DERBY CYCLE CORP
EXHIBIT 10.2
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>exhibit10-2.txt
<DESCRIPTION>EXHIBIT 10.2
<TEXT>



                             SUPPLEMENTAL INDENTURE

                  This Supplemental Indenture is dated as of July 2, 2001,
among THE DERBY CYCLE CORPORATION, a Delaware corporation ("DCC"), LYON
INVESTMENTS B.V., a company organized under the laws of The Netherlands and a
wholly owned subsidiary of DCC ("Lyon" and, together with DCC, the "Issuers"),
as issuers, and THE BANK OF NEW YORK as successor to IBJ SCHRODER BANK & TRUST
COMPANY, a New York banking corporation, as trustee (the "Trustee"). Each
defined term used herein shall have the meaning assigned to it in the Indenture
(hereinafter defined), unless the context hereof otherwise requires or provides.

                                    RECITALS

                  1.       The Issuers and the Trustee have executed an
Indenture dated as of May 14, 1998 (as amended or supplemented, the "Indenture")
providing for the issuance of $100,000,000 of the Issuers' 10% Senior Notes due
2008 (the "Securities").

                  2.       Section 9.02 of the Indenture generally permits the
Indenture to be amended or supplemented, or compliance with any provision of the
Indenture or the Securities to be waived, with the written consent of the
Holders of not less than a majority in principal amount of the Securities then
outstanding.

                  3.       The Issuers have received written consents of Holders
of not less than a majority in the aggregate principal amount of the Securities
outstanding as of June 13, 2001 (the record date fixed by the Issuers pursuant
to the terms of the Indenture) to the amendments and the waiver of compliance
with certain provisions of the Indenture contemplated by Section 1.01 hereof.

                  4.       The Issuers have always treated their business and
enterprises as being separate and independent business entities and have always
held themselves out to the Holders and the Trustee as being separate and
independent business entities.

                  The Issuers and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the
Securities:

                                   ARTICLE I

              AMENDMENTS AND WAIVERS WITH RESPECT TO THE INDENTURE

                  Section 1.01      AMENDMENTS. The Indenture is hereby amended
as follows:

                  (a)      Section 1.01 of the Indenture is amended as follows:

                           (i)      by inserting the following new definitions
                  in the appropriate alphabetic order:

<PAGE>

                                                                               2

                  "Default Rate" means the interest rate on overdue installments
                  of interest set forth in the Securities.

                  "Derby Nederland" means Derby Nederland B.V., together with
                  its successors and assigns.

                  "DM Indenture" means the Indenture (as supplemented from time
                  to time), dated as of May 14, 1998, providing for the issuance
                  of an aggregate principal amount of up to DM110,000,000 of 9
                  3/8% Senior Notes due 2008 among DCC and Lyon, as issuers, and
                  The Bank of New York as successor to IBJ Schroder Bank & Trust
                  Company, in its capacity as trustee thereunder.

                  "DM Securities" means the securities issued under the DM
                  Indenture.

                  "DM Trustee" means the party named as trustee in the DM
                  Indenture until a successor trustee replaces it and,
                  thereafter, means the successor trustee.

                  "Euro Equivalent" means on any particular date, (i) with
                  respect to any amount denominated in Euros, such amount in
                  Euros, (ii) with respect to any amount denominated in
                  Deutschemarks, such amount divided by 1.95583 and (iii) with
                  respect to any amount denominated in U.S. Dollars, the average
                  of the amount of Euros which could be purchased by each of the
                  Trustee and the DM Trustee (in accordance with their normal
                  banking practices) in the London foreign currency deposit
                  market with such amount of such currency at the spot rate of
                  exchange prevailing at or about 11:00 a.m. (London time) on
                  such date.

                  "Gazelle Sale" means the sale of Koninklijke Gazelle B.V. by
                  Derby Nederland to Gazelle Holding B.V., pursuant to the terms
                  and conditions of the Sale and Purchase Agreement, dated on or
                  about June 14, 2001, among DCC, Derby Nederland and Gazelle
                  Holding B.V. (a copy of which was delivered to the Trustee on
                  June 14, 2001).

                  "General Asset Disposition" means any sale, lease (other than
                  operating leases entered into in the ordinary course of
                  business), transfer or other disposition (or series of related
                  sales, leases, transfers or dispositions) by DCC or any
                  Subsidiary, including any disposition by means of a merger,
                  consolidation or similar transaction (each referred to for the
                  purposes of this definition as a "disposition"), of

<PAGE>

                                                                               3

                  (i) any shares of Capital Stock of a Subsidiary (other than
                  directors' qualifying shares or shares required by applicable
                  law to be held by a Person other than DCC or a Subsidiary),
                  (ii) all or substantially all of the assets of any division or
                  line of business of DCC or any Subsidiary or (iii) any other
                  assets of DCC or any Subsidiary outside of the ordinary course
                  of business of DCC or such Subsidiary; provided, however, that
                  General Asset Dispositions shall not include (A) the sale or
                  discount, in each case without recourse, of accounts
                  receivable arising in the ordinary course of business, but
                  only in connection with the compromise or collection thereof,
                  (B) the factoring of accounts receivable arising in the
                  ordinary course of business pursuant to arrangements customary
                  in the industry, (C) the licensing of intellectual property,
                  and (D) sales of accounts receivable, equipment and related
                  assets (including contract rights) of the type specified in
                  the definition of the term "Qualified Securitization
                  Transaction" to a Securitization Entity for the fair market
                  value thereof, including cash in an amount at least equal to
                  75% of the fair market value thereof. For the purposes of
                  clause (D), Purchase Money Securities shall be deemed to be
                  cash.

                  "Modified Net Available Cash" from the Gazelle Sale means the
                  USD Percentage of the aggregate amount of consideration
                  payable to Lyon or Derby Nederland (including any deferred
                  payment of principal pursuant to a note or installment
                  receivable or otherwise and proceeds from the sale or other
                  disposition of any securities received as consideration, but
                  only as and when received, but excluding any other
                  consideration received in the form of assumption by the
                  acquiring Person of Indebtedness or other obligations relating
                  to properties or assets that are the subject of the Gazelle
                  Sale or received in any other non-cash form, and excluding
                  Designated Non-Cash Consideration) therefrom, in each case net
                  of (i) all legal, accounting and investment banking fees, and
                  sales commissions, and all title and recording tax expenses,
                  commissions and other fees and expenses incurred, and all
                  federal, state, provincial, local and foreign taxes required
                  to be paid or accrued as a liability under U.S. GAAP or Dutch
                  accounting principles, as a consequence of the Gazelle Sale,
                  and (ii) all payments made by Derby Nederland or Lyon (whether
                  directly or through any Affiliate) upon the closing of the
                  Gazelle Sale on any Indebtedness (including

<PAGE>

                                                                               4

                  any collateralisation of such Indebtedness (such amounts
                  collectively referred to as "Cash Collateral"))or other
                  amounts due under the Revolving Credit Agreement outstanding
                  on the date of the closing of the Gazelle Sale.

                  "USD Percentage" means on any particular date, the quotient of
                  (i) the Euro Equivalent of the principal amount of the
                  Securities then outstanding, divided by (ii) the sum of (A)
                  the Euro Equivalent of the principal amount of the Securities
                  then outstanding plus (B) the Euro Equivalent of the principal
                  amount of the DM Securities then outstanding.

                  (b)      4.06(a) of the Indenture is amended by deleting the
words "DCC shall not, and shall not permit any Restricted Subsidiary to make any
Asset Disposition unless" in the first sentence and inserting the following in
place of the deleted text:

                  "DCC shall not, and shall not permit any Restricted Subsidiary
                  or Unrestricted Subsidiary to, make any General Asset
                  Disposition where the assets disposed of have a fair market
                  value, as determined in good faith by the board of directors
                  of DCC or such Restricted Subsidiary or Unrestricted
                  Subsidiary, as applicable, that equals or exceeds $5,000,000.
                  In addition, DCC shall not, and shall not permit any
                  Restricted Subsidiary to, make any Asset Disposition unless"

                  (c)      Section 5.01 of the Indenture is amended by the
addition of Section 5.01(c) to read as follows:

                  "(c) Notwithstanding the foregoing, Sections 5.01(a) and (b)
                  shall not apply to the Gazelle Sale and the Gazelle Sale shall
                  not be deemed a conveyance or transfer of all or substantially
                  all of the assets of either of the Issuers or of any of the
                  Note Guarantors under Sections 5.01(a) or (b), provided that
                  each of the following conditions are met:

                           (i)      the USD Percentage of the Euro Equivalent of
                  the first $2,500,000 of the Modified Net Available Cash from
                  the Gazelle Sale shall be delivered to Derby Nederland upon
                  the closing of the Gazelle Sale and Derby Nederland shall,
                  upon its receipt thereof, forthwith distribute such amount to
                  Lyon (the "Lyon Distribution");

                           (ii)     Lyon shall procure, and shall procure that
                  Derby Nederland shall procure, that 100% of the Modified Net
                  Available Cash from the Gazelle Sale (excluding the Lyon
                  Distribution) (the "Gazelle Sale

<PAGE>

                                                                               5

                  Proceeds") shall be forthwith and irrevocably paid from time
                  to time directly to the Trustee (to be held by the Trustee for
                  the benefit of the Holders in accordance with Sections 2.04
                  and 4.06(c)(2) for the purposes of making the interest payment
                  under the Securities due on May 15, 2001 (the "May Interest
                  Payment") and commencing one or more Offers pursuant to
                  Section 4.06) to be held by the Trustee in the following
                  account (the "Account"):

                           The Bank of New York
                           ABA # 021-000-018
                           A/C # GLA/111-565
                           A/C Name: GFU-IBJW Account
                           Sub A/C # 134503
                           Ref: Derby Cycle Corporation;

                           (iii)    Lyon shall procure that Derby Nederland
                  shall take such actions as are necessary from time to time
                  (and prior to any dissolution or insolvency proceeding of
                  Derby Nederland) to effectuate transfers of the residual
                  beneficial interests in any Gazelle Sale Proceeds received
                  after the closing of the Gazelle Sale (after application
                  thereof in accordance with the terms herein) from Derby
                  Nederland to Lyon;

                           (iv)     immediately prior to any portion of the
                  Gazelle Sale Proceeds being deposited in the Account, Lyon
                  shall deliver to the Trustee a written statement certified by
                  an officer of the Issuers setting forth in reasonable detail
                  computations evidencing the calculation of the amount of such
                  portion of the Gazelle Sale Proceeds to be deposited in the
                  Account;

                           (v)      within 2 days of the closing of the Gazelle
                  Sale, the Trustee shall apply the Gazelle Sale Proceeds in the
                  Account to pay in full at the Default Rate the May Interest
                  Payment;

                           (vi)     within 7 days of the making of the May
                  Interest Payment, Lyon will commence an Offer solely with
                  respect to the Securities and the DM Securities pursuant to
                  Section 4.06(b), (c) and (d) and Section 4.06(b), (c) and (d)
                  of the DM Indenture for an Offer Amount equal to 100% of the
                  Gazelle Sale Proceeds held in the Account as of such date and
                  100% of the amount held in the account (the "DM Indenture
                  Account") under Section 5.01(c)(ii) of the DM Indenture as of
                  such date (the "DM Initial Gazelle Proceeds");

                           (vii)    the Trustee and the DM Trustee shall combine
                  the DM Initial Gazelle Proceeds in the DM Indenture Account
                  with the Gazelle Sale Proceeds in the Account for purposes of
                  purchasing Securities and DM Securities which are to be
                  purchased in whole or in part in connection with an Offer;

<PAGE>

                                                                               6

                           (viii)   the Issuers shall cause Derby Nederland to
                  deliver at the closing of the Gazelle Sale to the escrow agent
                  for the escrow account established in connection with the
                  Gazelle Sale (the "SPA Holdback Account") written notice
                  irrevocably instructing such escrow agent to forthwith deliver
                  the Gazelle Sale Proceeds released from the SPA Holdback
                  Account from time to time to the Trustee for depositing in the
                  Account;

                           (ix)     DCC shall deliver at the closing of the
                  Gazelle Sale to Chase Manhattan International Ltd., as
                  facility agent and security agent under the Revolving Credit
                  Agreement ("Chase"), written notice satisfactory to the
                  Trustee irrevocably instructing Chase to forthwith deliver the
                  USD Percentage of Cash Collateral released by Chase from time
                  to time to the Trustee for depositing in the Account;

                           (x)      within 7 days of any portion of the Gazelle
                  Sale Proceeds being released from the SPA Holdback Account and
                  deposited into the Account, Lyon shall, to the extent that
                  more than EUR 5,000,000 is held by the Trustee in the Account
                  at such time, commence an Offer solely with respect to the
                  Securities and the DM Securities pursuant to Section 4.06(b),
                  (c) and (d) and Section 4.06(b), (c) and (d) of the DM
                  Indenture for an Offer Amount equal to 100% of the Gazelle
                  Sale Proceeds held in the Account as of such date and 100% of
                  the amounts held in the DM Indenture Account as of such date
                  (the "DM Released Gazelle Proceeds");

                           (xi)     the Trustee and the DM Trustee shall combine
                  the Gazelle Sale Proceeds in the Account with the DM Released
                  Gazelle Proceeds in the DM Indenture Account for purposes of
                  purchasing Securities and DM Securities which are to be
                  purchased in whole or in part in connection with an Offer;

                           (xii)    Lyon shall only use the Lyon Distribution to
                  make first priority secured revolving loans to DCC pursuant to
                  the secured revolving note in substantially the form attached
                  hereto as Exhibit A and, forthwith upon the earlier of January
                  15, 2002 or the closing of a sale or disposition of
                  substantially all of the assets of DCC, Lyon shall procure
                  that the Lyon Distribution be irrevocably paid to the Trustee
                  (to be held by the Trustee for the benefit of the Holders in
                  accordance with Section 2.04 and 4.06(c)(2) in the Account for
                  the purpose of commencing one or more Offers pursuant to
                  Section 4.06); and

                           (xiii)   until all of the Gazelle Sale Proceeds have
                  been irrevocably paid to the Trustee, Lyon shall not incur any
                  Indebtedness.

                           Subject to the provisions of Section 4.06(d), if the
                  terms of this Section 5.01(c) are inconsistent with the terms

<PAGE>

                                                                               7

                  of Section 4.06, then the terms of this Section 5.01(c) shall
                  govern. For the purposes of Section 5.01(c), the term "Lyon"
                  shall include all successors or assigns of Lyon Investments
                  B.V.

                                   ARTICLE II

                                  MISCELLANEOUS

                  Section 2.1       FURTHER ASSURANCES. The parties will execute
and deliver such further instruments and do such further acts and things as may
be reasonably required to carry out the intent and purpose of this Supplemental
Indenture.

                  Section 2.2       TRUST INDENTURE ACT CONTROLS. If any
provision of this Supplemental Indenture limits, qualifies or conflicts with
another provision hereof that is required to be included in this Supplemental
Indenture by the TIA, the required provision shall control.

                  Section 2.3       COUNTERPART ORIGINALS. This Supplemental
Indenture may be executed in any number of counterparts, each of which so
executed shall be an original, but all of them together represent the same
agreement.

                  Section 2.4       HEADINGS. Headings of the Sections of this
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part of this Supplemental Indenture, and shall in no way
modify or restrict any of the terms of provisions hereof.

                  Section 2.5       GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW
TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.

                  Section 2.6       SUCCESSORS AND ASSIGNS. All agreements of
the Issuers and the Trustee in this Supplemental Indenture shall bind their
successors. All Securityholders and every subsequent Holder of any Security
shall be bound by this Supplemental Indenture.

                  Section 2.7       SEVERABILITY. In case any provision of this
Supplemental Indenture shall be invalid, illegal, or unenforceable, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

                  Section 2.8       RATIFICATION OF INDENTURE; SUPPLEMENTAL
INDENTURES PART OF INDENTURE. Except as expressly amended hereby, the Indenture
is in all respects ratified and confirmed and all the terms, conditions and
provisions thereof shall remain in full force and effect. This Supplemental
Indenture shall form a part of the Indenture for all

<PAGE>

                                                                               8

purposes, and every Holder of Securities heretofore or hereafter authenticated
and delivered shall be bound hereby.

                  Section 2.9       NO THIRD PARTY BENEFITS. Nothing in this
Supplemental Indenture, express or implied, shall give to any Person, other than
the parties hereto and their successors under the Indenture, and the
Securityholders, any benefit or any legal or equitable right, remedy or claim
under the Indenture.

                  Section 2.10      THE TRUSTEE. The Trustee shall not be
responsible in any manner for or in respect of the validity or sufficiency of
this Supplemental Indenture, or for or in respect of the recitals contained
herein, all of which recitals are made by the Issuers individually.


                 [Remainder of page is intentionally left blank]



<PAGE>


                  IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed as of the date first written above.


                                   THE DERBY CYCLE CORPORATION


                                   By:  /s/ John  Burdett
                                        ---------------------------------------
                                        Name:   John Burdett
                                        Title:  Chief Financial Officer


                                   LYON INVESTMENTS B.V.


                                   By:  /s/ Simon J. Goddard
                                        ---------------------------------------
                                        Name:   Simon J. Goddard
                                        Title:  Managing Director


                                   THE BANK OF NEW YORK, as Trustee


                                   By:  /s/  Luis Perez
                                        ---------------------------------------
                                        Name:   Luis Perez
                                        Title:  Assistant Vice President


<PAGE>

                                                                       EXHIBIT A



                             SECURED PROMISSORY NOTE

US$2,500,000                                                       July _, 2001


                  FOR VALUE RECEIVED, THE DERBY CYCLE CORPORATION, a Delaware
corporation ("Borrower"), hereby unconditionally promises to pay to the order of
LYON INVESTMENTS B.V., a corporation organized under the laws of the Netherlands
("HOLDER"), in lawful money and in immediately available funds, the lesser of
(i) the principal sum of the Dollar Equivalent of Two Million Five Hundred
Thousand Dollars (US$2,500,000) or its Euro equivalent (the "COMMITMENT Amount")
and (ii) the aggregate unpaid principal amount of all loans made by or through
Holder to Borrower pursuant to this Note (the "LOANS"). The principal of and all
accrued interest on this Note shall be due and payable at such time and in such
amounts as set forth herein. For purposes of this Note, "DOLLAR EQUIVALENT"
means on any particular date, (i) with respect to any amount denominated in U.S.
Dollars, such amount in U.S. Dollars, and (ii) with respect to any amount
denominated in Euros, the average of the amount of Dollars which could be
purchased by each of the Trustee and the DM Trustee (in accordance with their
normal banking practices) in the London foreign currency deposit market with
such amount of such currency at the spot rate of exchange prevailing at or about
11:00 a.m. (London time) on such date.

         1.       BORROWINGS. Holder agrees to make loans from time to time on
                           each requested borrowing date (a "BORROWING DATE") on
                           and after the date hereof until the Maturity Date (as
                           defined below) in an aggregate principal amount not
                           to exceed the Commitment Amount at any time on the
                           terms and conditions set forth herein. As a condition
                           precedent to the making of each Loan, the Holder
                           shall have received a written loan request (a "LOAN
                           REQUEST") from the Borrower. The Borrower agrees that
                           it will not make a Loan Request hereunder unless, the
                           Borrower, collectively with its subsidiaries
                           (excluding Holder), (i) will have less than the
                           Dollar Equivalent of US$2,500,000 in cash and cash
                           equivalents on the relevant Borrowing Date and (ii)
                           the amount of such borrowing shall not exceed the
                           difference of (A) the Dollar Equivalent of
                           US$2,500,000 minus (B) the Dollar Equivalent of the
                           aggregate amount of cash and cash equivalents
                           collectively held by the Borrower and its
                           subsidiaries (excluding Holder) (the "SHORTFALL").

<PAGE>

                                                                               2

         2.       MATURITY. The outstanding principal amount of the Loans,
                           together will all accrued but unpaid interest
                           thereon, shall be due and payable in full on the
                           earlier of (i) January 15, 2002 and (ii) the closing
                           date of a sale or disposition of substantially all of
                           the assets of Holder, whichever occurs first (the
                           "MATURITY DATE"); PROVIDED that if the Borrower and
                           its subsidiaries (excluding Holder) shall
                           collectively have cash and cash equivalents
                           (including, without limitation, the aggregate amount
                           of all outstanding Loans) in an aggregate amount in
                           excess of the Dollar Equivalent of US$2,500,000 (the
                           "EXCESS") at any time, then the Borrower shall repay
                           the Loans (in accordance with paragraph 4(a)) on such
                           date by the amount of such Excess (an "EXCESS
                           PAYMENT"), but any amounts so repaid may thereafter
                           be reborrowed in accordance with paragraph 1 hereof;
                           PROVIDED, FURTHER, however, that Borrower shall not
                           be required to make any Excess Payment unless the
                           Excess exceeds $250,000.

         3.       INTEREST.

                  (a)      The outstanding principal balance of all Loans made
                           hereunder shall bear interest from the date of
                           advancement thereof to the date of repayment at a
                           rate per annum (computed on the basis of a 360-day
                           year, actual days elapsed) equal to 5%. Borrower
                           shall pay all such accrued interest on the last
                           business day of each calendar month, beginning on the
                           last business day of August 2001.

                  (b)      Notwithstanding the foregoing, but subject to
                           applicable law, any overdue principal of and overdue
                           interest on this Note shall bear interest, payable on
                           demand in immediately available funds, for each day
                           excluding the date payment thereof was due to the
                           date of actual payment, at a rate equal to the rate
                           of interest otherwise in effect pursuant to clause
                           (a) above PLUS 2% per annum.

         4.       PAYMENT PROCEDURES.

                  (a)      All amounts payable hereunder shall be payable to
                           Holder by wire transfer of immediately available
                           funds in the currency in which the Loan was made to
                           Borrower in accordance with wire transfer
                           instructions to be separately provided to Borrower in
                           writing.

                  (b)      If any payment of principal or interest on this Note
                           shall become due on a day that is not a business day,
                           such payment shall be made on the next succeeding day
                           that is a business day.

                  (c)      All payments on this Note shall be applied first to
                           accrued interest, if any, and thereafter to the
                           outstanding principal balance hereof.

         5.       GRANT OF SECURITY.

<PAGE>

                                                                               3

                  (a)      As collateral security for the prompt and complete
                           payment when due of all of the Borrower's obligations
                           hereunder, the Borrower hereby creates and grants a
                           continuing security interest to the Holder in and to
                           all of the Borrower's right, title and interest in
                           and to all of the following, whether now owned or
                           hereafter acquired or existing (all of the following,
                           the "COLLATERAL"): all accounts (other than bank
                           accounts), accounts receivable, including, without
                           limitation, any right to payment for inventory of the
                           Borrower sold in the ordinary course of the
                           Borrower's business, whether now existing or
                           hereafter arising, and all contract rights, chattel
                           paper, tax refunds, instruments, acceptances, drafts
                           and other obligations of any kind evidencing a right
                           to receive money, in each case, arising out of or in
                           connection with the sale or lease of goods or the
                           rendering of services, together with all ledger
                           sheets, files, records and documents relating to any
                           of the foregoing including all computer records,
                           programs, storage media and computer software used or
                           useful in connection therewith (the "RECEIVABLES"),
                           and all of the Borrower's right, title and interest,
                           powers, privileges and other benefits under each and
                           every one of the security agreements and other
                           contracts securing or otherwise relating to any such
                           Receivables; and all proceeds of any and all of the
                           foregoing.

                  (b)      In furtherance of the foregoing, the Borrower agrees
                           (and at its expense) to deliver to Holder duly
                           completed Uniform Commercial Code financing
                           statements and such other like instruments as Holder
                           may request from time to time to perfect the liens
                           and security interests in the Collateral granted
                           hereunder.

         6.       NO LIENS. Borrower agrees that it shall not, directly or
                           indirectly, create, permit or suffer to exist, and
                           shall defend the Collateral against and take such
                           other action as is necessary to remove, any lien or
                           encumbrance on or in the Collateral or in any portion
                           thereof.

         7.       CONDITIONS PRECEDENT. Holder's obligation to make each Loan
                           hereunder is subject to the satisfaction of the
                           following condition precedent:

                  (a)      COVENANTS. The Borrower shall be in compliance with
                           each of the provisions contained in this Note.

                  (b)      NO DEFAULTS. No Event of Default shall have occurred
                           and be continuing or would result from the proposed
                           borrowing.

         8.       DEFAULT. Each of the following events shall be an "EVENT OF
                           DEFAULT" hereunder:

                  (a)      Borrower shall fail to pay (i) the principal amount
                           of any Loan on the date the same becomes due and
                           payable or (ii) any other

<PAGE>

                                                                               4

                           amount payable hereunder on the date the same becomes
                           due and payable and such default shall continue
                           unremedied for 5 days thereafter;

                  (b)      Borrower shall be in breach of any other covenant,
                           provision, agreement, representation or warranty
                           under this Note and such failure shall continue
                           unremedied for 10 days thereafter;

                  (c)      Borrower commences any case, proceeding or other
                           action under any existing or future law of any
                           jurisdiction, domestic or foreign, relating to
                           bankruptcy, insolvency, liquidation, winding-up,
                           dissolution, reorganization or relief of debtors,
                           seeking to have an order for relief entered with
                           respect to it, or seeking to adjudicate it bankrupt
                           or insolvent, or seeking reorganization, liquidation,
                           winding-up, dissolution, composition, extension or
                           other such relief with respect to it or its debts, or
                           seeking appointment of a receiver, trustee, custodian
                           or other similar official for all or any substantial
                           part of its assets (a "BANKRUPTCY ACTION");

                  (d)      Borrower becomes a debtor named in any Bankruptcy
                           Action which results in the entry of an order for
                           relief or any such adjudication or appointment
                           remains undismissed or undischarged for a period of
                           thirty (30) days;

                  (e)      Borrower makes a general assignment for the benefit
                           of its creditors; or

                  (f)      An Event of Default occurs under Sections 6.01(3)-(9)
                           of either the DM Indenture or the USD Indenture (each
                           as defined below).

         9.       REMEDIES.

                  (a)      Upon the occurrence of an Event of Default hereunder,
                           all unpaid principal, accrued interest and other
                           amounts owing hereunder shall, automatically become,
                           immediately due, payable and collectible by Holder
                           pursuant to applicable law and without presentment,
                           demand, protest or notice of any kind, and the
                           commitments hereunder shall be automatically
                           terminated.

                  (b)      Upon the occurrence of any one or more Events of
                           Default, the Holder may proceed to protect and
                           enforce its rights hereunder in equity, at law or by
                           other appropriate proceedings, or the Holder may
                           proceed to enforce the payment of this Note, or to
                           enforce any other legal or equitable right of the
                           Holder, including its rights as a secured creditor
                           against the Collateral.

         10.      REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby
                           represents and warrants to the Holder that:

<PAGE>

                                                                               5

                  (a)      ORGANIZATION AND GOOD STANDING. Borrower is a
                           corporation duly organized, validly existing and in
                           good standing under the laws of Delaware and has all
                           requisite corporate power and authority to carry on
                           its business as now conducted.

                  (b)      AUTHORIZATION. The execution, delivery and
                           performance by Borrower of this Note are within
                           Borrower's corporate power and have been duly
                           authorized by all necessary or proper corporate
                           action.

                  (c)      VALID OBLIGATION. This Note constitutes a valid and
                           legally binding obligation of Borrower, enforceable
                           against Borrower in accordance with its terms.

                  (d)      NON-CONTRAVENTION OF OTHER INSTRUMENTS. The
                           execution, delivery and performance of this Note and
                           the consummation of the transactions contemplated
                           hereby will not result in any violation or be in
                           conflict with or constitute, with or without the
                           passage of time and giving of notice, a default under
                           any agreement, instrument, judgment, order, writ,
                           decree or contract to which the Borrower is a party
                           or is subject.

         11.      WAIVER.  Borrower waives presentment and demand for payment,
                           notice of dishonor, protest and notice of protest of
                           this Note, and shall pay all costs of collection when
                           incurred, including, without limitation, reasonable
                           attorneys' fees, costs and other expenses.

         12.      SUCCESSORS AND ASSIGNS. The provisions of this Note shall
                           inure to the benefit of and be binding on any
                           successor to Borrower and to any successor or assign
                           of Holder; PROVIDED, however, that the Borrower's
                           rights and obligations hereunder may not be assigned
                           without the prior written consent of the USD Trustee
                           and the DM Trustee, and PROVIDED FURTHER that Holder
                           may only assign its rights and obligations hereunder
                           with the prior written consent of the USD Trustee and
                           the DM Trustee.

         13.      GOVERNING LAW. This Note shall be governed by, and construed
                           and enforced in accordance with, the laws of the
                           State of New York, excluding conflict of laws
                           principles that would cause the application of laws
                           of any other jurisdiction.

         14.      THIRD    PARTY BENEFICIARIES. The representations, warranties
                           and indemnities contained in this Note shall extend
                           to and be enforceable by The Bank of New York, in its
                           capacity as Trustee under the USD Indenture (together
                           with its successors and assigns, the "USD TRUSTEE"),
                           and The Bank of New York, in its capacity as Trustee
                           under the DM Indenture (together with its successors
                           and

<PAGE>

                                                                               6

                           assigns, the "DM TRUSTEE"). For purposes of this
                           Section 14, (i) "DM INDENTURE" means the Indenture
                           (as supplemented from time to time), dated as of May
                           14, 1998, providing for the issuance of an aggregate
                           principal amount of up to DM110,000,000 of 9 3/8%
                           Senior Notes due 2008 among Holder and Borrower, as
                           issuers, and The Bank of New York as successor to IBJ
                           Schroder Bank & Trust Company, in its capacity as
                           trustee thereunder, and (ii) "USD INDENTURE" means
                           the Indenture (as supplemented from time to time),
                           dated as of May 14, 1998, providing for the issuance
                           of an aggregate principal amount of up to
                           US$100,000,000 of 10% Senior Notes due 2008 among
                           Holder and Borrower, as issuers, and The Bank of New
                           York as successor to IBJ Schroder Bank & Trust
                           Company, in its capacity as trustee thereunder.

                            [SIGNATURE PAGE FOLLOWS]



<PAGE>

                                                                               7



BORROWER                           THE DERBY CYCLE CORPORATION


                                   By:  /s/
                                        ---------------------------------------
                                        Name:
                                        Title:



HOLDER                             LYON INVESTMENTS B.V.


                                   By:  /s/
                                        ---------------------------------------
                                        Name:
                                        Title:

</TEXT>
</DOCUMENT>
