MERCATOR SOFTWARE INC
EMPLOYMENT AGREEMENT DATED 08/21/2000
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT DATED 08/21/2000
<TEXT>

<PAGE>

Exhibit 10.2

                             EMPLOYMENT AGREEMENT
                             --------------------

Employment Agreement ("Agreement") made and entered into as of August 21, 2000
by and between James P. Schadt (the "Employee"), and Mercator Software Inc.
("Mercator"), a Delaware corporation having its principal place of business at
45 Danbury Road, Wilton, Connecticut 06897.

WHEREAS, Mercator wishes to employ the Employee and the Employee wishes to be
employed under the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:

1.   Employment and Term.
     --------------------

     1.1  Mercator hereby employs the Employee as Chairman of the Board for a
     term of employment as defined in paragraph 1.2 hereof. The Employee shall,
     consistent with the bylaws of Mercator and as required by the Board of
     Directors of Mercator (the "Board"), be responsible for and perform all
     lawful services, acts or things necessary or advisable which are normally
     associated with the position of Chairman of the Board, including assisting
     the Chief Executive Officer of the Company in external and internal
     communications, recruiting, retention, corporate image and culture, public
     and investor relations and in enhancing shareholder value. In this position
     the Employee is subject to the direction and supervision of the Board and
     shall report directly to the Board.

     1.2  The Executive's employment hereunder this Agreement shall commence on
     the date hereof and shall continue in effect through August 31, 2001. This
     Agreement shall automatically renew for additional one year periods unless
     either party shall notify the other of its election not to renew the
     Agreement at least 90 days before the date the Agreement is scheduled to
     expire.

     1.3  The Employee shall have such powers and duties as may from time to
     time be prescribed by the Board, provided that such duties are consistent
     with the Employee's position as Chairman of the Board of Mercator. The
     Employee shall devote approximately fifty percent of his working time and
     efforts to the business and affairs of Mercator. Notwithstanding the
     foregoing, nothing shall preclude the Employee from (i) serving on the
     boards of directors of a reasonable number of other corporations or the
     boards of a reasonable number of trade associations which are not
     competitive with Mercator, (ii) continuing the Employee's service on the
     Boards of Directors of Pipe9 Corporation, or Generac Portable Products Inc.
     and as general partner of Daily Capital Management, L.P., (iii) working on
     a part-time basis for Pipe 9 Corporation or other entities which are not
     competitive with Mercator or (iv) managing his personal investments and
     affairs, provided that none of the foregoing activities interfere with the
     proper performance of his duties and responsibilities as Mercator's
     Chairman of the Board.

     1.4  The Employee's principal place of employment during his employment
     with Mercator shall be in Wilton, Connecticut.

2.   Compensation.
     -------------

     2.1  Mercator agrees to pay the Employee a salary at the annualized rate of
     One Hundred Eighty Thousand Dollars ($180,000.00) payable in accordance
     with Mercator's standard payroll practices. Such salary shall be subject to
     increase, but not decrease, during the term of this Agreement.
<PAGE>

3.   Benefits and Expenses.
     ----------------------

     3.1  The Employee shall be entitled to participate in all benefit plans,
     programs, and arrangements of Mercator on the same basis, subject to the
     same qualifications as other Mercator part-time employees.

     3.2  Upon presentation of proper documentation and receipts, Mercator will
     promptly reimburse the Employee for expenses he reasonably incurs in
     connection with the performance of his duties (including business travel
     and entertainment expenses). In addition, Mercator shall reimburse the
     Employee for all legal fees and expenses incurred by the Employee in
     connection with the preparation, negotiation and documentation of his
     employment arrangements with Mercator upon submission of documentation
     evidencing such expenses.

4.   Stock Options.  The Employee shall be granted, effective as of the date
     --------------
hereof, stock options to acquire three hundred thousand (300,000) shares of the
Company's Common Stock at the closing price of such Common Stock on the date
hereof.  Except as expressly provided herein, such options shall be exercisable
for a period of ten years ending at 11:00pm on August 20, 2010.  One hundred
thousand (100,000) shares covered by such options shall be vested and
immediately exercisable as of the date hereof and, thereafter, the remainder of
such options shall vest and become exercisable in four equal installments on
October 20, 2000, February 20, 2001, May 20, 2001 and August 20, 2001.  The
options granted hereunder may be transferred by the Employee to (i) one or more
members of his immediate family (including the Employee's spouse and lineal
descendants and spouses of lineal descendants); (ii) trusts for the benefit of
the Employee and/or any person referred to in clause (i); (iii) entities wholly-
owned by the Employee and/or any persons or trusts referred to in clauses (i) or
(ii); or (iv) charitable organizations.  Such options shall in all respects be
subject to Mercator's 1997 Equity Incentive Plan, except to the extent such Plan
is inconsistent with the terms of this Agreement.



5.   Employment Guidelines and Confidentiality.
     ------------------------------------------

     5.1  The Employee shall at all times be bound by and adhere to the
     Conditions of Employment attached hereto as Appendix B and incorporated
     herein by reference, as such Conditions of Employment may be changed by
     Mercator from time to time, following communication of any such changes to
     the Employee in writing.

     5.2  At all times, both during the Employee's employment by Mercator and
     after his termination, the Employee will keep in confidence and trust all
     proprietary and confidential materials and information of Mercator and of
     Mercator's clients, including valuable trade secrets ("Confidential
     Information"). The Employee will not use or disclose any such Confidential
     Information or anything relating to it without the written consent of
     Mercator, except in the ordinary course of performing his duties as an
     employee of Mercator, to his attorney on an as needed basis or, if the
     Employee is requested or required (orally or in writing) to do so by court
     order, subpoena, administrative order, proceeding, civil investigatory
     demand, interrogatory or any similar legal process, provided that the
     Employee gives ten (10) day's notice (or such shorter time as required by
     such process) of any such request or requirements to Mercator prior to
     disclosing the Confidential Information in order to allow Mercator to
     protect the Confidential Information.

6.   Termination.
     ------------

     6.1  (a)  Notice of Termination. Any purported termination of the
               ----------------------
     Employee's employment by

                                       2
<PAGE>

     Mercator or by the Employee shall be communicated by written Notice of
     Termination to the other party hereto. For purposes of this Agreement, a
     "Notice of Termination" means a notice which shall indicate the specific
     termination provision in this Agreement relied upon and shall set forth in
     reasonable detail the facts and circumstances claimed to provide a basis
     for termination of the Employee's employment under the provision so
     indicated; notwithstanding the foregoing, if Mercator terminates the
     Employee's employment other than for Cause (as hereinafter defined) or if
     the Employee terminates his employment without Good Reason (as hereinafter
     defined), Mercator or the Employee, as the case may be, shall not be
     required to state the reasons for such termination in the Notice of
     Termination.

          (b)     Date of Termination.  "Date of Termination" means the date
                  --------------------
     specified in the Notice of Termination but no less than 10 days after the
     date of the Notice of Termination if given by Mercator and no less than 30
     days after the date of the Notice of Termination if given by the Employee.

     6.2  (a)  The Employee's employment under this Agreement shall terminate
     upon the death of the Employee, without further act of Mercator. In
     addition, either party may terminate the Employee's employment under this
     Agreement as a result of the Employee's Disability, upon at least 15 days
     prior written notice to the other party. For purposes hereof, "Disability"
     shall mean that the Employee, by reason of physical or mental disability
     (excluding infrequent and temporary absences due to ordinary transitory
     illness) shall be unable to perform the services required of him hereunder
     for more than three (3) consecutive months or for an aggregate of six (6)
     months during any twelve (12) month period. Disability shall be determined
     by a licensed physician selected by Mercator and reasonably acceptable to
     the Employee.

          (b)  Upon any termination of the Employee's employment hereunder as a
     result of the Employee's death or Disability, the Employee shall be
     entitled to receive (i) his base salary through the Date of Termination,
     and (ii) any additional amounts due to him hereunder or under any benefit
     plan, program or arrangement of Mercator.  In addition, notwithstanding any
     provision in any option agreement or plan to the contrary, in the past or
     in the future, upon any such termination, all of the Employee's Mercator
     stock options shall immediately vest and shall remain exercisable by the
     Employee (or his estate or beneficiaries) for the remainder of their
     originally stated terms.  If, however, at the time of the Employee's death,
     the Employee is receiving severance compensation per the terms of this
     Agreement, unpaid severance will be paid to the Employee's estate in a lump
     sum.

     6.3  Mercator shall have the right to terminate the Employee's employment
     under this Agreement for Cause upon prior Notice of Termination to the
     Employee. Cause means: (i) the Employee is convicted of a felony, (ii) the
     Employee willful neglect of his material obligations and duties hereunder,
     which neglect the Employee shall fail to remedy within ten (10) days after
     written demand from Mercator, or (iii) the Employee willfully engages in
     conduct demonstrably and materially injurious to Mercator, monetarily or
     otherwise, and fails to remedy such conduct within 10 days after receipt of
     Notice thereof from Mercator. For the purpose of this clause, no act, or
     failure to act, on the part of the Employee shall be deemed "willful"
     unless done, or omitted to be done, by the Employee not in good faith and
     without reasonable belief that his action or omission was in, or not
     opposed to, the best interests of Mercator. Upon any termination of the
     Employee's employment hereunder by the Company for Cause, the Employee
     shall be entitled to receive (i) his base salary through the Date of
     Termination, and (ii) any additional amounts due to him hereunder or under
     any benefit plans, program or arrangement of Mercator. Upon any such
     termination, any options granted hereunder shall immediately expire.

     6.4  Mercator shall have the right to terminate the Employee's employment
     under this Agreement, without Cause, at the discretion of the Board of
     Directors by Notice of Termination. If such termination occurs, Mercator
     shall pay or provide the Employee (i) unpaid salary through the Date of
     Termination, (ii) from the Date of Termination a severance compensation of
     twelve (12) months of salary at the rate then in

                                       3
<PAGE>

     effect payable in accordance with Mercator's standard payroll practices,
     (iii) twelve (12) months of continuance of the eligible benefits set forth
     in Paragraph 3.1 and (iv) any additional amounts due hereunder or under any
     benefit plan, program or arrangement of Mercator. Notwithstanding any
     provision in any option agreement or plan to the contrary, in the past or
     in the future, upon any such termination all of the Employee's Mercator
     stock options will immediately vest and shall remain exercisable for the
     remainder of their originally stated terms.

     6.5  The Employee shall have the right to terminate the Employee's
     employment under this Agreement by Notice of Termination for Good Reason.
     "Good Reason" means, without the Employee's written consent, the occurrence
     of any of the following: (i) a significant diminution of, or the assignment
     to the Employee of any duties inconsistent with, the Employee's title,
     status, duties or responsibilities specified in paragraphs 1.1 and 1.3
     hereof; (ii) a reduction by Mercator in the Employee's annual base salary
     as in effect on the date hereof or as the same may be increased from time
     to time; (iii)  the failure by Mercator to continue in effect any
     compensation plan or other fringe benefit provided by Mercator in which the
     Employee is then participating which by itself or in the aggregate is
     material to the Employee's total compensation unless there shall have been
     instituted a replacement or substitute plan or fringe benefit providing
     comparable benefits; (iv) the relocation of the Employee's office at
     Mercator more than fifty (50) miles from Wilton, CT; or (v) the failure of
     Mercator to obtain the written assumption of this Agreement by any
     successor to all or substantially all of its assets or business within
     thirty (30) days after a merger, consolidation, sale or similar change of
     control transaction.  Upon any such termination, the Employee shall be
     entitled to the same payments and benefits (including, without limitation,
     vesting of options) specified in paragraph 6.4.

     6.6  The Employee may terminate his employment under this Agreement at any
     time, without Good Reason, by sending a Notice of Termination in accordance
     with paragraph 6.1.  Upon any such termination, the Employee shall be
     entitled to the same payments and benefits specified in paragraph 6.3;
     provided, however, that any options granted hereunder which have vested
     --------  -------
     prior to the Termination Date shall remain exercisable until the originally
     scheduled expiration date thereof (August 20, 2010).  A termination under
     this paragraph 6.6 shall not be deemed a breach of this Agreement.

     6.7  Upon a "Change of Control" of Mercator (as defined below), the
     Employee may elect to terminate his employment upon thirty (30) days'
     written notice to the Board.  In the event that the Employee shall elect to
     terminate his employment pursuant to this paragraph, upon any such
     termination the Employee shall be entitled to the same payments and
     benefits (including, without limitation, vesting of options) as specified
     in paragraph 6.4. Upon a "Change of Control" of Mercator (as defined below)
     notwithstanding any provision in any option agreement or plan to the
     contrary, in the past or in the future, , all of the Employee's outstanding
     stock options will vest and become immediately exercisable.

     6.8  Upon Notice of Termination of this Agreement, irrespective of the
     reason therefor, the Employee shall promptly turn over to Mercator all
     proprietary and confidential materials of the kind referred to in Section 5
     and all tangible forms of the Employee's work product (including work
     files) without retaining any copies or duplicates thereof, except as to
     which Mercator may in writing give permission.

     6.9  In the event of any termination of the Employee's employment with
     Mercator under the Agreement, the Employee shall be under no obligation to
     seek other employment or otherwise mitigate the obligations of Mercator,
     and, there shall be no offset against amounts due to the Employee under
     this Agreement on account of any remuneration or other benefit earned or
     received by the Employee attributable to any subsequent employment that he
     may obtain.

                                       4
<PAGE>

     6.10  Any amounts due under this Section 6 are considered to be reasonable
     by Mercator and are not in the nature of a penalty.


     6.11  For purposes of this Agreement, a "Change of Control" shall be deemed
     to have occurred if (a) any "person" (as such term is used in Sections
     13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
     "Exchange Act"), other than a trustee or other fiduciary holding securities
     under an employee benefit plan of Mercator, or a corporation owned,
     directly or indirectly by the stockholders of Mercator in substantially the
     same proportions, becomes after August 18, 2000 the "beneficial owner" (as
     defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
     securities of Mercator representing 20% or more of the combined voting
     power of Mercator's then outstanding securities; (b) the composition of the
     Board changes such that, during the employment period, individuals who at
     the beginning of such period constitute the Board and any new director
     whose election by the Board or nomination for election by Mercator's
     stockholders was approved by a vote of at least three-fourths (3/4) of the
     directors then still in office who either were directors at the beginning
     of the period or whose election or nomination for election was previously
     so approved, cease for any reason to constitute a majority thereof; (c)
     substantially all the assets of Mercator are disposed of by Mercator
     pursuant to a merger, consolidation, partial or complete liquidation, a
     sale of assets (including stock of a subsidiary) or otherwise, but not
     including a reincorporation or similar transaction resulting in a change
     only in the form of ownership of such assets, or (d) Mercator combines with
     another Company and is the surviving corporation but, immediately after the
     combination, the shareholders of Mercator immediately prior to the
     combination hold, directly or indirectly, 50% or less of the voting stock
     of the combined company.


7.   Restrictive Covenants.
     ----------------------

     7.1   The Employee agrees that during the term of this Agreement (including
     any renewal terms hereunder) and, solely in the case of the Employee's
     termination for Cause or the Employee's resignation without Good Reason for
     a period of one (1) year following the Date of Termination of this
     Agreement, he will not, directly or indirectly, own, operate, mange, join,
     control, or participate in the ownership, management, operation or control
     of, or be connected with as a partner, stockholder, director, officer,
     agent, employee, or consultant, any business, firm, or corporation in any
     capacity that involves the development, production or sale of any product
     that is directly competitive with Mercator in the territories Mercator
     serves; except that nothing in this Section 7.1 shall bar the acquisition
     of any publicly traded securities which do not confer upon the Employee the
     right to control or influence the policy of the issuer.

     7.2  The Employee further agrees that for a period of one (1) year
     following the termination of this Agreement, he will not, without the prior
     written consent of Mercator, (a) solicit for employment any of the staff of
     Mercator or of Mercator's customers, or (b) solicit the business of
     Mercator's customers for products that are directly competitive to Mercator
     products.

     7.3  In the event a court of competent jurisdiction finds any part of this
     Article 7 unenforceable, the parties agree that such finding shall not
     effect or render invalid or unenforceable any other provision of this
     Article.  The parties further agree to execute any amendments necessary to
     accomplish the intent of this Article to the fullest extent possible under
     the law.

8.   Remedies.  The parties hereto recognize that, in the event of any breach by
     ---------
     the Employee of the provisions of Paragraphs 5.2 or 7 hereof, damages may
     be difficult, if not impossible, to ascertain and it is therefore agreed
     that Mercator, in addition to and without limiting any other remedy it
     might have under this

                                       5
<PAGE>

     Agreement, or at law or in equity, shall be entitled to an injunction
     against the Employee issued by any court of competent jurisdiction
     enjoining any such breach.

9.   Representation and Warranty.  The Employee represents and warrants that he
     ----------------------------
     is not now or on the date of commencement of this Agreement, a party to any
     agreement, contract or understanding, whether of employment or otherwise,
     which would in any way restrict or prohibit him from undertaking or
     performing employment in accordance with the terms and conditions of this
     Agreement.

10.  Indemnification.  (a)  Mercator agrees that (i) if the Employee is made a
     ---------------
     party, or is threatened to be made a party, to any threatened or actual
     action, suit or proceeding, whether civil, criminal, administrative,
     investigative, appellate or otherwise (a "Proceeding") by reason of the
     fact that he is or was a director, officer or employee of Mercator or is or
     was serving at the request of Mercator as a director, officer, member,
     employee or agent of another corporation, partnership, joint venture, trust
     or other enterprise, including service with respect to employee benefit
     plans, whether or not the basis of such Proceeding is the Employee's
     alleged action in an official capacity while serving as a director,
     officer, member, employee or agent, the Employee shall promptly be
     indemnified and held harmless by Mercator to the fullest extent legally
     permitted or authorized by Mercator's certificate of incorporation or
     bylaws or, if greater, by the laws of the State of Delaware against any and
     all costs, expenses, liabilities and losses (including, without limitation,
     attorney's fees, judgments, interest, expenses of investigation, penalties,
     fines, ERISA, excise taxes or penalties, amounts paid or to be paid in
     settlement) reasonably incurred or suffered by the Employee in connection
     therewith.  Such indemnification shall continue as to the Employee even if
     he has ceased to be a director, member, trustee, fiduciary, partner,
     employee, agent, manager, consultant or representative of Mercator or, at
     Mercator's request, of another person or entity and shall inure to the
     benefit of the Employee's heirs, executors and administrators.  Mercator
     shall advance to the Employee all costs and expenses incurred by the
     Employee in connection with any such Proceeding within 15 days after
     receiving written notice requesting such an advance.  Such notice shall
     include, to the extent required by applicable law, an undertaking by the
     Employee to repay the amount advanced if he is ultimately determined not to
     be entitled to indemnification against such costs and expenses.

     (b)  Neither the failure of Mercator (including its board of directors,
     independent legal counsel or stockholders) to have made a determination
     prior to the commencement of any proceeding concerning payment of amounts
     claimed by the Employee under paragraph 10(a) that indemnification of the
     Employee is proper because he has met the applicable standard of conduct,
     nor a determination by Mercator (including its board of directors,
     independent legal counsel or stockholders) that the Employee has not met
     such applicable standard of conduct, shall create a presumption that the
     Employee has not met the applicable standard of conduct.

     (c)  Mercator agrees to continue and maintain a directors' and officers'
     liability insurance policy covering the Employee to the extent Mercator
     provides such coverage for its other executive officers, and to no
     significantly lesser extent than in effect on the date hereof.


11.  Miscellaneous.
     --------------

     11.1   Should any provision or part of this Agreement be declared void or
     unenforceable by any court or administrative body of competent
     jurisdiction, such provisions or part shall be deemed severable and,
     without further action by the parties to this Agreement, shall be severed
     from the remainder of this Agreement which shall continue in all respects
     valid and enforceable.

                                       6
<PAGE>

     11.2   Any notices or communications hereunder shall be in writing and
     shall be personally delivered or sent by registered or certified mail to
     the addresses specified on the last page hereof or, after proper notice, to
     such addresses as the parties may specify.

     11.3   This Agreement shall be binding upon and inure to the benefit of
     Mercator, its successors or assigns, or any corporation which acquires all
     or substantially all of its assets.  This Agreement is personal as to the
     Employee and shall not be assignable by the Employee.

     11.4   This Agreement constitutes the entire understanding of the parties
     hereto with respect to the Employee's employment and his compensation
     therefor and supersedes any prior Agreements and understandings between the
     parties concerning employment or compensation.

     11.5   Except as otherwise set forth in this Agreement, the respective
     rights and obligations of the parties hereunder shall survive any
     termination of the Employee's employment hereunder.

     11.6   This Agreement shall be governed by and construed under the laws of
     the State of Connecticut.

     11.7   The captions appearing in this Agreement appear as a matter of
     convenience only and in no way define or limit the scope and intent of any
     of the provisions hereof.

     11.8   No provision in this Agreement may be amended unless such amendment
     is set forth in a writing signed by the parties.  No waiver by either party
     of any breach of any condition or provision contained in this Agreement
     shall be deemed a waiver of any similar or dissimilar condition or
     provision at the same or any prior or subsequent time.  To be effective,
     any waiver must be set forth in a writing signed by the waiving party.

     11.9   This Agreement may be executed in two or more counterparts, each of
     which shall be deemed an original, but all of which, when taken together,
     shall constitute one and the same instrument.


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.


Mercator Software Inc.                     The Employee:
45 Danbury Road
Wilton, CT 06897
                                           /s/ James P. Schadt
By: _________________________              -----------------------
                                           James P. Schadt
                                           Address:
                                           17 Owenoke Park
                                           Westport, CT  06880

                                       7
</TEXT>
</DOCUMENT>
