Key Employee Agreement

Exhibit 10.47


SQUARE ACQUISITION CORP.


KEY EMPLOYEE AGREEMENT FOR J. MILTON HARRIS


This Employment Agreement ("Agreement") is entered into as of the 29th day of June, 2001, by and between J. Milton Harris ("Executive") and Square Acquisition Corp., an Alabama Corporation (the "Company"). The Company is a wholly owned subsidiary of Inhale Therapeutic Systems, Inc., a Delaware corporation (the "Parent").


Whereas , the Company desires to employ Executive to provide personal services to the Company, and wishes to provide Executive with certain compensation and benefits in return for his services; and


Whereas , Executive wishes to be employed by the Company and provide personal services to the Company in return for certain compensation and benefits;


Now Therefore , in consideration of the mutual promises and covenants contained herein, it is hereby agreed by and between the parties hereto as follows:


1. Employment by the Company .


1.1 The effective date of this Agreement shall be the Closing Date as defined in that certain Agreement and Plan of Merger and Reorganization dated May 22, 2001, as amended, (the "Reorganization Agreement") between and among the Company, Parent, Shearwater Corporation, an Alabama Corporation, J. Milton Harris and Puffinus, L.P. If the transaction in the Reorganization Agreement does not close, this Agreement shall have no effect, and shall not be binding on the Company or on Executive.


1.2 Subject to terms set forth herein, the Company agrees to employ Executive in the position of President, Square Acquisition Corp. and Executive hereby accepts such employment effective as of the Closing Date (the "Employment Date"). During the term of his employment with the Company, Executive will devote his best efforts and substantially all of his business time and attention (except for vacation periods and reasonable periods of illness or other incapacities permitted by the Company's general employment policies) to the business of the Company.


1.3 Executive shall perform such duties as are customarily associated with his then current title, consistent with the Bylaws of the Company and as required by the Company's Board of Directors (the "Board").


1


1.4 The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company, including those relating to protection of confidential information and assignment of inventions, except that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or practices, this Agreement shall control.


2. Compensation .


2.1 Target Compensation . Executive shall receive for services to be rendered hereunder an annualized target compensation of $405,600, subject to standard deductions and withholdings (the "Target Compensation"). The Target Compensation consists of a Base Salary and a Target Variable Compensation.


(a) Base Salary . Executive shall receive an annualized salary of $312,000 ("Base Salary"), payable in accordance with the Company's standard payroll practices.


(b) Target Variable Compensation . The Executive shall receive an annual variable salary target of $93,600 (representing 100% performance) (the "Target Variable Compensation") dependent upon the Company's performance measured against clearly defined and numerically weighted goals approved by the Board of Directors of the Company twice a year, either prior to or promptly after the six-month time period to which the goals apply. The Target Variable Compensation will be made in two payments per year, subject to standard deductions and withholdings. In order to be eligible to receive each payment of the Target Variable Compensation, Executive must be an active employee of the Company on the date each payment is awarded.


2.2 Standard Benefits . Executive shall be entitled to all rights and benefits for which he is eligible under the terms and conditions of the standard benefits of Parent which may be in effect from time to time and provided by Parent to its employees generally.


2.3 Equity Compensation . Subject to the approval by the Option Grant Subcommittee of the Parent's Board of Directors, Executive shall be granted an option to purchase 100,000 shares of Parent's Common Stock (the "Option"), at fair market value as determined by Parent's Board as of the date of grant, pursuant to Parent's 2000 Non-Officer Equity Incentive Plan (the "Plan"). Except as set forth in Section 6.1 below, the shares governed by the Option shall vest as follows: 20% (12/60th) of the shares governed by the Option shall vest on the first anniversary of the Employment Date and an additional 1.67% (1/60th) of the shares governed by the Option shall vest monthly beginning one month following the first anniversary of the Employment Date until such time as 100% of the shares governed by the Option shall be vested. The Option shall be governed by the terms and conditions set forth in the Plan, and in the applicable written stock option agreement and grant document.


3. Proprietary Information Obligations .


3.1 Agreement . Executive agrees to execute and abide by the Proprietary Information and Inventions Agreement attached hereto as Exhibit A.


2


3.2 Remedies . Executive's duties under the Proprietary Information and Inventions Agreement shall survive termination of his employment with the Company. Executive acknowledges that a remedy at law for any breach or threatened breach by him of the provisions of the Proprietary Information and Inventions Agreement would be inadequate, and he therefore agrees that the Company shall be entitled to injunctive relief in case of any such breach or threatened breach.


4. Noncompetition Agreement .


4.1 Agreement . Executive agrees to execute and abide by the Noncompetition Agreement attached hereto as Exhibit B.


4.2 Remedies . Executive's duties under the Noncompetition Agreement shall survive termination of his employment with the Company. Executive acknowledges that a remedy at law for any breach or threatened breach by him of the provisions of the Noncompetition Agreement would be inadequate, and he therefore agrees that the Company shall be entitled to injunctive relief in case of any such breach or threatened breach.


5. Outside Activities .


5.1 Except as permitted in Section 5.4, and except with the prior written consent of the Company's Board of Directors, Executive will not during the term of this Agreement undertake or engage in any other employment, occupation or business enterprise, other than ones in which Executive is a passive investor. Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of his duties hereunder.


5.2 Excep ...