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                                                                   EXHIBIT 10.16

                              SETTLEMENT AGREEMENT

PREAMBLE

Smith & Wesson Corp., ("Smith & Wesson"), the City of Boston, and the Boston
Public Health Commission enter into this Agreement to reduce the criminal misuse
of firearms, combat the illegal acquisition, possession, and trafficking of
firearms, reduce the incidence of firearms accidents, and educate the public on
the safe handling and storage of firearms. Furthermore, Smith & Wesson enters
into this Agreement as a continuation of its efforts to make its firearms as
safe as practicable for its customers and the public. Accordingly, in
consideration of the commitments set forth below, the City of Boston and the
Boston Public Health Commission dismiss Smith & Wesson with prejudice from the
lawsuit entitled The City of Boston, et al. v. Smith & Wesson Corp., et al.,
Civil Action No. SUCV1999-02590-C subject to any consent orders entered pursuant
to paragraph VII.

The parties agree that this Agreement constitutes the full and complete
settlement of any and all claims that were raised or could have been raised in
the subject litigation. The parties agree further that this Agreement does not
constitute an admission of any violation of law, rule, or regulation by Smith &
Wesson or any of its employees. Nothing in this Agreement shall be construed to
be an admission of liability. The adoption of standards for firearms design and
distribution in this Agreement shall not be construed as an admission by Smith &
Wesson that practices it engaged in prior to the execution of this Agreement
were negligent.

I.    SAFETY AND DESIGN OF SMITH & WESSON FIREARMS.

      A.    STANDARDS. Each firearm make and model sold by Smith & Wesson shall
            be tested against the following standards by a proofing entity
            selected by a government regulator that is designated by the City of
            Boston and the Boston Public Health Commission, or if no such
            selection is made, by ATF. Existing makes and models shall meet
            these standards within 60 days of execution of this Agreement unless
            a longer period is specified in the standard. New makes and models
            shall not be manufactured and sold after the execution of this
            Agreement unless they conform to these standards.

            1.    STANDARDS APPLICABLE TO ALL HANDGUNS.

                  a.    SECOND "HIDDEN" SERIAL NUMBER. The handgun must have
                        both a visible serial number on the exterior of the
                        frame or receiver, as well as a second serial number
                        that is not susceptible to eradication. A serial number
                        is not
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                        susceptible to eradication if: (1) it is placed on the
                        interior of the handgun; or (2) it is placed on the
                        exterior of the handgun in a way that is not visible to
                        the unaided eye, but is visible with the aid of an
                        infrared detector or other device.

                  b.    EXTERNAL LOCKING DEVICE. As an interim measure, until
                        the implementation of Section I.A.1.c, within 60 days of
                        execution of the Agreement, each handgun shall be
                        supplied with an external locking device that
                        effectively prevents the operation of the firearm when
                        locked.

                  c.    INTERNAL LOCKING DEVICE. Within 24 months of execution
                        of the Agreement, each handgun shall have a built-in,
                        on-board locking system, by which the handgun can only
                        be operated with a key, a combination unique to that
                        handgun, or another mechanism unique to that handgun.

                  d.    AUTHORIZED USER TECHNOLOGY. Smith & Wesson shall commit
                        two percent of annual firearms sales revenues to the
                        development of a technology that recognizes only
                        authorized users and permits a handgun to be used only
                        by authorized persons. Within 36 months of execution of
                        this Agreement, Smith & Wesson shall use its best
                        efforts to incorporate this technology in all new
                        handgun designs, with the exception of curios and
                        collectors' handguns. This requirement does not apply to
                        existing designs currently in production. If it is not
                        technologically, mechanically, or fiscally feasible to
                        incorporate this technology into all new handgun designs
                        within 36 months, Smith & Wesson will continue to commit
                        two percent of annual firearms revenues to the
                        development of this technology or an alternate
                        technology agreed upon by the parties to this Agreement.

                  e.    CHILD SAFETY. Within 12 months of execution of the
                        Agreement, each handgun shall be designed to effectively
                        preclude an average five year old child from operating
                        the handgun when it is ready to fire. Such mechanisms
                        shall include but are not limited to: raising trigger
                        resistance to at least a ten pound pull, altering the
                        firing mechanism so that an average five year old
                        child's hands are too small to operate the handgun, or
                        requiring a series of multiple motions in order to fire
                        the handgun.

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                        This provision shall not apply to handguns that have a
                        hammer deactivation device.

                  f.    MINIMUM BARREL LENGTH. Each handgun make and model must
                        have a barrel length of at least 3", unless the
                        manufacturer has documented test data demonstrating that
                        the handgun has an average group diameter test result of
                        1.7" or less at seven yards, 3.9" or less at 14 yards,
                        and 6.3" or less at 21 yards. The average group diameter
                        test result is the arithmetic mean of the results of
                        three separate trials, each performed on a different
                        sample handgun of the make and model at issue. For each
                        trial, the handgun shall fire five rounds at a target
                        from the specified distance, and the largest spread in
                        inches between the center of any of the holes made in a
                        test target shall be the result of the trial.

                  g.    PERFORMANCE TEST. A sample of each handgun make and
                        model will be test-fired with "proof cartridges"
                        (cartridges loaded to generate excess pressure as set
                        forth in accepted specifications for proof cartridges)
                        to ensure the integrity of the material. At least one
                        cartridge shall be fired from each chamber. Following
                        this test firing, the handgun will be examined for
                        hairline cracks or other signs of material failure and
                        will pass this test only if there are no hairline cracks
                        or other signs of material failure. Each handgun make
                        and model shall also pass the following performance
                        test: the handgun shall fire 600 rounds, stopping only
                        every 100 rounds to tighten any loose screws and clean
                        the handgun (if required by the cleaning schedule
                        recommended in the manual), or as needed to refill the
                        empty magazine or cylinder to capacity before
                        continuing. For any handgun that loads other than with a
                        detachable magazine, the tester shall pause every 50
                        rounds for ten minutes. The tester shall use the
                        ammunition recommended in the user's manual, or if none
                        is recommended, any standard ammunition of the correct
                        caliber in new condition. A handgun shall pass this test
                        if it fires the first 20 rounds without a malfunction
                        and the full 600 rounds with no more than 6 malfunctions
                        and without any crack or breakage of an operating part
                        of the handgun that increases the danger of injury.
                        Malfunction shall not include a misfire caused by a
                        faulty cartridge whose primer fails to detonate when
                        properly hit by the handgun's firing mechanism.

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                  h.    DROP TEST. Each handgun must pass the more rigorous of:
                        (a) the SAAMI Standard drop test in effect on the date
                        the handgun is sold; or (b) the following test: the
                        handgun shall be test-loaded, set such that the handgun
                        is ready to fire, and dropped onto a solid slab of
                        concrete from a height of one meter from each of the
                        following positions: (1) normal firing position; (2)
                        upside down; (3) on the grip; (4) on the muzzle; (5) on
                        either side; and (6) on the exposed hammer or striker
                        (or, if there is no exposed hammer or striker, then on
                        the rearmost part of the handgun). If the handgun is
                        designed so that its hammer or striker may be set in
                        other positions, it shall be tested with the hammer or
                        striker in each such position (but otherwise ready to
                        fire).

            2.    ADDITIONAL STANDARDS FOR PISTOLS.

                  a.    SAFETY DEVICE. The pistol must have a positive manually
                        operated safety device as determined by standards
                        relating to imported guns promulgated by ATF.

                  b.    MINIMUM LENGTH AND HEIGHT STANDARDS. The pistol's
                        combined length and height must not be less than 10"
                        with the height being at least 4" and the length being
                        at least 6", unless it has an average group diameter
                        test result of 1.7" or less at seven yards, 3.9" or less
                        at 14 yards, and 6.3" or less at 21 yards. The average
                        group diameter test result is the arithmetic mean of the
                        results of three separate trials, each performed on a
                        different sample firearm of the make and model at issue.
                        For each trial, the firearm shall fire five rounds at a
                        target from the specified distance and the largest
                        spread in inches between the center of any of the holes
                        made in a test target shall be the result of the trial.

                  c.    MAGAZINE SAFETY DISCONNECT OR CHAMBER LOAD INDICATOR.
                        Within 12 months of execution of this Agreement, each
                        pistol shall have either a magazine safety disconnect or
                        a chamber load indicator. This provision applies only to
                        handguns that have a mechanism to load cartridges via a
                        magazine.

                  d.    LARGE CAPACITY MAGAZINES. No pistol make or model
                        designed after January 1, 2000 shall be able to accept

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                        magazines manufactured prior to September 14,1994, with
                        a greater than 10 round capacity, and such models shall
                        not be capable of being easily modified to accept such
                        magazines. Nor shall Smith & Wesson ammunition magazines
                        that are able to accept more than 10 rounds be sold by
                        Smith & Wesson or its authorized distributors and
                        dealers. See Section II.A.l.h, below.

                  e.    ADDITIONAL SAFETY FEATURES. Each pistol must have a
                        firing pin block or lock.

            3.    ADDITIONAL STANDARD FOR REVOLVERS. Each revolver make and
                  model must pass a safety test. Each make and model must have a
                  safety feature which automatically (for a double action
                  revolver) or by manual operation (for a single action
                  revolver) causes the hammer to retract to a point where the
                  firing pin does not rest upon the primer of the cartridge. The
                  safety device must withstand, no less than five consecutive
                  times, the impact of a weight equal to the weight of the
                  revolver dropping from a distance of 1 meter in a line
                  parallel to the barrel upon the rear of the hammer spur
                  without firing a primed case inserted into the chamber and
                  aligned with the barrel.

      B.    LAW ENFORCEMENT AND MILITARY EXCEPTION. An exception to a
            requirement of paragraph A may be granted for firearms manufactured
            or imported for sale to a law enforcement agency or the military if
            the law enforcement agency or military organization certifies to
            Smith & Wesson that the handgun(s) are for official purposes. Where
            a law enforcement agency authorizes or requires its officers to
            purchase firearms individually for official use, an appropriate
            certification from the agency will be permitted to apply to sales to
            a number of individual officers. Smith & Wesson shall maintain the
            certification in its records. Firearms sold to law enforcement or
            the military pursuant to this exception, which do not comply with
            the design standards of this Agreement, will be accompanied by a
            statement:

            1.    "On [date], Smith & Wesson, the City of Boston, and the Boston
                  Public Health Commission entered into an Agreement
                  establishing certain design standards for firearms sold to
                  civilians. Pursuant to that Agreement, we are obliged to
                  inform you that this firearm does not comply with all of the
                  design standards of the Agreement. We are further obliged to
                  request that you not resell this firearm to civilians. This
                  statement is not intended to suggest that there are any design
                  flaws with this firearm, and you remain entitled to dispose of
                  it in any lawful manner."

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      C.    WARNINGS ABOUT SAFE STORAGE AND HANDLING. Within 6 months of
            execution of this Agreement, Smith & Wesson shall include in the
            packaging of each firearm sold a warning on risk of firearms in the
            home and proper home storage. These warnings shall state in at least
            12 point type:

            "This handgun is not equipped with a device that fully blocks use by
            unauthorized users. More than 200,000 firearms like this one are
            stolen from their owners every year in the United States. In
            addition, there are more than a thousand suicides each year by
            younger children and teenagers who get access to firearms. Hundreds
            more die from accidental discharge. It is likely that many more
            children sustain serious wounds, or inflict such wounds accidentally
            on others. In order to limit the chance of such misuse, it is
            imperative that you keep this weapon locked in a secure place and
            take other steps necessary to limit the possibility of theft or
            accident. Failure to take reasonable preventative steps may result
            in innocent lives being lost, and in some circumstances may result
            in your liability for these deaths."

      D.    ILLEGAL FIREARMS. Smith & Wesson shall not sell firearms that can be
            readily converted to an illegal firearm (i.e., a weapon designed in
            a manner so that with few additional parts and/or minimal
            modifications an owner can convert the firearm to an illegal fully
            automatic weapon); nor shall the firearms be designed so that they
            are resistant to fingerprints.

II.   SALES AND DISTRIBUTION OF SMITH & WESSON FIREARMS.

      Smith & Wesson agrees that both it and, as part of any distribution or
      agency agreement, its authorized distributors, authorized dealers, and
      franchisees (collectively referred to as "authorized distributors and
      dealers") shall commit to a standard of conduct to make every effort to
      eliminate sales of firearms that might lead to illegal firearm possession
      and/or misuse by criminals, unauthorized juveniles, and other prohibited
      persons ("suspect firearms sales"). Suspect firearm sales include sales
      made to straw purchasers, multiple sales of handguns without reasonable
      explanation (excluding sales to FFLs), and sales made to any purchaser
      without a completed background check.

      The parties to this Agreement agree that the obligations in Section II of
      this Agreement shall apply to Smith & Wesson's authorized distributors and
      dealers only with respect to firearms manufactured by Smith & Wesson.

      As specified in Sections II.A.2 and II.A.3 below, Smith & Wesson will take
      action against authorized distributors and dealers that are not compliant
      with these requirements if Smith & Wesson receives a request for a
      compliance

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      review from a compliance liaison designated by the City of Boston and the
      Boston Public Health Commission ("Plaintiffs' compliance liaison"), ATF,
      or state or local law enforcement.

      A.    AUTHORIZED DISTRIBUTORS AND DEALERS.

            1.    REQUIREMENTS. Within 6 months of execution of this Agreement,
                  Smith & Wesson will sell its firearms only to authorized
                  distributors and dealers. In order to qualify to become an
                  authorized distributor or dealer, the distributor or dealer
                  must agree in writing to:

                  a.    LICENSES AND CERTIFICATION. Possess a valid and current
                        federal firearms license, and all other licenses and
                        permits required by local, state, or federal law, and
                        certify on an annual basis, under penalty of perjury,
                        compliance with all local, state, and federal firearms
                        laws.

                  b.    TRANSACTION REQUIREMENTS. For each transaction involving
                        a Smith & Wesson firearm, perform (in the presence of
                        the purchaser and at the premises listed on its federal
                        firearms license) the following:

                        (1)   The completion of the forms and related
                              requirements under the Brady Act and the Gun
                              Control Act.

                        (2)   The physical transfer of the firearm.

                  c.    INSURANCE. Where available, carry liability insurance
                        coverage of at least $1 million per incident for damage
                        to property and for injury to or the death of any person
                        resulting from the sale, lease, or transfer of a
                        firearm.

                  d.    SALES AT GUN SHOWS. Make no sales of Smith & Wesson
                        firearms at gun shows unless all sales by any seller at
                        the gun show are conducted only upon completion of a
                        background check.

                  e.    INVENTORY TRACKING. Within 24 months of execution of
                        this Agreement, maintain an inventory tracking plan for
                        Smith & Wesson firearms that includes at a minimum the
                        following elements:

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                        (1)   Within one business day after the acquisition (or
                              disposition) of a Smith & Wesson firearm, a record
                              shall be made of the make, model, caliber or
                              gauge, serial number, and acquisition (or
                              disposition) date. Monthly backups of these
                              records shall be maintained in a secure container
                              designed to prevent loss by fire, theft, or other
                              mishap.

                        (2)   All Smith & Wesson firearms acquired but not yet
                              disposed of shall be accounted for through an
                              inventory check prepared once each month and
                              maintained in a secure location.

                        (3)   For authorized dealers and franchisees, all ATF
                              Form 4473 firearm transaction records for Smith &
                              Wesson firearms shall be retained on the dealer's
                              or franchisee's business premises in a secure
                              container designed to prevent loss by fire, theft,
                              or other mishap.

                        (4)   If an audit of an authorized distributor's or
                              dealer's inventory reveals any Smith & Wesson
                              firearms not accounted for, the authorized
                              distributor or dealer shall be subject to
                              termination as an authorized distributor or dealer
                              as specified in Section II.A.2 below.

                  f.    SECURITY. Implement a plan for securing Smith & Wesson
                        firearms, including firearms in transit. The plan must
                        satisfy at least the following requirements:

                        (1)   During business hours, display cases containing
                              Smith & Wesson firearms shall be locked at all
                              times except when removing firearms to show a
                              customer. Customers shall not be left alone or
                              unattended at any time while handling Smith &
                              Wesson firearms.

                        (2)   During non-business hours, Smith & Wesson firearms
                              shall be secured in a locked fireproof safe or
                              vault, or in another secure and locked area, or by
                              the use of a security system that is designed to
                              prevent loss by theft.

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                        (3)   Smith & Wesson firearms shall be stored separately
                              from handgun ammunition.

                  g.    PERSONS UNDER 18. Not permit any person under 18 to
                        handle a Smith & Wesson firearm unless he or she is
                        under the direct supervision of both an employee and a
                        parent or guardian. However, a person under 18 may
                        handle a Smith & Wesson firearm as a part of an
                        organized training program while under the direct
                        supervision of an employee.

                  h.    SALE OF PRODUCTS. Not sell Smith & Wesson ammunition
                        magazines that are able to accept more than 10 rounds
                        regardless of the date of manufacture; not sell any
                        Smith & Wesson semi-automatic assault weapon as defined
                        in 18 U.S.C. 921(a)(3) regardless of the date of
                        manufacture; provide safety locks and warnings with new
                        Smith & Wesson firearms, as specified in Section I
                        above; and sell new Smith & Wesson firearms that comport
                        with Section I above. Law enforcement and export sales
                        are exempt from this paragraph.

                  i.    ACCESS TO DOCUMENTS REGARDING COMPLIANCE. For purposes
                        of determining compliance with the requirements of
                        Section II, or for any other authorized purpose, provide
                        Smith & Wesson with full access to any documents related
                        to the acquisition and disposition of Smith & Wesson
                        firearms deemed necessary for purposes of complying with
                        Sections II.A.2 and II.A.3.

                  j.    MONITORING OF DISTRIBUTION. Participate in and comply
                        with all monitoring of firearms distribution by Smith &
                        Wesson, ATF, or law enforcement.

                  k     TRACE REQUESTS. Maintain a record of all trace requests
                        of Smith & Wesson firearms initiated by ATF, and report
                        those trace requests (by make, model, and serial number
                        of firearm, date of trace, and date of sale) to Smith &
                        Wesson on a monthly basis, unless ATF, for investigative
                        reasons, directs the authorized distributor or dealer
                        not to report certain traces.

                  l.    EMPLOYEE TRAINING AND CERTIFICATION. Within 12 months of
                        execution of this Agreement, require all employees
                        involved in the sale of Smith & Wesson firearms to

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                        receive training prior to handling or selling Smith &
                        Wesson firearms. The training shall be developed by
                        Smith & Wesson in consultation with ATF. The training
                        shall cover at a minimum: the law governing firearms
                        transfers by licensees and individuals; how to recognize
                        straw purchasers and other attempts to purchase firearms
                        illegally; how to recognize indicators that firearms may
                        be diverted for later sale or transfer to those not
                        legally entitled to purchase them; how to respond to
                        those attempts; and the safe handling and storage of
                        firearms. Additionally, all such employees shall receive
                        annual training on the aforementioned topics. Such
                        training may be delivered by electronic medium. If the
                        firearms industry develops a national training program
                        that is approved by ATF, and such national training
                        program is acceptable to the parties to this Agreement,
                        the national training program may be substituted for the
                        training program described in this paragraph.

                        Within 12 months of execution of this Agreement and
                        annually thereafter, Smith & Wesson will obtain from all
                        authorized distributors and dealers certifications that
                        the training has been completed, with a list of the
                        names of all employees who have received such training.

                  m.    EMPLOYEE TESTING AND CERTIFICATION. Within 12 months of
                        execution of this Agreement, require all employees to
                        pass a comprehensive written exam, which shall be
                        developed by Smith & Wesson in consultation with ATF, on
                        the material covered in the training before being
                        allowed to sell or handle Smith & Wesson firearms. Any
                        employee who fails to pass the exam shall be prohibited
                        from selling or handling Smith & Wesson firearms on
                        behalf of the authorized distributor or dealer. The
                        annual certification discussed above will include
                        certification that all employees have passed the exam.

                  n.    TRANSFER PREREQUISITES - NICS NOTICE. Not complete any
                        transfer of a Smith & Wesson firearm prior to receiving
                        notice from the NICS that the transferee is not a
                        prohibited person under the Gun Control Act.

                  o.    TRANSFER PREREQUISITES - VALID LICENSE. Verify the
                        validity of a licensee's federal firearms license
                        against an ATF database such as the ATF database "FFL eZ
                        Check"

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                        before transferring a Smith & Wesson firearm to that
                        Licensee.

                  p.    TRANSFER LIMITATIONS. Forego any transfer of a Smith &
                        Wesson firearm to a federal firearms licensee if the
                        authorized distributor or dealer knows the licensee to
                        be under indictment for violations of the Gun Control
                        Act, for any violent felony, or for any serious drug
                        offense as defined in 18 U.S.C. 924(e)(2).

                  q.    TRANSFER PREREQUISITES - PURCHASER EDUCATION AND
                        NOTIFICATION. Transfer Smith & Wesson firearms only:

                        (1)   To individuals who have demonstrated that they can
                              safely handle and store firearms through
                              completion of a certified firearms safety training
                              course or by having passed a certified firearms
                              safety examination. This requirement shall apply
                              only to individuals who purchase such a firearm(s)
                              any time after 6 months following the execution of
                              this Agreement.

                        (2)   After demonstrating to the purchaser how to load,
                              unload, and safely store the firearm, and how to
                              engage and disengage all safety devices on the
                              firearm.

                        (3)   After providing the purchaser with a copy of the
                              ATF Disposition of Firearms Notice.

                        (4)   After obtaining the purchaser's signature on a
                              form certifying that the purchaser has received
                              the instruction described in subparagraph (2) and
                              the notice described in subparagraph (3) and
                              retaining a copy of that form for its files.

                        (5)   After providing the purchaser with a written
                              record of the make, model, caliber or gauge, and
                              serial number of each firearm transferred to
                              enable the purchaser to accurately describe the
                              firearm to law enforcement in the event that it is
                              subsequently lost or stolen.

            2.    ENFORCEMENT. Smith & Wesson shall incorporate into any
                  distribution or agency agreement with its authorized
                  distributors

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                  and dealers procedures for terminating agreements with
                  authorized distributors or dealers that engage in conduct in
                  violation of this Agreement. Authorized distributors and
                  dealers shall agree to this enforcement system as a condition
                  of becoming authorized. Smith & Wesson shall require annual
                  certification by its authorized distributors and dealers that
                  they are in compliance with the requirements in Section II.A.1
                  (a-q) of this Agreement and applicable provisions of Section
                  II.B and C, below.

            3.    NONCOMPLIANCE WITH THE AGREEMENT. If Smith & Wesson receives a
                  request for a compliance review from Plaintiffs' compliance
                  liaison, ATF, or state or local law enforcement as a result of
                  alleged noncompliance with this Agreement by an authorized
                  distributor or dealer, Smith & Wesson will either immediately
                  terminate sales to the authorized distributor or dealer
                  allegedly in noncompliance or will take the following actions.
                  Within seven (7) business days of receiving such a request for
                  a compliance review, Smith & Wesson will notify the authorized
                  distributor or dealer, will inform the authorized distributor
                  or dealer of the alleged noncompliance, and will request
                  information regarding the alleged noncompliance. The
                  authorized distributor or dealer will then have fifteen (15)
                  days to provide Smith & Wesson with the requested information.
                  If Smith & Wesson determines that the authorized distributor
                  or dealer is in violation of the Agreement, Smith & Wesson
                  will provide no further product to the authorized distributor
                  or dealer until Smith & Wesson determines that the authorized
                  distributor or dealer is in compliance with the Agreement.

                  Smith & Wesson shall inform Plaintiffs' compliance liaison
                  (and, if applicable, ATF and the state or local law
                  enforcement agency if it initiated the request for a
                  compliance review) of its notifications and decisions and
                  shall provide them with the information provided by the
                  authorized distributor or dealer. If Plaintiffs' compliance
                  liaison determines that suspension or termination of the
                  authorized distributor or dealer is warranted, and Smith &
                  Wesson has not taken this action, Plaintiffs' compliance
                  liaison may request that the court approving and issuing a
                  consent decree pursuant to this Agreement direct Smith &
                  Wesson to do so.

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      B.    AUTHORIZED DISTRIBUTORS - ADDITIONAL PROVISION.

            Authorized distributors must agree to sell Smith & Wesson firearms
            only to other authorized distributors or dealers or directly to
            government purchasers.

      C.    AUTHORIZED DEALERS - ADDITIONAL PROVISIONS.

            In addition to the requirements in Section II.A.1 above, authorized
            dealers must agree:

            1.    LIMITATION ON SALES TO FEDERAL FIREARMS licensees. Not to sell
                  any Smith & Wesson firearms to any federal firearms licensee
                  that is not a Smith & Wesson authorized distributor or dealer.

            2.    STRAW PURCHASES. Not to engage in sales of Smith & Wesson
                  firearms that the dealer knows or has reason to know are being
                  made to straw purchasers.

            3.    MULTIPLE HANDGUN SALES. In addition to federal, state, and
                  local regulations relating to multiple handgun sales, to
                  adhere to the following procedures for multiple Smith & Wesson
                  handgun sales. If a purchaser wants to purchase more than one
                  Smith & Wesson handgun, the purchaser may take from the dealer
                  only one Smith & Wesson handgun on the day of sale. The
                  purchaser may take the additional Smith & Wesson handgun(s)
                  from the dealer 14 days thereafter. This provision shall not
                  apply to sales to qualified private security companies
                  licensed to do business within the State where the transfer
                  occurs for use by the company in its security operations.

            4.    MASSACHUSETTS FORM. For sales that require dealers to fill out
                  Commonwealth of Massachusetts form FA-10, on that form the
                  dealer will indicate at the end of the section entitled
                  "Weapon Information" the following two facts:

                  a.    If the sale was made to law enforcement personnel.

                  b.    If the handgun sold was manufactured prior to October 1,
                        1998.

      D.    SMITH & WESSON.

            Smith & Wesson must:

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            1.    Provide quarterly reports of its own sales data and downstream
                  sales data, with the volume of sales by make, model, caliber,
                  and gauge, to ATF's National Tracing Center.

            2.    Not market any firearm in a way that would make the firearm
                  particularly appealing to juveniles or criminals, such as
                  advertising a firearm as "fingerprint resistant."

            3.    Refrain from selling any modified or sporterized
                  semi-automatic assault pistol of a type that cannot be
                  imported into the United States.

            4.    Reaffirm its longstanding policy and practice of not placing
                  advertisements in the vicinity of schools, high crime zones,
                  or public housing.

            5.    Verify the validity of a licensee's federal firearms license
                  against an ATF database such as the ATF database "FFL eZ
                  Check" before transferring a Smith & Wesson firearm to any
                  licensee.

            6.    Forego any transfer of a firearm to a federal firearms
                  licensee if Smith & Wesson knows the licensee to be under
                  indictment for violations of the Gun Control Act, for any
                  violent felony, or for any serious drug offense as defined in
                  18 U.S.C. 924(e)(2).

            7.    Implement a plan for securing Smith & Wesson
                  firearms, including firearms in shipment. The
                  plan will include the following elements:

                  a.    Employee and visitor movement into and out of Smith &
                        Wesson's facility will be only through designated
                        security control points, and visitors will be admitted
                        only after positive identification and confirmation of
                        the validity of the visit. Employees and visitors must
                        pass through a metal detector before leaving.

                  b.    All areas where firearms are assembled and stored will
                        be designated as restricted areas. Access will be
                        authorized only for those employees whose work requires
                        them to enter these areas or for escorted visitors.
                        Protective barriers will be installed in restricted
                        areas to deny or impede unauthorized access.

                                       14
<PAGE>   15
                  c.    Each facility or area where firearms, ammunition, or
                        components are stored will be provided with a system to
                        detect unauthorized entry.

                  d.    If firearms are shipped in cartons, the cartons will
                        bear no identifying marks or words. Smith & Wesson will
                        use only very strong cartons to protect against
                        concealed pilferage in truck shipments, and large
                        cartons will be secured with steel strapping in two
                        directions. Smith & Wesson will use only carriers and
                        freight forwarders that warrant in writing that they
                        conduct criminal background checks on delivery personnel
                        and will report all thefts or losses of firearms to ATF
                        within 48 hours of learning of the theft or loss. Smith
                        & Wesson will inspect carriers' and forwarders' local
                        facilities periodically.

            8.    Encourage its authorized distributors and dealers to consent
                  to up to three unannounced ATF compliance inspections each
                  year.

            9.    Use its best efforts to provide its authorized distributors
                  and dealers with safety locks, at a nominal cost, for use with
                  used Smith & Wesson firearms.

III.  IMPLEMENTING THE AGREEMENT.

      A.    SMITH & WESSON'S CORPORATE RESPONSIBILITY.

            1.    Within a reasonable time after execution of this Agreement,
                  and upon ATF's consent, ATF will establish a formula to
                  identify what constitutes a disproportionate number of crime
                  guns. In determining the formula, ATF shall consider the
                  available data and establish procedures to ensure that the
                  relevant data is obtained. This provision will not take effect
                  until ATF establishes the formula and a mechanism for its
                  implementation.

            2.    If ATF informs Smith & Wesson that a disproportionate number
                  of crime guns have been traced to an authorized distributor or
                  dealer within three years of the gun's sale, Smith & Wesson
                  will either immediately terminate sales to the authorized
                  distributor or dealer or take the following actions. Smith &
                  Wesson will notify the authorized distributor or dealer of the
                  disproportionate number of crime guns within seven (7) days
                  and demand an explanation and proposal to avoid a
                  disproportionate number of traces in the future. The
                  authorized distributor or dealer will have fifteen (15) days
                  to provide the explanation and proposal.

                                       15
<PAGE>   16
                  If Smith & Wesson determines that the explanation and proposal
                  are not satisfactory, Smith & Wesson will terminate sales to
                  the authorized distributor or dealer. If Smith & Wesson
                  determines that the explanation and proposal are satisfactory,
                  Smith & Wesson will continue sales, but will closely monitor
                  traces to the authorized distributor or dealer in question. If
                  disproportionate traces continue, Smith & Wesson will
                  terminate sales to the authorized distributor or dealer.

            3.    Smith & Wesson shall inform Plaintiffs' compliance liaison and
                  ATF of its notifications and decisions and provide them with
                  the information provided by the authorized distributor or
                  dealer. If Plaintiffs' compliance liaison determines that
                  suspension or termination of the authorized distributor or
                  dealer is warranted, and Smith & Wesson did not take this
                  action, Plaintiffs' compliance liaison may request that the
                  court approving and issuing a consent decree pursuant to this
                  Agreement direct Smith & Wesson to do so.

      B.    ROLE OF ATF. ATF will continue to issue, regulate, and inspect
            federal firearms licensees, collect multiple sales forms, conduct
            firearms traces, investigate firearms traffickers and straw
            purchasers, enforce the Gun Control Act and the National Firearms
            Act, and fulfill its other statutory responsibilities. To the extent
            consistent with law and the effective accomplishment of its law
            enforcement responsibilities, ATF will work with Smith & Wesson to
            assist it in meeting its obligations under the Agreement. Nothing in
            this paragraph shall diminish the obligation of Smith & Wesson to
            make reasonable efforts to identify noncompliance and to respond to
            notifications of violations from parties other than ATF.

      C.    SMITH & WESSON'S COMPLIANCE LIAISON.

            1.    Smith & Wesson shall designate an executive level manager to
                  serve as a compliance officer and shall provide the compliance
                  officer with sufficient resources and staff to fulfill the
                  officer's responsibilities under this Agreement.

            2.    The compliance officer shall be responsible for:

                  a.    Ensuring that Smith & Wesson fulfills its obligations
                        under this Agreement;

                  b.    Training Smith & Wesson's officers and employees on the
                        obligations imposed by this Agreement; and

                                       16
<PAGE>   17
                  c.    Serving as the liaison to Plaintiffs' compliance
                        liaison.

            3.    Smith & Wesson shall commit to full cooperation in the
                  implementation and enforcement of this Agreement.

IV.   COOPERATION WITH LAW ENFORCEMENT.

      A.    Smith & Wesson reaffirms its commitment to cooperate fully with law
            enforcement and regulators to eliminate illegal firearms sales and
            possession.

      B.    Within 6 months of execution of this Agreement, if technologically
            available and reasonably able to be incorporated into the
            manufacturing process, Smith & Wesson shall fire each firearm before
            sale and shall enter the digital image of its casing along with the
            weapon's serial number into a system compatible with the National
            Integrated Ballistics Identification Network system. The digital
            image shall be made available electronically to ATF's National
            Tracing Center. If this technology is not available and reasonably
            able to be incorporated into the manufacturing process, Smith &
            Wesson shall fire each firearm before sale and shall supply the
            fired shell casing, suitably packaged and identified, with the
            subject handgun upon transfer from Smith & Wesson to an authorized
            distributor or dealer for compliance with applicable laws and
            regulations.

      C.    Smith & Wesson shall participate in ATF's Access 2000 program to
            facilitate electronic linkage to its inventory system to allow for
            rapid responses to ATF's firearms trace requests.

V.    LEGISLATION.

      The parties to this Agreement will work together to support legislative
      efforts to reduce firearms misuse and the development of authorized user
      technology.

VI.   EDUCATION TRUST FUND.

      Upon resolution of the current lawsuits brought by cities, counties, or
      States, the manufacturer parties to this Agreement shall dedicate one
      percent of annual firearms revenues to a trust fund to implement a public
      service campaign to inform the public about the risk of

                                       17
<PAGE>   18
      firearms misuse, safe storage, and the need to dispose of firearms
      responsibly.

VII.  MOST FAVORED ENTITY.

      If the manufacturer parties to this Agreement enter into an agreement with
      any other entity wherein they commit to institute design or distribution
      reforms that are more expansive than any of the above-enumerated items,
      such reforms will become a part of this Agreement as well.

      In addition, if firearms manufacturers that are not party to this
      Agreement agree to design or distribution reforms that are more expansive
      than any of the above-enumerated items, and if the manufacturers who are
      party to the other agreement(s) with more expansive terms, in combination
      with the manufacturer parties to this Agreement, account for fifty percent
      or more of United States handgun sales, manufacturer parties to this
      Agreement will agree to abide by the same design and distribution
      measures.

VIII. ENFORCEMENT.

      The Agreement will be entered and is enforceable as a Court order and as a
      contract.

                                       18<PAGE>   1

                                                                   EXHIBIT 10.17

                              SMITH & WESSON CORP.

                           TRADEMARK LICENSE AGREEMENT

This Agreement, effective as of August 1, 1996, by and between SMITH & WESSON
CORP., a Delaware Corporation with its principal office at 2100 Roosevelt
Avenue, Springfield, Massachusetts 01102-2208, U.S.A. (hereinafter called
Licensor"), and UMAREX Sportwaffen, GmbH, a Corporation having its principal
office at Donnerfeld 2, 59757, Germany (hereinafter called "Licensee"). In
consideration of the mutual promises herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Licensor and Licensee, the parties agree as follows:

1.    Definitions: As used in this Agreement, the following terms shall have the
      following meanings:

      a.    "Marks" shall mean those trademarks and also any trade dress
            identified in Exhibit A, attached hereto, and all of the Licensor's
            rights in such Marks including, without limitation, common law
            rights, and registrations and applications for registration of any
            such Marks in any state, federal or other jurisdiction.

      b.    "Licensed Articles" shall mean the articles of merchandise listed in
            Exhibit B, attached hereto and marked with one or more of the Marks.

      c.    "Net Sales Price" shall be the invoiced price at which Licensed
            Articles are sold or provided by Licensee, less any sales tax, and
            less any credits for returns actually made or allowances in lieu of
            returns, provided that such returns and/or allowances relate to
            sales which were previously included in royalty calculations under
            this Agreement and less trade discounts and/or retailer promotional
            programs. The Net Sales Price on account of sales, giveaways, or
            other transactions, without charge or at discounted prices, and
            sales to any person directly or indirectly related to or affiliated
            with Licensee shall be computed based on regular selling prices to
            the trade. There shall be no deduction from the Net Sale Price on
            which royalties are due hereunder for uncollectible accounts,
            advertising expenses or other expenses of any kind except those
            specifically identified in this Section.

      d.    "Territory" is the geographic area identified in Section 2(a) of
            this Agreement.
<PAGE>   2
      e.    "Minimum Guaranteed Royalties" shall have the meaning set forth in
            Section 3(e) of this Agreement.

      f.    "Contract Year" and "First Contract Year" shall have the meanings
            given those respective terms set forth in Section 2(b) of this
            Agreement.

2.    Grant of License Term, Licensee's Duties

      a.    Licensor hereby grants to Licensee an exclusive, indivisible,
            worldwide license, without the right to sublicense, to use the Marks
            in connection with the retail sale of Licensed Articles. Licensee
            shall not use, or permit the use of, the Marks with any other
            product, except as specifically provided in this Agreement. Licensee
            shall take all steps and timely notify Licensor of all steps as
            shall be necessary to protect Licensor's trademark rights in such
            Marks, and to assure Licensor's exclusive ownership thereof.

      b.    Notwithstanding the provisions of sub-paragraph (a) above, at any
            time after the expiry of the second Contract Year, the Licensor
            shall have the option to terminate this Agreement with regard to any
            Licensor-specified Licensed Article(s) in a Licensor specified
            country, provided it first gives the Licensee prior written notice
            of One Hundred and Eighty (180) days of its intention to do so,
            which termination will only become effective should the Licensee not
            commence to market the specified Licensed Article(s) in such
            specified country, or submit to Licensor an acceptable business plan
            to market said specified Licensed Article(s) in such specified
            country prior to the expiry of such one hundred and eighty day
            period.

      c.    The term of this Agreement shall be for three (3) years, five (5)
            months commencing August 1, 1996 and ending December 31, 1999 at
            midnight, unless sooner terminated. Each period from January 1
            through December 31 during the term hereof is hereinafter referred
            to as a "Contract Year", with the exception of the "First Contract
            Year", which shall be for the period from August 1, 1996 through
            December 31, 1996. This Agreement shall be automatically extended
            for successive Contract Years after termination of the initial term
            unless Licensor or Licensee gives the other party written notice of
            its intention not to extend this Agreement at least one hundred
            eighty (180) days prior to the expiration of a Contract Year or of
            any extension. A party's determination not to extend this Agreement
            may be effected without cause.

                                       2
<PAGE>   3
      d.    Licensee shall use its best efforts to promote the sale of Licensed
            Articles in the Territory and shall maintain resources and a sales
            force sufficient and adequate to accomplish Licensee's obligations
            hereunder.

      e.    Licensee shall make available to Licensor or its designated agent(s)
            any Licensed Article on the most favorable terms and conditions
            offered by Licensee for that Licensed Article.

3.    Royalties and Payment Minimum Guaranteed Royalties, Reporting

      a.    Licensee shall pay Licensor a royalty equal to seven (7%) percent of
            the Net Sales Price of all Licensed Articles as set out in Exhibit B
            sold, distributed or otherwise provided by Licensee during or after
            the term of this Agreement.

      b.    On or before the fifteenth day of the first month of each calendar
            quarter, Licensee shall furnish to Licensor full and accurate
            statements, certified by the Chief Financial Officer of Licensee,
            showing the number, description, total Net Sales Prices and gross
            revenue of the Licensed Articles sold, distributed or otherwise
            provided by the Licensee during the preceding calendar quarter.
            Licensee shall, simultaneously with such statements, pay to Licensor
            the royalties due thereon. Licensee may credit against any such
            payment any Minimum Guaranteed Royalty payment made by Licensee
            contemporaneously with such quarterly statement. Any Minimum
            Guaranteed Royalty paid for any Contract Year shall not be refunded
            to Licensee, and may not be credited to royalties due in any
            subsequent Contract Year, regardless of the sales of Licensed
            Articles. On or before the first day of the fourth month following
            the end of each Contract Year, Licensee shall furnish to Licensor a
            statement certified by the Chief Financial Officer of Licensee
            showing total sales of Licensed Articles, gross revenues therefrom
            as well as royalties and royalties paid for the preceding Contract
            Year. If such statement discloses that the amount of royalties paid
            during any period to which such statement relates were less than the
            amount required to be paid, Licensee shall pay such deficiency
            concurrently with the delivery of the statement. The quarterly and
            yearly statements shall each show in detail all calculations used in
            the computation of royalties.

      c.    For purposes of this Agreement, a Licensed Article shall be
            considered sold or provided when such Article has been shipped,
            distributed, paid for, billed or invoiced, whichever first occurs.

      d.    Notwithstanding anything to the contrary set forth herein, Licensee
            shall pay to Licensor minimum royalties ("Minimum Guaranteed
            Royalties"),

                                       3
<PAGE>   4
            as follows for each Contract Year, or portion thereof, included in
            the term of this Agreement, until changed by mutual written
            agreement of the parties:

<TABLE>
<S>                                                       <C>
            First Contract year                           $10,000
            Second Contract year                          $28,000
            Third Contract year                           $28,000
            Fourth Contract year                          $28,000
</TABLE>

      e.    For the First Contract Year, the Minimum Guaranteed Royalty shall be
            payable as follows: Five Thousand Dollars ($5,000.00) on August 1,
            1996, Five Thousand Dollars ($5,000) on November 1, 1996.
            Thereafter, for each Contract Year during which this Agreement is in
            effect, the Minimum Guaranteed Royalty shall be paid in four equal
            installments on the dates on which each royalty payment is due,
            pursuant to Section 3(c) of this Agreement.

      f.    Any delinquent amounts under this Agreement shall bear simple
            interest at the rate of 1.5 percent per month, or if lower, the
            highest rate permitted by Massachusetts law, from the due date
            thereof until paid.

      g.    The parties agree to renegotiate the amount of the Minimum
            Guaranteed Royalties should the German government enact legislation
            which significantly restricts the marketing of the Licensed
            Articles. Any change in the amount of the Minimum Guaranteed
            Royalties will become effective in next Contract Year.

4.    Protection of Marks

      a.    Licensee acknowledges Licensor's exclusive right, title and interest
            in and to the Marks, both at common law and under applicable laws in
            the United States and all other jurisdictions, and will not, either
            directly or indirectly, at any time, do anything to discredit,
            encumber or diminish any part of such right, title or interest or
            challenge the validity of this License. Licensee agrees that its use
            of the Marks will inure entirely to the benefit of Licensor.
            Licensee shall assist Licensor, to the extent necessary or
            appropriate, upon request by Licensor, in the procurement of any
            protection of Licensor's rights in the Marks. Upon Licensor's
            request from time to time, Licensee shall provide Licensor with six
            specimens of any Mark used on Licensed Articles and whatever other
            documentation or information may be requested by Licensor for the
            registration of any Mark in any category into which the Licensed
            Articles fall.

                                       4
<PAGE>   5
      b.    Licensee shall use the Marks only in the form and manner and with
            appropriate legends as prescribed from time to time by Licensor, and
            shall not use any other trademark or service mark in combination
            with any Mark without prior written approval of Licensor. In any
            written materials, such as the packaging, advertising materials,
            catalogs, brochures and the like associated with the Licensed
            Articles, in addition to the "(R)" symbol displayed adjacent to the
            Mark, as appropriate, Licensee shall use the following notice at
            least once in each such document: "Licensed Trademark of Smith &
            Wesson Corp."

      c.    Licensee recognizes that the SMITH & WESSON name, all trade dress
            and associated marks are world famous and that, even if not
            registered in any country, the unauthorized use thereof would
            seriously dilute the distinctiveness of such name, trade dress and
            the associated marks and would irreparably harm the Licensor.

      d.    Licensee shall immediately notify Licensor in writing of any
            infringements or third party imitations of any Mark or other act of
            a third party which may concern the Mark(s), of which Licensee
            becomes aware. Licensor shall have the sole right to determine
            whether or not any action shall be taken on account of such
            infringements or imitations. Licensee shall not institute any suit
            or take any action on account of any such infringements or
            imitations without first obtaining the written consent of Licensor
            to do so.

      e.    Licensor shall undertake to apply for and obtain registration, in
            its name and at its own expense, of any of the Marks in association
            with the Licensed Articles in any country in which Licensee may
            request and as deemed by Licensor to be necessary or appropriate to
            protect the Marks and the goodwill associated therewith.

5.    Assignment of Marks

      If Licensee shall acquire by act or operation of law by deed or operation
      of law any rights in the marks in any country, Licensee shall notify
      Licensor and immediately assign such rights to Licensor, together with any
      goodwill that may have inured to the benefit of the Licensee. Licensee
      shall not permit any other person to use any of the Marks without
      Licensor's prior written consent, and shall cause any manufacturer or
      other person involved in the production, promotion, sale or provision of
      Licensed Articles to agree to assign to Licensor any rights in any Mark
      acquired by such manufacturer or other person.

6.    Indemnification

                                       5
<PAGE>   6
      a.    Licensee shall at all times, and to the fullest extent permitted by
            law, indemnify and hold harmless Licensor and its successors,
            assigns, franchisees, subsidiaries, affiliates, licensing agents and
            distributors, and the directors, officers, agents and employees of
            each of the foregoing entities, from and against any and all
            damages, demands, claims, suits, actions, investigations, charges,
            costs and expenses including, without limitation, attorneys fees and
            court costs, settlement amounts, judgments, compensation for damages
            to Licensor's reputation and any losses of any nature which arise
            out of or are based upon any of the following:

            (1)   Any actual or alleged design defect, manufacturing defect,
                  failure to warn or instruct, breach of warranty, negligence,
                  strict liability in tort, or any other product liability legal
                  theory associated with Licensed Articles;

            (2)   The infringement, alleged infringement or any other violation
                  or alleged violation of any patent, trademark or copyright
                  rights or other proprietary rights owned or controlled by
                  third parties by reason of the manufacture, use, advertising,
                  sale, distribution or provision of the Licensed Articles;

            (3)   The violation, or alleged violation, of any federal, state or
                  local law, regulation, ruling, standard or directive or of any
                  industry standard with respect to the Licensed Articles;

            (4)   Licensee's breach of any warranty, representation, agreement
                  or obligation hereunder; or

            (5)   Any other acts or omissions of Licenses, or its agents,
                  servants or contractors with respect to the manufacture,
                  promotion, provision or sale of Licensed Articles.

      b.    Licensee shall promptly give Licensor notice of any action, suit,
            proceeding, claim, demand, inquiry or investigation relating to the
            Marks or Licensed Articles. Licensor may, at its sole option, elect
            to undertake the defense of any such action, suit, proceeding,
            claim, demand, inquiry or investigation, provided that such an
            undertaking by Licensor shall not diminish Licensee's obligation
            hereunder to indemnify Licensor and to hold it harmless. All losses
            and expenses incurred under this Section shall be chargeable to
            Licensee pursuant to its obligations to indemnify under this
            Section, regardless of any actions, activity or defense undertaken
            by Licensor or the subsequent success or failure of such actions,
            activity or defense.

                                       6
<PAGE>   7
      c.    Licensor assumes no liability whatsoever for the acts and omissions
            of Licensee, or any of those with whom Licensee may contract for the
            promotion, manufacture, distribution, sale or provision of Licensed
            Articles notwithstanding any prior consent by Licensor to such
            contract.

7.    Insurance

      Licensee shall maintain, throughout the term, of this Agreement at its own
      expense, liability insurance from an insurance company, with such
      liability coverages and limits as are acceptable to Licensor with an
      amount of ($1,000,000) one million dollars per occurrence, including a
      contracted liability endorsement, for the U.S. market and ($3,500,000)
      three and one-half million dollars per occurrence, including a contracted
      liability endorsement, for the remaining world market. The policy for the
      United States market shall name Licensor as an additional insured and
      shall provide that Licensor shall receive at least 30 days prior written
      notice of intent to cancel, alter or amend such policy. Licensee shall
      provide Licensor within thirty (30) days of the execution of this
      Agreement and upon Licensor's request from time to time thereafter, with
      certificates or other evidence of insurance required by this Section.
      Licensee shall keep all insurance coverages required by this Agreement in
      full force and effect for a period of three years after the termination of
      this Agreement.

8.    Quality of Licensed Articles

      a.    Licensee agrees, represents and warrants to Licensor, that all
            Licensed Articles shall be state-of-the-art, of high safety and
            structural standards, of such style, appearance, quality and
            consistency as shall be suitable for distribution and satisfactory
            for consumer usage, and otherwise merchant-able and fit for the
            purposes for which they are intended to be used. At least 30 days
            before manufacturing or promoting, and again before distributing,
            selling or providing any Licensed Article, and upon Licensor's
            request from time to time, Licensee shall submit to Licensor, for
            its written approval, not to be unreasonably withheld, samples of
            the Mark usage, or description of each Licensed Article together
            with any labeling, packaging, or promotion material and literature
            in respect of which such Licensed Article is to be marketed, sold or
            provided. The number of samples to be furnished by Licensee shall be
            such reasonable number as Licensor may from time to time request.
            All samples shall be provided without charge to Licensor. No
            Licensed Article shall be distributed, sold or provided pursuant to
            this Agreement until Licensee has obtained Licensor's written
            approval of the samples submitted. It is understood, however that
            failure of the Licensor to provide Licensee with written approval or
            rejection of the samples submitted within twenty (20) business days
            of the Licensor's receipt of

                                       7
<PAGE>   8
            such samples shall be deemed to constitute approval on the part of
            the Licensor of such samples.

      b.    All Licensed Articles shall be of the same quality and workmanship
            as the approved sample, and in the manufacture and provision
            thereof, Licensee shall cause to be used state-of-the-art
            manufacturing processes, techniques and quality control procedures
            in order to ensure that the Licensed Articles will consistently
            comply with the highest product quality standards. Under no
            circumstances shall Licensee sell, distribute, give away or
            otherwise deal or cause to have sold, distributed, given away or
            otherwise dealt Licensed Articles that are seconds or sub-standard,
            that bear a distortion of the Marks or that otherwise do not comply
            with this Agreement.

      c.    Licensee shall consistently distinguish the Licensed Articles from
            other products and services manufactured, sold and provided by
            Licensee and shall avoid any confusing similarity between such other
            products and services and the Licensed Articles. Licensee shall take
            such actions as are necessary to maintain the Licensed Articles as
            separate and distinct lines of styling, design and merchandising
            from any other product and service manufactured, sold or provided by
            Licensee.

      d.    Licensee shall, no later than 90 days before the expiration of any
            Contract Year, furnish Licensor a statement showing the number and
            description of Licensed Articles in inventory and in process.

9.    Compliance with Government, Regulations, Industry Standards and Product
      Testing

      a.    Licensee agrees that the manufacture, distribution and sale of the
            Licensed Articles will conform at all times to all applicable
            federal, state and local laws, regulations, industry standards,
            ordinances and other enactments, including, without limitation,
            those relating to product and service safety.

      b.    The Licensed Articles shall comply with all relevant government
            regulations and meet all industry standards applicable thereto.

10.   Promotional Material

      Licensee shall not use the Marks or any reproduction thereof in any
      advertising, promotional or display material without Licensor's prior
      written approval. Under no circumstances will promotional materials or
      programs be used by Licensee that reflect unfavorably on the Marks or

                                       8
<PAGE>   9
      disparage marks of third parties. All advertising, display or promotional
      copy utilizing or in any way connected with the Marks, shall carry a
      notice that the Marks are the property of Licensor, and at least six
      copies of such advertising, display or promotional copy shall be submitted
      to Licensor for prior written approval, not to be unreasonably withheld,
      at least 30 days in advance of production and upon Licensor's request from
      time to time thereafter. Any approval granted by Licensor under this
      Section will extend only to Licensee's use of the Marks. It is understood,
      however, that failure of the Licensor to provide Licensee with written
      approval or rejection of the copies submitted within twenty (20) business
      days of the Licensor's receipt of such copies shall be deemed to
      constitute approval on the part of the Licensor of such copies. Licensor
      shall not be liable for content or accuracy of such advertising,
      promotional or display material nor for infringement of patents,
      copyrights, trademarks, or any other proprietary rights owned, used, or
      controlled by third parties, by reason of Licensee's promotional
      activities.

11.   Records

      a.    Licensee shall keep accurate books of account and records covering
            all transactions relating to the license herein granted. Licensor
            and its duly authorized independent accountants or other
            representatives shall, from time to time, have the right at
            reasonable times upon Licensor's prior written request of at least
            five (5) business days to examine such books of account and records
            and other documents and material in Licensee's possession or under
            its control with respect to Licensee's activities in connection with
            this Agreement, and such persons shall have free and full access for
            such purposes and may make copies thereof or extracts therefrom.
            Licensee shall keep all such records available to Licensor for at
            least three years after expiration or termination of this Agreement.
            Licensee will designate a symbol or number which will be used
            exclusively in connection with the Licensed Articles and with no
            other articles or services which Licensee may manufacture, sell or
            distribute, and that duplicates of all billings by Licensee to its
            customers with respect to Licensed Articles shall be kept by
            Licensee for inspection as is herein provided.

      b.    If any audit by Licensor shall reveal a shortfall of royalties paid
            by Licensee against royalties actually due in accordance with this
            Agreement, Licensee shall within fifteen (15) days make payment to
            Licensor of such shortfall, plus simple interest at the rate of 1.5
            percent per month or if lower, the highest rate permitted by
            Massachusetts law, for the period of such shortfall. In addition, if
            such audit shall reveal a shortfall of more than five percent of
            royalties due, Licensee shall

                                       9
<PAGE>   10
            reimburse Licensor for the services of its accountant and for any
            other expenses of Licensor incident thereto including, without
            limitation, any attorneys' fees and costs of collection.

12.   Licensor's Obligations

      a.    Within thirty (30) days of the execution of this Agreement, Licensor
            will provide Licensee with its current customer list and will
            provide Licensee with updates thereon at the commencement of each
            Contract Year. Licensee acknowledges that the customer list is a
            valuable asset of the Licensor and remains Licensor's exclusive
            property. Licensee will not divulge any contents of the list nor
            make any use of the list not contemplated by this Agreement.

13.   Termination

      In addition to any other rights which Licensor may otherwise have,
      Licensor may terminate this Agreement at any time, immediately upon
      written notice:

            a.    If within six (6) months from the date of this Agreement,
                  Licensee shall not have begun the bona fide design,
                  specification and/or concluded contracts for production,
                  distribution, sale and provision of the Licensed Articles; or

            b.    If Licensee shall, after said written notice, fail for a
                  period in excess of three consecutive months to continue the
                  bona fide design, specification, distribution, sale or
                  provision of the Licensed Articles; or

            c.    If Licensee shall fail to make any payment due hereunder or to
                  deliver any of the statements required hereunder, and if such
                  default shall continue for a period of 15 days after notice of
                  such default by Licensor to Licensee or if such a failure
                  shall occur twice in any consecutive 12-month period even if
                  both failures are corrected as provided hereunder; or

            d.    If Licensee or its property:

                  1)    Becomes subject to a receiver or trustee; or

                  2)    Becomes insolvent; or

                  3)    Becomes subject to an involuntary or voluntary petition
                        under National Bankruptcy Laws, or

                                       10
<PAGE>   11
                  4)    Makes an assignment for the benefit of its creditors; or

            e.    If there is any deliberate deficiency in the Licensee's
                  reporting which affects royalties or gross revenue share
                  payable or any other aspect of this Agreement; or

            f.    If any warranty, representation or covenant made by Licensee
                  hereunder, or any information as to product quality or safety
                  provided by Licensee hereunder, is false or misleading; or

            g.    If Licensee fails to comply with any term or condition of this
                  Agreement, other than those specifically set forth in clauses
                  a. through f. above, and such non-compliance continues beyond
                  a period of 15 days after notice thereof is given by the
                  Licensor.

Any termination by Licensor shall be without prejudice to any of Licensor's
other rights or remedies.

14.   Effect of Termination

      a.    After expiration or other termination of this Agreement, Licensee
            shall have no further right to manufacture, distribute, sell,
            exploit, provide, render or otherwise deal in any Licensed Articles
            which utilize the Marks, except that Licensee may dispose of
            Licensed Articles which are on hand or in process or to be provided
            at the time of expiration or termination so long as (1) Licensee
            reports in writing to Licensor, no later than 30 days after
            termination of this Agreement, the total number of Licensed Articles
            which will be disposed of, (2) the sale or provision thereof is
            completed within six months, (3) all payments when due are made to
            Licensor, (4) such disposal or provision of Licensed Articles shall
            be in accordance with the terms of this Agreement; and (5)
            statements and royalty and gross revenue share payments with respect
            to that period are made by Licensee in accordance with Section 3.
            Notwithstanding the foregoing, in the event this Agreement is
            terminated pursuant to Sections 13(c), 13(d), 13(e), 13(f), or
            13(g), Licensee shall not dispose of or provide any Licensed
            Articles which are on hand, in process, in force or to be provided
            at the time of termination in association with the Marks. A final
            statement and payment shall be made by Licensee within 15 days after
            the end of such six-month period.

            Upon expiration of such six-month period herein, all molds, plates,
            prints and other materials used to reproduce the Marks for the
            manufacture or provision of the Licensed Articles and related

                                       11
<PAGE>   12
            advertising shall be destroyed and evidence of such destruction
            shall be given to the Licensor.

      b.    In the event this Agreement expires or is otherwise terminated for
            any reason, Licensee shall, and hereby does agree to assign to
            Licensor any and all rights of Licensee in the Marks, including
            associated goodwill, and the designs, trade dress and styles of the
            Licensed Articles to the extent such design or styles contain or
            employ any of the Marks, and shall not thereafter market,
            manufacture or sell any such designs or styles or use the Marks in
            any manner in connection with any provided services.

      c.    Except as provided in subsection (a) of this paragraph, upon the
            expiration or termination of this Agreement, Licensee shall
            immediately cease all further use of the Marks and any names,
            trademarks, trade dress, characters, symbols, designs, likenesses or
            visual representations as might be likely to cause confusion or
            deceive purchasers or prospective purchasers or dilute any trade
            name, trademark, trade dress or service mark of Licensor including,
            without limitation, Licensor's corporate and private names, other
            trademarks, trade dress symbols, designations, indices, slogans and
            other means of identifying products or services of Licensor, whether
            or not identified herein as a Mark.

      d.    Licensee agrees that the Marks are distinctive and possess special,
            unique and extraordinary characteristics which make difficult the
            assessment of the monetary damages that Licensor would sustain by
            unauthorized use. Licensee recognizes that irreparable injury would
            be caused to Licensor by any unauthorized use of the Marks and
            agrees that preliminary and/or permanent injunctive and other
            equitable relief would be appropriate in the event of a breach of
            this Agreement by Licensee provided, however, that such remedy shall
            not be exclusive of other legal remedies otherwise available.

      e.    Licensee's obligations and agreements set forth in Sections 3
            through 11, 14, 15, 18, 20 and 21 shall survive any termination or
            expiration of this Agreement.

15.   Notices:

      All notices and statements to be given hereunder shall be in writing, any
      such notice or statement shall be deemed duly given if mailed by certified
      mail, return receipt requested, if to Licensor, at:

      Smith & Wesson Corp.
      2100 Roosevelt Avenue

                                       12
<PAGE>   13
      P.O. Box 2208
      Springfield, MA 01102-2208, U.S.A.
                            Attention: Director of Licensing

and if to Licensee, at:

      UMAREX Sport waffen GmbH & Co. KG
      Donnerfeld 2
      59757 Amsberg, Germany
                            Attention: Wulf-H. Pflaumer

16.   No Joint Venture

      Nothing in this Agreement shall be construed to place the parties in the
      relationship of partners or joint ventures, and Licensee shall have no
      power to bind Licensor in any manner whatsoever.

17.   Cancellation

      Licensee acknowledges that Licensor and its subsidiaries, affiliates and
      franchisees use the Marks to advance and promote Licensor's business, and
      that Licensor has a paramount obligation to preserve its ability to so use
      such Marks. Should the use by Licensee of any Mark on Licensed Articles be
      deemed by Licensor in its discretion to be in violation of any federal,
      state or local law or to adversely affect the reputation of Licensor or
      affect the validity, enforceability or distinctiveness of the Mark as a
      designation of origin for Licensor's own products, then Licensor may
      terminate this Agreement on one hundred and eighty (180) days notice to
      Licensee.

18.   Assignments Transfers and Sublicenses

      Without the prior written consent of Licensor, which may be withheld in
      Licensor's sole and reasonable discretion, a) Licensee shall not
      voluntarily or by operation of law, assign or transfer this Agreement or
      any of Licensee's rights or duties hereunder or any interest of Licensee
      herein, except to a third party which is controlled by Licensee, nor shall
      Licensee enter into any sublicense for use of the Marks by other persons
      otherwise than as contemplated by this Agreement; b) Licensee shall not
      sell or otherwise transmit or transfer to any party engaged in the design
      or manufacture of items similar to any of the Licensed Articles, any
      design, style, know-how, technology or other item or knowledge of a
      technical or competitive nature, furnished to Licensee by or through
      Licensor. Any transfer or attempt to transfer of this license to any
      entity in which the present directors of Licensee do not have voting
      control shall be deemed an assignment prohibited hereunder. The consent of
      Licensor to one assignment, transfer or sublicense

                                       13
<PAGE>   14
      shall not be deemed to be consent to any subsequent assignment, transfer
      or sublicense. Nothing provided herein shall limit Licensor's right to
      transfer and/or assign any of its rights hereunder.

19.   Scope and Modification

      This Agreement sets forth the entire agreement between the parties, and
      supersedes all prior agreements and understandings between the parties,
      relating to the subject matter hereof. None of the terms of this Agreement
      may be waived or modified except as expressly agreed in writing by both
      parties.

20.   Severability

      Should any provision of this Agreement be declared void or unenforceable,
      the validity of the remaining provisions shall not be affected thereby.

21.   Governing Laws

      This Agreement shall be made in the Commonwealth of Massachusetts and its
      terms shall be interpreted in accordance with and governed by the laws
      thereof.

22.   Miscellaneous

      In accordance with the terms of the German Doppelbesteuerungsabkommen,
      Licensor shall execute an application for tax exemption for license fees
      paid by Licensee to Licensor hereunder, as such application has been
      prepared by Licensee, and submit the application for approval by the
      appropriate U.S. tax authority.

                                    Licensor:

Witnessed By:                       SMITH & WESSON CORP.

                                    By:     /s/ [signature not legible]
                                       -----------------------------------
                                    (Title) President and CEO

                                    Date:   10 July 1996

                                    Licensee:

                                    By:     /s/ [signature not legible]
                                       -----------------------------------
                                    (Title) President and CEO

                                    Date:   10 July 1996

                                       14
<PAGE>   15
                           EXHIBIT "A" -Licensed Marks

SMITH & WESSON - Germany Registration No. 191.232

S & W MONOGRAM - Germany Registration No. 2.063.741

S & W - Germany Registration No. 215.639

Agent

Chiefs Special

5904

Trade dress for Smith & Wesson's models "Agent", "Chief's Special" and "Model
5904", each of which are pictured below

[depictions of Agent, Chief's Special and Model 5904 pistols]
<PAGE>   16
                          EXHIBIT B - Licensed Articles

Tear gas weapons

Starter pistols

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