EMPLOYMENT AGREEMENT


 


This EMPLOYMENT AGREEMENT
(the “Agreement”), is entered into as of July 10, 2014, with an effective date of July 11, 2014 (the “Effective
Date”), by and between Ventrus Biosciences, Inc., a Delaware corporation with principal executive offices at 99 Hudson
Street, 5th Floor, New York, NY 10013 (the “Company”), and Derek Small, residing at 4392 Creekside
Pass, Zionsville, IN 46077 (the “Executive”).


 


WITNESSETH:


 


WHEREAS, the Company
desires to employ the Executive as President, Chief Operating Officer and Budget Chief, and the Executive desires to accept employment
by the Company; and


 


WHEREAS, the parties
desire to enter into this Agreement, setting forth the terms and conditions of the Executive’s employment with the Company;


 


NOW, THEREFORE, in consideration
of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows:


 


1.           Employment.


 


(a)          Services.
The Executive will be employed by the Company as its President, Chief Operating Officer and Budget Chief. The Executive will report
to the Chief Executive Officer and the Board of Directors of the Company (the “Board”) and shall perform such
duties as are consistent with a position as President, Chief Operating Officer and Budget Chief (the “Services”).
The Executive agrees to perform such duties faithfully, to devote substantially all of his working time, attention and energies
to the business of the Company, and while he remains employed and subject to the terms of this Agreement, not to engage in any
other business activity that is in conflict with his duties and obligations to the Company.


 


(b)          Acceptance.
Executive hereby accepts such employment and agrees to render the Services.


 


2.           Term.
The Executive's employment under this Agreement shall be deemed to commence on the Effective Date and shall continue for a term
of two (2) years (the “Initial Term”), unless sooner terminated pursuant to Section 9 of this Agreement. This
Agreement will automatically be extended for additional one (1) year periods (each an “Additional Term” and,
together with the Initial Term, the “Term”) unless the Company notifies the Executive in writing that it intends
to not extend this Agreement at least one hundred eighty (180) days prior to the expiration of the then current Term; provided,
however, that the Company’s failure to provide the Executive with such notice shall not constitute termination by the
Executive for Good Reason (as defined in Section 9(d) hereof) or termination by the Company without Cause (as defined in Section
9(a) hereof). Notwithstanding the foregoing, the parties acknowledge and agree that, subject to Board approval, the Company anticipates
offering the Executive employment in the position of Chief Executive Officer beginning on or about the second anniversary of the
Effective Date.


 




    	 



    	 



    

 


3.           Best
Efforts; Place of Performance.


 


(a)          
The Executive shall devote substantially all of his business time, attention and energies to the business and affairs of the Company
and shall use his best efforts to advance the best interests of the Company and during the Term shall not be actively engaged in
any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, that
will interfere with the performance by the Executive of his duties hereunder or the Executive’s availability to perform such
duties or that will adversely affect, or negatively reflect upon, the Company.


 


(b)          
The duties to be performed by the Executive hereunder shall be performed at the principal executive offices of the Company during
the Term, or such other location as is mutually agreed to in writing by the parties.


 


4.           Directorship.
The Company shall use its best efforts to cause the Executive to be elected as a voting member of its Board throughout the Term
and shall include him in the management slate for election as a director at every stockholders meeting during the Term at which
his term as a director would otherwise expire. The Executive agrees to accept election, and to serve during the Term, as a member
of the Company’s Board without any compensation therefor other than as specified in this Agreement.


 


5.           Compensation.
As full compensation for the performance by the Executive of his duties under this Agreement, the Company shall pay the Executive
as follows:


 


(a)          Base
Salary. Throughout the Term, the Company shall pay Executive an annual salary (the “Base Salary”) equal
to three hundred fifty thousand dollars ($350,000) per year. Payment shall be made in accordance with the Company’s normal
payroll practices. The Base Salary will be reviewed by the Chief Executive Officer and the Board of Directors no less frequently
than annually, and may be increased (but not decreased).


 


(b)          Annual
Milestone Bonus. At the sole discretion of the Board, the Executive may receive a discretionary bonus on each anniversary of
the Effective Date during the Term (the “Annual Milestone Bonus”) in an amount up to fifty percent (50%) of
his then current Base Salary based on the attainment by the Executive of certain financial, clinical development and business milestones
(the “Milestones”) as established annually by the Board (or a committee thereof), after consultation with the
Executive, prior to the start of each anniversary of this Agreement. The Milestones for the first year of this Agreement shall
be established by the Board, after consultation with the Executive, subsequent to, but not more than sixty (60) days following,
the Effective Date. The Milestones for each subsequent year shall be established by the Board, after consultation with the Executive,
at least sixty (60) days prior to each anniversary of this Agreement. The Annual Milestone Bonus shall be payable either as a lump-sum
payment or in installments as determined by the Board in its sole discretion, provided, however, if the Board determines
to pay the Executive in installments, such installments shall be no less frequently than monthly, and shall be over a time period
not to exceed four (4) months, unless otherwise agreed by the Executive in writing. Notwithstanding the foregoing, the Annual Milestone
Bonus, if any, for a given year will be paid in full no later than March 15 of the calendar year immediately following the calendar
year for which the Annual Milestone Bonus, if any, is earned.


 




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(c)          Retention
Bonus. Subject to the Executive’s continued employment by the Company as provided by this Section 5(c), the Company will
pay to Executive up to one hundred fifty thousand dollars ($150,000) as a retention bonus (the “Retention Bonus”).
The Retention Bonus will be paid in a single lump sum on the Company’s next regular payday following the date three (3) months
after the Effective Date (the “Payment Date”). To earn and be entitled to payment of the Retention Bonus, the
Executive must be actively employed by the Company on the Payment Date.


 


(d)          Living
Expense and Commuting Assistance. The Company acknowledges and accepts that the Executive’s current place of residence
and office are located in Indianapolis, Indiana. During the term of the Executive’s employment, the Company will provide
the Executive with access to either a corporate apartment or hotel lodging and will reimburse the Executive’s travel expenses
when the Executive is required to perform services in New York, NY and San Francisco, CA. In the event the Company requires the
Executive to relocate to the Company’s offices in a location other than the Indianapolis, Indiana area, then for each of
the first three twelve (12) month periods following the Company’s decision regarding the Executive’s relocation, the
Company shall reimburse or pay directly to the Executive up to $120,000 in cash (the “Commuting Allowance Amounts”)
for the expenses incurred by the Executive to maintain a separate apartment in or near the city in which the Company’s principal
executive offices are located and to assist with commuting expenses to and from such principal executive offices. Following the
third anniversary of the Effective Date, the Company and the Executive may discuss whether to continue payment of Commuting Allowance
Amounts for any additional period of time.


 


(e)          Withholding.
The Company shall withhold all applicable federal, state and local taxes, social security and such other amounts as may be required
by law from all amounts payable to the Executive under this Section 5.


 


(f)          Equity.
Subject to and upon approval by the Board, the Company will grant to the Executive an option to purchase shares of common stock
of the Company (the “Stock Options”). The Stock Options will be subject to vesting over three years, and will
otherwise be subject to the terms and conditions of the Company’s stock option plan and a stock option agreement as approved
by the Board setting forth the exercise price, vesting conditions and other restrictions. The Stock Options and any subsequently
granted equity or derivative securities will be collectively referred to in this Agreement as the “Equity Awards.”


 


(g)          Expenses.
The Company shall provide the Executive with a corporate credit card for business use, and shall reimburse the Executive for all
normal, usual and necessary expenses incurred by the Executive in furtherance of the business and affairs of the Company, including
reasonable travel and entertainment, upon timely receipt by the Company of appropriate vouchers or other proof of the Executive’s
expenditures and otherwise in accordance with any expense reimbursement policy as may from time to time be adopted by the Company.


 




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(h)          Other
Benefits. The Executive shall be entitled to all rights and benefits for which he shall be eligible under any benefit or other
plans (including, without limitation, dental, medical, medical reimbursement and hospital plans, pension plans, employee stock
purchase plans, profit sharing plans, bonus plans and other so-called “Fringe Benefits”) as the Company shall
make available to its senior executives from time to time. In addition, if applicable, the Company shall reimburse the Executive
for his reasonable licensing fees, continuing professional education, and other professional dues. The Company shall also name
the Executive as a covered person under its Directors & Officers insurance policies.


 


(i)          Vacation.
The Executive shall, during the Term, be entitled to a vacation of four (4) nonconsecutive weeks per annum, in addition to holidays
observed by the Company. Unless otherwise provided by the Company’s vacation policy or required by law, the Executive shall
not be entitled to carry any unused, accrued vacation forward from one year of employment to the next, and any such vacation days
will be forfeited without payment. In addition, unless otherwise provided by the Company’s vacation policy or required by
law, the Executive will forfeit payment for any unused, accrued vacation days upon termination of employment.


 


6.           Confidential
Information and Inventions.


 


(a)          The
Executive recognizes and acknowledges that in the course of his duties he is likely to receive confidential or proprietary information
owned by the Company or third parties with whom the Company has an obligation of confidentiality, relating to and used in the Company’s
business (collectively, “Confidential and Proprietary Information”). Confidential and Proprietary Information
shall include, but shall not be limited to, confidential or proprietary scientific or technical information, data, formulas and
related concepts, business plans (both current and under development), client lists, promotion and marketing programs, trade secrets,
or any other confidential or proprietary business information relating to development programs, costs, revenues, marketing, investments,
sales activities, promotions, credit and financial data, manufacturing processes, financing methods, plans or the business and
affairs of the Company or of any affiliate or client of the Company, and any and all information relating to the operation of the
Company’s business which the Company may from time to time designate as confidential or proprietary or that the Executive
reasonably knows should be, or has been, treated by the Company as confidential or proprietary. The Executive expressly acknowledges
that the Confidential and Proprietary Information constitutes a protectable business interest of the Company. The Executive further
agrees that if any information that the Company deems to be a trade secret is found by a court of competent jurisdiction not to
be a trade secret, such information will, nevertheless, be considered Confidential and Proprietary Information for purposes of
this Agreement. Confidential and Proprietary Information does not include any information that: (i) at the time of disclosure is
generally known to, or readily ascertainable by, the public; (ii) becomes known to the public through no fault of the Executive
or other violation of this Agreement; or (iii) is disclosed to the Executive by a third party under no obligation to maintain the
confidentiality of the information. The Executive agrees, during and after the Term, except as reasonably necessary for the fulfillment
of his duties under this Agreement: (i) not to use any such Confidential and Proprietary Information for himself or others; (ii)
to keep confidential and not disclose or make accessible to any other person or entity any Confidential and Proprietary Information;
and (iii) not to take any Company Confidential and Proprietary Information (including but not limited to writings, correspondence,
notes, drafts, records, invoices, technical and business policies, computer programs or disks) from the Company’s offices
at any time. The Executive agrees to return immediately all Company material and reproductions (including but not limited, to writings,
correspondence, notes, drafts, records, invoices, technical and business policies, computer programs or disks) thereof in his possession
to the Company upon termination of employment, or at any time upon the Company’s request.


 




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(b)          Except
with prior written authorization by the Company, the Executive agrees not to disclose or publish any of the Confidential and Proprietary
Information, or any confidential, scientific, technical or business information of any other party to whom the Company owes an
obligation of confidence, at any time during or after his employment with the Company. The restrictions in this Section 6(b) and
in Section 6(a) above will not apply to any information that the Executive is required to disclose by law, provided that
the Executive (i) notifies the Company of the existence and terms of such obligation, (ii) gives the Company a reasonable opportunity
to seek a protective or similar order to prevent or limit such disclosure, and (iii) only discloses that information actually required
to be disclosed.


 


(c)          The
Executive agrees that all inventions, discoveries, improvements and patentable or copyrightable works (“Inventions”)
initiated, conceived or made by him, either alone or in conjunction with others, during the course of his employment by the Company
or that result from work performed by the Executive for the Company, shall be the sole property of the Company to the maximum extent
permitted by applicable law and, to the extent permitted by law, shall be “works made for hire” as that term is defined
in the United States Copyright Act (17 U.S.C.A., Section 101). The Company shall be the sole owner of all patents, copyrights,
trade secret rights, and other intellectual property or other rights in connection therewith. The Executive hereby assigns to the
Company all right, title and interest he may have or acquire in all such Inventions; provided, however, that the Board may
in its sole discretion agree to waive the Company’s rights pursuant to this Section 6(c) with respect to any Invention that
is not directly or indirectly related to the Company’s business. The Executive further agrees to assist the Company in every
proper way (but at the Company’s expense) to obtain and from time to time enforce patents, copyrights or other rights on
such Inventions in any and all countries, and to that end the Executive will execute all documents necessary:


 


(i)          to
apply for, obtain and vest in the name of the Company alone (unless the Company otherwise directs) letters patent, copyrights or
other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same; and


 


(ii)         to
defend any opposition proceedings in respect of such applications and any opposition proceedings or petitions or applications for
revocation of such letters patent, copyright or other analogous protection.


 


To the extent this
Agreement is required to be construed in accordance with the laws of any state which precludes a requirement to assign certain
classes of inventions made by an employee, this Section 6 will be interpreted not to apply to any invention which a court rules
and/or the Company agrees falls within such classes.


 




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(d)          The
Executive acknowledges that, while performing the services under this Agreement the Executive may locate, identify and/or evaluate
patented or patentable inventions having commercial potential in the fields of pharmacy, pharmaceutical, biotechnology, healthcare,
technology and other fields which may be of potential interest to the Company (the “Third-Party Inventions”).
The Executive understands, acknowledges and agrees that all rights to, interests in or opportunities regarding, all Third-Party
Inventions identified by the Company or its affiliates or either of the foregoing Persons’ officers, directors, employees
(including the Executive), agents or consultants during the Term shall be and remain the sole and exclusive property of the Company
or such affiliate and the Executive shall have no rights whatsoever to such Third-Party Inventions and will not pursue for himself
or for others any transaction relating to the Third-Party Inventions which is not on behalf of the Company.


 


(e)          The
provisions of this Section 6 shall survive any termination or expiration of this Agreement.


 


7.           Non-Competition
and Non-Solicitation. The Executive understands and recognizes that his services to the Company are special and unique and
that in the course of performing such services the Executive will have access to and knowledge of Confidential and Proprietary
Information (as defined in Section 6) and will become knowledgeable of and familiar with the Company’s customers as well
as the Company’s business. The Executive acknowledges that, due to the unique nature of the Company’s business, the
loss of any of its clients or business flow or the improper use of its Confidential and Proprietary Information could create significant
instability and cause substantial damage to the Company and therefore the Company has a strong legitimate business interest in
protecting the continuity of its business interests and the restrictions herein agreed to by the Executive narrowly and fairly
serve such an important and critical business interest of the Company. Therefore, the Executive covenants and agrees as follows:


 


(a)          Definitions.
As used in this Agreement, the following terms have the meanings given to such terms below:


 


(i)          “Business”
means (A) the development of novel molecules (Core Protein Allosteric Modulators) aimed at hepatitis B core protein for the specific
disease treatment of hepatitis B virus (HBV); (B) the development of novel prescription drugs for the specific disease treatment
of anal fissures, provided that the Company actively engages in such business during the Term; (C) the development of (i)
drug products that treat diseases with living bacteria, (ii) oral vaccines and (iii) products that orally deliver bacteria, viruses,
complex molecules (such as proteins) and small molecules to the terminal ileum and/or colon; and (D) any other business that the
Company is actively engaged in at the time of the date of termination, provided that this clause (C) shall only apply if
Employee is involved with that other business.


 




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(ii)         “Customer”
means (A) any person or entity who is or was a customer of the Company at the time of, or during the six (6) month period prior
to, the date of the Executive’s termination and with whom the Executive had dealings on behalf of the Company in the course
of his employment with the Company, or about whom the Executive received Confidential and Proprietary Information in the course
of his employment with the Company, and (B) any prospective customer to whom, within the six (6) month period prior to the Executive’s
date of termination, the Company had submitted proposals to for services of which the Executive has knowledge, whether or not such
proposals have yet to be executed into contracts, provided that, the Company has a legitimate expectation of doing business
with such prospective customer, and provided further that the Executive has had material business contacts with such prospective
customer on behalf of the Company, whether such contact was initiated by the prospective customer or by the Executive.


 


(iii)        “Company
Employee” means (A) any person who is an employee of the Company at the time of the date of the Executive’s termination
of employment, and (B) any person who was an employee of the Company during the six (6) month period prior to, the termination
of the Executive’s employment.


 


(iv)        “Person”
means any person, firm, partnership, joint venture, corporation or other business entity.


 


(v)         “Restricted
Period” means the period commencing on the date of the Executive’s termination of employment and ending twelve
(12) months thereafter, provided, however, that this period will be tolled and will not run during any time Executive is
in violation of this Section 7, it being the intent of the parties that the Restricted Period will be extended for any period of
time in which the Executive is in violation of this Section 7.


 


(vi)        “Restricted
Territory” means any country in which the Company does business as of the Executive’s date of termination, including
without limitation each country to which the Executive directed or in which the Executive performed employment-related activities
on behalf of the Company at the time of, or during the six (6) month period prior to, the Executive’s date of termination
and each country in which the Company is actively preparing to conduct business within the six (6) month period immediately following
the Executive’s date of termination, provided that Executive is materially involved in such preparations; or if that
geographic territory is deemed by a court of competent jurisdiction to be overly broad, the United States of America; or if that
geographic territory is deemed by a court of competent jurisdiction to be overly broad, any state, province or similar geographic
subdivision in which the Company does business as of the Executive’s date of termination, including without limitation each
state to which the Executive directed or in which the Executive performed employment-related activities on behalf of the Company
at the time of, or during the six (6) month period prior to, the date of termination; or if that geographic territory is deemed
by a court of competent jurisdiction to be overly broad, the States of New York and Indiana.


 


(b)          
Non-Competition. During his employment with the Company, the Executive will not, on his own behalf or on behalf of any other
Person, engage in any business competitive with or adverse to that of the Company. In addition, during his employment with the
Company and during the Restricted Period, Executive will not (i) engage in the Business in the Restricted Territory, or (ii) hold
a position based in or with responsibility for all or part of the Restricted Territory, with any Person engaging in the Business,
whether as an employee, consultant, or otherwise, (A) in which the Executive will have duties, or will perform or be expected to
perform services for such Person, that is or are the same as or substantially similar to the position held by Executive or those
duties or services actually performed by the Executive for the Company within the twelve (12) month period immediately preceding
the Executive’s date of termination, or (B) in which the Executive will use or disclose or be reasonably expected to use
or disclose any Confidential and Proprietary Information of the Company for the purpose of providing, or attempting to provide,
such Person with a competitive advantage with respect to the Business. For purposes of clarification, nothing contained in this
Section 7(b) shall be deemed to prohibit the Executive from acquiring or holding, solely for investment, publicly traded securities
of any corporation, some or all of the activities of which are competitive with the business of the Company so long as such securities
do not, in the aggregate, constitute more than five percent (5%) of any class or series of outstanding securities of such corporation.


 




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(c)          Non-Solicitation.
During his employment with the Company and during the Restricted Period, the Executive will not, directly or indirectly, on the
Executive’s own behalf or on behalf of any other Person, within the Restricted Territory:


 


(i)          Call
upon, solicit, divert, encourage or attempt to call upon, solicit, divert or encourage any Customer for purposes of marketing,
selling or providing products or services to such Customer that are similar to or competitive with those offered by the Company;


 


(ii)         Induce,
encourage or attempt to induce or encourage any Customer to reduce, limit or cancel its business with the Company;


 


(iii)        Induce,
encourage or attempt to induce or encourage any Customer to purchase or accept products or services competitive with those offered
by the Company from any Person (other than the Company) engaging in the Business;


 


(iv)        Otherwise
interfere or engage in any conduct that would have the effect of interfering, in any manner, with the business relationship between
the Company and any of the Company’s Customers; or


 


(v)         Solicit,
induce, or attempt to solicit or induce any Company Employee or any independent contractor (who is then engaged by the Company
or was engaged by the Company in the prior six (6) months) to terminate his or her employment or engagement with the Company or
to accept employment or engagement with any Person engaging in the Business within the Restricted Territory.


 


(d)          
Direct Employment or Engagement by Customer. During his employment with the Company and during the Restricted Period, the
Executive will not be employed or engaged (as an employee, contractor, consultant or otherwise) directly by, or solicit employment
or engagement by, any Person who, during the Term of this Agreement, was an agent or Customer of the Company with whom the Executive
worked during his employment with the Company in a position or capacity in which the Executive will be performing services for
such Customer that are the same as, or substantially similar to, those services provided by the Executive for the Customer during
the Executive’s employment with the Company. For the avoidance of doubt, the terms “agent” and “Customer”
will not include any investment bank, investor, lender or other financial intermediary which may represent, invest in or otherwise
deal with the Company.


 




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(e)          Enforcement.
In the event that the Executive breaches or threatens to breach any provisions of Section 6 or this Section 7, then the Company
will suffer irreparable harm and monetary damages would be inadequate to compensate the Company. Accordingly, in addition to any
other rights which the Company may have, the Company shall (i) be entitled, without the posting of bond or other security, to seek
injunctive relief to enforce the restrictions contained in such Sections and (ii) have the right to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals, increments and other benefits (collectively “Benefits”)
derived or received by the Executive as a result of any transaction constituting a breach of any of the provisions of Sections
6 or 7, to the maximum extent permitted by law.


 


(f)          Reasonableness
and Severability. Each of the rights and remedies enumerated in Section 7(e) shall be independent of the others and shall be
in addition to and not in lieu of any other rights and remedies available to the Company at law or in equity. The Executive hereby
acknowledges and agrees that the covenants provided for pursuant to Section 7 are essential elements of Executive’s employment
by the Company and are reasonable with respect to their duration, geographic area and scope and in all other respects. If, at the
time of enforcement of this Section 7, a court of competent jurisdiction holds that the restrictions stated herein are unreasonable
under the circumstances then existing, the parties hereto agree that the maximum duration, scope or geographic area legally permissible
under such circumstances will be substituted for the duration, scope or area stated herein. If any of the covenants contained in
this Section 7, or any part of any of them, is hereafter construed or adjudicated to be invalid or unenforceable, the same shall
not affect the remainder of the covenant or covenants or rights or remedies which shall be given full effect without regard to
the invalid portions. No such holding of invalidity or unenforceability in one jurisdiction shall bar or in any way affect the
Company’s right to the relief provided in this Section 7 or otherwise in the courts of any other state or jurisdiction within
the geographical scope of such covenants as to breaches of such covenants in such other respective states or jurisdictions, such
covenants being, for this purpose, severable into diverse and independent covenants.


 


(g)          Remedies.
In the event that an actual proceeding is brought in equity to enforce the provisions of Section 6 or this Section 7, the Executive
shall not urge as a defense that there is an adequate remedy at law nor shall the Company be prevented from seeking any other remedies
which may be available. The Executive agrees that he shall not raise in any proceeding brought to enforce the provisions of Section
6 or this Section 7 that the covenants contained in such Sections limit his ability to earn a living.


 


(h)          Survival.
The provisions of this Section 7 shall survive any termination of this Agreement.


 


8.           Representations
and Warranties.


 


(a)          The
Executive hereby represents and warrants to the Company as follows:


 




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(i)          Neither
the execution or delivery of this Agreement nor the performance by the Executive of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or conflict with or constitute a default or breach of any covenant
or obligation under (whether immediately, upon the giving of notice or lapse of time or both) any prior employment agreement, contract,
or other instrument to which the Executive is a party or by which he is bound.


 


(ii)         The
Executive has the full right, power and legal capacity to enter and deliver this Agreement and to perform his duties and other
obligations hereunder. This Agreement constitutes the legal, valid and binding obligation of the Executive enforceable against
him in accordance with its terms. No approvals or consents of any persons or entities are required for the Executive to execute
and deliver this Agreement or perform his duties and other obligations hereunder.


 


(b)          The
Company hereby represents and warrants to the Executive that this Agreement and the employment of the Executive hereunder have
been duly authorized by and on behalf of the Company, including, without limitation, by all required action by the Board.


 


9.           Termination.
The Executive’s employment hereunder shall be terminated immediately upon the Executive’s death and may be otherwise
terminated as follows:


 


(a)          The
Executive’s employment hereunder may be terminated by the Company for Cause. Any of the following actions by the Executive
shall constitute “Cause”:


 


(i)          The
willful failure, disregard or continuing refusal by the Executive to perform his duties hereunder;


 


(ii)         Any
act of willful or intentional misconduct, or a grossly negligent act by the Executive having the effect of injuring, in a material
way (as determined in good-faith by the Company), the business or reputation of the Company, including but not limited to, any
officer, director, or executive of the Company;


 


(iii)        Willful
misconduct by the Executive in carrying out his duties or obligations under this Agreement, including, without limitation, insubordination
with respect to lawful directions received by the Executive from the Chief Executive Officer or from the Board;


 


(iv)        The
Executive’s indictment of any felony or a misdemeanor involving moral turpitude (including entry of a nolo contendere
plea);


 


(v)         The
determination by the Company, based upon clear and convincing evidence, after a reasonable and good-faith investigation by the
Company following a written allegation by another employee of the Company, that the Executive engaged in some form of harassment
prohibited by law (including, without limitation, age, sex or race discrimination), unless the Executive’s actions were specifically
directed by the Board;


 


(vi)        Any
intentional misappropriation of the property of the Company, or embezzlement of its funds or assets (whether or not a misdemeanor
or felony);


 




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(vii)       Breach
by the Executive of any of the provisions of Sections 6, 7, or 8 of this Agreement; and


 


(viii)      Breach
by the Executive of any provision of this Agreement other than those contained in Sections 6, 7, or 8 which is not cured by the
Executive within thirty (30) business days after notice thereof is given to the Executive by the Company.


 


(b)          
The Executive’s employment hereunder may be terminated by the Board due to the Executive’s Disability. For purposes
of this Agreement, a termination for “Disability” shall occur (i) when the Board has provided a written termination
notice to the Executive supported by a written statement from a reputable independent physician mutually selected by the Company
and the Executive, or the Executive’s legal representatives in the event he is unable to make such selection due to mental
incapacity, to the effect that the Executive shall have become so physically or mentally incapacitated as to be unable to resume,
even with reasonable accommodation as may be required under the Americans With Disabilities Act, within the ensuing twelve (12)
months, his employment hereunder by reason of physical or mental illness or injury, or (ii) upon rendering of a written termination
notice by the Company after the Executive has been unable to substantially perform his duties hereunder, even with reasonable accommodation
as may be required under the Americans With Disabilities Act, for one hundred twenty (120) or more consecutive days, or more than
one hundred eighty (180) days in any consecutive twelve month period, by reason of any physical or mental illness or injury. For
purposes of this Section 9(b), the Executive agrees to make himself available and to cooperate in any reasonable examination by
a reputable independent physician mutually selected by the Company and the Executive, and paid for by the Company. Notwithstanding
the foregoing, nothing herein shall give the Company the right to terminate the Executive prior to discharging its obligations
to the Executive, if any, under the Family and Medical Leave Act, the Americans With Disabilities Act, or any other applicable
law. The Company shall reimburse the Executive for his actual cost of maintaining a supplementary long-term disability insurance
policy during the Term up to a maximum reimbursement of $10,000 per year.


 


(c)          The
Executive’s employment hereunder may be terminated by the Company (or its successor) by written notice to the Executive upon
the occurrence of a Change of Control. For purposes of this Agreement, “Change of Control” means (i) the acquisition,
directly or indirectly, following the date hereof by any person (as such term is defined in Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended), in one transaction or a series of related transactions, of securities of the Company representing
in excess of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities if such
person or his or its affiliate(s) do not own in excess of 50% of such voting power on the Effective Date of this Agreement, or
(ii) the future disposition by the Company (whether direct or indirect, by sale of assets or stock, merger, consolidation or otherwise)
of all or substantially all of its business and/or assets in one transaction or series of related transactions other than a merger
(1) effected exclusively for the purpose of changing the domicile of the Company or (2) effected for the purpose of obtaining a
public listing and/or publicly traded securities.


 




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(d)          The
Executive’s employment hereunder may be voluntarily terminated by the Executive for Good Reason. For purposes of this Agreement,
“Good Reason” shall mean any of the following: (i) any material reduction by the Company of the Executive’s
duties, responsibilities, or authority which causes his position with the Company to become of less responsibility or authority
than his position immediately following the Effective Date; (ii) any material reduction by the Company of the Executive’s
compensation or benefits payable hereunder (it being understood that a reduction of benefits applicable to all employees of the
Company, including the Executive, shall not be deemed a reduction of the Executive’s compensation package for purposes of
this definition); (iii) any requirement by the Company, without the Executive’s prior written consent, that the Executive
locate the Executive’s residence or primary place of employment to a location outside a 30-mile radius of such location mutually
agreed upon between the Company and the Executive as of the Effective Date, or such other location that the Company and the Executive
may mutually agree upon and designate from time to time during the Term; (iv) a material breach by the Company of Section 8(b)
of this Agreement which is not cured by the Company within 30 days after written notice thereof is given to the Company by the
Executive; (v) a change in the lines of reporting such that the Executive no longer reports directly to the Chief Executive Officer,
or (vi) any failure by the Company to appoint the Executive as the Chief Executive Officer on or prior to the second anniversary
of the Effective Date unless otherwise consented to by the Executive or unless the Executive has taken any action constituting
Cause. However, notwithstanding the above, Good Reason shall not exist unless: (x) the Executive notifies the Board within ninety
(90) days of the initial existence of one of the adverse events described above, and (y) the Company fails to correct the adverse
event within thirty (30) days of such notice, and (z) the Executive’s voluntary termination because of the existence of one
or more of the adverse events described above occurs within 24 months of the initial existence of the event.


 


(e)          The
Executive’s employment may be terminated by the Company without Cause by delivery of written notice to the Executive effective
fifteen (15) days after the date of delivery of such notice.


 


(f)          The
Executive’s employment may be terminated by the Executive in the absence of Good Reason by delivery of written notice to
the Company effective fifteen (15) days after the date of delivery of such notice.


 


10.         Compensation
upon Termination.


 


(a)          Accrued
Benefits. Upon termination of the Executive’s employment by either party regardless of the cause or reason, the Executive
shall be entitled to the following, referred to herein as the “Accrued Benefits”: (i) payment for any accrued,
unpaid Base Salary through the termination date; (ii) if provided for under the Company’s vacation plan or policy or required
by applicable law, payment for any accrued, unused vacation days through the termination date; and (iii) reimbursement for any
approved business expenses that the Executive has timely submitted for reimbursement in accordance with the Company’s business
expense reimbursement policy or practice. Except as otherwise expressly provided by this Agreement, the Company shall have no further
payment obligations to the Executive and all Equity Awards that have not vested as of the date of termination shall be forfeited
to the Company as of such date. Subject to this Section 10, Stock Options that have vested as of the Executive’s termination
shall remain exercisable for 90 days following such termination.


 




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(b)          Change
of Control Severance. If during the Term a Change of Control occurs and if during the six (6) month period immediately following
such Change of Control the Executive’s employment is terminated by the Company without Cause pursuant to Section 9(e) (and
not due to non-renewal of the Term) or by the Executive for Good Reason pursuant to Section 9(d), provided that the Executive
signs and does not revoke a general release of claims against the Company within the time period specified therein (which time
period shall not exceed sixty (60) days), in form and substance satisfactory to the Company (the “Release”),
and provided further that such termination is a “separation from service” within the meaning of Treasury Regulation
§ 1.409A-1(h), then the Company shall provide the following benefits to the Executive, referred to herein as the “Change
of Control Separation Benefits”: (i) a lump sum payment equal to eighteen (18) months of the Executive’s then-current
Base Salary (less applicable taxes and withholdings); (ii) the full Annual Milestone Bonus (items (i) and (ii) being the “Change
of Control Separation Pay”); (iii) immediate vesting in full of all Equity Awards; (iv) extension of the exercise period
for all Stock Options to the end of their term; and (v) if the Executive properly and timely elects to continue his health insurance
benefits under COBRA or applicable state continuation coverage after the date of termination, reimbursement for the Executive’s
applicable health continuation coverage premiums for the lesser of (A) the eighteen (18) month period following the month in which
the Executive’s termination date occurs, or (B) the maximum period permitted by applicable law, provided that the
Company’s obligation to pay a portion of the Executive’s health continuation coverage premiums will terminate if he
becomes eligible for insurance benefits from another employer during the reimbursement period. The Change of Control Separation
Pay will be paid within sixty (60) days after the termination date.


 


(c)          Other
Severance Benefits. If the Executive’s employment is terminated during the Term as a result of the Executive’s
Disability pursuant to Section 9(b), by the Company without Cause pursuant to Section 9(e), or by the Executive for Good Reason
pursuant to Section 9(d), provided that the Executive signs and does not revoke the Release within the time period specified
therein (which time period shall not exceed sixty (60) days), and provided further that such termination is a “separation
from service” within the meaning of Treasury Regulation § 1.409A-1(h), then the Company shall provide the following
benefits to the Executive, referred to herein as the “Separation Benefits”: (i) the continued payment in installments
of the Executive’s then-current Base Salary (less applicable taxes and withholdings) for a period of twelve (12) months following
the date of termination (the “Separation Pay”); (ii) all Equity Awards which would have become vested during
the twelve (12) months following the termination date shall accelerate and vest; (iii) the extension of the exercise period for
all vested Stock Options to the end of their term; and (iv) provided that the Executive properly and timely elects to continue
his health insurance benefits under COBRA or applicable state continuation coverage after the date of termination, reimbursement
for the Executive’s applicable health care continuation coverage premiums for the lesser of (A) the twelve (12) month period
following the month in which the termination date occurs, or (B) the maximum period permitted by applicable law, provided
that the Company’s obligation to pay a portion of the Executive’s health continuation coverage premiums will terminate
if he becomes eligible for insurance benefits from another employer during the reimbursement period. The first installment of the
Separation Pay will be paid on the Company’s first regular payday occurring sixty (60) days after the termination date in
an amount equal to the sum of payments of Base Salary that would have been paid if he had remained in employment for the period
from the termination date through the payment date. The remaining installments will be paid until the end of the 12-month period
at the same rate as the Base Salary in accordance with the Company’s normal payroll practices for its employees. The Executive
understands that if he is eligible to receive the Separation Benefits, such Separation Benefits shall be in lieu of and not in
addition to any other severance benefits otherwise provided for herein, including the severance benefits described in Section 10(b)
of this Agreement. Notwithstanding the foregoing, if the Executive is entitled to receive the Separation Benefits but violates
any provisions of this Agreement or any other agreement entered into by the Executive and the Company after termination of employment,
the Company will be entitled to immediately stop paying any further installments of the Separation Benefits. If the Executive’s
employment is terminated during the Term as a result of the Executive’s death, then the Company shall provide to the Executive’s
estate the continued payment of Executive’s then-current Base Salary for a period of twelve (12) months following the date
of termination, beginning on the Company’s first regular payday following the date of such termination.


 




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(d)          This
Section 10 sets forth the only obligations of the Company with respect to the termination of the Executive’s employment with
the Company, except as otherwise required by law, and the Executive acknowledges that, upon the termination of his employment,
he shall not be entitled to any payments or benefits which are not explicitly provided in Section 10. For purposes of clarification,
if the Executive’s employment with the Company terminates upon expiration of the Term, the Executive shall only be entitled
to receive the Accrued Benefits described in Section 10(a).


 


(e)          Upon
termination of the Executive’s employment hereunder for any reason, if requested by the Board, the Executive shall be deemed
to have resigned as director of the Company, effective as of the date of such termination.


 


(f)          The
provisions of this Section 10 shall survive any termination of this Agreement.


 


11.         409A
Restrictions. The intent of the parties to this Agreement is that the payments, compensation and benefits under this Agreement
be exempt from or comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and guidance promulgated
thereunder (collectively, “Section 409A”) and, in this connection, the following shall be applicable:


 


(a)          To
the greatest extent possible, this Agreement shall be interpreted to be exempt or in compliance with Section 409A.


 


(b)          If
any severance, compensation, or benefit required by this Agreement is to be paid in a series of installment payments, each individual
payment in the series shall be considered a separate payment for purposes of Section 409A.


 




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(c)          If
any severance, compensation, or benefit required by this Agreement that constitutes “nonqualified deferred compensation”
within the meaning of Section 409A is considered to be paid on account of “separation from service” within the meaning
of Section 409A, and the Executive is a “specified employee” within the meaning of Section 409A, no payments of any
of such severance, compensation, or benefit shall be made for six (6) months plus one (1) day after such separation from service
(the “New Payment Date”). The aggregate of any such payments that would have otherwise been paid during the
period between the date of separation from service and the New Payment Date shall be paid to the Executive in a lump sum payment
on the New Payment Date. Thereafter, any severance, compensation, or benefit required by this Agreement that remains outstanding
as of the day immediately following the New Payment Date shall be paid without delay over the time period originally scheduled,
in accordance with the terms of this Agreement.


 


(d)          The
provisions of this Section 11 shall survive any termination of this Agreement.


 


12.         Miscellaneous.


 


(a)          This
Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York, without giving
effect to its principles of conflicts of laws.


 


(b)          In
the event of any dispute arising out of, or relating to, this Agreement or the breach thereof (other than Sections 6 or 7 hereof),
or regarding the interpretation thereof, the parties agree to submit any differences to nonbinding mediation prior to pursuing
resolution through the courts. The parties hereby submit to the exclusive jurisdiction of the Courts of New York County, New York,
or the United States District Court for the Southern District of New York, and agree that service of process in such court proceedings
shall be satisfactorily made upon each other if sent by registered mail addressed to the recipient at the address referred to in
Section 12(g) below.


 


(c)          This
Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective heirs, legal representatives,
successors and permitted assigns.


 


(d)          This
Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive. The rights and obligations
of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company,
including any successors or assigns in connection with any sale, transfer or other disposition of all or substantially all of its
business or assets.


 


(e)          This
Agreement cannot be amended orally, or by any course of conduct or dealing, but only by a written agreement signed by the parties
hereto.


 


(f)          The
failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement
shall not be construed as a waiver or relinquishment of future compliance therewith, and such terms, conditions and provisions
shall remain in full force and effect. No waiver of any term or condition of this Agreement on the part of either party shall be
effective for any purpose whatsoever unless such waiver is in writing and signed by such party.


 




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(g)          All
notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall
be delivered personally or by an overnight courier service or sent by registered or certified mail, postage prepaid, return receipt
requested, to the parties at the addresses set forth on the first page of this Agreement, and shall be deemed given when so delivered
personally or by overnight courier, or, if mailed, five days after the date of deposit in the United States mail. Either party
may designate another address, for receipt of notices hereunder by giving notice to the other party in accordance with this Section
12(g).


 


(h)          This
Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes
all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof. No representation,
promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by
or liable for any alleged representation, promise or inducement not so set forth.


 


(i)          As
used in this Agreement, “affiliate” of a specified person or entity shall mean and include any person or entity
controlling, controlled by or under common control with the specified person or entity.


 


(j)          The
section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation
of this Agreement.


 


(k)          This
Agreement may be executed in any number of counterparts, each of which shall constitute an original, but all of which together
shall constitute one and the same instrument.


 


[Remainder of Page Intentionally Left
Blank – Signature Page Follows]


  



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IN WITNESS WHEREOF,
the parties hereto have executed this Agreement and intend it to be effective as of the Effective Date by proper person thereunto
duly authorized.


 


	 	VENTRUS BIOSCIENCES, INC.
	 	 
	 	By:	/s/ Russell H. Ellison
	 	Name: Russell H. Ellison
	 	Title: Chief Executive Officer
	 	 
	 	EXECUTIVE
	 	 
	 	/s/ Derek Small
	 	Derek Small


 





[Signature Page to Derek Small Employment
Agreement]