RACING CHAMPIONS CORP
EMPLOYMENT AGREEMENT
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>5
<FILENAME>c67710ex10-12.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.12


                              EMPLOYMENT AGREEMENT


                THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April
30, 2001, by and between Racing Champions Limited, a Hong Kong corporation (the
"Company"), and Peter K.K. Chung (the "Employee"). The Company is a wholly-owned
Subsidiary of Racing Champions Corporation, a Delaware corporation (the
"Parent").

                                     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 President 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.

                4.      Compensation. The Employee shall receive a base salary
of $250,000 per year beginning in May of 2001 and $150,000 per year beginning in
May of 2002, payable in regular and equal monthly installments (the "Base
Salary").



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                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



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        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 (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



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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 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



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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 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



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                                (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 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.



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

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

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

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

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

                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.



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                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.

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

                                        Its:Chief Executive Officer
                                            ------------------------------------



                                        /s/ Peter K.K. Chung
                                        ----------------------------------------
                                        Peter K.K. Chung




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