Smart Kids Group Inc. Employment Agreement

A.

Investing his assets in a manner not prohibited by Section 2.5 hereof, and in such form or manner as shall not require any material services on his part in the operations or affairs of the companies or other entities in which such investments are made;

B.

Serving on the board of directors of any other company, subject to the prohibitions set forth in Section 2.5 hereof, provided the Board of Directors of the Company shall have approved such service in writing, or;

C.

Engaging in religious, charitable or other community or non-profit activities, which do not impair his ability to fulfill his duties and responsibilities under this Agreement.

A.

Base Salary - For services rendered by the Employee under this Agreement, the Company shall pay the Employee an initial annual salary of $100,000.00 (US) per annum, payable in equal monthly installments (the "Base Salary") escalating to $120,000.00 (US) per annum when business cash flow permits and with the approval of the Board of Directors. Base Salary will be subject to annual review by the Board of Directors of the Company on or about each January 1 thereafter for so long as this Agreement is in effect.

B.

Incentive Bonus Compensation - For services rendered by the Employee under this Agreement, the Company, by action of the Board of Directors, shall establish an annual executive incentive bonus plan in which the Employee shall participate in recognition of the Employee's contribution to the overall performance of the Company (“Bonus”). Such Bonus shall be granted within ninety (90) days following the conclusion of each calendar year commencing December 31, 2005, after assessment of the Employee’s and Company’s performance pursuant to the criteria, terms and conditions of the bonus plan. The amount of any Bonus, which the Company may grant to the Employee from time to time shall be in addition to his Base Salary and shall, under no circumstances, be included in the Employee's Base Salary.

A.

“The Employment Term” shall terminate:

1.

At the death or 60 days after the Permanent Disability (as hereinafter defined) of the Employee

2.

Immediately at the election of the Company, for Cause (as hereinafter defined), or;

3.

At the election of the Company for Cause or the Employee upon thirty (30) days' prior written notice to the other.

“Permanent Disability”, for purposes of this Section 1.7, shall mean any physical or mental incapacitation which would materially hinder the Employee from performing the responsibilities of his assigned duties, as determined by a medical professional of the company’s choosing.

“Cause", for purposes of this Section 1.7, shall mean any of the following, as determined by the management of The Company:

1.

Refusal of the Employee to perform his duties hereunder or other material breach by the Employee of the terms of this Agreement;

2.

Any substantial dishonesty by the Employee in connection with the performance of his duties hereunder; or

3.

Any conviction of, or plea of guilty by, the Employee with respect to any crime, which conviction or plea is likely in the reasonable judgment of the management of the Company to adversely affect the Employee's professional reputation, the reputation of the Company or of any other member of the Group or the ability of the Employee to perform his duties satisfactorily hereunder.

4.

Any detrimental business conduct that negatively affects the Company’s business or the work of peers.

5.

The Company's right of termination pursuant to this Section 1.7 shall be in addition to, and shall not affect, its rights and remedies under any other provisions of this Agreement or under applicable law, and all such rights and remedies shall survive termination of this Agreement and the employment of the Employee hereunder. Nothing herein shall be deemed to constitute a waiver by the Employee of any rights he may have under applicable laws.

6.

In the event of termination of employment pursuant to the terms of this Section 1.7, the Employee shall have no right to receive any compensation or fees for any period subsequent to the date of such termination; except that:

a)

In the event such termination is due to death or Permanent Disability pursuant to Section 1.7 the Company shall pay the Employee or his estate, as the case may be, a pro tanto portion of the Bonus, if any, for the year in which such termination occurs, a special 90 ninety day bonus severance, and vesting of the current year’s stock options, if any;

b)

In the event that such termination is made by the Company pursuant to Section 1.7 hereof, the Company agrees that during the Severance Period (as such term is defined below) it will continue to pay the Employee his then current Base Salary.

c)

In the event that such termination is made by the Company pursuant to Section 1.7 hereof, the Company agrees to grant all stock options that are vested.

D.

“Severance Period”, for purposes of this Section 1.7, shall mean the period commencing on the date of such termination and ending: thirty (30) calendar days thereafter.

E.

“The Obligations” of the Employee pursuant to Sections 2.3 and 2.4 of this Agreement shall survive the termination for any reason of the Employment Term. The obligations of the Employee pursuant to Section 2.5 hereof shall survive the termination of this Agreement as provided for in Section 2.5.

A.

The Employee hereby agrees to hold and maintain confidential and private all papers, plans, drawings, specifications, methods, processes, techniques, shop practices, formulae, customer lists, personnel and financial data, plans, trade secrets and all proprietary information belonging to the Company or any Affiliate thereof of which the Employee may have knowledge or acquire knowledge whether prior to, during or after the termination of the Employment Term, and to maintain as confidential and secret any new processes, formulations, designs, devices, research data, machines or compositions of matter of the Company or of any of its Affiliates or of any persons granting rights to the Company or any of its Affiliates revealed to the Employee or discovered, originated, made or conceived by the Employee in connection with the furnishing of employment and consulting services to the Company or any of its Affiliates.

B.

The Employee hereby agrees that he shall not at any time, either during or subsequent to the Employment Term, disclose or divulge to any person, other than to the Company's or any of its Affiliates' officers and other employees as required by the Employee's duties under this Agreement and to third parties when required in the ordinary course of business of the Company, any of the information specified in Section 2.4(a) above or any trade or business secrets or any other confidential information belonging to the Company or any of its Affiliates of which the Employee may have or acquire knowledge. Notwithstanding anything to the contrary set forth above, the confidentiality and nondisclosure provisions contained in this Section 2.4 shall not apply to any information or data, if and when such information or data becomes a matter of public knowledge through no act or omission of the Employee or to any information or data which was already known by the Employee or the other party in question other than as a result of a breach of this Agreement.

C.

Immediately upon the Company's request or promptly upon termination for any reason or expiration of this Agreement, the Employee shall deliver to the Company all memoranda, notes, records, reports, photographs, drawings, plans, papers or other documents made or compiled by the Employee in the course of his services to the Company or any of its Affiliates or made available to the Employee during the course of his services to the Company or any of its Affiliates which are in the possession of or under the control of the Employee, and any copies or abstracts thereof, whether or not of a secret or confidential nature, and all of such memoranda or other documents shall, during and after the termination of the Employment Term, be deemed to be and shall be the property of the Company.

A.

Any and all inventions, improvements, ideas and innovations, whether or not patentable, which the Employee may invent, discover, originate, make or conceive during his services to the Company or any of its Affiliates, whether prior to or during the Employment Term, either solely or jointly with others, and which in any way relate to or are or may be used in connection with the business of the Company or any of its Affiliates shall be, to the extent of the Employee's interest therein, the sole and exclusive property of the Company or such Affiliate and the Employee's interest therein shall be assigned by the Employee to the Company or such Affiliate, as the case may be, or to the Company's or such Affiliate's nominee(s). The Employee, upon the request and at the expense of the Company, shall and shall use his best efforts to cause any such other person(s) to promptly and fully disclose each and all such discoveries, inventions, improvements, ideas or innovations to the Company, the applicable Affiliate or any nominee(s) thereof. Further, the Employee, upon the request and at the expense of the Company, shall and shall use his best efforts to cause any such other person(s) to, assign to the Company or the applicable Affiliate, without further compensation therefore, all right, title and interest in and to each and all such discoveries, inventions, improvements, ideas or innovations which are reduced to writings, drawings or practice within two (2) years after the termination of the Employment Term.

B.

The Employee further agrees to execute at any time, upon the request and at the expense of the Company, for the benefit of the Company, any of its Affiliates or any nominee(s) thereof, any and all appropriate applications, instruments, assignments and other documents, which the Company shall deem necessary or desirable to protect its (or any of its Affiliate's) entire right, title and interest in and to any of the discoveries, inventions, improvements, ideas and innovations described in Section 2.5(a) hereof:

C.

The Employee agrees, upon the request and at the expense of the Company or any person to whom the Company or any of its Affiliates may have granted or grants rights, to execute any and all appropriate applications, assignments, instruments and papers, which the Company shall deem necessary for the procurement in the United States of America and foreign countries of patent protection for the discoveries, inventions, improvements, ideas or innovations to be so assigned, including the execution of new, provisional, continuing and reissue applications, to make all rightful oaths, to testify in any proceeding before any governmental authority authorized to grant or administer patent protection or before any court, and generally to do everything lawfully possible to aid the Company, its Affiliates and its and their successors, assigns and nominees to obtain, enjoy and enforce proper patent protection for the discoveries, inventions, improvements, ideas or innovations conceived or made by him during the course of his services to the Company or any of its Affiliates for a period of two (2) years after the termination of the Employment Term.

A.

Except as an officer and director of the Company and its Affiliates, utilize intellectual property or trade secrets, gained from the Company, which is an asset of the Company, to engage at any place within the United States of America or Canada in any business substantially similar to the business then being conducted by the Company or its Affiliates (the "Designated Industry"), whether directly or indirectly, for his own account or as an employee, partner, officer, director, consultant or holder of more than five percent (5%) of the equity interest in any other person, firm, partnership or corporation

B.

Divert to any competitor of the Company or its Affiliates any customer of the Company or its Affiliates, or

C.

Solicit or encourage any officer, key employee or consultant of the Company or its Affiliates to leave its or their employ for alternative employment in the Designated Industry, or hire or offer for employment to any person to whom the Company or any of its Affiliates has offered employment within the three (3) years preceding the termination of the Employment Term. The Employee will continue to be bound by the terms of this Section 2.5 until their expiration and shall not be entitled to any compensation with respect thereto.

A.

“Affiliate" means any person, corporation or other business entity that directly or indirectly controls, or is controlled by, or is under common control with another person, corporation or business entity.

B.

”Subsidiary" means any corporation fifty percent (50%) or more of the capital stock of which having ordinary voting power for the election of directors is owned directly or indirectly by another corporation or business entity.

Employee Signature:

Employee Name:

Richard Shergold

Company Officer Signature:

Company Officer Name:

Paul A. Ruppanner