**Exhibit 10.1**

 

**ExecutionCopy**

 

**EMPLOYMENTAGREEMENT**

 

**THISEMPLOYMENT AGREEMENT**(this “Agreement”) is made and entered into as of April 22, 2008(the “Effective Date”), by and between MacroChem Corporation, Inc., aDelaware corporation (the “ Company ”), and James M. Pachence anindividual who resides at  18 ElmStreet, Hopewell, New Jersey, USA (the “ Executive ”).

 

**WHEREAS**, the Company is engaged in the businessof acquiring and developing small molecule pharmaceuticals for oncologyindications (the “ Business ”); and

 

**WHEREAS**, the Company desires to employ theExecutive, and the Executive desires to be employed by the Company, on theterms 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**.  The Company willemploy the Executive, and the Executive will serve as the Chief ExecutiveOfficer of the Company.  The Executive will also be a member of the Boardof Directors of the Company (the “ Board ”) so long as he is employed inthis capacity and Executive will report directly to the Board.  TheExecutive will perform such services customary to that office and such otherduties and services as shall from time to time be reasonably assigned to him bythe Board, consistent with such positions and this Agreement.  It isunderstood that Executive may participate on up to three Boards of Directors orAdvisory Boards of other companies and otherwise participate in personalinvestments, to the extent such activities (a) were conducted by Executiveprior to the Effective Date, or (b) do not materially interfere with theperformance of his duties with the Company and to the extent that the Executivehas obtained prior written approval of the Board to participate in any suchactivity.    The Executive will perform his duties hereunderfaithfully and to the best of his abilities and in furtherance of the businessof the Company and its subsidiaries, and will devote his time and energies tothe business and affairs of the Company and its subsidiaries.

 

2.            **Term**.  The Executive’s employmenthereunder 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 forservices rendered under this Agreement, the Executive shall receive an annualsalary of not less than $250,000 (as may be increased pursuant to theimmediately succeeding sentence, the “ Base Salary ”), which salaryshall be paid in accordance with the Company’s then prevailing payrollpractices.  The Executive’s annual salary is eligible for increaseannually in accordance with the Company’s compensation practices and increaseswill be evaluated at the discretion of the Compensation Committee of the Board.

 

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

 

(c)              **Equity Compensation**.  As of theEffective Date, the Executive shall be granted Stock Options pursuant to theterms and conditions of a Stock Option Award Agreement in the form approved bythe Company’s Board as of the date hereof and subject to amendment as set forththerein.  These options will be issued from a valid stock option planapproved by the stockholders and registered under an S-8 within eighteen monthsfrom the date hereof (the “Grant Date”).  The Stock Option shall be forthe 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 OTCBB on the Grant Date.  Of the Stock Options to purchase 2,290,000 sharesof the Company’s Common Stock, stock options to purchase 572,500 shares ofCommon Stock shall vest immediately upon execution of this Agreement, and stockoptions to purchase 143,124 shares of Common Stock shall vest and becomeexercisable every 90 days following the Effective Date for the next three yearsfrom the Effective Date and as fully defined in the Stock Option AwardAgreement; provided that Executive is employed by the Company on such vestingdate.

 

(d)              **Other Benefits**.  The fringebenefits, perquisites and other benefits of employment to be provided to theExecutive shall be equivalent to such benefits and perquisites as are providedto other executives of the Company having similar rank and seniority to theExecutive, as those benefits are amended from time to time.  In addition,the Executive shall be entitled to participate in any other executivecompensation or employee bonus plans implemented by the Company on such termsand conditions as shall have been determined by the Board or the CompensationCommittee thereof.  Participation in any such benefit programs shall besubject to any applicable probationary or similar periods.

 

(e)              **Expenses**.  The Executive will bereimbursed for all reasonable out-of-pocket expenses actually incurred by himin the furtherance of his duties under this Agreement and consistent with theCompany’s policies concerning the reimbursement of such expenses.  Suchexpenses shall be reimbursed upon submission to the Company of invoices containingoriginal receipts for all such expenditures and upon review by the Company ofthe reasonable nature of such expenditures.

 

4.            **Termination**.

 

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

 

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

 

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of employment by reasonof any medically determinable physical or mental impairment that can beexpected to result in death or can be expected to last for a continuous periodof not less than six months, the Executive will be deemed to have a Disability. The Company may terminate the Executive’s employment for Disability uponwritten notice to the Executive or the Executive’s legal representative, andsuch termination shall not constitute termination without Cause (as definedbelow) for purposes of this Agreement.

 

(b)              **Death**.  The Executive’semployment shall terminate immediately upon the death of the Executive.

 

(c)              **Termination with Cause**.  TheCompany shall be entitled to terminate the Executive’s employment forCause.  “ Cause ” shall mean (i) the willful and continuedfailure by the Executive to perform substantially his duties hereunder, otherthan by reasons of Disability, after demand for substantial performance isdelivered by the Company that identifies the manner in which the Companybelieves the Executive has not substantially performed his duties; (ii) theExecutive will have been indicted by any federal, state or local authority inany jurisdiction for, or will have pleaded guilty or nolo contendere to, an actconstituting a felony, (iii) the Executive will have habitually abused anycontrolled substance (such as narcotics or alcohol), or (iv) the Executivewill have (A) engaged in acts of fraud, material dishonesty or grossmisconduct in connection with the business of the Company, or (B) committeda material breach of this Agreement.

 

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

 

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

 

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

 

(ii) anyother material breach by the Company of any of its obligations to the Executiveunder this Agreement; or

 

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

 

(iv) anyfailure of the Company to have any successor to all or substantially all of thebusiness and properties of the Company assume all of the liabilities andobligations of the Company under this Agreement (and any stock option orrestricted stock agreement referred to herein, under such awards as have fullyvested);

 

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

 

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

 

5.            **Compensation Upon Termination or During Disability**.

 

(a)              **Disability**.  During any period ofDisability, the Executive shall continue to receive his Annual Salary, less anycompensation payable to the Executive under any applicable disability insuranceplan during such period, until this Agreement is terminated, but in no eventlonger than 12 months from the date the Disability began, as determined by theCompany.  Thereafter, the Executive’s benefits shall be determined underthe Company’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 compensationarrangements), and (iii) reimbursement of business expenses incurred priorto the date of termination.

 

(b)              **Death**.  In the event of theExecutive’s death, the Company shall pay the Executive’s estate his AnnualSalary through the date of death.  Thereafter, the Company shall have nofurther obligation to the Executive or the Executive’s beneficiary under thisAgreement, except that the Company shall pay to the Executive’s estate (i) anyearned but unpaid bonus from a prior fiscal year (subject, if applicable, to theterms of any deferred compensation arrangements), and (ii) reimbursementof business expenses incurred prior to the date of the Executive’s death.

 

(c)              **Cause**.  If the Company terminatesthe Executive’s employment for “Cause” as defined in Paragraph 4(c) ofthis Agreement, the Company shall continue to pay the Executive his AnnualSalary through the date of termination of the Executive’semployment.   At that time, Stock Options which have been granted andhave vested prior to the date of the termination for Cause shall remain vestedand exercisable for the period of time specified in Executive’s Option AwardAgreement.  At the effective time of the termination for Cause, allunvested Stock Options shall immediately be terminated.  Thereafter, theCompany 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’ssuccessfully consummating its first equity  financing of $10 million ormore in gross proceeds following the Effective Date (the “First Financing”), ifthe Company terminates 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 extentprohibited by law or any applicable employee benefit plan.  All StockOptions granted to Executive which have vested prior to the final day ofExecutive’s employment under this Agreement (the “Termination Date”) shallremain vested and exercisable for the exercise period set forth in Executive’sOption Award Agreement.  The Company will continue to vest Stock Optionsand stock awards during the Severance Period in accordance with the followingvesting schedule:

 

(1)          If a 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

 

(2)          If a Termination without Cause occurs during the second year of the term ofthis Agreement, 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

 

(3)          If a 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.

 

Notwithstanding theforegoing provisions of this Section 5(d), if Executive receives aTermination without Cause prior to the First Financing, Executive shall receiveno severance.  Payment of the Executive’s separation pay benefit underthis Section 5(d), if any, shall be made as follows:

 

(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 6 payments are made.

 

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(ii)  In the eventthe value of the separation pay benefit shall exceed two times the lesser ofthe Executive’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 6 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 eventshall payments be accelerated, nor shall the Executive be eligible to deferpayments to a later date.

 

(e)              **Resignation With Good Reason**.  Ifthe Executive resigns his employment for “Good Reason” pursuant to Paragraph 4(e) of this Agreement after the Company has consummated the FirstFinancing, then the Company shall pay the Executive that ratable amount ofExecutive’s Annual Compensation which the Executive would earn earn in 12months based on Executive’s then-current base salary and target bonus levelduring the Severance Period (as defined in Section 5(d), above).  IfExecutive resigns his employment for “Good Reason” pursuant to Paragraph 4(e) ofthis Agreement prior to the First Financing, Executive shall not receive anyseverance.  All Stock Options granted to Executive prior to Executive’sdeparture for “Good Reason” shall remain vested and exercisable for the periodof time set forth in Executive’s Option Award Agreement.  The Companyshall continue to vest options and stock awards during the Severance Period inaccordance 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 thisAgreement.  Payment of the Executive’s separation pay benefit under this Section 5(e) shallbe 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 toParagraph 4(f) of this Agreement, the Company shall continue to pay theExecutive his Annual Salary through the effective date of the ResignationNotice unless the Executive is otherwise terminated earlier pursuant to theterms 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 effective time of the resignation withoutGood Reason, all unvested Stock Options shall immediately be terminated. Thereafter, the Company shall have no further obligation to the Executive underthis Agreement.

 

(g)              **Release of Claims**.  As acondition 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 limitedto state, federal and foreign laws) that the Executive has or may have againstthe Company, its directors, officers, employees, agents, representatives, itsaffiliated companies (incorporated or otherwise) and the members of its boardof directors.  Such release shall be in such form and include suchprovisions as the Company may require in its reasonable discretion.  Thepayments provided for in Sections 5(d) and 5(e) shall not be madeuntil such release is effective and is no longer subject to rescission underany applicable law.

 

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**6.    Change in Control.**

 

(a)              At any time after successfully completing the First Financing, in the eventthat the Executive’s employment hereunder is terminated in anticipation of, orwithin six (6) months following, a Change in Control (defined in AppendixA) in a termination 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:

 

(i)           any outstanding Stock Option shall become fully vested and exercisable to theextent that such Stock Option was then scheduled to become vested orexercisable within one year following such event and shall remain exercisablefor at least the lesser of one year following such event and the maximum statedterm of such Stock Option;

 

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

 

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

 

(iv)         the Company shall pay the Executive that ratable amount of Annual Compensation (basedupon Executive’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).

 

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

 

(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 thereafter untilall 18 payments are made.

 

(ii)  In the eventthe value of the separation pay benefit shall exceed two times the lesser ofthe Executive’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 eventshall payments be accelerated, nor shall the Executive be eligible to deferpayments to a later date.

 

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

 

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

 

(a)              **Covenant Not to Compete.**  TheEmployee hereby covenants and agrees that at no time during the Term ofEmployment 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 forhimself or on behalf of any other person, partnership, company or corporation,directly or indirectly, acquire any financial or beneficial interest in (exceptas provided in the next sentence), provide consulting or other services to, beemployed by, or own, manage, operate or control any entity engaged in theBusiness.  Notwithstanding the preceding sentence, the Employee will notbe 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 Employeehereby covenants and agrees that, at all times during the Term of Employmentand for a period of six (6) months (such period to be one (1) year inthe case of a termination resulting in payments pursuant to Section 6(a)(ii))immediately following the termination thereof, the Employee will not directlyor indirectly employ or seek to employ any person or entity employed at thattime by the Company or any of its subsidiaries, or otherwise encourage orentice such person or entity to leave such employment.

 

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

 

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**8.        Confidential Information.**

 

The Employee agrees tokeep secret and retain in the strictest confidence all confidential matterswhich relate 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, theEmployee agrees to deliver promptly to the Company upon termination of hisservices 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 copiesthereof) relating to the Company’s or any affiliate’s business and all propertyof the Company or any affiliate associated therewith, which he may then possessor have under his control.

 

9.        **Remedy.**

 

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

 

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

 

10.      **Miscellaneous**.

 

(a)              **Successors; Binding Agreement**. This Agreement and the obligations of the Company under this Agreement and allrights of the Executive under this Agreement shall inure to the benefit of theparties hereto and their respective heirs, personal representatives, successorsand assigns; provided, however, that the duties of the Executive under thisAgreement are personal to the Executive and may not be delegated or assigned byhim.

 

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(b)              **Notice**.  All notices oftermination and other communications provided for in this Agreement shall be inwriting and shall be deemed to have been duly given when delivered by hand ormailed by United States registered mail, return receipt requested, addressed asfollows:

 

If to the Company:

 

MacroChem Corporation

80 Broad Street, 22nd Floor

New York, NY 10004

Attn:  GeneralCounsel

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 addressas either party may designate by notice to the other, which notice shall bedeemed to have been given upon receipt.

 

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

 

(d)              **Waivers**.  The waiver of eitherparty hereto of any right under this Agreement or of any failure to perform orbreach by the other party hereto shall not be deemed a waiver of any otherright under this Agreement or of any other failure or breach by the other partyhereto, whether of the same or a similar nature or otherwise.  No waivershall be deemed to have occurred unless set forth in writing executed by or onbehalf of the waiving party.  No such written waiver shall be deemed acontinuing waiver unless specifically stated therein, and each such waivershall operate only as to the specific term or condition waived and shall notconstitute a waiver of such term or condition for the future or as to any actother than that specifically waived.

 

(e)              **Severability**.  The invalidity orunenforceability of any provision of this Agreement shall not affect thevalidity or enforceability of any other provision of this Agreement, whichshall otherwise remain in full force and effect.  Moreover, if any one ormore 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 maybe 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 Agreementsets forth the entire agreement and understanding of the parties in respect ofthe subject matter contained herein, and supersedes all prior agreements,promises, covenants, arrangements, communications, representations orwarranties, whether oral or written, by any officer, employee or representativeof either party in respect of said subject matter.

 

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

 

(i)               **Headings Descriptive**.  Theheadings of the several paragraphs of this Agreement are inserted forconvenience only and shall not in any way affect the meaning or construction ofany of this Agreement.

 

(j)               **Capacity**.  The Executiverepresents and warrants that he is not a party to any agreement that wouldprohibit him from entering into this Agreement or performing fully hisobligations under this Agreement.

 

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

 

**[SignaturePage Follows]**

 

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IN WITNESS WHEREOF, theCompany and the Executive have executed this Agreement as of the date firstwritten above.

 

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

 

(1)  **“Affiliate”** of a Person shall meanany Person that directly or indirectly controls, is controlled by, or is undercommon control with, such Person.

 

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

 

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

 

(4)  **“Board** shall mean the Board ofDirectors of the Company.

 

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

 

a.            any “person,” as such term is currently used in Section 13(d) ofthe 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 bynumber of Voting Securities or by number of votes entitled to be cast, that isat least** 30**  percentage pointslarger than the percentage (if any) of the Voting Securities of the Company,measured in either fashion, that such person beneficially owned (directly orindirectly) on the Effective Date, unless the acquisition of such VotingSecurities is approved by a majority of Incumbent Directors (as defined below);

 

b.            a majority of the Board consists of individuals other than “IncumbentDirectors,” which term means the members of the Board on the EffectiveDate;  provided  that any individual becoming a directorsubsequent to such date whose election or nomination for election was supportedby two-thirds of the directors who then comprised the Incumbent Directors shallbe 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 Companyis disposed of pursuant to a sale, merger, consolidation, liquidation or othertransaction or series of transactions, in each of cases (x) or (y),  unless the holders of Voting Securities of the Company immediately prior tosuch combination, sale, merger, consolidation, liquidation or other transactionor series 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 InternalRevenue Code of 1986, as amended.  Any reference to a particular sectionof the Code shall include any provision that modifies, replaces or supersedessuch section.

 

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

 

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

 

(9)  **“Executive”** shall have the meaningset 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 personor 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 anycompensatory restricted securities of the Company or any of its Affiliates; anycompensatory share units, phantom securities or analogous rights granted by oron behalf of the Company or any of its Affiliates; and any security or rightreceived in respect of any of the foregoing securities or rights.

 

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

 

(14)**“Term of Employment”** shall mean theperiod specified in Section 2.

 

(15)**“Termination Date”** shall mean thedate on which the Executive’s employment hereunder terminates in accordancewith this Agreement.

 

(16)**“Voting Securities”** shall meanissued and outstanding securities of any class or classes having general votingpower, under ordinary circumstances in the absence of contingencies, to electone or more members of the Board of the issuer.

 

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