Document:

<PAGE>   1
                                                                    EXHIBIT 10.2

                              SMITH & WESSON CORP.

                           TRADEMARK AGENCY AGREEMENT

                  An Agreement between UMAREX Sportwaffen, GmbH, a corporation
having its principal office at Donnerfeld 2, 59757, Amsberg, Germany
(hereinafter "UMAREX"); and Smith & Wesson Corp., a corporation having its
principal office at 2100 Roosevelt Avenue, Springfield, Massachusetts 01102-2208
(hereinafter "Smith & Wesson") with regard to the subject matter hereof. UMAREX
is the owner of all right title and interest in and to the trademarks listed in
Attachment A (UMAREX Trademarks), and wishes to issue licenses to third parties
to use the aforesaid trademarks with a variety of goods and services listed in
Attachment B (UMAREX Licensed Products and Services). Smith & Wesson is, inter
alia, engaged in the business of obtaining third party licensees for its
trademarks with respect to a wide range of goods and services, and has developed
expertise in the development of potential licensees. UMAREX wishes to retain
Smith & Wesson as art agent for UMAREX to similarly develop third party
licensees for its trademarks. Smith & Wesson is desirous of acting in such a
capacity.

                  In consideration of the mutual promises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, UMAREX and Smith & Wesson agree as follows:

                  1. Smith & Wesson shall act as an agent for UMAREX in
soliciting potential licensees for its UMAREX Trademarks to be used in
connection with UMAREX Licensed Products and Services. Smith & Wesson can act as
an agent for UMAREX on a worldwide basis without geographic restriction as to
the location of potential licensees. That is; Smith & Wesson may recruit
potential licensees from the USA and Canada.

                  2. The agency relationship created by this Agreement between
the Parties shall be non-exclusive. Nothing herein shall preclude UMAREX from
soliciting licensees on its own, or establishing similar relationships with
third parties. Similarly, Smith & Wesson shall not be restricted in its
licensing either its own marks or establishing a similar agency agreement with
third parties.

                  3. The term of this Agreement shall be for three (3) years or
shall otherwise be coterminous with the Joint Venture Agreement of October,
1999. This Agreement can be extended for a successive three (3) year term after
the conclusion of the initial term if a subsequent agreement between the parties
is negotiated. A Party's determination not to extend this Agreement may be
effected without cause.
<PAGE>   2
                  4. Smith & Wesson shall solicit third parties as potential
licensees and negotiate the terms and conditions of each proposed agreement
between a potential licensee and UMAREX. Smith & Wesson shall promptly present
the same to UMAREX for its consideration. UMAREX shall have sole discretion in
accepting or rejecting any licensing agreement presented to it by Smith &
Wesson. Smith & Wesson makes no representations as to any potential licensee,
and UMAREX does not rely on Smith & Wesson in any way in granting or maintaining
a trademark license. In no event shall Smith & Wesson be liable to UMAREX for
any indirect, consequential, incidental, special or punitive damages or lost
profits arising out of or relating to this Agreement or the performance or
breach thereof.

                  5. UMAREX shall at all times during and after the term of this
Agreement, and to the fullest extent permitted by law, indemnify, defend and
hold harmless Smith & Wesson and it's parents, successors, assigns,
subsidiaries, affiliates and distributors, and the present and former directors,
officers, agents and employees of each of the foregoing entities, from and
against any and all damages, demands, claims, suits, actions, investigations,
administrative proceedings, charges, costs and expenses, including, without
limitation, attorneys fees and court costs, settlement amounts, judgments,
compensation for damages to Smith & Wesson's reputation and any losses of any
nature which arise out of or are based on the acts of Smith & Wesson in
furtherance of its obligations hereunder.

                  6. Smith & Wesson promises to use its best efforts to obtain
potential licensees for UMAREX. However, Smith & Wesson has no minimum number of
potential licensees it must solicit, nor is there a minimum aggregate licensing
revenue that licensees solicited by Smith & Wesson must produce, either on an
annual basis or for the duration of the Agreement. UMAREX agrees not to reject a
potential licensee identified by Smith & Wesson without reasonable cause.

                  7. Smith & Wesson shall receive fifty percent (50%) of all
revenues collected from trademark licenses and any renewals thereof in which
Smith & Wesson has acted as an agent for UMAREX, as set forth herein. Smith &
Wesson shall receive no other compensation for its efforts under this Agreement.
However, should a third party become a licensee of UMAREX within six (6) months
of that Party being contacted by Smith & Wesson regarding a potential UMAREX
license, then Smith & Wesson shall still receive fifty percent (50%) of all
revenues collected from that trademark license and any renewals thereof.

                  8. Smith & Wesson shall collect licensing revenues on behalf
of UMAREX for those trademark Licensees which Smith & Wesson has acted as an
agent. On or before the fifteenth day of the first month of each calendar
quarter beginning July 1, 2000, Smith & Wesson shall furnish to UMAREX full and
accurate statements showing the number, description, total Net Sales Prices and
gross revenue of Licensed Articles and Services sold, distributed or otherwise
provided by each Smith & Wesson sourced Licensee during the preceding calendar
quarter. Smith &

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Wesson shall, simultaneously with such statements, pay to UMAREX the revenues
generated therefrom. Smith & Wesson may credit against any such payment its
fifty percent (50%) share of revenues contemporaneously with such quarterly
statement. On or before the first day of the fourth month following the end of
each Contract Year, Smith & Wesson shall furnish to UMAREX a statement showing
total sales of Licensed Articles and Services, gross revenues therefrom as well
as revenues and revenue share paid Smith & Wesson for the preceding year.

                  9. 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 Smith & Wesson, at:

                  SMITH & WESSON CORP.
                  2100 Roosevelt Avenue
                  P.O. Box 2208
                  Springfield, MA 01102-2208, U.S.A.

                                                Attention: John S. Steele
                                                           Director of Licensing

         and if to UMAREX, at:

                  UMAREX SPORTWAFFEN, GmbH
                  Donnerfeld 2
                  59757 Amsberg, Germany

                                                Attention: Wulf-H. Pflaumer

                  10. A Party wishing to terminate this Agreement shall give
ninety (90) days notice of termination in accordance with the notice provisions
herein. Note, however, that the duties and obligations with regard to the
payment of fees to Smith & Wesson, and its obligations to account for the same
in accordance with the provisions of this Agreement shall survive termination of
this Agreement.

                  11. This relationship is separate from all other Walther LLC,
UMAREX, and Smith & Wesson Agreements which are currently in-place. The Parties
hereto agree to create an agency relationship only, no joint venture or other
relationship is contemplated by this Agreement. Furthermore, this Agreement does
not create a license or grant of any other interest in any of the intellectual
property of one Party in favor of the other Party.

                  12. 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 terns of this
Agreement may be waived or modified except as expressly agreed, in writing, by
both Parties. Should

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any provision of this Agreement be declared void or unenforceable, the validity
of the remaining provisions shall not be affected thereby. Forbearance on the
part of a Party in exercising its rights hereunder, or as otherwise provided by
law, shall not be construed as a waiver of those rights.

                  13. No Party shall voluntarily or by operation of law, assign
or transfer this Agreement to a third party, except to a third party which is
controlled by Licensee, or is associated therewith by common ownership. 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 a Party to one assignment,
transfer or sublicense shall not be deemed to be consent to any subsequent
assignment or transfer.

                  14. 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. Any suit, action or other proceeding brought by Licensee
which stems from or relates to the subject matter of this Agreement shall be
limited to an action brought in U.S. District Court in Springfield,
Massachusetts, USA.

                  15. The Parties hereto have caused this Agreement to be
executed by their duly authorized officers or officials, effective as of the day
and year first above written.

Witnessed by:                                 SMITH & WESSON CORP

                                              By:      /s/ L.E. Shultz
-----------------------------------              -------------------------------
                                              (Name)        L.E. Shultz
                                                    ----------------------------
Date:    3-11-2000                            (Title)    President & CEO
     ------------------------------                  ---------------------------

Witnessed by:                                 UMAREX Sportwaffen, GmbH

                                              By:      /s/ Wulf-H. Pflaumer
-----------------------------------              -------------------------------
                                              (Name)       Wulf-H. Pflaumer
                                                    ----------------------------
Date:    3-11-2000                            (Title)    President & CEO
     ------------------------------                  ---------------------------

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                                  ATTACHMENT A

                                UMAREX Trademarks

US Registered Trademarks

WALTHER(R)

WALTHER, PLUS BANNER LOGO (R)

                                       5<PAGE>   1
                                                                    EXHIBIT 10.3

                                    AGREEMENT

                                     Between

                              SMITH & WESSON CORP.

                                       and

                              CARL WALTHER USA, LLC

                                       and

                            UMAREX SPORTWAFFEN, GmbH

                         McCormick, Paulding & Huber LLP

 Cityplace II, 185 Asylum Street                SIS Center, 1441 Main Street
 Hartford, Connecticut 06103                    Springfield, Massachusetts 01103

                               Tel. (860) 549-5290
                               Fax (860) 527-0464
                        E-Mail Address MPH@IP-Lawyers.com
<PAGE>   2
                                TABLE OF CONTENTS
                                -----------------
<TABLE>
<CAPTION>
<S>                                                                                            <C>
TABLE OF CONTENTS...............................................................................1

AGREEMENT.......................................................................................1

           SECTION 1.  The New Company..........................................................1

           SECTION 2.  Capital Investment.......................................................2

           SECTION 3.  Transfer of Stock........................................................2

           SECTION 4.  Management...............................................................5

           SECTION 5.  Business Operations......................................................7

           SECTION 6.  Confidentiality, Intellectual Property...................................9

           SECTION 7.  Withdrawal of Profits...................................................10

           SECTION 8.  Fiscal Year, Accounting, and Reports....................................11

           SECTION 9.  Arbitration.............................................................11

           SECTION 10.  Notices................................................................12

           SECTION 11.  Term...................................................................13

           SECTION 12.  Miscellaneous..........................................................13

ATTACHMENT A...................................................................................15

New Company Insurance Requirements.............................................................15

ATTACHMENT B  Indemnity........................................................................17
</TABLE>
<PAGE>   3
                                    AGREEMENT
                                    ---------

AGREEMENT, effective as of August 1, 1999, 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 "S & W"), and CARL
WALTHER USA, LLC, a Limited Liability Company having its principal office at 10
Prince Street, Alexandria, Virginia 22314 (hereinafter called "CARL WALTHER
USA") and UMAREX SPORTWAFFEN, GmbH, a corporation having its principal office at
Donnerfeld 2, 59757, Arnsberg, Germany (hereinafter "UMAREX"; UMAREX and CARL
WALTHER, USA being jointly referred to herein as "UMAREX/CARL WALTHER" and
together with S & W, collectively referred to herein as the "Parties" or
"Party").

                                   WITNESSETH:

WHEREAS, S & W is in the business of design, production, marketing and sales of
handguns and handcuffs, identification and other software for public security
services, as well as training for law enforcement personnel and civilians via
the Smith and Wesson Academy and Armorers School;

WHEREAS, UMAREX/CARL WALTHER are in the business of design, production marketing
and sales of handguns, airguns and related products;

WHEREAS, the Parties recognize the potential for increasing sales of their
complementary product lines, as well as new products marketed both in the United
States, as well as abroad, by means of a mutually cooperative arrangement; and

WHEREAS, S & W and UMAREX/CARL WALTHER desire to create a new company to exploit
the aforementioned potential for increased sales and have agreed to pursue such
a venture on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, the Parties do hereby agree as follows:

SECTION 1.  The New Company.

                  1.1 The Parties hereby agree to form a new company tentatively
named "WALTHER USA, LLC", but referred to herein as the "New Company". The
primary purpose of the New Company shall be to market products under the
trademark "WALTHER", "SMITH & WESSON" or other brands to be determined by the
Board of Directors.

                  1.2 The New Company shall be incorporated as a Delaware
corporation as soon as possible after the execution hereof, pursuant to Articles
of Incorporation in a form to be determined. The affairs of the New Company
shall be
<PAGE>   4
managed pursuant to Bylaws in a form to be agreed upon by the Parties (the
"Bylaws") and as provided in this Agreement. In the event of any conflict
between the terms of this Agreement and the Bylaws of the New Company, the terms
of this Agreement shall control. Neither Party shall vote its Stock of the New
Company or take any action to adopt a Bylaw for the New Company that is
inconsistent with the terms of this Agreement.

                  1.3 S & W and UMAREX/CARL WALTHER recognize that circumstances
may arise which may require reasonable, supplemental undertakings on the part
each Party to further the business objectives of the New Company. These
supplemental undertakings may include licenses of intellectual property,
distribution or manufacturing arrangements. Under these circumstances, the
Parties shall negotiate in good faith a corresponding supplemental agreement for
any such supplemental undertaking.

SECTION 2.  Capital Investment.

                  2.1 Smith & Wesson and CARL WALTHER shall make an initial
capital contribution to the New Company in the amount of Fifty Thousand Dollars
($50,000) cash upon the organization of the New Company.

                  2.2 In exchange for the capital contributions provided for
above, Smith Wesson and CARL WALTHER shall each own fifty percent (50%) of the
stock of the New Company. The New Company shall issue an aggregate of 25,000
shares of its common capital Stock to S & W and 25,000 shares of its common
capital Stock to CARL WALTHER, with each of said stock shares having a par value
of One Cent ($.01) and a purchase price of Two Dollars ($2.00) per share.

                  2.3 The initial obligations of a Party to contribute cash to
the New Company shall be limited to the amounts specified in Section 2.1.
Notwithstanding any other provision, no Party shall be required to make any
additional capital contributions, lend any funds to, or give any guarantees or
make any commitments for or on behalf of, the New Company in excess of its
initial Fifty Thousand Dollars ($50,000.00) contribution unless otherwise
authorized in advance by the Board of Directors of New Company (as defined
hereinafter). If the New Company shall need funds in addition to the initial
capital contributions set forth above, the amount and form thereof shall be
approved by a majority of the Board of Directors. The Parties may voluntarily
contribute additional funds to the New Company either in the form of debt or
equity or provide guarantees for the benefit of the New Company upon the
agreement of the Board of Directors.

SECTION 3.  Transfer of Stock.

                  3.1 Neither S & W nor CARL WALTHER (each being referred to in
this Section as "Shareholder") shall sell, assign, transfer, make a gift of,
donate,

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<PAGE>   5
pledge or otherwise encumber or dispose of any shares of stock of the New
Company (the "Stock") now owned or hereafter acquired by it, except as permitted
by this Agreement and in accordance with its terms. Further, the Shareholders
agree that they will not cause or permit the New Company to transfer any Stock
on its books, except as expressly permitted hereby.

                  3.2 If any Shareholder (for purposes of this Section 3.2, the
"Offeror") shall desire to terminate its relationship with the other
Shareholder, it shall give written notice to the other Shareholder of the price
at which it is willing to sell its Stock and of the terms of payment it is
willing to accept. Such notice shall constitute an offer by the Offeror to sell
all of its Stock to the other Shareholder at the price and on the terms stated
in the notice and an offer by the Offeror to buy the other Shareholder's Stock
at the same price and on the same terms. The other Shareholder shall then, elect
either to buy all of the Stock owned by the Offeror or to sell all of its Stock
to the Offeror, in either case, at the price and on the terms stated in the
Offeror's notice. The election shall be made within sixty (60) days after the
giving of the Offeror's notice. If the other Shareholder shall fail to make such
election, such Shareholder shall be deemed to have elected to sell its Stock to
the Offeror on the terms set forth in the Offeror's notice. The closing of a
purchase and sale, pursuant to this Section 3.2, shall be held at a location
within Springfield, Massachusetts, and on a date to be designated by the
purchaser, which date in no event shall be later than ninety (90) days after the
Offeror gives the notice provided for above. Notwithstanding the foregoing
provisions of this Section 3.2, however, neither Shareholder shall be obligated
to sell its Stock unless and until the New Company and/or the other Shareholder
shall have (a) caused such Shareholder to be released from any guaranties for
any indebtedness or other obligations of the New Company; (b) caused to be
released all security interests, liens, pledges and other encumbrances granted,
created or made by such Shareholder for the purpose of securing any liability,
indebtedness or other obligation of the New Company; and (c) in the case of
UMAREX/WALTHER, the Parties have reached agreement on the termination of all
License Agreements.

                  3.3 Certain Options to Purchase.

                           3.3.1 The occurrence of any of the following events
         (each a "Triggering Event") with respect to a Shareholder Party (the
         Party as to which the Triggering Event has occurred being referred to
         herein as the "Selling Party") shall give rise to the rights in favor
         of the New Company and the other Parties specified in this Section 3.3:

                                    (a) Any taking by any government or
                  governmental authority, of capital stock or other securities
                  or interests of a Party;

                                    (b) Any bankruptcy, insolvency, receivership
                  reorganization or similar proceedings for the relief of
                  debtors shall be

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<PAGE>   6
                  commenced by or against a Party under the bankruptcy,
                  insolvency, receivership, reorganization or similar laws of
                  any country or jurisdiction;

                                    (c) The dissolution or liquidation of a
                  Party;

                                    (d) The Stock of any Party is attached or
                  garnished or any execution or similar process is issued under
                  which such Stock is to be sold, transferred or acquired;

                                    (e) A Party shall default in the performance
                  or observance of any of its obligations under this Agreement
                  and such default shall continue for a period of thirty (30)
                  days after written notice thereof; or

                                    (f) Any sale or transfer of capital stock or
                  other interests of the Company by either Party.

                           3.3.2 Upon occurrence of a Triggering Event as to a
         Shareholder Party, the New Company and the other Shareholder Party
         shall have the option, which shall be exercisable by notice in writing
         to the Selling Party for a period of sixty (60) days after the other
         Party receives actual notice of the Triggering Event, to purchase all,
         but not less than all, of the Stock owned by the Selling Party, at the
         price specified in Section 3.3.3. The New Company and the other
         Shareholder Party may agree among themselves as to the number of shares
         that each will purchase, but, if they desire to exercise this option,
         they must individually or together exercise the option as to all Stock
         owned by the Selling Party. Failure by the New Company and/or the other
         Party to give written notice of exercise during such sixty (60) day
         period, shall be deemed a rejection by them of their option to
         Purchase. If the New Party and/or a Party shall exercise an option to
         purchase granted in this Section 3.3, the closing of the purchase and
         sale transaction shall be held at a location within Springfield,
         Massachusetts, on a date to be designated by the purchaser, which date,
         in no event, shall be later than ninety (90) days after a Party
         receives actual notice of a Triggering Event with respect to the other
         Party.

                           3.3.3 The purchase price for any Stock acquired from
         a Selling Party in accordance with this Section 3.3 shall be determined
         by mutual agreement of the Selling Party and the other Shareholder
         Party. If the purchase price cannot be agreed upon within thirty (30)
         days after exercise of the option to purchase the Selling Party's
         Stock, such purchase price shall then be determined by arbitration in
         the same manner and on the same terms as provided in Section 10 hereof;
         provided, however, that at least two of the arbitrators shall be duly
         licensed United States certified public accountants with not less than
         ten (10) years of experience. Each Party may, if it shall so

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         desire, submit a valuation for the Selling Party's Stock to the
         arbitrators, together with the reasons for such valuation.

                  3.4 All certificates evidencing Stock now or hereafter issued
by the New Company shall be stamped or otherwise printed with a legend in
substantially the following form:

                  "The shares represented by this certificate may not be sold,
                  pledged, assigned, transferred, encumbered or otherwise
                  disposed of without compliance with the terms of a certain
                  agreement among the shareholders of the Company dated August
                  1, 1999, a copy of which is on file at the principal office of
                  the Company."

                  3.5 At the closing of any purchase and sale of Stock as
provided in this Agreement, the seller shall deliver to each purchaser upon
tender of the purchase price:

                           (a) Certificates evidencing the Stock being sold,
         duly endorsed for transfer and with any necessary documentary stamps
         attached;

                           (b) Such other written assurances as the purchaser
         may reasonably request regarding the authority and capacity of the
         seller of the Stock; and

                           (c) Such other documentation as may be reasonably
         requested by the purchaser for the purpose of effecting the purchase.

At any such closing, the purchase price due the Selling Party shall be paid in
full in United States dollars by certified or official bank check or by wire
transfer of immediately available funds.

                  3.6 As referred to herein, the Stock shall include any
securities which may be distributed with respect thereto or issued in exchange
therefor or in lieu thereof in connection with any stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation or other
reorganization of the New Company.

                  3.7 The rights and obligations created by this Section 3 shall
terminate if either Party shall acquire all of the outstanding shares of the
Stock.

SECTION 4.  Management.

                  4.1 The Parties hereby agree that the Board of Directors of
the New Company (the "Board" or the "Board of Directors") shall be composed of
five (5) Directors. S & W shall have the right to select two (2) Directors ("S &
W Directors")

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<PAGE>   8
and CARL WALTHER shall have the right to select two (2) Directors ("CARL WALTHER
Directors"). There shall be one (1) Outside Director who shall be nominated by S
& W and approved by the remaining members of the Board of Directors. Each Party
shall vote its Stock to elect to the Board the five (5) nominees thus selected.
The Parties agree that the initial members of the Board of Directors shall be
Wulf-H. Pflaumer and Martin Wonisch, who shall be considered CARL WALTHER
Directors, and Robert L. Scott, John A. Kelly who shall be considered S & W
Directors. Each Party hereby agrees to vote for the removal of any Director
when, and only when, such removal is requested for any reason, with or without
cause, by the Party who has selected such Director. The term of each Director
shall be for one (1) year and until his successor shall have been elected and
qualified, or until such Director's earlier death, resignation or removal. The
Outside Director can be removed by a vote of a majority of the Board of
Directors.

                  4.2 In the case of the death, resignation or other removal of
a Director prior to the end of his term, a nominee of the Party who had
nominated the Director whose death, resignation or removal was the cause of such
vacancy shall be elected as a sole replacement Director, and each Party hereby
agrees to vote for the election of such nominees or to cause its Directors to
vote from such nominee. No Director shall be removed from the Board except at
the request of the Party which nominated him.

                  4.3 The agreements contained herein regarding the voting of
the Stock shall continue in effect for a period of ten (10) years after the date
of initial issuance of Stock by the New Company or until such earlier time as
either Shareholder shall acquire all of the Stock of the other Shareholder.

                  4.4 All actions of the Board of Directors shall require
approval of a majority of the members of the Board in attendance at a meeting at
which a quorum is present. No business shall be transacted at any meeting unless
at least four (4) Directors are in attendance as set forth in the Bylaws, and
two (2) of the Directors in attendance are S & W Directors, and two (2) of the
Directors in attendance are CARL WALTHER Directors; provided, however, that if
any resolution or action before a meeting at which one or more Directors is
absent receives the votes of less than all of the Directors present, then,
unless the Directors not in attendance consent to such resolution or action in
writing, the vote on such resolution or action by the Board of Directors shall
be of no force and effect and consideration of such resolution or action shall
be deferred until it can be considered at a meeting of the Board of Directors at
which all Directors are present.

                  4.5 The New Company shall reimburse its Directors for all
reasonable travel expenses including airfare and hotel costs, as well as all
other reasonable expenses incurred by the Directors in attending meetings of the
Board.

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<PAGE>   9
                  4.6 The officers of the New Company shall consist of a
President, a Secretary/Treasurer and such Vice-Presidents and other officers as
the Board shall consider necessary or appropriate (the "Officers"). All such
officers shall be chosen by the Board subject to the terms and conditions of
this Agreement and shall have duties and responsibilities as set forth in the
Bylaws of the Company and herein, or as determined by the Board of Directors
from time-to-time. One of the S & W Board members shall serve as President
without receiving any compensation for such service. Initially, the officers of
the New Company shall be as follows:
<TABLE>
<CAPTION>
                  Name                                        Office
                  --------------------------------------------------
                  <S>                                         <C>
                  Robert L. Scott                             President
                  George C. Colclough                         Vice-President
                  John A. Kelly                               Secretary/ Treasurer
</TABLE>

                  4.7 All new product introductions by the New Company shall
require unanimous consent of the Board. Any expenditure by the New Company in
excess of $25,000.00 and any compensation or benefits to be paid by the New
Company to its employees must be approved by the vote of a majority of the
members of the Board. All members of the Board of Directors of the New Company
shall receive notice of and be entitled to attend any meeting of the Board of
Directors.

                  4.8 For all meetings of the Board of Directors, a Director may
vote by proxy in the manner and form set forth in the Bylaws of the Company. A
Director may attend a meeting of the Board of Directors by telephone or other
electronic medium.

SECTION 5.  Business Operations.

                  5.1 The New Company shall prepare a business plan which shall
require Board approval prior to implementation.

                  5.2 Initially, there shall be authorization for two paid
employees of the New Company to have marketing and product management
responsibility for firearms and airguns. Decisions regarding employment of
non-officers shall be made by the Officers of the New Company as appropriate.

                  5.3 CARL WALTHER shall make a one time transfer of all
inventory it possesses as of the date of this agreement to the New Company
("Pre-existing Inventory"). The Pre-existing Inventory shall be paid for by the
New Company in twelve (12) equal monthly installments commencing October 1,1999.
CARL WALTHER shall provide sixty (60) day financing on all inventory shipped to
the New Company.

                  5.4 S & W shall receive a twelve percent (12%) service fee on
net sales revenue received by the New Company after federal excise taxes ("FET")
and

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<PAGE>   10
any cash discounts to cover the less identifiable costs of the business,
including, but not limited to, warehousing, shipping (but not actual freight),
invoicing, collections, order processing, office space, accounting, order
processing, data communications and administrative support. All identifiable
expenses, such as those associated with advertising, sales commissions, show
costs, travel and entertainment, finance costs, and warranty shall be expenses
of the New Company. The foregoing service fee percentage shall be reviewed by
the Shareholders on an annual basis.

                  5.5 After the New Company begins operation, the New Company
shall purchase a minimum of 500 WALTHER P99 pistols and variants thereof bearing
the "P99" trademark each month until December 31, 2000. Thereafter, the New
Company shall purchase the maximum number of products bearing the "P99"
trademark as the New Company determines can be absorbed by the market in a given
year.

                  5.6 New Company shall maintain insurance against risk of loss
from fire (including extended coverage), casualty, theft, collision and other
hazards, including product liability, completed operations, workers
compensation, product warranty, general liability and medical in adequate
amounts. Without limiting the foregoing, the minimum insurance requirements of
New Company shall be as set forth in Exhibit A hereto.

                  5.7 The Parties acknowledge that sales of the products of the
New Company and any transfer of technical data may be subject to prior approval
of U.S. Department of State, Office of Defense Trade Controls. Sales and
importation of products bearing a mark of S & W or UMAREX/ CARL WALTHER (Branded
Products) may also be subject to the approval of the appropriate German
authorities.

                  5.8 For the term of this Agreement and any subsequent renewal
thereof, the New Company shall be the exclusive United States distributor of all
products which bear the trademarks of CARL WALTHER and such other products and
services to be sourced or manufactured by the New Company as the Board may
determine.

                  5.9 Not withstanding the foregoing, the New Company shall not
distribute UMAREX or WALTHER produced airguns currently marketed by RWS, Colt's
and Beretta. WALTHER (Germany) shall continue to sell target pistols to
Champion's Choice until the New Company decides to market these products.
Moreover, the New Company will not distribute the SW99 and any subsequent models
or variants thereof.

                  5.10 The duties and obligations of a Party to indemnify
another Party for any and all claims, demands or causes of action arising in
tort, contract or otherwise which stem from or relate to the business of the New
Company are set forth in their entirety in Exhibit B hereto.

                                       8
<PAGE>   11
SECTION 6.  Confidentiality, Intellectual Property.

                  6.1 S & W hereby agrees that it will not, and will use its
best efforts to ensure that its employees do not disclose or use (other than in
furtherance of this Agreement and the business of the New Company) or authorize
anyone under its control or direction to disclose or use (other than in
furtherance of this Agreement and the business of the New Company) any
proprietary know-how, technology, information or technical data acquired by S &
W by virtue of this Agreement and received from UMAREX/CARL WALTHER or the New
Company. This obligation shall not apply, however, to information that has been,
is or becomes: (a) otherwise publicly available; (b) lawfully in the possession
of S & W prior to disclosure by UMAREX/CARL WALTHER; (c) rightfully received by
S & W from a third party; or (d) independently developed by S & W. The
obligations imposed by this Section on S & W shall terminate if S & W acquires
all of CARL WALTHER's Stock in the New Company.

                  6.2 UMAREX/CARL WALTHER hereby agree that neither Party will,
and will use their best efforts to ensure that their employees do not, disclose
or use (other than in furtherance of this Agreement and the business of the New
Company) or authorize anyone under its control or direction to disclose or use
(other than in furtherance of this Agreement or the business of the New Company)
any proprietary know-how, technology, information or technical data acquired by
UMAREX/CARL WALTHER by virtue of this Agreement and received from S & W or the
New Company. This obligation shall not apply, however, to information that has
been, is or becomes: (a) otherwise publicly available; (b) lawfully in the
possession of UMAREX/CARL WALTHER prior to disclosure by S & W; (c) right fully
received by UMAREX/CARL WALTHER from a third party; or (d) independently
developed by UMAREX/CARL WALTHER. The obligations imposed by this Section on
UMAREX/CARL WALTHER shall terminate if UMAREX/CARL WALTHER acquires all of S &
W's Stock in the New Company.

                  6.3 Other than as otherwise provided in this Section 6, the
obligations imposed by this Section 6 shall survive any termination of this
Agreement.

                  6.4 The confidentiality provisions of this Section shall apply
to all employees and contractors of the New Company and shall be, to the extent
practicable, included in their conditions of employment or retention.

                  6.5 It is contemplated by the Parties that new intellectual
property shall be created from the joint efforts of the Parties. The New Company
shall be the owner of any new intellectual property created from the joint
efforts of the Parties through the New Company.

                                       9
<PAGE>   12
                  6.6 All other Agreements between the Parties shall remain in
effect unamended by the terms and conditions of this Agreement, including all
trademark licenses. All other intellectual property of S & W and UMAREX/CARL
WALTHER shall remain the property of its respective owners, except as otherwise
provided herein.

                  6.7 With regard to all Branded Products encompassed by this
Agreement or other Agreements in effect between the Parties:

                           (a) There shall be no royalty due on WALTHER
         (Germany) or S & W Branded Products that either Party produces itself
         in its own facilities (e.g., WALTHER P99) that are not already subject
         to prior License Agreements between the Parties.

                           (b) A three percent (3%) royalty is due for Branded
         Products such as knives, clothing etc. produced for a Party by a third
         party that are not already subject to prior License Agreements between
         the Parties.

                           (c) A three percent (3%) royalty fee will be due
         UMAREX for all WALTHER Branded Products produced in the United States
         at the time of this Agreement.

                           (d) Royalties due on any future Branded Products will
         be negotiated in good faith between the parties. Consideration will be
         given to reflect the amount of effort and direct expense incurred in
         the developmental process by the owner of the Brand.

SECTION 7.  Withdrawal of Profits.

                           7.1 No part of the profits of the New Company will be
         paid to the Shareholders during or in respect of the first fiscal year
         of the New Company. Thereafter, if the payment of the same is not
         prohibited by any bank-financing or other agreements to which the New
         Company is a party, the Shareholders shall agree annually on the amount
         of the profits of the New Company to be paid to the Shareholders and,
         in default of agreement, the following percentages of the post-tax
         profits of the New Company as shown on its federal (U.S.) income tax
         return shall be paid on a pro rata basis pursuant to share ownership to
         the Shareholders.
<TABLE>
<CAPTION>
                  Fiscal Year                                 Percent of Post-Tax Profits
                  -----------                                 ---------------------------
                  <S>                                         <C>
                      2                                                10%
                      3                                                20
                      4                                                30
                      5, and thereafter                                40
</TABLE>

                                       10
<PAGE>   13
                           7.2 Upon the request of either Party, at any time
         that the retained earnings of the New Company, as determined in
         accordance with generally accepted accounting principles, exceed the
         New Company aggregate indebtedness for borrowed money, the Board of
         Directors shall direct that such excess be distributed to the Parties
         as a dividend, provided that in the judgment of the Board of Directors,
         the New Company has sufficient cash to make such distribution without
         impairing the New Company's working capital and without requiring the
         New Company to incur additional indebtedness to meet its reasonably
         anticipated business needs and provided further, that the payment of
         such dividend is not prohibited by any agreement to which the New
         Company is a party.

                           7.3 Consistent with Section 7.1 hereof, profits shall
         be paid to the Shareholders on a pro rata basis pursuant to share
         ownership and shall be paid in such manner as the Shareholders shall
         agree (whether by dividends on the Stock or otherwise).

                           7.4 Profits shall be determined after the application
         of the Service Fees defined above and all additional costs of doing
         business, such as the identifiable expenses, including, but not limited
         to, actual costs of goods, salaries, benefits, travel and
         entertainment, commissions, actual freight, advertising, product
         service, finance costs and insurance.

       SECTION 8.  Fiscal Year, Accounting, and Reports.

                           8.1 The fiscal year of New Company shall be as
         determined by the Board. The officers of New Company shall keep, or
         cause to be kept, such books and records relating to the business and
         affairs of New Company as shall be reasonably necessary or appropriate.

                           8.2 The New Company shall provide monthly financial
         reports to the Parties with regard to its sales, production and
         financial condition. It shall, in addition, provide upon request such
         other information concerning its business and affairs as the Parties or
         their legal counsel or accountants may reasonably request.

                           8.3 The New Company shall be audited annually by a
         firm of certified public accountants to be selected by the Board of
         Directors.

       SECTION 9.  Arbitration.

                           9.1 Any dispute, controversy or claim arising out of
         or relating to this Agreement, or the breach hereof, shall be settled
         and finally determined by arbitration in Springfield, Massachusetts,
         before a panel of three arbitrators. Any such arbitration shall be
         conducted in accordance with

                                       11
<PAGE>   14
         the Commercial Arbitration Rules of the American Arbitration
         Association. Judgment upon any award rendered by the arbitrators may be
         entered in any court of any country having jurisdiction thereof. The
         legal fees and other costs and expenses incurred by the Parties in any
         such arbitration proceeding, and the charges of the American
         Arbitration Association, shall be borne as the arbitrators shall
         determine in their award. Notwithstanding the provisions of this
         Section, however, the Parties and the New Company shall be entitled,
         pending resolution by arbitration, to an injunction from a court of
         competent jurisdiction restraining any breach or threatened breach of
         the provisions of Section 3, Section 7 or Section 8 of this Agreement.

                           9.2 Each of the Parties hereby agrees that any
         judgment or award rendered against it in an arbitration proceeding as
         provided herein and entered in any court of record in the United States
         may be executed on against the assets of such Party in any
         jurisdiction, including, but not limited to, the United States of
         America. By its execution of this Agreement, each Party hereby
         irrevocably submits to the jurisdiction of the courts of each of the
         aforesaid jurisdictions, including, without limitation, the state
         courts of the Commonwealth of Massachusetts and the United States
         District Court for the Commonwealth of Massachusetts, in any legal
         actions or proceedings relating to such executions.

       SECTION 10.  Notices.

                           10.1 Any notices required or authorized to be given
         under this Agreement shall be sent by mail, by a recognized courier
         service or facsimile transmission, or shall be hand-delivered, in each
         case, to the Parties at the following addresses:

                           SMITH & WESSON CORP.
                           2100 Roosevelt Avenue
                           Springfield, MA 01102-2208

                           CARL WALTHER U.S.A., LLC
                           10 Prince Street
                           Alexandria, VA 22314

                           UMAREX SPORTWAFFEN, GmbH
                           Donnerfeld 2
                           59757 Arnsberg, Germany

                           10.2 Any notice so given by mail, courier service or
         hand-delivery shall be deemed given upon receipt and any notice given
         by telex or facsimile shall be deemed given upon the transmission
         thereof. Any party

                                       12
<PAGE>   15
         may change its address for purposes hereof by notice given in
         compliance with this Paragraph.

       SECTION 11.  Term.

                           11.1 This Agreement shall be in effect for an initial
         term of six (6) years from the date hereof, and from year-to-year
         thereafter subject to termination at the end of the sixth year or any
         subsequent year by a Party upon written notice to the other Parties at
         least one hundred eighty (180) days prior to such year end. In the
         event that a Party hereto gives notice of termination pursuant to this
         Section, the Parties shall then negotiate for the purchase of the Stock
         of one Party by the other Parties. If within three (3) months of such
         written notice of termination, the Parties do not agree on such a
         purchase and sale of stock and do not agree to sell all of the Stock of
         the New Company to a third party, New Company shall be dissolved and
         liquidated as expeditiously as possible. In the event of its
         liquidation in accordance with the provisions of this Section, the
         division of the assets of New Company shall be decided upon by the
         Board of Directors of New Company or pursuant to applicable court
         proceedings.

       SECTION 12.  Miscellaneous.

                           12.1 This Agreement including the Exhibits attached
         hereto represents the entire integrated agreement among the Parties
         with respect to the subject matter hereof and supersedes all prior
         negotiations or agreements, whether written or oral. Whenever the
         context of this Agreement permits, the masculine gender shall include
         the feminine and the neuter genders and any reference to singular or
         plural shall be interchangeable with the other. The invalidity or other
         unenforceability of any one or more provisions of this Agreement shall
         not affect any other provisions and this Agreement shall be construed
         in all respects as if such invalid or unenforceable provisions were
         omitted.

                           12.2 The provisions of this Agreement may not be
         amended, waived, modified or supplemented except by an instrument, in
         writing, signed by the Party against whom such amendment waiver,
         modification or supplement is asserted.

                           12.3 This Agreement shall be binding upon and shall
         inure to the benefit of the Parties hereto, any subsidiary of a Party
         and their respective permitted successors and assigns. No Party hereto
         may assign its rights, duties or obligations hereunder without the
         prior written consent of the other Party, which consent may be given or
         withheld by the other Party in its sole discretion. All transfers of
         shares of the Stock held by each Party shall be

                                       13
<PAGE>   16
         subject to and made only in accordance with the provisions of Section 3
         hereof.

                           12.4 This Agreement shall be governed and construed
         in accordance with the laws of the Commonwealth of Massachusetts,
         U.S.A.

                           12.5 This Agreement may be executed in multiple
         counterparts, each of which shall be deemed to be an original, and all
         of which together shall constitute one and the same instrument.

                           IN WITNESS WHEREOF, the parties hereto have caused
         this Agreement to be duly executed in duplicate by their respective
         authorized representatives.
<TABLE>
<CAPTION>
         <S>                                                 <C>
         UMAREX SPORTWAFFEN, GmbH                                 SMITH & WESSON CORP.

         By:      /s/ [signature not legible]                By:      /s/ Robert L. Scott
            -----------------------------------------           -------------------------------------

         Title:                                              Title:   V.P. Business Development
               --------------------------------------              ----------------------------------

         Date:                                               Date:    11/22/99
              ---------------------------------------             -----------------------------------

         CARL WALTHER U.S.A, LLC

         By:      /s/ [signature not legible]
            -----------------------------------------

         Title:
               --------------------------------------

         Date:
              ---------------------------------------
</TABLE>

                                       14
<PAGE>   17
                                  ATTACHMENT A

                       New Company Insurance Requirements

A.       Commercial General Liability insurance, with broad form personal injury
         and property coverage, or 1986 ISO Commercial General Liability form
         coverage written on an "occurrence" (not "claims-made") basis,
         including contractual liability coverage and products completed and
         products liability coverage, with limits of not less than $1,000,000
         applicable to bodily injury, sickness, death or damage to property in
         any one occurrence and $3,000,000 in the aggregate.

B.       Worker's compensation and Employers' Liability Insurance, including
         occupational disease coverage in accordance with the state or federal
         laws of the jurisdiction where New Company shall have its principal
         place of business, with limits of not less than $500,000 for each
         accident. The workers compensation policy must additionally include:
         Other states Extension and an Alternative Employer Endorsement.

C.       Automobile Liability Insurance covering owned, non-owned, hired and
         other vehicles used by New Company, its officers, agents and employees
         and Subcontractors, with limits of not less than $1,000,000 applicable
         to bodily injury, sickness or death or damage to property in any one
         occurrence.

D.       Excess Liability insurance in the amount of $10,000,000 covering the
         risks and in excess of the limits set forth above.

The specific insurance requirements listed above are New Company's minimum
insurance requirements, must be met independently, and shall not be considered
indicative of the ultimate amounts and types of insurance needed by New Company.
Each insurance policy maintained by New Company hereunder must be endorsed as
follows:

                  1.       "New Company, S & W and UMAREX/CARL WALTHER, their
                           subsidiaries and affiliated companies and joint
                           ventures, if any, and their employees, officers and
                           agents, shall be named as additional insureds except
                           with respect to Workers Compensation."

                  2.       "Underwriters and insurance companies of New Company
                           shall not have any right of subrogation against New
                           Company, S & W and UMAREX/CARL WALTHER, their
                           subsidiaries and affiliates, and their agents,
                           employees, co-owners, joint ventures, invitees,
                           servants, subcontractors, underwriters and insurance
                           companies."

                                       15
<PAGE>   18
                  3.       "It is hereby understood and agreed that any coverage
                           provided by New Company shall be considered as
                           primary insurance."

                  4.       "All policies shall provide that there will be no
                           recourse against S & W and UMAREX/CARL WALTHER for
                           payment of premium. S & W and UMAREX/CARL WALTHER
                           shall have no responsibility for payment of
                           deductibles.

                  5.       New Company shall not begin operations until such
                           time as the insurance required hereunder is obtained
                           and in-place.

                  6.       New Company shall provide S & W and UMAREX/CARL
                           WALTHER with certificates of insurance evidencing the
                           insurance coverage equivalent to those required to be
                           maintained under this Agreement and containing the
                           endorsements required hereunder. Each certificate of
                           insurance shall indicate the location to which the
                           coverage applies and shall specify the date when such
                           benefits and insurance expire.

                  7.       All insurance policies required hereunder shall be
                           written on policy forms, and by insurance companies
                           of recognized responsibility, licensed to do business
                           and doing business in the Commonwealth of
                           Massachusetts and/or where this Agreement is being
                           performed and having the equivalent of an AM Best
                           rating of A + VI or better.

                  8.       The certificates of insurance required hereunder must
                           provide for not less than forty-five (45) days prior
                           written notice to New Company, S & W and UMAREX/CARL
                           WALTHER in the event of cancellation or material
                           change affecting any coverage required hereunder.

                                       16
<PAGE>   19
                                  ATTACHMENT B

                                    Indemnity

                  To the fullest extent permitted by law, UMAREX/CARL WALTHER
agrees to protect, defend, indemnify and hold harmless S & W (including S & W's
officers, agents, employees, representatives, affiliated companies and
distributors) and S & W agrees to protect, defend, indemnify and hold harmless
UMAREX/CARL WALTHER from and against all claims (including, but not limited to,
product liability claims, strict liability claims, claims resulting from any
defective design, workmanship or material, breach of warranty claims, any other
claims asserting breach of contract, negligence, malfeasance, repair or
maintenance services, failure to meet specifications or other default with
respect to the products provided to New Company under the Agreement as the case
may be) losses, damages (including, but not limited, to actual, consequential,
and incidental damages), causes of action, suits and liabilities of every kind,
including all expenses of litigation, court costs and attorneys' fees, for
injuries to or death to any person, or for damage to any tangible or intangible
property or properties or rights, arising out of or relating to the products,
goods or services provided hereunder by UMAREX/CARL WALTHER on the one hand, or
S & W on the other, their manufacture, design, sale, transportation,
installation, testing, operation, recall and use or nonuse (hereinafter
"Claims"). UMAREX/CARL WALTHER's and S & W's indemnity obligations under this
provision include, but are not limited, to the obligation to defend, indemnify
and hold the other party harmless for Claims, losses and damages described above
which arise out of or from (1) the concurrent negligence of S & W and UMAREX/
CARL WALTHER, or the negligence of S & W and UMAREX/CARL WALTHER (whether sole
or concurrent), and any other person or entity and/or (2) any alleged defects in
the design, manufacture, repair or maintenance of the products or any claim
where it is alleged that there were unreasonably dangerous conditions in the
products provided. It is the express intent of the parties that the indemnity
provided for in this paragraph include indemnity, on the one hand, by
UMAREX/CARL WALTHER to indemnify and protect S & W from the consequences of or
Claims relating to S & W's own negligence, and, on the other hand, indemnity by
S & W to indemnify and protect UMAREX/CARL WALTHER from the consequences of or
Claims relating to UMAREX/CARL WALTHER's own negligence, but only if such
negligence is a concurring cause of the injuries, damages or losses covered by
this Agreement. The indemnity provision set forth above shall only apply to the
extent that the parties are not protected, defended or indemnified by the
insurance coverage set forth in Attachment A hereto.

                                       17

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