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Item 1.01
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Entry into a Material Definitive Agreement.
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(a)
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Convertible Notes Offering
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On November 6, 2020, Arch Therapeutics, Inc. (the “Company”)
issued Series 2 Unsecured Convertible Promissory Notes (each a “Convertible Note” and collectively, the “Convertible
Notes”) to five (5) accredited investors, four (4) of whom are current stockholders of the Company (collectively, the
“Investors”) in the aggregate principal amount of $1,050,000. The Convertible Notes were issued as part of a
convertible note offering authorized by the Company’s board of directors (the “Convertible Notes Offering”).
The Convertible Notes become due and payable on November 30,
2023 (the “Maturity Date”) and may be prepaid, in whole or in part, at any time. The Convertible Notes bear
interest on the unpaid principal balance at a rate equal to ten percent (10.0%) (computed on the basis of the actual number of
days elapsed in a 365-day year) per annum until either (a) converted into shares of the Company’s common stock, $0.001 par
value per share (“Common Stock”)(such shares of Common Stock, the “Conversion Shares”); or
(b) the outstanding principal and accrued interest on the Convertible Notes is paid in full by the Company; provided, however,
if the Convertible Notes are converted or prepaid prior to the twelve month anniversary of their issuance, interest accrued with
respect to such prepaid or converted portion of the Convertible Note will equal ten percent (10.0%) of the principal that is prepaid
or converted (the “Minimum Interest Payment”); provided further, the Minimum Interest Payment will not
apply in the case where the holder voluntarily converts the Note Obligations (as defined below). Interest on the Convertible Notes
becomes due and payable upon their conversion or the Maturity Date and may become due and payable upon the occurrence of an event
of default under the Convertible Notes. The Convertible Notes contain customary events of default, which include, among other things,
(i) the Company’s failure pay when due any principal or interest payment under the Convertible Note within the specified
cure period; (ii) the insolvency of the Company; or (iii) the Company’s failure to pay other indebtedness of $100,000 or
more within the specified cure period for such breach.
The holders of the Convertible Notes have the right to convert
some or all of such Convertible Notes into the number of Conversion Shares determined by dividing (a) the aggregate sum of the
(i) principal amount of the Convertible Note to be converted; and (ii) amount of any accrued but unpaid interest with respect to
such portion of the Convertible Note to be converted (such aggregate sum, the “Note Obligations”); and (b) the
conversion price then in effect; provided, however, certain Convertible Notes include a provision preventing such conversion
if, as a result, the holder, together with its affiliates and any other persons whose beneficial ownership of Company Common Stock
would be aggregated with the holder’s, would be deemed to beneficially own more than 4.99% of the Company’s Common
Stock (the “Ownership Limitation”) immediately after giving effect to the Conversion; and provided further,
the holder, upon notice to the Company, may increase or decrease the Ownership Limitation; provided that (i) the Ownership
Limitation may only be increased to a maximum of 9.99% of the Company’s Common Stock; and (ii) any increase in the Ownership
Limitation will not become effective until the 61st day after delivery of such waiver notice. The initial conversion
price is $0.25 per share, and it may be reduced or increased proportionately as a result of stock splits, stock dividends, recapitalizations,
reorganizations, and similar transactions. The Convertible Notes will also be automatically converted in the event a Change of
Control (as defined in the Convertible Notes) occurs into the number of Conversion Shares determined by dividing the Note Obligations
then outstanding by the conversion price then in effect.
The Company did not engage any underwriter or placement agent
in connection with the Convertible Notes Offering.
In addition to the preceding, the Company shall also have the
right to convert (i) all Note Obligations upon the closing of an equity financing that raises at least $5,000,000 at a per share
price of at least $0.25 into Conversion Shares at the conversion price then in effect; (ii) some or all Note Obligations in the
event the VWAP (as defined in the Convertible Notes) of the Common Stock equals or exceeds $0.32 per share for at least fifteen
(15) consecutive Trading Days (as defined in the Convertible Notes) into Conversion Shares at the conversion price then in effect;
and (iii) all outstanding Note Obligations outstanding as of the Maturity Date into Conversion Shares at the conversion price then
in effect in lieu of repaying such Note Obligations (an “In-Kind Note Repayment”); provided, however,
that in the case of an In-Kind Note Repayment, the outstanding Note Obligations will equal the product of 1.35 and the aggregate
sum of the principal amount of the Convertible Note and amount of any accrued but unpaid interest with respect to such Convertible
Note.
The issuance and sale of the Convertible Notes and Conversion
Shares (collectively, the “Securities”) has not been, and will not upon issuance be, registered under the Securities
Act, and the Securities may not be offered or sold in the United States absent registration under or exemption from the Securities
Act and any applicable state securities laws. The Securities were issued and sold in reliance upon an exemption from registration
afforded by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act, based on the
following facts: each of the Investors has represented that it is an accredited investor as defined in Rule 501(a) promulgated
under the Securities Act, that it is acquiring the Securities for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof in violation of applicable securities laws and that it has sufficient
investment experience to evaluate the risks of the investment; the Company used no advertising or general solicitation in connection
with the issuance and sale of the Securities to the Investors; the Securities will be issued as restricted securities.
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(b)
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Series J Warrant Amendments
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On November 6, 2020 (the “Amendment Execution Date”),
as consideration for Ms. Parker’s investment in the Convertible Notes Offering, the Company entered into that certain Amendment
to Series J Warrant to Purchase Common Stock, dated as of the Amendment Execution Date, with Ana Parker, the holder of a Series
J Warrant exercisable for up to 3,375,000 shares of Common Stock, to extend the term of Ms. Parker’s Series J Warrant from
one (1) year to thirty (30) months (the “Amendment”).
Ms. Parker, her husband Michael Parker and their respective
affiliates (collectively, the “Parkers”), are the Company’s largest shareholders, and the Parkers previously
participated in the Company’s 2015 and 2016 private placements, and June 2018, May 2019 and September 2019 registered direct
offerings.
The preceding description of the Amendment and Convertible Notes
is qualified in its entirety by reference to the copies of the form of Amendment and form of Convertible Note filed herewith as
Exhibit 10.1 and Exhibit 10.2 to this Current Report on Form 8-K, respectively, which are incorporated herein by
reference.