ARCH THERAPEUTICS, INC.


Executive
EMPLOYMENT AGREEMENT


 


This EXECUTIVE EMPLOYMENT
AGREEMENT (the “Agreement”) is entered into as of July 2, 2013 (the “Effective Date”), by and between Arch
Therapeutics, Inc., a Nevada corporation (the “Company”), and William M. Cotter (“Executive”). The parties
hereby agree as follows:


 


1.            Duties.


 


(a)          Position.
Executive shall serve as the Company’s Chief Operating 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 Chief Executive Officer. 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 or Chief Executive Officer. It is anticipated that, and Executive acknowledges and agrees that, Executive’s
duties and responsibilities may require significant travel, the amount and nature of which shall vary from time to time but will
be approximately two weeks per month. Executive will report to the Chief Executive Officer.


 


(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. Executive agrees that he will commence employment with the Company and report to work on July 8, 2013 (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.


 






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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 one-hundred seventy-five thousand dollars ($175,000), starting on July 1, 2013, one week prior
to 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.


 


(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 20% 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 as a result of death
or Disability (as defined in Section 4 below), 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. Executive shall be eligible to participate in 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. If Executive elects to obtain
any such benefits from a third party provider, then the Company shall reimburse Executive his monthly payments for health, dental
and vision benefits subject to a maximum reimbursement of $1,200 per month.


 


(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. Execute will use his best efforts to
manage expenses for cost containment while traveling and will confer with the Chief Executive Officer or seek other input from
the Company as required regarding travel and other business expenditures. Execute may incur expenses of up to $2,000 per month
without obtaining approval of the Chief Executive Officer.


 


(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, with two weeks 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. After January 1, 2014, 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 six (6) months of the Executive’s then-current Annual
Base Salary, payable in the form of salary continuation (“Severance”). In addition, the Company will continue to reimburse
Executive, in monthly installments, for his monthly payments for health, dental and vision benefits, subject to a maximum reimbursement
of $1,200 per month, 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. Executive shall not be entitled to any Severance
if Executive’s employment is terminated For Cause, by death or by Disability or if Executive’s employment is terminated
by Executive (except as provided in Section 4(g) below).


 




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(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. 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.


 


(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)          Termination
By Disability. If Executive becomes eligible for the Company’s long-term disability benefits, if any, or if Executive
is unable to carry out the responsibilities and functions of the position held by Executive by reason of any physical or mental
impairment for more than ninety consecutive days or more than one hundred and twenty days in any twelve-month period, then, to
the extent permitted by law, the Company may terminate Executive’s employment. The Company shall pay to Executive all compensation
to which Executive is entitled up through the date of termination, and thereafter all obligations of the Company under this Agreement
shall cease. Nothing in this Section shall affect Executive’s rights under any disability plan in which Executive is a participant.


 


(f)          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.


 




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(g)          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; provided
that this clause (ii) shall not constitute “Good Reason” if Executive is permitted to perform his duties and responsibilities
hereunder remotely from or near his home for approximately two weeks per month; (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 an amount equal to six (6) months of Executive’s then-current Annual Base Salary payable in the
form of salary continuation. In addition, the Company will continue to reimburse Executive, in monthly installments, for his monthly
payments for health, dental and vision benefits, subject to a maximum reimbursement of $1,200 per month, 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.


 


(h)          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.


 


(i)          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.


 




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(j)          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”).


 


(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.


 




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(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.


 


(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.


 


William Cotter


1400 Adams Mountain Road


Raleigh, NC 27614


 


If to the Company:


 


Arch Therapeutics, Inc.


Attn: President


One Broadway, 14th Floor


Cambridge, MA


 


(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 an 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.


 




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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.


 


[Remainder of Page Intentionally Left
Blank]


 




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


 


	EXECUTIVE	 
	 	 
	/s/ William M. Cotter	 
	William M. Cotter	 
	 	 
	ARCH THERAPEUTICSS, INC.	 
	 	 
	By:	/s/ Terrence W. Norchi	 
	Name:	Terrence W. Norchi, MD	 
	Title:	President and CEO	 




 


[Signature Page to Executive Employment
Agreement]


 




    	 



    	 



    

 





 



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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