Exhibit 10.7 to RC2 Aug 2005 Form 10-Q


    Exhibit
      10.7

     

    
      

        EMPLOYMENT
          AGREEMENT

        


        


        THIS
          EMPLOYMENT AGREEMENT is made as of April 4, 2005, by and between
          RC2
          Corporation, a Delaware corporation (the "Company"), and Jody L.
          Taylor
          (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
          her
          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 Financial Officer of the Company and
          will,
          under the direction of the Company's Chief Executive Officer and the Board
          of
          Directors, faithfully and to the best of her 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 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
          or Board
          of Directors of the Company. The Employee agrees to devote her 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 $230,000
          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 her 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 her 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 her 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
          her in connection with the performance of her 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.

        



        
          
            
            

          

          
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        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 her 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 her 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.

        


        (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 her 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. 

        



        
          
            
            

          

          
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        (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 the death of Employee, Employee's designated
          beneficiary or her 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, her 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 her 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
          


        
          
            
            

          

          
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        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 her 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.

        


        (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 she will be able to establish
          a
          unique relationship with those Persons that will enable her, 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 she could
          continue
          to actively pursue her career and earn sufficient compensation in the same
          or
          similar business without breaching any of the restrictions contained in
          this
          Agreement. 

        



        
          
            
            

          

          
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        (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,
          she
          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 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,
          she
          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 her past employment with
          the
          Company, and by virtue of her employment with the Company, she 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, she 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 she may then possess
          or
          have under her 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 to vote generally in the election
          of
          directors, as the case may be, of the corporation 


        
          
            
            

          

          
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        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.

        


        "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.

        



        
          
            
            

          

          
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        “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.

        


        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 her address appearing on the records of the Company, or to
          such
          other address as she 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, her 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/
          John J.
          Vosicky                              
           

        John
          J.
          Vosicky, Director and 

        Compensation
          Committee Member

        


        


        /s/
          Daniel M.
          Wright                            
           

        Daniel
          M.
          Wright, Director and 

        Compensation
          Committee Member

        


        


        /s/
          Jody L.
          Taylor                                
           

        Jody
          L.
          Taylor

        


        



        
          
            
            

          

          
            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, she shall receive
          options
          to acquire not less than 20,000 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
          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.

        


        


        



        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        


        


        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 her 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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