Document:

10.1	Change in Control Severance Agreement dated March
6, 2013 between Psychemedics Corporation and Raymond C. Kubacki

 

 

March 6, 2013

 

 

Mr. Raymond C. Kubacki

c/o Psychemedics Corporation

125 Nagog Park

Suite 200

Acton, MA 01720

 

Dear Ray:

 

This letter sets forth the agreements we
have made regarding your employment with Psychemedics Corporation (the “Company”). Definitions not defined in the text
below shall have the meanings set forth in Paragraph 14.

 

		1.	If at any time after the effective date hereof and prior to the date which is five (5) years following the date hereof,
your employment is terminated by the Company without Cause, or you voluntarily terminate your employment for Good Reason, in either
case at the time of, or within twelve (12) months following, a Change of Control of the Company, then you will continue to be paid
monthly an amount equal to your Average Monthly Total 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 Good Reason, then such Termination Pay shall be for a period of six (6) months
from the date of 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
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.	In addition to any other confidentiality obligations you may have as an employee of the Company, 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 in addition to any other covenant not to compete with the Company following termination of your employment to
which you may be bound, 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 five year period set forth in paragraph 1 above may be extended only with the mutual written agreement of the parties.

 

		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, other than any existing nondisclosure or confidentiality agreements
you may have with the Company and any prior stock unit award agreements with 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

125 Nagog Park

Suite 200

Acton, MA 01720

Attn: General Counsel

 

    	 

    	 

    

 

 

If to you, addressed to:

 

Raymond C. Kubacki, Jr.

Psychemedics Corporation

125 Nagog Park

Suite 200

Acton, MA 01720

 

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

 

		13.	Section 409A.

 

(a) Anything in this Agreement to the contrary notwithstanding,
if at the time of your separation from service within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder (the “Code”), following a Change in Control of the Company, you are a “specified
employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that you
become entitled to under this Agreement would be considered deferred compensation subject to the twenty percent (20%) additional
tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such
payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (i) six (6) months and
one (1) day after your separation from service, or (ii) your death.

 

(b) This Agreement is intended to be in compliance with
the provisions of Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance
with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with said Section.
The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully
comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided
hereunder without additional cost to either party.

 

(c) Solely for the purposes of Section 409A of the Code,
each installment payment of Termination Pay shall be considered a separate payment.

 

(d) The Company makes no representation or warranty
and shall have no liability to you or any other person if any provisions of this Agreement are determined to constitute deferred
compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, said Section.

 

    	 

    	 

    

 

 

		14.	Definitions.

 

(a)     “Average Monthly Total Compensation”
for any period shall mean one twelfth of the aggregate base salary earned by you during such period, plus one-twelfth of the most
recent annual cash bonus paid to you during such period.

 

(b)     "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.

 

    	 

    	 

    

 

 

(c)     “Change
in Control of the Company” shall mean

     

(i) any person or group as defined in Rule 13d-3 under
the Securities Exchange Act of 1934 (the “Exchange Act”) shall own more than 30% of the then outstanding shares of
the outstanding Common Stock of the Company; 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, more than 30% of the then
outstanding shares of the common stock of the corporation resulting from the Business Combination or of the combined voting power
of the then outstanding voting securities of the corporation; 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.

 

    	 

    	 

    

 

 

(d)     "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.

 

(e)     "Good Reason" shall mean: (i) reduction
in your base salary below $417,000 or such higher base salary as is in effect immediately prior to such reduction; (ii) removal
from your position as President and Chief Executive Officer 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 and Chief Executive Officer 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/ Neil Lerner	 
	 	 	Neil Lerner, Vice President- Finance	 

 

 

 

Agreed to: March 6, 2013

 

 

 

	/s/ Raymond C. Kubacki 	 

Raymond C. Kubacki10.2	Change in Control Severance Agreement dated March 6,
2013 between Psychemedics Corporation and Michael I. Schaffer

 

 

March 6, 2013

 

 

Michael I. Schaffer, Ph.D.

c/o Psychemedics Corporation

5832 Uplander Way

Culver City, CA 90230-6608

 

Dear Mike:

 

This letter sets forth the agreements we
have made regarding your employment with Psychemedics Corporation (the “Company”). Definitions not defined in the text
below shall have the meanings set forth in Paragraph 14.

 

		1.	If at any time after the effective date hereof and prior to the date which is five (5) years following the date hereof,
your employment is terminated by the Company without Cause, or you voluntarily terminate your employment for Good Reason, in either
case at the time of, or within twelve (12) months following, a Change of Control of the Company, then you will continue to be paid
monthly an amount equal to your Average Monthly Total 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. 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 so long as you are receiving Termination Pay and 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 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 Vice President – Laboratory Operations, 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.	In addition to any other confidentiality obligations you may have as an employee of the Company, 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 in addition to any other covenant not to compete with the Company following termination of your employment to
which you may be bound, 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 five year period set forth in paragraph 1 above may be extended only with the mutual written agreement of the parties.

 

		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, other than any existing nondisclosure or confidentiality agreement
s you may have with the Company and any prior stock unit award agreements with 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

125 Nagog Park

Suite 200

Acton, MA 01720

Attn: President

 

If to you, addressed to:

 

Michael I. Schaffer, Ph.D.

5832 Uplander Way

Culver City, CA 90230-6608

 

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

 

    	 

    	 

    

 

 

		13.	Section 409A.

 

(a) Anything in this Agreement to the contrary notwithstanding,
if at the time of your separation from service within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder (the “Code”), following a Change in Control of the Company, you are a “specified
employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that you
become entitled to under this Agreement would be considered deferred compensation subject to the twenty percent (20%) additional
tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such
payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (i) six (6) months and
one (1) day after your separation from service, or (ii) your death.

 

(b) This Agreement is intended to be in compliance with
the provisions of Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance
with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with said Section.
The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully
comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided
hereunder without additional cost to either party.

 

(c) Solely for the purposes of Section 409A of the Code,
each installment payment of Termination Pay shall be considered a separate payment.

 

(d) The Company makes no representation or warranty
and shall have no liability to you or any other person if any provisions of this Agreement are determined to constitute deferred
compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, said Section.

 

		14.	Definitions.

 

(a)     “Average Monthly Total Compensation”
for any period shall mean one twelfth of the aggregate base salary earned by you during such period, plus one-twelfth of the most
recent annual cash bonus paid to you during such period.

 

    	 

    	 

    

 

 

(b)     "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.

 

(c)     “Change
in Control of the Company” shall mean

     

(i) any person or group as defined in Rule 13d-3 under
the Securities Exchange Act of 1934 (the “Exchange Act”) shall own more than 30% of the then outstanding shares of
the outstanding Common Stock of the Company; 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, more than 30% of the then
outstanding shares of the common stock of the corporation resulting from the Business Combination or of the combined voting power
of the then outstanding voting securities of the corporation; 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.

 

 

 

(d)     "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.

 

(e)     "Good Reason" shall mean: (i) reduction
in your base salary below $241,000 or such higher base salary as is in effect immediately prior to such reduction; or (ii) a material
decrease in your duties or responsibilities.

 

    	 

    	 

    

 

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/ Raymond C. Kubacki 	 
	 	 	Raymond C. Kubacki, President	 
	 	 	 	 

 

 

Agreed to: March 6, 2013

 

 

 

	/s/ Michael I. Schaffer	 

Michael I. Schaffer

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