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                                                                     EXHIBIT 4.6

        FORM OF COMMON STOCK PURCHASE WARRANT - REEDLAND CAPITAL PARTNERS

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OR
ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.

                                  CYGNUS, INC.

                          Common Stock Purchase Warrant

      Cygnus, Inc., a Delaware corporation (the "Company"), hereby certifies
that for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Reedland Capital Partners, an Institutional Division of
Financial West Group, having an address at 30 Sunnyside Avenue, Mill Valley, CA
94941 ("Purchaser"), or any other Warrant Holder (hereinafter defined) is
entitled, on the terms and conditions set forth below, to purchase from the
Company at any time after the date hereof (subject to the provisions of Section
2 hereof) and ending sixty (60) months after the date hereof, up to 11,178 fully
paid and nonassessable shares of the common stock, par value $.001 per share, of
the Company (the "Common Stock"), at the Purchase Price (hereinafter defined)
per share, as the same may be adjusted pursuant to Section 5 herein.

1.    DEFINITIONS.

      (a) The term "Fair Market Value" shall mean the closing sale price per
share of the Common Stock on the Principal Market on the day prior to the date
of exercise of this Warrant.

      (b) The term "Principal Market" shall mean the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market, whichever is the
principal trading exchange or market for the Common Stock.

      (c) The term "Purchase Price" shall mean $9.85.

      (d) The term "Warrant Holder" shall mean the Purchaser or any permitted
assignee of all or any portion of this Warrant.

      (e) The term "Warrant Shares" shall mean the shares of Common Stock or
other securities issuable upon exercise of this Warrant.

2.    EXERCISE OF WARRANT.

      This Warrant may be exercised by Warrant Holder, in whole or in part, at
any time and from time to time, on or prior to the date sixty (60) months from
the date hereof, by either of the following methods:

      (a) The Warrant Holder may surrender this Warrant, together with cash, a
certified check payable to the Company or wire transfer of immediately available
funds to an account designated by the Company representing the aggregate
Purchase Price of the number of Warrant Shares for which the

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Warrant is being surrendered and the form of subscription attached hereto as
Exhibit A, duly executed by Warrant Holder ("Subscription Notice"), at the
offices of the Company; or

      (b) The Warrant Holder may also exercise this Warrant, in whole or in
part, on a "cashless" or "net-issue" basis by delivering to the offices of the
Company this Warrant, together with a Subscription Notice specifying the number
of Warrant Shares to be delivered to the Warrant Holder and the number of
Warrant Shares to be surrendered in payment of the aggregate Purchase Price
according to the following formula:

                          D = FMV - PP multiplied by SS
                              --------
                                 FMV
         Where

         "D" means the number of Warrant Shares to be delivered on exercise of
         the Warrant,
         "FMV" means the Fair Market Value, and
         "SS" means the number of Warrant Shares to be delivered in payment of
         the Purchase Price
         "PP" means Purchase Price

      (c) such that, without the exchange of any funds, the Warrant Holder will
receive that number of Warrant Shares (and such other consideration otherwise
issuable, or payable, upon exercise of this Warrant) less that number of Warrant
Shares having an aggregate Fair Market Value on the date prior to the date of
exercise equal to the aggregate Purchase Price that would otherwise have been
paid by the Warrant Holder as specified in the Subscription Notice.

      In the event that the Warrant is not exercised in full, the number of
Warrant Shares shall be reduced by the number of such Warrant Shares for which
this Warrant is exercised, and the Company, at its expense, shall forthwith
issue and deliver or upon the order of Warrant Holder a new Warrant of like
tenor in the name of Warrant Holder or as Warrant Holder (upon payment by
Warrant Holder of any applicable transfer taxes) may request, reflecting such
adjusted Warrant Shares.

3.    DELIVERY OF CERTIFICATES.

      (a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) Trading Days thereafter, the Company shall transmit the
certificates (together with any other stock or other securities or property to
which Warrant Holder is entitled upon exercise) by messenger or overnight
delivery service to reach the address designated by such holder within three (3)
trading days after the receipt of the Warrant, the Subscription Notice and
payment of the aggregate Purchase Price in Section 2(a) or 2(b), as appropriate
("T+3"). In lieu of delivering physical certificates representing the Common
Stock issuable upon exercise, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the Warrant Holder, the Company shall
use its best efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon exercise to the Warrant Holder by crediting the
account of Warrant Holder's prime broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system. The time periods for delivery described in the
immediately preceding paragraph shall apply to the electronic transmittals
described herein.

      (b) This Warrant may not be exercised as to fractional shares of Common
Stock. In the event that the exercise of this Warrant, in full or in part, would
result in the issuance of any fractional

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share of Common Stock, then in such event Warrant Holder shall be entitled to
cash equal to the Fair Market Value of such fractional share.

4.    REPRESENTATIONS AND COVENANTS.

      (a) REPRESENTATIONS AND COVENANTS OF THE COMPANY. From the date hereof
through the last date on which this Warrant is exercisable, the Company shall
take all steps reasonably necessary and within its control to insure that the
Common Stock remains listed on a Principal Market so long as it is publicly
traded and shall not amend its Certificate of Incorporation or Bylaws so as to
adversely affect any rights of the Warrant Holder under this Warrant in any
material respect.

      (b) REPRESENTATIONS AND COVENANTS OF THE PURCHASER. The Purchaser shall
not resell Warrant Shares, unless such resale is pursuant to an effective
registration statement under the Act or pursuant to an applicable exemption from
such registration requirements and such sale otherwise complies with state and
federal securities laws.

5.    ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.

      The number and kind of securities purchasable upon exercise of this
Warrant and the Purchase Price shall be subject to adjustment from time to time
as follows:

      (a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company shall
at any time after the date hereof but prior to the expiration of this Warrant
subdivide its outstanding securities as to which purchase rights under this
Warrant exist, by split-up, or otherwise, or combine its outstanding securities
as to which purchase rights under this Warrant exist, the number of Warrant
Shares as to which this Warrant is exercisable as of the date of such split-up
or combination shall forthwith be proportionately increased in the case of a
split-up, or proportionately decreased in the case of a combination. Appropriate
adjustments shall also be made to the Purchase Price payable per share, so that
the aggregate Purchase Price payable for the total number of Warrant Shares
purchasable under this Warrant as of such date shall remain the same.

      (b) STOCK DIVIDEND. If at any time after the date hereof but prior to the
expiration of this Warrant, the Company declares a dividend or other
distribution on Common Stock payable in Common Stock or other securities or
rights convertible into Common Stock ("Common Stock Equivalents") without
payment of any consideration by holders of Common Stock for the additional
shares of Common Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon exercise or conversion thereof), then the
number of shares of Common Stock for which this Warrant may be exercised shall
be increased as of the record date (or the date of such dividend distribution if
no record date is set) for determining which holders of Common Stock shall be
entitled to receive such dividends, in proportion to the increase in the number
of outstanding shares (and shares of Common Stock issuable upon conversion of
all such securities convertible into Common Stock) of Common Stock as a result
of such dividend, and the Purchase Price per share shall be adjusted so that the
aggregate Purchase Price for the Warrant Shares issuable hereunder immediately
after the record date (or on the date of such distribution, if applicable), for
such dividend shall equal the aggregate Purchase Price immediately before such
record date (or on the date of such distribution, if applicable).

      (c) OTHER DISTRIBUTIONS. If at any time after the date hereof but prior to
the expiration of this Warrant, the Company distributes to holders of its Common
Stock, other than as part of its dissolution, liquidation or the winding up of
its affairs, any shares of its capital stock, any evidence of indebtedness or
any of its assets (other than cash, Common Stock or securities convertible into
or exchangeable for

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Common Stock), then the number of Warrant Shares for which this Warrant is
exercisable shall be increased to equal: (i) the number of Warrant Shares for
which this Warrant is exercisable immediately prior to such event, (ii)
multiplied by a fraction, (A) the numerator of which shall be the Fair Market
Value per share of Common Stock on the record date for the dividend or
distribution, and (B) the denominator of which shall be the Fair Market Value
per share of Common Stock on the record date for the dividend or distribution
minus the amount allocable to one share of Common Stock of the value (as
determined in good faith by the Board of Directors of the Company) of any and
all such evidences of indebtedness, shares of capital stock, other securities or
property, so distributed. The Purchase Price shall be reduced to equal: (i) the
Purchase Price in effect immediately before the occurrence of any such event
(ii) multiplied by a fraction, (A) the numerator of which is the number of
Warrant Shares for which this Warrant is exercisable immediately before the
adjustment, and (B) the denominator of which is the number of Warrant Shares for
which this Warrant is exercisable immediately after the adjustment.

      (d) MERGER, ETC. If at any time after the date hereof there shall be a
merger or consolidation of the Company with or into or a transfer of all or
substantially all of the assets of the Company to another entity, then the
Warrant Holder shall be entitled to receive upon payment of the aggregate
Purchase Price then in effect, the number of shares or other securities or
property of the Company or of the successor corporation resulting from such
merger or consolidation, which would have been received by Warrant Holder for
the shares of stock subject to this Warrant had this Warrant been exercised just
prior to such transfer, merger or consolidation becoming effective or to the
applicable record date thereof, as the case may be. The Company will not merge
into or consolidate with or into any other corporation, or sell or otherwise
transfer its property, assets and business substantially as an entirety to
another corporation, unless the corporation resulting from such merger or
consolidation (if not the Company), or such transferee corporation, as the case
may be, shall expressly assume, by supplemental agreement reasonably
satisfactory in form and substance to the Warrant Holder, the due and punctual
performance and observance of each and every covenant and condition of this
Warrant to be performed and observed by the Company.

      (e) RECLASSIFICATION, ETC. If at any time after the date hereof there
shall be a reorganization or reclassification of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, then the Warrant Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Purchase Price then in effect,
the number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
at such time been exercised.

6.    NO IMPAIRMENT.

      The Company will not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out all of such terms
and in the taking of all such action as may be reasonably necessary or
appropriate in order to protect the rights of the Warrant Holder against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, and (b) will take all such action as may be
reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.

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7.    NOTICE OF ADJUSTMENTS.

      Whenever the Purchase Price or number of Warrant Shares purchasable
hereunder shall be adjusted pursuant to Section 5 hereof, the Company shall
execute and deliver to the Warrant Holder (by first class mail, postage prepaid)
a certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable hereunder
after giving effect to such adjustment.

8.    RIGHTS AS SHAREHOLDER.

      Prior to exercise of this Warrant, the Warrant Holder shall not be
entitled to any rights as a stockholder of the Company with respect to the
Warrant Shares, including (without limitation) the right to vote such shares,
receive dividends or other distributions thereon or be notified of stockholder
meetings. However, in the event of any taking by the Company of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution (other
than a cash dividend), any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right (other than the right to vote), the Company shall
provide notice pursuant to Section 13 below to each Warrant Holder, at least 10
days prior to the date of such record, therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.

9.    REPLACEMENT OF WARRANT.

      On receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of the Warrant and, in the case of any such
loss, theft or destruction of the Warrant, on delivery of an indemnity agreement
or security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of such Warrant, the
Company, at the Warrant Holder's expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.

10.   SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION AND CHOICE OF LAW.

      (a) The Company and the Warrant Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Warrant and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.

      (b) EACH OF THE COMPANY AND THE WARRANT HOLDER (I) HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURT LOCATED IN
SAN FRANCISCO COUNTY, CALIFORNIA FOR THE PURPOSES OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AND (II) HEREBY WAIVES,
AND AGREES NOT TO ASSERT IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF
THE SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH OF THE COMPANY AND THE WARRANT
HOLDER CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING
BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES

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TO IT UNDER THIS WARRANT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND
SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH
SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW.

      (c) THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO
SUCH STATE'S PRINCIPLES OF CONFLICT OF LAWS.

11.   ENTIRE AGREEMENT; AMENDMENTS.

      This Warrant contains the entire understanding of the parties with respect
to the matters covered hereby and thereby and except as specifically set forth
herein and therein, neither the Company nor the Warrant Holder makes any
representation, warranty, covenant or undertaking with respect to such matters.
This Warrant and any term thereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.

12.   NOTICES.

      Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery or
delivery by telex (with correct answer back received), telecopy or facsimile at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications
shall be:

         to the Company:

         Cygnus, Inc.
         400 Penobscot Drive
         Redwood City, CA  94063
         Attn: Chief Executive Officer
         Fax:  (650) 367-5060

         with copies to:

         Cygnus, Inc.
         400 Penobscot Drive
         Redwood City, CA  94063
         Attn: General Counsel
         Fax:  (650) 367-5060

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         to the Purchaser:

         Reedland Capital Partners
         30 Sunnyside Avenue
         Mill Valley, California 94941
         Attention: Senior Vice President
         Fax: (415) 383-4799

      Either party hereto may from time to time change its address for notices
under this Section 12 by giving at least 10 days prior written notice of such
changed address to the other party hereto.

13.  MISCELLANEOUS.

      This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. The
headings in this Warrant are for purposes of reference only, and shall not limit
otherwise affect any of the terms hereof. The invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforceability of
any other provisions.

14.   ASSIGNMENT.

      This Warrant may not be assigned, by the Warrant Holder, in whole or in
part, without the prior written consent of the Company; provided, however, that
upon written notice to the Company, the Warrant Holder may assign this Warrant,
in whole or in part, to an Affiliate of the Warrant Holder without the Company's
consent. In either case, to effect a transfer of this Warrant, the Warrant
Holder shall submit this Warrant to the Company together with a duly executed
Assignment in substantially the form and substance of the Form of Assignment
which accompanies this Warrant and, upon the Company's receipt hereof, and in
any event, within three (3) business days thereafter, the Company shall issue a
Warrant to the Warrant Holder to evidence that portion of this Warrant, if any
as shall not have been so transferred or assigned.

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Dated:  June 29, 1999

                                              CYGNUS, INC.

                                           By:
                                              ----------------------------------
                                                     John C. Hodgman
                                              President, Chief Executive Officer
                                                      and Chairman

Attest:

By:
     ---------------------------------------
Its:
     ---------------------------------------

                           [SIGNATURE PAGE TO WARRANT]

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                               SUBSCRIPTION NOTICE
                           (FORM OF WARRANT EXERCISE)
                   (TO BE SIGNED ONLY ON EXERCISE OF WARRANT)

TO _______________

      The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant:

         _____(A)    for, and to purchase thereunder, _______________ shares of
                     Common Stock of Cygnus, Inc., a Delaware corporation (the
                     "Common Stock"), and herewith, or by wire transfer, makes
                     payment of $_____therefor; or

         _____(B)    in a "cashless" or "net-issue exercise" for, and to
                     purchase thereunder ______________________ shares of
                     Common Stock.

      The undersigned requests that the certificates for such shares be issued
in the name of, and

         _____(A)    delivered to ___________________, whose address is
                     _____________________; or

         _____(B)    electronically transmitted and credited to the account of
                     ______________ undersigned's prime broker (Account
                     No. _______________) with Depository Trust Company through
                     its Deposit Withdrawal Agent Commission system.

Dated: _______________

                                    -------------------------------
                                    (Signature must conform to name of holder as
                                    specified on the face of the Warrant)

                                    ------------------------------
                                    (Address)

                                    Tax Identification Number: _____________

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                               FORM OF ASSIGNMENT
                   (TO BE SIGNED ONLY ON TRANSFER OF WARRANT)

      For value received, the undersigned hereby sells, assigns, and transfers
unto ______________ the right represented by the within Warrant to purchase ____
shares of Common Stock of Cygnus, Inc., a Delaware corporation, to which the
within Warrant relates, and appoints _________ Attorney to transfer such right
on the books of Cygnus, Inc., a Delaware corporation, with full power of
substitution of premises.

Dated: _______________

                                    ----------------------------------
                                    (Signature must conform to name of holder as
                                    specified on the face of the Warrant)

                                    ----------------------------------
                                    (Address)

Signed in the presence of:

--------------------------

                                       10<PAGE>
                                                                    EXHIBIT 10.2

                              EMPLOYMENT AGREEMENT

      This Employment Agreement ("Agreement") is hereby made and entered into
this 1st day of April, 2001, by and between DSI Toys, Inc., a Texas corporation,
whose principal business address is 1100 West Sam Houston Parkway, Houston,
Texas 77043 ("Employer" or "Company"), and Gregory A. Barth, an individual
residing at 25 Pheasant Way, Medford, NJ 08055 ("Employee").

                                  WITNESSETH:

      A. Employer is in the business of inventing, developing, manufacturing and
marketing toys. Employer is a public company.

      B. Employee has extensive experience and expertise in the toy industry.

      C. Employer wishes to employ Employee and Employee wishes to become an
employee of Employer pursuant to the terms and conditions of this Agreement.

                                   ARTICLE 1

                                    GENERAL

            1.1 EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts such employment with Employer upon the terms and conditions hereinafter
set forth. Employee shall perform such duties and responsibilities and exercise
such powers for the Employer as may from time to time be assigned or delegated
to him by Employer's Chief Executive Officer, including such duties as may be
customary for a Senior Vice President of Operations, Logistics and Planning in
the toy industry. Employee acknowledges that Employer shall be dependent upon
Employee for its continued ongoing business operations and that the provisions
hereof are necessary for the successful conduct of the business and affairs of
the Company.

            1.2 POSITION. Employee shall be employed in the capacity and hold
the position of Senior Vice President of Employer. In such capacity, Employee
agrees to, at all times, exercise his best efforts for the benefit of the
Company and to thereby undertake to use and implement the management,
organizational, intellectual, technical and other skills of Employee to the best
of his ability on the Company's behalf. Employee shall be responsible to and
report to the Chief Executive Officer of the Company.

<PAGE>
            1.3 TERM. Subject to the provisions provided for and relating to
termination set forth herein, the term of Employee's employment pursuant to this
Agreement shall be for a period beginning on April 1, 2001, and ending on March
31, 2003 (said period being hereinafter referred to as the "Employment Term").

                                   ARTICLE 2

                           REMUNERATION AND BENEFITS

            2.1 BASE SALARY. For all services rendered by Employee during the
Employment Term, Employer shall pay to Employee a salary of One Hundred Fifty
Thousand Dollars ($150,000.00) per year (the "Base Salary"). The Base Salary
shall begin to accrue and be paid on the Effective Date of this Agreement and
shall be distributed in semi-monthly installments in arrears through the
Employment Term.

                  (a) At a minimum, the Base Salary shall be adjusted annually
on the anniversary date to reflect any increase in the Consumer Price Index -
All Urban Wage Earners (the "Index"). The Base Salary shall not be adjusted
downward to reflect any decrease in the Index.

                  (b) The Base Salary may also be raised at any time during the
Employment Term at the discretion of the Company's Board of Directors.

            2.2 BENEFITS. Employee shall be eligible to participate in any and
all benefit plans which Employer may from time to time make generally available
to all employees of the Company, including but not limited to participation in
the Company's 401(k) plan, group life insurance and health insurance programs.

            2.3 STOCK OPTIONS. Employee shall be eligible to participate in
Employer's 1997 Stock Option Plan (the "Plan") at the senior executive level.
Employee shall be granted options for the purchase of 50,000 shares of the
common stock of Employer (the "Options") pursuant to the terms and conditions of
the Plan.

            2.4 EXTENT OF SERVICE. During the Employment Term, Employee agrees
to devote such amount of time, attention, energy and effort as is necessary to
further the business and profitability of Employer. Further, during the
Employment Term, Employee shall not be engaged in any other business activity
pursued for gain, profit or other pecuniary advantage. However, the foregoing
limitations shall not be construed as prohibiting Employee from making personal
investments in any business enterprise not competitive with that of Employer in
such form or manner as will neither require his services in the operations or
affairs of enterprises in which such investments are made, nor otherwise violate
the terms of this Agreement.

            2.5 OFFICES. Employer shall provide office space for Employee, with
provisions for administrative and other support services necessary to the
maintenance and operations of such office, and the performance of Employee's
duties hereunder.

                                      -2-
<PAGE>
            2.6 EXPENSE ALLOWANCE. Employer shall reimburse Employee for all
approved, deductible business expenses reasonably incurred in the performance of
his duties hereunder, including reasonable expenditures for entertainment,
consistent with Employer's then existing expense reimbursement policy.

            2.7 VACATIONS AND HOLIDAYS. Employee shall be entitled to fifteen
(15) vacation days annually, on a pro rata basis for 2001, in accordance with
the policies established by Employer's Board of Directors, as well as those
public holidays duly observed by Employer; provided, however, no more than ten
(10) consecutive vacation days shall be taken at any one time, subject to
changes that may occur in the vacation policy as set forth from time to time to
said policy.

            2.8 INSURANCE. Employee shall be provided group life, disability and
health insurance coverages by Employer throughout the term of this Agreement.
Employee shall be provided a group life insurance policy with a death benefit of
no less than $200,000.00.

            2.9 BUSINESS TRAVEL. Employee shall be entitled to travel portal to
portal via business class on all international air travel performed for the
Company. All domestic travel performed for the Company shall be via coach class.

            2.10 AUTOMOBILE ALLOWANCE. Employee shall be entitled to an
automobile allowance of Seven Hundred Dollars ($700.00) per month.

                                    ARTICLE 3

                                   TERMINATION

            3.1 DEATH. In the event of the Employee's death during the
Employment Term, the Employer shall pay to Employee's executor(s),
administrator(s) or personal representative(s) an amount equal to the
installment of his Base Salary payable for the month in which he dies and for no
period thereafter. Employer shall have no other liabilities or other obligations
of any kind or character under this Agreement to Employee's executor(s),
administrator(s) or personal representative(s) except such accrued salary and
unused vacation that Employee is entitled at the time of death.

                   (a)  It is expressly understood and agreed that the Company
                        may maintain key man term life insurance for the benefit
                        of the Company on the life of Employee. Additionally,
                        the Company may maintain such other life insurance for
                        the benefit of Employer, the Company's shareholders, as
                        from time to time the Board of Directors of the Company
                        deems reasonable and appropriate.

                                      -3-
<PAGE>
                  (b) Upon the death of Employee, all vested employee benefits
accrued for the benefit of Employee shall be distributed in accordance with the
provisions set forth in the subject plan agreement or arrangement providing the
applicable benefits, and otherwise distributed in accordance with applicable
laws.

            3.2 DISABILITY; FAILURE TO PERFORM DUTIES. In the event of
Employee's failure to perform his duties hereunder by reason of illness or
disability for a period equal to or in excess of ninety (90) consecutive days
during the Employment Term or for ninety (90) days during any twelve (12) month
period throughout the Employment Term, Employer shall have the option to
terminate this Agreement by giving thirty (30) days written notice of
termination to Employee. Upon such notice of termination, Employer shall pay to
Employee an amount equal to the installments of his Base Salary payable up to
the time this Agreement is terminated, and Employer shall distribute all accrued
employee benefits as of the date of termination to Employee in accordance with
the provision of the applicable benefit plan, agreement or arrangement giving
rise to the applicable benefits. Upon the termination of this Agreement as a
result of such disability, Employer shall have no other liabilities or
obligations of any kind or character to Employee under this Agreement.

            3.3 TERMINATION FOR CAUSE. Employee may be terminated for cause by
Employer upon written notice to Employee. For purposes of this Agreement, "for
cause" shall be if Employee:

                  (a) Neglects the performance of his duties required to be
performed under the terms of this Agreement to the economic detriment of the
Company;

                  (b) Fails or refuses in the opinion of the Board of Directors
to comply with the reasonable policies, standards and regulations of the Company
which from time to time may be established;

                  (c) Is convicted of a crime or is charged with committing a
felony;

                  (d) Materially breaches any of the terms or conditions of this
Agreement; or

                  (e) Performs any action constituting fraud or an intentional
misrepresentation.

                                      -4-

<PAGE>
            Upon such determination, Employer may, at its option, terminate this
Agreement immediately without prejudice to any other remedy to which Employer
may be entitled either at law or in equity, or under this Agreement. In such
event, any of the obligations of Employer under this Agreement shall be
terminated as of the date given in the notice of termination referred to
hereinabove, following payment by Employer to Employee of that portion of the
Base Salary and vacation then accrued, due and owing in accordance with Section
2.1 hereof.

            3.4   TERMINATION WITHOUT CAUSE.

                  Employer may terminate this Agreement without cause upon prior
written notice to Employee. In such event, (i) Employee shall be paid an amount
equal to his regular Base Salary from the date of termination for a period of
six months with such payment being made in twelve (12) equal installments on the
Employer's regular payroll dates; (ii) should the Employee elect to continue
medical and/or dental insurance post-termination through COBRA, the Employer
shall reimburse to Employee for a period not to exceed six (6) months following
such termination the premium cost of such continued insurance for Employee only,
but not for any of Employee's dependents; and (iii) for a period not to exceed
six (6) months following such termination, Employer shall reimburse Employee for
actual expenses incurred in the rental of Employee's boat slip (including
live-on fees and electric bills), but in no event shall the amount reimbursed
for such rental exceed $2,400.00. No other severance shall be paid to the
Employee. Further, upon payment by Employer to Employee of the six (6) months'
Base Salary, Employee shall have no further rights and Employer no other
liabilities or other obligations of any kind or nature under this Agreement
except for accrued employee benefits to which Employee may otherwise be
entitled.

                                   ARTICLE 4

                                   COVENANTS

            4.1 DISCLOSURE OF INFORMATION. Employee recognizes and acknowledges
that he has and will have access to certain confidential information,
proprietary data and trade secrets of Employer, and of entities and individuals
controlling, controlled by or under common control with Employer ("affiliates"),
including but not limited to, contracts, patterns, devices, calculations,
drawings, productions, plans, specifications, records, compilations or
information, and other confidential information and data either compiled by
Employer or received from its customers or Employer, and that such information
is not generally available to the public and constitutes valuable, special and
unique property of the Employer. Employee shall not, during or after the term of
this Agreement, undertake in any fashion, to take commercial or proprietary
advantage of or profit from any such confidential information to any person or
firm, corporation, association or other entity for any reason or purpose
whatsoever, except to

                                      -5-
<PAGE>
authorized representatives of Employer and as otherwise may be proper in the
course of performing his employment hereunder. Further, Employee shall maintain
the confidentiality of all such information of Employer, its affiliates or its
customers for the sole use and benefit of Employer. All files, records,
documents, drawings, plans, specifications, contracts, products, equipment or
similar items relating to the business of Employer and/or the affiliates shall
not be removed from the premises of Employer and/or its affiliates without the
prior consent of Employer and/or its affiliates, as applicable.

                  (a) Employee further covenants and agrees to promptly return
and deliver to Employer all documents, information, or other material or
property of any kind or character which in any way relate to the business of
Employer or any of its affiliates or customers, whether or not asserted to be
the exclusive property of Employer; and, further, Employee shall not attempt to
retain copies or duplicates of any such property. In the event of a breach or a
threatened breach of these covenants by Employee, Employer and/or its
affiliates, in addition to all other remedies made available hereby or as a
matter of law or in equity, may seek an injunction restraining Employee from
disclosing, in whole or in part, such confidential information. In addition to
any other damages sustained by Employer, Employee shall pay to Employer all
profits, payments, earnings compensation or other emoluments paid or accruing to
Employee, directly or indirectly, by reason of Employee's disclosure of
information as provided herein. Nothing herein shall be construed as prohibiting
Employer and/or its affiliates from pursuing any other remedies available to it
or them for such breach or threatened breach, including the recovery of damages
from Employee.

            4.2 NON-COMPETITION. During the Employment Term, and if this
Agreement is terminated in accordance with Sections 3.3 or 3.4, for a period of
one (1) year from the date of Employee's termination of employment hereunder,
Employee shall not directly or indirectly, either for himself, or as an
employer, employee, owner, manager, independent contractor, consultant, agent,
principal, partner, co-venturer, shareholder, director, officer or in any other
capacity, engage or have any indirect interest in any person that is engaged, or
to the knowledge of Employee is planning to engage, in competition in any manner
whatsoever with the business of Employer including, without limitation, any
person that manufactures, markets, imports, sells or distributes toys. If the
Employment Term is terminated by Employer pursuant to Section 3.4 and Employer
elects to enforce the provisions of this Section 4.2, Employer shall be
obligated to pay Employee as additional consideration on or before the fifteenth
(15th) day of each month during the one (1) year period following termination of
the Employment Term an amount equal to one-twelfth (1/12) of Employee's then
existing Base Salary.

            4.3 AGREEMENT NOT TO SOLICIT. During the Employment Term, and if
this Agreement is terminated in accordance with Section 3.3 or 3.4, for a period
of one (1) year from the date of Employee's termination of employment hereunder,
Employee will not, either directly or indirectly, on his own or in the service
of another:

                                      -6-
<PAGE>
                  (a) Knowingly call upon, solicit, divert or attempt to solicit
or divert any of the business contacts of Employer;

                  (b) Knowingly employ any employee of Employer or solicit,
divert, recruit or induce any employee of Employer to leave the employ of
Employer, whether or not such employment is at will; and/or

                  (c) Knowingly induce or advise any service provider, customer,
factory or representative of Employer to terminate or materially alters its then
existing relationship with Employer.

                                   ARTICLE 5

                           MISCELLANEOUS PROVISIONS

            5.1 MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
shall apply to the terms and conditions of this Agreement:

                  (a) Pursuit of any one remedy shall not preclude pursuit of
any other remedies provided for herein or by law. No waiver of one violation of
this Agreement shall be deemed or construed to constitute a waiver of any
similar violations subsequently occurring, or any other violation whatsoever.

                  (b) This Agreement shall be construed under the laws of Texas,
and the rights and obligations of each of the parties to this Agreement during
the term hereof and upon its termination shall be governed exclusively by Texas
law.
                  (c) This instrument contains all of the understandings and
agreements of whatsoever kind and nature existing between the parties hereto
with respect to this Agreement, and the rights, interests, understandings,
agreements and obligations of the respective parties and their prior oral
agreements.

                  (d) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.

                  (e) If any one or more of the provisions contained in this
Agreement are held to be invalid or unenforceable in any respect, such
invalidity or unenforceability shall not affect any other provision hereof, and
the intent manifested thereby shall be recognized.

                  (f) Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, other than the parties hereto
and their respective heirs and successors, any legal or equitable rights, remedy
or claim under or in respect to this Agreement, or any provisions herein
contained.

                                      -7-
<PAGE>
                  (g) This Agreement may not be amended, altered or modified
except by a written instrument signed by each of the parties.

                  (h) If any legal proceeding, arbitration or other action is
brought or threatened for the enforcement or interpretation of this Agreement,
or because of any alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, and the prevailing
party in any such action should incur any legal fees, including, but not limited
to, attorneys' fees, paralegal fees, expert witness fees, and other similar
costs, a successful prevailing party or parties to any such dispute or action
will be entitled to recover their reasonable attorneys' fees and additional
legal costs incurred, together with any other relief to which he/it may
otherwise be entitled, as determined by an arbitrator, judgment at trial, upon
appeal or petition.

            5.2 SUCCESSORS BOUND; SURVIVAL OF COVENANTS. The rights and
obligations of the parties hereunder shall inure to the benefit of and shall be
binding upon the successors of each respective party. The representations,
warranties, covenants, and agreements of the parties, as well as any rights and
benefits of the parties, shall survive the execution hereof and following the
Employment Term to the extent so provided herein.

            5.3. ARBITRATION. All disputes, controversies or differences which
may arise between the parties out of or in relation to or in connection with
this Agreement, or for the breach thereof, shall be finally settled by
arbitration in accordance with the Rules of the American Arbitration
Association. Any such arbitration shall be convened and take place in Houston,
Texas. Any such arbitration shall be absolute and binding upon the parties.

      IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in
duplicate originals as of the date first above written.

"EMPLOYEE"                         "EMPLOYER"
                                    DSI TOYS, INC., A TEXAS CORPORATION

/s/ GREGORY A. BARTH               /s/ MICHAEL J. LYDEN, PRESIDENT
-------------------------          --------------------------------------
GREGORY A. BARTH                   BY: MICHAEL J. LYDEN, PRESIDENT & CEO

DATE: April 23,2001                DATE: April 23, 2001
     --------------------                --------------------

                                      -8-

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