Exhibit 10.1


 


Execution
Copy


 


EMPLOYMENT
AGREEMENT


 


THIS
EMPLOYMENT AGREEMENT
(this “Agreement”) is made and entered into as of April 22, 2008
(the “Effective Date”), by and between MacroChem Corporation, Inc., a
Delaware corporation (the “ Company ”), and James M. Pachence an
individual who resides at  18 Elm
Street, Hopewell, New Jersey, USA 
(the “ Executive ”).


 


WHEREAS, the Company is engaged in the business
of acquiring and developing small molecule pharmaceuticals for oncology
indications (the “ Business ”); and


 


WHEREAS, the Company desires to employ the
Executive, and the Executive desires to be employed by the Company, on the
terms and conditions hereinafter set forth.


 


NOW,
THEREFORE, in
consideration of the foregoing and of the respective covenants and agreements
herein set forth, the Company and the Executive agree as follows:


 


1.             Employment.  The Company will
employ the Executive, and the Executive will serve as the Chief Executive
Officer of the Company.  The Executive will also be a member of the Board
of Directors of the Company (the “ Board ”) so long as he is employed in
this capacity and Executive will report directly to the Board.  The
Executive will perform such services customary to that office and such other
duties and services as shall from time to time be reasonably assigned to him by
the Board, consistent with such positions and this Agreement.  It is
understood that Executive may participate on up to three Boards of Directors or
Advisory Boards of other companies and otherwise participate in personal
investments, to the extent such activities (a) were conducted by Executive
prior to the Effective Date, or (b) do not materially interfere with the
performance of his duties with the Company and to the extent that the Executive
has obtained prior written approval of the Board to participate in any such
activity.    The Executive will perform his duties hereunder
faithfully and to the best of his abilities and in furtherance of the business
of the Company and its subsidiaries, and will devote his time and energies to
the business and affairs of the Company and its subsidiaries.


 


2.             Term.  The Executive’s employment
hereunder shall be “at will” and is terminable at any time by either party,
subject to the provisions of Sections 4, 5 and 6 hereof.


 


3.             Compensation and Other Related Matters.


 


(a)               Salary.  As compensation for
services rendered under this Agreement, the Executive shall receive an annual
salary of not less than $250,000 (as may be increased pursuant to the
immediately succeeding sentence, the “ Base Salary ”), which salary
shall be paid in accordance with the Company’s then prevailing payroll
practices.  The Executive’s annual salary is eligible for increase
annually in accordance with the Company’s compensation practices and increases
will be evaluated at the discretion of the Compensation Committee of the Board.


 

















 


(b)               Bonus.  During the term of this
Agreement, and at the sole discretion of the Compensation Committee of the
Board, the Executive shall be eligible to receive an annual bonus up to fifty
percent (50%) of the Executive’s Annual Salary at the conclusion of each fiscal
year based on the Executive and the Company successfully achieving targeted
annual performance objectives (the “ Annual Bonus ” and, together with
the Annual Salary, the “Annual Compensation”).  To receive such Annual
Bonus, the Executive must still be employed with the Company as of December 31
of the year for which the Annual Bonus is payable and not be in breach of this
Agreement.


 


(c)               Equity Compensation.  As of the
Effective Date, the Executive shall be granted Stock Options pursuant to the
terms and conditions of a Stock Option Award Agreement in the form approved by
the Company’s Board as of the date hereof and subject to amendment as set forth
therein.  These options will be issued from a valid stock option plan
approved by the stockholders and registered under an S-8 within eighteen months
from the date hereof (the “Grant Date”).  The Stock Option shall be for
the purchase of 2,290,000 shares of the Company’s common stock, no par value
(the “Common Stock”) at a price per share equal to the closing price on the OTC
BB on the Grant Date.  Of the Stock Options to purchase 2,290,000 shares
of the Company’s Common Stock, stock options to purchase 572,500 shares of
Common Stock shall vest immediately upon execution of this Agreement, and stock
options to purchase 143,124 shares of Common Stock shall vest and become
exercisable every 90 days following the Effective Date for the next three years
from the Effective Date and as fully defined in the Stock Option Award
Agreement; provided that Executive is employed by the Company on such vesting
date.


 


(d)               Other Benefits.  The fringe
benefits, perquisites and other benefits of employment to be provided to the
Executive shall be equivalent to such benefits and perquisites as are provided
to other executives of the Company having similar rank and seniority to the
Executive, as those benefits are amended from time to time.  In addition,
the Executive shall be entitled to participate in any other executive
compensation or employee bonus plans implemented by the Company on such terms
and conditions as shall have been determined by the Board or the Compensation
Committee thereof.  Participation in any such benefit programs shall be
subject to any applicable probationary or similar periods.


 


(e)               Expenses.  The Executive will be
reimbursed for all reasonable out-of-pocket expenses actually incurred by him
in the furtherance of his duties under this Agreement and consistent with the
Company’s policies concerning the reimbursement of such expenses.  Such
expenses shall be reimbursed upon submission to the Company of invoices containing
original receipts for all such expenditures and upon review by the Company of
the reasonable nature of such expenditures.


 


4.             Termination.


 


All
termination provisions require a 60 day written notice.


 


(a)               Disability.  If, as a result of
the incapacity of the Executive due to physical or mental illness, the
Executive is unable to perform the duties of his or her position of employment
or any substantially similar position


 


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of employment by reason
of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period
of not less than six months, the Executive will be deemed to have a Disability. 
The Company may terminate the Executive’s employment for Disability upon
written notice to the Executive or the Executive’s legal representative, and
such termination shall not constitute termination without Cause (as defined
below) for purposes of this Agreement.


 


(b)               Death.  The Executive’s
employment shall terminate immediately upon the death of the Executive.


 


(c)               Termination with Cause.  The
Company shall be entitled to terminate the Executive’s employment for
Cause.  “ Cause ” shall mean (i) the willful and continued
failure by the Executive to perform substantially his duties hereunder, other
than by reasons of Disability, after demand for substantial performance is
delivered by the Company that identifies the manner in which the Company
believes the Executive has not substantially performed his duties; (ii) the
Executive will have been indicted by any federal, state or local authority in
any jurisdiction for, or will have pleaded guilty or nolo contendere to, an act
constituting a felony, (iii) the Executive will have habitually abused any
controlled substance (such as narcotics or alcohol), or (iv) the Executive
will have (A) engaged in acts of fraud, material dishonesty or gross
misconduct in connection with the business of the Company, or (B) committed
a material breach of this Agreement.


 


(d)               Termination Without Cause.  The
Company shall, in its sole discretion, have the right to terminate the
Executive’s employment without Cause at any time.


 


(e)               Resignation for Good Reason.  The
Executive shall have the right to terminate his employment for “Good Reason,”
which shall mean a resignation of his employment and his Separation from
Service (as defined for purposes of §409A of the Internal Revenue Code) within
less than one year following the initial existence of one or more of the
following conditions arising without his consent:


 


(i) any
material reduction in his Base Salary under Section 3(a), above;


 


(ii) any
other material breach by the Company of any of its obligations to the Executive
under this Agreement; or


 


(iii) any
relocation of the Executive’s primary place of employment more than 50 miles;


 


(iv) any
failure of the Company to have any successor to all or substantially all of the
business and properties of the Company assume all of the liabilities and
obligations of the Company under this Agreement (and any stock option or
restricted stock agreement referred to herein, under such awards as have fully
vested);


 


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provided, in each case,
that a prior written notice specifying the reasons within ninety (90) after the
initial existence of the condition and an opportunity to cure such condition
(if curable) shall be afforded the Company, and that “Good Reason” shall exist
only if the Company shall fail to cure such condition within 31 days after its
receipt of such prior written notice.


 


(f)                Resignation Without Good Reason. 
The Executive shall have the right to resign his employment without “Good
Reason” at any time upon thirty (30) days’ prior written notice to the Board (a
“Resignation Notice”) in which case the Executive’s employment shall terminate
upon effectiveness of such Resignation Notice unless otherwise terminated earlier
pursuant to the terms of this Agreement.


 


5.             Compensation Upon Termination or During Disability.


 


(a)               Disability.  During any period of
Disability, the Executive shall continue to receive his Annual Salary, less any
compensation payable to the Executive under any applicable disability insurance
plan during such period, until this Agreement is terminated, but in no event
longer than 12 months from the date the Disability began, as determined by the
Company.  Thereafter, the Executive’s benefits shall be determined under
the Company’s insurance and other compensation programs then in effect, and the
Company shall have no further obligation to the Executive under this Agreement,
except that the Company shall pay to the Executive, or the Executive’s legal
representative, as appropriate, (i) any accrued but unpaid base salary and
vacation, (ii) any earned but unpaid bonus from a prior fiscal year
(subject, if applicable, to the terms of any deferred compensation
arrangements), and (iii) reimbursement of business expenses incurred prior
to the date of termination.


 


(b)               Death.  In the event of the
Executive’s death, the Company shall pay the Executive’s estate his Annual
Salary through the date of death.  Thereafter, the Company shall have no
further obligation to the Executive or the Executive’s beneficiary under this
Agreement, except that the Company shall pay to the Executive’s estate (i) any
earned but unpaid bonus from a prior fiscal year (subject, if applicable, to the
terms of any deferred compensation arrangements), and (ii) reimbursement
of business expenses incurred prior to the date of the Executive’s death.


 


(c)               Cause.  If the Company terminates
the Executive’s employment for “Cause” as defined in Paragraph 4(c) of
this Agreement, the Company shall continue to pay the Executive his Annual
Salary through the date of termination of the Executive’s
employment.   At that time, Stock Options which have been granted and
have vested prior to the date of the termination for Cause shall remain vested
and exercisable for the period of time specified in Executive’s Option Award
Agreement.  At the effective time of the termination for Cause, all
unvested Stock Options shall immediately be terminated.  Thereafter, the
Company shall have no further obligation to the Executive under this Agreement.


 


(d)               Termination Without Cause by the Company. 
During the term of this Agreement and at times following the Company’s
successfully consummating its first equity  financing of $10 million or
more in gross proceeds following the Effective Date (the “First Financing”), if
the Company terminates the Executive’s employment without Cause


 


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pursuant to Paragraph 4(d) of
this Agreement (a “Termination without Cause”), under circumstances that
constitute a Involuntary Separation from Service with the Company (as defined
for purposes of §409A of the Internal Revenue Code), the Company shall pay the
Executive that ratable amount of Annual Compensation which the Executive would
earn in 12 months based on Executive’s then-current salary and target bonus
level (the “Severance Period”). Executive shall continue to participate in all
other benefit plans during the Severance Period, except to the extent
prohibited by law or any applicable employee benefit plan.  All Stock
Options granted to Executive which have vested prior to the final day of
Executive’s employment under this Agreement (the “Termination Date”) shall
remain vested and exercisable for the exercise period set forth in Executive’s
Option Award Agreement.  The Company will continue to vest Stock Options
and stock awards during the Severance Period in accordance with the following
vesting schedule:


 


(1)          
If a Termination without Cause occurs during the first year of the term of this
Agreement, all unvested Stock Options that would have vested during the
calendar quarter within which the Termination without Cause occurs shall vest
and become exercisable on the Termination Date for the exercise period set
forth in Executive’s Option Award Agreement and, in addition, all unvested
Stock Options that would have vested during the calendar quarter after the
occurrence of the Termination without Cause also shall vest and become
exercisable for the exercise period set forth in Executive’s Option Award
Agreement; and


 


(2)          
If a Termination without Cause occurs during the second year of the term of
this Agreement, all unvested Stock Options that would have vested during the
calendar quarter within which the Termination without Cause occurs shall vest
and become exercisable on the Termination Date for the exercise period set
forth in Executive’s Option Award Agreement and, in addition, all unvested
Stock Options that would have vested during the two (2) calendar quarters
after the occurrence of the Termination without Cause also shall vest and
become exercisable for the exercise period set forth in Executive’s Option
Award Agreement; and


 


(3)          
If a Termination without Cause occurs during the third year of the term of this
Agreement or thereafter, all unvested Stock Options that would have vested
during the calendar quarter within which the Termination without Cause occurs
shall vest and become exercisable on the Termination Date for the exercise
period set forth in Executive’s Option Award Agreement and, in addition, all
unvested Stock Options that would have vested during the three (3) calendar
quarters after the occurrence of the Termination without Cause also shall vest
and become exercisable for the exercise period set forth in Executive’s Option
Award Agreement.


 


Notwithstanding the
foregoing provisions of this Section 5(d), if Executive receives a
Termination without Cause prior to the First Financing, Executive shall receive
no severance.  Payment of the Executive’s separation pay benefit under
this Section 5(d), if any, shall be made as follows:


 


(i)  Payment of the
separation pay benefit shall commence as of the 30th day after the Executive’s
Separation from Service, and shall continue in monthly installments thereafter
until all 6 payments are made.


 


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(ii)  In the event
the value of the separation pay benefit shall exceed two times the lesser of
the Executive’s annualized compensation or the maximum amount that may be taken
into account for qualified plan purposes (in each case, as determined in
accordance with Treas. Reg. §1.409A-1(b)(9)(iii)(A)), the excess shall not be
paid as provided in (i), above, but instead shall be paid in 6 equal monthly
installments commencing as of the first of the month after the date that is six
months after the Executive’s Separation from Service date.


 


(iii)  In no event
shall payments be accelerated, nor shall the Executive be eligible to defer
payments to a later date.


 


(e)               Resignation With Good Reason.  If
the Executive resigns his employment for “Good Reason” pursuant to Paragraph 

4(e) of this Agreement after the Company has consummated the First
Financing, then the Company shall pay the Executive that ratable amount of
Executive’s Annual Compensation which the Executive would earn earn in 12
months based on Executive’s then-current base salary and target bonus level
during the Severance Period (as defined in Section 5(d), above).  If
Executive resigns his employment for “Good Reason” pursuant to Paragraph 4(e) of
this Agreement prior to the First Financing, Executive shall not receive any
severance.  All Stock Options granted to Executive prior to Executive’s
departure for “Good Reason” shall remain vested and exercisable for the period
of time set forth in Executive’s Option Award Agreement.  The Company
shall continue to vest options and stock awards during the Severance Period in
accordance with the vesting schedule set forth in Section 5(d) above
(e.g. the same as if Executive were Terminated for Cause).  Thereafter,
the Company shall have no further obligation to the Executive under this
Agreement.  Payment of the Executive’s separation pay benefit under this Section 5(e) shall
be made in accordance with the payment provisions of Section 5(d), above.


 


(f)                Resignation Without Good Reason. 
If the Executive resigns his employment without “Good Reason” pursuant to
Paragraph 4(f) of this Agreement, the Company shall continue to pay the
Executive his Annual Salary through the effective date of the Resignation
Notice unless the Executive is otherwise terminated earlier pursuant to the
terms of this Agreement.  At that time, Stock Options which have been
granted and have vested prior to the date of the Resignation Notice shall
remain vested and exercisable for the period of time specified in Executive’s
Option Award Agreement.  At the effective time of the resignation without
Good Reason, all unvested Stock Options shall immediately be terminated. 
Thereafter, the Company shall have no further obligation to the Executive under
this Agreement.


 


(g)               Release of Claims.  As a
condition for the payments as provided in Sections 5(d) and 5(e) above,
the Executive must execute a release of all claims (including but not limited
to state, federal and foreign laws) that the Executive has or may have against
the Company, its directors, officers, employees, agents, representatives, its
affiliated companies (incorporated or otherwise) and the members of its board
of directors.  Such release shall be in such form and include such
provisions as the Company may require in its reasonable discretion.  The
payments provided for in Sections 5(d) and 5(e) shall not be made
until such release is effective and is no longer subject to rescission under
any applicable law.


 


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6.    
Change in Control.


 


(a)              
At any time after successfully completing the First Financing, in the event
that the Executive’s employment hereunder is terminated in anticipation of, or
within six (6) months following, a Change in Control (defined in Appendix
A) in a termination that is governed by Section 5(d) or 5(e) (relating
to terminations without Cause or for Good Reason), then in lieu of the benefits
described in Section 5(d) or 5(e), the Executive shall be entitled to
receive the following benefits, provided, however that for purposes of this Section 6(a),
a termination will be deemed to occur “in anticipation of a Change in Control”
only if it occurs after the date on which a Change in Control is formally
proposed to the Company’s Board of Directors:


 


(i)           
any outstanding Stock Option shall become fully vested and exercisable to the
extent that such Stock Option was then scheduled to become vested or
exercisable within one year following such event and shall remain exercisable
for at least the lesser of one year following such event and the maximum stated
term of such Stock Option;


 


(ii)          
any outstanding Restricted Shares shall become fully vested to the extent that
such Restricted Shares were then scheduled to become vested within one year
following such event;


 


(iii)         
the Executive shall be entitled to additional or other benefits (if any) in
accordance with the applicable terms of applicable plans, programs and
arrangements of the Company and its Affiliates.


 


(iv)         
the Company shall pay the Executive that ratable amount of Annual Compensation (based
upon Executive’s then-current base salary and target bonus) which the Executive
would earn in twenty-four (24) months (the “Amended Severance Period”) in lieu
of the severance governed by Section 5(d) or 5(e).


 


(b)              
Payment of the Executive’s separation pay benefit under this Section 6
shall be made as follows:


 


(i)  Payment of the
separation pay benefit shall commence as of the 30th day after the Executive’s
Separation from Service, and shall continue in monthly installments thereafter until
all 18 payments are made.


 


(ii)  In the event
the value of the separation pay benefit shall exceed two times the lesser of
the Executive’s annualized compensation or the maximum amount that may be taken
into account for qualified plan purposes (in each case, as determined in
accordance with Treas. Reg. §1.409A-1(b)(9)(iii)(A)), the excess shall not be
paid as provided in (i), above, but instead shall be paid in 18 equal monthly
installments commencing as of the first of the month after the date that is six
months after the Executive’s Separation from Service date.


 


(iii)  In no event
shall payments be accelerated, nor shall the Executive be eligible to defer
payments to a later date.


 


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(c)          
If any portion of the payments which the Executive has the right to receive
from the Company, or any affiliated entity or successor, hereunder would
constitute “excess parachute payments” (as defined in Section 280G of the
Internal Revenue Code) subject to the excise tax imposed by Section 4999
of the Internal Revenue Code, such excess parachute payments shall be reduced
to the largest amount that will result in no portion of such excess parachute
payments being subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code.


 


7.        
Agreement Not to Compete or Solicit


 


(a)               Covenant Not to Compete.  The
Employee hereby covenants and agrees that at no time during the Term of
Employment nor for a period of six (6) months (such period to be eighteen
(18) months in the case of a termination resulting in payments pursuant to Section 6(a)(iv) )
immediately following the termination of the Employee’s employment will he for
himself or on behalf of any other person, partnership, company or corporation,
directly or indirectly, acquire any financial or beneficial interest in (except
as provided in the next sentence), provide consulting or other services to, be
employed by, or own, manage, operate or control any entity engaged in the
Business.  Notwithstanding the preceding sentence, the Employee will not
be prohibited from owning less than five percent (5%) of any corporation,
whether or not such corporation is in competition with the Company.


 


(b)               Non-Solicitation.  The Employee
hereby covenants and agrees that, at all times during the Term of Employment
and for a period of six (6) months (such period to be one (1) year in
the case of a termination resulting in payments pursuant to Section 6(a)(ii))
immediately following the termination thereof, the Employee will not directly
or indirectly employ or seek to employ any person or entity employed at that
time by the Company or any of its subsidiaries, or otherwise encourage or
entice such person or entity to leave such employment.


 


(c)               Intellectual Property.  The
Executive assigns to the Company, without additional compensation, all right,
title and interest in all creations, inventions, ideas, designs, copyrightable
materials, trademarks, and other technology and rights (and any related
improvements or modifications), whether or not subject to patent or copyright
protection (collectively, “ Inventions ”), relating to the Business or
any other activities of the Company that are conceived or developed by the
Executive in the course of his employment, whether alone or with others, and,
if based on Confidential Information, after the termination of this Agreement
for any reason.  Such Inventions shall be the sole property of the Company
and, to the maximum extent permitted by applicable law, shall be deemed “
works made for hire ” as the term is used in the United States Copyright
Act.   The Executive may list specific technologies that are to be
excluded from Intellectual Property, as listed in Exhibit A. The Executive
shall provide evidence to the Company of any assignment of any specific
Invention as may be requested by the Company from time to time.


 


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8.        
Confidential Information.


 


The Employee agrees to
keep secret and retain in the strictest confidence all confidential matters
which relate to the Company or any affiliate of the Company, including, without
limitation, customer lists, client lists, trade secrets, pricing policies and
other business affairs of the Company and any affiliate of the Company learned
by him from the Company or any such affiliate or otherwise before or after the
date of this Agreement, and not to disclose any such confidential matter to
anyone outside the Company, or any of its affiliates, whether during or after
his period of service with the Company, except as may be required in the course
of a legal or governmental proceeding.  Upon request by the Company, the
Employee agrees to deliver promptly to the Company upon termination of his
services for the Company, or at any time thereafter as the Company may request,
all Company or affiliate memoranda, notes, records, reports, manuals, drawings,
designs, computer files in any media and other documents (and all copies
thereof) relating to the Company’s or any affiliate’s business and all property
of the Company or any affiliate associated therewith, which he may then possess
or have under his control.


 


9.         Remedy.


 


(a)              
Should the Employee engage in or perform, either directly or indirectly, any of
the acts prohibited by Sections 7 or 8 hereof, it is agreed that any and all
severance payments and related benefits hereunder shall immediately terminate
and the Company will also be entitled to full injunctive relief, to be issued by
any competent court of equity, enjoining and restraining the Employee and each
and every other person, firm, organization, association, or corporation
concerned therein, from the continuance of such violative acts. The foregoing
remedies available to the Company will not be deemed to limit or prevent the
exercise by the Company of any or all further rights and remedies which may be
available to the Company hereunder or at law or in equity.


 


(b)              
The Employee acknowledges and agrees that the covenants contained in this
Agreement are fair and reasonable in light of the consideration paid hereunder,
and the invalidity or unenforceability of any particular provision, or part of
any provision, of this Agreement will not affect the other provisions or parts
hereof.  If any provision hereof is determined to be invalid or
unenforceable and if any such provision will be so determined to be invalid or
unenforceable by reason of the duration or geographical scope of the covenants
contained therein, such duration or geographical scope, or both, will be
reduced to a duration or geographical scope solely to the extent necessary to
cure such invalidity.


 


10.       Miscellaneous.


 


(a)               Successors; Binding Agreement. 
This Agreement and the obligations of the Company under this Agreement and all
rights of the Executive under this Agreement shall inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors
and assigns; provided, however, that the duties of the Executive under this
Agreement are personal to the Executive and may not be delegated or assigned by
him.


 


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(b)               Notice.  All notices of
termination and other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered by hand or
mailed by United States registered mail, return receipt requested, addressed as
follows:


 


If to the Company:


 


MacroChem Corporation


80 Broad Street, 22nd Floor


New York, NY 10004


Attn:  General
Counsel


Tel:   212 514-8094


Fax:  212 514-8613


 


with a copy to:


 


Luke P. Iovine, III, Esq.


Paul, Hastings, Janofsky &
Walker LLP


75 East 55th Street


New York, NY 10022


Tel: (212) 318-6000


Fax: (212) 319-4090


 


or to such other address
as either party may designate by notice to the other, which notice shall be
deemed to have been given upon receipt.


 


(c)               Governing Law.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to the conflict of law rules thereof.


 


(d)               Waivers.  The waiver of either
party hereto of any right under this Agreement or of any failure to perform or
breach by the other party hereto shall not be deemed a waiver of any other
right under this Agreement or of any other failure or breach by the other party
hereto, whether of the same or a similar nature or otherwise.  No waiver
shall be deemed to have occurred unless set forth in writing executed by or on
behalf of the waiving party.  No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.


 


(e)               Severability.  The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which
shall otherwise remain in full force and effect.  Moreover, if any one or
more of the provisions contained in this Agreement is held to be excessively
broad as to duration, scope or activity, such provisions shall be construed by
limiting and reducing them so as to be enforceable to the maximum extent
compatible with applicable law.


 


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(f)                Counterparts.  This Agreement may
be executed in several counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.


 


(g)               Entire Agreement.  This Agreement
sets forth the entire agreement and understanding of the parties in respect of
the subject matter contained herein, and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of either party in respect of said subject matter.


 


(h)               Modifications.  This Agreement
may only be modified in a writing signed by both the Company and the Executive.


 


(i)                Headings Descriptive.  The
headings of the several paragraphs of this Agreement are inserted for
convenience only and shall not in any way affect the meaning or construction of
any of this Agreement.


 


(j)                Capacity.  The Executive
represents and warrants that he is not a party to any agreement that would
prohibit him from entering into this Agreement or performing fully his
obligations under this Agreement.


 


(k)               Survival.  The obligations and
rights set forth in Paragraphs 6, 7 and 8 shall survive the termination of this
Agreement for any reason.


 


[Signature
Page Follows]


 


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IN WITNESS WHEREOF, the
Company and the Executive have executed this Agreement as of the date first
written above.


 


The Company:


 


MACROCHEM CORPORATION


 


	
  By:

  	
  /s/ Jeffrey B. Davis

  	
   

  
	
  Name:      Jeffrey
  B. Davis

  
	
  Title:        Chairman,
  Compensation Committee

  



 


 


Executive:


 


 


	
  /s/ James Pachence

  	
   

  
	
   

  	
   

  
	
  James Pachence

  	
   

  



 

















 


APPENDIX A


 


(1)   “Affiliate” of a Person shall mean
any Person that directly or indirectly controls, is controlled by, or is under
common control with, such Person.


 


(2)   “Agreement” shall mean this
Employment Agreement, which includes for all purposes its Exhibits.


 


(3)   “Base Salary” shall have the
meaning set forth in Section 3(a).


 


(4)   “Board shall mean the Board of
Directors of the Company.


 


(5)   “Change in Control” shall mean the
occurrence of any of the following events:


 


a.            
any “person,” as such term is currently used in Section 13(d) of
the 1934 Act, becomes (directly or indirectly) a “ beneficial owner ,”
as such term is currently used in Rule 13d-3 promulgated under that Act,
of a percentage of the Voting Securities of the Company, measured either by
number of Voting Securities or by number of votes entitled to be cast, that is
at least 
30  percentage points
larger than the percentage (if any) of the Voting Securities of the Company,
measured in either fashion, that such person beneficially owned (directly or
indirectly) on the Effective Date, unless the acquisition of such Voting
Securities is approved by a majority of Incumbent Directors (as defined below);


 


b.            
a majority of the Board consists of individuals other than “Incumbent
Directors,” which term means the members of the Board on the Effective
Date;  provided  that any individual becoming a director
subsequent to such date whose election or nomination for election was supported
by two-thirds of the directors who then comprised the Incumbent Directors shall
be considered to be an Incumbent Director; or


 


c.            
(x) the Company combines with another entity and is the surviving entity,
or (y) all or substantially all of the assets or business of the Company
is disposed of pursuant to a sale, merger, consolidation, liquidation or other
transaction or series of transactions, in each of cases (x) or (y),  unless 
the holders of Voting Securities of the Company immediately prior to
such combination, sale, merger, consolidation, liquidation or other transaction
or series of transactions (collectively, a “Triggering Event”) own, directly or
indirectly and immediately following such Triggering Event, more than fifty
percent (50%) of the Voting Securities (measured both by number of securities
and by voting power) of: (q) in the case of a combination in which the
Company is the surviving entity, the surviving entity and (r) in any other
case, the entity (if any) that succeeds to substantially all of the business
and assets of the Company.


 


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(6)   “Code” shall mean the Internal
Revenue Code of 1986, as amended.  Any reference to a particular section
of the Code shall include any provision that modifies, replaces or supersedes
such section.


 


(7)   “Company” shall have the meaning
set forth in the preamble to this Agreement.


 


(8)   “Effective Date” shall have the meaning
specified in the preamble of this Agreement.


 


(9)   “Executive” shall have the meaning
set forth in the preamble to this Agreement.


 


(10) “Person” shall mean any individual,
corporation, partnership, limited liability company, joint venture, trust,
estate, board, committee, agency, body, employee benefit plan, or other person
or entity.


 


(11) “Proceeding” shall mean any actual,
threatened or reasonably anticipated action, suit or proceeding, whether civil,
criminal, administrative, investigative, appellate, formal, informal or other.


 


(12) “Restricted Shares” shall mean any
compensatory restricted securities of the Company or any of its Affiliates; any
compensatory share units, phantom securities or analogous rights granted by or
on behalf of the Company or any of its Affiliates; and any security or right
received in respect of any of the foregoing securities or rights.


 


(13) “Stock Option” shall mean any
compensatory option to acquire securities of the Company or of any of its
Affiliates; any compensatory stock appreciation right, phantom stock option or
analogous right granted by or on behalf of the Company or any of its
Affiliates; and any security or right received in respect of any of the
foregoing options or rights.


 


(14) “Term of Employment” shall mean the
period specified in Section 2.


 


(15) “Termination Date” shall mean the
date on which the Executive’s employment hereunder terminates in accordance
with this Agreement.


 


(16) “Voting Securities” shall mean
issued and outstanding securities of any class or classes having general voting
power, under ordinary circumstances in the absence of contingencies, to elect
one or more members of the Board of the issuer.


 


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