Vice President-sales Employment Agreement

EMPLOYMENT AGREEMENT


THIS EMPLOYMENT AGREEMENT is entered into effective April 1, 1999, by and between William E. Hermes ("Employee") and Futech Interactive Products, Inc., an Arizona corporation ("Employer").


R E C I T A L S:


A. Employer desires to hire the services of Employee, and Employee is willing to provide those services to Employer, on the terms and conditions hereinafter set forth.


T E R M S:


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


1. EMPLOYMENT. Employer hereby hires and employs Employee for the position of "Executive Vice President - Sales." Employee shall be vested which such powers and responsibilities as Employer shall assign to Employee. Employee shall perform such functions and duties as Employer shall from time to time prescribe.


Employee will devote on an exclusive basis Employee's full time, energy and skill to the performance of Employee's duties for Employer and for the benefit of Employer. Employee shall at all times faithfully, industriously, and to the best of Employee's ability, experience and talent, and to the reasonable satisfaction of Employer, perform Employee's duties under this Agreement. Employee will exercise due diligence and care in the performance of Employee's duties to Employer under this Agreement.


2. EMPLOYMENT PERIOD. The period of employment shall commence on March 1, 1999, and end on the date which is three years thereafter, unless sooner terminated in accordance with the provisions of this Agreement. The period of time commencing on Employee's first day of employment with Employer, and ending on the effective date of the termination of employment of Employee under this Agreement, is sometimes referred to herein as the "Employment Period."


3. COMPENSATION. As compensation for services rendered by Employee under this Agreement, Employer shall pay Employee as follows, and Employee agrees that said payments shall be in full payment for Employee's services and promises to Employer (specifically including the covenant not to compete as set out in Section 8 below and the proprietary information provisions in Section 9 below):


(a) Base Salary. Compensation installments based on an annual salary
of One Hundred Twenty Five Thousand Dollars ($125,000.00). Employee's
salary under this subparagraph (a) shall be payable in equal periodic
installments in accordance with Employer's usual practice.


2
(b) Preferred Stock Options. Employee may purchase up to 2,500,000 shares of "Futech Preferred Stock" at any time between the date hereof and March 1, 2009. The purchase price shall be $.05 per share, payable in full in cash at the time the option is exercised. The option may be exercised only by written notice given to Employer, or Employer's successors and assigns.


The term "Futech Preferred Stock" as used herein means the Series A preferred stock of Employer (or Employer's successor), subject to all of the terms and restrictions of said stock. No representation, warranty or guaranty is made by Employer as to the value of the Futech Preferred Stock to be issued pursuant to this subparagraph, and Employee takes full risk and responsibility as to said value.


(c) Common Stock Option. If Employee has been continuously employed by Futech between March 1, 1999 and March 1, 2000, and has not been in default under the terms of this Agreement, then Employee shall as of March 1, 2000 have the right to purchase up to 666,666 shares of Employer's common stock.


If Employee has been continuously employed by Futech between March 1, 1999 and March 1, 2001, and has not been in default under the terms of this Agreement, then Employee shall as of March 1, 2001 have the right to purchase up to 666,666 shares of Employer's common stock.


If Employee has been continuously employed by Futech between March 1, 1999 and March 1, 2002, and has not been in default under the terms of this Agreement, then Employee shall as of March 1, 2002 have the right to purchase up to 666,667 shares of Employer's common stock.


The purchase price of common stock purchased under the three preceding paragraphs shall be $.25 per share, payable in full in cash at the time the option is exercised. The options may be exercised only by written notice given to Employer, or Employer's successors and assigns. The options shall expire on March 1, 2009, if not exercised by that date.


Employer's common stock shall be subject to all of the terms and restrictions of said stock. No representation, warranty or guaranty is made by Employer as to the value of the stock to be issued pursuant to this subparagraph, and Employee takes full risk and responsibility as to said value.


Employee hereby makes the representations and warranties set out in Exhibit "A" attached hereto and hereby made part hereof. On said Exhibit "A" Employee is referred to as the "Subscriber," Employer is referred as the Corporation, and the shares of stock to be acquired by Employee under this Section are referred to as the "Shares." Employee acknowledges and understands the meaning and legal consequences of the representations and warranties contained herein and agrees to indemnify and defend and hold harmless the other parties hereto, and Employer's directors, officers, agents, employees, and attorneys,


2 3


from and against any and all claims, loss, damage, liability, cost or
expense, including attorneys' fees and court costs, due to or arising
out of or connected directly or indirectly with or to any breach of any
such representation or warranty made by Employee. Employee's
representations and warranties appearing herein are made as of the date
hereof and as of the date of issuance of stock pursuant to this
subparagraph (c) and/or subparagraph (b) above. Employee's acceptance
of stock under this Section 3 shall constitute Employee's confirmation
of the representations and warranties appearing herein as of the date
of the acceptance.


Employee shall be entitled to have Employer issue Employee
stock under this Section 3 not more than twice in any calendar year.


(d) Vacation and Fringe Benefit Programs. During the term of
this Agreement, Employee shall be entitled to the following:


(i) Three (3) weeks of vacation per full year worked,
to be taken in accordance with the policies and directives of
Employer.


(ii) Participation in any benefit programs adopted
from time to time by Employer for the benefit of its
employees. Employee shall receive such other fringe benefits
as may be granted to Employee from time to time by Employer.
Employee's participation in such employee benefits of
Employer shall be based upon Employee's tenure classification
under rules established by Employer from time to time, and
unless contrary to the law shall be terminable by Employer at
any time in Employer's sole discretion.


(e) Payroll Taxes. Employee's compensation and other
benefits shall be subject to all payroll and withholding deductions as
may be required by law.


4. DEATH OR DISABILITY. If during the Employment Period Employee shall become physically or mentally disabled (as determined by Employer), and as a result thereof become unable to continue the proper performance of Employee's duties hereunder on a full-time basis, then Employee's employment hereunder shall thereupon at the option of Employer automatically terminate. This Agreement shall automatically terminate upon the death of Employee. Employer shall not be obligated to pay Employee for time during which Employee is disabled.


5. TERMINATION BY EMPLOYER. Employer may terminate this Agreement at any time for cause. Cause for discharge shall exist when: (i) Employee materially breaches this Agreement, or (ii) Employee commits any act or engages in a course of conduct involving moral turpitude which adversely affects the reputation of Employer.


6. TERMINATION BY EMPLOYEE. Employee shall have the right to terminate this Agreement at any time after at least ninety (90) days prior written notice given to Employer. Employee agrees to provide Employer with ninety (90) days prior written notice of any such termination.


3 4


7. EFFECT OF TERMINATION. Upon proper termination of this Agreement by Employer or Employee, any amounts payable between the parties for periods prior to termination shall remain payable, and the covenant not to compete set forth in Section 8 below, and the proprietary information provisions of Section 9 below, shall survive any said termination and shall continue to bind Employee for the period of time stated therein.


8. RESTRICTIVE COVENANTS. Employee acknowledges that Employee will have access to confidential information about Employer and Employer's customers and that Employee will have access to other "proprietary information" (as defined in Section 9 below) acquired by Employer at the expense of Employer for use in Employer's business. Accordingly, by execution of this Agreement:


(a) Employee agrees that commencing the date of this Agreement,
and continuing for two (2) years following Employee's termination of
employment with Employer for any reason (whether such termination
shall be voluntary or involuntary), Employee shall not violate the
provisions of subparagraph 8(b) below. Employee agrees that the
two-year period referred to in the preceding sentence shall be
extended by the number of days included in any period of time during
which Employee is or was engaged in activities constituting a breach
of subparagraph 8(b).


(b) During the time period specified in subparagraph (a) above,
Employee shall not:


...