EXHIBIT 10.1

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                             KEY EMPLOYEE AGREEMENT
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To:      Thomas C. K. Chan, Ph.D.                     Date:  September 24, 2001
         7 Stoney Brook Road
         Hopkinton, Massachusetts  01748

         The undersigned, MacroChem Corporation, a Delaware corporation (the
"Company"), hereby agrees with you as follows:

        1. POSITION AND RESPONSIBILITIES.

           1.1 You shall serve as Vice President, Research and Technology of the
Company, (or in such other executive capacity as shall be designated by the
Board of Directors and reasonably acceptable to you) and shall perform the
duties customarily associated with such capacity from time to time and at such
place or places as the Company shall designate are appropriate and necessary in
connection with such employment.

           1.2 You will, to the best of your ability, devote your full time and
best efforts to the performance of your duties hereunder and the business and
affairs of the Company. You agree to perform such executive duties as may be
assigned to you by the Company from time to time.

           1.3 You will duly, punctually and faithfully perform and observe any
and all reasonable rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.

        2. TERM OF EMPLOYMENT.

           2.1 Subject to the provisions hereof, specifically including, without
limitation, Section 2.2, the term of your employment shall be indefinite.

           2.2 The Company shall have the right to terminate your employment at
any time under this Agreement in any of the following ways:

           (a) on thirty (30) days prior written notice to you upon your
disability (disability shall be defined as your inability to perform duties
under this Agreement for an aggregate of sixty (60) days, which need not be
consecutive, out of any one hundred twenty (120) day period due to mental or
physical disability or incapacity); you shall be provided benefits under the
Company's workers compensation and disability insurance policies, to the extent
and upon the terms and conditions of such plans that are in effect at the time;

           (b) immediately without prior notice to you by the Company for
"Cause", as hereinafter defined, provided however, that prior to any such
termination for Cause, you have had a reasonable opportunity to be heard
thereon; or

                                       1
<PAGE>
           (c) at any time without Cause, provided the Company shall be
obligated to pay to you after such termination an amount equal to six (6)
months' Base Salary, plus benefits provided by the Company to you at the time of
such termination for such period, less applicable taxes and other required
withholdings and any amounts you may owe to the Company.

           2.3 You shall have the right to terminate your employment hereunder
for any reason, upon not less than four (4) weeks' prior written notice to the
Company.

           2.4 "Cause" for the purpose of Section 2 of this Agreement shall
include: (a) willful malfeasance or gross negligence in the performance of your
duties, resulting in harm to the Company, (b) fraud or dishonesty by you with
respect to the Company, or (c) your conviction for a criminal offense carrying a
potential sentence of more than twelve months in jail.

           2.5 If your employment is terminated because of your death, all
obligations of the Company hereunder shall cease, except with respect to amounts
and obligations accrued to you, including accrued vacation pay, insurance,
vested stock options, and out-of-pocket expenses, through the last day of the
month during which your death has occurred.

        3. COMPENSATION. You shall receive the compensation and benefits set
forth on Exhibit A hereto ("Compensation and Benefits") for all services to be
rendered by you hereunder and for your transfer of property rights if any,
pursuant to an agreement relating to proprietary information and inventions of
even date herewith attached hereto as Exhibit B between you and the Company (the
"Confidential Information, Inventions and Noncompetition Agreement").

        4. CONFIDENTIAL INFORMATION, INVENTIONS AND NONCOMPETITION. You agree to
execute, deliver and be bound by theprovisions of the Confidential Information,
Inventions and Noncompetition Agreement attached hereto as Exhibit B.

        5. REMEDIES. Your obligations under the Confidential Information,
Inventions and Noncompetition Agreement and the provisions of Sections 5 and 6
of this Agreement (as modified by Section 7, if applicable) shall survive the
expiration or termination of your employment with the Company in accordance with
the terms thereof. You acknowledge that a remedy at law for any breach or
threatened breach by you of the provisions of the Confidential Information,
Inventions and Noncompetition Agreement would be inadequate and you therefore
agree that the Company shall be entitled to injunctive relief in case of any
such breach or threatened breach.

        6. ASSIGNMENT. Subject to Section 2.2(c), this Agreement and the rights
and obligations of the parties hereto shall bind and inure to the benefit of any
successor or successors of the Company by reorganization, merger or
consolidation and any assignee of all or substantially all of its business and
properties, but, except as to any such successor or assignee of the Company,
neither this Agreement nor any rights or benefits hereunder may be assigned by
the Company or by you, except by operation of law or by a further written
agreement by the parties hereto.

                                       2
<PAGE>

        7. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one
or more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.

        8. NOTICES. Any notice which the Company is required to or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or five (5) days after the date of
mailing any notice under this Section 8 shall be deemed to be the date of
delivery thereof.

        9. WAIVERS. No waiver of any right under this Agreement shall be deemed
effective unless contained in writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future such right or of any other right
arising under this Agreement. If either party should waive any breach of any
provision of this Agreement, he or it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.

        10. COUNSEL. You acknowledge that you have had the opportunity to read
this Agreement in its entirety and to obtain the advice of counsel regarding its
terms and conditions.

        11. COMPLETE AGREEMENT; AMENDMENTS. The foregoing, including Exhibits A
and B attached hereto, is the entire agreementof the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.

                                       3
<PAGE>

        12. HEADINGS. The headings of the Sections contained in this Agreement
are inserted for convenience and reference only and in no way define, limit,
extend or describe the scope of this Agreement or the intent of any provisions
hereof, and shall not be deemed to constitute a part hereof or to affect the
meaning of this Agreement in any way.

        13. COUNTERPARTS. This Agreement may be signed in two counterparts, each
of which shall be deemed an original and both of which shall together constitute
one agreement.

        14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of theCommonwealth of Massachusetts, excluding
its conflict of law principles.

        If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Confidential Information, Inventions and
Noncompetition Agreement, whereupon both Agreements shall become binding in
accordance with their terms. Please then return this Agreement to the Company.
(You may retain for your records the accompanying counterpart of this Agreement
enclosed herewith).

                                                     Very truly yours,
                                                     MACROCHEM CORPORATION, a
                                                     Delaware corporation

                                                     By:/s/ Robert J. Palmisano
                                                        -----------------------
                                                            Robert J. Palmisano
                                                            President & C.E.O.


Read, Accepted and Agreed:

/s/ Thomas C.K. Chan, Ph.D.
---------------------------
    Thomas C. K. Chan, Ph.D.


                                       4
<PAGE>
                                                                      EXHIBIT A
                            COMPENSATION AND BENEFITS

                           OF Thomas C. K. Chan, Ph.D.


COMPENSATION. Your initial Base Salary, commencing on September 24, 2001, shall
be $164,500 per year, less applicable deductions, payable in accordance with the
Company's payroll policies. An increase in your Base Salary shall be reviewed
and adjusted from time to time by the Company.

VACATION. You shall be entitled to all state statutory holidays, and four (4)
weeks paid vacation for the first year of employment. Thereafter, any additional
vacation time, over and above the vacation time already referred to herein shall
be determined by the Company.

INSURANCE AND BENEFITS. You shall be eligible to receive medical, dental, life,
short and long term disability insurance, currently offered through the
Company's insurance carriers. The Company currently pays 70% of these premiums.
You shall also be eligible to participate in the Company's 401(k) plan.

SICK DAYS AND EXCUSED ABSENCE DAYS. You shall be entitled to compensation for
sick days and excused absence days in accordance with
Company policy.

STOCK OPTIONS. You have been granted stock options to purchase shares of the
Common Stock of the Company, $.01 par value per share. Future stock options may
be granted by the Company based in part on your performance.


                                      -A1-

<PAGE>

                                                                      EXHIBIT B

        CONFIDENTIAL INFORMATION, INVENTIONS AND NONCOMPETITION AGREEMENT

To:     MacroChem Corporation                        Date:  September 24, 2001
        110 Hartwell Avenue
        Lexington, Massachusetts 02421-3134

        The undersigned, in consideration of and as a condition of my employment
or continued employment by you and/or by companies that you own, control, or are
affiliated with or their successors in business (collectively, the "Company"),
hereby agrees as follows:

        1. CONFIDENTIALITY. I agree to keep confidential, except as the Company
may otherwise consent in writing, and except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, franchises, processes, know-how, techniques, methods, designs,
formulas, test data, customer lists, business plans, marketing plans and
strategies, pricing strategies, or other subject matter pertaining to any
business of the Company or any of its affiliates, which I may produce, obtain,
or otherwise acquire during the course of my employment, except as herein
provided. I further agree not to deliver, reproduce or in any way allow any such
trade secrets, confidential information, knowledge, data or other information,
or any documentation relating thereto, to be delivered to or used by any third
parties without specific direction or consent of the Chairman of the Board or
the Chief Executive Officer of the Company. The provisions of this Section 1
shall not apply to such knowledge, data or other information that is generally
known to the public.

        2. CONFLICTING EMPLOYMENT; RETURN OF CONFIDENTIAL MATERIAL. I agree that
during my employment with the Company I will not engage in any other employment,
occupation, consulting or other activity relating to the business of the
Company, or which would otherwise conflict with my obligations to the Company.
In the event my employment with the Company terminates for any reason
whatsoever, I agree to promptly surrender and deliver to the Company all trade
secrets, confidential information, processes and records, including, but not
limited to, designs, formulae, test data, customer lists, business plans and
strategies, Inventions or other written memoranda, materials, equipment,
drawings, documents, records, files and data, in any media of whatever kind and
description, that I may obtain or produce during the course of my employment
(the "Documents" and each individually, a "Document"), and I will not take with
me any Document containing or pertaining to any confidential information,
knowledge or data of the Company.

                                      -B1-
<PAGE>
        3. ASSIGNMENT OF INVENTIONS.

           3.1 I hereby acknowledge and agree that the Company is the owner of
all Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.

           3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, methods, techniques, devices, or
improvements in any of the foregoing or other ideas, whether or not patentable
or copyrightable and whether or not reduced to practice, made or conceived by me
(whether solely or jointly with others) during the period of my employment with
the Company that relate in any way to the business, products or services of the
Company or to any prospective activity of the Company or which make use of the
confidential information of or the facilities or equipment of the Company.

           3.3 Any discovery, process, design, method, technique, technology,
device, or improvement in any of the foregoing or other ideas, whether or not
patentable or copyrightable and whether or not reduced to practice, made or
conceived by me (whether solely or jointly with others) that I develop entirely
on my own time not using any of the Company's equipment, supplies, facilities,
or trade secret information ("Personal Invention") is excluded from this
Agreement provided such Personal Invention (a) does not relate to the actual or
demonstrably anticipated business, research and development of the Company, and
(b) does not result, directly or indirectly, from any work performed by me for
the Company.

        4. DISCLOSURE OF INVENTIONS. I agree that in connection with any
Invention, I will promptly disclose such Invention to the Board of Directors of
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company. If the Company in good faith decides not
to use an Invention, it will advise me of same and the rights to such Invention
will revert to me within a reasonable period of time.

        5. PATENTS AND COPYRIGHTS; EXECUTION OF DOCUMENTS.

           5.1 Upon request, I agree to assist the Company or its nominee (at
its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.

           5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
                                      -B2-
<PAGE>

        6. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings, flowcharts, printouts, diskettes and other records as may be
specified by the Company), which records shall be available to and remain the
sole property of the Company at all times.

        7. PRIOR INVENTIONS. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions that
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company that appears to threaten
or conflict with proprietary rights I claim in any Personal Invention. In the
event of my failure to give such notice, I agree that I will make no claim
against the Company with respect to any such Personal Invention.

        8. OTHER OBLIGATIONS. I acknowledge that the Company from time to time
may have agreements with other persons, companies, entities, Governments or
agencies thereof, that impose obligations or restrictions on the Company
regarding Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all actions necessary to discharge the Company's
obligations.

        9. TRADE SECRETS OF OTHERS. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge, or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.

        10. OTHER ACTIVITIES DURING EMPLOYMENT.

            10.1 Except for any outside employments and directorships currently
held by me as listed on Schedule B hereto, and except with the prior written
consent of the Company, which consent will not be unreasonably withheld, I will
not, during my employment by the Company, undertake or engage in any other
employment, occupation or business enterprise, other than one in which I am an
inactive investor, that would interfere with my obligations to the Company.

            10.2 I hereby agree, that except as disclosed on Schedule B hereto,
during my employment by the Company, I will not, directly or indirectly, engage
(a) individually, (b) as an officer, (c) as a director, (d) as an employee,

                                  -B3-
<PAGE>

(e) as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson
or otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or
other proprietor owning directly or indirectly more than five percent (5%)
interest in any firm, corporation, partnership, trust, association, or other
organization that is engaged in any business that is competitive with the
business of the Company as conducted or in planning during my employment (such
firm, corporation, partnership, trust, association, or other organization being
hereinafter referred to as a "Prohibited Enterprise"), without the consent of
the Company, which consent will not be unreasonably withheld. Except as may be
shown on Schedule B hereto, I hereby represent that I am not engaged in any of
the foregoing capacities (a) through (i) in any Prohibited Enterprise.

        11. POST-EMPLOYMENT ACTIVITIES.

            11.1 For a period of two (2) years after the termination, for any
reason, of my employment with the Company, absent the Company's prior written
approval, I will not directly or indirectly engage in activities similar or
reasonably related to those in which I shall have engaged for the Company during
the two years immediately preceding termination, nor render services similar or
reasonably related to those which I shall have rendered during such time, to any
person or entity, whether existing or hereafter established, that is engaged in
any business that is competitive with the business of the Company as conducted
or in planning during my employment with the Company ("Direct Competitor"). In
addition, I shall not entice, induce or encourage any of the Company's other
employees to engage in any activity that, were it done by me, would violate any
provision of this Agreement.

            11.2 No provision of this Agreement shall be construed to preclude
me from performing the same services that the Company retains me to perform for
any person or entity that is not a Direct Competitor of the Company upon the
termination of my employment (or any post-employment consultation) so long as I
do not thereby violate any term of this Agreement.

        12. REMEDIES. My obligations under this Agreement shall survive the
termination of my employment with the Company. I acknowledge that a remedy at
law for any breach or threatened breach by me of the provisions of this
Agreement would be inadequate and I therefore agree that the Company shall be
entitled to injunctive relief in case of any such breach or threatened breach.

        13. MODIFICATION. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.

        14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.

                                      -B4-

<PAGE>
        15. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one
or more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any provision of this Agreement is or becomes or
is deemed invalid, illegal or unenforceable or in case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, geographical scope, activity or subject, such
provision shall be construed by amending, limiting and/or reducing it to conform
to applicable laws so as to be valid and enforceable or, if it cannot be so
amended without materially altering the intention of the parties, it shall be
stricken and the remainder of this Agreement shall remain in full force and
effect.

        16. WAIVERS. No waiver of any right under this Agreement shall be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future such right or of any other right
arising under this Agreement. If either party should waive any breach of any
provision of this Agreement, he or it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.

        17. COMPLETE AGREEMENT, AMENDMENTS. The foregoing including Schedules A
and B attached hereto is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto.

        18. HEADINGS. The headings of the Sections contained in this Agreement
are inserted for convenience and reference only and in no way define, limit,
extend or describe the scope of this Agreement, or the intent of any provision
hereof, and shall not be deemed to constitute a part hereof nor to affect the
meaning of this Agreement in any way.

        19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts,
excluding its conflict of law principles.

        20. NOTICES. All notices, requests, demands and communications which are
or may be required to be given hereunder shall be deemed effectively given if
and when sent by registered or certified mail, return receipt requested, postage
prepaid, to the following addresses:

            If to the Company:  Mr. Robert J. Palmisano, President and C.E.O.
                                MacroChem Corporation
                                110 Hartwell Avenue
                                Lexington, MA  02421-3134


                                  -B5-

<PAGE>

            If to Employee:  Thomas C. K. Chan, Ph.D.
                             MacroChem Corporation
                             110 Hartwell Avenue
                             Lexington, MA  02421-3134


        21. CONFLICTS. In the event of any conflict between the provisions of
this agreement and the provisions of the Employment Agreement, the provisions of
the Employment Agreement will govern.



                                                   Very truly yours,


                                                   /s/ Thomas C. K. Chan, Ph.D.
                                                   ----------------------------
                                                       Thomas C. K. Chan, Ph.D.
                                                       Vice President, Research
                                                       and Technology



Agreed:
MacroChem Corporation

By:/s/ Robert J. Palmisano
   -----------------------
       Robert J. Palmisano
       President & C.E.O.


                                      -B6-

<PAGE>
                                                                     SCHEDULE A


                            LIST OF PRIOR INVENTIONS
                           OF Thomas C. K. Chan, Ph.D.

TITLE                               DATE                IDENTIFYING NUMBER
-----                               ----                ------------------
                                                        or BRIEF DESCRIPTION
                                                        --------------------

None.

















                                      -B7-

<PAGE>

                                                                     SCHEDULE B

                      OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
                           OF Thomas C. K. Chan, Ph.D.


None.






















                                      -B8-