Document:

<PAGE>

                                                                    EXHIBIT 10.5

                               PHANTOM STOCK PLAN

                                       OF

                           ALCON LABORATORIES, INC.,

                     ITS SELECTED AFFILIATES, SUBSIDIARIES,

                            AND RELATED CORPORATIONS

                           EFFECTIVE JANUARY 1, 1994

Approved by:

/s/ E. H. SCHOLLMAIER
---------------------------------------------------
     E. H. Schollmaier

Date: 5/2/94
     -------------------------------------------------
                           EFFECTIVE JANUARY 1, 1994
<PAGE>

                               TABLE OF CONTENTS

<Table>
<Caption>
                                      PAGE
                                     ------
<S>           <C>                    <C>
ARTICLE I     PURPOSE AND
              ADMINISTRATION.......     I-1
ARTICLE II    DEFINITIONS..........    II-1
ARTICLE III   TERM.................   III-1
ARTICLE IV    PARTICIPATION........    IV-1
ARTICLE V     AWARD OF STOCK
              UNITS................     V-1
ARTICLE VI    RIGHT TO PAYMENT.....    VI-1
ARTICLE VII   UNIT APPRECIATION....   VII-1
ARTICLE VIII  INTEREST ON UNIT
              APPRECIATION OF
              OUTSTANDING UNITS....  VIII-1
ARTICLE IX    VESTING..............    IX-1
ARTICLE X     REDEMPTION VALUE.....     X-1
ARTICLE XI    FORFEITABILITY OF
              UNITS................    XI-1
</Table>

<Table>
<Caption>
                                      PAGE
                                     ------
<S>           <C>                    <C>
ARTICLE XII   FINANCING OF PLAN/
              LIMITATIONS ON AWARDS
              AND UNIT
              APPRECIATION.........   XII-1
ARTICLE XIII  BENEFICIARY
              DESIGNATION..........  XIII-1
ARTICLE XIV   NONTRANSFERABILITY OF
              UNITS................   XIV-1
ARTICLE XV    CHANGE OF
              OWNERSHIP............    XV-1
ARTICLE XVI   MISCELLANEOUS........   XVI-1
ARTICLE XVII  AGREEMENT BETWEEN
              PARTICIPANT AND
              CORPORATION..........  XVII-1
</Table>

                           EFFECTIVE JANUARY 1, 1994                      TOC- 1
<PAGE>

                               PHANTOM STOCK PLAN
                                       OF
                           ALCON LABORATORIES, INC.,
                     ITS SELECTED AFFILIATES, SUBSIDIARIES,
                            AND RELATED CORPORATIONS

                                   ARTICLE I

                           PURPOSE AND ADMINISTRATION

     1.01 The Phantom Stock Plan of Alcon Laboratories, Inc., its Selected
Affiliates, Subsidiaries, and Related Corporations ("Plan," as further defined
in Article II, below) is intended to provide additional incentive to key
employees of Alcon Laboratories, Inc. ("Alcon"), its selected affiliates,
subsidiaries, and related corporations (hereinafter referred to individually
and/or collectively as the "Corporation," including Alcon), upon whom the
Corporation must depend for its progress, to continue and increase their efforts
to improve operating results and to remain in the employ of the Corporation.

     1.02 The Plan shall be administered by a committee comprised of the
President/CEO and Executive VP/Finance and Administration of Alcon Laboratories,
Inc. ("Committee"). The Committee has sole and absolute authority to administer,
interpret, construe, and vary the terms of the Plan, except that it may not
terminate or void a vested benefit hereunder. Neither the Committee nor the
Board of Directors of Alcon Laboratories, Inc, ("Board") shall be liable to any
person for any action taken or omitted in connection with the administration,
interpretation, construction, and variance of the Plan. All actions taken, and
decisions made, by the Committee shall be final and conclusive. Any employee
becoming a Participant, as defined in Article II, below, in the Plan thereby
agrees to accept the determinations of the Committee.

                                END OF ARTICLE I

                           EFFECTIVE JANUARY 1, 1994                        I- 1
<PAGE>

                                   ARTICLE II

                                  DEFINITIONS

     2.01 "Affiliated Company of Alcon Laboratories, Inc." means Alcon
Laboratories, Inc. and, in addition, any corporation which is a member of the
same controlled group of corporations as defined in Sections 414(b), 414(c),
414(m), and 414(o) of the Code, of which Alcon Laboratories, Inc. is a member.

     2.02 "Board of Directors" means the Board of Directors of Alcon
Laboratories, Inc.

     2.03 "Committee" means the committee set forth in Article I, above.

     2.04 "Disability" means --

          (a) approved for long-term disability (LTD) coverage by the
     Corporation's LTD insurance carrier (or LTD approval by a non-Corporation
     LTD carrier which is concurred in by the Corporation's LTD carrier); or

          (b) having a physical or mental impairment of a continuing nature,

             (i) which prevents the affected Participant from substantially
        discharging the duties and responsibilities of his present position of
        employment in a satisfactory manner; and

             (ii) which has a duration of more than one (1) year from the date
        of the impairment or the medical diagnosis of the impairment occurs. In
        all cases, except where the Corporation's LTD insurance carrier has
        approved or concurred in a Participant's Disability, the final decision
        as to whether a Participant has a Disability within the meaning of this
        Plan is reserved to the Committee.

     2.05 "Eligible Employee" means any person employed by the Corporation on a
full-time basis and designated for participation in this Plan by the Committee.

     2.06 "Participant" means any Eligible Employee who has been approved by the
Committee to participate in the Plan.

     2.07 "Plan" means this instrument, including all amendments thereto.

     2.08 "Plan Year" means the Plan's accounting period of twelve (12)
consecutive months commencing January 1 of each year and ending the following
December 31.

     2.09 "Plan Year of Award" means the Plan Year in which the Participant is
notified of the number of Phantom Stock Units awarded by the Committee.

     2.10 "Redemption Value" means the amount payable to a Participant in the
sixth (6th) Plan Year from and including the Plan Year of Award of the Unit or
upon the Participant's Separation from Service, retirement, Disability, or
death, whichever is earlier, determined in accordance with Article X.

     See Example 1 in the Appendix hereto for illustration of the operation of
this Paragraph 2.10.

     2.11 "Separation from Service" means the termination of employment with all
Affiliated Companies of Alcon Laboratories, Inc. by reason other than death,
Disability, or retirement (at or after the attainment of age 55). Participant's
transfer from one Affiliated Company of Alcon Laboratories, Inc. to another
Affiliated Company of Alcon Laboratories, Inc. shall not constitute
Participant's Separation from Service.

     2.12 "Unit Appreciation" means the amount by which the value of a Phantom
Stock Unit may increase for a maximum period of five (5) Plan Years from and
including the Plan Year of Award.

                           EFFECTIVE JANUARY 1, 1994                       II- 1
<PAGE>

     2.13 "Vested" means the percentage of a Participant's Phantom Stock Unit(s)
which is nonforfeitable except as provided in paragraph 11.03. Such
nonforfeitable Unit(s) shall be determined in accordance with Article IX.

     2.14 "Year of Service" means a calendar year during which a Participant is
in the continuous employ of the Corporation. Approved leaves of absence pursuant
to established policies of the Corporation, whether occasioned by illness,
military service, or any other reason, shall constitute continuous employ.

                               END OF ARTICLE II

                           EFFECTIVE JANUARY 1, 1994                       II- 2
<PAGE>

                                  ARTICLE III

                                      TERM

     Effective as of January 1, 1991, the Committee, acting pursuant to the
powers awarded to the Committee by the Board, adopted an amended and restated
Plan. Effective as of January 1, 1994 or such earlier dates as reflected in the
Plan, the provisions of this restated Plan shall apply to all Participants. This
restated Plan is applicable to all awarded Units outstanding as of January 1,
1994. The Plan is subject to termination by, and at the sole and absolute
authority of, the Board.

                               END OF ARTICLE III

                           EFFECTIVE JANUARY 1, 1994                      III- 1
<PAGE>

                                   ARTICLE IV

                                 PARTICIPATION

     The Committee shall determine which Eligible Employees may become
Participants in the Plan. An Eligible Employee shall become a Participant as of
the first day of the Plan Year in which such Eligible Employee is approved as a
Participant by the Committee.

                               END OF ARTICLE IV

                           EFFECTIVE JANUARY 1, 1994                       IV- 1
<PAGE>

                                   ARTICLE V

                              AWARD OF STOCK UNITS

     5.01 Phantom Stock Units may be awarded to any or all of the Participants
by the Committee effective as of January 1 of each Plan Year.

     5.02 Each Phantom Stock Unit shall have no value on the date awarded.

     5.03 On an annual basis, each Participant will receive an individual notice
of his Unit award from his immediate supervisor.

     5.04 No cash outlay by Participants is ever required under the Plan.

                                END OF ARTICLE V

                           EFFECTIVE JANUARY 1, 1994                        V- 1
<PAGE>

                                   ARTICLE VI

                                RIGHT TO PAYMENT

     6.01 A Participant shall have no right to receive payment of the Redemption
Value of his Phantom Stock Units until the earliest occurrence of one of the
following events:

          (a) the sixth (6th) Plan Year from and including the Plan Year of
     Award of such Phantom Stock Units;

          (b) retirement at or after fifty-five (55) years of age;

          (c) Separation from Service;

          (d) death;

          (e) Disability;

          (f) termination of the Plan; or

          (g) Change of Ownership of the Corporation (as defined in Article XV).

     6.02 Payment of the Redemption Value shall be made as soon as practicable,
but not more than 120 days, after the beginning of the sixth (6th) Plan Year
from and including the Plan Year of Award or after occurrence of such other
event which determined the Participant's right to receive such payment.

     6.03 The amount paid to Participants or beneficiaries shall be the
Redemption Value less any federal or state taxes or other sums required to be
withheld by the Corporation under any applicable law, rule, or regulation.

                               END OF ARTICLE VI

                           EFFECTIVE JANUARY 1, 1994                       VI- 1
<PAGE>

                                  ARTICLE VII

                               UNIT APPRECIATION

     7.01 Unit Appreciation for a particular Plan Year is determined by the
Committee by January 31 of the subsequent Plan Year. Unit Appreciation is
credited as of December 31 of the applicable Plan Year.

     7.02 Units may rise in value for a period of not more than five (5) Plan
Years including the Plan Year of Award.

     7.03 The Unit Appreciation applicable for a particular Plan will be
determined by the Committee pursuant to the provisions of Article XII.

                               END OF ARTICLE VII

                           EFFECTIVE JANUARY 1, 1994                      VII- 1
<PAGE>

                                  ARTICLE VIII

               INTEREST ON UNIT APPRECIATION OF OUTSTANDING UNITS

     8.01 Interest compounded monthly will accrue on the Unit Appreciation of
each outstanding Unit, beginning January 1 of the Plan Year immediately
following the Plan Year of Award until a earlier of --

          (a) December 31 of the fifth (5th) Plan Year from and including the
     Plan Year of Award;

          (b) Separation from Service;

          (c) death;

          (d) Disability;

          (e) retirement at or after fifty-five (55) years of age;

          (f) Plan termination; or

          (g) Change of Ownership of the Corporation (as defined in Article XV).

     8.02 In the event of Participant's Separation from Service, death,
Disability, or retirement prior to all Units awarded for a particular Plan Year
becoming fully Vested, interest compounded monthly shall accrue as follows:

          (a) Separation from Service, Death, Disability, or Retirement Prior to
     Completion of Five (5) Years of Service on or Before June 30 of a Plan
     Year.  Interest compounded monthly shall accrue on the Unit Appreciation of
     each Vested Unit through the month before the date of Separation from
     Service, death, Disability, or retirement.

          (b) Separation from Service, Death, Disability or Retirement Prior to
     Completion of Five (5) Years of Service on or After July 1 of a Plan
     Year.  Interest compounded monthly shall accrue on the Unit Appreciation
     for each unredeemed Vested Unit through December 31 of the Plan Year of
     Participant's Separation from Service, death, Disability, or retirement,
     unless Units are redeemed earlier, in which case interest shall accrue
     through the month before the month of redemption of the Units.

     8.03 In the event of termination of this Plan or a Change of Ownership of
the Corporation (as defined in Article XV), interest shall accrue on Unit
Appreciation of each outstanding Unit through the end of the month in which the
Plan termination or Change of Ownership occurs.

     8.04 The monthly rate of interest shall be determined in accordance with
Corporate Policy No. 47.0007 dated January 22, 1992, or any successor,
supersedent, or amended policy.

     8.05 Units outstanding January 1, 1991, will accrue interest compounded
monthly on the Unit Appreciation as of January 1 of each Plan Year, beginning
January 1, 1991, through December 31 of the fifth (5th) Plan Year from and
including the Plan Year of Award of said outstanding Units unless Separation
from Service occurs prior to completion of five (5) Years of Service from and
including the Plan Year of Award of the Units. In the event that Separation from
Service occurs prior to all Units awarded for a particular Plan Year becoming
Vested, interest shall be payable in accordance with subparagraph 8.02(a) or
8.02(b), above, whichever is applicable.

     8.06 Accrued interest on Units Vested in accordance with Article IX shall
be payable only upon redemption of such Vested Units in accordance with Article
X.

                              END OF ARTICLE VIII

                           EFFECTIVE JANUARY 1, 1994                     VIII- 1
<PAGE>

                                   ARTICLE IX

                                    VESTING

     9.01 A Participant's Vested Phantom Stock Units shall be a percentage of
the Units awarded a Participant determined on the basis of the Participant's
number of Years of Service including the Plan Year of Award of the Units.
Vesting shall occur on January 1 of the Plan Year following the requisite
Year(s) of Service. Units shall Vest according to the following schedule:

<Table>
<Caption>
                                                                    JANUARY 1
YEAR OF SERVICE                                                 PERCENTAGE VESTED
---------------                                                 -----------------
<S>                                                             <C>
Plan Year of Award..........................................             0%
2nd Plan Year from and including Plan Year of Award.........             0%
3rd Plan Year from and including Plan Year of Award.........            40%
4th Plan Year from and including Plan Year of Award.........            60%
5th Plan Year from and Including Plan Year of Award.........            80%
6th Plan Year from and including Plan Year of Award.........           100%
</Table>

See Example 2 in the Appendix hereto for illustration of the operation of this
Paragraph 9.01.

     9.02 A Participant shall be deemed one hundred percent (100%) Vested in all
his outstanding Phantom Stock Units on the occurrence of any of the following
events:

          (a) retirement at or after 55 years of age;

          (b) death while employed by the Corporation;

          (c) Disability;

          (d) Change of Ownership of the Corporation (as defined in Article XV);
     or

          (e) termination of this Plan.

                               END OF ARTICLE IX

                           EFFECTIVE JANUARY 1, 1994                       IX- 1
<PAGE>

                                   ARTICLE X

                                REDEMPTION VALUE

     10.01 The Redemption Value of Vested Phantom Stock Units is determined by
multiplying the number of Phantom Stock Units awarded for the particular Plan
Year times the Vested percentage for such Plan Year (determined in accordance
with Article IX) times Unit Appreciation plus interest accrued thereon. The Unit
Appreciation (plus applicable interest per Article VIII) includable in the
determination of Redemption Value shall be as follows:

          (a) Phantom Stock Units 100% Vested During Employment.  The Redemption
     Value shall include Unit Appreciation for each of the five (5) Plan Years
     from and including the Plan Year of Award of such Units plus interest
     accrued thereon in accordance with Article VIII.

See Example 3 in the Appendix hereto for illustration of the operation of this
subparagraph 10.01(a).

          (b) Separation from Service.

             (i) Separation from Service on or Before June 30 of a Plan Year.
        The Redemption Value shall include Unit Appreciation determined for each
        of the Plan Years from and including the Plan Year of Award, excluding
        the Plan Year of Separation from Service plus the interest accrued on
        such Unit Appreciation of the Vested Units through the month before the
        date of employment termination.

See Example 4 In the Appendix hereto for illustration of the operation of this
subparagraph 10.01(b)(i).

             (ii) Separation from Service on or After July 1 of a Plan
        Year.  Redemption Value shall include Unit Appreciation determined for
        each Plan Year from and including the Plan Year of Award, including the
        Plan Year of Separation from Service plus the interest accrued on the
        total Unit Appreciation of the Vested Units through December 31 of said
        Plan Year.

See Example 5 in the Appendix hereto for Illustration of the operation of this
subparagraph 10.01(b)(ii).

          (c) Death, Disability, or Retirement.

             (i) Retirement, Death, or Disability on or Before June 30 of a Plan
        Year.  The Redemption Value shall include Unit Appreciation determined
        for each of the Plan Years from and including the Plan Year of Award,
        excluding the Plan Year of retirement, death, or Disability, plus the
        interest accrued on such Unit Appreciation of the Vested Units through
        the month before the date of employment termination.

See Examples 6, 8, and 10 in the Appendix hereto for illustration of the
operation of this subparagraph 10.01(c)(i) upon the retirement, Disability, and
death of a Participant, respectively, on or before June 30 of a Plan Year.

             (ii) Retirement, Death, or Disability on or After July 1 of a Plan
        Year.  The Redemption Value shall include Unit Appreciation determined
        for each Plan Year following and including the Plan Year of Award,
        including the Plan Year of retirement, death, or Disability, plus the
        interest accrued on the total Unit Appreciation of the Vested Units
        through December 31 of said Plan Year.

See examples 7, 9, and 11 in the Appendix hereto for illustration of the
operation of this subparagraph 10.01(c)(ii) upon the retirement, Disability, and
death of a Participant, respectively, on or after July 1 of a Plan Year.

          (d) Termination of Plan.  In the event of termination of this Plan,
     the Phantom Stock Units shall be redeemed as if such outstanding Units were
     awarded in the fifth (5th) Plan Year immediately preceding the Plan Year of
     termination of this Plan. Thus, the Redemption Value shall

                           EFFECTIVE JANUARY 1, 1994                        X- 1
<PAGE>

     include Unit Appreciation for each of the five (5) Plan Years immediately
     preceding the Plan Year of termination of this Plan.

See Example 12 in the Appendix hereto for illustration of the operation of this
subparagraph 10.01(d).

          (e) Change of Ownership.  The Redemption Value of Phantom Stock Units
     outstanding becoming fully vested due to a Change of Ownership as defined
     in Article XV, shall be determined as if all Units Vested due to the Change
     of Ownership, had been awarded to the Participant in the fifth (5th) Plan
     Year preceding the Plan Year in which Nestle ceases its direct or indirect
     ownership of the Corporation of which the Participant is an employee.
     Further, for purposes of this Article XV, Redemption Value shall be the
     greater of the cumulative Unit Appreciation computed for (i) the five (5)
     Plan Years prior to and including the Plan Year in which the Corporation
     signatory hereto is no longer majority owned directly or indirectly by
     Nestle, or (ii) the cumulative Unit Appreciation computed for the five (5)
     Plan Years immediately preceding the Plan Year described in (i), above.

See Example 13 in the Appendix hereto for illustration of the operation of this
subparagraph 10.01(e).

                                END OF ARTICLE X

                           EFFECTIVE JANUARY 1, 1994                        X- 2
<PAGE>

                                   ARTICLE XI

                            Forfeitability of Units

     11.01 A Participant's unvested Units will be forfeited in the event that
such Participant's employment is terminated voluntarily for any reason other
than retirement, death, or disability.

     11.02 A Participant's Vested Units will be redeemed immediately under the
provisions of Article X, above, if, in the opinion of the Committee, the
Participant is terminated, involuntarily or by forced resignation, by reason of
any activity or conduct which is directly competitive with the Corporation.

     11.03 If a Participant's Separation from Service is voluntarily or
involuntarily by retirement or otherwise, such Participant must agree not to
compete in the same or substantially similar businesses as those in which Alcon
and its pharmaceutical affiliated companies are engaged or are contemplating
entering at the time of termination of employment for a period of five (5) years
thereafter or the Participant will forfeit all Vested Units. However, the
forfeiture mentioned in the preceding sentence will occur only if the
Participant's post-termination activities are in a capacity "directly
competitive" with the Corporation with respect to sales, marketing, research
and/or development, business secrets, proprietary information, or any one or
more of the foregoing. The determination of whether a terminated Participant's
post-termination activities are directly competitive within the meaning of the
preceding sentence shall be made by the Committee acting in good faith. If
benefits are being paid to such Participant at a time when the Participant is
determined to have engaged in post-Separation from Service activities directly
competitive with one or more Alcon affiliated companies, the Participant shall
forfeit all future benefits which have not yet been paid.

                               END OF ARTICLE XI

                           EFFECTIVE JANUARY 1, 1994                       XI- 1
<PAGE>

                                  ARTICLE XII

                         FINANCING OF PLAN/LIMITATIONS
                        ON AWARDS AND UNIT APPRECIATION

     12.01 Financing of Plan.  The Corporation will accrue at the end of each
Plan Year, as an unfunded and unsecured liability of the Company, the amount
owed Participants under the Plan.

     12.02 Limitation on Award of Units.  At the discretion of the Committee, up
to twelve percent (12%) of the cumulative increase in Operating Profit After
Operational Interest and Other Expense over the Operating Profit After
Operational Interest and Other Expense for the base year, 1988, may be allocated
for the awarding of Units. When preparation of the budget for a new Plan Year
takes place, a provision first must be made for the projected Unit Appreciation
of previously awarded Units. At the same time, in the sole and absolute
authority of the Committee, a provision also may be made for new Units to be
awarded. The number of Units which may be awarded will be the additional amount
so provided in the budget over and above the amount required to service existing
awards, divided by the projected Unit Appreciation per Unit for the new Plan
Year,

     12.03. Unit Appreciation.  The Unit Appreciation per outstanding Phantom
Stock Unit for the Plan Year will be determined by the Committee as follows:

          (a) Net Operating Profit will be divided by an assumed number of Units
     outstanding to arrive at Net Operating Profit per Unit for the purposes of
     this Plan.

          (b) Net Operating Profit per Unit is multiplied by fourteen (14) to
     determine the value per Unit for the current Plan Year.

          (c) The value per Unit for the previous Plan Year is then subtracted
     from the value per Unit for the current Plan Year to determine the current
     Plan Year's Unit Appreciation.

     12.04 Definitions.

     (a) For purposes of this Article XII, Net Operating Profit means, with
respect to any Plan Year, Operating Profit After Operational Interest and Other
Expenses adjusted for the following:

          (i) reserves as determined at the discretion of the Committee in its
     sole and absolute authority; and

          (ii) taxes.

     (b) For purposes of this Article XII, Operating Profit After Operational
Interest and Other Expenses means, with respect to any Plan Year, the amount
reported as operating profit in internal financial statements adjusted for the
following:

          (i) windfall profits or losses from acquisitions made with new funds
     provided by Nestle, S.A. ("Nestle");

          (ii) earnings or losses in excess of $500,000 resulting from
     divestitures;

          (iii) operational interest;

          (iv) other expense; and

          (v) exceptional items beyond the control of management.

     The Committee shall determine the adjustments to operating profit required
to compute Operating Profit After Operational Interest and Other Expenses. Such
determination shall be conclusive and binding on all persons.

                               END OF ARTICLE XII

                           EFFECTIVE JANUARY 1, 1994                      XII- 1
<PAGE>

                                  ARTICLE XIII

                            BENEFICIARY DESIGNATION

     Beneficiary designation shall be made by Participant on a form provided to
Participant by the Vice President, Human Resources or his designee. Participant
shall have the right at any time to change his beneficiaries by filing the
appropriate form with the Director, Compensation and Benefits.

                              END OF ARTICLE XIII

                           EFFECTIVE JANUARY 1, 1994                     XIII- 1
<PAGE>

                                  ARTICLE XIV

                          NONTRANSFERABILITY OF UNITS

     Neither Units awarded under this Plan nor any interest therein shall be
transferable or assignable, or subject to alienation, encumbrance, garnishment,
attachment, execution, or levy of any kind, voluntary or involuntary, except
when, where, and if compelled by any applicable law.

                               END OF ARTICLE XIV

                           EFFECTIVE JANUARY 1, 1994                      XIV- 1
<PAGE>

                                   ARTICLE XV

                              CHANGE OF OWNERSHIP

     For purposes of this Plan, a Change of Ownership shall have occurred if the
Corporation of which any Participant is an employee comes to be no longer
"majority owned" directly or indirectly ("majority owned" being defined as at
least 50% ownership (i) of the outstanding shares of each class of stock of the
Corporation which is signatory hereto, or (ii) of the assets of Alcon
Laboratories, Inc.) by Nestle.

                               END OF ARTICLE XV

                           EFFECTIVE JANUARY 1, 1994                       XV- 1
<PAGE>

                                  ARTICLE XVI

                                 MISCELLANEOUS

     16.01 This Plan shall be governed by and construed in accordance with the
laws of the State of Texas.

     16.02 As used in this Plan, whenever the context so indicates, the general
use of all words shall include the masculine, feminine, and neuter, and the
number of all words shall include the plural, except as otherwise provided
herein.

     16.03 The amount of Unit Appreciation and interest applicable to the Vested
Units of a Participant at any time is an unsecured and unfunded contractual
obligation of the Corporation signatory hereto.

     16.04 The obligations of the Corporation signatory hereto under the Plan
shall be binding upon its successors in interest and assigns.

     16.05 In the event that any provision of the Plan is determined by any
judicial, quasi-judicial, or administrative body to be void or unenforceable for
any reason, all other provisions of the Plan shall remain in full force and
effect as if such void or unenforceable provision had never been a part of the
Plan.

     16.06 Nothing herein shall be construed as an offer or commitment by the
signatory Corporation to continue any Participant's employment with it for any
period of time.

     16.07 This writing constitutes the final and complete embodiment of the
understandings of the parties hereto and all prior understandings and
communications of the parties, oral or written, concerning the Plan are hereby
renounced, revoked, and superseded.

     16.08 In the event that a Participant and a Corporation enter into, or have
entered into, any written agreements on or after January 1, 1982, which contain
terms at variance with this Plan, the terms of this Plan shall be paramount and
shall supersede any such other written agreements.

                               END OF ARTICLE XVI

                           EFFECTIVE JANUARY 1, 1994                      XVI- 1
<PAGE>

                                  ARTICLE XVII

                 AGREEMENT BETWEEN PARTICIPANT AND CORPORATION

     This copy of the "Phantom Stock Plan of Alcon Laboratories, Inc., its
Selected Affiliates, Subsidiaries, and Related Corporations" constitutes an
Agreement between Participant and the signatory Corporation. Accordingly,
Participant signifies his legally binding acceptance of the Agreement by placing
and dating his signature below in this Article XVIII, and the Corporation
signifies its legally binding acceptance of the Agreement by executing the
Signature and Attestation on the following page.

                                          By:
                                            ------------------------------------
                                              Participant

Date:
     -------------------------------------------------

                              END OF ARTICLE XVII

                           EFFECTIVE JANUARY 1, 1994                     XVII- 1
<PAGE>

                                    APPENDIX

                           TO THE PHANTOM STOCK PLAN
                                       OF
                            ALCON LABORATORIES, INC.
                                      AND
                              AFFILIATED COMPANIES

                           EFFECTIVE JANUARY 1, 1994

EXAMPLE 1

     Assume Employee Jones received an award of 800 Units as of January 1, 1994.
Provided that Employee Jones remains in the continuous employ of the Corporation
during the subsequent five (5) Plan Years from and including the Plan Year of
Award, Employee Jones will be entitled to payment of the Redemption Value of the
800 Units on or after January 1, 1999: Redemption Value is the amount payable to
a Participant in the sixth (6th) Plan Year from and including the Plan Year of
Award.

<Table>
<Caption>
                                                               ORDINAL     CARDINAL
                                                              PLAN YEAR    PLAN YEAR
                                                              ---------    ---------
<S>                                                           <C>          <C>
Plan Year of Award..........................................     1st         1994
                                                                 2nd         1995
                                                                 3rd         1996
                                                                 4th         1997
                                                                 5th         1998
Plan Year of Redemption.....................................     6th         1999
</Table>

EXAMPLE 2

     Assume Employee Smith receives an award of 600 Units as of January 1, 1996.
Provided that Employee Smith remains in the continuous employ of the Corporation
during the subsequent five (5) Plan Years from and including the Plan Year of
Award, Employee Smith's 600 Units will vest on the following schedule: 240 Units
vest on January 1, 1998 and 120 additional Units vest for each of the following
three (3) Plan Years (i.e., on January 1, 1999, 2000, and 2001, respectively).

<Table>
<Caption>
                                                                                       # OF
                                              ORDINAL     CARDINAL     % VESTED ON    SHARES
                                             PLAN YEAR    PLAN YEAR     JANUARY 1     VESTED
                                             ---------    ---------    -----------    ------
<S>                                          <C>          <C>          <C>            <C>
Plan Year of Award.........................     1st         1996           -0-         -0-
                                                2nd         1997           -0-         -0-
                                                3rd         1998            40%        240
                                                4th         1999            60%        360
                                                5th         2000            80%        480
Plan Year of Redemption....................     6th         2001           100%        600
</Table>

     Assume the following facts for use in each of the following Examples 3
through 13. Employee Smith's Phantom Stock Unit awards for 1996, 1997, 1998,
1999, and 2000 are 600, 700, 800, 900, and 1,000, respectively. Unit
Appreciation for each year is $5.00, $5.50, $6.00, $6.50, and $7.00,
respectively.

     All of the payments calculated below are exclusive of interest. All
payments would be increased by the interest accrued pursuant to Article VIII.
However, under Examples 4, 6, 8, and 10, Interest would accrue through the last
day of the month prior to the month Employee Smith separates from service,
retires, dies, or becomes disabled. Under Examples 5, 7, 9, and 11, Interest
would accrue through the last day of the month before the month payment is made
but not beyond December 31, 2000, the calendar year in which Employee Smith
separated from service. Under Examples 12 and 13, Interest would accrue

                           EFFECTIVE JANUARY 1, 1994                 APPENDIX- 1
<PAGE>

and be payable through the end of the month in which the Plan is terminated or
the change of ownership occurs.

EXAMPLE 3

     Employee Smith remains in the continuous employ of Alcon Laboratories, Inc.
through January 1, 2005. Employee Smith would be entitled to the following
Phantom Stock Payments under the Plan.

<Table>
<Caption>
       PLAN YEAR OF AWARD           1996       1997       1998       1999       2000
       ------------------          -------    -------    -------    -------    -------
<S>                                <C>        <C>        <C>        <C>        <C>
Units Awarded....................      600        700        800        900      1,000
Date of 100% Vesting.............   1/1/01     1/1/02     1/1/03     1/1/04     1/1/05
Cumulative Unit Appreciation.....  $ 30.00    $ 32.50    $ 35.00    $ 37.50    $ 40.00
Redemption Value.................  $18,000    $22,750    $28,000    $33,750    $40,000
Date of Payment..................     2001       2002       2003       2004       2005
</Table>

     1. Cumulative Unit Appreciation assumes a $.50 yearly growth in Unit
        Appreciation.

     2. Redemption Value would be increased by the amount of interest accrued
        through December 31 of the Plan Year immediately preceding the Plan Year
        of redemption.

     3. Participant may have received Phantom Stock Unit awards for Plan Years
        beyond 2000; however, the purpose of this example is to illustrate
        growth and redemption of Units in the normal course of employment.

EXAMPLE 4

     Employee Smith is age 42 when he separates from service on or before June
30, 2000. Employee Smith's Phantom Stock payment upon separation from service is
$22,600 calculated as follows:

<Table>
<Caption>
          PLAN YEAR OF AWARD              1996       1997      1998     1999     2000
          ------------------             -------    ------    ------    -----    -----
<S>                                      <C>        <C>       <C>       <C>      <C>
Units Awarded..........................      600       700       800      900    1,000
Vesting Per Year.......................       80%       60%       40%       0%       0%
Unit Appreciation......................  $  5.00    $ 5.50    $ 6.00    $6.50      -0-
Cumulative Unit Appreciation...........  $ 23.00    $18.00    $12.50      -0-      -0-
Redemption Value at Retirement.........  $11,040    $7,560    $4,000      -0-      -0-
</Table>

EXAMPLE 5

     Employee Smith separates from service on or after July 1, 2000. Employee
Smith will be entitled to Unit Appreciation for the year 2000, because service
was terminated on or after July 1. However, Employee Smith is not entitled to
additional vesting. Employee Smith's Phantom Stock payment upon separation from
service is $31,140 calculated as follows:

<Table>
<Caption>
            PLAN YEAR OF AWARD               1996      1997      1998    1999    2000
            ------------------              -------   -------   ------   -----   -----
<S>                                         <C>       <C>       <C>      <C>     <C>
Units Awarded.............................      600       700      800     900   1,000
Vesting Per Year..........................       80%       60%      40%      0%      0%
Unit Appreciation.........................  $  5.00   $  5.50   $ 6.00   $6.50    7.00
Cumulative Unit Appreciation..............  $ 30.00   $ 25.00   $19.50     -0-     -0-
Redemption Value at Retirement............  $14,400   $10,500   $6,240     -0-     -0-
</Table>

EXAMPLE 6

     Employee Smith separates from service on or before June 30, 2000 at age 57.
Employee Smith is deemed a retiree (because he separates from service at or
after attaining age 55) and is 100% vested in all

                           EFFECTIVE JANUARY 1, 1994                 APPENDIX- 2
<PAGE>

outstanding Phantom Stock Units pursuant to paragraph 9.02(a) of the Phantom
Stock Plan. Employee Smith's Phantom Stock Payment at retirement is $42,250
computed as follows:

<Table>
<Caption>
           PLAN YEAR OF AWARD              1996      1997      1998      1999    2000
           ------------------             -------   -------   -------   ------   -----
<S>                                       <C>       <C>       <C>       <C>      <C>
Units Awarded...........................      600       700       800      900   1,000
Vesting Per Year........................      100%      100%      100%     100%    100%
Unit Appreciation.......................  $  5.00   $  5.50   $  6.00   $ 6.50     -0-
Cumulative Unit Appreciation............  $ 23.00   $ 18.00   $ 12.50   $ 6.50     -0-
Redemption Value at Retirement..........  $13,800   $12,600   $10,000   $5,850     -0-
</Table>

EXAMPLE 7

     Employee Smith retires, at age 57, on or after July 1, 2000. Employee Smith
is entitled to Unit Appreciation for the Plan Year 2000, because he retired on
or after July 1 of the Plan Year. Employee Smith's Phantom Stock payment at
retirement Is $70,250 calculated as follows:

<Table>
<Caption>
          PLAN YEAR OF AWARD             1996      1997      1998      1999      2000
          ------------------            -------   -------   -------   -------   ------
<S>                                     <C>       <C>       <C>       <C>       <C>
Units Awarded.........................      600       700       800       900    1,000
Vesting Per Year......................      100%      100%      100%      100%     100%
Unit Appreciation.....................  $  5.00   $  5.50   $  6.00   $  6.50   $ 7.00
Cumulative Unit Appreciation..........  $ 30.00   $ 25.00   $ 19.50   $ 13.50     7.00
Redemption Value at Retirement........  $18,000   $17,500   $15,600   $12,150   $7,000
</Table>

     Pursuant to paragraph 10.01(b)(ii), Participants who separate from service,
become disabled, retires, dies after June 30 of a Plan Year receive Unit
Appreciation for such Plan Year. Payment of the Redemption Value is delayed
until the Unit Appreciation for the Plan Year is determined.

EXAMPLE 8

     Assume that Employee Smith becomes disabled on or before June 30, 2000.
Employee Smith would be entitled to a Phantom Stock payment of $42,250
calculated in the same manner as the payment in Example 6.

EXAMPLE 9

     Assume that Employee Smith becomes disabled on or after July 1, 2000.
Employee Smith would be entitled to a Phantom Stock payment of $70,250
calculated in the same manner as the payment in Example 7.

EXAMPLE 10

     Assume that Employee Smith dies on or before June 30, 2000. Employee Smith
would be entitled to a Phantom Stock payment of $42,250 calculated in the same
manner as the payment in Example 6.

EXAMPLE 11

     Assume that Employee Smith dies on or after July 1, 2000. Employee Smith
would be entitled to a Phantom Stock payment of $70,250 calculated in the same
manner as the payment In Example 7.

EXAMPLE 12

     The Phantom Stock Plan is terminated on February 24, 2000. Employee Smith
will be 100% vested in all outstanding Units awarded under the Plan. The
Cumulative Unit Appreciation Is determined as though the Units were awarded in
the 5th Plan Year preceding the Plan Year the Plan is terminated. Employee Smith
would be entitled to a Phantom Stock payment of $110,000 calculated as follows:

                           EFFECTIVE JANUARY 1, 1994                 APPENDIX- 3
<PAGE>

<Table>
<Caption>
PLAN YEAR OF AWARD         1995      1996       1997       1998       1999       2000
------------------         -----    -------    -------    -------    -------    -------
<S>                        <C>      <C>        <C>        <C>        <C>        <C>
Units Awarded............   Paid        600        700        800        900      1,000
Vesting Per Year.........    N/A        100%       100%       100%       100%       100%
Unit Appreciation........  $4.50    $  5.00    $  5.50    $  6.00    $  6.50        -0-
Cumulative Unit
  Appreciation...........    N/A    $ 27.50    $ 27.50    $ 27.50    $ 27.50    $ 27.50
Redemption Value at
  Retirement.............    N/A    $16,500    $19,250    $22,000    $24,750    $27,500
</Table>

EXAMPLE 13

     Assume that Alcon Laboratories, Inc. becomes no longer majority owned by
Nestle on November 30, 2000. Employee Smith would be entitled to a Phantom Stock
payment of $110,000 calculated in the same manner as the payment In Example 12,
above. Except that if the Unit Appreciation for 2000 had already been determined
to be $7.00, Employee Smith would be entitled to a Phantom Stock payment of
$120,000 calculated as follows:

<Table>
<Caption>
PLAN YEAR OF AWARD                  1996       1997       1998       1999       2000
------------------                 -------    -------    -------    -------    -------
<S>                                <C>        <C>        <C>        <C>        <C>
Units Awarded....................      600        700        800        900      1,000
Vesting Per Year.................      100%       100%       100%       100%       100%
Unit Appreciation................  $  5.00    $  5.50    $  6.00    $  6.50    $  7.00
Cumulative Unit Appreciation.....  $ 30.00    $ 30.00    $ 30.00    $ 30.00    $ 30.00
Redemption Value at Retirement...  $18,000    $21,000    $24,000    $27,000    $30,000
</Table>

     Suppose that if Unit Appreciation for 2000 had been determined to be $4.00
(less than the Unit Appreciation for 1995 of $4.50), Employee Smith would be
entitled to the Phantom Stock payment of $110,000 calculated in the same manner
as Example 12 above, which amount is greater than the $108,000 calculated below
using the $4.00 Unit Appreciation for 2000.

<Table>
<Caption>
PLAN YEAR OF AWARD                  1996       1997       1998       1999       2000
------------------                 -------    -------    -------    -------    -------
<S>                                <C>        <C>        <C>        <C>        <C>
Units Awarded....................      600        700        800        900      1,000
Vesting Per Year.................      100%       100%       100%       100%       100%
Unit Appreciation................  $  5.00    $  5.50    $  6.00    $  6.50    $  4.00
Cumulative Unit Appreciation.....  $ 27.00    $ 27.00    $ 27.00    $ 27.00    $ 27.00
Redemption Value at Retirement...  $16,200    $18,900    $21,600    $24,300    $27,000
</Table>

                           EFFECTIVE JANUARY 1, 1994                 APPENDIX- 4<PAGE>

                                                                   EXHIBIT 10.10

                              EMPLOYMENT AGREEMENT

                THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April
30, 2001, by and between Racing Champions Corporation, a Delaware corporation
(the "Company" and "Parent"), and Robert E. Dods (the "Employee").

                                     RECITAL

                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. Certain capitalized terms used herein are defined in
section 10 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 Chairman and
Chief Executive Officer of the Company and will, under the direction of the
Company's board of directors (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 of the Company and shall, subject to the
control of the 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 Board of Directors. The Employee agrees to devote
the majority of business time, effort, skill and attention to the proper
discharge of such duties while employed by the Company. It is understood that
the Employee shall maintain a flexible work schedule. All parties agree that the
duties described above can be effectively undertaken from a location other than
the corporate headquarters. The Employee may become a resident of the State of
Florida during the term of this Agreement. If this occurs, the Company
recognizes that the Employee's duties can be performed from a Florida office and
that the Employee would be residing in Florida and not Illinois.

                4.      Compensation. The Employee shall receive a base salary
of $350,000 for 2001 and $150,000 for 2002, payable in regular and equal monthly
installments (the "Base Salary").

<PAGE>

                5.      Fringe Benefits.

                        (a)     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 Company, pursuant
to the Founder's Clause.

                        (b)     Automobile. The Company agrees to reimburse the
Employee up to $990.00 per month, as such amount may be increased from time to
time consistent with the Company's reimbursement policy for the Founders 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.

                        (c)     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.

                        (d)     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 Parent and 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 Parent and 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 the Parent and the Company shall specify.

                6.      Termination.

                        (a)     Termination of the Employment Period. The
Employment Period shall continue until (i) December 31, 2002 (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.

                        (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 (6) months during any 12-month period. In
        the event Employee shall be able to perform his usual and customary
        duties on behalf of the Company following a period of disability, and
        does so perform such duties or such other duties as are prescribed by
        the Board of Directors for a period of three continuous months, any
        subsequent period of disability shall be regarded as a new period of
        disability

                                       2
<PAGE>

        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 (1) violated the
        terms of section 7 or 8 of this Agreement; (2) committed a felony or a
        crime involving moral turpitude; (3) engaged in serious misconduct which
        is demonstrably injurious to the Parent or any of its Subsidiaries; (4)
        engaged in fraud or dishonesty with respect to the Parent or any of its
        Subsidiaries or made a material misrepresentation to the stockholders or
        directors of the Parent or the Company; or (5) committed acts of
        negligence in the performance of his duties which are substantially
        injurious to the Parent or any of its Subsidiaries.

                                (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 or death, payments of the Employee's Base
Salary shall be made to the Employee, his designated beneficiary or his estate
for a period of six (6) months after the Termination Date in accordance with the
normal payroll practices of the Company. During this period, the Company shall
also 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. During this period, the Company will also continue
Employee's life insurance and disability coverage, to the extent permitted under
applicable policies, and will pay to the Employee the fringe benefits pursuant
to section 5 which have accrued 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) if 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 or (iii) the Employee resigns for
Good Reason, the Employee shall be entitled to receive, as damages for such a
termination, his Base Salary from the Termination Date to the later to occur of
(i) the Expected Completion Date or (ii) the first anniversary of the
Termination Date. Such payment of Base Salary shall be made in accordance with
the normal payroll practices of the Company. During this period, the Company
shall also reimburse the Employee for amounts paid, if any, to continue

                                       3
<PAGE>

medical, dental and health coverage pursuant to the provisions of the
Consolidated Omnibus Budget Reconciliation Act. During this period, the Company
will also continue Employee's life insurance and disability coverage, to the
extent permitted under applicable policies, and will pay to the Employee the
fringe benefits pursuant to section 5 which have accrued prior to the date of
termination.

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

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

                7.      Noncompetition and Nonsolicitation. The Employee
acknowledges and agrees that the contacts and relationships of the Parent and
its Subsidiaries with its customers, suppliers, licensors and other business
relations are, and have been, established and maintained at great expense and
provide the Parent and its Subsidiaries 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 Parent's and its
Subsidiaries' 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 Parent and its Subsidiaries.
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 Parent and its Subsidiaries and to prevent great damage or loss to
the Parent and its Subsidiaries 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.
The Employee acknowledges that one business of the Parent and its Subsidiaries
is the design, production (including, without limitation, the obtaining of the
licenses necessary therefor), marketing and sale of collectibles and toys.

                        (a)     Noncompetition. The Employee hereby covenants
and agrees that during the Employment Period and for two (2) years thereafter
(the "Noncompete Period"), he shall not, directly or indirectly, either
individually or as an employee, principal, agent, partner shareholder, owner,
trustee, beneficiary, co-venturer, distributor, consultant, representative or in
any other capacity, participate in, become associated with, provide assistance
to, engage in or have a financial or other interest in any business, activity or
enterprise which is competitive with the Parent or any of its Subsidiaries or
any successor or assign of the Parent or any of its

                                       4
<PAGE>

Subsidiaries. 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
Parent, 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 Parent or any of its
        Subsidiaries (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 Parent or any of its Subsidiaries
        or the successors or assigns of the Parent or any of its Subsidiaries,
        including, without limitation, the canvassing, soliciting or accepting
        of business from any Person which is or was a Customer of the Parent or
        any of its Subsidiaries within two years preceding the date hereof or
        with the Parent or any of its Subsidiaries during the Noncompete Period;

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

                                (iii)   induce or attempt to induce any
        employee, sales representative, consultant or other agent of the Parent
        or any of its Subsidiaries to terminate his relationship or breach any
        agreement with the Parent or any of its Subsidiaries; or

                                (iv)    hire any person who was an employee,
        sales representative, consultant or other agent of the Parent or any of
        its Subsidiaries at any time during the Noncompete Period.

                8.      Confidential Information. The Employee acknowledges and
agrees that the customers, business connections, customer lists, procedures,
operations, techniques, and other

                                       5
<PAGE>

aspects of and information about the business of the Parent and its Subsidiaries
(the "Confidential Information") are established at great expense and protected
as confidential information and provide the Parent and its Subsidiaries 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 (5) 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 Parent or any of its Subsidiaries 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 Parent's or any of its Subsidiaries' 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 Parent and its Subsidiaries ("Work Product") belong to the
Parent or such Subsidiary, 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 Parent and its Subsidiaries
with broader protection than that provided herein.

                10.     Definition.

                "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.

                "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.

                "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

                                       6
<PAGE>

or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control any managing
director or general partner of such partnership, association or other business
entity.

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

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

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

                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.

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

                                       7
<PAGE>

                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. The parties hereby consent to the
jurisdiction of the state courts of the State of Illinois and of any federal
court in the venue of Illinois for the purpose of any suit, action or proceeding
arising out of or related to this Agreement, and expressly waive any and all
objections they may have as to venue in any of such courts.

                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.

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

                                        RACING CHAMPIONS CORPORATION

                                        By:/s/ Boyd L. Meyer
                                           -------------------------------------

                                        Its: Vice Chairman
                                            ------------------------------------

                                        /s/ Robert E. Dods
                                        ----------------------------------------
                                        Robert E. Dods

                                       8

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