Document:

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                                                                   Exhibit 10.27
                           MICROFINANCIAL INCORPORATED
                           RESTRICTED STOCK AGREEMENT

         This AGREEMENT, dated as of the 12th day of February, 2003 by and
between Microfinancial Incorporated, a Massachusetts corporation (the
"Corporation"), and [ ] (the "Restricted Stockholder").

                              W I T N E S S E T H:

         WHEREAS, the Restricted Stockholder is employed by the Corporation or a
related corporation, and is in a position to contribute materially to the
Corporation's continued growth, development and long-term financial success; and

         WHEREAS, pursuant to the terms of certain stock option agreements (the
"Original Option Agreements"), the Restricted Stockholder was awarded options to
purchase shares of common stock of Microfinancial Incorporated, $0.01 par value
per share (the "Original Options").

         WHEREAS, as of the date hereof, the exercise price of the Original
Options exceeds the current fair market value of the common stock of the
Corporation, $0.01 par value per share (the "Common Stock").

         WHEREAS, the Corporation has offered the Restricted Stockholder the
opportunity to cancel any of the outstanding Original Option Agreements in
exchange for a grant of shares of Common Stock.

         WHEREAS, the Restricted Stockholder has elected to cancel certain of
those Original Options and Original Option Agreements as set forth in Exhibit A
attached hereto.

         WHEREAS, in exchange for the canceled Original Option Agreements, the
Corporation wishes to issue to the Restricted Stockholder shares of the
Corporation's Common Stock subject to the restrictions set forth in this
Agreement.

         NOW THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:

          1.   GRANT OF RESTRICTED SHARES; CANCELLATION OF OPTION AGREEMENTS.

         (a) Pursuant to the provisions of the Microfinancial Incorporated 1998
Equity Incentive Plan (the "Plan"), effective as of February 12, 2003 (the "Date
of Grant"), the Corporation hereby grants to the Restricted Stockholder [ ]
shares of Common Stock (the "Restricted Shares"), subject to all of the terms
and conditions of this Agreement and the Plan. As more fully described below,
the shares granted hereby are subject to forfeiture by the Restricted
Stockholder if certain criteria are not satisfied.
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         (b) In consideration of the Restricted Stockholder's receipt of the
Restricted Shares, (i) the Original Options and the Original Option Agreements
set forth in Exhibit A attached hereto (each a "Cancelled Option" and "Cancelled
Option Agreement") are each hereby canceled and terminated as of the date hereof
and (ii) the Restricted Stockholder hereby releases and forever discharges the
Corporation, its affiliates and its predecessors from any and all manner of
actions, claims, obligations, damages and liabilities of any nature whatsoever,
whether or not now known, suspected or claimed, which the Restricted Stockholder
ever had, now has or hereafter may have or claim to have against the
Corporation, its affiliates or its predecessors by reason of any matter, cause,
effect or thing of any kind whatsoever that arose or occurred or may in the
future exist or occur relative to and/or arising out of the Cancelled Option
and/or the Cancelled Option Agreement.

          2.   VESTING PERIOD.

          (a) Vesting. The Restricted Shares shall vest and become
     nonforfeitable as set forth below (provided the Restricted Stockholder is
     employed by the Corporation at the time of vesting):

               (i) Twenty percent (20%) of the Restricted Shares shall vest and
          become nonforfeitable on the Grant Date; and

               (ii) Five percent (5%) of the Restricted Shares shall vest and
          become nonforfeitable on the first day of each calendar quarter after
          the Grant Date.

          (b) ADDITIONAL VESTING. In addition to the vesting schedule listed
      above, the Restricted Shares shall vest and become nonforfeitable in
      accelerated increments as follows (provided the Restricted Stockholder is
      employed by the Corporation at the time of vesting):

               (i) In the event that the Fair Market Value of Common Stock is
          above $1.00 but at or below $1.20 for five (5) consecutive trading
          days, ten percent (10%) of the Restricted Shares shall vest and become
          nonforfeitable as of the fifth day;

               (iii) In the event that the Fair Market Value of Common Stock is
          above $1.20 but at or below $1.60 for five (5) consecutive trading
          days, ten percent (10%) of the Restricted Shares shall vest and become
          nonforfeitable as of the fifth day;

               (iv) In the event that the Fair Market Value of Common Stock is
          above $1.60 but at or below $2.00 for five (5) consecutive trading
          days, twenty percent (20%) of the Restricted Shares shall vest and
          become nonforfeitable as of the fifth day;

               (v) In the event that the Fair Market Value of Common Stock is
          above $2.00 but at or below $3.00 for five (5) consecutive trading
          days, twenty percent (20%) of the Restricted Shares shall vest and
          become nonforfeitable as of the fifth day; and

                                      -2-
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               (vi) In the event that the Fair Market Value of Common Stock is
          above $3.00 for five (5) consecutive trading days, twenty percent
          (20%) of the Restricted Shares shall vest and become nonforfeitable as
          of the fifth day.

          (b)  TERMINATION OF EMPLOYMENT.

               (i) If the Restricted Stockholder ceases to be employed by the
          Corporation and its subsidiaries either voluntarily or involuntarily,
          with or without Cause, for any reason whatsoever other than upon the
          Restricted Stockholder's death or Total Disability, prior to the
          satisfaction of the vesting provisions set forth in this Section 2, no
          further portion of his or her Restricted Shares shall become vested
          pursuant to this Agreement and such unvested Restricted Shares shall
          be forfeited effective as of the date that the Restricted Stockholder
          ceases to be so employed by the Corporation. For purposes of this
          Section 2, employment shall be considered as (i) continuing
          uninterrupted during any bona fide leave of absence approved in
          writing by the Corporation (such as those attributable to illness),
          and (ii) continuing after any change of employment within or among the
          Corporation and its subsidiaries so long as the Restricted Stockholder
          continues to be an employee of the Corporation or any of its
          subsidiaries.

               (ii) If the Restricted Stockholder's employment is terminated as
          a result of his or her death or Total Disability, all Restricted
          Shares shall become vested and nonforfeitable as of the date
          employment is terminated.

     (c) ACCELERATION OF VESTING. Notwithstanding the foregoing, upon the
consummation of a transaction resulting in a Change in Control of the
Corporation, all unvested Restricted Shares shall become vested and
nonforfeitable immediately prior to the Change in Control, and all certificates
representing such Shares shall be delivered to the Restricted Stockholder upon
the Change in Control.

     3. NON-TRANSFERABILITY. Until the Restricted Shares shall be vested and
until the satisfaction of any and all other conditions specified herein, the
Restricted Shares may not be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of by the Restricted Stockholder.

     4. STOCK CERTIFICATES; DIVIDENDS AND STOCKHOLDER RIGHTS.

     (a) Custody of Restricted Shares; Legend. Certificates for Restricted
Shares shall be issued in the Restricted Stockholder's name and shall be held by
the Corporation until the Restricted Shares shall become vested. The Corporation
shall serve as attorney-in-fact for the Restricted Stockholder during the period
during which the Restricted Shares are unvested with full power and authority in
the Restricted Stockholder's name to assign and convey to the Corporation any
Restricted Shares held by the Corporation for the Restricted Stockholder if the
Restricted Stockholder forfeits the shares under the terms of the this Agreement
and the Plan. Certificates representing the Restricted Shares shall bear the
following legend:

     The Shares represented by this Stock Certificate have been granted as
     restricted stock under the Microfinancial Incorporated 1998 Equity
     Incentive Plan. The

                                      -3-

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     Shares represented by this Stock Certificate may not be sold, exchanged,
     assigned, transferred, pledged, hypothecated or otherwise encumbered or
     disposed of unless the restrictions set forth in the Restricted Stock
     Agreement between the registered holder of these Shares and Microfinancial
     Incorporated shall have lapsed.

     Upon the vesting of the Restricted Shares, the Corporation shall so notify
the Secretary of the Corporation and the Secretary shall obtain from the
Corporation certificates representing all such shares that have vested, which
certificates shall not bear any restrictive endorsement making reference to this
Agreement, and shall deliver such certificates to the Restricted Stockholder.

     (b) RIGHTS AND OBLIGATIONS. Upon the issuance of a certificate or
certificates representing the Restricted Shares, the Restricted Stockholder
shall thereupon be a stockholder and, subject to the provisions of Section 2
hereof, have all the rights of a stockholder with respect to such Restricted
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Restricted Shares; provided,
however, that such Restricted Shares and any new, additional or different
securities the Restricted Stockholder may become entitled to receive with
respect to such Restricted Shares by virtue of a stock split, dividend or other
change in the corporate or capital structure of the Corporation shall be subject
to the vesting and forfeiture provisions, restrictions on transfer and other
restrictions set forth in this Agreement and the Plan.

     5. SHARE ADJUSTMENTS. In the event of any stock dividend, stock split,
combination or exchange of shares, merger, consolidation, spin-off or other
distribution (other than normal cash dividends) of the Corporation assets to
stockholders, or any other change affecting shares of the Corporation's
capitalization, the Compensation Committee of the Corporation's Board of
Directors in its discretion may make such adjustments as it may deem appropriate
to reflect such change or to fairly preserve the intended benefits of the Plan.

     6. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement shall confer
upon the Restricted Stockholder any right with respect to continuance of
employment by the Corporation or any of its subsidiaries, nor shall it interfere
in any way with the right of the employer to terminate the Restricted
Stockholder's employment at any time.

     7. RESTRICTED STOCKHOLDER BOUND BY PLAN. The Restricted Stockholder hereby
acknowledges receipt of a copy of the Plan and agrees to be bound by all the
terms and provisions thereof. In the event of any conflict between the
provisions of this Agreement and the provisions of the Plan, the provisions of
the Plan shall control.

     8. SECTION 83(b) ELECTION. If the Restricted Stockholder files an election
with the Internal Revenue Service to include the fair market value of any
Restricted Shares in gross income as of the Date of Grant, the Restricted
Stockholder agrees to promptly furnish the Corporation with a copy of such
election, together with the amount of any federal, state, local or other taxes
required to be withheld to enable the Corporation to claim an income tax
deduction with respect to such election.

                                      -4-
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     9. WITHHOLDING TAXES. The Restricted Stockholder acknowledges that the
Corporation is not responsible for the tax consequences to the Restricted
Stockholder of the granting or vesting of the Restricted Shares, and that it is
the responsibility of the Restricted Stockholder to consult with the Restricted
Stockholder's personal tax advisor regarding all matters with respect to the tax
consequences of the granting and vesting of the Restricted Shares. The
Corporation shall have the right to deduct from the Restricted Shares or any
payment to be made with respect to the Restricted Shares any amount that
federal, state, local or foreign tax law required to be withheld with respect to
the Restricted Shares or any such payment. Alternatively, the Corporation may
require that the Restricted Stockholder, prior to or simultaneously with the
Corporation incurring any obligation to withhold any such amount, pay such
amount to the Corporation in cash or in shares of the Corporation's Common Stock
(including shares of Common Stock retained from the Restricted Stock Award
creating the tax obligation), which shall be valued at the Fair Market Value of
such shares on the date of such payment. In any case where it is determined that
taxes are required to be withheld in connection with the issuance, transfer or
delivery of the shares, the Corporation may reduce the number of shares so
issued, transferred or delivered by such number of shares as the Corporation may
deem appropriate to comply with such withholding. The Corporation may also
impose such conditions on the payment of any withholding obligations as may be
required to satisfy applicable regulatory requirements under the Exchange Act.

     10. NOTICES. Any notice hereunder to the Corporation shall be addressed to
it at its principal business office, 950 Winter Street, Waltham, MA 02451 and
any notice hereunder to the Restricted Stockholder shall be sent to the address
reflected on the payroll records of the Corporation, subject to the right of
either party to designate at any time hereafter in writing some other address.

     11. GOVERNING LAW. This Agreement shall be construed and administered in
accordance with and governed by the laws of the Commonwealth of Massachusetts.

     12. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.

     13. ENTIRE AGREEMENT. This Agreement, together with the Plan, contains the
entire understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. This Agreement may not be modified or amended, other
than by an agreement in writing signed by the parties. Notwithstanding the
foregoing, nothing herein shall limit the application of any generally
applicable Corporation policy, practice, plan or the terms of any manual or
handbook applicable to the Corporation's employees generally, except to the
extent the foregoing directly conflict with this Agreement, in which case the
terms of this Agreement shall prevail.

     14. SEVERABILITY. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby, and each provision of this Agreement shall be enforced to the
fullest extent permitted by law.
                                      -5-

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     15. WAIVERS. Any waiver by the Corporation of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of such provision or any other provision hereof.

     16. DEFINED TERMS. Capitalized terms used but not defined in this Agreement
will have the meanings specified in the Plan.

                                      -6-

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     IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer and the Restricted Stockholder has
executed this Agreement as of the date set forth above.

                                     MICROFINANCIAL INCORPORATED

                                     By: -----------------------------

                                     RESTRICTED STOCKHOLDER

                                     ---------------------------------

                 [Signature page to Restricted Stock Agreement]

                                      -7-

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                                    EXHIBIT A

                CANCELLED OPTIONS AND CANCELLED OPTION AGREEMENTS

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                  Grant       Strike     Number of     Current         Number
                  Date        Price       Options      Value(1)        Vested
Grantee
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--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

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(1) Based on Black-Scholes stock option pricing model.

                                      -8-

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                               LIST OF RECIPIENTS

                                    Date Of                 Shares
Grantee                              Grant                  Granted
--------------------------------------------------------------------------------
Elaine Shuttleworth                 02/14/03                 1,306
Mark Belinsky                       02/14/03                 3,180
Robert Gangi                        02/14/03                   643
Andrea Gallager                     02/14/03                15,079
Carol Salvo                         02/14/03                49,916
Charles Hede                        02/14/03                 2,984
Elizabeth Marble                    02/14/03                 9,746
John Plumlee                        02/14/03                49,916
Kathy Femia                         02/14/03                 9,746
Stephen Constantino                 02/14/03                39,442
Stephen Moore                       02/14/03                11,139
Steven LaCreta                      02/14/03                25,815
James Jackson                       02/14/03                85,558
Alan Zakon                          03/17/03                50,000
Fritz von Mering                    02/04/04                25,000

                                      -9-Ex-10.7 Change in Control Severance Agreement

 

EXHIBIT 10.7

Change in Control Severance Agreement with Raymond C. Kubacki, Jr.

dated November 17, 2003

                                                  November 17, 2003

CONFIDENTIAL

Mr. Raymond C. Kubacki, Jr.

c/o Psychemedics Corporation

1280 Massachusetts Avenue

Suite 200

Cambridge, MA 02138

Dear Ray:

     This letter sets forth the agreements we have made regarding your
employment with Psychemedics Corporation (the “Company”).

	1.	 	If after the effective date hereof, your employment is
terminated by the Company without “Cause” (as defined in paragraph
13 below), or you voluntarily terminate your employment for “Good
Reason” (as defined in paragraph 13 below), in either case at the
time of, or within twelve (12) months following, a “Change of
Control of the Company” (as defined in paragraph 13 below), then you
will continue to be paid monthly an amount equal to your average
monthly compensation for the twelve full months preceding the date
of such termination (“Termination Pay”) for a period of twelve (12)
months from the date of such termination, provided that in the case
of your voluntary termination of your employment for the “Good
Reason” defined in clause (iv) of paragraph 13(d) below, then such
Termination Pay shall be for a period of six (6) months from the
date of termination. For purposes of the foregoing sentence,
average monthly compensation shall be determined with reference to
the aggregate base salary and bonus compensation earned by you
during such period, including any bonus compensation accrued for
such period or any portion of such period but not paid as of the
date of such termination). Your Termination Pay will be subject to
normal deductions for taxes, benefit plan contributions, other
payroll deductions and any amount due the Company as a result of
cash advances. The Company agrees to continue to make health
insurance available to you, under such health insurance plan as the
Company has in effect, for twelve months so long as you contribute
such portion of the premiums for such insurance as is required of
employees under such plan. You agree, however, that if you obtain
health insurance coverage through another employer while you are
eligible to receive health insurance under this Agreement, the
Company shall no longer be required to make health insurance
available to you under this Agreement. You agree to give the Company
at least fourteen (14) days prior written notice of the termination
of your employment in the

 

 

	 	 	event of your voluntary termination without Good Reason. You shall
not be entitled to Termination Pay as a result of termination by
reason of your death or “Disability” (as defined in paragraph 13
below) following a Change of Control of the Company.

	2.	 	Notwithstanding any other provision of this Agreement, the
Termination Pay contemplated to be paid to you under certain
circumstances set forth in this Agreement shall only be paid in
consideration of the execution and delivery by you of a release
reasonably satisfactory to the Company waiving all claims you, your
heirs, or legal representatives have or may have against the Company
or any of its shareholders, officers, directors, employees or agents
with respect to your employment or the termination thereof, or any
other claim.
	 
	3.	 	You acknowledge that, as the Company’s Chief Executive
Officer, you are in possession of specialized information concerning
the total operations, conduct, management, and strategy of the
Company, as well as proprietary information concerning the Company’s
products and services and that the applicability of your knowledge
of these matters is applicable to all geographic areas in which the
Company does business. You further acknowledge that the Company has
a legitimate business interest in protecting its hair testing
business from unfair competition.
	 
	4.	 	You shall not, without the prior and express written approval
of the Company, either during or subsequent to the term of your
employment, disclose or use or enable another to disclose or use any
secret, private or confidential information, trade secret or other
proprietary knowledge of the Company, or its subsidiaries,
divisions, employees or agents. Upon termination of your employment
with the Company, you shall deliver to the Company all equipment,
records and copies of records, notes, data, memoranda, prototypes,
designs, customer lists and other information which is embodied in
physical media and documents belonging to the Company which are then
in your possession. You agree that all such information and
documents shall be the property of the Company and that the
obligations set forth in this paragraph shall survive termination of
your employment.
	 
	5.	 	You agree that, if you or the Company shall terminate your
employment in such a manner as to entitle you to Termination Pay
under paragraph 1, above, you shall not, for so long as you are
entitled to receive such Termination Pay:
	 
	 	 	(a) directly or indirectly own, manage, operate or control, or
participate in the ownership, management, operation or control of,
or become associated in any capacity with any business enterprise,
firm, corporation or company related to the field of testing for
the detection of drug use, which is in competition with the
business of the Company, or directly or indirectly accept
employment with or render services on behalf of a competitor of the
Company, or any other third party, in any capacity which may
reasonably be considered to be useful to the competitor or such

 

 

	 	 	Other third party to become a competitor, without receiving the
Company’s prior written approval; or
	 
	 	 	(b) induce or attempt to induce any employee, officer, consultant,
or agent of the Company to leave the employ thereof or in any way
interfere with the relationship between the Company and any
employee, officer, consultant, or agent thereof; hire directly or
through another entity any person who was an employee of the
Company at any time during the six (6) months prior to the date
such person is to be so hired; or induce or attempt to induce any
customer, client, supplier, licensee, or other business relation of
the Company to cease doing business with the Company or in any way
interfere with the relationship between any such customer, client,
supplier, licensee, or business relation and the Company
(including, without limitation, making any negative statements or
communications concerning the Company).
	 
	6.	 	You agree that your obligations under paragraphs 4, and 5 are
special, unique, and extraordinary and that any breach by you of
such obligations shall be deemed material, and shall be deemed to
cause irreparable injury not properly compensable by damages in an
action at law, and the rights and remedies of the Company under
paragraphs 4, and 5 may, therefore, be enforced both at law and in
equity, by injunction or otherwise. For purposes of paragraphs 4,
and 5, the term “Company” shall include any and all subsidiaries or
divisions of the Company.
	 
	7.	 	The Company’s obligations under paragraph 1 of this Agreement
shall expire five (5) years from the date hereof, unless the parties
agree in writing to the renewal of the provisions of such paragraph.
All of the remaining provisions of this Agreement shall remain in
full force and effect during the term of your employment and
thereafter in accordance with their terms.
	 
	8.	 	If at any time a controversy between you and the Company
arises as to the meaning or operation of this Agreement, such
controversy shall be submitted to arbitration by either party in
Boston, Massachusetts, before an arbitrator to be named by the
President of the Boston Branch of the American Arbitration
Association, provided however, that the Company shall also have the
rights set forth in paragraph 6 above. Such arbitration proceedings
shall be conducted in accordance with the rules and procedures then
in effect of the American Arbitration Association. The decision of
the arbitrator shall be binding upon the parties and judgment on any
award made by the arbitrator may be entered in any court having
jurisdiction thereof. The costs of the arbitrator shall be borne
equally by you and the Company. Each party will bear his or its own
legal costs.
	 
	9.	 	This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts
without reference to principles of conflict of laws.

 

 

	10.	 	This Agreement contains the entire agreement of the parties
in respect of this transaction and supersedes any prior agreement or
understanding relating to your employment by the Company. No
amendment or modification of any provision of this Agreement will be
valid unless in writing signed by both parties. Any waiver must be
in writing and signed by you or an authorized officer of the
Company, as the case may be.
	 
	11.	 	This Agreement shall be binding upon and inure to the benefit
of: (a) the Company, and any successors or assigns of the Company,
whether by way of a merger or consolidation, or liquidation of the
Company, or by way of the Company selling all or substantially all
of the assets and business of the Company to a successor entity;
and, subject to the Company’s right to terminate your employment at
any time, the Company agrees to require any successor entity to
expressly assume or unconditionally guarantee the Company’s
obligations under this Agreement (unless such obligations are
assumed by operation of law); and (b) you and your heirs, executors
and administrators.
	 
	12.	 	Any notice or other communication required hereunder shall be
in writing, shall be deemed to have been given and received when
delivered in person, or, if mailed, shall be deemed to have been
given when deposited in the United States mail, first class,
registered or certified, return receipt requested, with proper
postage prepaid, and shall be deemed to have been received on the
third business day thereafter, and shall be addressed as follows:

If
to the Company, addressed to:

Psychemedics Corporation

1280 Massachusetts Avenue

Suite 200

Cambridge, MA 02138

Attn: General Counsel

If
to you, addressed to:

Raymond C. Kubacki, Jr.

Psychemedics Corporation

1280 Massachusetts Avenue

Suite 200

Cambridge, MA 02138

	 	 	or such other address as to which any party hereto may have
notified the other in writing.

	13.	 	Definitions.
	 
	 	 	(a) “Cause” shall mean: (i) theft or embezzlement, or attempted
theft or embezzlement, by you of money or property of the Company,
your perpetration or attempted perpetration of fraud, or your
participation in a

 

 

	 	 	fraud or attempted fraud upon the Company; (ii) your unauthorized
appropriation of, or attempt to misappropriate, any tangible or
intangible assets or property of the Company, or your appropriation
of, or attempt to appropriate, a business opportunity of the
Company, including but not limited to attempting to secure or
securing any profit for yourself or any of your family members or
personal associates in connection with any transaction entered into
on behalf of the Company; (iii) any act or acts of disloyalty,
misconduct, or moral turpitude by you, including but not limited to
violation of the Company’s sexual harassment or non-harassment
policy, any of which the Board of Directors of the Company
determines in good faith has been or is likely to be materially
injurious to the interest, property, operations, business, or
reputation of the Company, or its directors, employees or
shareholders; (iv) any act or omission constituting gross
negligence in connection with the performance of your duties on
behalf of the Company which is materially injurious to the
interest, property, operations, business, or reputation of the
Company; (v) your conviction of a crime other than minor traffic
violations or other similar minor offenses (including pleading
guilty or entering a plea of no contest), or your indictment for a
felony or its equivalent, or your being charged with a violent
crime, a crime involving moral turpitude, or any other crime for
which imprisonment is a possible punishment; (vi) your willful
refusal or material failure (other than by reason of Disability) to
carry out reasonable and lawful instructions and directives from
the Board of Directors and your failure to cure or correct such
refusal or failure within ten (10) days after receiving written
notice from the Board of Directors describing such refusal or
failure; or (vii) the material breach by you of your obligations
under paragraphs 4, or 5 hereof or under any other confidentiality,
non-compete, non-solicitation, non-disparagement or similar
agreement with the Company.
	 
	 	 	(b)“Change in Control of the Company” shall mean

	 	 	(i) the number of shares of Common Stock directly or
indirectly beneficially owned, as defined in Rule 13d-3 under
the Securities Exchange Act of 1934 (the “Exchange Act”), by
the Buyers and Permitted Assignees (as defined in the
Securities Purchase Agreement dated May 15, 1989, as amended
from time to time, by and among the Company, A. Clinton
Allen, H. Wayne Huizenga, Donald F. Flynn, Beverly L. Flynn,
Patricia A. Flynn as Trustee, MW Partners and Psychemedics
Investments, Inc. as nominee), and the spouses or children of
any of the foregoing, and trusts for the benefit of any of
the foregoing or for the benefit of any partner or former
partner in MW Partners (collectively the “Principal 1989
Shareholders”), in the aggregate, is less than the aggregate
number of shares of Common Stock directly or indirectly
beneficially owned (as defined above) at any time by any
other person or group (as defined in Section 13(d) of the
Exchange Act); or
	 
	 	 	(ii) the consummation of a reorganization, merger or
consolidation

 

 

	 	 	or sale or disposition of all or substantially all of the
assets of the Company (a “Business Combination”), unless, in
each case following such Business Combination, (A) all or
substantially all of the individuals and entities who were
the beneficial owners of the Common Stock of the Company
immediately before the consummation of such Business
Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the
corporation resulting from such Business Combination
(including, without limitation, a corporation that as a
result of the transaction owns the Company or all or
substantially all of the assets of the Company either
directly or indirectly through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Common
Stock of the Company; and (B) no person or group (as defined
in Section 13(d) of the Exchange Act) of the Company or the
corporation resulting from the Business Combination)
beneficially owns, directly or indirectly, a number of the
then outstanding shares of the common stock of the
corporation resulting from the Business Combination or the
combined voting power of the then outstanding voting
securities of the corporation greater than the number of such shares owned by the Principal 1989 Shareholders; or
	 
	 	 	(iii) Individuals who, as of the date of this Agreement,
constitute the Board of Directors of the Company (the
“Incumbent Board”) cease for any reason to constitute at
least a majority of the Board of Directors of the
Company, provided, however, that any individual’s
becoming a director after the date of this Agreement
whose election, or nomination for election by the
stockholders of the Company, was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board will be considered as though the
individual were a member of the Incumbent Board, but
excluding, for this purpose, any individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election
or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board.

	 	 	(c) “Disability” shall mean your inability because of physical or
mental incapacity to perform your usual duties at the Company for a
period of one hundred eighty (180) days in any consecutive twelve
(12) month period.
	 
	 	 	(d) “Good Reason” shall mean: (i) reduction in your base salary
below $275,000 or such higher base salary as is in effect
immediately prior to

 

 

	 	 	such reduction; (ii) removal from your position as President of
the Company, or failure to re-elect or reappoint you to such
position or, if the Company shall no longer exist as a result of
the Change of Control, failure to elect or appoint you to the
position of President of the division or separate entity succeeding
to the business of the Company; (iii) a material decrease in your
duties or responsibilities or the assignment to you of duties and
responsibilities, which are materially inconsistent with such
position; or (iv) the Company’s requiring you to relocate your work
location outside the Greater Boston, Massachusetts area.

     If this letter correctly sets forth our understanding and agreement,
please indicate your acceptance by signing both copies of this letter and
returning one copy.

	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 
	 	 	PSYCHEMEDICS CORPORATION
	 
	 	 	 	 
	 

	 	By:
	 	/s/ A. Clinton Allen
	 

	 	 	 	

	 

	 	 	 	A. Clinton Allen, Chairman of the Board

Agreed to: November 17, 2003

 

/s/ Raymond C. Kubacki, Jr.

Raymond C. Kubacki, Jr.

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