<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 1-13738
PSYCHEMEDICS CORPORATION
(exact name of Issuer as specified in its charter)
Delaware 58-1701987
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
1280 Massachusetts Ave., Suite 200, Cambridge, MA 02138
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (617-868-7455)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of only class of Issuer's Common Stock as of May
12, 1998: Common Stock $.005 par value (22,415,325 shares).
Page 1 of 28
<PAGE> 2
PSYCHEMEDICS CORPORATION
Part I FINANCIAL INFORMATION PAGE NO.
Item 1 Financial Statements
Condensed Balance Sheets as of March 31, 1998
and December 31, 1997 3
Condensed Statements of Income for the three
month periods ended March 31, 1998 and 1997 4
Condensed Statements of Cash Flows for the
three month periods ended March 31, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8K 9
SIGNATURES 10
EXHIBIT INDEX 11
Page 2 of 28
<PAGE> 3
PSYCHEMEDICS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH DECEMBER
31, 1998 31, 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,749,679 $ 585,142
Short-term investments 9,665,654 9,446,418
Accounts receivable 3,085,363 3,784,488
Inventories 490,836 500,325
Prepaid expenses and other current assets 1,098,461 895,874
----------- -----------
Total current assets 16,089,993 15,212,247
----------- -----------
PROPERTY AND EQUIPMENT
Equipment and leasehold improvements, at cost 6,865,880 6,241,516
----------- -----------
Less-Accumulated depreciation and amortization (3,230,771) (3,021,842)
----------- -----------
3,635,109 3,219,674
----------- -----------
OTHER ASSETS - NET 447,927 423,318
=========== ===========
$20,173,029 $18,855,239
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 647,491 $ 196,259
Accrued expenses 832,860 438,063
Deferred revenue 1,699,820 1,488,010
----------- -----------
Total current liabilities 3,180,171 2,122,332
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, $.005 par value; authorized 1,000,000
shares; none outstanding
Common stock; $.005 par value; authorized 50,000,000
shares; issued 22,404,015 and 22,382,720
shares in 1998 and 1997, respectively 112,020 111,913
Paid-in capital 23,650,534 23,581,549
Accumulated deficit (5,338,832) (5,537,505)
Less - Treasury stock, at cost; 183,683 shares in 1998
and 1997 (1,005,439) (1,005,439)
Less - Receivable from officer (425,425) (417,611)
----------- -----------
Total shareholders' equity 16,992,858 16,732,907
----------- -----------
$20,173,029 $18,855,239
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
Page 3 of 28
<PAGE> 4
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUE $ 4,121,903 $ 3,253,743
DIRECT COSTS 1,694,888 1,321,872
----------- -----------
Gross profit 2,427,015 1,931,871
----------- -----------
EXPENSES:
General and administrative 607,966 532,653
Marketing and selling 768,022 657,443
Research and development 106,993 108,908
----------- -----------
1,482,981 1,299,004
----------- -----------
OPERATING INCOME 944,034 632,867
OTHER INCOME 136,384 125,592
----------- -----------
NET INCOME BEFORE INCOME TAXES 1,080,418 758,459
PROVISION FOR INCOME TAXES 439,140 121,352
----------- -----------
NET INCOME $ 641,278 $ 637,107
=========== ===========
BASIC NET INCOME PER SHARE $ 0.03 $ 0.03
=========== ===========
DILUTED NET INCOME PER SHARE $ 0.03 $ 0.03
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 22,210,334 21,832,664
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING, ASSUMING DILUTION 22,693,908 22,755,427
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
Page 4 of 28
<PAGE> 5
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
ENDED MARCH 31,
----------------------------
1998 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 641,278 $ 637,107
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 223,929 136,287
Changes in assets and liabilities:
Receivables 691,311 (266,606)
Inventories 9,489 (139,336)
Prepaid expenses and other current assets (202,587) (209,951)
Accounts payable 451,232 103,212
Accrued expenses 394,797 40,590
Deferred revenue 211,810
---------- -----------
Net cash provided by operating activities 2,421,259 301,303
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) sales of short-term investments - net (219,236) (997,352)
(Purchases) sales of property and equipment (624,364) (240,849)
(Increase) decrease in other assets - net (39,609) 12,478
---------- -----------
Net cash used in investing activities (883,209) (1,225,723)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock 69,092 485,581
Cash dividends paid (442,605) (436,468)
---------- -----------
Net cash provided by (used in) financing activities (373,513) 49,113
---------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,164,537 (875,307)
---------- -----------
CASH AND CASH EQUIVALENTS, beginning of period 585,142 1,462,678
---------- -----------
CASH AND CASH EQUIVALENTS, end of period $1,749,679 $ 587,371
========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
Page 5 of 28
<PAGE> 6
PSYCHEMEDICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
1. Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain information
and footnote disclosure required for complete financial statements are not
included herein. It is recommended that these financial statements be read in
conjunction with the financial statements and related notes of Psychemedics
Corporation (the "Company") as reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1997. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of financial position, results of operations, and cash
flows at the dates and for the periods presented have been included. The balance
sheet presented as of December 31, 1997 has been derived from the financial
statements that have been audited by the Company's independent public
accountants. The results of operations for the three months ended March 31, 1998
may not be indicative of the results that may be expected for the year ending
December 31, 1998, or any other period.
2. Basic and Diluted Net Income Per Share
Basic net income per share was computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted net
income per share was computed by dividing net income by the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Dilutive common equivalent shares outstanding during the period have
been determined in accordance with the treasury-stock method. Common equivalent
shares consist of common stock issuable upon the exercise of outstanding
options.
Basic and diluted weighted average common shares outstanding are as
follows:
<TABLE>
<CAPTION>
March March
31, 1998 31, 1997
---------- ----------
<S> <C> <C>
Weighted average common shares 22,210,334 21,832,664
Effect of dilutive common stock options 483,574 922,763
---------- ----------
Weighted average common shares
outstanding, assuming dilution 22,693,908 22,755,427
========== ==========
</TABLE>
3. Revenue Recognition
Revenues for all product offerings are recognized upon reporting drug test
results to the customer. During the second quarter of 1997, the Company began
offering its personal drug testing service, "PDT-90" through retail drug stores.
At March 31, 1998 and December 31, 1997, the Company had approximately
$1,700,000 and $1,488,000, respectively, of deferred revenue related to the
PDT-90 service, principally due to receiving payments prior to the performance
of the related test.
Page 6 of 28
<PAGE> 7
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made by its
employees may contain "forward-looking" information which involves risks and
uncertainties. In particular, statements contained in this report which are not
historical facts (including but not limited to the Company's expectations
regarding revenues, business strategy, anticipated operating results, cash
dividends and anticipated cash requirements) may be "forward looking"
statements. The Company's actual results may differ from those stated in any
"forward looking" statements. Factors that may cause such differences include,
but are not limited to, risks associated with the continued expansion of the
Company's sales and marketing network, development of markets for new products
and services offered by the Company, the economic health of principal customers
of the Company, financial and operational risks associated with possible
expansion of testing facilities used by the Company, government regulation
(including, but not limited to, Food and Drug Administration regulations),
competition and general economic conditions.
OVERVIEW
Psychemedics Corporation was incorporated in 1986. The Company utilizes a
patented hair analysis method involving radioimmunoassay technology to analyze
human hair to detect abused substances. The founder of the Company has granted
to the Company an exclusive license to all his rights in this hair analysis
technology, including his rights to the drug extraction method.
RESULTS OF OPERATIONS
Revenue was $4,121,903 in the first quarter of 1998 as compared to $3,253,743 in
the first quarter of 1997, representing an increase of 27%. The revenue increase
was due primarily to increases in volume from both new and existing clients
offset by average price decreases of 3% primarily as a result of volume
discounts granted to large customers.
Gross margin was 59% of sales in the first quarter of 1998, consistent with the
year earlier period. Increased efficiencies resulting from the greater volume of
the first quarter of 1998 when compared to the first quarter of 1997 offset the
aforementioned average price decrease of 3%, causing the gross margin percentage
to remain flat.
General and administrative ("G&A") expenses were $607,966 for the three months
ended March 31, 1998 as compared to $532,653 for the three months ended March
31, 1997, representing an increase of 14%. As a percentage of revenue, G&A
expenses declined to 15% in the first quarter of 1998 from 16% in the first
quarter of 1997, primarily because of the higher revenues in 1998.
Marketing and selling expenses for the three month period ended March 31, 1998
increased $110,579, to $768,022, an increase of 17%. This increase was primarily
due to additions to the Company's sales staff and expanded marketing activities
related to
Page 7 of 28
<PAGE> 8
the corporate market. Although total marketing and selling expenses increased by
17%, they decreased as a percentage of revenue from 20% in the first quarter of
1997 to 19% in the first quarter of 1998. The Company expects to continue to
aggressively promote its drug testing services during the remainder of 1998 and
in future years in order to expand its client base.
Other income for the three month period ended March 31, 1998 represented
primarily interest earned on cash equivalents and short-term investments. The
increase in 1998 was primarily due to higher investment balances coupled with
increased yields on these investments.
Net income before income taxes increased by $321,959 to $1,080,418 when compared
to the year earlier period. However, net income remained relatively flat at
$641,278 for the first three months of 1998 as compared to $637,107 for the
first quarter of 1997, due to an increased effective tax rate in 1998. The
effective tax rate for the first quarter of 1998 was 41% in 1998 versus 16% in
1997, reflecting the reduction in net operating loss carryforwards available to
offset the provision for income taxes for financial reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $11.4 million of cash, cash equivalents and
short-term investments. The Company's operating activities generated net cash of
$2,421,259 in the three months ended March 31, 1998. Investing activities used
$883,209 in the three month period while financing activities used a net amount
of $373,513 during the period.
The Company's source of funds in the first three months of 1998 was derived
almost entirely from cash generated from operations. Operating cash flows
increased $2,119,956 in the first three months of 1998, compared to the year
earlier period. This was primarily due to improved cash collections of
outstanding accounts receivable, as well as an increase in accounts payable and
other accrued expenses resulting from fully utilizing vendors' credit terms that
were available to the Company. Also, deferred revenue, which represents
deliveries to retail outlets of the Company's retail product PDT-90, increased
by $211,810. The non-cash effect of depreciation and amortization in the 1998
and 1997 periods was $223,929 and $136,287, respectively.
Capital expenditures in the first three months of 1998 were $624,364. The
expenditures primarily consisted of new equipment, including laboratory and
computer equipment. The Company believes that within the next two years it may
be required to expand its existing laboratory or develop a second laboratory,
the cost of which is currently believed to range from $2 million to $4 million.
During the three month period ended March 31, 1998, the Company distributed
$442,605 in cash dividends to its shareholders. In addition, on May 4, 1998, the
Company declared a cash dividend of $0.03 per share payable on May 29, 1998 to
holders of record on May 15, 1998. On May 4, 1998 the Company also announced
that it was increasing by 500,000 shares the number of shares authorized for
repurchase in the open market under the Company's Stock Repurchase Program.
At March 31, 1998, the Company's principal sources of liquidity included an
aggregate of $11.4 million of cash, cash equivalents and short-term investments.
Management currently believes that such funds, together with cash generated from
operations, should be adequate to fund anticipated working capital requirements
and capital expenditures in the near term. Depending upon the Company's results
of operations, its future capital needs and available marketing opportunities,
the Company may use various financing sources to raise additional funds. Such
sources could potentially include joint ventures, issuances of common stock or
debt financing. At March 31, 1998, the Company had no long-term debt.
Page 8 of 28
<PAGE> 9
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See Exhibit Index included at Page 11 of this Report
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
Page 9 of 28
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Psychemedics Corporation
Date: May 12, 1998 By: /s/ Raymond C. Kubacki, Jr.
---------------------------------------
Raymond C. Kubacki, Jr.
President and Chief Executive Officer
Date: May 12, 1998 By: /s/ Peter C. Monson
---------------------------------------
Peter C. Monson
Vice President, Treasurer & Controller
Page 10 of 28
<PAGE> 11
PSYCHEMEDICS CORPORATION
FORM 10-Q
MARCH 31, 1998
EXHIBIT INDEX
PAGE NO.
10.1 Promissory Note from Raymond C. Kubacki, Jr.
dated January 6, 1997 12-13
10.2 Pledge Agreement between Raymond C. Kubacki, Jr.
and Psychemedics Corporation dated January 6, 1997 14-18
10.3 Pledge Agreement between Raymond C. Kubacki, Jr.
and Psychemedics Corporation dated November 12, 1997 19-23
10.4 Promissory Note from Raymond C. Kubacki, Jr. dated
November 12, 1997 24-26
10.5 January 6, 1998 First Amendment To Promissory Note
dated January 6, 1997 27-28
27. Financial Data Schedule
Page 11 of 28
<PAGE> 1
Exhibit 10.1
PROMISSORY NOTE
$209,892.00 Cambridge, Massachusetts
January 6, 1997
FOR VALUE RECEIVED, the undersigned RAYMOND C. KUBACKI, JR. hereby
promises to pay to the order of PSYCHEMEDICS CORPORATION, a Delaware corporation
(the "Company"), in accordance with and subject to the terms and conditions set
forth herein, on or before January 6, 1998, the principal sum of TWO HUNDRED
NINE THOUSAND EIGHT HUNDRED TWO DOLLARS AND 00/100 ($209,892.00), or so much
thereof as may from time to time be outstanding, and to pay interest on the
unpaid portion of such principal amount at the rate of 5.88 % PER ANNUM until
such principal amount and all accrued unpaid interest thereon shall have been
paid.
Interest accrued on the unpaid balance of principal from time to time
outstanding shall be payable together with payment of principal. Each payment
made under this Note shall be applied first to interest then due and then to
principal.
This Note is secured by a pledge of certain shares of Common Stock of
the Company owned by the undersigned more particularly described in the Pledge
Agreement dated as of the date hereof (the "Pledge Agreement") by and between
the undersigned and the Company. The Pledge Agreement is intended to provide
additional security to the Company for the obligations of the undersigned under
this Note and is not intended to limit in any way the obligations of the
undersigned under this Note which is a full recourse obligation of the
undersigned.
The undersigned, and each endorser and guarantor of this Note, hereby
waives demand, presentment for payment, notice of dishonor and protest, and all
other formalities provided by law. The undersigned hereby agrees that no delay
or omission on the part of the holder hereof in exercising any right or remedy
hereunder shall constitute a waiver of such right or remedy or of any other
right or remedy hereunder. The occurrence of any of the following events shall
constitute an Event of Default under this Note:
Page 12 of 28
<PAGE> 2
1. Failure of the undersigned to pay when due any payment of
principal or interest herein required, which failure continues
unremedied for thirty (30) days;
2. An Event of Default under the Pledge Agreement;
3. the death, dissolution, liquidation, or termination of
existence of the undersigned or of any endorser or guarantor
hereof; or
4. the making of an assignment for the benefit of creditors by,
the insolvency of, the appointment of a receiver of any part
of the property of, or the filing of a petition in bankruptcy
or the commencement of any proceeding under any bankruptcy or
insolvency law or any law relating to the relief of debtors,
readjustment of indebtedness, reorganization, composition or
extension by or against, the undersigned or any endorser or
guarantor hereof.
Upon the occurrence of an Event of Default under this Note, the outstanding
principal balance hereof, together with any accrued unpaid interest thereon, and
together with all reasonable costs of collection, including reasonable
attorneys' fees, shall become immediately due and payable at the option of the
holder hereof. Failure on the part of the holder hereof to exercise said option
shall not constitute a waiver of the right of the holder hereof to exercise said
option in the event of any subsequent Event of Default.
Payments of principal and interest hereunder shall be made at 1280
Massachusetts Avenue, Suite 200, Cambridge, Massachusetts 02138, or such other
address as the holder hereof may designate from time to time. The undersigned
shall have the right to prepay all or any part of the principal sum secured
hereby at any time or from time to time without premium or penalty.
This Note shall take effect as an instrument under seal and shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
EXECUTED as of the date set forth above.
/s/ Raymond C. Kubacki, Jr.
----------------------------------
Raymond C. Kubacki, Jr.
Signed in the presence of:
- ------------------------------
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<PAGE> 1
Exhibit 10.2
PLEDGE AGREEMENT
PLEDGE AGREEMENT made as of January 6, 1997, by and between RAYMOND C.
KUBACKI, JR. (the "Pledgor") and PSYCHEMEDICS CORPORATION, a Delaware
corporation (the "Pledgee").
RECITALS
WHEREAS, in order to permit Pledgor to exercise on the date hereof
certain incentive stock options granted to the Pledgor by the Pledgee on January
7, 1992, which expire on January 7, 1997, Pledgor executed and delivered to
Pledgee a Promissory Note dated the date hereof (the "Term Note") in the
aggregate original principal amount of $209,892.00; and
WHEREAS, as security for his obligations under the Term Note, Pledgor
has agreed to pledge to Pledgee the shares of the capital stock of Pledgee
issued upon the exercise of said options;
NOW, THEREFORE, in consideration of the premises, the Pledgor and the
Pledgee hereby agree as follows:
1. DEFINED TERMS. The following terms shall have the following
meanings:
"Code" means the Uniform Commercial Code from time to time in effect in
the Commonwealth of Massachusetts.
"Collateral" means the Pledged Securities and all Proceeds.
"Event of Default" means (i) a default under the Term Note; or (ii) a
breach by the Pledgor of any agreement, covenant or representation contained in
this Pledge Agreement.
"Obligations" means the unpaid principal of and interest on the Term
Note and all other obligations and liabilities of the Pledgor to Pledgee under
the Term Note.
"Pledge Agreement" means this Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.
"Pledged Securities" means the Eighty Seven Thousand Eight Hundred
Twenty One (87,821) shares of the Common Stock, $.005 par value, of Psychemedics
Corporation purchased by the Pledgor from Pledgee as of the date hereof,
together with all stock certificates, instruments, options or rights of any
nature whatsoever which may be issued or granted to the Pledgor in respect of
the Pledged Securities, while this Pledge Agreement in effect.
"Proceeds" means all "proceeds" as such term is defined in Section 9-306(1) of
the Code and, in any event, shall include, without limitation, any and all
proceeds from any subsequent sale of any of the Pledged Securities, and all
cash, securities or other property paid or distributed upon or in respect of the
Pledged Securities by ordinary or special dividend or other distribution, or
other income from the Pledged Securities, collections thereon or distributions
with respect thereto.
Page 14 of 28
<PAGE> 2
2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor hereby
delivers to Pledgee all the Pledged Securities and hereby grants to Pledgee a
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due of the Obligations.
3. STOCK POWERS. Concurrently with the delivery to Pledgee of
each certificate or instrument representing the Pledged Securities, the Pledgor
shall deliver an undated stock power or other transfer document covering such
certificate or instrument, duly executed in blank.
4. COVENANTS. The Pledgor and the Pledgee covenant and agree
that, from and after the date of this Pledge Agreement until the Obligations are
paid in full:
(a) Any cash (less an amount equal to any income taxes
payable by Pledgor with respect thereto), securities or other property paid or
distributed upon or in respect of the Pledged Securities shall be paid over to
Pledgee in payment of the Obligations until the Obligations are paid in full.
(b) The Pledgor may sell the Collateral from time to time
prior to the maturity date of the Term Note at a price per share not less than
the current market value in effect on the date of such sale, or the last sale
price on the trading day next preceding the date of such sale, as reported on
the American Stock Exchange, PROVIDED, HOWEVER, that the Pledgor shall pay over
to the Pledgee any Proceeds thereof (less an amount equal to any income taxes
payable by Pledgor with respect thereto) in payment of the Obligations until the
Obligations are paid in full, and shall instruct any broker conducting a sale of
any of the Pledged Securities to pay over such Proceeds (less an amount equal to
any income taxes payable by Pledgor with respect thereto) directly to the
Pledgee in payment of the Obligations until the Obligations are paid in full.
(c) Except to the extent provided in Paragraph 4(B)
above, the Pledgor shall not, without the prior written consent of the Pledgee,
assign, transfer, exchange or otherwise dispose of, or grant any option with
respect to the Collateral, or create, incur or permit to exist any lien or
option in favor of, or any claim of any person or entity with respect to, any of
the Collateral, or any interest therein, except for Pledgee's interest as
pledgee hereunder. The Pledgor will defend the right, title and interest of
Pledgee as pledgee hereunder in and to the Collateral against the claims and
demands of all person or entities whomsoever.
(d) The Pledgor agrees to pay, and to save Pledgee
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying any and all stamp, excise, sales or other taxes (exclusive of
taxes based on income, gross receipts, franchise rights and related items) which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Pledge
Agreement.
5. VOTING RIGHTS. Unless an Event of Default shall have occurred,
the Pledgor shall be permitted to exercise all voting rights with respect to the
Pledged Securities to the extent permitted by law.
6. RIGHTS AND REMEDIES OF PLEDGEE. Upon the occurrence of an
Event of Default as defined herein, Pledgee, at its option, and without further
notice to Pledgor, shall have the right to do one or more of the following:
Page 15 of 28
<PAGE> 3
(a) transfer the Pledged Securities immediately into the name of
Pledgee or its nominee;
(b) vote or direct the voting of the Pledged Securities and
receive all dividends and distributions declared thereon;
(c) upon giving not less than five (5) days notice, which notice
shall be deemed reasonable and proper, sell or otherwise
dispose of the Pledged Securities at public or private sale or
on any exchange, or otherwise, and apply the proceeds thereof
in accordance with applicable law; or
(d) pursue any right or remedy of a secured party under the Code.
Pledgor hereby irrevocably appoints Pledgee its attorney-in-fact for
purposes of executing and delivering any instrument or document necessary or
desirable for the exercise of any of the foregoing rights and remedies. Such
rights and remedies may be exercised with respect to all or any part of the
Pledged Securities at one or more times in addition to such other rights and
remedies as Pledgee may have either at law or in equity. The Pledgor will pay
all of the costs and expenses, including reasonable attorneys fees, of enforcing
the pledge contained herein. No sale of the Pledged Securities shall be made in
violation of federal and state securities laws.
7. AMENDMENTS WITH RESPECT TO THE OBLIGATIONS. The Pledgor shall
remain obligated hereunder, and the Collateral shall remain subject to the lien
granted hereby, notwithstanding that, without any reservation of rights against
the Pledgor, and without notice to or further assent by the Pledgor, any demand
for payment of any of the Obligations continued, and the Obligations, or the
liability of the Pledgor upon or for any part thereof, or any collateral
security therefor, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by Pledgee, and the Term Note may be amended, modified, supplemented or
terminated, in whole or in part, as Pledgee may deem advisable from time to
time, and any other collateral at any time held by Pledgee for the payment of
Obligations may be sold, exchanged, waived, surrendered or released. Pledgee
shall have no obligation to protect, secure, perfect or insure any other lien at
any time held by him as security for the Obligations or any property subject
thereto. The Pledgor hereby expressly waives any and all notice of the creation,
renewal, extension or accrual of any of the Obligations and notice of or proof
of reliance by Pledgee upon this Pledge Agreement. The Pledgor hereby expressly
waives diligence, presentment, protest, demand for payment and notice of default
or nonpayment to or upon the Pledgor with respect to the Obligations.
8. LIMITATION ON DUTIES REGARDING COLLATERAL. Pledgee's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as Pledgee deals with similar
securities, instruments and property for his own account. Pledgee shall not be
liable for failure to demand, collect or realize upon any of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Pledgor or otherwise. Pledgee
shall release the Pledged Securities to Pledgor for the purposes of enabling the
Pledgor to effect a sale of the Pledged Securities in accordance with and
subject to the provisions of Paragraph 4(B) hereof.
9. POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
Page 16 of 28
<PAGE> 4
10. SEVERABILITY. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. SECTION HEADINGS. The paragraph headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or to be taken into consideration in the interpretation
hereof.
12. NO WAIVER; CUMULATIVE REMEDIES. Pledgee shall not by any act
(except by a written instrument pursuant to Paragraph 13 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of Pledgee, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by Pledgee of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy which Pledgee would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
13. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING LAW.
None of the terms or provisions of this Pledge Agreement, may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Pledgor and Pledgee, PROVIDED that any provision of this Pledge
Agreement may be waived in writing by Pledgee in a letter or agreement executed
by Pledgee or by telex or facsimile transmission from Pledgee. This Pledge
Agreement shall be binding upon the successors and assigns of the Pledgor and
shall inure to the benefit of Pledgee and its successors and assigns. This
Pledge Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Massachusetts.
14. NOTICES. Any notice or other communication hereunder to
Pledgor or Pledgee shall be given in writing by (a) personal delivery (confirmed
by the courier delivery service), (b) expedited delivery with proof of delivery,
(c) telefax and confirmed in writing by regular first class mail, or (d) first
class registered or certified mail, postage prepaid, return receipt requested,
to the addresses indicated below:
Pledgor: Raymond C. Kubacki, Jr.
438 South Street
Carlisle, Massachusetts 01741
Pledgee: Psychemedics Corporation
1280 Massachusetts Avenue, Suite 200
Cambridge, Massachusetts 02138
Attn: Treasurer
Copy to: Patrick J. Kinney, Jr., Esquire
Lynch, Brewer, Hoffman & Sands, LLP
101 Federal Street, 22nd Floor
Boston, Massachusetts 02110-1800
Page 17 of 28
<PAGE> 5
Any notice provided for herein shall become effective only upon and at
the time of first receipt by the party to whom it is given, unless such notice
is only mailed by certified mail, return receipt requested, in which case it
shall be deemed to be received three (3) business days after the date that it is
mailed. Any party may, by proper written notice hereunder to the other party,
change the individual address to which such notice shall thereafter be sent.
15. COUNTERPARTS. This Pledge Agreement may be executed in several
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered as of the date first above.
THE PLEDGOR:
/s/ Raymond C. Kubacki, Jr.
--------------------------------------
Raymond C. Kubacki, Jr.
THE PLEDGEE:
PSYCHEMEDICS CORPORATION
By /s/ Bruce M. Stillwell
-----------------------------------
Bruce M. Stillwell
Page 18 of 28
<PAGE> 1
Exhibit 10.3
PLEDGE AGREEMENT
PLEDGE AGREEMENT made as of November 12, 1997, by and between RAYMOND
C. KUBACKI, JR. (the "Pledgor") AND PSYCHEMEDICS CORPORATION, a Delaware
corporation (the "Pledgee").
RECITALS
WHEREAS, in order to permit Pledgor to exercise on the date hereof
certain non-qualified stock options granted to the Pledgor by the Pledgee on
November 13, 1992, which expire on November 13, 1997, Pledgor executed and
delivered to Pledgee a Promissory Note dated the date hereof (the "Term Note")
in the aggregate original principal amount of $211,232; and
WHEREAS, as security for his obligations under the Term Note, Pledgor
has agreed to pledge to Pledgee the shares of the capital stock of Pledgee
issued upon the exercise of said options;
NOW, THEREFORE, in consideration of the premises, the Pledgor and the
Pledgee hereby agree as follows:
1. DEFINED TERMS. The following terms shall have the following
meanings:
"Code" means the Uniform Commercial Code from time to time in effect in
the Commonwealth of Massachusetts.
"Collateral" means the Pledged Securities and all Proceeds.
"Event of Default" means (i) a default under the Term Note; or (ii) a
breach by the Pledgor of any agreement, covenant or representation contained in
this Pledge Agreement.
"Obligations" means the unpaid principal of and interest on the Term
Note and all other obligations and liabilities of the Pledgor to Pledgee under
the Term Note.
"Pledge Agreement" means this Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.
"Pledged Securities" means the net amount of Eighty-two Thousand Five
Hundred Twenty-one (82,521) shares of the Common Stock, $.005 par value, of
Psychemedics Corporation purchased by the Pledgor from Pledgee as of the date
hereof, together with all stock certificates, instruments, options or rights of
any nature whatsoever which may be issued or granted to the Pledgor in respect
of the Pledged Securities, while this Pledge Agreement in effect.
"Proceeds" means all "proceeds" as such term is defined in Section
9-306(1) of the Code and, in any event, shall include, without limitation, any
and all proceeds from any subsequent sale of any of the Pledged Securities, and
all cash, securities or other property paid or distributed upon or in respect of
the Pledged Securities by ordinary or special dividend or other distribution, or
other income from the Pledged Securities, collections thereon or distributions
with respect thereto.
Page 19 of 28
<PAGE> 2
2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor hereby
delivers to Pledgee all the Pledged Securities and hereby grants to Pledgee a
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due of the Obligations.
3. STOCK POWERS. Concurrently with the delivery to Pledgee of
each certificate or instrument representing the Pledged Securities, the Pledgor
shall deliver an undated stock power or other transfer document covering such
certificate or instrument, duly executed in blank.
4. COVENANTS. The Pledgor and the Pledgee covenant and agree
that, from and after the date of this Pledge Agreement until the Obligations are
paid in full:
(a) Any cash (less an amount equal to any income taxes
payable by Pledgor with respect thereto), securities or other property paid or
distributed upon or in respect of the Pledged Securities shall be paid over to
Pledgee in payment of the Obligations until the Obligations are paid in full.
(b) The Pledgor may sell the Collateral from time to time
prior to the maturity date of the Term Note at a price per share not less than
the current market value in effect on the date of such sale, or the last sale
price on the trading day next preceding the date of such sale, as reported on
the American Stock Exchange, PROVIDED, HOWEVER, that the Pledgor shall pay over
to the Pledgee any Proceeds thereof (less an amount equal to any income taxes
payable by Pledgor with respect thereto) in payment of the Obligations until the
Obligations are paid in full, and shall instruct any broker conducting a sale of
any of the Pledged Securities to pay over such Proceeds (less an amount equal to
any income taxes payable by Pledgor with respect thereto) directly to the
Pledgee in payment of the Obligations until the Obligations are paid in full.
(c) Except to the extent provided in Paragraph 4(B)
above, the Pledgor shall not, without the prior written consent of the Pledgee,
assign, transfer, exchange or otherwise dispose of, or grant any option with
respect to the Collateral, or create, incur or permit to exist any lien or
option in favor of, or any claim of any person or entity with respect to, any of
the Collateral, or any interest therein, except for Pledgee's interest as
pledgee hereunder. The Pledgor will defend the right, title and interest of
Pledgee as pledgee hereunder in and to the Collateral against the claims and
demands of all person or entities whomsoever.
(d) The Pledgor agrees to pay, and to save Pledgee
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying any and all stamp, excise, sales or other taxes (exclusive of
taxes based on income, gross receipts, franchise rights and related items) which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Pledge
Agreement.
5. VOTING RIGHTS. Unless an Event of Default shall have occurred,
the Pledgor shall be permitted to exercise all voting rights with respect to the
Pledged Securities to the extent permitted by law.
6. RIGHTS AND REMEDIES OF PLEDGEE. Upon the occurrence of an
Event of Default as defined herein, Pledgee, at its option, and without further
notice to Pledgor, shall have the right to do one or more of the following:
Page 20 of 28
<PAGE> 3
(a) transfer the Pledged Securities immediately into the name of
Pledgee or its nominee;
(b) vote or direct the voting of the Pledged Securities and
receive all dividends and distributions declared thereon;
(c) upon giving not less than five (5) days notice, which notice
shall be deemed reasonable and proper, sell or otherwise
dispose of the Pledged Securities at public or private sale or
on any exchange, or otherwise, and apply the proceeds thereof
in accordance with applicable law; or
(d) pursue any right or remedy of a secured party under the Code.
Pledgor hereby irrevocably appoints Pledgee its attorney-in-fact for
purposes of executing and delivering any instrument or document necessary or
desirable for the exercise of any of the foregoing rights and remedies. Such
rights and remedies may be exercised with respect to all or any part of the
Pledged Securities at one or more times in addition to such other rights and
remedies as Pledgee may have either at law or in equity. The Pledgor will pay
all of the costs and expenses, including reasonable attorneys fees, of enforcing
the pledge contained herein. No sale of the Pledged Securities shall be made in
violation of federal and state securities laws.
7. AMENDMENTS WITH RESPECT TO THE OBLIGATIONS. The Pledgor shall
remain obligated hereunder, and the Collateral shall remain subject to the lien
granted hereby, notwithstanding that, without any reservation of rights against
the Pledgor, and without notice to or further assent by the Pledgor, any demand
for payment of any of the Obligations continued, and the Obligations, or the
liability of the Pledgor upon or for any part thereof, or any collateral
security therefor, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by Pledgee, and the Term Note may be amended, modified, supplemented or
terminated, in whole or in part, as Pledgee may deem advisable from time to
time, and any other collateral at any time held by Pledgee for the payment of
Obligations may be sold, exchanged, waived, surrendered or released. Pledgee
shall have no obligation to protect, secure, perfect or insure any other lien at
any time held by him as security for the Obligations or any property subject
thereto. The Pledgor hereby expressly waives any and all notice of the creation,
renewal, extension or accrual of any of the Obligations and notice of or proof
of reliance by Pledgee upon this Pledge Agreement. The Pledgor hereby expressly
waives diligence, presentment, protest, demand for payment and notice of default
or nonpayment to or upon the Pledgor with respect to the Obligations.
8. LIMITATION ON DUTIES REGARDING COLLATERAL. Pledgee's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as Pledgee deals with similar
securities, instruments and property for his own account. Pledgee shall not be
liable for failure to demand, collect or realize upon any of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Pledgor or otherwise. Pledgee
shall release the Pledged Securities to Pledgor for the purposes of enabling the
Pledgor to effect a sale of the Pledged Securities in accordance with and
subject to the provisions of Paragraph 4(B) hereof.
9. POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
Page 21 of 28
<PAGE> 4
10. SEVERABILITY. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. SECTION HEADINGS. The paragraph headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or to be taken into consideration in the interpretation
hereof.
12. NO WAIVER; CUMULATIVE REMEDIES. Pledgee shall not by any act
(except by a written instrument pursuant to Paragraph 13 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of Pledgee, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by Pledgee of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy which Pledgee would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
13. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING LAW.
None of the terms or provisions of this Pledge Agreement, may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Pledgor and Pledgee, PROVIDED that any provision of this Pledge
Agreement may be waived in writing by Pledgee in a letter or agreement executed
by Pledgee or by telex or facsimile transmission from Pledgee. This Pledge
Agreement shall be binding upon the successors and assigns of the Pledgor and
shall inure to the benefit of Pledgee and its successors and assigns. This
Pledge Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Massachusetts.
14. NOTICES. Any notice or other communication hereunder to
Pledgor or Pledgee shall be given in writing by (a) personal delivery (confirmed
by the courier delivery service), (b) expedited delivery with proof of delivery,
(c) telefax and confirmed in writing by regular first class mail, or (d) first
class registered or certified mail, postage prepaid, return receipt requested,
to the addresses indicated below:
Pledgor: Raymond C. Kubacki, Jr.
438 South Street
Carlisle, Massachusetts 01741
Pledgee: Psychemedics Corporation
1280 Massachusetts Avenue, Suite 200
Cambridge, Massachusetts 02138
Attn: Treasurer
Copy to: Patrick J. Kinney, Jr., Esquire
Lynch, Brewer, Hoffman & Sands, LLP
101 Federal Street, 22nd Floor
Boston, Massachusetts 02110-1800
Page 22 of 28
<PAGE> 5
Any notice provided for herein shall become effective only upon and at
the time of first receipt by the party to whom it is given, unless such notice
is only mailed by certified mail, return receipt requested, in which case it
shall be deemed to be received three (3) business days after the date that it is
mailed. Any party may, by proper written notice hereunder to the other party,
change the individual address to which such notice shall thereafter be sent.
15. COUNTERPARTS. This Pledge Agreement may be executed in several
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered as of the date first above.
THE PLEDGOR:
THE PLEDGOR:
/s/ Raymond C. Kubacki, Jr.
--------------------------------------
Raymond C. Kubacki, Jr.
THE PLEDGEE:
PSYCHEMEDICS CORPORATION
By /s/ Bruce M. Stillwell
-----------------------------------
Bruce M. Stillwell
Page 23 of 28
<PAGE> 1
Exhibit 10.4
PROMISSORY NOTE
$211,232.00 Cambridge, Massachusetts
November 12, 1997
FOR VALUE RECEIVED, the undersigned RAYMOND C. KUBACKI, JR. hereby
promises to pay to the order of PSYCHEMEDICS CORPORATION, a Delaware corporation
(the "Company"), in accordance with and subject to the terms and conditions set
forth herein, on or before November 12, 1998, the principal sum of TWO HUNDRED
ELEVEN THOUSAND TWO HUNDRED THIRTY-TWO DOLLARS AND 00/100 ($211,232.00), or so
much thereof as may from time to time be outstanding, and to pay interest on the
unpaid portion of such principal amount at the rate of 5.94 % PER ANNUM until
such principal amount and all accrued unpaid interest thereon shall have been
paid.
Interest accrued on the unpaid balance of principal from time to time
outstanding shall be payable together with payment of principal. Each payment
made under this Note shall be applied first to interest then due and then to
principal.
This Note is secured by a pledge of certain shares of Common Stock of
the Company owned by the undersigned more particularly described in the Pledge
Agreement dated as of the date hereof (the "Pledge Agreement") by and between
the undersigned and the Company. The Pledge Agreement is intended to provide
additional security to the Company for the obligations of the undersigned under
this Note and is not intended to limit in any way the obligations of the
undersigned under this Note which is a full recourse obligation of the
undersigned.
Page 24 of 28
<PAGE> 2
The undersigned, and each endorser and guarantor of this Note, hereby
waives demand, presentment for payment, notice of dishonor and protest, and all
other formalities provided by law. The undersigned hereby agrees that no delay
or omission on the part of the holder hereof in exercising any right or remedy
hereunder shall constitute a waiver of such right or remedy or of any other
right or remedy hereunder.
The occurrence of any of the following events shall constitute an Event
of Default under this Note:
1. Failure of the undersigned to pay when due any payment of
principal or interest herein required, which failure continues
unremedied for thirty (30) days;
2. An Event of Default under the Pledge Agreement;
3. the death, dissolution, liquidation, or termination of
existence of the undersigned or of any endorser or guarantor
hereof; or
4. the making of an assignment for the benefit of creditors by,
the insolvency of, the appointment of a receiver of any part
of the property of, or the filing of a petition in bankruptcy
or the commencement of any proceeding under any bankruptcy or
insolvency law or any law relating to the relief of debtors,
readjustment of indebtedness, reorganization, composition or
extension by or against, the undersigned or any endorser or
guarantor hereof.
Upon the occurrence of an Event of Default under this Note, the
outstanding principal balance hereof, together with any accrued unpaid interest
thereon, and together with all reasonable costs of collection, including
reasonable attorneys' fees, shall become immediately due and payable at the
option of the holder hereof. Failure on the part of the holder hereof to
exercise said option shall not constitute a waiver of the right of the holder
hereof to exercise said option in the event of any subsequent Event of Default.
Payments of principal and interest hereunder shall be made at 1280
Massachusetts Avenue, Suite 200, Cambridge, Massachusetts 02138, or such other
address as the holder hereof may designate from time to time. The undersigned
shall have the right to prepay all or any part of the principal sum secured
hereby at any time or from time to time without premium or penalty.
This Note shall take effect as an instrument under seal and shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
Page 25 of 28
<PAGE> 3
EXECUTED as of the date set forth above.
/s/ Raymond C. Kubacki, Jr.
----------------------------------
Raymond C. Kubacki, Jr.
Signed in the presence of:
- ------------------------------
Page 26 of 28
<PAGE> 1
Exhibit 10.5
FIRST AMENDMENT TO PROMISSORY NOTE
FIRST AMENDMENT TO PROMISSORY NOTE dated as of the 6th day of January,
1998 by and between RAYMOND C. KUBACKI, JR. (the "Borrower") and PSYCHEMEDICS
CORPORATION (the "Lender").
WHEREAS, the Borrower and the Lender entered into a Promissory Note
dated January 6, 1997, (the "Note") in the original principal amount of Two
Hundred Nine Thousand Eight Hundred Ninety-two Dollars ($209,892.00); and
WHEREAS, the Borrower's obligations under the Note are secured by a
pledge of shares of Common Stock of the Lender pursuant to a Pledge Agreement
dated January 6, 1997 (the "Pledge Agreement");
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. AMENDMENT. (a) The Note is hereby amended by deleting the
first three paragraphs thereof and inserting in lieu thereof the following:
"FOR VALUE RECEIVED, the undersigned RAYMOND C. KUBACKI, JR.
hereby promises to pay to the order of PSYCHEMEDICS CORPORATION, a
Delaware corporation (the "Company"), in accordance with and subject to
the terms and conditions set forth herein, on or before January 6,
1999, the principal sum of TWO HUNDRED SIX THOUSAND THREE HUNDRED
SEVENTY-NINE DOLLARS AND 35/100 ($206,379.35), or so much thereof as
may from time to time be outstanding, and to pay interest on the unpaid
portion of such principal amount at the rate of 5.95 % PER ANNUM until
such principal amount and all accrued unpaid interest thereon shall
have been paid.
Interest accrued on the unpaid balance of principal from time
to time outstanding shall be payable together with payment of
principal. Each payment made under this Note shall be applied first to
interest then due and then to principal.
This Note is secured by a pledge of certain shares of Common
Stock of the Company owned by the undersigned more particularly
described in the Pledge Agreement dated January 6, 1997 (the "Pledge
Agreement") by and between the undersigned and the Company. The Pledge
Agreement is intended to provide additional security to the Company for
the obligations of the undersigned under this Note and is not intended
to limit in any way the obligations of the undersigned under this Note
which is a full recourse obligation of the undersigned."
(b) All references in the Pledge Agreement to the Note shall be
deemed to refer to the Note, as modified and amended hereby.
2. RATIFICATION. (a) The terms and provisions of the Note, as
modified and amended hereby, are hereby ratified and confirmed by the Borrower
in all respects and the Note shall remain in full force and effect in accordance
with its terms as so modified and amended.
(b) The obligations of the Borrower to repay to the Lender all
indebtedness under the Note, as modified and amended hereby, and to pay and
perform all of its other obligations to the Lender are and will continue to be
secured by the Pledge Agreement and the Lender is and will continue to be
entitled to the benefit of all of the rights and remedies thereunder.
Page 27 of 28
<PAGE> 2
(c) Nothing herein is intended or shall be construed so as to
discharge, release, terminate, or otherwise limit or modify any indebtedness,
obligations, or liabilities of the Borrower or any collateral security therefor.
3. MISCELLANEOUS. This First Amendment to Promissory Note shall
be governed by the laws of the Commonwealth of Massachusetts, shall be construed
as a sealed instrument, and shall be binding upon, and inure to the benefit of,
the parties hereto and their respective successors and assigns.
Executed as a sealed instrument as of the date set forth above.
PSYCHEMEDICS CORPORATION
(Lender)
By: /s/ Bruce M. Stillwell
-----------------------------------
Bruce M. Stillwell, Vice
President
/s/ Raymond C. Kubacki, Jr.
-----------------------------------
Raymond C. Kubacki, Jr.
(Borrower)
Page 28 of 28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,749,679
<SECURITIES> 9,665,654
<RECEIVABLES> 3,085,363
<ALLOWANCES> 0
<INVENTORY> 490,836
<CURRENT-ASSETS> 16,089,993
<PP&E> 6,865,880
<DEPRECIATION> 3,230,771
<TOTAL-ASSETS> 20,173,029
<CURRENT-LIABILITIES> 3,180,171
<BONDS> 0
0
0
<COMMON> 112,020
<OTHER-SE> 16,880,838
<TOTAL-LIABILITY-AND-EQUITY> 20,173,029
<SALES> 4,121,903
<TOTAL-REVENUES> 4,121,903
<CGS> 1,694,888
<TOTAL-COSTS> 1,694,888
<OTHER-EXPENSES> 1,482,981
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,080,418
<INCOME-TAX> 439,410
<INCOME-CONTINUING> 641,278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 641,278
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
