Item 5.02
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
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(b): As previously disclosed, on December 31, 2020, Arch Therapeutics,
Inc. (the “Company”) and Richard Davis, the Company’s current Chief Financial Officer, entered into a transition agreement
(the “Transition Agreement”), under which Mr. Davis agreed to continue in his current role as the Company’s Chief Financial
Officer until the earlier of (i) when a successor is named and ready to perform the daily duties of Chief Financial Officer, and (ii)
June 30, 2021 (such date, the “Transition End Date”), upon which date Mr. Davis will retire as Chief Financial Officer. Under
the terms of the Transition Agreement, Mr. Davis agreed to continue to work as an employee of the Company in a non-executive role to provide
support and ensure a smooth and successful transition for a period of six months following the Transition End Date (the “Post Executive
Period”). On May 3, 2021, in connection with the appointment of Mr. Abrams as employee of the Company effective May 3, 2021, and
then as the Company’s new Chief Financial Officer effective as of May 10, 2021; (i) the Company and Mr. Davis mutually agreed to
amend the Transition Agreement to provide that the Transition End Date will occur on June 30, 2021 and the Post Executive Period will
commence on July 1, 2021 and end on December 31, 2021 (the “Amendment”).
(c) and (e): Also effective May 3, 2021, the Company has appointed
Mr. Michael S. Abrams as an employee and then, effective as of May 10, 2021, as its Chief Financial Officer and Treasurer. The Company
issued a press release announcing the appointment of Mr. Abrams on May 3, 2021, which is attached hereto as Exhibit 99.1.
Mr. Abrams, age 51, brings over 25 years of experience
as a Chief Financial Officer to numerous public and private companies, principal investor, investment banker, merchant banker, strategic
advisor, financial advisor, and Board member. Mr. Abrams’ experience and capabilities span a broad range of activities with a particular
expertise in the areas of operational management, complex financial engineering, financial advisory, capital markets strategy. mergers
and acquisitions and turnarounds primarily for companies in the technology and healthcare sectors. Mr. Abrams graduated with an MBA with
Honors from the Booth School of Business at the University of Chicago and received his BBA with Honors from the University of Massachusetts
at Amherst as a William F. Field Alumni scholar given annually to the top finance student in the class.
There are no family relationships between Mr. Abrams and any of the
Company’s other officers or directors, and except as expressly described in this report the Company is not aware of any transaction
relating to Mr. Abrams that would require disclosure under Item 404(a) of Regulation S-K promulgated under the Securities Act of 1933,
as amended.
In connection with Mr. Abrams’ appointment, the Company has entered
into an executive employment agreement with Mr. Abrams. The agreement continues until terminated by the Company or by Mr. Abrams. Pursuant
to the terms of the agreement, (a) Mr. Abrams is entitled to an initial annual base salary of $325,000, (b) is eligible to receive an
annual cash bonus in an amount of up to 30% of Mr. Abrams’ then-current annual base salary, to be awarded at the sole discretion
of the Company’s Board of Directors, and (c) is eligible for benefits generally made available to similarly situated executives
of the Company, including participation in equity compensation or other incentive plans subject to the discretion and approval of the
Company’s Board of Directors. In addition, the agreement provides that, on or as soon as practicable after the commencement date
of his employment with the Company, Mr. Abrams will be granted a stock option award under the Company’s 2013 Stock Incentive Plan
(the “Plan”) to purchase up to 500,000 shares of the Company’s common stock, which award is to vest over a three-year
period with 33.3% of the shares subject to the award to vest on the one-year anniversary of the start date, and 1/24th of the
remaining unvested shares subject to the initial option shall vest commencing on each of the next twenty-three (23) monthly anniversaries
thereafter, subject to Mr. Abrams’ continued service for the Company through each vesting date. Such stock option award was approved
by the Board of Directors with a date of grant of May 3, 2021 and an exercise price per share equal to the closing price on his first
day of employment.
If the employment agreement is terminated by the Company at any time
after June 2, 2021 other than “For Cause” (as defined in the agreement), or if the employment agreement is terminated by Mr.
Abrams at any time for “Good Reason” (as defined in the agreement), then Mr. Abrams, upon signing a release in favor of the
Company, would be entitled to severance in an amount equal to six (6) months of Mr. Abrams’ then-current annual base salary payable
in the form of salary continuation. In the event of a termination by the Company at any time after June 2, 2021 other than For Cause,
Mr. Abrams will also be entitled to receive monthly payment of his health, dental and vision benefits coverage premiums until the earlier
of (i) 12 months following the date of such termination, or (ii) the date Mr. Abrams becomes covered under another employer’s health
plan.
The employment agreement provides the following definitions of “For
Cause” and “Good Reason”: (a) “For Cause” is the executive’s commission of a crime involving dishonesty,
breach of trust, or physical harm to any person, the executive’s willful engagement in conduct that is in bad faith and materially
injurious to the Company, the executive’s commission of a material breach of the employment agreement, the executive’s willful
refusal to implement or follow a lawful policy or directive of the Company, or the executive’s engagement in misfeasance or malfeasance
demonstrated by a pattern of failure to perform job duties diligently and professionally; and (b) “Good Reason” is a material
and adverse change in the executive’s authority, duties, or responsibilities with the Company or reporting relationship within the
Company.
The foregoing description of the terms of the Amendment and] Mr. Abrams’
employment agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the applicable
agreement, which are attached hereto as Exhibit 10.1 and Exhibit 10.2, respectively, and are incorporated herein by reference.