ROYAL PRECISION INC
REVOLVING SUBORDINATED PROMISSORY NOTE
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>ex10-3.txt
<DESCRIPTION>REVOLVING SUBORDINATED PROMISSORY NOTE
<TEXT>

                                                                    Exhibit 10.3

     THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT BY
       JOHNSTON FAMILY CHARITABLE REMAINDER UNITRUST #3 IN FAVOR OF WELLS
            FARGO BUSINESS CREDIT, INC. DATED AS OF DECEMBER 7, 2000.

                     REVOLVING SUBORDINATED PROMISSORY NOTE


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                                                             Scottsdale, Arizona
                                                                December 7, 2000
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     FOR  VALUE  RECEIVED,   the  undersigned,   ROYAL   PRECISION,   INC.  (the
"Borrower"),  hereby promises to pay to the order of JOHNSTON FAMILY  CHARITABLE
REMAINDER  UNITRUST #3 a trust created under a trust agreement dated October 15,
1998 (the "Lender"),  the aggregate  unpaid principal amount of all Loans (this,
and other capitalized  terms, are defined in Section 10.9) made by the Lender to
the Borrower hereunder, together with interest, all as provided herein.

     SECTION 1. THE LOANS.  The Lender  agrees,  subject to and on the terms and
conditions  set forth in this Note,  to make Loans to the Borrower  from time to
time  up to an  aggregate  principal  amount  outstanding  at any  one  time  of
$1,000,000.  Subject to the terms and  conditions of this Note, the Borrower may
borrow, repay and reborrow from the Lender at any time or from time to time from
the date hereof until January 30, 2001.

          1.1.  PRINCIPAL.  The unpaid principal balance shall be payable by the
Borrower on January 30, 2001.

          1.2. INTEREST. The Borrower shall pay interest on the unpaid principal
balance  of all Loans at a rate per annum  equal to 13%.  All  interest  payable
under this Note or otherwise payable hereunder shall be computed on the basis of
the  actual  number of days  elapsed  over a year of 365 days.  Interest  on the
unpaid  principal  balance of each Loan shall be  payable on January  30,  2001,
monthly thereafter at the end of each calendar month and at the repayment of the
unpaid principal balance of such Loan.

          1.3. RATE OF INTEREST.In no event  whatsoever  shall the interest rate
and other charges  hereunder exceed the highest rate  permissible  under any law
which a court of competent  jurisdiction shall, in a final  determination,  deem
applicable  hereto.  In the event  that a court  determines  that the Lender has
received  interest  and other  charges  hereunder  in excess of the highest rate
applicable  hereto,  the Lender shall promptly  refund such excess amount to the
Borrower and the  provisions  hereof shall be deemed amended to provide for such
permissible rate.
<PAGE>
          1.4. PREPAYMENTS; PAYMENTS.

               1.4.1.  The Borrower shall have the right to make  prepayments at
any time of the  principal  amount  of any  Loan,  in whole or in part,  without
notice. Each prepayment shall be without premium or penalty.

               1.4.2.  The Borrower  shall make all  payments of  principal  and
interest under this Note to the Lender at such location as the Lender may direct
in immediately  available funds. If any payment of principal or interest on this
Note shall become due on a day other than a Business  Day, such payment shall be
due and payable upon the next succeeding Business Day and such extension of time
shall in such case be included in  computing  interest in  connection  with such
payment.

     SECTION 2.  REPRESENTATIONS  AND WARRANTIES.  The execution of this Note by
the  Borrower,  and the  receipt of each  Loan,  shall in each case be deemed to
constitute the Borrower's representation and warranty to the Lender that, at the
time of execution and at the time of disbursement of each Loan: (a) this Note is
the legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in  accordance  with its terms;  (b) the execution and delivery of this
Note by the Borrower does not and will not conflict with,  violate or constitute
a default under or breach the Borrower's charter  documents,  any resolutions of
the Borrower or any court or administrative order, decree or ruling, or any law,
statute, ordinance or regulation, or any agreement, indenture, mortgage, deed of
trust, guaranty,  lease, note or other obligation or instrument binding upon the
Borrower or any of its  properties or assets;  and (c) neither this Note nor any
other  statement,  assignment,  agreement,  instrument  or  certificate  of  the
Borrower made or delivered  pursuant to or in connection with this Note contains
any  untrue  statement  of a  material  fact or omits to state a  material  fact
required to be stated therein,  in light of the  circumstances  under which they
were made, or necessary to make the statements therein not misleading.

     SECTION 3. COVENANTS. On and after the date hereof and until the End of the
Credit:

          3.1. MAINTENANCE OF BUSINESS. The Borrower shall preserve and maintain
its existence,  rights,  franchises and  privileges in the  jurisdiction  of its
formation and to qualify and remain  qualified as a foreign  business  entity in
each jurisdiction in which such  qualification is necessary or desirable in view
of its business and  operations  or for the  ownership  of its  properties.  The
Borrower  shall  maintain and  preserve in a  reasonable  manner in good working
order and  condition,  ordinary wear and tear  excepted,  all of its  properties
which are  necessary  or useful in the proper  conduct of its  business,  and to
make,  from  time  to  time,  all  necessary  and  proper   repairs,   renewals,
replacements,  additions and improvements to said properties. The Borrower shall
keep  adequate  records and books of account in which  complete  entries will be
made in accordance with generally accepted accounting principles, reflecting all
financial transactions.

                                       2
<PAGE>
          3.2.  COMPLIANCE  WITH LAWS. The Borrower shall comply in all material
respects  with  all  applicable  laws   including,   without   limitation,   all
environmental laws.

     SECTION 4. SUBORDINATION.  By acceptance of this Note, the Lender agrees as
follows:  Any and all  obligations and liabilities of the Borrower to the Lender
for principal and interest  under this Note (the  "Subordinated  Indebtedness"),
are  subordinated in right of payment to any and all obligations and liabilities
of the  Borrower  and its  subsidiaries  to Wells Fargo  Business  Credit,  Inc.
pursuant to a Subordination  Agreement between the Lender and said bank dated of
even date herewith (the "Senior Indebtedness").

     SECTION 5. EVENTS OF DEFAULT. The following are Events of Defaults:

          5.1. The Borrower fails to make a payment of interest on the Note when
and as due and such failure is not remedied within three Business Days after the
date such payment is due.

          5.2. The Borrower fails to pay any outstanding  principal amount under
this Note at the End of the Credit and such failure is not remedied within three
Business Days after the date such payment is due.

          5.3. Any  representation or warranty made by the Borrower in this Note
or any information contained in any certificate,  report, financial statement or
other  document  delivered  to the Lender by the  Borrower  contains  any untrue
statement of a material  fact or omits to state a material fact required by this
Note or law to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

          5.4. The  Borrower  fails to perform any of its  obligations  under or
fails to  comply  with any  covenant  contained  in this  Note and such  failure
continues unremedied for a period of 10 Business Days.

          5.5. The Borrower:

               5.5.1. makes an assignment for the benefit of creditors;

               5.5.2.  enters into any  composition,  compromise or  arrangement
with its creditors in general;

               5.5.3. generally does not pay its debts as such debts become due;
or

               5.5.4. conceals,  removes, or permits to be concealed or removed,
any part of its property,  with intent to hinder, delay or defraud its creditors

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or any  of  them,  or  makes  or  suffers  a  transfer  of any of its  property,
fraudulent  under the  provisions of any  bankruptcy,  fraudulent  conveyance or
similar  law,  or makes or  suffers a  transfer  of its  property  to or for the
benefit of a creditor at a time when other creditors similarly situated have not
been paid.

     SECTION 6. DEFAULT REMEDIES.

          6.1.  ACCELERATION.  If an Event of Default  exists,  the  outstanding
unpaid  principal  balance  of this Note,  together  with all  interest  accrued
thereon and any unpaid fees,  expenses or other  amounts due to the Lender under
this Note, is immediately due and payable, without presentment,  demand, protest
or notice of any kind, all of which are hereby waived.

          6.2. REMEDIES CUMULATIVE. No right or remedy conferred upon the Lender
by this Note or legally available to the Lender if an Event of Default exists is
intended to be  exclusive  of any other right or remedy,  and each such right or
remedy is cumulative and in addition to every other such right or remedy.

          6.3. OPTION. If all Loans are not paid in full, including all interest
due  thereon,  by the End of the  Credit,  or  earlier  if  there is an Event of
Default,  then the Lender shall have the option (the "Option") to convert all or
any part of the unpaid Loans and interest thereon into shares of Common Stock of
the  Borrower  (the  "Shares") at the rate of one Share for each $1.00 of unpaid
principal  and  interest  thereon  as of the End of the  Credit  (the  "Exercise
Price").

               6.3.1.  The  Option  may be  exercised  by the  Lender  sending a
written  notice to the Borrower  indicating  the number of shares to be acquired
and the amount of Loans and interest thereon being converted.

               6.3.2. As soon as practicable  after such exercise,  the Borrower
shall  issue to the Lender a  certificate  for the number of Shares to which the
Lender is entitled.

               6.3.3.  If after the date of this Note, the number of outstanding
Shares  is  increased  by a share  dividend  payable  in Shares or by a split of
Shares or other similar  event,  then, on the date  following the date fixed for
the  determination  of holders of Shares entitled to receive such share dividend
or split,  the number of Shares  issuable  on  exercise  of the Option  shall be
increased in  proportion  to such  increase in  outstanding  Shares and the then
applicable Exercise Price shall be correspondingly decreased.

               6.3.4.  If after the date of this Note, the number of outstanding
Shares is decreased  by a  consolidation,  combination  or  reclassification  of
Shares  or  other  similar  event,  then,  after  the  effective  date  of  such
consolidation, combination or reclassification, the number of Shares issuable on
exercise of the Option  shall be  decreased in  proportion  to such  decrease in
outstanding   Shares  and  the  then   applicable   Exercise   Price   shall  be
correspondingly increased.

               6.3.5. If after the date of this Note, any capital reorganization
or  reclassification  of the Shares,  or consolidation or merger of the Borrower
with another  corporation for a consideration  other than cash or the assumption

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of debt,  or the  sale of all or  substantially  all of its  assets  to  another
corporation  for a  consideration  other than cash or the  assumption of debt or
other  similar   event  shall  be  effected,   then,  as  a  condition  of  such
reorganization,  reclassification,  consolidation,  merger,  or sale, lawful and
fair provision shall be made whereby the Lender shall  thereafter have the right
to  purchase  and  receive  upon the basis  and upon the  terms  and  conditions
specified  in  this  Note  and in  lieu of the  Shares  immediately  theretofore
purchasable and receivable upon the exercise of the rights  represented  hereby,
such shares,  securities,  or assets as may be issued or payable with respect to
or in exchange for a number of outstanding  Shares equal to the number of Shares
immediately  theretofore  purchasable and receivable upon the exercise of Option
had such reorganization,  reclassification,  consolidation,  merger, or sale not
taken place, and in such event appropriate  provision shall be made with respect
to the rights and interests of the Lender to the end that the provisions  hereof
(including, without limitation, provisions for adjustments of the Exercise Price
and of the number of Shares  purchasable  upon the exercise of the Option) shall
thereafter  be  applicable,  as  nearly  as may  be in  relation  to any  share,
securities, or assets thereafter deliverable upon the exercise hereof.

               6.3.6. Upon the occurrence of any event specified in this Section
6.3,  the  Borrower  shall  give  written  notice  of the  record  date for such
dividend,  distribution,  or subscription  rights, or the effective date of such
reorganization,  reclassification,  consolidation,  merger,  sale,  dissolution,
liquidation,  winding up or issuance. Such notice shall also specify the date as
of which the holders of Shares of record  shall  participate  in such  dividend,
distribution,  or  subscription  rights,  or shall be entitled to exchange their
Shares  for  shares,   securities,   or  other  assets   deliverable  upon  such
reorganization,  reclassification,  consolidation,  merger,  sale,  dissolution,
liquidation,  winding up or issuance. Failure to give such notice, or any defect
therein shall not affect the legality or validity of such event.

     SECTION 7. REGISTRATION RIGHTS.

          7.1. DEMAND REGISTRATION.

               7.1.1.  At any time  commencing  after the exercise of the Option
until the sixth  anniversary  of such date, the Lender may, by written notice (a
"Demand Notice"), demand that the Borrower register under the Securities Act all
or any portion of the Shares held by the Lender for sale in the manner specified
in the Demand Notice; provided,  however, that a Demand Notice shall require the
registration  of  at  least  250,000  Shares  (as  adjusted  for  stock  splits,
combinations and similar events).

               7.1.2. Following receipt of any Demand Notice under Section 7.1.1
above,  the  Borrower  shall  file  a  registration  statement  within  60  days
thereafter  and shall use its best efforts to have such  registration  statement
declared  effective at the earliest  practicable  time under the Securities Act,
for public sale in accordance  with the method of  disposition  specified in the
Demand  Notice,  the number of Shares  specified in the Demand  Notice.  If such
method of disposition shall be an underwritten  public offering,  the Lender may
designate the managing underwriter of such offering,  subject to the approval of

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<PAGE>
the Borrower,  which  approval  shall not be  unreasonably  withheld or delayed.
Notwithstanding  any  other  provision  of this  Section  7.1,  if the  managing
underwriter  advises  the Lender in writing  that  marketing  factors  require a
limitation of the number of shares to be underwritten, then the number of Shares
that may be included in the registration  and  underwriting  shall be reduced to
the amount deemed  reasonable by such  underwriter.  No Shares excluded from the
underwriting  by  reason  of the  underwriter's  marketing  limitation  shall be
included in such  registration.  The  Borrower  shall be  obligated  to register
Shares  pursuant to a demand made in accordance with Section 7.1.1 hereof on two
occasions  only;  provided,  however,  that  such  obligation  shall  be  deemed
satisfied only when (i) a registration  statement  covering all Shares specified
in notices  received as  aforesaid,  for sale in  accordance  with the method of
disposition  specified by the Lender,  shall have become  effective and, if such
method of disposition is a firm commitment  underwritten  public  offering,  all
such Shares shall have been sold pursuant  thereto or (ii) the Lender shall have
determined  not to  proceed  with  the  offering  covered  by such  registration
statement  after the Borrower shall have expended a substantial  amount of funds
in connection  therewith (other than as a result of the Borrower's breach of its
obligations hereunder).

          7.2 "PIGGYBACK"  REGISTRATION RIGHTS. In addition to the provisions of
Sections  7.1 and 7.3 hereof,  the Lender shall have the  following  "piggyback"
registration rights:

               7.2.1.  If,  at any time  commencing  after the  exercise  of the
Option  until the sixth  anniversary  of such date,  the  Borrower  proposes  to
register  any of its equity  securities  under the  Securities  Act (other  than
pursuant to Form S-8, S-4 or comparable  registration  statement),  it will give
written notice,  at least 30 days prior to the filing of each such  registration
statement,  to the Lender of its intention to do so. If the Lender  notifies the
Borrower  within 20 days  after  receipt  of any such  notice  of its  desire to
include any Shares  owned by it  (whether  issued or  issuable  under  currently
exercisable warrants or options) in such proposed  registration  statement,  the
Borrower shall, subject to the provisions set forth below, afford the Lender the
opportunity  to  have  any  such  Shares   registered  under  such  registration
statement.  If  such  registration  is an  underwritten  registration,  and  the
managing  underwriter(s)  advise the Borrower in writing that in its opinion the
number of securities  requested to be included in such registration  exceeds the
number  which can be sold in such  offering  without  adversely  affecting  such
underwriters' ability to effect an orderly distribution of such securities,  the
Borrower  will  give  the  Lender  notice  of  such  fact  and  include  in such
registration  first, the securities  proposed to be sold by the Borrower for its
own account and for the account of any  stockholder of the Borrower  entitled to
demand  registration,  and second,  any other  securities of the Borrower having
registration  rights,  including  the Shares owned by the Lender,  on a pro rata
basis. In determining the pro rata basis, the number of securities shall include
all outstanding Shares and all Shares underlying currently  exercisable warrants
or options requested to be included in such registration statement.

               7.2.2.  Notwithstanding  the  provisions of this Section 7.2, the
Borrower  shall have the right at any time  after it shall  have  given  written
notice pursuant to this Section 7.2  (irrespective  of whether a written request
for inclusion of any such securities  shall have been made) to elect not to file
any such proposed registration  statement,  or to withdraw the same after filing
but prior to the effective date thereof.

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<PAGE>
          7.3 REGISTRATION ON FORM S-3. At any time commencing after the date of
exercise of the Option, and in addition to the rights under Sections 7.1 and 7.2
hereof,  if at any time the Lender makes a written  request or requests that the
Borrower  effect a  registration  on Form S-3 and any related  qualification  or
compliance with respect to all or a part of the Shares owned by the Lender,  the
Borrower will:

               7.3.1. as soon as practicable,  effect such  registration and all
such  qualifications  and compliances as may be so requested and as would permit
or facilitate the sale and  distribution  of all or such portion of the Lender's
Shares as are specified in such request,;  provided,  however, that the Borrower
shall  not be  obligated  to  effect  any such  registration,  qualification  or
compliance  pursuant to this Section 7.3.1: (i) if Form S-3 is not available for
such  offering by the Lender;  (ii) if the Lender,  together with the holders of
any other securities of the Borrower entitled to inclusion in such registration,
propose to sell Shares and such other  securities (if any) at an aggregate price
to the public (net of any  underwriters'  discounts or commissions) of less than
$500,000; (iii) if the Borrower shall furnish to the Lender a certificate signed
by the President of the Borrower stating that, in the good faith judgment of the
Board of Directors of the  Borrower,  it would be seriously  detrimental  to the
Borrower and its  stockholders  for such Form S-3 registration to be effected at
such time, in which event the Borrower  shall have the right to defer the filing
of the Form S-3  registration  statement  for a period of not more than 120 days
after receipt of the request of the Lender under this Section  7.3.1  (provided,
however, that the Borrower shall not utilize this right more than once in any 12
month period);  (iv) if the Borrower has,  within the 12 month period  preceding
the date of such request, already effected two registrations on Form S-3 for the
Lender  pursuant to this Section 7.3.1; or (v) if the Borrower would be required
to qualify to do business or to execute a general  consent to service of process
in effecting such registration, qualification or compliance.

               7.3.2.  Subject  to the  foregoing,  the  Borrower  shall  file a
registration  statement covering the Shares and other securities so requested to
be registered as soon as practicable after receipt of the request or requests of
the Lender. Registrations effected pursuant to Section 7.3.1 hereof shall not be
counted as demands  for  registration  or  registrations  effected  pursuant  to
Sections 7.1 or 7.2 hereof.

     SECTION 8.  COVENANTS OF THE  BORROWER  WITH  RESPECT TO  REGISTRATION.  In
connection  with - any  registration  of the Shares under Section 7 hereof,  the
Borrower covenants and agrees as follows:

          8.1. COSTS. The Borrower shall pay all costs (including the costs of a
single  firm of counsel  designated  by the  Lender to review  the  registration
statement and all amendments and supplements  thereto up to a maximum of $25,000
in  respect of each  registration  under  Section 7 hereof,  but  excluding  any
underwriting  or selling  commissions  or other  charges of any  underwriter  or
broker-dealer  acting on behalf of the Lender),  fees and expenses in connection
with all registration statements filed pursuant to Section 7 hereof,  including,
without limitation, the Borrower's legal and accounting fees, printing expenses,

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<PAGE>
blue sky fees and expenses.  The Borrower  will take all necessary  action which
may  be  required  in  qualifying  or  registering  the  Shares  included  in  a
registration  statement  for offering and sale under the  securities or blue sky
laws of such states as reasonably  are requested by the Lender;  provided,  that
the Borrower  shall not be  obligated to execute or file any general  consent to
service of process or to qualify as a foreign  corporation  to do business under
the laws of any such jurisdiction.

          8.2.  INDEMNIFICATION.  The Borrower shall  indemnify the Lender,  its
trustees and officers,  and each person,  if any, who controls the Lender within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act,  from and  against,  and pay or  reimburse  them for,  all losses,  claims,
damages, expenses and liabilities (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may  become  subject  under the  Securities  Act,  the  Exchange  Act or
otherwise,  arising out of or based upon any untrue  statement or alleged untrue
statement  of a material  fact  contained  in any such  registration  statement,
including any preliminary  prospectus or final prospectus  contained  therein or
any  supplement  to or amendments  thereof,  or arising out of or based upon any
omission or alleged omission of a material fact required to be stated therein or
necessary to make a statement  therein not  misleading,  except  insofar as such
losses, claims, damages,  expenses or liabilities arise out of or are based upon
any  such  untrue  statement  or  omission  or  allegation  thereof  based  upon
information  furnished  in writing to the Borrower by or on behalf of the Lender
expressly for use therein. The Lender shall indemnify the Borrower, its officers
and  directors  and each person,  if any,  who controls the Borrower  within the
meaning of Section 15 of the  Securities  Act or Section  20(a) of the  Exchange
Act,  from and  against,  and pay or  reimburse  them for,  all losses,  claims,
damages, expenses and liabilities (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may  become  subject  under the  Securities  Act,  the  Exchange  Act or
otherwise,  directly arising from written information  furnished by or on behalf
of the Lender for specific inclusion in such registration  statement;  provided,
however,  that the Lender shall be liable under this Section and  otherwise  for
only up to that amount of losses,  claims,  damages and  liabilities as does not
exceed the net proceeds to the Lender as a result of the sale of Shares pursuant
to such registration statement.

          8.3. EXCLUSIVITY. The Borrower shall not permit any other registration
statement  to  be  filed  during  the  first  60  days  of  effectiveness  of  a
registration  statement  filed  pursuant  to  Section  7  hereof  (other  than a
registration  statement in connection with a merger or consolidation or pursuant
to Form  S-8,  S-4 or  comparable  registration  statement),  without  the prior
written consent of the Lender, which consent shall not be unreasonably withheld.
The Borrower  shall not permit the  inclusion of any  securities  other than the
Shares  held by the Lender to be included in any  registration  statement  filed
pursuant to Sections 7.1 and 7.3 hereof;  provided,  however,  that the Borrower
may  include  securities  being  offered by it for its own  account  and for the
account of  stockholders  of the  Borrower  permitted by the Borrower to include
their  securities  in such  registration  statement,  to the  extent  that  such
inclusion  does not in any way reduce the number of  securities  proposed  to be
included by the Lender.

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<PAGE>
          8.4. COLLATERAL  DOCUMENTS.  The Borrower shall use reasonable efforts
in good faith to cause to be furnished to the Lender and to each underwriter, if
any, a signed counterpart,  addressed to the Lender or such underwriter,  of (i)
an  opinion  of  counsel  to the  Borrower,  dated  the  effective  date of such
registration  statement  (and,  if such  registration  includes an  underwritten
public offering, an opinion dated the date of the closing under the underwriting
agreement),  and (ii) a "cold  comfort"  letter dated the effective date of such
registration  statement  (and,  if such  registration  includes an  underwritten
public  offering,  a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Borrower's financial statements included in such registration  statement,
in each case  covering  substantially  the same  matters  with  respect  to such
registration statement (and the prospectus included therein) and, in the case of
such accountants'  letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants'  letters  delivered to  underwriters in underwritten  public
offerings of securities.

          8.5.  EARNINGS  STATEMENT.  The Borrower  shall as soon as practicable
after the effective date of the registration statement,  and in any event within
15 months thereafter, make "generally available to its security holders" (within
the meaning of Rule 158 under the Securities Act) an earnings  statement  (which
may be  unaudited)  complying  with  Section  11(a)  of the  Securities  Act and
covering  a  period  of at least  12  consecutive  months  beginning  after  the
effective date of the registration statement.

          8.6. INVESTIGATION.  The Borrower shall deliver promptly to the Lender
and to the managing  underwriter,  if any, copies of all correspondence  between
the SEC and the  Borrower,  its  counsel or  auditors  and permit the Lender and
underwriter  at  its  own  cost  and  expense  to do  such  investigation,  upon
reasonable advance notice,  and upon entering into a confidentiality  agreement,
in form and substance reasonably acceptable to the Borrower, with the Lender and
such underwriter,  with respect to information  contained in or omitted from the
registration   statement  as  it  deems  reasonably  necessary  to  comply  with
applicable  securities  laws or rules of the National  Association of Securities
Dealers, Inc. (the "NASD") or other national exchange.  Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Borrower with its officers and independent auditors, all to such
reasonable  extent and at such reasonable times and as often as the Lender shall
reasonably  request as it deems necessary to comply with  applicable  securities
laws or rules of the NASD or other national exchange.

          8.7. NO REQUIRED  EXERCISE.  Nothing  contained  in this Note shall be
construed  as  requiring  the  Lender  to  exercise  the  Option  prior  to  the
effectiveness of any registration statement.

     SECTION  9.  UNDERWRITING  AGREEMENT.  The  Borrower  shall  enter  into an
underwriting   agreement  with  the  managing   underwriter  selected  for  such
underwriting  by the Lender and reasonably  satisfactory  to the Borrower.  Such
agreement  shall  be  reasonably  satisfactory  in  form  and  substance  to the
Borrower,  the Lender and such  managing  underwriter,  and shall  contain  such
representations,  warranties  and covenants by the Borrower and such other terms

                                       9
<PAGE>
as are  customarily  contained in  agreements  of that type used by the managing
underwriter.  The Lender shall be a party to any underwriting agreement relating
to an underwritten  sale of its Shares and may, at its option,  require that any
or all the  representations,  warranties and covenants of the Borrower to or for
the benefit of such underwriter shall also be made to and for the benefit of the
Lender.  The  Lender  shall  not be  required  to make  any  representations  or
warranties to or agreements with the Borrower or the underwriter  except as they
may   specifically   relate  to  the  Lender  and  its  intended   method(s)  of
distribution.

     SECTION 10. MISCELLANEOUS.

          10.1. MODIFICATIONS AND WAIVERS. No modification or waiver of any term
or  provision  contained  in this Note and no  consent to any  departure  by the
Borrower therefrom shall in any event be effective unless the same is in writing
and signed by the waiving party.  Such waiver or consent shall be effective only
in the specific instance and for the purpose for which it is given.

          10.2.  NOTICES.  Except where specific provisions of this Note provide
for some other form of notice or require  receipt as a condition of notice,  any
consent,  waiver, notice, demand or other instrument required or permitted to be
given  under this Note shall be deemed to have been  properly  received  when in
writing and delivered in person or sent by certified or registered United States
mail, return receipt requested,  postage prepaid, addressed, if to the Borrower:
15170 North Hayden  Road,  Suite 1,  Scottsdale,  Arizona  85260;  and if to the
Lender:  c/o Richard P. Johnston,  4350 Greens Place,  Wilson, WY 83014.  Either
party may  change  its  address  for  notices  by notice in the manner set forth
above.

          10.3. PARTIAL INVALIDITY. If any term or provision of this Note or the
application  thereof to any person,  firm or  corporation  or any  circumstance,
shall  be  invalid  or  unenforceable,  the  remainder  of  this  Note,  or  the
application of such term or provision to any person,  firm or corporation or any
circumstances,  other than those as to which it is held  invalid,  shall both be
unaffected thereby and each term or provision of this Note shall be valid and be
enforced to the fullest extent permitted by law.

          10.4.  NO  IMPLIED  RIGHTS OR  WAIVERS.  No notice to or demand on the
Borrower in any case shall  entitle the Borrower to any other or further  notice
or demand in the same, similar or other  circumstances.  Neither any failure nor
any delay on the part of the Lender in exercising any right,  power or privilege
hereunder  shall  operate  as a waiver  thereof,  nor shall a single or  partial
exercise  thereof  preclude  any other or  further  exercise  of the same or the
exercise of any other right,  power or  privilege.  The Borrower  hereby  waives
presentment,  demand,  notice,  protest  and all other  demands  and  notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note.

          10.5.  SUCCESSORS  AND  ASSIGNS.  This Note shall be binding  upon and
inure to the benefit of the respective  successors and assigns of the Lender and
the  Borrower;  provided  that the  Borrower  shall  have no right to  assign or
transfer its rights under this Note  voluntarily  or by operation of law without

                                       10
<PAGE>
first obtaining the written consent of Lender,  and any attempted  assignment or
transfer in the absence of such consent shall be void and of no effect.

          10.6.   SURVIVAL   OF   PROVISIONS.    All   covenants,    agreements,
representations,  warranties  and  statements  made  in  this  Note  or  in  any
certificate,  statement,  or other  instrument given pursuant to this Note shall
survive the  execution and delivery to the Lender of this Note and the making of
the Loan and shall  continue in full force and effect so long as any  obligation
of the Borrower under this Note is outstanding and unpaid.

          10.7.  CAPTIONS.  The captions and section  numbers  appearing in this
Note are inserted only as a matter of  convenience;  they do not define,  limit,
construe or describe the scope or intent of the provisions of this Note.

          10.8.  GOVERNING LAW. This Note shall be governed and construed by the
provisions  hereof  and in  accordance  with  the laws of the  State of  Arizona
applicable to instruments to be performed in the State of Arizona.

          10.9.  DEFINITIONS.  Terms not otherwise defined herein shall have the
definitions set forth below:

     "Business  Day" is any day on which the main  office of the  Lender is open
for business.

     "Demand Notice" has the meaning set forth in Section 7.1.1.

     "End of the Credit"  means the earlier of May 31, 2001 or the date of final
payment of all Loans made hereunder.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Exercise Price" has the meaning set forth in Section 6.3.

     "Loan"  means any loan or other  advance made by the Lender to or on behalf
of the Borrower pursuant to this Note.

     "Option" has the meaning set forth in Section 6.3.

     "SEC" means the Securities and Exchange Commission.

     "Securities Act" means the Securities Act of 1933, as amended.

     "Shares" has the meaning set forth in Section 6.3.

                                       11
<PAGE>
     This Note was executed in Scottsdale,  Arizona as of the date first written
above.

                                        ROYAL PRECISION, INC.


                                        By: /s/ Thomas A. Schneider
                                            ------------------------------------
                                            Name: Thomas A. Schneider
                                            Title: President

                                       12
</TEXT>
</DOCUMENT>
