                      15
<PAGE>

         IV.      REMAINING TERMS

                  The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.

                                      16
<PAGE>

                                  ARTICLE FOUR

                             STOCK ISSUANCE PROGRAM

         I.       STOCK ISSUANCE TERMS

                  Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals.

                  A.       PURCHASE PRICE.

                           1.       The purchase price per share shall be fixed
by the Plan Administrator, but shall not be less than one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the issuance date.

                           2.       Subject to the provisions of Section I of
Article Seven, shares of Common Stock may be issued under the Stock Issuance
Program for any of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:

                                    (i)      cash or check made payable to the
         Corporation, or

                                    (ii)     past services rendered to the
         Corporation (or any Parent or Subsidiary).

                  B.       VESTING PROVISIONS.

                           1.       Shares of Common Stock issued under the
Stock Issuance Program may, in the discretion of the Plan Administrator, be
fully and immediately vested upon issuance or may vest in one or more
installments over the Participant's period of Service or upon attainment of
specified performance objectives. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program shall be determined by the Plan Administrator and incorporated
into the Stock Issuance Agreement. Shares of Common Stock may also be issued
under the Stock Issuance Program pursuant to share right awards which entitle
the recipients to receive those shares upon the attainment of designated
performance goals.

                           2.       Any new, substituted or additional
securities or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
the Participant's unvested shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or

                                      17
<PAGE>

other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.

                           3.       The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.

                           4.       Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.

                           5.       The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock which would otherwise occur upon the cessation of the Participant's
Service or the non-attainment of the performance objectives applicable to those
shares. Such waiver shall result in the immediate vesting of the Participant's
interest in the shares of Common Stock as to which the waiver applies. Such
waiver may be effected at any time, whether before or after the Participant's
cessation of Service or the attainment or non-attainment of the applicable
performance objectives.

                           6.       Outstanding share right awards under the
Stock Issuance Program shall automatically terminate, and no shares of Common
Stock shall actually be issued in satisfaction of those awards, if the
performance goals established for such awards are not attained. The Plan
Administrator, however, shall have the discretionary authority to issue shares
of Common Stock under one or more outstanding share right awards as to which the
designated performance goals have not been attained.

         II.      CORPORATE TRANSACTION/CHANGE IN CONTROL

                  A.       All of the Corporation's outstanding repurchase
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
(i) those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.

                                      18

<PAGE>

                  B.       The Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).

                  C.       The Plan Administrator shall also have the
discretionary authority to structure one or more of the Corporation's repurchase
rights under the Stock Issuance Program so that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, either upon the occurrence of a Change
in Control or upon the subsequent termination of the Participant's Service by
reason of an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of that Change in Control.

         III.     SHARE ESCROW/LEGENDS

                  Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.

                                       19
<PAGE>

                                  ARTICLE FIVE

                         AUTOMATIC OPTION GRANT PROGRAM

         I.       OPTION TERMS

                  A.       GRANT DATES. Option grants shall be made on the dates
specified below:

                           1.       Each individual who is first elected or
appointed as a non-employee Board member at any time on or after the
Underwriting Date shall automatically be granted, on the date of such initial
election or appointment, a Non-Statutory Option to purchase 10,000 shares of
Common Stock, provided that individual has not previously been in the employ of
the Corporation or any Parent or Subsidiary.

                           2.       On the date of each Annual Stockholders
Meeting held after the Underwriting Date, each individual who is to continue to
serve as a non-employee Board member, whether or not that individual is standing
for re-election to the Board at that particular Annual Meeting, shall
automatically be granted a Non-Statutory Option to purchase 2,500 shares of
Common Stock, provided such individual has served as a non-employee Board member
for at least six (6) months. There shall be no limit on the number of such
2,500-share option grants any one non-employee Board member may receive over his
or her period of Board service, and non-employee Board members who have
previously been in the employ of the Corporation (or any Parent or Subsidiary)
or who have otherwise received one or more stock option grants from the
Corporation prior to the Underwriting Date shall be eligible to receive one or
more such annual option grants over their period of continued Board service.

                  B.       EXERCISE PRICE.

                           1.       The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common Stock
on the option grant date.

                           2.       The exercise price shall be payable in one
or more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.

                  C.       OPTION TERM. Each option shall have a term of ten
(10) years measured from the option grant date.

                  D.       EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any
unvested shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares. The shares subject to each
initial 2,500-share grant shall vest, and the Corporation's repurchase right
shall lapse, in a series of four (4) successive equal annual installments upon
the Optionee's completion

                                       20
<PAGE>

of each year of service as a Board member over the four (4)-year period
measured from the option grant date. The shares subject to each annual
10,000-share option grant shall vest in one installment upon the Optionee's
completion of the one (1)-year period of service measured from the grant date.

                  E.       LIMITED TRANSFERABILITY OF OPTIONS. Each option under
this Article Five may be assigned in whole or in part during the Optionee's
lifetime to one or more members of the Optionee's family or to a trust
established exclusively for one or more such family members or to Optionee's
former spouse, to the extent such assignment is in connection with the
Optionee's estate plan or pursuant to a domestic relations order. The assigned
portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option immediately
prior to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate. The Optionee may also
designate one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Five, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.

                  F.       TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases to serve as a Board member:

                                    (i)      The Optionee (or, in the event of
         Optionee's death, the personal representative of the Optionee's estate
         or the person or persons to whom the option is transferred pursuant to
         the Optionee's will or the laws of inheritance or the designated
         beneficiary or beneficiaries of such option) shall have a twelve
         (12)-month period following the date of such cessation of Board service
         in which to exercise each such option.

                                    (ii)     During the twelve (12)-month
         exercise period, the option may not be exercised in the aggregate for
         more than the number of vested shares of Common Stock for which the
         option is exercisable at the time of the Optionee's cessation of Board
         service.

                                    (iii)    Should the Optionee cease to serve
         as a Board member by reason of death or Permanent Disability, then all
         shares at the time subject to the option shall immediately vest so that
         such option may, during the twelve (12)-month exercise period following
         such cessation of Board service, be exercised for any or all of those
         shares as fully vested shares of Common Stock.

                                       21
<PAGE>

                                    (iv)     In no event shall the option remain
         exercisable after the expiration of the option term. Upon the
         expiration of the twelve (12)-month exercise period or (if earlier)
         upon the expiration of the option term, the option shall terminate and
         cease to be outstanding for any vested shares for which the option has
         not been exercised. However, the option shall, immediately upon the
         Optionee's cessation of Board service for any reason other than death
         or Permanent Disability, terminate and cease to be outstanding to the
         extent the option is not otherwise at that time exercisable for vested
         shares.

         II.      CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER

                  A.       In the event of a Corporate Transaction while the
Optionee remains a Board member, the shares of Common Stock at the time subject
to each outstanding option held by such Optionee under this Automatic Option
Grant Program but not otherwise vested shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the option shares as fully vested shares
of Common Stock and may be exercised for any or all of those vested shares.
Immediately following the consummation of the Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).

                  B.       In the event of a Change in Control while the
Optionee remains a Board member, the shares of Common Stock at the time subject
to each outstanding option held by such Optionee under this Automatic Option
Grant Program but not otherwise vested shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Change in
Control, become exercisable for all the option shares as fully vested shares of
Common Stock and may be exercised for any or all of those vested shares. Each
such option shall remain exercisable for such fully vested option shares until
the expiration or sooner termination of the option term or the surrender of the
option in connection with a Hostile Take-Over.

                  C.       All outstanding repurchase rights under this under
this Automatic Option Grant Program shall automatically terminate, and the
shares of Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Corporate Transaction or Change in Control.

                  D.       Upon the occurrence of a Hostile Take-Over while the
Optionee remains a Board member, such Optionee shall have a thirty (30)-day
period in which to surrender to the Corporation each of his or her outstanding
options under this Automatic Option Grant Program. The Optionee shall in return
be entitled to a cash distribution from the Corporation in an amount equal to
the excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those

                                       22
<PAGE>

shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender
of the option to the Corporation. No approval or consent of the Board or any
Plan Administrator shall be required at the time of the actual option
surrender and cash distribution.

                  E.       Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, PROVIDED the aggregate
exercise price payable for such securities shall remain the same. To the
extent the actual holders of the Corporation's outstanding Common Stock
receive cash consideration for their Common Stock in consummation of the
Corporate Transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Automatic Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common
Stock in such Corporate Transaction.

                  F.       The grant of options under the Automatic Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.

         III.     REMAINING TERMS

                  The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

                                       23
<PAGE>

                                   ARTICLE SIX

                        DIRECTOR FEE OPTION GRANT PROGRAM

         I.       OPTION GRANTS

                  The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years for which the Director Fee
Option Grant Program is to be in effect. For each such calendar year the program
is in effect, each non-employee Board member may irrevocably elect to apply all
or any portion of the annual retainer fee otherwise payable in cash for his or
her service on the Board for that year to the acquisition of a special option
grant under this Director Fee Option Grant Program. Such election must be filed
with the Corporation's Chief Financial Officer prior to the first day of the
calendar year for which the annual retainer fee which is the subject of that
election is otherwise payable. Each non-employee Board member who files such a
timely election shall automatically be granted an option under this Director Fee
Option Grant Program on the first trading day in January in the calendar year
for which the retainer fee election is in effect.

         II.      OPTION TERMS

                  Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.

                  A.       EXERCISE PRICE.

                           1.       The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.

                           2.       The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

                  B.       NUMBER OF OPTION SHARES. The number of shares of
Common Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):

                           X = A DIVIDED BY (B x 66-2/3%), where

                           X is the number of option shares,

                           A is the portion of the annual retainer fee subject
                  to the non-employee Board member's election under this
                  Director Fee Option Grant Program, and

                                       24
<PAGE>

                           B is the Fair Market Value per share of Common Stock
                  on the option grant date.

                  C.       EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each calendar month of Board service during the
calendar year for which the retainer fee election is in effect. Each option
shall have a maximum term of ten (10) years measured from the option grant date.

                  D.       LIMITED TRANSFERABILITY OF OPTIONS. Each option under
this Article Six may be assigned in whole or in part during the Optionee's
lifetime to one or more members of the Optionee's family or to a trust
established exclusively for one or more such family members or to Optionee's
former spouse, to the extent such assignment is in connection with Optionee's
estate plan or pursuant to a domestic relations order. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest in
the option pursuant to the assignment. The terms applicable to the assigned
portion shall be the same as those in effect for the option immediately prior to
such assignment and shall be set forth in such documents issued to the assignee
as the Plan Administrator may deem appropriate. The Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Six, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.

                  E.       TERMINATION OF BOARD SERVICE. Should the Optionee
cease Board service for any reason (other than death or Permanent Disability)
while holding one or more options under this Director Fee Option Grant Program,
then each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Board service,
until the EARLIER of (i) the expiration of the ten (10)-year option term or (ii)
the expiration of the three (3)-year period measured from the date of such
cessation of Board service. However, each option held by the Optionee under this
Director Fee Option Grant Program at the time of his or her cessation of Board
service shall immediately terminate and cease to remain outstanding with respect
to any and all shares of Common Stock for which the option is not otherwise at
that time exercisable.

                  F.       DEATH OR PERMANENT DISABILITY. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability, then
each option held by such Optionee under this Director Fee Option Grant Program
shall immediately become exercisable for all the shares of Common Stock at the
time subject to that option, and the option may be exercised for any or all of
those shares as fully vested shares until the EARLIER of (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from

                                       25
<PAGE>

the date of such cessation of Board service. To the extent such option is
held by the Optionee at the time of his or death, that option may be
exercised by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance or by the designated beneficiary
or beneficiaries of such option.

                           Should the Optionee die after cessation of Board
service but while holding one or more options under this Director Fee Option
Grant Program, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee's
cessation of Board service (less any shares subsequently purchased by Optionee
prior to death), by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance or by the designated beneficiary or
beneficiaries of such option. Such right of exercise shall lapse, and the option
shall terminate, upon the EARLIER of (i) the expiration of the ten (10)-year
option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Board service.

         III.     CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

                  A.       In the event of any Corporate Transaction while the
Optionee remains a Board member, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become exercisable for all the shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully vested shares of Common Stock. Each such outstanding option
shall terminate immediately following the Corporate Transaction, except to the
extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully vested shares until the EARLIEST to occur of (i) the expiration of the
ten (10)-year option term, (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service or (iii) the
surrender of the option in connection with a Hostile Take-Over.

                  B.       In the event of a Change in Control while the
Optionee remains a Board member, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Change in Control, become exercisable for all the shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully vested shares of Common Stock. The option shall remain so exercisable
until the EARLIEST to occur of (i) the expiration of the ten (10)-year option
term, (ii) the expiration of the three (3)-year period measured from the date of
the Optionee's cessation of Board service, (iii) the termination of the option
in connection with a Corporate Transaction or (iv) the surrender of the option
in connection with a Hostile Take-Over.

                                       26
<PAGE>

                  C.       Upon the occurrence of a Hostile Take-Over while the
Optionee remains a Board member, such Optionee shall have a thirty (30)-day
period in which to surrender to the Corporation each outstanding option held by
him or her under the Director Fee Option Grant Program. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to each surrendered option (whether or not the option is
otherwise at the time exercisable for those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the Corporation.
No approval or consent of the Board or any Plan Administrator shall be required
at the time of the actual option surrender and cash distribution.

                  D.       Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, PROVIDED the aggregate exercise
price payable for such securities shall remain the same. To the extent the
actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Corporate
Transaction, the successor corporation may, in connection with the assumption of
the outstanding options under the Director Fee Option Grant Program, substitute
one or more shares of its own common stock with a fair market value equivalent
to the cash consideration paid per share of Common Stock in such Corporate
Transaction.

                  E.       The grant of options under the Director Fee Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

         IV.      REMAINING TERMS

                  The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.

                                       27
<PAGE>

                                  ARTICLE SEVEN

                                  MISCELLANEOUS

         I.       FINANCING

                  The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest-bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.

         II.      TAX WITHHOLDING

                  A.       The Corporation's obligation to deliver shares of
Common Stock upon the exercise of options or the issuance or vesting of such
shares under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.

                  B.       The Plan Administrator may, in its discretion,
provide any or all holders of Non-Statutory Options or unvested shares of Common
Stock under the Plan (other than the options granted or the shares issued under
the Automatic Option Grant or Director Fee Option Grant Program) with the right
to use shares of Common Stock in satisfaction of all or part of the Withholding
Taxes to which such holders may become subject in connection with the exercise
of their options or the vesting of their shares. Such right may be provided to
any such holder in either or both of the following formats:

                           STOCK WITHHOLDING: The election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Withholding Taxes (not to exceed one hundred percent (100%))
designated by the holder.

                           STOCK DELIVERY: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting triggering
the Withholding Taxes) with an aggregate Fair Market Value equal to the
percentage of the Withholding Taxes (not to exceed one hundred percent (100%))
designated by the holder.

                                       28
<PAGE>

         III.     EFFECTIVE DATE AND TERM OF THE PLAN

                  A.       The Plan shall become effective immediately on the
Plan Effective Date. However, the Salary Investment Option Grant Program and the
Director Fee Option Grant Program shall not be implemented until such time as
the Primary Committee may deem appropriate. Options may be granted under the
Discretionary Option Grant at any time on or after the Plan Effective Date, and
the initial option grants under the Automatic Option Grant Program shall also be
made on the Plan Effective Date to any non-employee Board members eligible for
such grants at that time. However, no options granted under the Plan may be
exercised, and no shares shall be issued under the Plan, until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.

                  B.       The Plan shall serve as the successor to the
Predecessor Plan, and no further option grants or direct stock issuances shall
be made under the Predecessor Plan after the Plan Effective Date. All options
outstanding under the Predecessor Plan on the Plan Effective Date shall be
transferred to the Plan at that time and shall be treated as outstanding options
under the Plan. However, each outstanding option so transferred shall continue
to be governed solely by the terms of the documents evidencing such option, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such transferred options with respect to
their acquisition of shares of Common Stock.

                  C.       One or more provisions of the Plan, including
(without limitation) the option/vesting acceleration provisions of Article Two
relating to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.

                  D.       The Plan shall terminate upon the EARLIEST to
occur of (i) August 15, 2010, (ii) the date on which all shares available for
issuance under the Plan shall have been issued as fully vested shares or
(iii) the termination of all outstanding options in connection with a
Corporate Transaction. Should the Plan terminate on August 15, 2010, then all
option grants and unvested stock issuances outstanding at that time shall
continue to have force and effect in accordance with the provisions of the
documents evidencing such grants or issuances.

         IV.      AMENDMENT OF THE PLAN

                  A.       The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require stockholder
approval pursuant to applicable laws or regulations.

                                       29
<PAGE>

                  B.       Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant and Salary Investment Option Grant
Programs and shares of Common Stock may be issued under the Stock Issuance
Program that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under those programs shall be held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.

         V.       USE OF PROCEEDS

                  Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.

         VI.      REGULATORY APPROVALS

                  A.       The implementation of the Plan, the granting of any
stock option under the Plan and the issuance of any shares of Common Stock (i)
upon the exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options granted under it and the shares of Common Stock issued pursuant to it.

                  B.       No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.

         VII.     NO EMPLOYMENT/SERVICE RIGHTS

                  Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.

                                       30
<PAGE>

                                    APPENDIX

                  The following definitions shall be in effect under the Plan:

                  A.       AUTOMATIC OPTION GRANT PROGRAM shall mean the
automatic option grant program in effect under Article Five of the Plan.

                  B.       BOARD shall mean the Corporation's Board of
Directors.

                  C.       CHANGE IN CONTROL shall mean a change in ownership or
control of the Corporation effected through either of the following
transactions:

                                    (i)      the acquisition, directly or
         indirectly by any person or related group of persons (other than the
         Corporation or a person that directly or indirectly controls, is
         controlled by, or is under common control with, the Corporation), 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 Corporation's outstanding securities
         pursuant to a tender or exchange offer made directly to the
         Corporation's stockholders, or

                                    (ii)     a change in the composition of the
         Board over a period of thirty-six (36) consecutive months or less such
         that a majority of the Board members ceases, by reason of one or more
         contested elections for Board membership, to be comprised of
         individuals who either (A) have been Board members continuously since
         the beginning of such period or (B) have been elected or nominated for
         election as Board members during such period by at least a majority of
         the Board members described in clause (A) who were still in office at
         the time the Board approved such election or nomination.

                  D.       CODE shall mean the Internal Revenue Code of 1986, as
amended.

                  E.       COMMON STOCK shall mean the Corporation's common
stock.

                  F.       CORPORATE TRANSACTION shall mean either of the
following stockholder-approved transactions to which the Corporation is a party:

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

                                    (ii)     the sale, transfer or other
         disposition of all or substantially all of the Corporation's assets in
         complete liquidation or dissolution of the Corporation.

                                       A-1.
<PAGE>

                  G.       CORPORATION shall mean Specialty Laboratories, Inc.,
a Delaware corporation, and any corporate successor to all or substantially all
of the assets or voting stock of Specialty Laboratories, Inc. which shall by
appropriate action adopt the Plan.

                  H.       DIRECTOR FEE OPTION GRANT PROGRAM shall mean the
special stock option grant in effect for non-employee Board members under
Article Six of the Plan.

                  I.       DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under Article Two of the Plan.

                  J.       EMPLOYEE shall mean an individual who is in the
employ of the Corporation (or any Parent or Subsidiary), subject to the control
and direction of the employer entity as to both the work to be performed and the
manner and method of performance.

                  K.       EXERCISE DATE shall mean the date on which the
Corporation shall have received written notice of the option exercise.

                  L.       FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the following provisions:

                                    (i)      If the Common Stock is at the time
         traded on the Nasdaq National Market, then the Fair Market Value shall
         be the closing selling price per share of Common Stock on the date in
         question, as such price is reported by the National Association of
         Securities Dealers on the Nasdaq National Market and published in THE
         WALL STREET JOURNAL. If there is no closing selling price for the
         Common Stock on the date in question, then the Fair Market Value shall
         be the closing selling price on the last preceding date for which such
         quotation exists.

                                    (ii)     If the Common Stock is at the time
         listed on any Stock Exchange, then the Fair Market Value shall be the
         closing selling price per share of Common Stock on the date in question
         on the Stock Exchange determined by the Plan Administrator to be the
         primary market for the Common Stock, as such price is officially quoted
         in the composite tape of transactions on such exchange and published in
         THE WALL STREET JOURNAL. If there is no closing selling price for the
         Common Stock on the date in question, then the Fair Market Value shall
         be the closing selling price on the last preceding date for which such
         quotation exists.

                                    (iii)    For purposes of any option grants
         made on the Underwriting Date, the Fair Market Value shall be deemed to
         be equal to the price per share at which the Common Stock is to be sold
         in the initial public offering pursuant to the Underwriting Agreement.

                                       A-2.
<PAGE>

                  M.       HOSTILE TAKE-OVER shall mean the acquisition,
directly or indirectly, by any person or related group of persons (other than
the Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) 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 Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.

                  N.       INCENTIVE OPTION shall mean an option which satisfies
the requirements of Code Section 422.

                  O.       INVOLUNTARY TERMINATION shall mean the termination of
the Service of any individual which occurs by reason of:

                                    (i)      such individual's involuntary
         dismissal or discharge by the Corporation for reasons other than
         Misconduct, or

                                    (ii)     such individual's voluntary
         resignation following (A) a change in his or her position with the
         Corporation which materially reduces his or her duties and
         responsibilities or the level of management to which he or she reports,
         (B) a reduction in his or her level of compensation (including base
         salary, fringe benefits and target bonus under any
         corporate-performance based bonus or incentive programs) by more than
         fifteen percent (15%) or (C) a relocation of such individual's place of
         employment by more than fifty (50) miles, provided and only if such
         change, reduction or relocation is effected by the Corporation without
         the individual's consent.

                  P.       MISCONDUCT shall mean the commission of any act of
fraud, embezzlement or dishonesty by the Optionee or Participant, any
unauthorized use or disclosure by such person of confidential information or
trade secrets of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by such person adversely affecting the business or
affairs of the Corporation (or any Parent or Subsidiary) in a material manner.
The foregoing definition shall not in any way preclude or restrict the right of
the Corporation (or any Parent or Subsidiary) to discharge or dismiss any
Optionee, Participant or other person in the Service of the Corporation (or any
Parent or Subsidiary) for any other acts or omissions, but such other acts or
omissions shall not be deemed, for purposes of the Plan, to constitute grounds
for termination for Misconduct.

                  Q.       1934 ACT shall mean the Securities Exchange Act of
1934, as amended.

                  R.       NON-STATUTORY OPTION shall mean an option not
intended to satisfy the requirements of Code Section 422.

                  S.       OPTIONEE shall mean any person to whom an option is
granted under the Discretionary Option Grant, Salary Investment Option Grant,
Automatic Option Grant or Director Fee Option Grant Program.

                                       A-3.
<PAGE>

                  T.       PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

                  U.       PARTICIPANT shall mean any person who is issued
shares of Common Stock under the Stock Issuance Program.

                  V.       PERMANENT DISABILITY OR PERMANENTLY DISABLED shall
mean the inability of the Optionee or the Participant to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for purposes of the Automatic Option
Grant and Director Fee Option Grant Programs, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board member
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.

                  W.       PLAN shall mean the Corporation's 2000 Stock
Incentive Plan, as set forth in this document.

                  X.       PLAN ADMINISTRATOR shall mean the particular entity,
whether the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to one or more classes of eligible persons, to the extent
such entity is carrying out its administrative functions under those programs
with respect to the persons under its jurisdiction.

                  Y.       PLAN EFFECTIVE DATE shall mean the date the Plan
shall become effective and shall be coincident with the Underwriting Date.

                  Z.       PREDECESSOR PLAN shall mean the Corporation's 1999
Stock Option/Stock Issuance Plan in effect immediately prior to the Plan
Effective Date hereunder.

                  AA.      PRIMARY COMMITTEE shall mean the committee of two (2)
or more non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.

                  BB.      SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the
salary investment option grant program in effect under Article Three of the
Plan.

                  CC.      SECONDARY COMMITTEE shall mean a committee of one or
more Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.

                                       A-4.
<PAGE>

                  DD.      SECTION 16 INSIDER shall mean an officer or director
of the Corporation subject to the short-swing profit liabilities of Section 16
of the 1934 Act.

                  EE.      SERVICE shall mean the performance of services for
the Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.

                  FF.      STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.

                  GG.      STOCK ISSUANCE AGREEMENT shall mean the agreement
entered into by the Corporation and the Participant at the time of issuance of
shares of Common Stock under the Stock Issuance Program.

                  HH.      STOCK ISSUANCE PROGRAM shall mean the stock issuance
program in effect under Article Four of the Plan.

                  II.      SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

                  JJ.      TAKE-OVER PRICE shall mean the GREATER of (i) the
Fair Market Value per share of Common Stock on the date the option is
surrendered to the Corporation in connection with a Hostile Take-Over or (ii)
the highest reported price per share of Common Stock paid by the tender offeror
in effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (i) price per
share.

                  KK.      10% STOCKHOLDER shall mean the owner of stock (as
determined under Code Section 424(d)) possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Corporation (or
any Parent or Subsidiary).

                  LL.      UNDERWRITING AGREEMENT shall mean the agreement
between the Corporation and the underwriter or underwriters managing the initial
public offering of the Common Stock.

                  MM.      UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.

                  NN.      WITHHOLDING TAXES shall mean the Federal, state and
local income and employment withholding taxes to which the holder of
Non-Statutory Options or unvested shares of Common Stock may become subject in
connection with the exercise of those options or the vesting of those shares.

                                       A-5.<PAGE>

                          SPECIALTY LABORATORIES, INC.

                       2000 EMPLOYEE STOCK PURCHASE PLAN

         I.       PURPOSE OF THE PLAN

                  This Employee Stock Purchase Plan is intended to promote the
interests of Specialty Laboratories, Inc., a Delaware corporation, by providing
eligible employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll deduction-based employee stock
purchase plan designed to qualify under Section 423 of the Code.

                  Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.

         II.      ADMINISTRATION OF THE PLAN

                  The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.

         III.     STOCK SUBJECT TO PLAN

                  A.       The stock purchasable under the Plan shall be shares
of authorized but unissued or reacquired Common Stock, including shares of
Common Stock purchased on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall be limited to
150,000 shares.

                  B.       The number of shares of Common Stock available for
issuance under the Plan shall automatically increase on the first trading day of
January each calendar year during the term of the Plan, beginning with calendar
year 2001, by an amount equal to one percent (1%) of the total number of shares
of Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year, but in no event shall any such annual
increase exceed 250,000 shares.

                  C.       Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date, (iii) the maximum number
and class of securities purchasable in total by all Participants on any one
Purchase Date, (iv) the maximum number

<PAGE>

and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B and
(v) the number and class of securities and the price per share in effect under
each outstanding purchase right in order to prevent the dilution or enlargement
of benefits thereunder.

         IV.      OFFERING PERIODS

                  A.       Shares of Common Stock shall be offered for purchase
under the Plan through a series of overlapping offering periods until such time
as (i) the maximum number of shares of Common Stock available for issuance under
the Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.

                  B.       Each offering period shall be of such duration (not
to exceed twenty-four (24) months) as determined by the Plan Administrator prior
to the start date of such offering period. Offering periods shall commence at
semi-annual intervals on the first business day of May and November each year
over the term of the Plan. Accordingly, two (2) separate offering periods shall
commence in each calendar year the Plan remains in existence. However, the
initial offering period shall commence at the Effective Time and terminate on
the last business day in October 2002.

                  C.       Each offering period shall consist of a series of one
or more successive Purchase Intervals. Purchase Intervals shall run from the
first business day in May to the last business day in October each year and from
the first business day in November each year to the last business day in April
in the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in April 2001.

                  D.       Should the Fair Market Value per share of Common
Stock on any Purchase Date within a particular offering period be less than the
Fair Market Value per share of Common Stock on the start date of that offering
period, then the individuals participating in such offering period shall,
immediately after the purchase of shares of Common Stock on their behalf on such
Purchase Date, be transferred from that offering period and automatically
enrolled in the next offering period commencing after such Purchase Date.

         V.       ELIGIBILITY

                  A.       Each individual who is an Eligible Employee on the
start date of any offering period under the Plan may enter that offering period
on such start date. However, an Eligible Employees may participate in only one
offering period at a time. For the initial offering period commencing at the
Effective Time, each individual who is an Eligible Employee at that time shall
automatically be enrolled as a Participant with a contribution rate equal to
fifteen percent (15%) of his or her Cash Earnings.

                                       2.
<PAGE>

                  B.       Except as otherwise provided in Sections IV.D. and
V.A. above, an Eligible Employee must, in order to participate in a particular
offering period, complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before the start date of that offering period.

         VI.      PAYROLL DEDUCTIONS

                  A.       The payroll deduction authorized by the Participant
for purposes of acquiring shares of Common Stock during an offering period may
be any multiple of one percent (1%) of the Cash Earnings paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
fifteen percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:

                           (i)      The Participant may, at any time during the
         offering period, reduce his or her rate of payroll deduction (or to the
         extent applicable, the percentage of Cash Earnings to serve as his or
         her lump sum contribution for the initial Purchase Interval of the
         first offering period) to become effective as soon as possible after
         filing the appropriate form with the Plan Administrator. The
         Participant may not, however, effect more than one (1) such reduction
         per Purchase Interval.

                           (ii)     The Participant may, prior to the
         commencement of any new Purchase Interval within the offering period,
         increase the rate of his or her payroll deduction by filing the
         appropriate form with the Plan Administrator. The new rate (which may
         not exceed the fifteen percent (15%) maximum) shall become effective on
         the start date of the first Purchase Interval following the filing of
         such form.

                  B.       Payroll deductions shall begin on the first pay day
administratively feasible following the start date of the offering period and
shall (unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be required to be held in any segregated account or trust fund and may be
commingled with the general assets of the Corporation and used for general
corporate purposes.

                  C.       For the initial Purchase Interval of the first
offering period under the Plan, no payroll deductions shall be required of the
Participant until such time as the Participant affirmatively elects to commence
such payroll deductions following his or her receipt of the SEC prospectus for
the Plan. In the absence of such payroll deductions, the Participant will be
required to contribute the applicable percentage of his or her Cash Earnings to
the Plan in a lump sum payment immediately prior to the close of that Interval
should the Participant elect to have

                                       3.
<PAGE>

shares of Common Stock purchased on his or her behalf on the Purchase Date
for that initial Purchase Interval.

                  D.       Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.

                  E.       The Participant's acquisition of Common Stock under
the Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.

         VII.     PURCHASE RIGHTS

                  A.       GRANT OF PURCHASE RIGHTS. A Participant shall be
granted a separate purchase right for each offering period in which he or she is
enrolled. The purchase right shall be granted on the start date of the offering
period and shall provide the Participant with the right to purchase shares of
Common Stock, in a series of successive installments during that offering
period, upon the terms set forth below. The Participant shall execute a stock
purchase agreement embodying such terms and such other provisions (not
inconsistent with the Plan) as the Plan Administrator may deem advisable.

                  Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.

                  B.       EXERCISE OF THE PURCHASE RIGHT. Each purchase right
shall be automatically exercised in installments on each successive Purchase
Date within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant on each such Purchase Date. The purchase
shall be effected by applying the Participant's payroll deductions (or, to the
extent applicable, his or her lump sum contribution) for the Purchase Interval
ending on such Purchase Date to the purchase of whole shares of Common Stock at
the purchase price in effect for the Participant for that Purchase Date.

                  C.       PURCHASE PRICE. The purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the particular offering period in which he or she is enrolled shall be
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per
share of Common Stock on the start date of that offering period or (ii) the Fair
Market Value per share of Common Stock on that Purchase Date.

                  D.       NUMBER OF PURCHASABLE SHARES. The number of shares of
Common Stock purchasable by a Participant on each Purchase Date during the
particular offering period in which he or she is enrolled shall be the number of
whole shares obtained by dividing the amount collected from the Participant
through payroll deductions during the Purchase Interval ending with that
Purchase Date (or, to the extent applicable, his or her lump sum contribution
for that Purchase Interval) by the purchase price in effect for the Participant
for that Purchase Date.

                                       4.
<PAGE>

However, the maximum number of shares of Common Stock purchasable per
Participant on any one Purchase Date shall not exceed 200 shares, subject to
periodic adjustments in the event of certain changes in the Corporation's
capitalization. In addition, the maximum number of shares of Common Stock
purchasable in total by all Participants in the Plan on any one Purchase Date
shall not exceed 37,500 shares, subject to periodic adjustments in the event
of certain changes in the Corporation's capitalization. However, the Plan
Administrator shall have the discretionary authority, exercisable prior to
the start of any offering period under the Plan, to increase or decrease the
limitations to be in effect for the number of shares purchasable per
Participant and in total by all Participants enrolled in that particular
offering period on each Purchase Date which occurs during that offering
period.

                  E.       EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in
total by all Participants on the Purchase Date shall be promptly refunded.

                  F.       TERMINATION OF PURCHASE RIGHT. The following
provisions shall govern the termination of outstanding purchase rights:

                           (i)      A Participant may, at any time prior to the
         next scheduled Purchase Date in the offering period in which he or she
         is enrolled, terminate his or her outstanding purchase right by filing
         the appropriate form with the Plan Administrator (or its designate),
         and no further payroll deductions shall be collected from the
         Participant with respect to the terminated purchase right. Any payroll
         deductions collected during the Purchase Interval in which such
         termination occurs shall, at the Participant's election, be immediately
         refunded or held for the purchase of shares on the next Purchase Date.
         If no such election is made at the time such purchase right is
         terminated, then the payroll deductions collected with respect to the
         terminated right shall be refunded as soon as possible.

                           (ii)     The termination of such purchase right shall
         be irrevocable, and the Participant may not subsequently rejoin the
         offering period for which the terminated purchase right was granted. In
         order to resume participation in any subsequent offering period, such
         individual must re-enroll in the Plan (by making a timely filing of the
         prescribed enrollment forms) on or before the start date of that
         offering period.

                           (iii)    Should the Participant cease to remain an
         Eligible Employee for any reason (including death, disability or change
         in status) while his or her purchase right remains outstanding, then
         that purchase right shall immediately terminate, and all of the
         Participant's payroll deductions for the Purchase Interval in which the
         purchase right so terminates shall be immediately refunded. However,
         should the Participant cease to remain in active service by

                                       5.
<PAGE>

          reason of an approved unpaid leave of absence, then the Participant
          shall have the right, exercisable up until the last business day of
          the Purchase Interval in which such leave commences, to (a) withdraw
          all the payroll deductions collected to date on his or her behalf
          for that Purchase Interval or (b) have such funds held for the
          purchase of shares on his or her behalf on the next scheduled
          Purchase Date. In no event, however, shall any further payroll
          deductions be collected on the Participant's behalf during such
          leave. Upon the Participant's return to active service (x) within
          ninety (90) days following the commencement of such leave or (y)
          prior to the expiration of any longer period for which such
          Participant's right to reemployment with the Corporation is
          guaranteed by statute or contract, his or her payroll deductions
          under the Plan shall automatically resume at the rate in effect at
          the time the leave began, unless the Participant withdraws from the
          Plan prior to his or her return. An individual who returns to
          active employment following a leave of absence that exceeds in
          duration the applicable (x) or (y) time period will be treated as a
          new Employee for purposes of subsequent participation in the Plan
          and must accordingly re-enroll in the Plan (by making a timely
          filing of the prescribed enrollment forms) on or before the start
          date of any subsequent offering period in which he or she wishes to
          participate.

                  G.       CHANGE IN CONTROL. Each outstanding purchase right
shall automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the start date of the offering period in which such individual is
enrolled at the time of such Change in Control or (ii) the Fair Market Value per
share of Common Stock immediately prior to the effective date of such Change in
Control. However, the applicable limitation on the number of shares of Common
Stock purchasable per Participant shall continue to apply to any such purchase,
but not the limitation applicable to the maximum number of shares of Common
Stock purchasable in total by all Participants on any one Purchase Date.

                  The Corporation shall use its best efforts to provide at least
ten (10) days' prior written notice of the occurrence of any Change in Control,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.

                  H.       PRORATION OF PURCHASE RIGHTS. Should the total number
of shares of Common Stock to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro-rata allocation
of the available shares on a uniform and nondiscriminatory basis, and the
payroll deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.

                  I.       ASSIGNABILITY. The purchase right shall be
exercisable only by the Participant and shall not be assignable or transferable
by the Participant.

                                       6.
<PAGE>

                  J.       STOCKHOLDER RIGHTS. A Participant shall have no
stockholder rights with respect to the shares subject to his or her outstanding
purchase right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.

         VIII.    ACCRUAL LIMITATIONS

                  A.       No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423)) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000.00) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.

                  B.       For purposes of applying such accrual limitations to
the purchase rights granted under the Plan, the following provisions shall be in
effect:

                           (i)      The right to acquire Common Stock under each
         outstanding purchase right shall accrue in a series of installments on
         each successive Purchase Date during the offering period in which such
         right remains outstanding.

                           (ii)     No right to acquire Common Stock under any
         outstanding purchase right shall accrue to the extent the Participant
         has already accrued in the same calendar year the right to acquire
         Common Stock under one or more other purchase rights at a rate equal to
         Twenty-Five Thousand Dollars ($25,000.00) worth of Common Stock
         (determined on the basis of the Fair Market Value per share on the date
         or dates of grant) for each calendar year such rights were at any time
         outstanding.

                  C.       If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular Purchase
Interval, then the payroll deductions that the Participant made during that
Purchase Interval with respect to such purchase right shall be promptly
refunded.

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

         IX.      EFFECTIVE DATE AND TERM OF THE PLAN

                  A.       The Plan was adopted by the Board on _____, 2000, and
shall become effective at the Effective Time, provided no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until (i) the Plan shall have

                                       7.
<PAGE>

been approved by the stockholders of the Corporation and (ii) the Corporation
shall have complied with all applicable requirements of the 1933 Act
(including the registration of the shares of Common Stock issuable under the
Plan on a Form S-8 registration statement filed with the Securities and
Exchange Commission), all applicable listing requirements of any stock
exchange (or the Nasdaq National Market, if applicable) on which the Common
Stock is listed for trading and all other applicable requirements established
by law or regulation. In the event such stockholder approval is not obtained,
or such compliance is not effected, within twelve (12) months after the date
on which the Plan is adopted by the Board, the Plan shall terminate and have
no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.

                  B.       Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in October 2010, (ii)
the date on which all shares available for issuance under the Plan shall have
been sold pursuant to purchase rights exercised under the Plan or (iii) the date
on which all purchase rights are exercised in connection with a Change in
Control. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.

         X.       AMENDMENT OF THE PLAN

                  A.       The Board may alter, amend, suspend or terminate the
Plan at any time to become effective immediately following the close of any
Purchase Interval. However, the Plan may be amended or terminated immediately
upon Board action, if and to the extent necessary to assure that the Corporation
will not recognize, for financial reporting purposes, any compensation expense
in connection with the shares of Common Stock offered for purchase under the
Plan, should the financial accounting rules applicable to the Plan at the
Effective Time be subsequently revised so as to require the Corporation to
recognize compensation expense in the absence of such amendment or termination.

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

                                       8.
<PAGE>

         XI.      GENERAL PROVISIONS

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

                  B.       Nothing in the Plan shall confer upon the Participant
any right to continue in the employ of the Corporation or any Corporate
Affiliate for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Corporate Affiliate
employing such person) or of the Participant, which rights are hereby expressly
reserved by each, to terminate such person's employment at any time for any
reason, with or without cause.

                  C.       The provisions of the Plan shall be governed by the
laws of the State of California without resort to that State's conflict-of-laws
rules.

                                       9.
<PAGE>

                                   SCHEDULE A

                          CORPORATIONS PARTICIPATING IN
                          EMPLOYEE STOCK PURCHASE PLAN
                            AS OF THE EFFECTIVE TIME

                          Specialty Laboratories, Inc.

<PAGE>

                                    APPENDIX

                  The following definitions shall be in effect under the Plan:

                  A.       BOARD shall mean the Corporation's Board of
Directors.

                  B.       CASH EARNINGS shall mean (i) the regular base salary
paid to a Participant by one or more Participating Companies during such
individual's period of participation in one or more offering periods under the
Plan plus (ii) all overtime payments, bonuses, commissions, profit-sharing
distributions or other incentive-type payments received during such period. Such
Cash Earnings shall be calculated before deduction of (A) any income or
employment tax withholdings or (B) any contributions made by the Participant to
any Code Section 401(k) salary deferral plan or any Code Section 125 cafeteria
benefit program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall NOT include any contributions made by
the Corporation or any Corporate Affiliate on the Participant's behalf to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions deducted from such Cash
Earnings).

                  C.       CHANGE IN CONTROL shall mean a change in ownership of
the Corporation pursuant to any of the following transactions:

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

                           (ii)     the sale, transfer or other disposition of
         all or substantially all of the assets of the Corporation in complete
         liquidation or dissolution of the Corporation, or

                           (iii)    the acquisition, directly or indirectly, by
         a person or related group of persons (other than the Corporation or a
         person that directly or indirectly controls, is controlled by or is
         under common control with the Corporation) 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 Corporation's outstanding securities pursuant to a tender
         or exchange offer made directly to the Corporation's stockholders.

                  D.       CODE shall mean the Internal Revenue Code of 1986, as
amended.

                  E.       COMMON STOCK shall mean the Corporation's common
stock.

                                       A-1.
<PAGE>

                  F.       CORPORATE AFFILIATE shall mean any parent or
subsidiary corporation of the Corporation (as determined in accordance with Code
Section 424), whether now existing or subsequently established.

                  G.       CORPORATION shall mean Specialty Laboratories, Inc.,
a Delaware corporation, and any corporate successor to all or substantially all
of the assets or voting stock of Specialty Laboratories, Inc. that shall by
appropriate action adopt the Plan.

                  H.       EFFECTIVE TIME shall mean the time at which the
Underwriting Agreement is executed and the Common Stock priced for the initial
public offering of such Common Stock. Any Corporate Affiliate that becomes a
Participating Corporation after such Effective Time shall designate a subsequent
Effective Time with respect to its employee-Participants.

                  I.       ELIGIBLE EMPLOYEE shall mean any person who is
employed by a Participating Corporation on a basis under which he or she is
regularly expected to render more than twenty (20) hours of service per week for
more than five (5) months per calendar year for earnings considered wages under
Code Section 3401 (a).

                  J.       FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the following provisions:

                           (i)      If the Common Stock is at the time traded on
         the Nasdaq National Market, then the Fair Market Value shall be the
         closing selling price per share of Common Stock on the date in
         question, as such price is reported by the National Association of
         Securities Dealers on the Nasdaq National Market and published in THE
         WALL STREET JOURNAL. If there is no closing selling price for the
         Common Stock on the date in question, then the Fair Market Value shall
         be the closing selling price on the last preceding date for which such
         quotation exists.

                           (ii)     If the Common Stock is at the time listed on
         any Stock Exchange, then the Fair Market Value shall be the closing
         selling price per share of Common Stock on the date in question on the
         Stock Exchange determined by the Plan Administrator to be the primary
         market for the Common Stock, as such price is officially quoted in the
         composite tape of transactions on such exchange and published in THE
         WALL STREET JOURNAL. If there is no closing selling price for the
         Common Stock on the date in question, then the Fair Market Value shall
         be the closing selling price on the last preceding date for which such
         quotation exists.

                           (iii)    For purposes of the initial offering period
         that begins at the Effective Time, the Fair Market Value shall be
         deemed to be equal to the price per share at which the Common Stock is
         sold in the initial public offering pursuant to the Underwriting
         Agreement.

                  K.       1933 ACT shall mean the Securities Act of 1933, as
amended.

                                       A-2.
<PAGE>

                  L.       PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.

                  M.       PARTICIPATING CORPORATION shall mean the Corporation
and such Corporate Affiliate or Affiliates as may be authorized from time to
time by the Board to extend the benefits of the Plan to their Eligible
Employees. The Participating Corporations in the Plan are listed in attached
Schedule A.

                  N.       PLAN shall mean the Corporation's 2000 Employee Stock
Purchase Plan, as set forth in this document.

                  O.       PLAN ADMINISTRATOR shall mean the committee of two
(2) or more Board members appointed by the Board to administer the Plan.

                  P.       PURCHASE DATE shall mean the last business day of
each Purchase Interval. The initial Purchase Date shall be April 30, 2001.

                  Q.       PURCHASE INTERVAL shall mean each successive six
(6)-month period within a particular offering period at the end of which there
shall be purchased shares of Common Stock on behalf of each Participant.

                  R.       STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.

                  S.       UNDERWRITING AGREEMENT shall mean the agreement
between the Corporation and the underwriter or underwriters managing the initial
public offering of the Common Stock.

                                       A-3.

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