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Contract of Employment - eLoyalty (UK) Ltd. and Vaughan Thomas

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                             CONTRACT OF EMPLOYMENT

This Contract of Employment (this "Agreement") is entered into on May 12,

(A)   eLoyalty (UK) Limited ("the Company"); and

(B)   Vaughan Thomas (the "Employee").

                              TERMS AND CONDITIONS

The parties hereby agree as follows:

1.    ENGAGEMENT. The Company will employ the Employee as a Senior Vice
      President of the Company and the Employee will serve the Company in such
      capacity subject to and in accordance with the terms of this Agreement
      ("Employment"). For purposes of this Agreement, references to the "Group"
      means the Company, any subsidiary, any holding company and any subsidiary
      of any holding company from time to time, and references to "company",
      "subsidiary" and "holding company" will have the same meanings as their
      respective definitions in the Companies Act 1985 as amended by the
      Companies Act 1989.


      2.1    For purposes of this Agreement, the Employee will take instructions
             from any of the following: (a) the Chairman of the Company, (b) the
             President of the Company, or (c) the collective board of directors
             of the Company (collectively, "Senior Management").

      2.2    The Employee will perform such duties as may be assigned to the
             Employee in relation to the administration and execution of the
             Company's practices, business affairs and operations from time to
             time by or on behalf of Senior Management.

      2.3    During the course of the Employment, the Employee will:

             (a)  devote the whole of the Employee's working time, attention and
                  skill to the duties of the Employment;

             (b)  faithfully and diligently perform such duties and exercise
                  such powers as may from time to time be reasonably assigned to
                  or vested in the Employee;

             (c)  accept such offices in any member of the Group as may be
                  reasonably required by Senior Management;

             (d)  comply with all rules and regulations from time to time issued
                  by the Company to its employees;

<PAGE>   2

             (e)  obey all reasonable and lawful directions given to the
                  Employee by or under the authority of Senior Management;

             (f)  use the Employee's best endeavours to promote the interest and
                  reputation of the Group; and

             (g)  not do anything which is harmful to or which will bring the
                  Company or any member of the Group into disrepute or

      2.4    The Employee will at all times keep Senior Management promptly and
             fully informed (in writing if so requested) of the Employee's
             conduct of the business, finances or affairs of the Company. The
             Employee will provide such explanations and supply all information
             in the Employee's possession as Senior Management may require in
             connection with such conduct of the business, finance or affairs of
             the Company.

      2.5    Normal office hours are 9.00 am to 5.30 pm Monday to Friday
             inclusive, with an hour for lunch. In addition, the Employee may,
             and likely will, be required to work, without additional
             remuneration, additional hours if the requirements of the
             Employee's job so dictate.

      2.6    Senior Management may at any time:

             (a)  within reasonable limits vary any powers and duties assigned
                  to the Employee and require the Employee to cease performing
                  or exercising any of such powers and duties;

             (b)  appoint a further employee having responsibilities similar to
                  the Employee to act jointly with the Employee and in that
                  event the Employee will perform the Employee's duties and
                  exercise the Employee's powers in a manner which will be
                  consistent with such appointment;

             (c)  require the Employee to perform services not only for the
                  Company but also for any other member in the Group, including,
                  if so required, acting as a director of any member of the
                  Group; and

             (d)  require the Employee, due to the nature of the Employee's
                  duties, to travel abroad, sometimes for substantial periods of
                  time, in order to perform the Employee's duties under this

      2.7    The Employee will be required (a) to work at the principal office
             of the Company or at such other location as Senior Management may
             from time to time reasonably require and (b) to travel and work
             outside the United Kingdom as directed by Senior Management from
             time to time. If the Employee is required to relocate the
             Employee's permanent residence, the Company will give the Employee
             reasonable notice of such requirement and will pay or reimburse all
             reasonable relocation expenses, provided, however, that if the
             Employee timely notifies the Company

<PAGE>   3

             of its decision not to relocate his permanent residence as
             requested by the Company, the Company shall have the right, in its
             sole discretion, to either continue Employee's employment at his
             then-current location or terminate Employee's employment in
             accordance with the termination provisions set forth in Section 4.1

      2.8    Except as otherwise permitted by the second sentence of this
             subclause 2.8, the Employee will not during the term of this
             Agreement (unless the Company otherwise agrees in writing),
             directly or indirectly, (a) undertake, be engaged in or concerned
             in any other business, trade, profession or other occupation
             (whether as an employee, consultant, agent, director or otherwise)
             nor have any financial interest in any other business, trade,
             profession or other occupation or (b) hold any ownership or
             financial interest in a competitor, client or vendor of the Company
             that could cause divided loyalty, or even give the appearance of
             divided loyalty, or that could cause speculation or
             misunderstanding regarding such interest. Notwithstanding the
             foregoing, nothing contained herein shall be construed as
             restricting Employee from engaging in any activities with respect
             to the ownership, lease and/or sale of Employee's real property, in
             participating in those charities which do not have conflicting
             interests as the Company, and in holding any non-employee
             directorships in other companies which has been pre-approved by
             Senior Management. If the competitor, client or vendor (or other
             business) is a public company, then neither the Employee nor a
             member of the Employee's immediate family may hold more than one
             percent (1%) of the outstanding stock of that company.

      2.9    If the Employee has given or received notice of termination of the
             Employment, the Employee may not make any public statements in
             relation to the Company or any member of the Group. After the
             effective date of termination, the Employee may not (a) represent
             the Employee as being employed by or connected with the Company or
             (b) use the style of "eLoyalty" or any name including the words
             "eLoyalty Corporation" or any name which is similar or likely to be
             confused therewith.


      3.1    The Employment will commence on the Commencement Date set out in
             Exhibit A hereto (the "Commencement Date") and continue until
             terminated pursuant to clause 4.

      3.2    No employment with a previous employer counts as part of a
             continuous employment for purposes of calculating the Employee's
             statutory entitlements.

<PAGE>   4


      4.1    Except if terminated for Good Cause (as defined in Section 4.3
             below), the Company may terminate Employee's employment for any
             reason upon giving Employee one-year notice of such termination and
             the Company will continue Employee's normal salary and benefits
             until the end of such one-year notice period unless a Good Cause
             event occurs, in which case the Company's obligations hereunder
             shall cease immediately. If during such one-year notice period,
             Employee begins employment with another employer providing
             equivalent or greater renumeration, the Company's obligations to
             continue Employee's salary and benefits during the one-year notice
             period shall also cease immediately. If the Company terminates
             Employee's employment for any reason other than for Good Cause, the
             Company shall pay Employee its bonus as follows:

             (a)  if terminated prior to the second anniversary of the
                  Commencement Date, then the targeted bonus which would have
                  been earned by Employee during the one-year notice period if
                  Employee has remained employed with the Company; or

             (b)  if terminated after the second anniversary of the Commencement
                  Date, then the average of the targeted bonus earned by
                  Employee during the two years immediately prior to the
                  effective date of termination.

             If the Company terminates the Employee's employment for any reason
             other than for Good Cause (as defined below) during the first
             twenty-four (24) months of Employee's employment hereunder, and
             further subject to the terms of the Company's applicable stock
             option plan and the Company's stock option agreements executed by
             the Employee, fifty percent (50%) of all options to purchase the
             Company's shares granted by the Company to the Employee prior such
             termination shall immediately vest upon termination.

             The terms of the promissory note executed by the Employee and
             attached hereto as EXHIBIT C shall govern the parties' obligations
             with respect to the loan of One Million Two Hundred Thousand United
             States Dollars (US$1.2million) granted to the Employee by the
             Company (including in the event of termination of Employee's
             employment hereunder).

      4.2    The Company's normal retirement age is 60 years, and the Employment
             will automatically terminate at the end of the month in which the
             Employee reaches this age.

      4.3    Notwithstanding anything contained in Section 4.1, the Company may
             summarily terminate the Employment immediately (followed by written
             confirmation within five (5) business days) without any payment of
             salary, bonus, benefits or damages (other than payment accrued to
             Employee to the date of termination) if the Employee (each a "Good
             Cause" event):

<PAGE>   5

             (a)  is guilty of any serious misconduct or material or persistent
                  breach of any of the terms or conditions of this Agreement, in
                  a material or persistent manner wilfully neglects or refuses
                  to carry out any of the Employee's duties or to comply with
                  any lawful and reasonable written instruction given to the
                  Employee by Senior Management;

             (b)  has a bankruptcy order made against the Employee or compounds
                  with or enters into any voluntary arrangements with the
                  Employee's creditors; or

             (c)  is convicted of any criminal offence (whether or not in
                  connection with the Employment) other than an offence under
                  the Road Traffic Acts for which a penalty of imprisonment is
                  not imposed.

      4.4    The exercise by the Company of its right of termination under this
             clause 4 will be without prejudice to any other rights or remedies
             which the Company or any member of the Group may have or be
             entitled to exercise against the Employee.

      4.5    All credit, charge and expense cards and all books, papers,
             drawings, designs, documents, records and computer hardware and
             software kept or made by or in the possession or control of the
             Employee relating to the businesses of the Company or any member of
             the Group and all other property of the Company or any member of
             the Group are and remain the property of the Company or such
             member, and the Employee will at the termination date immediately
             deliver to the Company all such items in the Employee's possession,
             custody or control.

      4.6    The Company may at its sole and absolute discretion make a payment
             of any salary or compensation otherwise owed to the Employee in
             lieu of any required period of notice (subject to deduction of such
             PAYE tax and class 1 national insurance contributions as the Inland
             Revenue may require).

      4.7    Notwithstanding any other provisions of this Agreement, the Company
             has no obligation to vest in or assign to the Employee any powers
             or duties or provide any work for the Employee and the Company may
             at any time prior to the effective date of termination and from
             time to time suspend the Employee from the performance of the
             Employee's duties or exclude the Employee from any premises of the
             Company and any member of the Group for a maximum period of three
             months. This Agreement will continue to have full force and effect
             if the Company exercises any of its rights under this subclause
             4.7; in particular, the Employee's full salary and benefits
             (including any bonus or commission) will not cease to be payable by
             reason only of such suspension or exclusion of the Employee, unless
             and until the Employment is terminated under any provisions of this
             Agreement, or the Company is otherwise entitled to cease paying or
             providing such salary and benefits.

      4.8    Employee may terminate his Employment upon giving the Company
             one-year prior written notice. Upon receiving such notice, the
             Company may, in its sole discretion, make Employee's termination
             effective immediately or anytime before the one-year notice period
             ends by paying to Employee any salary or

<PAGE>   6

             compensation otherwise owed to the Employee during such one-year
             notice period.

5.    SALARY. As compensation for the Employee's services, the Company will pay
      the Employee a base salary of the amount listed in Exhibit A hereto. That
      base salary is payable at monthly intervals in arrears on the last
      business day of each calendar month. The Employee's base salary will be
      subject to annual review on or around the first day of the Company's
      fiscal year and may, at the discretion of Senior Management, be increased
      from that listed in Exhibit A hereto based on the Employee's
      responsibilities, capabilities and performance during the preceding fiscal

6.    BONUS. The Company may elect to pay Employee bonuses in accordance with
      the bonus plan confirmed in writing to Employee by Senior Management,
      which plan may be amended by the Company in its sole discretion at any
      time upon notice to Employee. Employee's targeted bonus as of the
      Commencement Date is as set forth in Exhibit A hereto.


      7.1    The Company will make annual contributions to an employee
             retirement plan account established by the Employee (i) in
             accordance with the Company's pension plan policies, or (ii) as
             reasonably agreed upon by the Company and Employee (provided such
             agreement does not violate any applicable laws), in the amount of
             6% of the Employee base salary, subject to any statutory
             contribution limits.

      7.2    The Employee is entitled to thirty (30) working days paid holiday
             per calendar year plus statutory bank holidays in England and
             Wales. Such holiday will accrue in proportion to the period worked.
             Only five accrued but unused days of paid holiday at the end of the
             Company's fiscal year will carry over to the next fiscal year.

      7.3    The Employee will be entitled to participate fully in the Company
             benefits programs as amended from time to time. A summary of the
             Company's benefit programs as of the date of this Agreement is
             attached as EXHIBIT B hereto.

8.    SICKNESS. Subject to a production of a medical certificate satisfactory to
      the Company, salary will not cease to be payable by reason only of the
      Employee's incapacity for work due to sickness or accident for a period of
      up to six calendar months or at the Company's discretion, any longer
      period. Payments made by the Company under this clause 8 will include the
      amount of any statutory sick pay or social security sickness benefit to
      which the Employee may be entitled.

9.    BUSINESS EXPENSES. The Company will, in accordance with and subject to the
      Company's expense reimbursement policy, reimburse the Employee for all
      proper and reasonable business expenses necessarily incurred by the
      Employee in performing the Employee's duties. These will include (but will
      not be limited to) transportation, hotel and/or apartment accommodation
      for travel away from the Employee's permanent residence, telephone and
      other business expenses. The Employee will provide the Company with

<PAGE>   7

      supporting documentation sufficient to satisfy reporting requirements of
      the Inland Revenue, any other tax jurisdiction in which such expenses will
      be included in any filing, and the Company. The Company's determination as
      to the reasonableness or necessity of any expense will be final.


      10.1   For purposes of this Agreement and subject to subclause 10.2 below,
             "Confidential Information" includes but is not limited to:

             (a)  any trade secrets or discovery, invention or improvement in
                  relation to goods and/or services made by the Employee alone
                  or with others and which directly or indirectly relates to the
                  business of the Company or any member of the Group;

             (b)  information which arises out of work performed by the Employee
                  for the Company or any member of the Group; and

             (c)  any other information or material concerning the business or
                  affairs of the Company or the Group including but not limited
                  to business strategies and plans, proposals, deliverables,
                  prospects and customer lists, methodologies, training
                  materials and computer software (including without limitation
                  software products and related documentation).

      10.2   Confidential Information does not include information that is in
             the public domain otherwise than through impermissible disclosure
             by the Employee.

      10.3   Without prejudice to any other duty owed to the Company under which
             the Employee must keep secret information received or obtained by
             the Employee in confidence, the Employee will:

             (a)  during the course of the Employment keep secret and not use
                  for any purposes, reveal, disclose or publish to any person
                  (other than as required for performance of the Employee's
                  duties under this Agreement) any Confidential Information;

             (b)  at all times after the effective date of termination of
                  Employment keep secret and not use for any purposes, reveal,
                  disclose or publish to any person any Confidential Information
                  or any other information concerning the business or affairs of
                  the Company; and

             (c)  do all such acts and things and take all such steps as the
                  Company may reasonably require to prevent the unauthorized
                  use, publication or disclosure of any Confidential Information
                  by any other person.

      10.4   The Employee will at all times promptly provide the Company with
             such correspondence, documents, papers, computer hardware and
             software, information and records as may be reasonably required by
             Senior Management and

<PAGE>   8

             all explanations (in writing if so requested) as may be required in
             connection with matters relating to the Employment hereunder or to
             the business or affairs of the Company or its clients.

      10.5   Without prejudice to clause 4.4, the Employee will, whenever
             requested by Senior Management and in any event at the effective
             date of termination, promptly deliver up to the Company all
             correspondence and all other documents, papers, computer hardware
             and software, information and records whatsoever containing
             Confidential Information which are in the Employee's possession,
             custody or control, including those which may have been prepared by
             the Employee in the course of the Employment which are in the
             Employee's possession, custody or control. The Employee may not
             retain any copies thereof.

11.   DEDUCTIONS. The Company will be entitled at any time during the Employment
      or in any event on termination of the Employment, howsoever arising, to
      deduct from the Employee's salary any monies then due from the Employee to
      the Company.


      12.1   The Employee agrees that in addition to the other terms of this
             Agreement and without prejudice to any other restrictions imposed
             on the Employee by law, the Employee will not for a period of one
             year following the effective date of termination, whether directly
             or indirectly, either for the Employee's own account or on behalf
             of or for any other person, firm or organisation or in any capacity

             (a)  engage in the practice of providing consulting or related
                  services in the field of Customer Relationship Management or
                  any substantially similar field for any person who has been a
                  client of the Company or any member of the Group with whom the
                  Employee has dealt in the course of the Employment, or
                  prospective client for whom the Employee has participated in
                  the submission of a proposal, in either case, during the one
                  year period preceding the effective date of termination; or

             (b)  (i) solicit, procure or induce, or endeavour to procure or
                  induce, any employee of the Company or any member of the Group
                  to leave his or her employment with such company or (ii)
                  participate in or have a financial, management or other
                  interest in any business enterprise that engages in, or plans
                  to engage in, direct competition with the Company within any
                  member state of European Union in which the Company has a
                  presence or a proposed presence, the proposal of which the
                  Employee has worked on within the six months preceding the
                  effective date of termination, except that subclause
                  12.1(b)(ii) will only apply if the Employee voluntarily
                  resigns or if the Employment is terminated by the Company for
                  Good Cause under subclause 4.3 above.

      12.2   While the restrictions imposed in this clause 12 are considered by
             the parties to be reasonable in all the circumstances, it is agreed
             that if any one or more of such

<PAGE>   9

             restrictions will either, when taken by itself or themselves
             together, be adjudged to go beyond what is reasonable in all the
             circumstances for the protection of the Company's legitimate
             interests but would be adjudged to be reasonable if any particular
             restriction or restrictions were deleted or if any part or parts of
             the wording thereof were deleted, restricted or limited in a
             particular manner, then such restrictions will apply with such
             deletions, restrictions or limitations as the case may be.

13.   REMEDIES. The Employee recognises and agrees that a breach of any or all
      of the provisions of clauses 10 or 12 will constitute immediate and
      irreparable harm to the Company's business advantage, including but not
      limited to the Company's valuable business relations, for which damages
      cannot be readily calculated and for which damages are an inadequate
      remedy. The Employee therefore agrees that the Company will be entitled to
      seek an injunction or any other equitable remedy against the Employee in
      the event of a breach of any or all of the provisions of clauses 10 or 12
      by the Employee.

14.   INTELLECTUAL PROPERTY. During the Employment, the Employee will disclose
      to the Company all ideas, inventions and business plans which the Employee
      develops during the course of the Employment which relate directly or
      indirectly to the Company's business, including but not limited to any
      computer programs, processes, products or procedures which may, upon
      application, be protected by patent or copyright. Ownership of any such
      invention will be determined in accordance with Section 39 of The Patents
      Act 1977. Any such idea or business plans will be the property of the
      Company. The Employee will, at the Company's request and cost, (i) provide
      the Company with such assurances as are appropriate or necessary to secure
      a patent or copyright in respect of any such ideas, inventions or business
      plans and (ii) execute and do all instruments and things necessary to vest
      all right, title and interest in and to any such ideas, inventions and
      business plans in the Company or its nominee absolutely as legal and
      beneficial owner. Further, in consideration of the Company entering into
      this Agreement, the Employee hereby assigns to the Company by way of
      assignment of future copyright, the copyright, designer and other
      proprietary rights, if any, for the full term thereof throughout the world
      in respect of all copyright works created or made by the Employee during
      the Employment (except only those copyright works created or made by the
      Employee wholly unconnected with the Employment).

15.   PRINCIPLES AND POLICIES. The Employee will abide by the Company's
      principles and policies, including eLoyalty Corporation Principles and
      Policies of Business Conduct, as amended from time to time, which is
      incorporated herein by reference.

16.   ASSIGNMENT. The Employee acknowledges that the services to be rendered
      pursuant to this Agreement are unique and personal. Accordingly, the
      Employee may not assign any of the Employee's rights or delegate any of
      the EMPLOYEE'S duties or obligations under this Agreement. The Company may
      assign its rights, duties or obligations under this Agreement to a member
      of the Group or a purchaser or transferor of a majority of the US Parent's
      or the Company's outstanding capital stock or a purchaser of all, or
      substantially all, of the assets of the US Parent or the Company.

<PAGE>   10

17.   NOTICES.

      17.1   All notices will be in writing.

      17.2   Notices intended for the Company will be sent by registered or
             certified mail addressed to the Company at Regina House, 5 Queen
             Street, London EC4N 1SP, Attention: President, with a copy to
             eLoyalty Corporation at Two Conway Park, 150 Field Drive, Suite
             250, Lake Forest, Illinois 60045, USA, Attention: General Counsel.

      17.3   Notices intended for the Employee will be either delivered
             personally to the Employee or sent by registered or certified mail
             addressed to the Employee's last known address.

      17.4   Any such notice given pursuant to this clause 17 will be deemed to
             have been received and effectively served:

             (a)  upon delivery if delivered personally; or

             (b)  upon the next following business day (as defined below) if
                  sent by registered or certified mail.

18.   STATUTORY PARTICULARS. The written particulars of employment required to
      be given under the provisions of Section I of the Employment Rights Act
      1996 are, unless otherwise previously set out above, stated in Schedule 1
      attached hereto. Terms used in Schedule 1 but not defined therein have the
      meaning ascribed thereto in this Agreement.

19.   ENTIRE AGREEMENT. This Agreement (including attachments hereto)
      constitutes the entire agreement between the Company and the Employee
      relating to the Employment and supersedes any prior agreement (whether
      oral or written) relating to his employment by the Company. Neither the
      Employee nor the Company may modify this Agreement by oral agreements,
      promises or representations. The parties may modify this Agreement only by
      a written instrument signed by the parties.

20.   APPLICABLE LAW AND JURISDICTION. The validity, construction and
      performance of this Agreement will be governed by English law.

21.   SEVERABILITY. Whenever possible, each provision of this Agreement will be
      interpreted in such manner as to be effective and valid under applicable
      law, but if any provision of this Agreement is held to be prohibited by or
      invalid under applicable law, such provision will be ineffective only to
      the extent of such prohibition or invalidity, without invalidating the
      remainder of such provision or the remaining provisions of this Agreement.

22.   HEADINGS. Headings are for ease of reference only and will not affect the
      meaning or construction of any provision in this Agreement.

<PAGE>   11

23.   ACKNOWLEDGEMENT. The Employee acknowledges that the Employee has read,
      understood and accepts the provisions of this Agreement.


IN WITNESS WHEREOF, this Contract of Employment has been duly executed by the
parties on the date first set forth above.

For and on behalf of

Name:       Kelly Conway
Position:   Director and Chief Executive Officer


Vaughan Thomas