Exhibit 10.3

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT by and between HPSC, Inc., a Delaware corporation (the
“Company”), and Raymond R. Doherty (the “Executive”), is made as of July 19,
2002.

 

W I T N E S S E T H

 

WHEREAS, the Executive has served as President and Chief Operating Officer of
the Company since August 2, 1993, most recently pursuant to an employment
agreement dated July 19, 1999 (as amended and restated August 4, 2000);

 

WHEREAS, the Company wishes to provide for the continued employment by the
Company of the Executive, and the Executive wishes to continue to serve the
Company, on the terms and conditions set forth in this Agreement;

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1.                                       EMPLOYMENT PERIOD.  The Company shall
employ the Executive, and the Executive shall be an employee of the Company, on
the terms and conditions set forth in this Agreement, for a period (the
“Employment Period”) commencing on August 4, 2000 (the “Effective Date”) and
ending on the third anniversary of the Effective Date; provided, however, that,
on the third anniversary of the Effective Date and each subsequent anniversary
thereof (each of such third and subsequent anniversaries, an “Extension Date”),
the Employment Period shall automatically be extended for one additional year
unless, at least six months prior to the applicable Extension Date, the Company
or the Executive shall have given notice not to extend this Agreement.  The
Employment Period shall end upon the termination of the Executive’s employment
hereunder, as of the Date of Termination (as defined in Section 4(d)).

 

2.                                       SCOPE OF EMPLOYMENT.  (a)  POSITION.
During the Employment Period, the Executive shall continue to serve as President
and Chief Operating Officer of the Company, reporting to the Chairman and Chief
Executive Officer.  The Executive shall adhere to policies established by the
Board of Directors of the Company (the “Board”).

 

(b)                                 DUTIES.  During the Employment Period, and
excluding any periods of vacation and sick leave to which the Executive is
entitled, the Executive shall devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive under this
Agreement, use the Executive’s reasonable best efforts to carry out such
responsibilities faithfully and efficiently.  It shall not be considered a
violation of the foregoing for the Executive to serve on corporate, industry,
civic or charitable boards or committees, so long as such activities do not
significantly interfere with the performance of the Executive’s responsibilities
as an employee of the Company in accordance with this Agreement.

 

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(c)                                  LOCATION.  The Company’s headquarters shall
be located in Boston, Massachusetts, and the Executive shall be based and reside
in the general area of Boston, except for reasonable travel obligations.

 

3.                                       COMPENSATION.  The Executive’s
compensation during the Employment Period shall be determined by the Board upon
the recommendation of the committee of the Board having responsibility for
approving the compensation of senior executives (the “Compensation Committee”),
subject to Sections 3(a) through 3(d).

 

(a)                                  BASE SALARY.  During the Employment Period,
commencing on the Effective Date, the Executive shall receive an annual base
salary (“Base Salary”) as determined by the Compensation Committee from time to
time.  Commencing January 1, 2001, the Executive’s Base Salary shall be at a
rate of not less than $270,000.  The Base Salary shall be payable in accordance
with the Company’s regular payroll practice for its senior executives, as in
effect from time to time.

 

(b)                                 INCENTIVE PLAN.  The Compensation Committee
has developed an incentive compensation plan (“Incentive Plan”) for key
management employees.  The Incentive Plan is designed to pay the Executive up to
One Hundred Percent (100%) of his annual base salary for achieving the results
established by the Compensation Committee.  The Executive shall be eligible to
receive awards under the Incentive Plan, as determined annually by the
Compensation Committee.

 

(c)                                  OTHER INCENTIVE COMPENSATION. During the
Employment Period, the Executive shall be eligible for additional awards under
the Company’s Amended and Restated 1998 Stock Incentive Plan, as it may be
amended from time to time, or under any subsequent similar plans, as determined
by the Compensation Committee.

 

(d)                                 OTHER BENEFITS.  During the Employment
Period, (i) the Executive shall participate in all applicable savings and
retirement plans, practices, policies and programs of the Company that are from
time to time applicable to senior executives of the Company including the
Company’s Employee Stock Ownership Plan and Supplemental Executive Retirement
Plan; (ii) the Executive and/or the Executive’s eligible dependents, as the case
may be, shall be eligible for participation in, and shall receive all benefits
under, all applicable welfare benefit plans, practices, policies and programs
provided by the Company, including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life insurance, group life
insurance, accidental death and travel accident insurance plans and programs on
the same basis and subject to the same terms, conditions, cost-sharing
requirements and the like as senior executives of the Company; and (iii) the
Executive shall be entitled to receive fringe benefits on a basis not less
favorable than provided to other senior executives of the Company. 
Specifically, the Executive shall be entitled to four (4) weeks of vacation
annually and an appropriate vehicle provided by the Company.

 

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4.                                       TERMINATION OF EMPLOYMENT.  This
Employment Agreement may be terminated as provided in Sections 4(a) through
4(d).  Termination pursuant to any of Sections 4(a) through 4(d) is subject to
the provisions of Section 5.

 

(a)                                  DEATH OR DISABILITY.  The Executive’s
employment shall terminate automatically upon the Executive’s death.  The
Company shall be entitled to terminate the Executive’s employment because of the
Executive’s Disability (as defined in the Company’s long-term disability
insurance policies).  A termination of the Executive’s employment by the Company
for Disability shall be communicated to the Executive by written notice, and
shall be effective on the 30th day after receipt of such notice by the Executive
(the “Disability Effective Date”), unless the Executive returns to full-time
performance of the Executive’s duties before the Disability Effective Date.

 

(b)                                 TERMINATION BY THE COMPANY. (i) FOR CAUSE.
The Company may terminate the Executive’s employment for Cause at any time
during the Employment Period as follows.

 

(A)                              “Cause” means the conviction of the Executive
for the commission of a crime involving moral turpitude, or willful gross
misconduct by the Executive in connection with his employment by the Company
that results in material and demonstrable financial harm to the Company.  No act
or failure to act on the part of the Executive shall be considered “willful”
unless it is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive’s action or omission was in the
best interests of the Company.  Any act or failure to act that is based upon
authority given pursuant to a resolution duly adopted by the Board, or the
advice of counsel for the Company, shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company.  In the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists shall be given effect
unless the Company establishes to the Board by clear and convincing evidence
that Cause exists.

 

(B)                                A termination of the Executive’s employment
for Cause shall not be effective unless it is accomplished in accordance with
the following procedures.  The Company shall give the Executive written notice
(“Notice of Termination for Cause”) of its intention to terminate the
Executive’s employment for Cause, setting forth in reasonable detail the
specific conduct of the Executive that it considers to constitute Cause and the
specific provisions of this Agreement on which it relies, and stating the date,
time and place of the Special Board Meeting for Cause.  The “Special Board
Meeting for Cause” means a meeting of the Board called and held specifically and
exclusively for the purpose of considering the Executive’s

 

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termination for Cause, that takes place not less than twenty nor more than
thirty business days after the Executive receives the Notice of Termination for
Cause.  The Executive shall be given an opportunity, together with counsel, to
be heard at the Special Board Meeting for Cause.  The Executive’s termination
for Cause shall be effective when and if a resolution is duly adopted at the
Special Board Meeting for Cause by the affirmative vote of three-quarters of the
entire membership of the Board stating that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in the Notice of
Termination for Cause and that such conduct constitutes Cause under this
Agreement.

 

(ii) WITHOUT CAUSE.  The Company may terminate the Executive’s employment
without cause at any time during the Employment Period.

 

(c)                                  TERMINATION BY THE EXECUTIVE.  (i)  FOR
GOOD REASON.  The Executive may terminate employment for Good Reason at any time
during the Employment Period as follows.

 

(A)                              “Good Reason” means:

 

I.                                         the assignment to the Executive of
any duties or responsibilities inconsistent in any respect with those
customarily associated with the position of President and Chief Operating
Officer (including status, offices, titles and reporting requirements) or any
other action by the Company that results in a diminution or other material
adverse change in the Executive’s position, authority, duties or
responsibilities, other than an isolated, insubstantial and inadvertent action
that is not taken in bad faith and is remedied by the Company promptly after
receipt of notice thereof from the Executive;

 

II.                                     any failure by the Company to comply
with any provision of Section 3 of this Agreement, other than an isolated,
insubstantial and inadvertent failure that is not taken in bad faith and is
remedied by the Company promptly after receipt of notice thereof from the
Executive;

 

III.                                 any requirement by the Company that the
Executive be principally based at any office or location more than 25 miles from
the Company’s current offices in Boston, Massachusetts; or

 

IV.                                 any failure by the Company to comply with
Section 11(c) of this Agreement;

 

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(B)                                For purposes of this Section 4(c), any
reasonable determination of “Good Reason” made by the Executive shall be
conclusive.  A termination of employment by the Executive for Good Reason shall
be effectuated by giving the Company written notice (“Notice of Termination for
Good Reason”) of the termination, setting forth in reasonable detail the
specific conduct of the Company that constitutes Good Reason and the specific
provision(s) of this Agreement on which the Executive relies.  A termination of
employment by the Executive for Good Reason shall be effective on the fifth
business day following the date when the Notice of Termination for Good Reason
is given, unless the notice sets forth a later date (which date shall in no even
be later than 30 days after the notice is given).

 

(C)                                The failure to set forth any fact or
circumstance in a Notice of Termination for Good Reason shall not constitute a
waiver of the right to assert, and shall not preclude the Executive from
asserting, such fact or circumstance in an attempt to enforce any right under or
provision of this Agreement.

 

(ii)                                  WITHOUT GOOD REASON.  The Executive may
terminate his employment without Good Reason at any time during the Employment
Period by giving the Company written notice of the termination.

 

(d)                                 DATE OF TERMINATION.  The “Date of
Termination” means the date of the Executive’s death, the Disability Effective
Date, the date on which the termination of the Executive’s employment by the
Company for Cause or without Cause or by the Executive for Good Reason is
effective, the date on which the Executive gives the Company notice of a
termination of his employment without Good Reason, or the date of expiration of
this Agreement, as the case may be.

 

5.                                       OBLIGATIONS OF THE COMPANY UPON
TERMINATION.  (a) BY THE COMPANY OTHER THAN FOR CAUSE; UPON NON-RENEWAL BY THE
COMPANY OR THE EXECUTIVE.  Except as provided in Section 6 below, if, during the
Employment Period, the Company terminates the Executive’s employment for any
reason, other than Cause or the Executive’s death or Disability; the Company or
the Executive notifies the other pursuant to Section 1 of its or his intent not
to extend this Agreement; the Company shall

 

(i)                                     continue to pay the Executive his Base
Salary for a period of twelve months following the Date of Termination;

 

(ii)                                  pay the Executive twelve monthly payments,
each equal to one-twelfth (1/12) of the maximum incentive compensation the
Executive could have earned during the twelve months following the Date of
Termination;

 

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(iii)                               continue benefits to the Executive and/or
the Executive’s family for a period of twelve months following the Date of
Termination at least equal to those which would have been provided in accordance
with the applicable health, medical, life, disability and other welfare benefit
plans, programs, and practices described in Section 3(d) as if the Executive’s
employment had not been terminated; and

 

(iv)                              except in the case of termination by the
Executive without Good Reason, cause all of the Executive’s outstanding equity
awards, to the extent then unvested or forfeitable, to immediately and fully
vest and, to the extent then not exercisable, to become immediately and fully
exercisable.

 

(b)                                 DEATH OR DISABILITY.  If the Executive’s
employment is terminated by reason of the Executive’s death or Disability during
the Employment Period, the Company shall

 

(i)                                   continue to pay to the Executive or, in
the case of the Executive’s death, to the Executive’s designated beneficiaries
(or, if there is no such beneficiary, to the Executive’s estate or legal
representative) the Executive’s Base Salary for a period of six months following
the Date of Termination; and

 

(ii)                                continue benefits to the Executive and/or
the Executive’s family for a period of six months following the Date of
Termination at least equal to those which would have been provided in accordance
with the applicable health, medical, life, disability and other welfare benefit
plans, programs, and practices described in Section 3(d) as if the Executive’s
employment had not been terminated.

 

(iii)                               cause all of the Executive’s outstanding
equity awards, to the extent then unvested or forfeitable, to immediately and
fully vest and, to the extent then not exercisable, to become immediately and
fully exercisable.

 

(c)                                  BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE
WITHOUT GOOD REASON.  If the Executive’s employment is terminated by the Company
for Cause, or by the Executive without Good Reason, the Company’s only
obligation to the Executive will be to pay any arrearages of salary or incentive
compensation as of the Date of Termination.

 

6.                                       CHANGE OF CONTROL.  Notwithstanding the
provisions of Section 5 to the contrary, in the event a Change in Control (as
such term is defined in the Company’s 1998 Amended and Restated Stock Incentive
Plan) occurs, the following shall apply.

 

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(a)                                  If, during the three (3) year period
following a Change in Control, the Executive’s employment is terminated by the
Company for any reason other than for Cause, if the Executive’s employment is
terminated by reason of the Executive’s death or Disability, or if the Executive
terminates his employment for Good Reason:

 

(i)                                     The Company shall pay the Executive in a
lump sum payable within 30 days after the Date of Termination an amount equal to
the average of his total compensation from the Company which was includable in
the Executive’s gross income for federal income tax purposes (as reported on IRS
Form W-2) for each of the preceding five (5) calendar years ending before the
date of the Change of Control multiplied by 2.99; provided, however, that the
Executive may choose, in his discretion, to receive a lesser amount than he is
entitled to receive under this Section 6(a)(i) if after consultation with the
Compensation Committee he determines that it is in his best interests to accept
a lesser amount;

 

(ii)                                  The Company shall cause all of the
Executive’s outstanding equity awards, to the extent then unvested or
forfeitable, to immediately and fully vest and, to the extent then not
exercisable, to become immediately and fully exercisable; and

 

(iii)                             The Company shall continue benefits to the
Executive and/or the Executive’s family for a period of twelve months following
the Date of Termination at least equal to those which would have been provided
in accordance with the applicable health, medical, life, disability and other
welfare benefit plans, programs, and practices described in Section 3(d) as if
the Executive’s employment had not been terminated.

 

(b)                                 If, during the three (3) year period
following a Change in Control, the Executive terminates his employment for any
reason other than for Good Reason:

 

(i)                                     the Company shall continue to pay the
Executive his Base Salary for the twelve (12) months following the Date of
Termination and the Company shall pay the Executive twelve monthly payments,
each equal to one-twelfth (1/12) of the maximum incentive compensation the
Executive could have earned during the twelve (12) months following the Date of
Termination; and

 

(ii)                                  The Company shall continue benefits to the
Executive and/or the Executive’s family for a period of twelve months following
the Date of Termination at least equal to those which would have been provided
in accordance with the applicable health, medical, life, disability and other
welfare benefit plans, programs, and practices described in Section 3(d) as if
the Executive’s employment had not been terminated.

 

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(c)                                  If, during the three (3) year period
following a Change in Control, the Executive is terminated by the Company for
Cause, the Company’s only obligation to the Executive will be to pay any
arrearages of salary or incentive compensation as of the Date of Termination.

 

7.                                       NON-EXCLUSIVITY OF RIGHTS.  Nothing in
this Agreement shall prevent or limit the Executive’s continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies for which the Executive may qualify
(including, but not limited to, the Employee Stock Ownership Plan and the
Supplemental Executive Retirement Plan), nor shall anything in this Agreement
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies. 
Vested benefits and other amounts that the Executive is otherwise entitled to
receive under any plan, policy, practice or program of, or any contract of
agreement with, the Company or any of its affiliated companies on or after the
Date of Termination shall be payable in accordance with the terms of each such
plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by this Agreement.

 

8.                                       FULL SETTLEMENT.  The Company’s
obligation to make the payments provided for in, and otherwise to perform its
obligations under, this Agreement shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against the Executive or others.  In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced, regardless
of whether the Executive obtains other employment.

 

9.                                       CONFIDENTIAL INFORMATION;
NON-COMPETITION.  (a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies and their respective
businesses that the Executive obtains during the Executive’s employment by the
Company or any of its affiliated companies and that is not public knowledge
(other than as a result of the Executive’s violation of this Section 9)
(“Confidential Information”).  The Executive shall not communicate, divulge or
disseminate Confidential Information at any time during or after the Executive’s
employment with the Company, except with the prior written consent of the
Company or as otherwise required by law or legal process.

 

(b)                                 If the Executive has terminated his
employment for any reason other than Good Reason, the Executive agrees not to
compete with the business of the Company or be employed by a competitor of the
Company while the Executive is receiving termination payments under Section 5.

 

10.                                 INDEMNIFICATION; ATTORNEYS’ FEES.  The
Company shall pay or indemnify the Executive to the full extent permitted by law
and the by-laws of the

 

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Company for all expenses, costs, liabilities and legal fees which the Executive
may incur in the discharge of his duties hereunder.  The Company also agrees to
pay, as incurred,  to the fullest extent permitted by law, or indemnify
Executive if such payment is not legally permitted, for all legal fees and
expenses that the Executive may in good faith incur as a result of any contest
by the Company, the Executive or others of the validity or enforceability of or
liability under, or otherwise involving, any provision of this Agreement, upon
receipt of the Executive’s undertaking to repay any such amount advanced if the
Company prevails upon the final disposition of such action.

 

11.                                 SUCCESSORS.  (a) This Agreement is personal
to the Executive and, without the prior written consent of the Company, shall
not be assignable by the Executive otherwise than by will or the laws of descent
and distribution.  This Agreement shall inure to the benefit of and be
enforceable by the Executive’s legal representatives.

 

(b)                                 This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.

 

(c)                                  The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place.  As used in this Agreement, “the Company” shall mean
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.

 

12.                                 MISCELLANEOUS.  (a) This Agreement shall be
governed by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts, without reference to its principles of conflict of laws.  The
captions of this Agreement are not part of the provisions hereof and shall have
no force or effect.  This Agreement may not be amended or modified except by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.

 

(b)                                 All notices and other communications under
this Agreement shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:

 

If to the Executive:

 

Raymond R. Doherty

242 Cross Street

Belmont, Massachusetts 02178

 

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If to the Company:

 

HPSC, Inc.

60 State Street

Boston, Massachusetts 02109

 

or to such other address as either party furnishes to the other in writing in
accordance with this Section 12(b).  Notices and communications shall be
effective when actually received by the addressee.

 

(c)                                  The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.  If any provision of this Agreement shall
be held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall remain
valid and enforceable and continue in full force and effect to the fullest
extent consistent with law.

 

(d)                                 Notwithstanding any other provision of this
Agreement, the Company may withhold from amounts payable under this Agreement
all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.

 

(e)                                  The Executive’s or the Company’s failure to
insist upon strict compliance with any provisions of, or to assert any right
under, this Agreement (including, without limitation, the right of the Executive
to terminate employment for Good Reason pursuant to paragraph (c) of Section 4)
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.

 

(f)                                    The Executive and the Company acknowledge
that this Agreement supersedes any other agreement between them concerning the
subject matter hereof.

 

(g)                                 The rights and benefits of the Executive
under this Agreement may not be anticipated, assigned, alienated or subject to
attachment, garnishment, levy, execution or other legal or equitable process
except as required by law.  Any attempt by the Executive to anticipate,
alienate, assign, sell, transfer, pledge, encumber or charge the same shall be
void.  Payments hereunder shall not be considered assets of the Executive in the
event of insolvency or bankruptcy.

 

(h)                                 This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and said counterparts
shall constitute but one and the same instrument.

 

(i)                                     The obligations of the Company and the
Executive under Sections 5,  6, 7, 8, 9, 10, 11 and 13 shall survive the
expiration or termination for any reason of this Agreement.

 

13.                                 GROSS-UP PAYMENT

 

(a)                                  DEFINITIONS.

 

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“Code” means the Internal Revenue Code of 1986, as amended, and regulations and
proposed regulations thereunder.

 

“Excise Tax” means the excise tax imposed by Code Section 4999.

 

“Gross-Up Payment” means the additional amount to be paid by the Company under
this Agreement, as determined by paragraph (b) of this section.

 

“Payment” means any payment or benefit received or to be received by or on
behalf of the Executive pursuant to the terms of this Agreement or received or
to be received by or on behalf of the Executive pursuant to any plan or
arrangement or other agreement with the Company (or any affiliate of the Company
pursuant to the provisions of Code Section 280G(d)(5)).

 

“Tax Counsel” means the tax counsel selected by the Company and reasonably
acceptable to the Executive.

 

(b)                                 AMOUNT.

 

In the event that any Payment is (or is determined by Tax Counsel to be) subject
to the Excise Tax, the Company shall pay to or on behalf of the Executive at the
time specified in paragraph (c) of this section, a Gross-Up Payment determined
such that the net amount retained by the Executive, after deduction of (i) the
Excise Tax on all Payments, and (ii) any federal, state and local income tax and
Excise Tax upon the Gross-Up Payments provided for by this paragraph (b), and
(iii) any interest, penalties or additions to tax payable by the Executive with
respect thereto, shall be equal to the total present value (determined at a
discount rate of 7% compounded annually) of all of the Payments at the time such
Payments are to be made.  For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) (I) the total amount of the Payments shall be treated as “Parachute
Payments” within the meaning of Code Section 280G(b)(2), and (II) all “Excess
Parachute Payments” within the meaning of Code Section 280G(b)(1) shall be
treated as subject to the Excise Tax, except to the extent that, in the opinion
of Tax Counsel, a Payment (in whole or in part) does not constitute a “Parachute
Payment” within the meaning of Code Section 280G(b)(2), or such “Excess
Parachute Payments” (in whole or in part) are not subject to the Excise Tax,
(ii) the amount of the Payments that shall be treated as subject to the Excise
Tax shall be equal to the lesser of (I) the total amount of the Payments or (II)
the amount of “Excess Parachute Payments” within the meaning of Code Section
280G(b)(1) (after applying clause (i) hereof), and (iii) the value of any
non-cash benefits or any deferred payment or benefit shall be determined by Tax
Counsel in accordance with the principles of Code Sections 280G(d)(3) and (4). 
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation applicable to individuals in the calendar year in which
the Gross-Up Payment is to be

 

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made and state and local income taxes at the highest marginal rates of taxation
applicable to individuals as are in effect in the state and locality of his or
her residence in the calendar year in which the Gross-Up Payment is to bemade,
net of the maximum reduction in federal income taxes that can be obtained from
deduction of such state and local taxes, taking into account any limitations
applicable to individuals subject to federal income tax at the highest marginal
rate.

 

(c)                                  PAYMENT.

 

The Gross-Up Payments provided for in paragraph (b) of this section shall be
made upon the earlier of (i) the payment to the Executive of any Payment or (ii)
the imposition upon or payment by the Executive of any Excise Tax. 
Notwithstanding the foregoing, to the extent that the Company or Tax Counsel
determines that the Excise Tax or any portion of any Gross-Up Payment is
required to be withheld from the compensation of the Executive and to be
deposited with the applicable federal, state and local tax authorities, the
Company shall increase the amount of the Executive’s compensation by the
required amount of such withholding, and then shall withhold and pay all such
required withholding taxes to the appropriate tax authorities, and upon doing so
shall be deemed to have met the payment requirements of this paragraph. For
purposes of this section, if anyone other than the Executive is subjected to the
Excise Tax with respect to any Payments, such person shall be entitled to the
same Gross-Up Payments with respect to such Payment that the Executive would
have been entitled to under this section.

 

(d)                                 ADJUSTMENT.

 

If it is established pursuant to a final determination of a court or an Internal
Revenue Service proceeding or the opinion of Tax Counsel that the Excise Tax is
less than the amount taken into account under paragraph (b) of this section, the
Executive (or other payee, as the case may be) shall repay to the Company within
five days of his or her receipt of notice of such final determination or opinion
the portion of the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being repaid by him
or her if such repayment results in a reduction in Excise Tax or a federal,
state and local income tax deduction) plus any interest received by him or her
on the amount of such repayment.  If it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding or the
opinion of Tax Counsel that the Excise Tax exceeds the amount taken into account
under paragraph (b) of this section (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess within five days of the Company’s receipt of notice of such final
determination or opinion.

 

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and,
pursuant to the authorization of its Board, the Company has caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.

 

 

HPSC, INC.

 

 

 

 

By:

/s/  J. Kermit Birchfield

 

J. Kermit Birchfield

 

Chairman of the Compensation

 

Committee of the Board of Directors

 

 

/s/ Raymond R. Doherty

 

EXECUTIVE

 

13

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