Exhibit 10.1

 

SUBORDINATION AGREEMENT

 

This Subordination Agreement (this “Agreement”) dated September __, 2015, is
between _________________________ (the “Subordinated Creditor”), Massachusetts
Life Sciences Center (“Senior Creditor”) and Arch Therapeutics, Inc.
(“Borrower”).

 

Recitals

 

A.    Borrower has obtained credit from Senior Creditor.

 

B.    ___________________________ (“Subordinated Creditor”), having an address
at ___________________________________, has extended credit to Borrower pursuant
to that certain 8% Convertible Note issued by the Borrower to Subordinated
Creditor on March 13, 2015 (the “Convertible Note”).

 

C.    To induce Senior Creditor to extend credit to Borrower and make further
extensions of credit to or for Borrower, or to purchase or extend credit
pursuant to any instrument or writing on which Borrower is liable or to grant
renewals or extensions of any loan, extension of credit, purchase, or other
accommodation, Subordinated Creditor will subordinate all of Borrower's
indebtedness and obligations to Senior Creditor with respect to the Convertible
Note (together with any additional indebtedness subject to subordination
pursuant to Section 7, the “Subordinated Debt”), to all of Borrower's
indebtedness and obligations to Senior Creditor (the “Senior Debt”) pursuant to
a certain Life Sciences Accelerator Funding Agreement dated September 30, 2013
by and between Borrower and Senior Creditor (the “Loan Agreement”), as further
amended from time to time.

 

THE PARTIES AGREE AS FOLLOWS:

 

1.    All Subordinated Debt payments are subordinated to Senior Creditor’s right
to full payment and performance of the Senior Debt and all of Borrower’s other
obligations to Senior Creditor existing now or later, together with collection
costs of the Loan (as defined in the Loan Agreement), including attorneys' fees,
and including any interest accruing after any bankruptcy, reorganization or
similar proceeding and all obligations under the Loan Agreement.

 

2.    No Subordinated Creditor will:

 

a)    demand or receive from Borrower (and Borrower will not pay) any part of
the Subordinated Debt, by payment, prepayment, or otherwise, which may now or
hereafter be owing by Borrower to either Subordinated Creditor, or

 

b)    accelerate the Subordinated Debt, or begin to or participate in any action
against Borrower with respect to such Subordinated Debt, until all the Senior
Debt is paid, or

 

c)    assign any of the Subordinated Debt or any collateral security therefore
without notice to or consent of Senior Creditor and unless assigned pursuant to
an assignment made expressly subject to this Agreement.

 

 

 

 

For the avoidance of doubt, nothing in this Agreement shall prohibit
Subordinated Creditor from converting any Subordinated Debt into equity
securities of Borrower or exercising any rights as a stockholder of the
Borrower.

 

3.    Except with respect to any equity securities of Borrower received upon the
conversion of any Subordinated Debt in accordance with the terms of such
Subordinated Debt, Subordinated Creditor must deliver to Senior Creditor in the
form received (except for endorsement or assignment by Subordinated Creditor)
any payment, distribution, security or proceeds it receives on the Subordinated
Debt other than according to this Agreement.

 

4.    These provisions remain in full force and effect, despite Borrower's
insolvency, reorganization or any case or proceeding under any bankruptcy or
insolvency law, and Senior Creditor's claims against Borrower and Borrower’s
estate will be fully paid before any payment is made to Subordinated Creditor
with respect to the Subordinated Debt.

 

5.    Until the Senior Debt is paid, Subordinated Creditor irrevocably appoints
Senior Creditor as its attorney-in-fact, with power of attorney with power of
substitution, in Subordinated Creditor’s name or in Senior Creditor’s name, for
Senior Creditor’s use and benefit without notice to Subordinated Creditor, to do
the following in any bankruptcy, insolvency or similar proceeding involving
Borrower:

 

a)    File any claims for the Subordinated Debt for Subordinated Creditor if
Subordinated Creditor does not do so at least 30 days before the time to file
claims expires, and

 

b)    Accept or reject any plan of reorganization or arrangement for
Subordinated Creditor and vote Subordinated Creditor's claims in respect of the
Subordinated Debt in any way it chooses.

 

6.    Subordinated Creditor will immediately either put a legend on the
Subordinated Debt instruments that the instruments are subject to this Agreement
or affix this Agreement to the Subordinated Debt instruments. No amendment of
the Subordinated Debt documents will modify this Agreement in any way that
terminates or impairs the subordination of the Subordinated Debt or the
subordination of the security interest or lien that Senior Creditor has in
Borrower’s property.

 

7.    In the event Subordinated Creditor enters into any other agreement during
the term of this Agreement to extend credit to Borrower while a shareholder of
Borrower, such indebtedness shall be deemed to be Subordinated Debt for purposes
of this Agreement.

 

8    In the event the Convertible Note has not been converted in its entirety by
the Stated Maturity Date (as defined in the Convertible Note) and such
indebtedness under the Convertible Note remains subject to the terms of this
Agreement, (i) the Stated Maturity Date and the period during which Subordinated
Creditor shall have the right to convert such Convertible Note into equity
securities of Borrower will automatically be extended until the date the Senior
Debt has been repaid; and (ii) interest will continue to accrue on indebtedness
outstanding under the Convertible Note at a rate equal to eight percent (8.0%)
(computed on the basis of the actual number of days elapsed in a 360-day year)
per annum (collectively, the “Note Amendment”); provided, however, the Note
Amendment shall be of no force or effect unless and until the conditions set
forth in Section 7 of the Convertible Note have been satisfied. This Section 8
shall constitute one of several consents to be delivered in accordance with
Section 7 of the Convertible Note.

 

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9.    This Agreement shall be binding upon Subordinated Creditor, their
respective successors or assigns, and shall inure to the benefit of and be
enforceable by Senior Creditor and its successors or assigns.

 

10.    This Agreement shall terminate upon the date on which the Senior Debt
shall have been paid in cash in full.

 

11.    Senior Creditor may administer and manage its credit and other
relationships with Borrower in its own best interest, without notice or consent
of Subordinated Creditor. At any time and from time to time, Senior Creditor may
enter into any amendment or agreement with Borrower as Senior Creditor may deem
proper.

 

12.    All conditions, covenants, duties and obligations contained in this
Agreement can be waived only by written agreement. Forbearance or indulgence in
any form or manner by a party shall not be construed as a waiver, nor in any way
limit the remedies available to that party.

 

13.    All communications to the Senior Creditor shall be mailed or delivered to
the following address, or sent by facsimile to the following number with
confirmation of receipt by voice:

 

Brad Rosenblum, Chief Financial Officer

Re: Life Sciences Accelerator Program

1000 Winter Street, Suite 2900

Waltham, MA 02451

[Insert email address]

[___________] (phone)

[___________] (fax)

 

All communications to Subordinated Creditor shall be mailed or delivered to the
following address:

 

[Insert Contact Information]

 

All communications to Borrower shall be mailed or delivered to the following
address:

 

Terrence W. Norchi, President and Chief Executive Officer

235 Walnut St., Suite 6

Framingham, MA 01702

[Insert email address]

[___________] (phone)

 

14.    If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of the Agreement shall be interpreted as if such provision were so
excluded, and shall be enforceable in accordance with its terms.

 

15.    This Agreement may be executed in two or more counterparts, each of which
is an original and all of which together constitute one instrument.

 

16.    Massachusetts law governs this Agreement without giving effect to
conflicts of laws principles. Subordinated Creditor and the Senior Creditor
submit to the exclusive jurisdiction of the State and Federal courts in the
Commonwealth of Massachusetts. SUBORDINATED CREDITOR AND THE SENIOR CREDITOR
WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION FROM THIS
AGREEMENT.

 

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17.    If there is an action to enforce the rights of a party under this
Agreement, the party prevailing will be entitled, in addition to other relief,
all reasonable costs and expenses, including reasonable attorneys' fees,
incurred in the action.

 

[Signatures on Following Page]

 

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Subordinated Creditor:

        By:       [insert name]     [insert title]  

 

Senior Creditor:

 

MASSACHUSETTS LIFE SCIENCES CENTER

 

By:         Bradley Rosenblum       Chief Financial and Administrative Officer  

 

Borrower:

 

ARCH THERAPEUTICS, INC.

 

By:       Terrence W. Norchi     President, CEO  

 

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