EXHIBIT 10.1

                       SHAREHOLDERS' AND VOTING AGREEMENT

      This Shareholders' and Voting Agreement (the "Agreement") is made this 7th
day of January, 2000, by and among DSI Toys, Inc., a Texas corporation (the
"Company"), MVII, LLC, a limited liability company formed under the laws of the
State of California ("MVII"), and Walter S. Reiling and Susan Reiling
(collectively, "Reiling"). MVII and Reiling are sometimes hereinafter referred
to as the "Shareholders".

                                    RECITALS:

      WHEREAS, the Company has an authorized capitalization of thirty-five
million shares of common stock, par value $.01 per share (the "Common Shares");

      WHEREAS, the Company, Reiling and Meritus Industries, Inc., a New Jersey
corporation ("Meritus") have entered into an Agreement and Plan of Merger, dated
October 7, 1999 (the "Merger Agreement"), pursuant to which Meritus shall be
merged into the Company and the Company shall be the surviving corporation (the
"Merger").

      WHEREAS, upon the closing under the Merger Agreement and the completion of
the Merger, the Shareholders will collectively own the majority of the issued
and outstanding Common Shares; and

      WHEREAS, the Shareholders desire to agree among themselves and with the
Company with respect to certain matters relating to their respective Common
Shares including, without limitation, restrictions on certain transfers and
purchases of the Common Shares, and the exercise of the voting rights evidenced
by the Common Shares.

                                   AGREEMENT:

      NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement, the Company and the
Shareholders agree as follows:

                                    ARTICLE I
                                VOTING AGREEMENT

      1.01 NUMBER OF DIRECTORS. The Shareholders agree that the number of
directors which shall comprise the Board of Directors of the Company shall be
changed from six (6) to seven (7) within thirty (30) days of the date first
above written; provided, however, the number of directors which shall comprise
the Board of Directors of the Company may be changed from time to time as
permitted by the Company's Articles of Incorporation, Bylaws and by law.

      1.02  NOMINATION OF DIRECTORS.

            (a) MVII is currently entitled to nominate all but two (2) of the
total number of directors of the Company. The remaining two (2) directors of the
Company are entitled to be

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nominated by certain additional Shareholders of the Company pursuant to the
terms and conditions of that certain Shareholders and Voting Agreement dated
April 15, 1999 (the "Prior Agreement").

                  (i) Throughout the term of this Agreement, Reiling shall be
entitled to nominate one (1) of the directors of the Company MVII is entitled to
nominate.

                  (ii) MVII and Reiling shall have the exclusive right to
nominate any director to replace a director previously nominated by it who has
vacated his or her directorship by reason of death, resignation, or removal.

                  (iii) With respect to the nominees of MVII and Reiling, the
Company shall be entitled to rely on written notice from E. Thomas Martin on
behalf of MVII and from Walter S. Reiling on behalf of Reiling, as to the
identity of each Shareholder's nominees (Mr. Martin and Mr. Reiling are referred
to herein as a "Spokesperson"). MVII and Reiling may change its Spokesperson by
giving the Company written notice of a change in such Spokesperson. Reiling's
initial nominee for director is Walter S. Reiling. MVII shall use its best
efforts to cause the current board of directors of the Company to vote in favor
of Walter S. Reiling to fill the vacancy created by adding an additional seat on
the Company's board of directors as provided in Section 1.01 of this Agreement.

            (b) At least sixty (60) days prior to any meeting of the
Shareholders at which an election of directors is to be held, the Company shall
send to each Spokesperson a notice of such meeting soliciting from such
individual the names of the persons that MVII and Reiling respectively wish to
nominate as members of the Board of Directors of the Company. Such nominations
must be received by the Company within fifteen (15) days following the date of
the Company's notice soliciting nominations.

      1.03 ELECTION OF DIRECTORS AND IRREVOCABLE PROXY. In exercising any voting
rights to which the Shareholders may be entitled by virtue of owning Common
Shares, the Shareholders shall, with respect to the election of directors of the
Company, vote the number of Common Shares that the Shareholders own for election
of the individuals nominated by MVII and Reiling, from time to time, pursuant to
SECTION 1.02 of this Agreement as the directors of the Company. Reiling shall
execute an irrevocable proxy, in a form approved by the Board of Directors,
appointing MVII as proxy for the limited purpose of authorizing MVII to vote
Reiling's Common Shares (a) for the election of the directors to the Board of
Directors in accordance with this Agreement; (b) any matter affecting the size
or composition of the Board of Directors of the Company; (c) with respect to any
matter relating to the creation or composition of any committee of the Board of
Directors of the Company; and (d) with respect to any proposal to amend or
modify the Company's bylaws or articles of incorporation for the sole purpose of
affecting the matters described in clauses (b) and (c) of this Section 1.03.
Such irrevocable proxies shall have the same duration as Article I of this
Agreement. Reiling shall retain the right to vote his or her Common Shares with
respect to all other matters that are put before the Company's shareholders.

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      1.04 REMOVAL OF DIRECTORS. MVII shall not vote its Common Shares or
Reiling's Common Shares as proxy in favor of removal of a director nominated by
Reiling unless so requested by Reiling, as required by law.

      1.05 VOTING AGREEMENT. The provisions contained in this Article I
constitute a voting agreement made pursuant to the provisions of the Texas
Business Corporation Act. A counterpart of this Agreement will be deposited with
the Company at its principal office and is subject to the same rights of
examination by any shareholder of the Company, in person or by agent or
attorney, as are the Company's books and records.

      1.06 TERM OF VOTING AGREEMENT. The voting agreement in this Article I will
terminate upon the earlier of (i) the fifth anniversary of the date first above
written, (ii) the written agreement of the Company, MVII and Reiling, or (iii)
the dissolution of the Company.

                                   ARTICLE II
                              TRANSFER RESTRICTIONS

      2.01 RIGHT OF FIRST REFUSAL IN CONNECTION WITH TRANSFERS OTHER THAN PUBLIC
TRANSFERS. Subject to the provisions hereof, before any Common Shares may be
transferred, sold, assigned, conveyed, pledged or otherwise disposed or
delivered by Reiling or a Permitted Transferee (as hereinafter defined) (a
"Transfer") to any individual, firm, company, corporation, unincorporated
association, partnership, trust, joint venture or other entity (a "Proposed
Transferee") in any transaction other than a transaction effected on the Nasdaq
Stock Market or any stock exchange or over-the-counter trading system on which
the Company's Common Shares are traded (a "Public Transfer"), the Common Shares
shall first be offered to MVII in the following manner:

            (a) If Reiling or a Permitted Transferee proposes to Transfer any
Common Shares (the "Selling Shareholder"), then the Selling Shareholder shall
give a written notice (the "Seller Notice") to MVII stating (i) the Selling
Shareholder's bona fide intention to Transfer such Common Shares; (ii) the name
of the Proposed Transferee; (iii) the number of Common Shares the Selling
Shareholder desires to Transfer (the "Offered Shares"); and (iv) the price for
which the Selling Shareholder proposes to Transfer the Offered Shares. MVII
shall thereafter have an option to purchase the Offered Shares in accordance
with the provisions set forth below.

            (b) MVII will have an option, for fifteen (15) Business Days (as
hereinafter defined) after receiving the Seller Notice, to give written notice
to the Selling Shareholder and the Company of its election to purchase all, but
not less than all, of the Offered Shares. The purchase price and other terms at
which the Offered Shares are offered to MVII shall be the price and terms
specified in the Seller Notice. A "Business Day" shall mean any day other than a
Saturday or Sunday or any other day on which banks in Houston, Texas are
authorized or required to close.

            (c) In the event MVII does not elect to purchase all of the Offered
Shares, the Selling Shareholder may thereafter Transfer all of the Offered
Shares in accordance with SECTION 2.01(E) hereof free of the right of first
refusal and voting agreement set forth in this Agreement (subject to such right
of first refusal being revived as provided in SECTION 2.01(E) hereof).

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            (d) If timely exercised by MVII pursuant to Section 2.01(b) hereto,
the right to purchase the Offered Shares shall be exercised by written notice,
signed by MVII, and delivered or mailed to the Company and the Selling
Shareholder as provided in SECTION 3.01(H). Such notice shall specify the time,
place and date for settlement of such purchase, which shall be held within ten
(10) Business Days after the expiration of the notice period specified in
SECTION 2.01(B).

            (e) If MVII has not exercised its right of first refusal to purchase
the Offered Shares in accordance with SECTION 2.01(D) hereof, the Selling
Shareholder may thereafter Transfer the Offered Shares free of the right of
first refusal and voting agreement contained in this Agreement to the Proposed
Transferee at the price and on the terms specified in the Seller Notice or at a
higher price but with no material change in the other terms, provided that such
Transfer is consummated within ninety (90) days of the date of the Seller
Notice. If the Selling Shareholder fails to consummate the Transfer within such
ninety (90) day period, the purchase rights of MVII provided hereby shall be
deemed to be revived with respect to such shares and no Transfer of Common
Shares shall be effected without first offering such shares in accordance
herewith.

            (f) Notwithstanding anything contained in this Agreement to the
contrary, any Reiling shall be entitled to Transfer his/her Common Shares
without complying with this Section 2.01 (i) to his/her spouse, their lineal
descendants, a trust established for the benefit of members of their immediate
family or to a limited partnership of which any Reiling is the general partner
and all limited partners are his/her lineal descendants ("Permitted
Transferee"), provided that the Permitted Transferee agrees to be bound by all
of the terms and conditions of this Agreement, (ii) pursuant to the co-sale
rights set forth in Section 2.04 hereof, and (iii) to an unaffiliated commercial
third-party lender as collateral security for indebtedness only, provided such
lender agrees to be bound by the voting agreement in Article I of this
Agreement. If Reiling or any Permitted Transferee pledges any Common Shares held
by it as collateral for indebtedness as provided in this Section 2.01(f),
simultaneous with such pledge, Reiling or any Permitted Transferee shall notify
MVII of such pledge, the name, address and phone number of the pledgee party,
and the type and amount of indebtedness secured by the collateral. If there
shall occur an event of default in connection with repayment of the indebtedness
or any other event giving rise to the pledgee party's right to foreclose on the
collateral or accept or take the collateral in lieu of foreclosure, or any event
that otherwise allows or permits the pledgee party to become the owner of the
collateral, then Reiling or any Permitted Transferee shall immediately notify
MVII of such event or occurrence.

      2.02 RIGHT OF FIRST REFUSAL IN CONNECTION WITH PUBLIC TRANSFERS. Subject
to the provision hereof, Common Shares may be Transferred to any Proposed
Transferee in a Public Transfer under the following circumstances:

            (a) From time to time Reiling or a Permitted Transferee (a "Public
      Selling Shareholder") may deliver a written notice to MVII (the "Public
      Transfer Notice") stating (i) the maximum number of Common Shares that
      such Public Selling Shareholder intends to sell during the next sixty (60)
      days (the "Public Offered Shares"), and (ii) the minimum price at which
      such Public Selling Shareholder intends to sell such Common Shares. MVII
      shall thereafter have an option to purchase all or a part of the Public
      Offered Shares in accordance with the provisions set forth below.

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            (b) MVII will have an option, for five (5) Business Days after
      receiving the Public Transfer Notice, to give written notice to the Public
      Selling Shareholder and the Company of its election to purchase all or
      part of the Public Offered Shares. The purchase price at which the Public
      Offered Shares are offered to MVII shall be the price and terms specified
      in the Public Transfer Notice.

            (c) In the event MVII does not elect to purchase 100% of the Public
      Offered Shares, the Public Selling Shareholder may thereafter effect a
      Public Transfer of the balance of the Offered Shares in accordance with
      SECTION 2.02(E) hereof free of the right of first refusal and voting
      agreement set forth in this Agreement (subject to such right of first
      refusal being revived as provided in SECTION 2.02(E) hereof).

            (d) If exercised by MVII pursuant hereto, the right to purchase the
      Public Offered Shares shall be exercised by written notice, signed by
      MVII, and delivered or mailed to the Public Selling Shareholder and the
      Company as provided in SECTION 3.01(H). Such notice shall specify the
      time, place and date for settlement of such purchase, which shall be held
      within five (5) Business Days after the expiration of the notice period
      specified in SECTION 2.02(B).

            (e) If MVII has not exercised its rights of first refusal to
      purchase 100% of the Public Offered Shares in accordance with SECTION
      2.02(A) hereof, the Public Selling Shareholder may thereafter effect one
      or more Public Transfers of such remaining Common Shares free of the right
      of first refusal and voting agreement contained in this Agreement at a
      price not less than the price specified in the Public Seller Notice,
      provided that, with respect to any Common Shares not Transferred within
      sixty (60) days of the date of the Public Seller Notice, the purchase
      rights of MVII provided hereby shall be deemed to be revived with respect
      to such shares and no Transfer of Common Shares shall be effected without
      first offering such shares in accordance herewith.

      2.03 CONTINUING RIGHTS. The exercise or non-exercise of co-sale rights
pursuant to SECTION 2.04 hereunder shall not adversely affect MVII's right of
first refusal with respect to subsequent Transfers by Reiling or any Permitted
Transferee pursuant to this Agreement. Subject to the provisions of SECTION
1.06, the provisions of this Agreement shall continue to apply to all Common
Shares unless and until they are transferred to a third party in accordance with
the terms and provisions of this Article II.

      2.04 CO-SALE RIGHTS.

            (a) MVII shall not Transfer in any one transaction or series of
related transactions more than forty percent (40%) of the total number of Common
Shares standing in its name as of the date of this Agreement unless Reiling or
any Permitted Transferee is permitted to sell a number of Common Shares owned by
Reiling or any Permitted Transferee determined in accordance with SECTION
2.04(C) to the third-party offeror at the same price and on the same terms as
the offer is proposed to be effected (a "Third-Party Offer") to MVII.

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            (b) MVII shall cause the Third Party Offer to be reduced to writing
and shall send written notice of the Third Party Offer, including the name of
the offeror, the number of Common Shares the offeror proposes to purchase, and
the price and other terms the offeror proposes for the purchase of the Common
Shares (the "Inclusion Notice") to Reiling in the manner specified in SECTION
3.01(I). Within fifteen (15) Business Days after delivery of the Inclusion
Notice, Reiling or any Permitted Transferee may accept the offer included in the
Inclusion Notice by furnishing written notice of such acceptance to MVII. If
Reiling or any Permitted Transferee fails to accept such offer within such time
period, MVII shall be free, at any time within the next 180 days from the date
of the Inclusion Notice to sell its shares to such third party on the terms
contained in the Third Party Offer free and clear of the terms and conditions of
this Agreement.

            (c) Reiling or any Permitted Transferee shall have the right to sell
pursuant to the Third Party Offer, free and clear of MVII's right of first
refusal and the voting agreement, a number of Common Shares equal to the product
of (x) the number of Common Shares covered by the Third Party Offer and (y) a
fraction, the numerator of which is the total number of Common Shares then owned
by the Reiling or the Permitted Transferee, in each case, who has elected to
sell under this Section 2.04 and the denominator of which is the total number of
Common Shares then owned by MVII, Reiling and all of the Permitted
Transferee(s).

      2.05 TERMS OF ARTICLE II. The provisions of this Article II shall continue
in full force and effect with respect to any Common Shares subject thereto until
such time as such Common Shares have been transferred in accordance with this
Agreement free and clear of the restrictions set forth in this Article II.

                                   ARTICLE III
                                  MISCELLANEOUS

      3.01 MISCELLANEOUS. The following miscellaneous provisions shall apply to
this Agreement.

            (a) SPOUSE'S INTEREST IN COMMON SHARES. By their signatures below,
the spouse of each Reiling shareholder (a "Spouse") agrees to be bound in all
respects by the terms of this Agreement to the same extent as the remaining
Reiling. Each Spouse further agrees that should he or she predecease or become
divorced from a Reiling shareholder, any of the Common Shares in which he or she
may have any interest shall remain subject to all of the restrictions and to all
of the rights of the Company and MVII as contained in this Agreement. Whenever
reference is made in this Agreement to "Common Shares," unless the context
clearly requires otherwise, such Common Shares will include any community
property or other interest of a Reiling Shareholder's Spouse, in such Common
Shares.

            (b) INDEMNIFICATION. Reiling agrees to jointly and severally
indemnify and hold harmless MVII and the Company from and against any and all
damages, losses, claims, liabilities, demands, charges, suits and penalties MVII
or the Company incurs or to which MVII or the Company becomes subject arising
out of any breach or default by Reiling or any Permitted Transferee of any of
the provisions of this Agreement, and MVII agrees to indemnify and hold harmless
Reiling and the Company from and against any and all damages, losses, claims,
liabilities,

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demands, charges, suits and penalties Reiling or the Company incurs or to which
Reiling or the Company becomes subject arising out of any breach or default by
MVII of any of the provisions of this Agreement.

            (c) REMEDIES. The parties hereto acknowledge that remedies at law
for any breach or attempted breach of the provisions of this Agreement will be
inadequate, and therefore each party to this Agreement will be entitled to
specific performance and injunctive and other equitable relief in case of any
breach or attempted breach by any other party. Each party to this Agreement
waives any requirements for securing or posting any bond in connection with
obtaining any such injunctive or other equitable relief.

            (d) AMENDMENTS AND WAIVERS. Any modification or amendment to, or
waiver of, any provision of this Agreement may be made only by an instrument in
writing executed by the Company, MVII and Reiling.

            (e) SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer
and assignment contained in this Agreement, the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns.

            (f) SEVERABILITY. If any provision of this Agreement shall be held
to be illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire Agreement. Such
provision shall be deemed to be modified to the extent necessary to render it
legal, valid and enforceable, and if no such modification shall render it legal,
valid and enforceable, then this Agreement shall be construed as if not
containing the provision held to be invalid, and the rights and obligations of
the parties shall be construed and enforced accordingly.

            (g) WAIVER. No failure or delay on the part of any party in
exercising any right, power or privilege hereunder or under any of the other
agreements, instruments or documents delivered in connection with this Agreement
shall operate as a waiver of such right, power or privilege; nor shall any
single or partial exercise of any such right, power or privilege preclude any
other or future exercise thereof or the exercise of any other right, power or
privilege.

            (h) NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
personally, or by overnight delivery service, or by facsimile transmission (with
a copy sent by overnight delivery service) to the parties at the addresses or
facsimile numbers set forth below:

      If to the Company, at DSI Toys, Inc., 1100 W. Sam Houston Parkway N.,
Suite A, Houston, Texas 77043, Attention: Rob Weisgarber (fax: 713/365-9911).

      If to MVII, at MVII, LLC, 654 Osos Street, San Luis Obispo, CA 93401,
Attention: E. Thomas Martin (fax: 805/545-7590) or at such other address or
addresses as may have been furnished in writing by the Shareholder to the
Company, with a copy to Andre, Morris & Buttery,

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1102 Laurel Lane, San Luis Obispo, CA 93401, Attention: J. Todd Mirolla, Esq.
(fax: 805/543- 0752).

      If to Reiling or a Permitted Transferee, at the address set forth opposite
each Reiling Shareholder's name on the signature pages attached hereto, with a
copy to Graham, Curtin & Sheridan, 4 Headquarters Plaza, Morristown, New Jersey
07962, Attention: Robert P. Regimbal, Esq. (fax: 973/292-1767).

      Notice so given shall, in the case of notice so given by overnight
delivery service, on the date of actual delivery, in the case of notice so given
by facsimile transmission, on the later of twenty-four (24) hours after actual
transmission or on the date of actual delivery of the copy sent by overnight
delivery service or, in the case of personal delivery, on the date of actual
delivery.

            (i) ATTORNEY'S FEES. In the event that a party brings suit or
otherwise attempts to collect damages or enforce this Agreement in connection
with a breach of any of the terms and conditions of this Agreement, the
prevailing party shall be entitled to reimbursement from the losing party
(severally in proportion to their fault in the case of a suit against more than
one person) of the prevailing party's reasonable attorney's fees and costs.

            (j) HEADINGS. The headings of the articles, sections, subsections
and paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.

            (k) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.

            (l) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.

            (m) EFFECTIVE DATE. This Agreement is effective as of the date and
year first above written.


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      IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.

                                    DSI TOYS, INC.


                                    By: /s/ ROB WEISGARBER
                                    Name:   Rob Weisgarber
                                    Title:  Chief Financial Officer

                                    MVII, LLC


                                    By: /s/ E. THOMAS MARTIN
                                    Name:   E. Thomas Martin
                                    Title:  Manager


                                    REILING

Address:
15 Woodcrest Drive        /s/ WALTER S. REILING
Morristown, NJ 07960          WALTER S. REILING


Address:
15 Woodcrest Drive        /s/ SUSAN REILING
Morristown, NJ 07960          SUSAN REILING

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                                 SPOUSAL CONSENT


      Each of the undersigned is fully aware of, understands, and fully consents
to the provisions of this Agreement and its binding effect upon any community
property or other interest that he or she may now or hereafter own in the Common
Shares subject to this Agreement, and agrees that the termination of his or her
marital relationship with his/her spouse for any reason, including his or her
death, will not remove any Common Shares otherwise subject to this Agreement
from the coverage of this Agreement and that his or her awareness,
understanding, consent, and agreement are evidenced by his or her signature to
this Agreement.


                                              /s/ WALTER S. REILING
                                                  WALTER S. REILING


                                              /s/ SUSAN REILING
                                                  SUSAN REILING

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