Exhibit 10.5 to RC2 Aug 2005 Form 10-Q


    Exhibit
      10.5

    


    EMPLOYMENT
      AGREEMENT

    


    


    THIS
      EMPLOYMENT AGREEMENT is made as of April 4, 2005, by and between RC2
      Corporation, a Delaware corporation (the "Company"), and Curtis W.
      Stoelting (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 Executive Officer of the Company and will,
      under the direction of the Company's Chairman 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 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 Chairman 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.

    


    4.    Compensation.
      Effective April 4, 2005, the Employee shall receive a base salary of $425,000
      per year, payable in regular and equal monthly installments (the "Base Salary").
      


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


    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 $600.00 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 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 him 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 


    
      
        
        

      

      
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    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.

    


    (ii)    For
      purposes of this Agreement, "Cause" shall be deemed to exist if the Employee
      shall have [a] 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 and its Subsidiaries;
      [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.
      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."

    


    (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 


    
      
        
        

      

      
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    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. 

    


    (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, 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. If the Employee's
      employment is terminated in the manner described in this section 6(d),
      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.

    



    
      
        
        

      

      
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    (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.

    


    (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 him, 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, 


    
      
        
        

      

      
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    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 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

    



    
      
        
        

      

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

    


    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.

    



    
      
        
        

      

      
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    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.

    


    “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 


      
        
          
          

        

        
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      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
        (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.

      



      
        
          
          

        

        
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      "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.

      


      “Senior
        Management”
        at any
        time means the senior executive officers of the Company which will include,
        without limitation, the Chief Executive Officer, President, Chief Operating
        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.

      



      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      


      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.

      


      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.

      



      
        
          
          

        

        
          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/
        John J.
        Vosicky                            
         

      John
        J.
        Vosicky, Director and 

      Compensation
        Committee Member

      


      


      /s/
        Daniel M.
        Wright                           

      Daniel
        M.
        Wright, Director and 

      Compensation
        Committee Member

      


      


      /s/
        Curtis W.
        Stoelting                          

      Curtis
        W.
        Stoelting


      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      


      


      SCHEDULE
        5(c)

      


      INCENTIVE
        STOCK OPTIONS

      


      


      If
        Employee is employed by the Company on February 1 of any year (beginning
        with
        February 1, 2005) during the Employment Period, he shall receive options
        to
        acquire not less than 50,000 shares as determined by the Board of Directors
        of
        the Company. The grant of the options shall be made on the earlier of (1)
        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
        2,500 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.

      


      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      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:

      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      

        
          	
                  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.

      



      
        
          
          

        

        
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      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 and shall prevail.

      


      EMPLOYEE:

      


      ________________________________

      


      


      RC2
        CORPORATION

      


      BY______________________________

      


      
 

      
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