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ARCH THERAPEUTICS, INC.

Executive EMPLOYMENT AGREEMENT

 

This EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of June
25, 2013 (the “Effective Date”), by and between Arch Therapeutics, Inc., a
Nevada corporation (the “Company”), and Terrence W. Norchi (“Executive”). The
parties hereby agree as follows:

 

1.                  Duties.

 

(a)               Position. Executive shall serve as the Company’s President and
Chief Executive Officer and shall have the duties and responsibilities incident
to such position and such other duties as may be determined by the Company’s
Board of Directors. Executive shall perform faithfully, cooperatively and
diligently all of his job duties and responsibilities and agrees to and shall
devote his full time, attention and effort to the business of the Company, its
affiliates as directed, and other assignments as directed by the Board of
Directors. Executive will report to the Board of Directors.

 

(b)               Best Efforts. Executive will expend his best efforts on behalf
of the Company in connection with his employment and will abide by all of the
Company’s applicable employment policies and decisions made by Board of
Directors, as well as all applicable federal, state and local laws, regulations
or ordinances.

 

(c)                Start Date. The effective date of this Agreement shall be
June 26, 2013 (the “Start Date”). Executive shall comply with and be bound by
the terms of this Agreement commencing on the Start Date.

 

(d)               Other Activities. Except upon the prior written consent of the
Company, Executive will not, during the term of this Agreement, (i) accept any
other employment, or (ii) engage, directly or indirectly, in any other business
activity (whether or not pursued for pecuniary advantage) that might interfere
with Executive’s duties and responsibilities hereunder or create a conflict of
interest with the Company.

 

(e)                No Conflict. Executive represents and warrants that
Executive’s execution of this Agreement, Executive’s employment with the
Company, and the performance of Executive’s proposed duties under this Agreement
shall not violate any obligations Executive may have to any other employer,
person or entity, including any obligations with respect to proprietary or
confidential information of any other person or entity.

 

2.                  Compensation.

 

(a)               Annual Base Salary. As compensation for Executive’s
performance of his duties hereunder, the Company shall pay to Executive an
initial base annual salary of two-hundred seventy-five thousand dollars
($275,000), starting on the Start Date (the “Annual Base Salary”), payable in
accordance with the normal payroll practices of Company, less required
deductions for state and federal withholding tax, social security and all other
employment taxes and payroll deductions. If, due to the Company’s capital
constraints, the Company is unable to pay to Executive any portion of the Annual
Base Salary when due, such unpaid portion of the Annual Base Salary shall be
deferred, without bearing interest, and shall remain payable until such time as
the Company’s capital constraints are resolved and the outstanding Annual Base
Salary is fully paid.

 

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(b)               Annual Bonus. Executive shall be eligible at the sole
discretion of the Board of Directors to receive an annual cash bonus in an
amount up to 30% of his then-current Annual Base Salary (the “Annual Bonus”).
The actual amount of the Annual Bonus will be determined by the Board of
Directors based on Executive’s achieving Company and personal goals established
and mutually agreed upon between the Executive and the Company. If awarded, the
Annual Bonus will be paid on or before March 15 of the year following the year
in which the Annual Bonus was earned. If, due to the Company’s capital
constraints, the Company is unable to pay to Executive any portion of the Annual
Bonus when due, such unpaid portion of the Annual Bonus shall be deferred,
without bearing interest, and shall remain payable until such time as the
Company’s capital constraints are resolved and the outstanding Annual Bonus is
fully paid.

 

(c)                Annual Review of Base Salary. Executive’s Annual Base Salary
will be reviewed from time to time in accordance with the established procedures
of the Company for adjusting salaries for similarly situated employees.

 

(d)               Equity Grants. Executive will be, from time to time, eligible,
at the sole discretion of the Board of Directors, to receive equity incentive
grants in accordance with any applicable equity incentive plan of the Company.
In the event (i) of a Corporate Transaction or Change of Control (as such terms
are defined in the Company’s applicable equity incentive plan, including without
limitation the Company’s 2013 Stock Incentive Plan, as it may be amended from
time to time), (ii) Executive’s employment is terminated by Executive for Good
Reason (as defined in Section 4 below), (iii) Executive’s employment is
terminated by the Company other than For Cause (as defined in Section 4 below),
or (iv) Executive’s employment is terminated as a result of death, then in each
case 100% of the number of any unvested shares subject to any outstanding equity
incentive grant made to Executive shall accelerate automatically and become
vested shares as of the date of such event.

 

3.                  Benefits.

 

(a)               Health and Welfare Benefit Plans. The Company shall provide to
Executive health, dental and vision and other benefits on the same or
substantially similar terms as those provided to the other executive officers of
the Company.

 

(b)               Customary Benefits. Executive shall be eligible to participate
in the benefits made generally available by the Company to similarly-situated
executives, in accordance with the benefit plans established by the Company, and
as may be amended from time to time in the Company’s sole discretion. Executive
shall be eligible to participate in any equity compensation or incentive plans
that the Company has adopted or may adopt in its sole discretion that are
applicable to similarly-situated executives, subject in all cases to approval by
the Board of Directors of any grant thereunder.

 

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(c)                Business Expenses. The Company shall reimburse Executive for
reasonable business expenses incurred in the performance of Executive’s duties
hereunder in accordance with the Company’s expense reimbursement guidelines.

 

(d)               Vacation. Executive shall be entitled to paid vacation,
personal and sick days each calendar year, in accordance with the Company’s
plans, policies and programs then in effect. Initially Executive will be granted
four (4) weeks of paid vacation per annum and ten (10) additional days of paid
time-off per annum.

 

4.                  At-Will Employment; Termination of Employment.

 

(a)               At-Will Termination by Company. Executive’s employment with
the Company shall be “at-will” at all times. The Company may terminate
Executive’s employment with the Company at any time, without any advance notice,
for any reason or no reason at all, notwithstanding anything to the contrary
contained in or arising from any statements, policies or practices of the
Company relating to the employment, discipline or termination of its employees.
Upon and after such termination, all obligations of the Company under this
Agreement shall cease, except as otherwise provided herein.

 

(b)               Severance Upon Termination by the Company Other Than For
Cause. Except in situations where the employment of Executive is terminated by
the Company For Cause (as defined below), in the event that the Company
terminates Executive’s employment at any time, Executive shall be eligible to
receive an amount equal to twelve (12) months of the Executive’s then-current
Annual Base Salary, payable in the form of salary continuation (“Severance”). In
addition, if Executive elects to continue his group health coverage under COBRA,
the Company will pay Executive’s COBRA premiums for coverage until the earlier
of (i) the end of the twelve (12) month period following the date of such
termination; or (ii) the date Executive becomes covered under another employer’s
health plan; provided, however, that, in the event that the Company determines,
in its sole discretion, that such payments are no longer exempt from the
application of Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”) or may be subject to tax or penalty pursuant to Section 4980D of
the Code, then the Company shall pay Executive an amount equal to each remaining
COBRA premium as taxable compensation in monthly installments. Executive shall
not be entitled to any Severance if Executive’s employment is terminated For
Cause or if Executive’s employment is terminated by Executive (except as
expressly provided in Section 4(f) below).

 

(c)                Termination For Cause. For purposes of this Agreement, “For
Cause” shall mean: (i) Executive commits a crime involving dishonesty, breach of
trust, or physical harm to any person; (ii) Executive willfully engages in
conduct that is in bad faith and materially injurious to the Company, including
without limitation misappropriation of trade secrets, fraud or embezzlement;
(iii) Executive commits a material breach of this Agreement, which breach is not
cured within twenty calendar days after written notice to Executive from the
Company; (iv) Executive willfully refuses to implement or follow a lawful policy
or directive of the Company, which breach is not cured within twenty calendar
days after written notice to Executive from the Company; or (v) Executive
engages in misfeasance or malfeasance demonstrated by a pattern of failure to
perform job duties diligently and professionally (other than any such failure
resulting from Executive’s incapacity due to physical or mental illness). The
Company may terminate Executive’s employment For Cause at any time, without any
advance notice. The Company shall pay Executive all compensation to which
Executive is entitled up through the date of termination, subject to any other
rights or remedies of the Company under law; and thereafter all obligations of
the Company under this Agreement shall cease.

 

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(d)               Termination By Death. Executive’s employment shall terminate
automatically upon Executive’s death. The Company shall pay to Executive’s
beneficiaries or estate, as appropriate, any compensation to which Executive is
entitled up through the date of termination. Thereafter all obligations of the
Company under this Agreement shall cease. Nothing in this Section 4(d) shall
affect any entitlement of Executive’s heirs or devisees to the benefits of any
life insurance plan or other applicable benefits.

 

(e)                At-Will Termination by Executive. Executive may terminate
employment with the Company at any time for any reason or no reason at all, upon
four (4) weeks’ advance written notice. During such notice period Executive
shall continue to diligently perform all of Executive’s duties hereunder. The
Company shall have the option, in its sole discretion, to make Executive’s
termination effective at any time prior to the end of such notice period, in
which case Executive would receive compensation only up through the effective
date of termination of his employment. Thereafter all obligations of the Company
shall cease.

 

(f)                Severance Upon Termination By Executive for Good Reason. For
purposes of this Agreement, “Good Reason” shall mean the occurrence of any of
the following without Executive’s prior written consent: (i) a material
reduction in Executive’s Annual Base Salary, except for reductions that are
comparable to reductions generally applicable to similarly-situated executives
of the Company; (ii) the relocation of Executive to a facility or location that
is more than fifty (50) miles from his primary place of employment and such
relocation results in an increase in Executive’s one-way driving distance by
more than fifty (50) miles; or (iii) a material and adverse change in
Executive’s authority, duties, or responsibilities with the Company or a
material and adverse change in Executive’s reporting relationship; in each case
other than any isolated, insubstantial and inadvertent failure by the Company
that is not in bad faith and is cured within thirty (30) business days after
Executive gives the Company notice of such event, which must be given within
ninety (90) days after the event giving rise to the claim of Good Reason occurs.
Executive’s continued employment shall not constitute consent to, or a waiver of
rights with respect to, any act or failure to act constituting Good Reason
hereunder; provided, however, that no such event described above shall
constitute Good Reason unless: (A) Executive gives notice of termination to the
Company specifying the condition or event relied upon for such termination
within ninety (90) days of the initial existence of such event; and (B) the
Company fails to cure the condition or event constituting Good Reason within
thirty (30) days following receipt of Executive’s notice of termination (the
“Cure Period”). If the Company fails to remedy the condition constituting Good
Reason during the applicable Cure Period, Executive’s “separation from service”
(within the meaning of Section 409A) must occur, if at all, within ninety (90)
days following such Cure Period in order for such termination as a result of
such condition to constitute a termination for Good Reason. Upon Executive’s
termination of his employment for Good Reason, Executive will be entitled to
receive Severance. In addition, if Executive elects to continue his group health
coverage under COBRA, the Company will pay Executive’s COBRA premiums for
coverage until the earlier of (1) the end of the twelve (12) month period
following the date of such termination; or (2) the date Executive becomes
covered under another employer’s health plan; provided, however, that, in the
event that the Company determines, in its sole discretion, that such payments
are no longer exempt from the application of Section 409A of the Code or may be
subject to tax or penalty pursuant to Section 4980D of the Code, then the
Company shall pay Executive an amount equal to each remaining COBRA premium as
taxable compensation in monthly installments.

 

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(g)               Termination Obligations

 

(i)                 Return of Property. Executive agrees that all property
(including without limitation all equipment, tangible proprietary information,
documents, records, notes, contracts and computer-generated materials) furnished
to or created or prepared by Executive incident to Executive’s employment
belongs to the Company and shall be promptly returned to the Company upon
termination of Executive’s employment.

 

(ii)               Resignation and Cooperation. Upon termination of Executive’s
employment, Executive shall be deemed to have resigned from all offices and
directorships then held with the Company. Following any termination of
employment, Executive shall cooperate with the Company in the winding up of
pending work on behalf of the Company and the orderly transfer of work to other
employees. Executive shall also cooperate with the Company in the defense of any
action brought by any third party against the Company that relates to
Executive’s employment by the Company.

 

(h)               Release. The receipt of any payment pursuant to this Section 4
shall be subject to Executive timely signing and not revoking a standard release
of all claims in a form reasonably satisfactory to the Company (the “Severance
Release”). To be timely, the Severance Release must become effective and
irrevocable no later than sixty (60) days following the Severance Date (the
“Severance Release Deadline”). If the Severance Release does not become
effective and irrevocable by the Severance Release Deadline, Executive hereby
forfeits any rights to the severance benefits described in this Section 4. In no
event will any severance benefits be paid under this Section 4 until the
Severance Release becomes effective and irrevocable. Subject to Annex A attached
hereto, severance benefits shall commence once the Severance Release becomes
effective and irrevocable.

 

(i)                 Exclusive Remedy. Executive agrees that the payments and
benefits contemplated by this Section 4 (and any applicable acceleration of
vesting of an equity-based award in accordance with the terms of such award in
connection with the termination of Executive’s employment) shall constitute the
exclusive and sole remedy for any termination of his employment, and Executive
covenants not to assert or pursue any other remedies, at law or in equity, with
respect to any termination of employment.

 

5.                  Inventions and Proprietary Information; Prohibition on Third
Party Information

 

(a)               Proprietary Information Agreement. Executive shall sign and be
bound by the terms of the Company’s Employee Proprietary Information and
Inventions Assignment Agreement (the “Proprietary Information Agreement”).

 

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(b)               Non-Disclosure of Third Party Information. Executive
represents, warrants and covenants that Executive shall not disclose to the
Company, or use, or induce the Company to use, any proprietary information or
trade secrets of others at any time, including without limitation any
proprietary information or trade secrets of any former employer, if any; and
Executive acknowledges and agrees that any violation of this provision shall be
grounds for Executive’s immediate termination and could subject Executive to
substantial civil liabilities and criminal penalties. Executive further
specifically and expressly acknowledges that no officer or other employee or
representative of the Company has requested or instructed Executive to disclose
or use any such third party proprietary information or trade secrets.

 

6.                  General Provisions.

 

(a)               Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their heirs, personal
representatives and successors, including any successor of the Company by reason
of any dissolution, merger, consolidation, sale of assets or other
reorganization of the Company.

 

(b)               Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such
right, power or privilege; and no single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege. To
the maximum extent permitted by applicable law, (i) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (ii) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (iii) no notice to or demand on one party will be deemed
to be a waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.

 

(c)                Validity. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.

 

(d)               Headings. The headings set forth in this Agreement are for
convenience only and shall not be used in interpreting this Agreement.

 

(e)                Governing Law; Venue. This Agreement will be governed by and
construed in accordance with the laws of the United States and the State of New
York, without giving effect to its conflict of law rules. Except for actions for
injunctive or other equitable relief, which may be brought in any court of
competent jurisdiction, any legal suit, action or proceeding arising out of or
relating to this Agreement shall be commenced in a federal court in the
Commonwealth of Massachusetts or in state court in the Commonwealth of
Massachusetts, and each party hereto irrevocably submits to the exclusive
jurisdiction and venue of any such court in any such suit, action or proceeding.

 

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(f)                Counterparts. This Agreement may be executed in one or more
counterparts, all of which when fully executed and delivered by all parties
hereto and taken together shall constitute a single agreement, binding against
each of the parties.

 

(g)               Survival. Sections 4, 5 and 6 of this Agreement (including the
terms and provisions of the Proprietary Information Agreement as set forth
therein) shall survive Executive’s employment by the Company.

 

(h)               Notices. All notices, consents, waivers and other
communications under this Agreement shall be in writing and will be deemed to
have been duly given when (i) delivered by hand (with written confirmation of
receipt); (ii) sent by facsimile (with written confirmation of receipt); or
(iii) when received by the addressee, if sent by a nationally recognized
overnight delivery service or by United States first class registered or
certified mail, return receipt requested, to the principal address of the other
party set forth below, or to such other address as either party shall have
furnished to the other in writing in accordance herewith.

 

If to Executive:

 

Terrence W. Norchi

1 Chieftain Lane

Natick, MA 01760

 

If to the Company:

 

Arch Therapeutics, Inc.

Attn: Avtar Dhillon

One Broadway, 14th Floor

Cambridge, MA 02412

 

(i)                 Entire Agreement. This Agreement is intended to be the
final, complete, and exclusive statement of the terms of Executive’s employment
by the Company or any of the Company’s affiliates and may not be contradicted by
evidence of any prior or contemporaneous statements or agreements, except for
agreements specifically referenced herein (including the Proprietary Information
Agreement and any agreement relating to any stock option or other equity award
that may be granted to Executive). Without limiting the generality of the
foregoing, this Agreement shall supersede and replace in its entirety any
agreements or other relationships relating to Executive’s former employment by
any subsidiary or other affiliate of the Company. To the extent that the
practices, policies or procedures of the Company, now or in the future, apply to
Executive and are inconsistent with the terms of this Agreement, the provisions
of this Agreement shall control. Except as otherwise expressly provided herein,
any subsequent change in Executive’s duties, position, or compensation will not
affect the validity or scope of this Agreement.

 

EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS HAD THE OPPORTUNITY TO CONSULT LEGAL
COUNSEL CONCERNING THIS AGREEMENT, THAT EXECUTIVE HAS READ AND UNDERSTANDS THIS
AGREEMENT IN FULL, THAT EXECUTIVE IS FULLY AWARE OF ITS LEGAL EFFECT, AND THAT
EXECUTIVE HAS ENTERED INTO IT FREELY BASED ON EXECUTIVE’S OWN JUDGMENT AND NOT
ON ANY REPRESENTATIONS OR PROMISES OTHER THAN THOSE CONTAINED IN THIS AGREEMENT.

 

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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first written above.

 

 

EXECUTIVE

 

      /s/  Terrence W. Norchi   Name: Terrence W. Norchi               ARCH
THERAPEUTICSS, INC.                     By: /s/  Avtar Dhillon   Name: Avtar
Dhillon   Title: Chairman of the Board  

 

 

 

 

 

 

[Signature Page to Executive Employment Agreement]

 

 

 

 

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ANNEX A

 

SECTION 409A ADDENDUM

 

Notwithstanding anything to the contrary in the Agreement, no severance pay or
benefits to be paid or provided to Executive, if any, pursuant to the Agreement
that, when considered together with any other severance payments or separation
benefits, are considered deferred compensation under Section 409A of the
Internal Revenue Code of 1986, as amended, and the final regulations and any
guidance promulgated thereunder (“Section 409A”) (together, the “Deferred
Payments”) will be paid or otherwise provided until Executive has had a
“separation from service” within the meaning of Section 409A. Similarly, no
severance payable to Executive, if any, that otherwise would be exempt from
Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9) will be
payable until Executive has had a “separation from service” within the meaning
of Section 409A. Each payment and benefit payable under the Agreement is
intended to constitute a separate payment for purposes of Section 1.409A-2(b)(2)
of the Treasury Regulations.

 

Any severance payments or benefits under the Agreement that would be considered
Deferred Payments will be paid or will commence on the sixtieth (60th) day
following Executive’s separation from service, or, if later, such time as
required by the next paragraph.

 

Notwithstanding anything to the contrary in the Agreement, if Executive is a
“specified Executive” within the meaning of Section 409A at the time of
Executive’s termination (other than due to death), then the Deferred Payments
that would otherwise have been payable within the first six (6) months following
Executive’s separation from service, will be paid on the first payroll date that
occurs on or after the date six (6) months and one (1) day following the date of
Executive’s separation from service, but in no event later than seven (7) months
after the date of such separation from service. All subsequent Deferred
Payments, if any, will be payable in accordance with the payment schedule
applicable to each payment or benefit. Notwithstanding anything herein to the
contrary, if Executive dies following Executive’s separation from service, but
prior to the six (6) month anniversary of the separation from service, then any
payments delayed in accordance with this paragraph will be payable in a lump sum
as soon as administratively practicable after the date of Executive’s death and
all other Deferred Payments will be payable in accordance with the payment
schedule applicable to each payment or benefit.

 

Any amount paid under the Agreement that satisfies the requirements of the
“short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury
Regulations will not constitute Deferred Payments. Any amount paid under the
Agreement that qualifies as a payment made as a result of an involuntary
separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury
Regulations that does not exceed the Section 409A Limit (as defined below) will
not constituted Deferred Payments. For this purpose, the “Section 409A Limit”
will mean two (2) times the lesser of: (i) Executive’s annualized compensation
based upon the annual rate of pay paid to him during Executive’s taxable year
preceding his taxable year of his separation from service as determined under
Treasury Regulation Section 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue
Service guidance issued with respect thereto; or (ii) the maximum amount that
may be taken into account under a qualified plan pursuant to Section 401(a)(17)
of the Internal Revenue Code for the year in which Executive’s separation from
service occurred.

 

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The foregoing provisions are intended to comply with the requirements of Section
409A so that none of the severance payments and benefits to be provided
hereunder will be subject to the additional tax imposed under Section 409A, and
any ambiguities herein will be interpreted to so comply. The Company and
Executive agree to work together in good faith to consider amendments to the
Agreement and to take such reasonable actions which are necessary, appropriate
or desirable to avoid imposition of any additional tax or income recognition
prior to actual payment to Executive under Section 409A.

 

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