Exhibit 10.18 to RC2 December 2006 Form 10-K


    
       

      Exhibit
        10.18

       

      

        EMPLOYMENT
          AGREEMENT

         

        THIS
          EMPLOYMENT AGREEMENT is made as of July 31, 2006, by and between RC2
          Corporation, a Delaware corporation (the "Company"), and Gregory J. Kilrea
          (the "Employee"). Certain capitalized terms used herein are defined in
          section 10 below.

         

        RECITALS

         

        A.    The
          Company and the Employee desire to terminate any and all prior agreements,
          whether oral or written, between the parties and between the Employee and
          the
          Company relating to the Employee's employment.

         

        B.    The
          Company desires to employ the Employee and the Employee is willing to make
          his
          services available to the Company on the terms and conditions set forth
          below.

         

        AGREEMENTS

         

        In
          consideration of the premises and the mutual agreements which follow, the
          parties agree as follows:

         

        1.    Employment.
          The
          Company hereby employs the Employee and the Employee hereby accepts employment
          with the Company on the terms and subject to the conditions set forth in
          this
          Agreement.

         

        2.    Term.
          The
          term of the Employee's employment hereunder shall commence on the date
          hereof
          and shall continue until terminated as provided in section 6
          below.

         

        3.    Duties.
          The
          Employee shall serve as the Chief Operations Officer of the Company and
          will,
          under the direction of the Company's Chief Executive Officer, President
          and the
          Board of Directors, faithfully and to the best of his ability, perform
          the
          duties of such position. The Employee shall be one of the principal executive
          officers and Senior Management of the Company and shall, subject to the
          control
          of the Chief Executive Officer, President and the Company's Board of Directors,
          have the normal duties, responsibilities and authority associated with
          such
          position. The Employee shall also perform such additional duties and
          responsibilities which may from time to time be reasonably assigned or
          delegated
          by the Chief Executive Officer, President or Board of Directors of the
          Company.
          The Employee agrees to devote his entire business time, effort, skill and
          attention to the proper discharge of such duties while employed by the
          Company.

         


        
          
            
            

          

          
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        4.    Compensation.
          The
          Employee shall receive a base salary of $210,000 per year, payable in regular
          and equal
          monthly installments (the "Base Salary"), or such greater amount as may
          be
          agreed to by the parties.

         

        5.    Fringe
          Benefits.

         

        (a)    Vacation.
          The
          Employee shall be entitled to four weeks of paid vacation annually. The
          Employee
          and the Company shall mutually determine the time and intervals of such
          vacation.

         

        (b)    Medical,
          Health, Dental, Disability and Life Coverage.
          The
          Employee shall be eligible to participate in any medical, health, dental,
          disability and life insurance policy in effect for the Senior Management
          of the
          Company.

         

        (c)    Incentive
          Bonus and Stock Ownership Plans.
          The
          Employee shall be entitled to participate in any
          incentive bonus plan, incentive stock option or other stock ownership plan
          or
          other incentive compensation plan developed generally for the Senior Management
          of the Company, on a basis consistent with his position and level of
          compensation with the Company. Without limiting the foregoing, Employee
          shall be
          entitled to participate on a basis consistent with past practice and his
          position and level of compensation with the Company in the annual Incentive
          Bonus Plan and Top Management Additional Bonus Plan, together with all
          successor
          or other bonus plans (collectively, the "Bonus Plans"). In addition, Employee
          shall be entitled to receive annual stock option grants as provided on
          Schedule 5(c) attached hereto. The options will be granted pursuant to a
          Non-Statutory Stock Option Grant Agreement substantially in the form of
          Exhibit A attached hereto.

         

        (d)    Automobile.
          The
          Company agrees to reimburse the Employee up to $600 per month, as such
          amount
          may be increased from time to time consistent with the Company's reimbursement
          policy for the Senior Management of the Company to cover Employee's expenses
          in
          connection with his leasing of an automobile. Additionally, the Company
          will pay
          for the gas used for business purposes. All maintenance and insurance expense
          for the automobile is the responsibility of the Employee.

         

        (e)    Reimbursement
          for Reasonable Business Expenses.
          The
          Company shall pay or reimburse the Employee for reasonable expenses incurred
          by
          him in connection with the performance of his duties pursuant to this Agreement
          including, but not limited to, travel expenses, expenses in connection
          with
          seminars, professional conventions or similar professional functions and
          other
          reasonable business expenses.

         


        
          
            
            

          

          
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        (f)    Key
          Man
          Insurance.
          The
          parties agree that the Company has the option to purchase one or more key
          man
          life insurance policies upon the life of the Employee. The Company shall
          own and
          shall have the absolute right to name the beneficiary or beneficiaries
          of said
          policy. The Employee agrees to cooperate fully with the Company in securing
          said
          policy, including, but not limited to submitting himself to any physical
          examination which may be required at such reasonable times and places as
          Company
          shall specify.

         

        (g)    Life
          and Disability Insurance.
          During
          the Employment Period, the Company shall provide coverage of at least
          $2.0 million of life insurance and 75% of Base Salary of disability
          insurance. Such insurance policies to be owned by any one or more members
          of
          Employee's immediate family or by a trust for the primary benefit of Employee's
          immediate family. The owner of the policy shall have the power to designate
          the
          beneficiary and to assign any rights under the policy. The Company shall
          pay
          100% of the premiums required under these policies; provided, however,
          that the
          Company shall not be obligated to pay greater than $20,000 for such premiums
          during any fiscal year. In the event that the premiums for such policies
          would
          exceed this limitation, the Company shall consult with the Employee to
          determine
          the allocation of such amount to the premiums for each type of policy to
          obtain
          such insurance as may be available for an aggregate of $20,000 per fiscal
          year.

         

        6.    Termination.

         

        (a)    Termination
          of the Employment Period.
          The
          Employment Period shall continue until the earlier of: (i) March 31, 2008
          unless the parties mutually agree in writing to extend the term of this
          Agreement (such date hereof or such extended date being referred to herein
          as
          the "Expected Completion Date"), (ii) the Employee's death or Disability,
          (iii) the Employee resigns or (iv)
          the
          Board of Directors determines that termination of Employee's employment
          is in
          the best interests of the Company (the "Employment Period"). The last day
          of the
          Employment Period shall be referred to herein as the "Termination
          Date."

         

        (b)    Definitions.

         

        (i)    For
          purposes of this Agreement, "Disability" shall mean a physical or mental
          sickness or any injury which renders the Employee incapable of performing
          the
          services required of his as an employee of the Company and which does or
          may be
          expected to continue for more than six months during any 12-month period.
          In the
          event Employee shall be able to perform his usual and customary duties
          on behalf
          of the Company following a period of disability, and does so perform such
          duties
          or such other duties as are prescribed by the Board of Directors for a
          period of
          three continuous months, any subsequent period of disability shall be regarded
          as a new period of disability for purposes of this Agreement. The Company
          and
          the Employee shall determine the existence of a Disability and the date
          upon
          which it occurred. In the event of a dispute regarding whether or when
          a
          Disability occurred, the matter shall be referred to a medical doctor selected
          by the Company and the Employee. In the
          event
          of their failure to agree upon such a medical doctor, the Company and the
          Employee shall each select a medical doctor who together shall select a
          third
          medical doctor who shall make the determination. Such determination shall
          be
          conclusive and binding upon the parties hereto.

         


        
          
            
            

          

          
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        (ii)    For
          purposes
          of this Agreement, "Cause" shall be deemed to exist if the Employee shall
          have
          [a] intentionally violated the terms of section 7 or section 8 of this
          Agreement in any material respect; [b] committed a felony or a crime involving
          moral turpitude; [c] engaged in serious misconduct which is demonstrably
          and
          materially injurious to the Company's business, taken as whole [d] engaged
          in
          fraud or dishonesty with respect to the Company or any of its Subsidiaries
          or
          made a material misrepresentation to the stockholders or directors of the
          Company with respect to an item, transaction or amount in excess of $10,000;
          or
          [e] committed acts of negligence in the
          performance of his duties which are demonstrably and materially injurious
          to the
          Company's business, taken as a whole.
          In
          all cases,
          termination for Cause shall be determined solely by the Board of Directors
          and
          require a two-thirds majority vote.

         

        (iii)    For
          purposes of this Agreement, "Good Reason" shall mean (1) the material diminution
          of the Employee's duties set forth in section 3
          above or (2) the relocation of the offices at which the Employee is principally
          employed to a location which is more than 50 miles from the offices at
          which the
          Employee is principally employed as of the date hereof; provided, that
          travel
          necessary for the performance of the Employee's duties set forth in
          section 3 above shall not determine the location where the Employee is
          "principally employed" or (3) Company's non-performance of its material
          obligations hereunder.

         

        (c)    Termination
          for Disability or Death.
          In the
          event of termination for Disability, payments of the Employee's Base Salary
          shall be made to the Employee for a period of six months after the Termination
          Date in accordance with the normal payroll practices of the Company. In
          addition, for a period of three years after the Termination Date, the Company
          shall reimburse the Employee for amounts paid, if any, to continue medical,
          dental and health coverage pursuant to the provisions of the Consolidated
          Omnibus Budget Reconciliation Act, continue Employee's life insurance and
          disability coverage, to the extent limited by section 5(g) and to the
          extent permitted under applicable policies, and pay to the Employee a pro
          rata
          portion of any bonus payable for the year in which termination takes place
          (if
          any) based on the portion of the year occurring prior to the Termination
          Date.
          In the event of termination as a result of the death of Employee, Employee's
          designated beneficiary or his estate shall be entitled to receive the Base
          Salary accrued prior to the Termination Date together with the proceeds
          of any
          life insurance obtained pursuant to section 5(g), plus a lump sum payment
          when determinable equaling Employee's pro rata portion of any bonus payable
          under the Bonus Plans for the year in which termination takes place (if
          any)
          based on the portion of the year occurring prior to the Termination
          Date.

        
        


        
          
            
            

          

          
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          (d)    Termination
            by the Company without Cause or by the Employee
            for Good Reason.
            If (i)
            the Employment Period is terminated by the Company for any reason other
            than for
            Cause, Disability or death, (ii) the Employment Period is terminated
            by the
            Company for what the Company believes is Cause or Disability, and it
            is
            ultimately determined that the Employment Period was terminated without
            Cause or
            Disability (iii) the Employee resigns for Good Reason, (iv) this Agreement
            is
            not renewed or otherwise extended by the Company after the Expected Completion
            Date, and the reason for such non-renewal or extension is not related
            to a
            termination for Cause, Disability or death of the Employee, the Employee
            shall
            be entitled to receive, as damages for such a termination, resignation
            or
            non-renewal, his Base Salary from the Termination Date to the second
            anniversary
            of the Termination Date to be paid in accordance with the normal payroll
            practices of the Company plus a lump sum payment equaling 100% of the
            average
            annual payments under the Bonus Plans over the preceding three years
            (or if in
            the case of less than three years participation in the Bonus Plans, then
            the
            average shall be determined based on the actual number of years of participation
            in the Bonus Plans), provided, however, that if such a termination or
            resignation described in (i), (ii), (iii) or (iv) above occurs at any
            time after
            the occurrence of or in contemplation
            of a Change of Control, then Employee shall be entitled to receive a
            lump sum
            payment of his Base Salary from the Termination Date to the third anniversary
            of
            the Termination Date plus 200% of the average annual payments under the
            Bonus
            Plans over the preceding three years (or if in the
            case
            of less than three years participation in the Bonus Plans, then the average
            shall be determined based on the actual number of years of participation
            in the
            Bonus Plans). If the Employee's employment is terminated in the manner
            described
            in this section 6(d) (i)-(iv), for a period of three years from the
            Termination Date, the Company shall reimburse the Employee for amounts
            paid, if
            any, to continue medical, dental and health coverage pursuant to the
            provisions
            of the Consolidated Omnibus Budget Reconciliation Act, continue Employee's
            life
            insurance and disability coverage to the extent limited by section 5(g) and
            to the extent permitted under the applicable policies, and pay to the
            Employee
            the fringe benefits pursuant to section 5 which have accrued prior to the
            Termination Date.

        

         

        (e)    Termination
          by the Company for Cause or by the Employee Without
          Good Reason.
          If the
          Employment Period is terminated by the Company with Cause or as a result
          of the
          Employee's resignation without Good Reason, the Employee shall not be entitled
          to receive his Base Salary or any fringe benefits or bonuses for periods
          after
          the Termination Date.

         

        (f)    Effect
          of Termination.
          The
          termination of the Employment Period pursuant to section 6(a) shall not
          affect the Employee's obligations as described in sections 7
          and 8.

         


        
          
            
            

          

          
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        (g)    Acceleration
          of
          Option Vesting.
          Upon
          completion of a Change of Control, all options to purchase stock of the
          Company
          held by the Employee shall immediately vest and become exercisable by the
          Employee in accordance with their remaining terms. The Company agrees to
          take
          any and all actions necessary or appropriate to effectuate the acceleration
          of
          these options and to permit the Employee to exercise the options in accordance
          with their terms from and after this accelerated vesting date.

         

        7.    Noncompetition
          and Nonsolicitation.
          The
          Employee acknowledges and agrees that the contacts and relationships of
          the
          Company and its Affiliates with its customers, suppliers, licensors and
          other
          business relations are, and have been, established and maintained at great
          expense and provide the Company and its Affiliates with a substantial
          competitive advantage in conducting their business. The Employee acknowledges
          and agrees that by virtue of the Employee's employment with the Company,
          the
          Employee will have unique and extensive exposure to and personal contact
          with
          the Company's customers and licensors, and that he will be able to establish
          a
          unique relationship with those Persons that will enable his, both during
          and
          after employment, to unfairly compete with the Company and its Affiliates.
          Furthermore, the parties agree that the terms and conditions of the following
          restrictive covenants are reasonable and necessary for the protection of
          the
          business, trade secrets and Confidential Information (as defined in
          section 8 below) of the Company and its Affiliates and to prevent great
          damage or loss to the Company and its Affiliates as a result of action
          taken by
          the Employee. The Employee acknowledges and agrees that the noncompete
          restrictions and nondisclosure of Confidential Information restrictions
          contained in this Agreement are reasonable and the consideration provided
          for
          herein is sufficient to fully and adequately compensate the Employee for
          agreeing to such restrictions. The Employee acknowledges that he could
          continue
          to actively pursue his career and earn sufficient compensation in the same
          or
          similar business without breaching any of the restrictions contained in
          this
          Agreement.

         

        (a)    Noncompetition.
          The
          Employee hereby covenants and agrees that during the Employment Period
          and for
          two years thereafter (the "Noncompete Period"), except if employment is
          terminated by the Company or its successor after a Change in Control or
          this
          Agreement is not renewed or extended by the Company or its successor after
          the
          Expected Completion Date then the Noncompete Period shall be six months,
          he
          shall not, directly or indirectly, either individually or as an employee,
          principal, agent, partner, shareholder, owner, trustee, beneficiary, co-venturer
          distributor, consultant, representative or in any other capacity, participate
          in, become associated with, provide assistance to, engage in or have a
          financial
          or other interest in any business, activity or enterprise which is competitive
          with the Company or any of its Affiliates
          or any successor or assign of the Company or any of its Affiliates. The
          ownership of less than a one percent 

         


        
          
            
            

          

          
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        interest
          in a corporation whose shares are traded in a
          recognized stock exchange or traded in the over-the-counter market, even
          though
          that corporation may be a competitor of the Company, shall not be deemed
          financial participation in a competitor. If the final judgment of a court
          of
          competent jurisdiction declares that any term or provision of this
          section is invalid or unenforceable, the parties agree that the court
          making the determination of invalidity or unenforceability shall have the
          power
          to reduce the scope, duration, or area of the term or provision, to delete
          specific words or phrases, or to replace any invalid or unenforceable term
          or
          provision with a term or provision that is valid and enforceable and that
          comes
          closest to expressing the intention of the invalid or unenforceable term
          or
          provision, and this Agreement shall be enforceable as so modified. The
          term
"indirectly"
          as used
          in this section and section 8 below is intended to include any acts
          authorized or directed by or on behalf of the Employee or any Affiliate
          of the
          Employee.

         

        (b)    Nonsolicitation.
          The
          Employee hereby covenants and agrees that during the Noncompete Period,
          he shall
          not, directly or indirectly, either individually or as an employee, agent,
          partner, shareholder, owner, trustee, beneficiary, co-venturer, distributor,
          consultant or in any other capacity:

         

        (i)    canvass,
          solicit or accept from any Person who is a customer or licensor of the
          Company
          or any of its Affiliates (any such Person is hereinafter referred to
          individually as a "Customer," and collectively as the "Customers") any
          business
          which in competition with the business of the Company or any of its Affiliates
          or the successors or assigns of the Company or any of its Affiliates, including,
          without limitation, the canvassing, soliciting or accepting of business
          from any
          Person which is or was a Customer of the Company or any of its Affiliates
          within
          two years preceding the date of this Agreement, during the Employment Period
          or
          during the Noncompete Period;

         

        (ii)    advise,
          request, induce or attempt to induce any of the Customers, suppliers, or
          other
          business contacts of the Company or any of its Affiliates who currently
          have or
          have had business relationships with the Company or any of its Affiliates
          within
          two years preceding the date of this Agreement, during the Employment Period
          or
          during the Noncompete Period, to withdraw, curtail or cancel any of its
          business
          or relations with the Company or any of its Affiliates;
          and

         

        (iii)    hire
          or
          induce or attempt to induce any officer of the Company or any of its Affiliates
          to terminate his or his relationship or breach any agreement with the Company
          or
          any of its Affiliates unless such person has previously been terminated
          by the
          Company; or

         

         

         


        
          
            
            

          

          
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        8.    Confidential
          Information.
          The
          Employee acknowledges and agrees that the customers, business connections,
          customer lists, procedures, operations, techniques, and other aspects of
          and
          information about the business of the Company and its Affiliates (the
          "Confidential Information") are established at great expense and protected
          as
          confidential information and provide the Company and its Affiliates with
          a
          substantial competitive advantage in conducting their business. The Employee
          further acknowledges and agrees that by virtue of his past employment with
          the
          Company, and by virtue of his employment with the Company, he has had access
          to
          and will have access to, and has been entrusted with and will be entrusted
          with,
          Confidential Information, and that the Company would suffer great loss
          and
          injury if the Employee would disclose this information or use in a manner
          not
          specifically authorized by the Company. Therefore, the Employee agrees
          that
          during the Employment Period and for five years thereafter, he will not,
          directly or indirectly, either individually or as an employee, agent, partner,
          shareholder, owner trustee, beneficiary, co-venturer distributor, consultant
          or
          in any other capacity, use or disclose or cause to be used or disclosed
          any
          Confidential Information, unless and to the extent that any such information
          become generally known to and available for use by the public other than
          as a
          result of the Employee's acts or omissions. The Employee shall deliver
          to the
          Company at the termination of the Employment Period, or at any other time
          the
          Company may request, all memoranda, notes, plans, records, reports, computer
          tapes, printouts and software and other documents and data (and copies
          thereof)
          relating to the Confidential Information, Work Product (as defined below)
          or the
          business of the Company or any of its Affiliates which he may then possess
          or
          have under his control. The Employee acknowledges and agrees that all
          inventions, innovations, improvements, developments, methods, designs,
          analyses,
          drawings, reports and all similar or related information (whether or not
          patentable) which relate to the Company's or any of its Affiliate'
          actual or anticipated business research and development or existing or
          future
          products or services and which are conceived, developed or made by the
          Employee
          while employed by the Company and its Affiliates ("Work Product") belong
          to the
          Company or such Affiliate, as the case may be.

         

        9.    Common
          Law of Torts and Trade Secrets.
          The
          parties agree that nothing in this Agreement shall be construed to limit
          or
          negate the common law of torts or trade secrets where it provides the Company
          and its Affiliates with broader protection than that provided
          herein.

         

        10.       
          Definitions. 
          

         

              
          "Affiliate" means, with respect to any Person, any other Person controlling,
          controlled by or under common control with such Person and any partner
          of a
          Person which is a partnership.

         

         

         

        
          
            
            

          

          
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        "Change
          of Control" means:

         

        (a)    the
          acquisition by any individual, entity or group (within the meaning of
          Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
          amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
          the
          meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more
          of
          either (i) the then outstanding shares of common stock of The Company (the
          "Outstanding Common Stock") or (ii) the combined voting power of the then
          outstanding voting securities of the Company entitled to vote generally
          in the
          election of directors (the "Outstanding Voting Securities"); provided,
          however,
          that the following acquisitions shall not constitute a Change of Control:
          (i) any acquisition directly from the Company, (ii) any acquisition by
          the Company, (iii) any acquisition by any employee benefit plan (or related
          trust) sponsored or maintained by the Company or any corporation controlled
          by
          the Company or (iv) any acquisition by any corporation pursuant to a
          transaction which complies with clauses (i), (ii) and (iii) of
          subsection (c) of this definition; or

         

        (b)    individuals
          who, as of the date hereof, constitute the Board of Directors of the Company
          (the "Incumbent Board") cease for any reason to constitute at least a majority
          of the Board of Directors of the Company; provided, however, that any individual
          becoming a director subsequent to the date hereof whose election, or nomination
          for election by the Company's stockholders, was approved by a vote of at
          least a
          majority of the directors then comprising the Incumbent Board shall be
          considered as though such individual were a member of the Incumbent Board,
          but
          excluding, for this purpose, any such individual whose initial assumption
          of
          office occurs as a result of an actual or threatened election contest with
          respect to the election or removal of directors or other actual or threatened
          solicitation of proxies or consents by or on behalf of a Person other than
          the
          Board of Directors of the Company; or

         

        (c)    approval
          by the stockholders of the Company of a reorganization, merger or consolidation
          (a "Business Combination"), in each case, unless, following such Business
          Combination, (i) all or substantially all of the individuals and entities
          who
          were the beneficial owners, respectively, of the Outstanding Common Stock
          and
          Outstanding Voting Securities immediately prior to such Business Combination
          beneficially own, directly or indirectly, more than 60% of, respectively,
          the
          then outstanding shares of common stock and the combined voting power of
          the
          then outstanding voting securities entitled to vote generally in the election
          of
          directors, as the case may be, of the corporation resulting from such Business
          Combination (including, without limitation, a corporation which as a result
          of
          such transaction owns the Company through one or more Subsidiaries) in
          substantially the same proportions as their ownership, immediately prior
          to such
          Business Combination of the Outstanding Common Stock and Outstanding Voting
          Securities, as the case may be, (ii) no Person 

         


        
          
            
            

          

          
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        (excluding
          any employee benefit plan (or related trust) of the Company or such corporation
          resulting from such Business Combination) beneficially owns, directly or
          indirectly, 30% or more of, respectively, the then outstanding shares of
          common
          stock of the corporation resulting from such Business Combination or the
          combined voting power of the then outstanding voting securities of such
          corporation except to the extent that such ownership existed prior to the
          Business Combination and (iii) at least a majority of the members of the
          board of directors of the corporation resulting from such Business Combination
          were members of the Incumbent Board at the time of the execution of the
          initial
          agreement, or of the action of the Board of Directors of the Company, providing
          for such Business Combination; or

         

                (d)    approval
          by the
          stockholders of the Company of (i) a complete liquidation or dissolution of
          the Company or (ii) the sale or other disposition of all or substantially
          all of the assets of the Company, other than to a corporation, with respect
          to
          which following such sale or other disposition, [a] more than 60% of,
          respectively, the then outstanding shares of common stock of such corporation
          and the combined voting power of the then outstanding voting securities
          of such
          corporation entitled to vote generally in the election of directors is
          then
          beneficially owned, directly or indirectly, by all or substantially all
          of the
          individuals and entities who were the beneficial owners, respectively,
          of the
          Outstanding Common Stock and Outstanding Voting Securities immediately
          prior to
          such sale or other disposition in substantially the same proportion as
          their
          ownership, immediately prior to such sale or other disposition, of the
          Outstanding Common Stock and Outstanding Voting Securities, as the case
          may be,
          [b] less than 30% of, respectively, the then outstanding shares of common
          stock
          of such corporation and the combined voting power of the then outstanding
          voting
          securities of such corporation entitled to vote generally in the election
          of
          directors is then beneficially owned, directly or indirectly, by any Person
          (excluding any employee benefit plan (or related trust) of the Company
          or such
          corporation), except to the extent that such Person owned 30% or more of
          the
          Outstanding Common Stock or Outstanding Voting Securities prior to the
          sale or
          disposition, and [c] at least a majority of the members of the board of
          directors of such corporation were members of the Incumbent Board at the
          time of
          the execution of the initial agreement, or of the action of the Board of
          Directors of the Company, providing for such sale or other disposition of
          assets of the Company or were elected, appointed or nominated by the Board
          of
          Directors of the Company.

         

        
                                  
            "Person" means any individual, partnership, corporation, limited
            liability company, association, joint stock company, trust, joint venture,
            unincorporated organization and any governmental entity or any department,
            agency or political subdivision
            thereof.
    

         

                 

        
          
            
              
              

            

            
              10

              
                

              

            

            
              
              

            

          

        

        
           

            "Senior
            Management" at any time means the senior executive officers of the Company
            which will include, without limitation, the Chief Executive Officer,
            President,
            Chief Operations Officer, Chief Financial Officer and such other officers
            of the
            Company as the Board of Directors shall determine from time to
            time.

           

                                   
            "Subsidiary" means, with respect to any Person, any corporation,
            partnership, association or other business entity of which (i) if a corporation,
            a majority of the total voting power of shares of stock entitled (without
            regard
            to the occurrence of any contingency) to vote in the election of directors,
            managers or trustees thereof is at the time owned or controlled, directly
            or
            indirectly, by that Person or one or more of the other Subsidiaries of
            that
            Person or a combination thereof, or (ii) if a partnership, association
            or other
            business entity, a majority of the partnership or other similar ownership
            interest thereof is at the time owned or controlled, directly or indirectly,
            by
            any Person or one or more Subsidiaries of that Person or a combination
            thereof.
            For purposes hereof, a Person or Persons shall be deemed to have a majority
            ownership interest in a partnership, association or other business entity
            if
            such Person or Persons shall be allocated a majority of partnership,
            association
            or other business entity gains or losses or shall be or control any managing
            director or general partner of such partnership, association or other
            business
            entity.

           
11.    Specific
          Performance.
          The
          Employee acknowledges and agrees that irreparable injury to the Company
          may
          result in the event the Employee breaches any covenant or agreement contained
          in
          sections 7 and 8 and that the remedy at law for the breach of any such
          covenant will be inadequate. Therefore, if the Employee engages in any
          act in
          violation of the provisions of sections 7 and 8, the Employee agrees
          that the Company shall be entitled, in addition to such other remedies
          and
          damages as may be available to it by law or under this Agreement, to injunctive
          relief to enforce the provisions of sections 7 and 8.

         

        12.    Waiver.
          The
          failure of either party to insist in any one or more instances, upon performance
          of the terms or conditions of this Agreement shall not be construed as
          a waiver
          or a relinquishment of any right granted hereunder or of the future performance
          of any such term, covenant or condition.

         

        13.    Notices.
          Any
          notice to be given hereunder shall be deemed sufficient if addressed in
          writing
          and delivered by registered or certified mail or delivered personally,
          in the
          case of the Company, to its principal business office, and in the case
          of the
          Employee, to his address appearing on the records of the Company, or to
          such
          other address as he may designate in writing to the Company.

         


        
          
            
            

          

          
            11

            
              

            

          

          
            
            

          

        


        14.    Severability.
          In the
          event that any provision shall be held to be invalid or unenforceable for
          any
          reason whatsoever, it is agreed such invalidity or unenforceability shall
          not
          affect any other provision of this Agreement and the remaining covenants,
          restrictions and provisions hereof shall remain in full force and effect
          and any
          court of competent jurisdiction may so modify the objectionable provision
          as to
          make it valid, reasonable and enforceable. Furthermore, the parties specifically
          acknowledge the above covenant not to compete and covenant not to disclose
          confidential information are separate and independent agreements.

         

        15.    Complete
          Agreement.
          Except
          as otherwise expressly set forth herein, this document embodies the complete
          agreement and understanding among the parties hereto with respect to the
          subject
          matter hereof and supersedes and preempts any prior understandings, agreements
          or representations by or among the parties, written or oral, which may
          have
          related to the subject matter hereof in any way. Without limiting the generality
          of the foregoing, this Agreement supersedes the Employment Agreement, dated
          as
          of July 29, 2002, between the Company and the Employee (together with all
          amendments thereto, the "Prior Agreement"). The Prior Agreement is hereby
          terminated and shall cease to be of any further force or effect.

         

        16.    Amendment.
          This
          Agreement may only be amended by an agreement in writing signed by each
          of the
          parties hereto.

         

        17.    Governing
          Law.
          This
          Agreement shall be governed by and construed exclusively in accordance
          with the
          laws of the State of Illinois, regardless of choice of law
          requirements.

         

        18.    Benefit.
          This
          Agreement shall be binding upon and inure to the benefit of and shall be
          enforceable by and against the Company, its successors and assigns and
          the
          Employee, his heirs, beneficiaries and legal representatives. It is agreed
          that
          the rights and obligations of the Employee may not be delegated or
          assigned.

         

        [Remainder
          of page intentionally left blank. Signature page to
          follow.]


        
          
            
            

          

          
            12

            
              

            

          

          
            
            

          

        


            IN
          WITNESS
          WHEREOF, the parties have executed or caused this Employment Agreement
          to be
          executed as of the date first above written.

        
 

        
          
            	 	
                    RC2 CORPORATION-

                    COMPENSATION
                      COMMITTEE

                  
	 	
                     

                    /s/
                      John S. Bakalar 

                  
	 	John S. Bakalar, Director
                    and
                    Compensation Committee Chairman
	 	 
	 	
                    
                      /s/
                        Robert E. Dods 

                    

                  
	 	
                    Robert E.
                      Dods, Director and Compensation Committee Member

                  
	 	 
	 	
                    /s/
                      Daniel M. Wright 

                  
	 	
                    Daniel M.
                      Wright, Director and Compensation Committee Member

                  
	 	 
	 	
                    /s/
                      Gregory J. Kilrea 

                  
	 	
                    Gregory J.
                      Kilrea

                  


          

        

        

          
            
              
              

            

            
              13

              
                

              

            

            
              
              

            

          



        SCHEDULE 5(c)

         

        INCENTIVE
          STOCK OPTIONS

         

        If
          Employee is employed by the Company on February 1 of any year during the
          Employment Period, he shall receive options to acquire not less than 15,000
          shares as determined by the Board of Directors of the Company. The grant
          of the
          options shall be made on the earlier of (l) the quarterly meeting of the
          Board
          of Directors held in February of the applicable year or (2) February 28 of
          the applicable year. Additionally, as of the date of each grant above,
          Employee
          shall also be granted options to purchase 1,000 additional shares for every
          full
          percentage point that the three-year compounded annual EPS growth rate
          as of
          December 31 of the prior year exceeds 25%. The total number of options
          granted in any fiscal year shall not exceed 100,000. The options to be
          granted
          pursuant to this Employment Agreement shall be granted using a Non-Statutory
          Stock Option Grant Agreement substantially in the form of Exhibit A to the
          Employment Agreement.

         


        
          
            
            

          

          
            14

            
              

            

          

          
            
            

          

        


         

        EXHIBIT A

         

        NON-STATUTORY
          STOCK OPTION GRANT AGREEMENT

         

        UNDER
          THE
          RC2 CORPORATION

        2005
          STOCK INCENTIVE PLAN

         

        THIS
          AGREEMENT, dated as_______________ (the date of grant), is between
          __________________ ("Employee") and RC2 CORPORATION, a Delaware corporation
          (the
          "Company").

         

        RECITALS

         

        A.    The
          Company adopted the RC2 Corporation 2005 Stock Incentive Plan (the "Plan"),
          which was approved by its Board of Directors (the "Board") and
          stockholders.

         

        B.    The
          Board
          has designated Employee as a participant in the Plan.

         

        C.    Pursuant
          to the Plan, Employee and the Company desire to enter into this Agreement
          setting forth the terms and conditions of the options granted to Employee
          under
          the Plan.

         

        AGREEMENTS

         

        The
          Employee and the Company agree as follows:

         

        1.    Grant
          of Stock Option.
          The
          Company grants to Employee the right and option (hereinafter referred to
          as the
          "Option") to purchase all or any part of up to ______________ shares of
          the
          Company's Common Stock (the "Option Shares") on the terms and conditions
          set
          forth below and in the Plan.

         

        2.    Option
          Price.
          The
          purchase price of the Option Shares shall be $________ per share.

         

        3.    Period
          of Exercise.
          Except
          as provided under the Plan, unless the Option is terminated, Employee may
          exercise this Option for up to, but not in excess of, the percent of shares
          of
          Common Stock subject to the Option during the periods specified
          below:

         


        
          
            
            

          

          
            15

            
              

            

          

          
            
            

          

        


         

        
          	
                  Percentage
                    of Shares

                  of
                    Common Stock

                   

                	
                  On
                    or After

                   

                
	
                  20%

                	
                  February
                    __, 2006

                
	
                  40%

                	
                  February
                    __, 2007

                
	
                  60%

                	
                  February
                    __, 2008

                
	
                  80%

                	
                  February
                    __,2009 

                
	
                  100%

                	
                  February
                    __, 2010

                


        

        


        Employee's
          right to exercise the Option expires ten years from the date of grant (the
          "Option Period").

         

        4.    Definitions.
          Unless
          provided to the contrary in this Agreement, the definitions of the Plan
          and any
          Amendments to the Plan shall apply to this Agreement.

         

        5.    Option
          Designation.
          The
          option granted is a Non-Statutory Stock Option in accordance with
          Article VII of the Plan.

         

        6.    Change
          in Capital Structure.
          The
          Option rights and exercise price of such Option rights will be adjusted
          in the
          event of a stock dividend, stock split, reverse stock split, recapitalization,
          reorganization, merger, consolidation, acquisition or other change in the
          capital structure of the Company as determined by the Board of Directors
          in
          accordance with the Plan.

         

        In
          the
          event of a Change in Control of the Company, as defined in the Plan, the
          Option
          will remain exercisable (subject to the expiration date of the Option)
          as
          provided in the Plan.

         

        7.    Nontransferability
          of Option.
          Options
          shall not be transferable other than by will or the laws of descent and
          distribution and shall be exercisable, during the Employee's lifetime,
          only by
          him.

         

        8.    Delivery
          by the Company.
          As soon
          as practicable after receipt of all items referred to in Article VII of the
          Plan and any payment required by Article VII of the Plan, the Company shall
          deliver to the Employee certificate(s) issued in Employee's name for the
          number
          of Option Shares purchased by exercise of the Option. If delivery is by
          mail,
          delivery of Option Shares shall be deemed effected when the stock transfer
          agent
          of the Company shall have deposited the certificates in the United States
          mail,
          addressed to the Employee.

         


        
          
            
            

          

          
            16

            
              

            

          

          
            
            

          

        


        9.    Addresses.
          All
          notices or statements required to be given to either party hereto shall
          be in
          writing and shall be personally delivered or sent, in the case of the Company,
          to its principal business office and, in the case of Employee, to his address
          as
          shown on the records of the Company or to such address as Employee designates
          in
          writing. Notice of any change of address shall be sent to the other party
          by
          registered or certified mail. It shall be conclusively presumed that any
          notice
          or statement properly addressed and mailed bearing the required postage
          stamps
          has been delivered to the party to which it is addressed.

         

        10.       
          Restrictions
          Imposed by Law.
          Notwithstanding any other provision of this Agreement, Employee agrees
          that he
          shall not exercise the Option and that the Company will not be obligated
          to
          deliver any shares of Common Stock or make any cash payment if counsel
          to the
          Company determines that such exercise, delivery or payment would violate
          any law
          or regulation of any governmental authority or any agreement between the
          Company
          and any national securities exchange upon which the Common Stock is listed.
          The
          Company shall in no event be obliged to take any affirmative action in
          order to
          cause the exercise of the Option or the resulting delivery of shares of
          Common
          Stock or other payment
          to
          comply with any law or regulation of any governmental authority.

         

        11.       
          Employment.
          Nothing
          in this Agreement or the Plan shall limit the right of the Company or any
          parent
          or Subsidiary to terminate the Employee's employment or otherwise impose
          any
          obligation to employ the Employee.

         

        12.       
          Governing
          Law.
          This
          Agreement shall be construed. administered and governed in all respects
          under
          and by the laws of the State of Delaware.

         

        13.       
          Provisions
          Consistent with Plan.
          This
          Agreement is intended to be construed to be consistent with, and is subject
          to,
          all applicable provisions of the Plan, which is incorporated herein by
          reference. In the event of a conflict between the provisions of this Agreement
          and the Plan, the provisions of the Plan shall prevail.

         

            EMPLOYEE:

        


            _____________________________________


        


            RC2
          CORPORATION

        


            BY__________________________________

        
 

         

        
          17