Document:

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Exhibit 10.1

PSYCHEMEDICS CORPORATION

2006 EQUITY INCENTIVE PLAN

     1. Establishment, Objectives and Duration

     A. Establishment of the Plan. Effective March 22, 2006 (the “Effective Date”),
Psychemedics Corporation, a Delaware corporation (hereinafter referred to as the “Company”),
established an incentive compensation plan known as the Psychemedics Corporation 2006 Equity
Incentive Plan (hereinafter referred to as the “Plan”), as set forth in this document.

     B. Purpose. The purpose of the Plan is to encourage key employees of the
Company and of any present or future parent or subsidiary of the Company (collectively,
“Related Corporations”) and other individuals who render services to the Company or a
Related Corporation (collectively “Participants”), by providing opportunities to participate
in the ownership of the Company and its future growth through (a) the grant of options which
qualify as “incentive stock options” (“ISOs”) under Section 422(b) of the Internal Revenue
Code of 1986, as amended (the “Code”); (b) the grant of options which do not qualify as ISOs
(“Non-Qualified Options”); (c) the issuance of the Company’s Common Stock, par value $.005
per share (“Common Stock”) subject to restrictions and to possible forfeiture upon the
occurrence of specified events (“Restricted Stock”); (d) awards of shares of Common Stock
(“Stock Bonus Awards”); or (e) other stock-based awards that may be denominated or payable
in, valued in whole or in part by reference to or otherwise based on the Common Stock,
including, but not limited to performance units, stock appreciation rights (payable in
shares), restricted stock units or dividend equivalents, each of which may be subject to
certain vesting requirements or to the attainment of certain pre-established performance
goals (hereinafter referred to collectively as “Other Stock-based Awards”). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an “Option” and collectively
as “Options.” Options, Restricted Stock, Stock Bonus Awards and Other Stock Based Awards
are referred to hereafter collectively as “Awards.” As used herein, the terms “parent” and
“subsidiary” mean “parent corporation” and “subsidiary corporation,” respectively, as those
terms are defined in Section 424 of the Code 

     C. Prior Plan Superseded. Subject to shareholder approval of this Plan at the
Company’s 2006 Annual Stockholders’ Meeting, this Plan is intended to replace and supersede
the Company’s 2000 Stock Option Plan as amended (the “Prior Plan”), provided, however that
each outstanding option under the Prior Plan shall remain in full force and effect in
accordance with the terms of the option agreement evidencing such option as in effect on the
Effective Date, and

 

 

provided further however, that in the event this Plan is not so approved by the
stockholders of the Company, then the 2000 Stock Option Plan shall remain in existence.

     D. Duration of the Plan. The Plan commenced on the Effective Date and shall
remain in effect, subject to the right of the Board of Directors to amend or terminate the
Plan at any time pursuant to paragraph 11 hereof, until all shares subject to it shall have
been purchased or acquired according to the Plan’s provisions.

     2. Administration of the Plan.

     A. Board or Committee Administration. The Plan shall (be administered by the
Board of Directors of the Company (the “Board”) or, subject to paragraph 2(D) (relating to
compliance with Section 162(m) of the Code), by a committee appointed by the Board (the
“Committee”). Hereinafter, all references in this Plan to the “Committee” shall mean the
Board if no Committee has been appointed. Subject to ratification of the grant or
authorization of each Award by the Board (if so required by applicable state law), and
subject to the terms of the Plan, the Committee shall have the authority to:

     1. construe and interpret the Plan, any written agreement evidencing an Award
(an “Award Agreement”) and any other agreement or document executed pursuant to the
Plan;

     2. prescribe, amend and rescind rules and regulations relating to the Plan or
any Award, including determining the forms and agreements used in connection with
the Plan; provided that the Committee may delegate to the President the authority to
approve revisions to the forms and agreements used in connection with the Plan that
are designed to facilitate Plan administration, and that are not inconsistent with
the Plan or with any resolutions of the Committee relating to the Plan;

     3. select persons to receive Awards;

     4. determine the terms of Awards;

     5. determine the number of Shares or other consideration subject to Awards;

     6. determine whether Awards will be granted singly, in combination, or in
tandem with, in replacement of, or as alternatives to, other Awards under the Plan
or any other incentive or compensation plan of the Company;

     7. grant waivers of Plan or Award conditions;

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     8. determine the vesting, exercisability, transferability, and payment of
Awards;

     9. correct any defect, supply any omission, or reconcile any inconsistency in
the Plan, any Award or any Award Agreement;

     10. determine whether an Award has been earned;

     11. amend the Plan; or

     12. make all other determinations necessary or advisable for the administration
of the Plan.

     The interpretation and construction by the Committee of any provisions of the Plan or
of any Award granted under it shall be final unless otherwise determined by the Board. No
member of the Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Award granted under it.

     B. Committee Actions. The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as it may determine. A majority
of the Committee shall constitute a quorum and acts of a majority of the members of the
Committee at a meeting at which a quorum is present, or acts reduced to or approved in
writing by all the members of the Committee (if consistent with applicable state law), shall
be the valid acts of the Committee. From time to time the Board may increase the size of
the Committee and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan.

     C. Grant of Awards to Board Members. Awards may be granted to members of the
Board. All grants of Awards to members of the Board shall in all respects be made in
accordance with the provisions of this Plan applicable to other eligible persons. Members
of the Board who either (i) are eligible to receive grants of Awards pursuant to the Plan or
(ii) have been granted Awards may vote on any matters affecting the administration of the
Plan or the grant of any Awards pursuant to the Plan, except that no such member shall act
upon the granting to himself or herself of Awards, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during which action is
taken with respect to the granting to such member of Awards.

     D. Performance-Based Compensation. The Board, in its discretion, may take such
action as may be necessary to ensure that Awards granted under the Plan qualify as
“qualified performance-based compensation” within the meaning of Section 162(m) of the Code
and applicable regulations promulgated thereunder (“Performance-Based Compensation”). Such
action may include, in

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the Board’s discretion, some or all of the following (i) if the Board determines that
Awards granted under the Plan generally shall constitute Performance-Based Compensation, the
Plan shall be administered, to the extent required for such Awards to constitute
Performance-Based Compensation, by a Committee consisting solely of two or more “outside
directors” (as defined in applicable regulations promulgated under Section 162(m) of the
Code) and (ii) Awards granted under the Plan may be subject to such other terms and
conditions as are necessary for compensation recognized in connection with the exercise or
disposition of such Award or the disposition of Common Stock acquired pursuant to such
Award, to constitute Performance-Based Compensation.

     E. Section 409A of the Code. The Committee, in its discretion, may take such
action as may be necessary to ensure that Awards granted under the Plan are in compliance
with, or are exempt from, the provisions of Section 409A of the Code. This Agreement and
the Plan shall be administered in a manner consistent with this intent, and any provision
that would cause the Plan or any agreement granting an Award under the Plan to fail to
satisfy Section 409A of the Code shall have no force or effect until amended to comply with
Section 409A of the Code (which amendment may be retroactive to the extent permitted by
Section 409A of the Code and may be made by the Committee without the consent of the
Grantee).

     3. Eligible Employees and Others. ISOs may be granted only to employees of the
Company or any Related Corporation. Awards other than ISO may be granted to any employee, officer
or director (whether or not also an employee) or consultant of the Company or any Related
Corporation. The Committee may take into consideration a Participant’s individual circumstances in
determining whether to grant an Award. The granting of any Award to any individual or entity shall
neither entitle that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Awards.

     4. Stock.

     A. Aggregate Limit. The stock subject to Awards shall be authorized but
unissued shares of Common Stock, or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan is
250,000, subject to adjustment as provided in paragraph 10. If any Option granted
under the Plan shall expire or terminate for any reason without having been exercised in
full or shall cease for any reason to be exercisable in whole or in part or shall be
repurchased by the Company, or if restricted shares of Common Stock or other Award issued
under the Plan subject to a vesting schedule shall be repurchased by the Company or canceled
prior to being fully vested, the shares of Common Stock subject to such Option that are
unpurchased, the restricted shares of Common Stock that are repurchased, or the shares
subject to the other Award that is canceled as the case may be, shall again be available for
grants of Awards under the Plan.

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     B. Per Person Limit. No employee of the Company or any Related Corporation may
be granted Awards covering, in the aggregate, more than 100,000 shares of Common Stock under
the Plan during any fiscal year of the Company.

     C. Adjustment of Shares. If the number of outstanding shares of Common Stock
is changed by a stock dividend, recapitalization, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the capital structure of the
Company, without consideration, then (a) the number of shares of Common Stock reserved for
issuance under the Plan set forth in subparagraph A , (b) the exercise prices of and number
of shares of Common Stock subject to outstanding Options and Other Stock-Based Awards, (c)
the 250,000 maximum number of shares that may be issued under the Plan, and (d) the 100,000
maximum number of shares that may be issued to an individual in any one calendar year set
forth in subparagraph B, will be proportionately adjusted, subject to any required action by
the Board or the stockholders of the Company and compliance with applicable securities laws;
provided that fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the fair market value of such fraction of a Share or will be rounded up to
the nearest whole Share, as determined by the Committee; and provided further that the
Exercise Price of any Option may not be decreased to below the par value of the Shares.

     5. Granting of Awards. Awards may be granted under the Plan at any time on or after
the Effective Date. The date of grant of an Award under the Plan will be the date specified by the
Committee at the time it grants the Award; provided, however, that such date shall not be prior to
the date on which the Committee acts to approve the grant.

     6. Options.

     A. General. Options shall be evidenced by instruments (which need not be
identical) in such forms as the Committee may from time to time approve. Such instruments
shall conform to the terms and conditions set forth in this paragraph 6 and may contain such
other provisions as the Committee deems advisable which are not inconsistent with the Plan,
including restrictions applicable to shares of Common Stock issuable upon exercise of
Options. The Committee may specify that any Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination and
cancellation provisions as the Committee may determine.

     B. Exercise Price for Options. The exercise price per share specified in the
agreement relating to each Option granted under the Plan shall not be less than the fair
market value per share of Common Stock on the date of such grant. In the case of an ISO to
be granted to an employee owning stock possessing

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more than ten percent (10%) of the total combined voting power of all classes of stock
of the Company or any Related Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than one hundred ten percent (110%) of the fair
market value per share of Common Stock on the date of grant. For purposes of determining
stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply.

     C. $100,000 Annual Limitation on ISO Vesting. Each eligible employee may be
granted Options treated as ISOs only to the extent that, in the aggregate under this Plan
and all incentive stock option plans of the Company and any Related Corporation, ISOs do not
become exercisable for the first time by such employee during any calendar year with respect
to stock having a fair market value (determined at the time the ISOs were granted) in excess
of $100,000. The Company intends to designate any Options granted in excess of such
limitation as Non-Qualified Options, and the Company shall issue separate certificates to
the optionee with respect to Options that are Non-Qualified Options and Options that are
ISOs.

     D. Determination of Fair Market Value. The “fair market value” of the
Company’s Common Stock shall be determined as of the trading day next preceding the date of
grant and shall mean (i) the average (on that date) of the high and low prices of the Common
Stock on the principal national securities exchange on which the Common Stock is traded, if
the Common Stock is then traded on a national securities exchange; or (ii) the last reported
sale price (on that date) of the Common Stock on the Nasdaq Stock Market, if the Common
Stock is not then traded on a national securities exchange; or (iii) the closing bid price
(or average of bid prices) last quoted (on that date) by an established quotation service
for over-the-counter securities, if the Common Stock is not reported on the Nasdaq Stock
Market. If the Common Stock is not publicly traded at the time an Option is granted under
the Plan, “fair market value” shall mean the fair value of the Common Stock as determined by
the Committee after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm’s length.

     E. Option Duration. Subject to earlier termination as provided in
subparagraphs G and H below or in the agreement relating to such Option, each Option shall
expire on the date specified by the Committee, but not more than (i) ten years from the date
of grant in the case of Options generally and (ii) five years from the date of grant in the
case of ISOs granted to an employee owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any Related
Corporation.

     F. Exercisability of Options. Each Option granted under the Plan shall be
exercisable as follows:

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     1. Vesting. The Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.

     2. Full Vesting of Installments. Once an installment becomes
exercisable, it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.

     3. Partial Exercise. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable.

     4. Acceleration of Vesting. The Committee shall have the right to
accelerate the date that any installment of any Option becomes exercisable; provided
that the Committee shall not, without the consent of an optionee, accelerate the
permitted exercise date of any installment of any Option granted to any employee as
an ISO if such acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code.

     G. Termination of Employment. Unless otherwise specified in the agreement
relating to such ISO, if an ISO optionee ceases to be employed by the Company and all
Related Corporations other than by reason of death or disability as those terms are defined
below, no further installments of his or her ISOs shall become exercisable, and his or her
ISOs shall terminate on the date of termination of his or her employment. For purposes of
this subparagraph G, employment shall be considered as continuing uninterrupted during any
bona fide leave of absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee’s right to reemployment is guaranteed by
statute or by contract. A bona fide leave of absence with the written approval of the
Committee shall not be considered an interruption of employment under this subparagraph G,
provided that such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment within or
among the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan shall be deemed to
give any grantee of any Option the right to be retained in employment or other service by
the Company or any Related Corporation for any period of time.

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     H. Death; Disability. Unless otherwise specified in the agreement relating to
such ISO, if an ISO optionee ceases to be employed by the Company and all Related
Corporations by reason of his or her death, permanent and total disability (as defined in
Section 22(c)(3) of the Code or any successor statute), any ISO owned by such optionee may
be exercised, to the extent otherwise exercisable on the date of such death, or permanent
and total disability, by the optionee, or if he or she is not living, by his or her estate,
personal representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, until the earlier of (i) the specified expiration date of the ISO
or (ii) one year from the date of termination of employment.

     I. Assignability. No ISO shall be assignable or transferable by the optionee
except by will or by the laws of descent and distribution, and during the lifetime of the
optionee shall be exercisable only by such optionee. Non-Qualified Options shall be
transferable to the extent set forth in the agreement relating to such Non-Qualified Option.

     J. Exercise of Options. An Option (or any part or installment thereof) shall
be exercised by giving written notice to the Company at its principal office address, or to
such transfer agent as the Company shall designate. Such notice shall identify the Option
being exercised and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor either (a) in United States
dollars in cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the exercise to
the cash exercise price of the Option, (c) at the discretion of the Committee and consistent
with applicable law, by delivery of the grantee’s personal recourse note bearing interest
payable not less frequently than annually at a rate not less than 100% of the lowest
applicable Federal rate, as defined in Section 1274(d) of the Code and secured by such
collateral as may be required by the Committee, (d) at the discretion of the Committee and
consistent with applicable law, through the delivery of an assignment to the Company of a
sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise
of the Option and an authorization to the broker or selling agent to pay that amount to the
Company, which sale shall be at the optionee’s direction at the time of exercise, or (e) at
the discretion of the Committee, by any combination of (a), (b), (c) and (d) above. If the
Committee exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c), (d) or (e) of the preceding sentence,
such discretion shall be exercised in writing at the time of the grant of the ISO in
question. The holder of an Option shall not have the rights of a shareholder with respect
to the shares covered by such Option until the date of issuance of a stock certificate to
such holder for such shares. Except as expressly provided above in paragraph 4(C) with
respect to changes in capitalization, no adjustment shall be made for dividends or similar
rights for which the record date is before the date such stock certificate is issued.

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     7. Restricted Stock. Restricted Stock awards shall be evidenced by written agreements
(which need not be identical) in such forms as the Committee may from time to time approve, which
shall set forth the number of shares of Common Stock awarded, the restrictions imposed thereon
(which may include, without limitation, restrictions on the right of the grantee to sell, assign,
transfer or encumber shares while such shares are subject to other restrictions imposed under this
paragraph 7), the duration of such restrictions; the events (which may, in the discretion of the
Committee, include performance-based events or objectives) the occurrence of which would cause a
forfeiture of the Restricted Stock in whole or in part; and such other terms and conditions as the
Committee in its discretion deems appropriate. If so determined by the Committee at the time of an
award of Restricted Stock, the lapse of restrictions on Restricted Stock may be based on the extent
of achievement over a specified performance period of one or more performance targets based on
performance criteria established by the Committee. Restricted Stock awards shall be effective upon
execution of the applicable Restricted Stock agreement by the Company and the grantee. Following a
Restricted Stock award and prior to the lapse or termination of the applicable restrictions, the
share certificates for such Restricted Stock shall be held in escrow by the Company. Upon the
lapse or termination of the applicable restrictions (and not before such time), the certificates
for the Restricted Stock shall be issued or delivered to the grantee. From the date a Restricted
Stock award is effective, the grantee shall be a shareholder with respect to all the shares
represented by such certificates and shall have all the rights of a shareholder with respect to all
such shares, including the right to vote such shares and to receive all dividends and other
distributions paid with respect to such shares, subject only to the restrictions imposed by the
Committee.

     8. Stock Bonus Awards.

     A. Awards of Stock Bonuses. A Stock Bonus Award is an award to an eligible
person of shares of Common Stock (which may consist of Restricted Stock or Restricted Stock
Units) for services to be rendered or for past services already rendered to the Company or
any Related Corporation. All Stock Bonus Awards shall be made pursuant to a Stock Bonus
Agreement, which shall be in substantially a form (which need not be the same for each
Participant) that the Committee or an officer of the Company (pursuant to paragraph 2(A)(2)
has from time to time approved, and will comply with and be subject to the terms and
conditions of the Plan. No payment will be required for such shares awarded pursuant to a
Stock Bonus Award.

     B. Terms of Stock Bonus Awards. The Committee will determine the number of
shares of Common Stock to be awarded to the Participant under a Stock Bonus Award and any
restrictions thereon. These restrictions may be based upon completion of a specified number
of years of service with the Company or upon satisfaction of performance goals during any
performance period as set out in advance in the Participant’s Stock Bonus Agreement. If the
Stock Bonus Award is to be earned upon the satisfaction of performance targets during a
particular performance period, the Committee shall: (a) determine the

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nature, length and starting date of any such performance period for the Stock Bonus Award;
(b) select the performance targets to be used to measure performance goals; and (c)
determine the number of shares of Common Stock that may be awarded to the Participant.
Prior to the issuance of any shares or other payment to a Participant pursuant to a Stock
Bonus Award, the Committee will determine the extent to which the Stock Bonus Award has been
earned. Performance periods may overlap and a Participant may participate simultaneously
with respect to Stock Bonus Awards that are subject to different performance periods and
different performance targets and other criteria. The number of shares of Common Stock
subject to Stock Bonus Awards may be fixed or may vary in accordance with such performance
goals and criteria as may be determined by the Committee. The Committee may adjust the
performance goals applicable to a Stock Bonus Award to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events or circumstances
to avoid windfalls or hardships.

     C. Payment to Participant. Subject to the provisions of Section 409A of the
Code, the Committee will determine whether the earned portion of a Stock Bonus Award will be
paid to the Participant currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine. To the extent permissible under law,
including said Section 409A, the Committee may also permit a Participant to defer payment
under a Stock Bonus Award to a date or dates after the Stock Bonus Award is earned.

     9. Other Stock-Based Awards. The Committee is authorized to grant other Awards in the
form of Other Stock-Based Awards, as deemed by the Committee to be consistent with the purposes of
the Plan. The Committee shall determine the terms and conditions of the Other Stock-Based Awards,
consistent with the terms of the Plan, at the date of grant or thereafter, including any
performance goals and performance periods that may apply with respect to the grant of such Other
Stock-Based Awards. Such Other Stock-Based Awards shall be evidenced by written agreements (which
need not be identical) in such forms as the Committee may from time to time approve, which shall
include such terms and conditions as the Committee in its discretion deems appropriate. Other
Stock-Based Awards shall be effective upon execution of the applicable Other Stock-Based Award
agreements by the Company and the grantee.

     10. Corporate Transactions.

     A. Assumption or Replacement of Awards by Successor. In the event of: (i) a
merger or consolidation in which the Company is not the surviving corporation (other than a
merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in
a different jurisdiction, or other transaction in which there is no substantial change in
the stockholders of the Company and the Awards granted under the Plan are assumed or
replaced by the successor corporation, which assumption shall be binding on all
Participants), (ii) a

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dissolution or liquidation of the Company, (iii) the sale of substantially all of the assets
of the Company, (iv) a merger in which the Company is the surviving corporation but after
which the stockholders of the Company immediately prior to such merger (other than any
stockholder that merges, or which owns or controls another corporation that merges, with the
Company in such merger) cease to own their shares or other equity interest in the Company;
or (v) any other transaction which qualifies as a “corporate transaction” under Section
424(a) of the Code wherein the stockholders of the Company give up all of their equity
interest in the Company (except for the acquisition, sale or transfer of all or
substantially all of the outstanding shares of the Company)(any of the foregoing hereinafter
referred to as a “Corporate Transaction”), any or all outstanding Awards may be assumed or
replaced by the successor corporation, which assumption or replacement shall be binding on
all Participants in the Plan. In the alternative, the successor corporation may substitute
equivalent Awards or provide substantially similar consideration to such Participants as was
provided to stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding shares of Common Stock of
the Company held by such Participant, substantially similar shares or other property subject
to repurchase restrictions no less favorable to such Participant. In the event such
successor corporation, if any, refuses to assume or replace the Awards, as provided above,
pursuant to a Corporate Transaction or if there is no successor corporation due to a
dissolution or liquidation of the Company, such Awards shall immediately vest as to 100% of
the shares of Common Stock subject thereto at such time and on such conditions as the Board
shall determine and the Awards shall expire at the closing of the transaction or at the time
of dissolution or liquidation.

     B. Other Treatment of Awards. Subject to any greater rights granted to
Participants under subparagraph A, in the event of a Corporate Transaction, any outstanding
Awards shall be treated as provided in the applicable agreement or plan of merger,
consolidation, dissolution, liquidation or sale of assets.

     C. Assumption of Awards by the Company. The Company, from time to time, also
may substitute or assume outstanding awards granted by another company, whether in
connection with an acquisition of such other company or otherwise, by either (a) granting an
Award under the Plan in substitution of such other company’s award, or (b) assuming such
award as if it had been granted under the Plan if the terms of such assumed award could be
applied to an Award granted under the Plan. Such substitution or assumption shall be
permissible if the holder of the substituted or assumed award would have been eligible to be
granted an Award under the Plan if the other company had applied the rules of the Plan to
such grant. In the event the Company assumes an award granted by another company, the terms
and conditions of such award shall remain unchanged (except that the exercise price and the
number and nature of shares of Common Stock issuable upon exercise of any such option will
be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new

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Option may be granted with a similarly adjusted exercise price.

     11. Duration of Plan; Amendment of Plan. This Plan was adopted by the Board on March
22, 2006 and approved by the shareholders of the Company at the 2006 Annual Meeting of Stockholders
on May 11, 2006. The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before or after the Board
adopts a resolution authorizing any of the following actions: (a) the total number of shares that
may be issued under the Plan may not be increased (except by adjustment pursuant to paragraph 10);
(b) the provisions of paragraph 3 regarding eligibility for grants of lSOs may not be modified; and
(c) the provisions of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to Options may not be modified (except by adjustment pursuant to paragraph 4C or paragraph
10). Except as otherwise provided in this paragraph 11, in no event may action of the Board or
stockholders alter or impair the rights of a grantee, without such grantee’s consent, under any
Award previously granted to such grantee.

     12. Application Of Funds. The proceeds received by the Company from the sale of
shares pursuant to Options granted under the Plan shall be used for general corporate purposes.

     13. Notice to Company of Disqualifying Disposition. By accepting an ISO granted under
the Plan, each optionee agrees to notify the Company in writing immediately after such optionee
makes a Disqualifying Disposition (as described in Sections 421, 422 and 424 of the Code and
regulations thereunder) of any stock acquired pursuant to the exercise of ISOs granted under the
Plan. A Disqualifying Disposition is generally any disposition occurring on or before the later of
(a) the date two years following the date the ISO was granted or (b) the date one year following
the date the ISO was exercised.

     14. Withholding of Income Taxes.

     A. Withholding Generally. Whenever shares of Common Stock are to be issued in
satisfaction of Awards granted under the Plan, the Company may require the Participant to
remit to the Company an amount sufficient to satisfy federal, state and local withholding
tax requirements prior to the delivery of any certificate(s) for the shares. If a payment
in satisfaction of an Award is to be made in cash, the payment will be net of an amount
sufficient to satisfy federal, state, and local withholding tax requirements.

     B. Stock Withholding. When, under applicable tax laws, a Participant incurs
tax liability in connection with the exercise or vesting of any Award that is subject to tax
withholding and the Participant is obligated to pay the Company the amount required to be
withheld, the Committee may, in its sole discretion, allow the Participant to satisfy the
minimum withholding tax obligation by electing to have the Company withhold from the shares
of Common Stock to be issued

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that number of whole shares having a fair market value equal to the minimum amount required
to be withheld, determined on the date that the amount of tax to be withheld is to be
determined. All elections by a Participant to have shares of Common Stock withheld for this
purpose shall be made in accordance with the requirements established by the Committee and
be in writing in a form acceptable to the Committee.

     15. Governmental Regulation. The Company’s obligation to sell and deliver shares of
the Common Stock under this Plan is subject to the approval of any governmental authority required
in connection with the authorization, issuance or sale of such shares.

     Government regulations may impose reporting or other obligations on the Company with respect
to the Plan. For example, the Company may be required to send tax information statements to
employees and former employees that exercise ISOs under the Plan, and the Company may be required
to file tax information returns reporting the income received by grantees of Options in connection
with the Plan.

     16. Governing Law. The validity and construction of the Plan and the instruments
evidencing Awards shall be governed by the laws of the State of Delaware, or the laws of any
jurisdiction in which the Company or its successors in interest may be organized.

-13-exv10w2

 

Exhibit 10.2

STOCK UNIT AWARD AGREEMENT

(Granted under the Psychemedics Corporation 2006 Equity Incentive Plan)

     1. Award of Stock Unit Awards. Psychemedics Corporation (hereinafter the “Company”),
in the exercise of its sole discretion pursuant to the Psychemedics Corporation 2006 Equity
Incentive Plan (the “Plan”), does on <<GrantDate>> (the “Award Date”) hereby award to
<<FullName>> (the “Awardee”) <<SharesGrantedQuantity>> Stock Unit Awards
(“SUAs”) upon the terms and subject to the conditions hereinafter contained. Capitalized terms
used but not defined herein shall have the meanings assigned to them in the Plan. SUAs represent
the Company’s unfunded and unsecured promise to issue shares of Common Stock at a future date,
subject to the terms of this Award Agreement and the Plan. Awardee has no rights under the SUAs
other than the rights of a general unsecured creditor of the Company.

     2. Vesting Schedule and Conversion of SUAs.

          (a) Subject to the terms of this Award Agreement and the Plan and provided that Awardee
remains continuously employed throughout the vesting periods set out below, the SUAs shall vest and
be converted into an equivalent number of shares of Common Stock that will be distributed to the
Awardee as follows; provided that fractional SUAs shall be converted into shares of Common Stock as
set out in Section 8 of this Award Agreement:

	 	 	 	 	 
	 	 	Percentage	 
	Vesting Date	 	of SUAs	 
	One (1) year from the Award Date
	 	 	25	%
	Two (2) years from the Award Date
	 	 	25	%
	Three (3) years from the Award Date
	 	 	25	%
	Four (4) years from the Award Date
	 	 	25	%

          (b) Notwithstanding the vesting schedule set forth in subsection (a) above, if there is a
Change in Control of the Company (as defined below), then all of the SUA’s shall become vested in
full immediately prior to the effective date of such Change in Control. For the purpose of this
Agreement, a “Change of Control” shall mean (i) 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); and (B) no
person or group (as defined in Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934) of
the Company or the corporation resulting from the Business Combination) beneficially owns, directly
or indirectly, more than 30% of the then outstanding shares of the common stock of the corporation
resulting from the Business Combination; (ii) 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; or (iii) any person (as defined in
Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934) shall become at any time or in
any manner the beneficial owner of capital stock of the Company representing more than 30% of the
voting power of the Company.

     3. Termination. Unless terminated earlier under Section 4, 5 or 6 below, an
Awardee’s rights under this Award Agreement with respect to the SUAs issued under this Award
Agreement shall terminate at the time such SUAs are converted into shares of Common Stock.

     4. Termination of Awardee’s Status as a Participant. Except as otherwise specified
in Section 5 and 6 below, in the event of termination of Awardee’s Continuous Status as a
Participant (as defined below), Awardee’s rights under this Award Agreement in any unvested SUAs
shall terminate. For purposes of this Award Agreement, an Awardee’s Continuous Status as a
Participant shall mean (1) for employees of the Company, the absence of any interruption or
termination of service as an employee, and (2) for consultants of the Company, the absence of any
interruption, expiration, or termination of such person’s consulting or advisory relationship with
the Company or the occurrence of any termination event as set forth in such person’s Award
Agreement. Continuous Status as a Participant shall not be considered interrupted (i) for an
Employee in the case of sick leave or leave of absence for which Continuous Status is not
considered interrupted as determined by the Company in its sole discretion, and (ii) for a
consultant of the Company, in the case of any temporary interruption in such person’s availability
to provide services to the Company which has been authorized in writing by the President or a Vice
President of the Company prior to its commencement.

     5. Disability of Awardee. Notwithstanding the provisions of Section 4 above, in the
event of termination of Awardee’s Continuous Status as a Participant as a result of permanent and
total disability, (as such term is defined in Section 6(H) of the Plan, and hereinafter referred
to as a “Disability”), the next vesting date for the SUAs, set out in Section 2(a), above, shall
accelerate by twelve (12) months as of such date of termination. If Awardee’s disability
originally required

2

 

him or her to take a short-term disability leave which was later converted into long-term
disability, then for the purposes of the preceding sentence the date on which Awardee ceased
performing services shall be deemed to be the date of commencement of the short-term disability
leave. The Awardee’s rights in any unvested SUAs that remain unvested after the application of
this Section 5 shall terminate at the time Awardee ceases to be in Continuous Status as a
Participant.

     6. Death of Awardee. Notwithstanding the provisions of Section 4 above, in the event
of the death of Awardee:

          (a) If Awardee is, at the time of death, in Continuous Status as a Participant, the next
vesting date for the SUAs, set out in Section 2(a) above, shall accelerate by twelve (12) months as
of the date of death.

          (b) The Awardee’s rights in any unvested SUAs that remain after the application of Section
6(a) shall terminate at the time of the Awardee’s death.

     7. Value of Unvested SUAs. In consideration of the award of these SUAs, Awardee
agrees that upon and following termination of Awardee’s Continuous Status as a Participant for any
reason (whether or not in breach of applicable laws), and regardless of whether Awardee is
terminated with or without cause, notice, or pre-termination procedure or whether Awardee asserts
or prevails on a claim that Awardee’s employment was terminable only for cause or only with notice
or pre-termination procedure, any unvested SUAs under this Award Agreement shall be deemed to have
a value of zero dollars ($0.00).

     8. Conversion of SUAs to shares of Common Stock; Responsibility for Taxes.

          (a) Provided Awardee has satisfied the requirements of Section 8(b) below, on the vesting of
any SUAs, such vested SUAs shall be converted into an equivalent number of shares of Common Stock
that will be distributed to Awardee or, in the event of Awardee’s death, to Awardee’s legal
representative, as soon as practicable. The distribution to the Awardee, or in the case of the
Awardee’s death, to the Awardee’s legal representative, of shares of Common Stock in respect of the
vested SUAs shall be evidenced by a stock certificate, appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company, or other appropriate means as
determined by the Company.

          (b) Regardless of any action the Company takes with respect to any or all income tax
(including federal, state and local taxes), social security, payroll tax or other tax-related
withholding (“Tax Related Items”), Awardee acknowledges that the ultimate liability for all Tax
Related Items legally due by Awardee is and remains Awardee’s responsibility and that the Company
(i) makes no representations or undertakings regarding the treatment of any Tax Related Items in
connection with any aspect of the SUAs, including the grant of the SUAs, the vesting of SUAs, the
conversion of the SUAs into shares of Common Stock, the subsequent sale of any shares of Common
Stock acquired at vesting and the receipt of any dividends; and (ii) does not commit to structure
the terms of the grant or any aspect of the SUAs to reduce or eliminate the Awardee’s liability for
Tax Related Items. Prior to the issuance of shares of Common Stock upon

3

 

vesting of SUAs as provided in Section 8(a) above, Awardee shall pay, or make adequate
arrangements satisfactory to the Company (in its sole discretion) to satisfy all withholding
obligations of the Company. In this regard, Awardee authorizes the Company to withhold all
applicable Tax Related Items legally payable by Awardee from Awardee’s wages or other cash
compensation payable to Awardee by the Company. Alternatively, or in addition, if permissible
under applicable law, the Company may, in its sole discretion, (i) sell or arrange for the sale of
shares of Common Stock to be issued on the vesting of SUAs to satisfy the withholding obligation,
and/or (ii) withhold in shares of Common Stock, provided that the Company shall withhold only the
amount of shares necessary to satisfy the minimum withholding amount. Awardee shall pay to the
Company any amount of Tax Related Items that the Company may be required to withhold as a result of
Awardee’s receipt of SUAs, the vesting of SUAs, or the conversion of vested SUAs to shares of
Common Stock that cannot be satisfied by the means previously described. Except where applicable
legal or regulatory provisions prohibit, the standard process for the payment of an Awardee’s Tax
Related Items shall be for the Company to withhold in shares of Common Stock only to the amount of
shares necessary to satisfy the minimum withholding amount. The Company may refuse to deliver
shares of Common Stock to Awardee if Awardee fails to comply with Awardee’s obligation in
connection with the Tax Related Items as described herein.

          (c) In lieu of issuing fractional shares of Common Stock, on the vesting of a fraction of a
SUA, the Company shall round the shares to the nearest whole share and any such share which
represents a fraction of a SUA will be included in a subsequent vest date.

          (d) Until the distribution to Awardee of the shares of Common Stock in respect to the vested
SUAs is evidenced by a stock certificate, appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company, or other appropriate means, Awardee shall have no
right to vote or receive dividends or any other rights as a shareholder with respect to such shares
of Common Stock, notwithstanding the vesting of SUAs. The Company shall cause such distribution to
Awardee to occur promptly upon the vesting of SUAs. No adjustment will be made for a dividend or
other right for which the record date is prior to the date Awardee is recorded as the owner of the
shares of Common Stock, except as provided in Section 10 of the Plan.

          (e) By accepting the Award of SUAs evidenced by this Award Agreement, Awardee agrees not to
sell any of the shares of Common Stock received on account of vested SUAs at a time when applicable
laws or Company policies prohibit a sale. This restriction shall apply so long as Awardee is an
Employee, Consultant or outside director of the Company or a Subsidiary of the Company.

     9. Non-Transferability of SUAs. Awardee’s right in the SUAs awarded under this Award
Agreement and any interest therein may not be sold, pledged, assigned, hypothecated, transferred,
or disposed of in any manner, other than by will or by the laws of descent or distribution, prior
to the distribution of the shares of Common Stock in respect of such SUAs. SUAs shall not be
subject to execution, attachment or other process.

4

 

     10. Acknowledgment of Nature of Plan and SUAs. In accepting the Award, Awardee
acknowledges that:

          (a) the Plan is established voluntarily by the Company, it is discretionary in nature and may
be modified, amended, suspended or terminated by the Company at any time, as provided in the Plan;

          (b) the Award of SUAs is voluntary and occasional and does not create any contractual or other
right to receive future awards of SUAs, or benefits in lieu of SUAs even if SUAs have been awarded
repeatedly in the past;

          (c) all decisions with respect to future awards, if any, will be at the sole discretion of the
Company;

          (d) Awardee’s participation in the Plan is voluntary;

          (e) the future value of the underlying shares of Common Stock is unknown and cannot be
predicted with certainty;

          (f) if Awardee receives shares of Common Stock, the value of such shares of Common Stock
acquired on vesting of SUAs may increase or decrease in value;

          (g) notwithstanding any terms or conditions of the Plan to the contrary and consistent with
Section 4 and Section 7 above, in the event of involuntary termination of Awardee’s employment
(whether or not in breach of applicable laws), Awardee’s right to receive SUAs and vest under the
Plan, if any, will terminate effective as of the date that Awardee is no longer actively employed
and will not be extended by any notice period mandated under applicable law; furthermore, in the
event of involuntary termination of employment (whether or not in breach of applicable laws),
Awardee’s right to receive shares of Common Stock pursuant to the SUAs after termination of
employment, if any, will be measured by the date of termination of Awardee’s active employment and
will not be extended by any notice period mandated under applicable law. The Committee shall have
the exclusive discretion to determine when Awardee is no longer actively employed for purposes of
the award of SUAs; and

          (h) Awardee acknowledges and agrees that, regardless of whether Awardee is terminated with or
without cause, notice or pre-termination procedure or whether Awardee asserts or prevails on a
claim that Awardee’s employment was terminable only for cause or only with notice or
pre-termination procedure, Awardee has no right to, and will not bring any legal claim or action
for, (a) any damages for any portion of the SUAs that have been vested and converted into Common
Shares, or (b) termination of any unvested SUAs under this Award Agreement.

     11. No Employment Right. Awardee acknowledges that neither the fact of this Award of
SUAs nor any provision of this Award Agreement or the Plan or the policies adopted pursuant to the
Plan shall confer upon Awardee any right with respect to employment or continuation of current
employment with the Company, or to employment that is not terminable at will. Awardee further
acknowledges and agrees that neither the Plan nor this Award of SUAs

5

 

makes Awardee’s employment with the Company for any minimum or fixed period, and that such
employment is subject to the mutual consent of Awardee and the Company , and may be terminated by
either Awardee or the Company at any time, for any reason or no reason, with or without cause or
notice or any kind of pre- or post-termination warning, discipline or procedure.

     12. Administration. The authority to manage and control the operation and
administration of this Award Agreement shall be vested in the Committee (as such term is defined in
Section 2 of the Plan), and the Committee shall have all powers and discretion with respect to this
Award Agreement as it has with respect to the Plan. Any interpretation of the Award Agreement by
the Committee and any decision made by the Committee with respect to the Award Agreement shall be
final and binding on all parties.

     13. Plan Governs. Notwithstanding anything in this Award Agreement to the contrary,
the terms of this Award Agreement shall be subject to the terms of the Plan, and this Award
Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the
Committee from time to time pursuant to the Plan.

     14. Notices. Any written notices provided for in this Award Agreement which are sent
by mail shall be deemed received three business days after mailing, but not later than the date of
actual receipt. Notices shall be directed, if to Awardee, at the Awardee’s address indicated by
the Company’s records and, if to the Company, at the Company’s principal executive office.

     15. Electronic Delivery. The Company may, in its sole discretion, decide to deliver
any documents related to SUAs awarded under the Plan or future SUAs that may be awarded under the
Plan by electronic means or request Awardee’s consent to participate in the Plan by electronic
means. Awardee hereby consents to receive such documents by electronic delivery and agrees to
participate in the Plan through an on-line or electronic system established and maintained by the
Company or another third party designated by the Company.

     16. Acknowledgment. By Awardee’s acceptance as evidenced below, Awardee acknowledges
that Awardee has received and has read, understood and accepted all the terms, conditions and
restrictions of this Award Agreement and the Plan. Awardee understands and agrees that this Award
Agreement is subject to all the terms, conditions, and restrictions stated in this Award Agreement
and the Plan, as the latter may be amended from time to time in the Company’s sole discretion. The
Awardee further acknowledges that he or she must accept this Award Agreement in the manner
prescribed by the Company no later than the earlier of the first anniversary of Award Date or the
first vesting date specified in Section 2(a) of this Award Agreement.

     17. Board Approval. These SUAs have been awarded pursuant to the Plan and
accordingly this Award of SUAs is subject to approval by an authorized committee of the Board of
Directors. If this Award of SUAs has not already been approved, the Company agrees to submit this
Award for approval as soon as practical. If such approval is not obtained, this award is null and
void.

6

 

     18. Governing Law. This Award Agreement shall be governed by the laws of the State
of Delaware, without regard to Delaware laws that might cause other law to govern under applicable
principles of conflicts of law.

     19. Severability. If one or more of the provisions of this Award Agreement shall be
held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby and the invalid,
illegal or unenforceable provisions shall be deemed null and void; however, to the extent
permissible by law, any provisions which could be deemed null and void shall first be construed,
interpreted or revised retroactively to permit this Award Agreement to be construed so as to foster
the intent of this Award Agreement and the Plan.

     20. Complete Award Agreement and Amendment. This Award Agreement and the Plan
constitute the entire agreement between Awardee and the Company regarding SUAs. Any prior
agreements, commitments or negotiations concerning these SUAs are superseded. This Award Agreement
may be amended only by written agreement of Awardee and the Company, without consent of any other
person. Awardee agrees not to rely on any oral information regarding this Award of SUAs or any
written materials not identified in this Section 20.

[remainder of page intentionally left blank]

7

 

     EXECUTED the day and year first above written.

	 	 	 	 	 
	 	PSYCHEMEDICS CORPORATION

 	 
	 	By:  	 	 
	 	 	Raymond C. Kubacki, Jr., 	 
	 	 	 	 
	 

AWARDEE’S ACCEPTANCE:

I have read and fully understood this Award Agreement and, as referenced in Section 16 above, I
accept and agree to be bound by all of the terms, conditions and restrictions contained in this
Award Agreement and the other documents referenced in it.

	 	 	 
	 

	 	 
	 

	 	 

8

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