Document:

<PAGE>

                                                                   EXHIBIT 10.8

                       Development and Supply Agreement

                                 Duet II Meter
                                 -------------

between

                 LXN Corporation
                 5830 Oberlin Drive
                 San Diego, CA 92121
                 U.S.A.

                                                (hereinafter referred to as LXN)

and

                 LRE Technology Partner GmbH
                 Hofer StraBe 5
                 86720 Noerdlingen
                 Germany

                                                (hereinafter referred to as LRE)

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998
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Art. 1    Purpose of the Agreement
          ------------------------

          Subject matter of the agreement is the development and supply of a
          meter for measuring Glucose and Fructosamine using separate glucose
          and fructosamine test strips which is defined in the specifications
          attached to this agreement as Attachment A (hereinafter referred to as
          D2-meter)

Art. 2    Development
          -----------

2.1       LRE will develop for LXN the D2-meter in accordance with the
          objectives and performance requirements as set out in the
          specifications (Attachment A).

2.2       It is understood that development is completed with the delivery of
          100 pre-series units of the D2-meter to LXN and its acceptance by LXN.

2.3       LRE agrees to deliver the first D-2 meters according to the time
          schedule (see Attachment B) upon receipt of the approval by LXN of
          the release for production.

Art. 3    Result of the Development Effort/Industrial Property Rights
          -------------------------------------------------------------

3.1       LRE agrees that the specific design work of the D2-meter and its
          subsequent serial production will be exclusively made for and on
          behalf of LXN.

          LRE agrees furthermore to grant to LXN non exclusive, non transferable
          licenses under such of its background patents which have been used for
          the D2-meter with no extra cost to LXN.

          LXN shall have the exclusive title to all patents or other proprietary
          rights - concerning the D2-meter technology - created by LRE during
          the development of the D2-meter.

          LXN agrees to reimburse LRE for all incurring costs for preparing,
          filing and maintaining such proprietary rights including the
          inventor's fees of LRE's employees according to the german law
          ("Gesetz uber Arbeitnehmererfindungen").
          LRE has the right to exploit ist own developments and inventions,
          which are LXN's intellectual property as defined above, for future or
          existing products, except for any instruments measuring in-vitro
          Glucose and/or Fructosamine in humans.

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                               Supply Agreement
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3.2       LXN shall own the exclusive rights to the product specific tooling of
          the D2-meter, provided that the total development costs listed in
          paragraphs 4.2.1 to 4.2.5 have been payed to LRE.

3.3       LRE will assist LXN's technical service in preparation of a service
          manual by making available all helpful documentation and information.

3.4       LRE shall provide to LXN the code assignment software, which computes
          for each new production lot of Glucose or Fructosamine test strips the
          necessary code for the internal D2-meter software.

3.5       LRE shall provide to LXN all necessary design control documents
          consistent with FDA regulations including Device Master Record and
          Device History Records.

3.6       LXN agrees that LRE may use plastic parts produced with the existing
          tooling for the current "Duet" meter for other applications, except
          for any competitive product within the field of Diabetes care.
          LRE will acquire any of such plastic parts directly and exclusively
          from LXN.

3.7       LRE agrees not to manufacture or to give any third party support to
          manufacture competitive test strips which are compatible with the LXN
          Duet meters.

Art. 4    Development and Tooling Costs
          -----------------------------

4.1       [***]

4.2       [***]

4.2.1     [***]

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998

[***]  CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>

4.2.2     [***]

4.2.3     [***]

4.2.4     [***]

4.2.5     [***]

4.3       Termination of Development

4.3.1     LXN may terminate the agreement during the development up to the
          completion of Milestone #4 on 30 days prior written notice to LRE.

          In case of termination by LXN during the development, LRE shall use
          ist best efforts to limit or cancel any outstanding commitments in
          connection with the development.  Subject to paragraphs 4.2.1 to 4.2.4
          LXN shall bear all costs incurred by LRE for all development work
          performed through the effective termination date, and for all
          outstanding obligations which were incurred by LRE in good faith in
          advance and which cannot be cancelled.
          These costs may include extra expenditures (starting after Milestone
          #3) for the product specific production tooling and software up to a
          maximum of US$ [***]

4.3.2     LRE may terminate the agreement during the development upon 30 days
          prior notice to LXN, if the parties mutually determine in course of
          one of the development phases (milestones) that the intended result of
          the development cannot be achieved or, for reasons beyond the
          reasonable control of LRE, can only be achieved at expenditure by LRE,
          significantly in excess of the costs described in paragraphs 4.2.1 to
          4.2.5, for which LXN is unwilling to reimburse LRE.

Art. 5    Serial production
          -----------------

5.1       Upon completion of the development efforts, LRE agrees to produce the
          D2-meter for LXN and to adjust its production capacities to the agreed
          upon requirements of LXN.

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998

[***] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>

          LRE shall have the exclusive right to manufacture the entire product
          covered by this agreement.

5.2       LXN agrees to submit firm orders for three months' periods broken down
          to the monthly installments to be supplied by LRE.
          LXN will provide LRE with the preliminary estimate of the shipments to
          be made by LRE for nine months following the firm order period.
          This procedure will be renewed every month (rolling order/forecast).

5.3       LXN hereby authorizes LRE to order or to acquire options to be
          supplied, according to the estimated volumes listed in the rolling
          forecasts (para. 5.2), with long-lead parts identified by LRE in the
          Attachment C.
          LRE agrees, however, to use its best efforts to minimize purchase of
          parts.  In case of termination of the Attachment by LXN, LXN shall
          reimburse LRE for all components of the D2-meter that LRE had to order
          - according to LXN's forecasts - and that could not be returned to the
          supplier.

5.4       Delivery by LRE will be made at least monthly, provided that LXN has
          issued purchase orders for three consecutive months.  The minimum
          order quantity is 1000 units, which will be shipped four weeks after
          receipt of the respective order.
          LRE shall use its best effort to adapt its production capacity as
          quickly as possible to LXN's requirements of D2-meter so that LXN may
          increase the monthly installments to cover higher D2-meter demand.

5.5       LRE will ship the D2-meter in bulk packaging.  In the event of lots
          being rejected by LXN's quality control, LRE shall be entitled to
          supply such repaired or exchanged lots with the old serial number
          after having sorted out defective instruments.  The warranty period
          starts at the date when the instruments are accepted by LXN.

Art. 6    Supply price
          ------------

6.1       The parties agree that the price for each unit of D2-meter shall be:

6.1.1     in case of a production quantity of min. [***] D2-meters/year

               OTP-Version        US$ [***]

               Mask-Version       US$ [***]

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998

[***] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>

6.1.2     in case of a production quantity of min. [***] D2-meters/year

                                            US$  [***] (Mask version)

6.1.3     in case of a production quantity of min. [***] D2-meters/year

                                            US$  [***] (Mask version)

6.1.4     Prices do not include the German value added tax or any US taxes.  For
          supplies made directly to German customers, the value added tax shall
          be due in addition.

          Prices are free on board Munich or Frankfurt airport for the D2-meters
          in adequate bulk packing for overseas shipment.  LXN shall be
          responsible to designate the method and carrier for the subsequent
          shipment.  LXN shall be responsible for duties and freight costs.
          Sales packaging which is fit for sale to the final customer, can be
          offered by LRE at an increased price.

6.2       LXN agrees that LRE has the option to have the D2-meters produced and
          shipped through UMM Electronics - which is under common control with
          LRE - at the same prices and according to all provisions of this
          agreement.
          LXN, however, shall have the right to determine the date of the
          transfer of production and the respective quantities of supplies to be
          made by UMM Electronics.

6.3       It is further agreed that economies of scale, location of production
          as well as the decrease of cost of parts will be reasonably reflected
          in future supply prices as this will contribute to a successful
          marketing.

6.4       Payment of each delivery shall be made within 30 days net from receipt
          of shipment and the corresponding invoice.

Art. 7    Quality control / inspections
          -----------------------------

7.1       LRE shall subject the D2-meter to regular in process controls and
          perform a final check of each D2-meter to be supplied, in accordance
          with the written specifications, keeping complete records of the
          results of each inspection which will be readily accessible to LXN.

          The testing procedures and the permissible variations and tolerances -
          if any - shall be agreed upon separately and shall be a component of
          the final specifications.

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998

[***] CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>

          LRE will furnish LXN with inspection reports for all D2-meter units
          delivered.

7.2       Within 5 working days from receipt of any shipment, LXN will conduct
          the acceptance inspection.  Such inspection will be carried out in
          accordance with the Incoming Quality Control Specifications layed out
          in Attachment D to this Agreement.

          In the event that such inspection through LXN shall reveal any defect
          or deficiency, LXN shall have the right to refuse acceptance of the
          defective or deficient individual meters and/or the entire lot and to
          request that the lot or the individual meters be replaced or corrected
          free of charge or to make a hundred per cent control of the lot
          provided for shipment at LRE's cost and expense and to replace the D2-
          meters found to be defective.
          LRE shall be responsible for all direct related costs associated with
          returning and replacing individual meters.

7.3       LRE shall inform LXN immediately of any intended changes of the
          specifications LRE wishes to make during the term of the agreement.
          Such changes shall be subject to LXN's written consent before
          implementation.

7.4       LXN shall have the right to inspect production and Quality control
          processes at LRE with written notice and acknowledgement from LRE five
          working days in advance of the inspection.

Art. 8    Warranty / Liability
          --------------------

8.1       LRE warrants that as of the date of shipment the D2-meter developed,
          made and delivered for medico-diagnostic purposes meet the
          specifications agreed upon, will be free of defects in material,
          workmanship and design and will perform as per specifications, quality
          control agreement and intended use for a period of 24 months from the
          date of delivery by LRE.

          Warranty does not cover any battery related defects.

8.2       LRE shall replace at its own expense instruments, that exhibit defects
          as defined in article 8.1 during the period of warranty.

          LXN shall provide to LRE regularly service reports giving information
          about serial no., failure code and fail date.  This information shall
          reach LRE 4 months after the fail at the latest.

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998
<PAGE>

          Within two months LRE has the right to order instruments having
          defects defined in Art 8.1. LRE agrees to pay costs for shipping and
          direct related charges as documentation, customs and returning such
          instruments from the customer to LRE.

          In case of LXN's warranty claims proof to be unjustified, LXN agrees
          to pay directly related costs for returning such instruments from the
          customer to LRE as described above.

8.3       LRE warrants that neither the sale, resale nor use of the D2-meter
          will infringe the industrial property rights of any third party.  LRE
          shall directly substitute at its own expense any features or
          components of the D2-meter which should infringe upon industrial
          property rights of third parties and agrees to safe LXN harmless with
          respect to any claims of such third parties.

8.4       LRE agrees that the D2-meter will be manufactured and sold LXN in
          compliance with all applicable laws, ordinances, standards, rules and
          regulations including the provisions of FDA/GMP, MedGV, TuV, TNO, ISO
          9001 and CE.

Art. 9    Confidentiality
          ---------------

9.1       Both parties agree to hold in strict confidence any and all
          information disclosed under this agreement and to restrict access to
          such information to those persons entrusted to carry out the
          activities provided for hereunder and who are subject to the same
          secrecy obligation.  Excepted from such use and secrecy obligations
          shall be such information which

          a)   is in the public domain at the time of disclosure

          b)   is published or otherwise becomes part of the public domain
               through no fault of the respective party

          c)   was in the possession of the respective party at the time of
               disclosure, as shown by prior written records, or becomes
               available from a third party who has the right to disclose it.

          Companies which LRE or LXN control or which are under common control
          with LRE or LXN by holding directly or indirectly as least ninety
          percent of the voting share capital are not regarded as third parties
          and may be given access to such information, provided they have
          accepted the terms of this agreement as binding on them.

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998
<PAGE>

Art. 10   Term
          ----

10.1      This agreement shall be valid for one calendar year and will be
          renewed automatically without termination by either party.  It may be
          terminated by either party by giving 6 months' prior notice, for the
          first time, however, with effect to December 31, 1999.

10.2      Either party has the right to terminate this agreement forthwith,
          without previous notice for cause, in particular in the event that

          a)   the other party commits or permits a material breach of any of
               the covenants and terms herein contained and has not, within 60
               days after having been required in writing to do so, commenced
               all necessary actions in good faith promptly to remedy such
               breach; or

          b)   a petition is filed by or against the other party under any
               bankruptcy or insolvency laws; provided that if the other party
               gives adequate assurance of contesting any such petitions and
               such petitions are in fact dismissed within 90 days of filing,
               such filing shall not constitute a cause of termination; or

          c)   LRE makes any changes to the D2-meter of the specifications,
               without LXN's prior written approval; or

          d)   LXN does not issue purchase orders for D2-meters for more than
               three consecutive months.

10.3      Notice of termination shall be served by registered letter.

Art. 11   Final Provisions
          ----------------

11.1      This agreement shall be construed and interpreted in all respects in
          accordance with the laws of the State of California.

11.2      Any dispute arising out of or in relation to this agreement including
          disputes regarding its validity shall be referred to the courts
          sitting in San Diego.

11.3      This agreement and its schedules embody the entire and standing
          agreements among the parties and supersede all previous negotiations,
          representations, writings and agreements, written or oral, with
          respect to the development and sale of the D2-meter.

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998
<PAGE>

11.4   Modifications of and amendments to this agreement as well as the
       suspension of its provisions shall become effective only when approved by
       both parties in writing.
       The specifications enclosed in Attachment A are an integrated part of
       this agreement.

11.5   In the event of one of more provisions of this agreement becoming void,
       the remaining provisions contained herein shall remain in full force and
       effect. The parties agree to have provisions having become void shall be
       deemed as severable and be replaced by valid provisions which maintain
       the intentions of the invalid provisions as far as possible.

San Diego, Jan 19, 1998                 Nordlingen, Jan 16, 1998
          ------------------------                 ------------------------
LXN Corporation                         LRE Technology Partner GmbH

                      /s/ John Burd   /s/ Ulrich Schroder   /s/ Jurgen Denker
                          John Burd       Ulrich Schroder       Jurgen Denker
                          President       President             VP Marketing/R&D

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998
<PAGE>

                                                                    Attachment A
                                                                    ----------

Supplement of the Supply Agreement D2-meter

System Specification
--------------------

Version 1.1 released on March 2, 1998

San Diego, ___________________________     Munchen, ____________________________
LXN Corporation                            LRE Technology Partner GmbH

Paul Williams                              Johann Stapfner      Martin Eisenmann
Director of Engineering                    Manager R&D          Project Manager

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998
<PAGE>

                                                                    Attachment B
                                                                    ----------

Supplement of the Supply Agreement D2-meter

Time Schedule

<TABLE>
<CAPTION>
     -------------------------------------------------------------
               milestone                          week/year
     -------------------------------------------------------------
     <S>                                  <C>
     #1) Initiation of Project                 January 1, 1998
     -------------------------------------------------------------
     #2) Agreement on final                     March 2, 1998
     specifications
     -------------------------------------------------------------
     #3) Completion and                         July 1, 1998
     acceptance by LXN of 20
     prototype units
     -------------------------------------------------------------
     #4) Completion and                       September 1, 1998
     acceptance by LXN of 100 pre-
     production units
     -------------------------------------------------------------
     #5) Release for production                November 1, 1998
     -------------------------------------------------------------
         P1 delivery first 1000 units     5-6 months after initial
                                               purchase order
     -------------------------------------------------------------
         P2 delivery next 2000 units       next month following P1
     -------------------------------------------------------------
         P3 delivery next 5000 units       next month following P2
     -------------------------------------------------------------
</TABLE>

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998
<PAGE>

                                                                    Attachment C

Supplement of the Supply Agreement D2-meter

Long lead time parts:       (may be incomplete)

          Part                         Delivery time

     1)   LCD                          14 weeks

     2)   PCB                          12 weeks

     3)   (Mask)-Micro                 14 weeks

     4)   ASIC                         14 weeks

     5)   Wafer (Me(beta)-LED)         12 weeks

     6)   EE-Prom                      12 weeks

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                               Supply Agreement
                                 Duet II Meter
                                  16.01.1998<PAGE>

                                                        EXHIBIT 10.27

                              EMPLOYMENT AGREEMENT

                  This EMPLOYMENT AGREEMENT is entered into as of October 2,
2000 by and between Specialty Laboratories, Inc., a California Company (the
"Company"), and Frank J. Spina ("Executive"), and is effective upon approval of
the Compensation Committee of The Board of Directors.

                  1.       DUTIES AND RESPONSIBILITIES.

                  A. Executive shall serve as the Company's Chief Financial
Officer or such other title or position as may be designated from time to time
by the Company's Chief Executive Officer. Executive shall report to and perform
the duties and responsibilities assigned to him by the Company's President, or
such other person as may be designated by the Company's Board Of Directors.

                  B. Executive agrees to devote his full time and attention to
the Company, to use his best efforts to advance the business and welfare of the
Company, to render his services under this Agreement fully, faithfully,
diligently, competently and to the best of his ability, and not to engage in any
other employment activities.

                  C. Executive shall be based at the Company's office located in
Santa Monica, California, but Executive shall be required to travel to other
geographic locations in connection with the performance of his Executive duties.

                  2.       PERIOD OF EMPLOYMENT.

                  A. Executive's employment with the Company shall be governed
by the provisions of this Agreement for the period commencing September 12, 2000
and continuing until this Agreement terminates pursuant to written notification
by either the Company or Executive, which notification may occur at any time for
any reason. The period during which the Executive provides services to the
Company pursuant to this Agreement shall be referenced in this Agreement as the
"Employment Period."

                  3.       CASH COMPENSATION.

                  A. Executive's initial Base Salary shall be Two Hundred Twenty
Thousand Dollars ($220,000) per year payable in accordance with the Company's
standard payroll schedule. Executive's compensation shall be subject to periodic
review by the Company, and may be increased or decreased in the Company's
discretion.

                  B. For each fiscal year during the Employment Period,
Executive shall be eligible for an incentive bonus in the Company's sole
discretion. For each full fiscal year of employment, Executive shall be eligible
for an incentive bonus of up to sixty (60%) of his annual base salary and his
performance objectives shall be set such that 100% completion of his objectives
shall entitle him to at least seventy-five percent (75%) of the bonus (or
forty-five percent (45%) of his annual base salary) ("the Incentive Bonus").
During the first year of employment, Executive shall be eligible for a pro rata
portion of the incentive bonus. The bonus

                                         1

<PAGE>

amount will be based on the following factors: (1) the financial performance of
the Company as determined and measured by the Company's Board of Directors, and
(2) Executive's achievement of management targets and goals as set by the
Company. The bonus amount is intended to reward contribution to the Company's
performance over an entire fiscal year, and on the basis of continuing,
cumulative contribution, and consequently will be paid only if Executive is
employed and in good standing at the time of bonus payments, which generally
occurs within 45 days after the close of the Company's fiscal year. Bonus
determinations will be made in the Company's sole discretion.

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

                  4.       EQUITY PARTICIPATION.

                  Separate from this Agreement and pursuant and subject to the
terms and conditions of the Company's Stock Option Plan and Stock Option
Agreement, Executive has been granted options to purchase Fifty Thousand
(50,000) shares of the Company's common stock, which options vest over time. Any
further options will be made pursuant and subject to the terms and conditions of
the Company's stock option plan and stock option agreement.

                  5.       EXPENSE REIMBURSEMENT.

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

                  6.       FRINGE BENEFITS.

                  A. Executive shall, throughout the Employment Period, be
eligible to participate in all group term life insurance plans, group health
plans, accidental death and dismemberment plans and short-term disability
programs and other Executive perquisites which are made available to the
Company's Executives and for which Executive qualifies. Please refer to the
Company's Employee Handbook and Summary Plan Descriptions for further
information concerning these benefits.

                  B. Executive shall earn vacation time during the Employment
Period at the rate of three weeks per year. Vacation shall accrue and be taken
pursuant to the Company's vacation benefit policy set forth in the Company's
Employee Handbook.

                  7.       SEVERANCE PAY FOR EXERCISE OF THE AT-WILL CLAUSE.

                                     2

<PAGE>

                  Notwithstanding any of the provisions of this Agreement,
Executive's employment with the Company is at will, which means that it is not
for a specific term and may be terminated by either the Company or Executive at
any time, for any reason without advance notice. Similarly the Company may
change the terms and conditions of Executive's employment at any time, for any
reason, without advance notice.

                  Should the Company terminate Executive's employment for Cause,
as defined below, the Company shall have no obligation to Executive under this
Agreement other than for accrued but unpaid salary and vacation as of the date
of termination. Should the Company terminate Executive's employment other than
for Cause during the first three years of this Agreement, the Company shall have
no further obligation under this Agreement, except that the Company will
continue to pay Executive's base salary, (less, if applicable, any long-term
disability payments) for a one year period following termination of Executive's
employment on the normal payroll dates.

                  8.       CAUSE.

                  For purposes of this Agreement, "Cause" shall mean a
reasonable belief by the Board of Directors that Executive has engaged in any
one of the following: (i) financial dishonesty, including, without limitation,
misappropriation of funds or property, or any attempt by Executive to secure any
personal profit related to the business or business opportunities of the Company
without the informed, written approval of the Company's Board of Directors; (ii)
refusal to comply with reasonable directives of the Executive's immediate
supervisor or Board of Directors; (iii) negligence or reckless or willful
misconduct in the performance of Executive's duties; (iv) failure to perform, or
continuing neglect in the performance of, duties assigned to Executive; (v)
misconduct which has a materially adverse effect upon the Company's business or
reputation; (vi) the conviction of, or plea of nolo contendre to, any felony or
a misdemeanor involving moral turpitude or fraud; (vii) the material breach of
any provision of this Agreement; (viii) violation of Company policies including,
without limitation, the Company's policies on equal employment opportunity and
prohibition of unlawful harassment; (ix) death of the Executive; or (x) a
disability which continues for a period in excess of 365 days.
A termination as a result of a Change in Control shall not constitute cause.

                  9.       CHANGE IN CONTROL.

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

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

                                           3

<PAGE>

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

                              (iii) the acquisition, directly or indirectly, by
               any person or related group of persons (other than the Company or
               a person that directly or indirectly controls, is controlled by,
               or is under common control with, the Company), of beneficial
               ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
               securities possessing more than fifty percent (50%) of the total
               combined voting power of the Company's outstanding securities
               pursuant to a tender or exchange offer made directly to the
               Company's stockholders.

                  In no event, however, shall a Change in Control be deemed to
occur in connection with any public offering of the Common Stock.

                  10.      RESTRICTIVE COVENANTS.

                  During the Employment Period:

                              (i) Executive shall devote Executive's full time
               and energy solely and exclusively to the performance of
               Executive's duties described herein, except during periods of
               illness or vacation periods.

                              (ii) Executive shall not directly or indirectly
               provide services to or through any person, firm or other entity
               except the Company, unless otherwise authorized by the Board in
               writing.

                              (iii) Executive shall not render any services of
               any kind or character for Executive's own account or for any
               other person, firm or entity without first obtaining the
               Company's written consent.

Executive, however, shall have the right to perform such incidental services as
are necessary in connection with (a) Executive's private passive investments,
but only if Executive is not obligated or required to (and shall not in fact)
devote any managerial efforts which interfere with the services required to be
performed by him, or (b) Executive's charitable or community activities, or
participation in trade or professional organizations, but only if such
incidental services do not interfere with the performance of Executive's
services to the Company.

                  11.      NON-COMPETITION DURING THE EMPLOYMENT PERIOD.

                  Executive acknowledges and agrees that given the extent and
nature of the confidential and proprietary information he will obtain during the
course of his employment with the Company, it would be inevitable that such
confidential information would be disclosed or utilized by the Executive should
he obtain employment from, or otherwise become associated with, an entity or
person that is engaged in a business or enterprise that directly competes with
the Company. Consequently, during any period for which Executive is receiving
payments from the Company, either as wages or as a severance benefit, including
but not limited to severance

                                    4

<PAGE>

pay pursuant to paragraph 7, Executive shall not, without prior written consent
of the Company's Board of Directors, directly or indirectly own, manage,
operate, join, control or participate in the ownership, management, operation or
control of, or be employed by or connected in any manner with, any enterprise
which is engaged in any business competitive with or similar to that of the
Company; provided, however, that such restriction shall not apply to any passive
investment representing an interest of less than two percent (2%) of an
outstanding class of publicly-traded securities of any Company or other
enterprise which is not, at the time of such investment, engaged in a business
competitive with the Company's business.

                  12.      NON-SOLICITATION.

                  During the Employment Period and for one (1) year following
termination of Executive's employment, Executive shall not encourage or solicit
any of the Company's employees to leave the Company's employ for any reason or
interfere in any other manner with employment relationships at the time existing
between the Company and its employees. In addition, Executive shall not solicit,
directly or indirectly, business from any client of the Company, induce any of
the Company's clients to terminate their existing business relationship with the
Company or interfere in any other manner with any existing business relationship
between the Company and any client or other third party.

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

                  13.      PROPRIETARY INFORMATION.

                  As a condition precedent to Executive's employment with the
Company, Executive will execute the Company's standard Confidential Information
and Assignment of Inventions Agreement attached hereto as Exhibit A. Executive's
obligations pursuant to the Confidential Information and Assignment of
Inventions Agreement will survive termination of Executive's employment with the
Company.

                  14.      SUCCESSORS AND ASSIGNS.

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

                  14.      NOTICES.

                  Any notices, demands or other communications required or
desired to be given by any party shall be in writing and shall be validly given
to another party if served either personally or if deposited in the United
States mail, certified or registered, postage prepaid,

                                      5

<PAGE>

return receipt requested. If such notice, demand or other communication shall be
served personally, service shall be conclusively deemed made at the time of such
personal service. If such notice, demand or other communication is given by
mail, such notice shall be conclusively deemed given forty-eight (48) hours
after the deposit thereof in the United States mail addressed to the party to
whom such notice, demand or other communication is to be given as hereinafter
set forth:

         To the Company:

                  Human Resources Department
                  Specialty Laboratories, Inc.
                  2211 Michigan Avenue
                  Santa Monica, California 90404-3900

         To Executive:

                  Frank J. Spina
                  Current address as noted in
                  personnel file at Company

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

                  16.      GOVERNING DOCUMENTS.

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

                  17.      GOVERNING LAW.

                  The provisions of this Agreement will be construed and
interpreted under the laws of the State of California. If any provision of this
Agreement as applied to any party or to any circumstance should be adjudged by a
court of competent jurisdiction to be void or unenforceable for any reason, the
invalidity of that provision shall in no way affect (to the maximum extent
permissible by law) the application of such provision under circumstances
different from those adjudicated by the court, the application of any other
provision of this Agreement, or the enforceability or invalidity of this
Agreement as a whole. Should any provision of this Agreement become or be deemed
invalid, illegal or unenforceable in any jurisdiction by reason of the scope,
extent or duration of its coverage, then such provision shall

                                      6

<PAGE>

be deemed amended to the extent necessary to conform to applicable law so as to
be valid and enforceable or, if such provision cannot be so amended without
materially altering the intention of the parties, then such provision will be
stricken and the remainder of this Agreement shall continue in full force and
effect.

                  18.      REMEDIES.

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

                  19.      ARBITRATION.

                  Executive and the Company shall separately execute an
Arbitration Agreement in the form attached hereto as Exhibit B which, among
other things shall provide for arbitration of all claims which arise out of
Executive's employment under the terms of this Agreement. This Arbitration
Agreement will survive the termination of Executive's employment with the
company.

                  20.      NO WAIVER.

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

                  21.      COUNTERPARTS.

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

                                             Specialty Laboratories, Inc.

                                             --------------------------------
                                             By:  James B. Peter M.D., Ph.D.
                                             Title: Chairman and CEO

                                             --------------------------------
                                             Frank J. Spina

                                     7

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