**Exhibit 10.1**

** **

**Execution Copy**

 

**EMPLOYMENT AGREEMENT**

 

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

 

**WHEREAS**, the Companyis engaged in the business of acquiring and developing small moleculepharmaceuticals for oncology indications (the “Business”); and

 

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

 

**NOW, THEREFORE**, inconsideration of the foregoing and of the respective covenants and agreementsherein set forth, the Company and the Executive agree as follows:

 

# 1.             **Employment**.  TheCompany will employ the Executive, and the Executive will serve as the ChiefExecutive Officer****of theCompany.  The Executive will also be amember of the Board of Directors of the Company (the “Board”) so long ashe is employed in this capacity and Executive will report directly to the Board.  The Executive will perform such servicescustomary to that office and such other duties and services as shall from timeto time be reasonably assigned to him by the Board, consistent with suchpositions and this Agreement.  It is understoodthat Executive may participate on up to three Boards of Directors or AdvisoryBoards of other companies and otherwise participate in personal investments, tothe extent such activities (a) were conducted by Executive prior to theEffective Date, or (b) do not materially interfere with the performance ofhis duties with the Company and to the extent that the Executive has obtainedprior written approval of the Board to participate in any such activity.    TheExecutive will perform his duties hereunder faithfully and to the best of hisabilities and in furtherance of the business of the Company and itssubsidiaries, and will devote his time and energies to the business and affairsof the Company and its subsidiaries.

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# 2.             **Term**.  The Executive’semployment hereunder shall be “at will” and is terminable at any time by eitherparty, subject to the provisions of Sections 4, 5 and 6 hereof.

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# 3.             **Compensation andOther Related Matters**.

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## (a)               **Salary**.  Ascompensation for services rendered under this Agreement, the Executive shallreceive an annual salary of not less than $250,000 (as may be increasedpursuant to the immediately succeeding sentence, the “Base Salary”),which salary shall be paid in accordance with the Company’s then prevailingpayroll practices.  The Executive’sannual salary is eligible for increase annually in accordance with the Company’scompensation practices and increases will be evaluated at the discretion of theCompensation Committee of the Board.

 

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## (b)               **Bonus**.  During theterm of this Agreement, and at the sole discretion of the CompensationCommittee of the Board, the Executive shall be eligible to receive an annualbonus up to fiftypercent (50%)****ofthe Executive’s Annual Salary at the conclusion of each fiscal year based onthe Executive and the Company successfully achieving targeted annualperformance objectives (the “Annual Bonus” and, together with the AnnualSalary, the “Annual Compensation”).  Toreceive such Annual Bonus, the Executive must still be employed with theCompany as of December 31 of the year for which the Annual Bonus ispayable and not be in breach of this Agreement.

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## (c)               **Equity Compensation**. As of the Effective Date, the Executive shall be granted Stock Optionspursuant to the terms and conditions of a Stock Option Award Agreement in theform approved by the Company’s Board as of the date hereof and subject toamendment as set forth therein.  Theseoptions will be issued from a valid stock option plan approved by thestockholders and registered under an S-8 within eighteen months from the datehereof (the “Grant Date”).  The StockOption shall be for the purchase of 2,290,000 shares of the Company’s commonstock, no par value (the “Common Stock”) at a price per share equal to theclosing price on the OTC BB on the Grant Date. Of the Stock Options to purchase 2,290,000 shares of the Company’sCommon Stock, stock options to purchase 572,500 shares of Common Stock shallvest immediately upon execution of this Agreement, and stock options topurchase 143,124 shares of Common Stock shall vest and become exercisable every90 days following the Effective Date for the next three years from the EffectiveDate and as fully defined in the Stock Option Award Agreement; provided that Executiveis employed by the Company on such vesting date.

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## (d)               **Other Benefits**.  Thefringe benefits, perquisites and other benefits of employment to be provided tothe Executive shall be equivalent to such benefits and perquisites as areprovided to other executives of the Company having similar rank and seniorityto the Executive, as those benefits are amended from time to time.  In addition, the Executive shall be entitledto participate in any other executive compensation or employee bonus plansimplemented by the Company on such terms and conditions as shall have beendetermined by the Board or the Compensation Committee thereof.  Participation in any such benefit programsshall be subject to any applicable probationary or similar periods.

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## (e)               **Expenses**.  TheExecutive will be reimbursed for all reasonable out-of-pocket expenses actuallyincurred by him in the furtherance of his duties under this Agreement andconsistent with the Company’s policies concerning the reimbursement of suchexpenses.  Such expenses shall bereimbursed upon submission to the Company of invoices containing originalreceipts for all such expenditures and upon review by the Company of thereasonable nature of such expenditures.

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# 4.             **Termination**.

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**Alltermination provisions require a 60 day written notice.**

 

## (a)               **Disability**.  If, asa 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 ofemployment or any substantially similar position

 

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## of employment by reason of anymedically determinable physical or mental impairment that can be expected toresult in death or can be expected to last for a continuous period of not lessthan six months, the Executive will be deemed to have a Disability.  The Company may terminate the Executive’semployment for Disability upon written notice to the Executive or the Executive’slegal representative, and such termination shall not constitute terminationwithout Cause (as defined below) for purposes of this Agreement.

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## (b)               **Death**.  TheExecutive’s employment shall terminate immediately upon the death of theExecutive.

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

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

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## (e)               **Resignation for Good Reason**.  The Executive shall have the right toterminate his employment for “Good Reason,” which shall mean a resignation ofhis employment and his Separation from Service (as defined for purposes of§409A of the Internal Revenue Code) within less than one year following theinitial existence of one or more of the following conditions arising withouthis consent:

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

 

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

 

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

 

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

 

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provided, in each case, that a prior written notice specifying thereasons within ninety (90) after the initial existence of the condition and anopportunity 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 suchcondition within 31 days after its receipt of such prior written notice.

 

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

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# 5.             **Compensation UponTermination or During Disability**.

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## (a)               **Disability**.  Duringany period of Disability, the Executive shall continue to receive his AnnualSalary, less any compensation payable to the Executive under any applicabledisability insurance plan during such period, until this Agreement isterminated, but in no event longer than 12 months from the date the Disabilitybegan, as determined by the Company. Thereafter, the Executive’s benefits shall be determined under theCompany’s insurance and other compensation programs then in effect, and theCompany shall have no further obligation to the Executive under this Agreement,except that the Company shall pay to the Executive, or the Executive’s legalrepresentative, as appropriate, (i) any accrued but unpaid base salary andvacation, (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 oftermination.

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## (b)               **Death**.  In the eventof the Executive’s death, the Company shall pay the Executive’s estate hisAnnual Salary through the date of death. Thereafter, the Company shall have no further obligation to theExecutive or the Executive’s beneficiary under this Agreement, except that theCompany shall pay to the Executive’s estate (i) any earned but unpaidbonus from a prior fiscal year (subject, if applicable, to the terms of anydeferred compensation arrangements), and (ii) reimbursement of businessexpenses incurred prior to the date of the Executive’s death.

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

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

 

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

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## (1)           Ifa Termination without Cause occurs during the first year of the term of thisAgreement, all unvested Stock Options that would have vested during thecalendar quarter within which the Termination without Cause occurs shall vestand become exercisable on the Termination Date for the exercise period setforth in Executive’s Option Award Agreement and, in addition, all unvestedStock Options that would have vested during the calendar quarter after theoccurrence of the Termination without Cause also shall vest and becomeexercisable for the exercise period set forth in Executive’s Option AwardAgreement; and

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## (2)           Ifa Termination without Cause occurs during the second year of the term of thisAgreement, all unvested Stock Options that would have vested during thecalendar quarter within which the Termination without Cause occurs shall vestand become exercisable on the Termination Date for the exercise period setforth in Executive’s Option Award Agreement and, in addition, all unvestedStock Options that would have vested during the two (2) calendar quartersafter the occurrence of the Termination without Cause also shall vest andbecome exercisable for the exercise period set forth in Executive’s OptionAward Agreement; and

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## (3)           Ifa Termination without Cause occurs during the third year of the term of thisAgreement or thereafter, all unvested Stock Options that would have vestedduring the calendar quarter within which the Termination without Cause occursshall vest and become exercisable on the Termination Date for the exerciseperiod set forth in Executive’s Option Award Agreement and, in addition, allunvested Stock Options that would have vested during the three (3) calendarquarters after the occurrence of the Termination without Cause also shall vestand become exercisable for the exercise period set forth in Executive’s OptionAward Agreement.

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

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

 

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(ii)  In the event the value of the separation pay benefit shallexceed two times the lesser of the Executive’s annualized compensation or themaximum amount that may be taken into account for qualified plan purposes (ineach 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 asof the first of the month after the date that is six months after the Executive’sSeparation from Service date.

 

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

 

## (e)               **Resignation With Good Reason**.  If the Executive resigns his employment for “GoodReason” pursuant to Paragraph 4(e) of this Agreement after the Company hasconsummated the First Financing, then the Company shall pay the Executive thatratable amount of Executive’s Annual Compensation which the Executive wouldearn earn in 12 months based on Executive’s then-current base salary and targetbonus level during the Severance Period (as defined in Section 5(d),above).  If Executive resigns hisemployment for “Good Reason” pursuant to Paragraph 4(e) of this Agreementprior to the First Financing, Executive shall not receive any severance.  All Stock Options granted to Executive priorto Executive’s departure for “Good Reason” shall remain vested and exercisablefor the period of time set forth in Executive’s Option Award Agreement.  The Company shall continue to vest optionsand stock awards during the Severance Period in accordance with the vestingschedule set forth in Section 5(d) above (e.g. the same as ifExecutive were Terminated for Cause). Thereafter, the Company shall have no further obligation to theExecutive under this Agreement.  Paymentof the Executive’s separation pay benefit under this Section 5(e) shallbe made in accordance with the payment provisions of Section 5(d), above.

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## (f)                **Resignation Without Good Reason**.  If the Executive resigns his employmentwithout “Good Reason” pursuant to Paragraph 4(f) of this Agreement, theCompany shall continue to pay the Executive his Annual Salary through theeffective date of the Resignation Notice unless the Executive is otherwiseterminated earlier pursuant to the terms of this Agreement.  At that time, Stock Options which have beengranted and have vested prior to the date of the Resignation Notice shallremain vested and exercisable for the period of time specified in Executive’sOption Award Agreement.  At the effectivetime of the resignation without Good Reason, all unvested Stock Options shallimmediately be terminated.  Thereafter,the Company shall have no further obligation to the Executive under thisAgreement.

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## (g)               **Release of Claims**.  As a condition for the payments as providedin Sections 5(d) and 5(e) above, the Executive must execute a release of all claims (including but notlimited to state, federal and foreign laws) that the Executive has or may haveagainst the Company, its directors, officers, employees, agents,representatives, its affiliated companies (incorporated or otherwise) and themembers of its board of directors.  Suchrelease shall be in such form and include such provisions as the Company mayrequire in its reasonable discretion. The payments provided for in Sections 5(d) and 5(e) shall notbe made until such release is effective and is no longer subject to rescissionunder any applicable law.

 

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# **6.     Changein Control.**

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## (a)               At any timeafter successfully completing the First Financing, in the event that theExecutive’s employment hereunder is terminated in anticipation of, or withinsix (6) months following, a Change in Control (defined in Appendix A) in atermination that is governed by Section 5(d) or 5(e) (relatingto terminations without Cause or for Good Reason), then in lieu of the benefitsdescribed in Section 5(d) or 5(e), the Executive shall be entitled toreceive 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 formallyproposed to the Company’s Board of Directors:

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

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### (ii)           any outstandingRestricted Shares shall become fully vested to the extent that such RestrictedShares were then scheduled to become vested within one year following suchevent;

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### (iii)          the Executive shallbe entitled to additional or other benefits (if any) in accordance with theapplicable terms of applicable plans, programs and arrangements of the Companyand its Affiliates.

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

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

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(i)  Payment of theseparation pay benefit shall commence as of the 30th day after the Executive’sSeparation from Service, and shall continue in monthly installments thereafteruntil all 18 payments are made.

 

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

 

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

 

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## (c)           If any portion of the payments whichthe Executive has the right to receive from the Company, or any affiliatedentity or successor, hereunder would constitute “excess parachute payments” (asdefined in Section 280G of the Internal Revenue Code) subject to theexcise tax imposed by Section 4999 of the Internal Revenue Code, suchexcess parachute payments shall be reduced to the largest amount that willresult in no portion of such excess parachute payments being subject to theexcise tax imposed by Section 4999 of the Internal Revenue Code.

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# **7.         Agreement Not to Compete or Solicit**

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## (a)               **Covenant Not to Compete.**  The Employee hereby covenants and agrees thatat 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 resultingin payments pursuant to Section 6(a)(iv) ) immediately following thetermination of the Employee’s employment will he for himself or on behalf ofany other person, partnership, company or corporation, directly or indirectly,acquire any financial or beneficial interest in (except as provided in the nextsentence), 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, theEmployee will not be prohibited from owning less than five percent (5%) of anycorporation, whether or not such corporation is in competition with theCompany.

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## (b)               **Non-Solicitation.**  The Employee hereby covenants and agreesthat, 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 inpayments pursuant to Section 6(a)(ii)) immediately following thetermination thereof, the Employee will not directly or indirectly employ orseek to employ any person or entity employed at that time by the Company or anyof its subsidiaries, or otherwise encourage or entice such person or entity toleave such employment.

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## (c)               **Intellectual Property**.  The Executive assigns to the Company, withoutadditional compensation, all right, title and interest in all creations,inventions, ideas, designs, copyrightable materials, trademarks, and othertechnology and rights (and any related improvements or modifications), whetheror not subject to patent or copyright protection (collectively, “Inventions”),relating to the Business or any other activities of the Company that areconceived or developed by the Executive in the course of his employment,whether alone or with others, and, if based on Confidential Information, afterthe termination of this Agreement for any reason.  Such Inventions shall be the sole property ofthe Company and, to the maximum extent permitted by applicable law, shall bedeemed “works made for hire” as the term is used in the United StatesCopyright Act.   The Executive may listspecific technologies that are to be excluded from Intellectual Property, aslisted in Exhibit A. The Executive shall provide evidence to the Companyof any assignment of any specific Invention as may be requested by the Companyfrom time to time.

 

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# **8.         Confidential Information.**

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The Employee agrees to keepsecret and retain in the strictest confidence all confidential matters whichrelate to the Company or any affiliate of the Company, including, withoutlimitation, customer lists, client lists, trade secrets, pricing policies andother business affairs of the Company and any affiliate of the Company learnedby him from the Company or any such affiliate or otherwise before or after thedate of this Agreement, and not to disclose any such confidential matter toanyone outside the Company, or any of its affiliates, whether during or afterhis period of service with the Company, except as may be required in the courseof a legal or governmental proceeding. Upon request by the Company, the Employee agrees to deliver promptly tothe Company upon termination of his services for the Company, or at any timethereafter as the Company may request, all Company or affiliate memoranda,notes, records, reports, manuals, drawings, designs, computer files in anymedia and other documents (and all copies thereof) relating to the Company’s orany affiliate’s business and all property of the Company or any affiliateassociated therewith, which he may then possess or have under his control.

 

# 9.         **Remedy.**

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

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

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# 10.       **Miscellaneous**.

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## (a)               **Successors; Binding Agreement**.  This Agreement and the obligations of theCompany under this Agreement and all rights of the Executive under thisAgreement shall inure to the benefit of the parties hereto and their respectiveheirs, personal representatives, successors and assigns; provided, however,that the duties of the Executive under this Agreement are personal to theExecutive 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 thisAgreement shall be in writing and shall be deemed to have been duly given whendelivered by hand or mailed by United States registered mail, return receiptrequested, addressed as follows:

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If to the Company:

 

MacroChem Corporation

80 Broad Street, 22ndFloor

New York, NY 10004

Attn:  General Counsel

Tel: L 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 aseither party may designate by notice to the other, which notice shall be deemedto have been given upon receipt.

 

## (c)               **Governing Law**.  This Agreement shall be governed by andconstrued in accordance with the laws of the State of New York without regardto the conflict of law rules thereof.

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## (d)               **Waivers**.  The waiver of either party hereto of anyright under this Agreement or of any failure to perform or breach by the otherparty hereto shall not be deemed a waiver of any other right under thisAgreement or of any other failure or breach by the other party hereto, whetherof the same or a similar nature or otherwise. No waiver shall be deemed to have occurred unless set forth in writingexecuted by or on behalf of the waiving party. No such written waiver shall be deemed a continuing waiver unlessspecifically stated therein, and each such waiver shall operate only as to thespecific term or condition waived and shall not constitute a waiver of suchterm or condition for the future or as to any act other than that specificallywaived.

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## (e)               **Severability**.  The invalidity or unenforceability of anyprovision of this Agreement shall not affect the validity or enforceability ofany other provision of this Agreement, which shall otherwise remain in fullforce and effect.  Moreover, if any oneor more of the provisions contained in this Agreement is held to be excessivelybroad as to duration, scope or activity, such provisions shall be construed bylimiting and reducing them so as to be enforceable to the maximum extentcompatible with applicable law.

 

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## (f)                **Counterparts**.  This Agreement may be executed in severalcounterparts, each of which shall be deemed an original, but all of which shallconstitute one and the same instrument.

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

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## (h)               **Modifications**.  This Agreement may only be modified in awriting signed by both the Company and the Executive.

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

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

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## (k)               **Survival**.  The obligations and rights set forth inParagraphs 6, 7 and 8 shall survive the termination of this Agreement for anyreason.

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**[Signature Page Follows]**

 

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IN WITNESS WHEREOF, the Companyand the Executive have executed this Agreement as of the date first writtenabove.

 

The Company:

 

MACROCHEM CORPORATION

 
| By:    | /s/ Jeffrey B. Davis                    |   |
|--------|-----------------------------------------|--------|
| Name:  |  Jeffrey B. Davis                  |   |
| Title: |  Chairman, Compensation  Committee |   |
|        |                                         |        |  |

 

 

Executive:

 

 
| /s/ James Pachence |   |
|--------------------|--------|
|               |
| James Pachence     |

 

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##### APPENDIX A

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##### (1)   **“Affiliate”** of a Person shall mean any Person thatdirectly or indirectly controls, is controlled by, or is under common controlwith, such Person.

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##### (2)   **“Agreement”** shall mean this Employment Agreement, whichincludes for all purposes its Exhibits.

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

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##### (4)   **“Board** shall mean the Board of Directors of theCompany.

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

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###### 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 iscurrently used in Rule 13d-3 promulgated under that Act, of a percentageof the Voting Securities of the Company, measured either by number of VotingSecurities or by number of votes entitled to be cast, that is at least **30** percentage points larger than thepercentage (if any) of the Voting Securities of the Company, measured in eitherfashion, that such person beneficially owned (directly or indirectly) on theEffective Date, unless the acquisition of such Voting Securities is approved bya majority of Incumbent Directors (as defined below);

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###### b.             a majority of theBoard consists of individuals other than “Incumbent Directors,” whichterm means the members of the Board on the Effective Date; provided thatany individual becoming a director subsequent to such date whose election ornomination for election was supported by two-thirds of the directors who thencomprised the Incumbent Directors shall be considered to be an IncumbentDirector; or

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###### c.             (x) theCompany combines with another entity and is the surviving entity, or (y) allor substantially all of the assets or business of the Company is disposed ofpursuant to a sale, merger, consolidation, liquidation or other transaction orseries of transactions, in each of cases (x) or (y), unless theholders of Voting Securities of the Company immediately prior to suchcombination, sale, merger, consolidation, liquidation or other transaction orseries of transactions (collectively, a “Triggering Event”) own, directly orindirectly and immediately following such Triggering Event, more than fiftypercent (50%) of the Voting Securities (measured both by number of securitiesand by voting power) of: (q) in the case of a combination in which theCompany is the surviving entity, the surviving entity and (r) in any othercase, the entity (if any) that succeeds to substantially all of the businessand assets of the Company.

 

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##### (6)   **“Code”** shall mean the Internal Revenue Code of 1986, asamended.  Any reference to a particularsection of the Code shall include any provision that modifies, replaces orsupersedes such section.

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

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

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

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##### (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.

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

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##### (12) **“Restricted Shares”** shall mean any compensatoryrestricted securities of the Company or any of its Affiliates; any compensatoryshare units, phantom securities or analogous rights granted by or on behalf ofthe Company or any of its Affiliates; and any security or right received inrespect of any of the foregoing securities or rights.

#####  

##### (13) **“Stock Option”** shall mean any compensatory option toacquire securities of the Company or of any of its Affiliates; any compensatorystock appreciation right, phantom stock option or analogous right granted by oron behalf of the Company or any of its Affiliates; and any security or rightreceived in respect of any of the foregoing options or rights.

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##### (14) **“Term of Employment”** shall mean the period specified inSection 2.

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

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##### (16) **“Voting Securities”** shall mean issued and outstandingsecurities of any class or classes having general voting power, under ordinarycircumstances in the absence of contingencies, to elect one or more members ofthe Board of the issuer.

 

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