DERBY CYCLE CORP, 10-Q, 2000-05-17

DERBY CYCLE CORP
10-Q, 2000-05-17
MOTORCYCLES, BICYCLES & PARTS

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES ACT OF 1934
For Transition Period form __________ to __________
Commission File Number 0001067447
THE DERBY CYCLE CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 31-1038896
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Daniel S. Lynch
The Derby Cycle Corporation
300 First Stamford Place (5th Floor)
Stamford, Connecticut 06902-6765
(Address of principal executive offices, including zip code)
Telephone: (203) 961 1666
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days, Yes (X) No.

The number of shares outstanding of each class of common stock, as of April 2,
2000 was:

Class A $0.01 par value 47,760
Class C $0.01 par value 23,640
<PAGE>

THE DERBY CYCLE CORPORATION

APRIL 2, 2000 FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I
------

ITEM 1. FINANCIAL STATEMENTS.................................................. 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................... 14

PART II
-------

ITEM 1. LEGAL PROCEEDINGS..................................................... 24
ITEM 2. CHANGES IN SECURITIES................................................. 25
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K...................................... 26
</TABLE>
<PAGE>

PART I
------

ITEM 1. FINANCIAL STATEMENTS

Page
----

Consolidated Balance Sheets as of December 31, 1999 and April 2, 2000
(unaudited)................................................................. 2

Unaudited Consolidated Statements of Operations for the quarters ended
March 28, 1999 and April 2, 2000............................................ 3

Unaudited Consolidated Statement of Shareholders' Deficit for the quarter
ended April 2, 2000......................................................... 4

Unaudited Consolidated Statements of Cash Flows for the quarters ended
March 28, 1999 and April 2, 2000............................................ 5

Notes to Consolidated Financial Statements.................................. 7
<PAGE>

The Derby Cycle Corporation
Consolidated Balance Sheets
(Dollars in thousands)

<TABLE>
<CAPTION>
Dec 31, 1999 Apr 2, 2000
Assets unaudited
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 28,938 $ 12,233
Accounts receivable, net............................................................ 93,167 131,360
Inventories......................................................................... 121,499 140,126
Other current assets................................................................ 9,926 11,528
---------- ----------
Total current assets............................................................. 253,530 295,247
---------- ----------
Property, plant and equipment, net.................................................... 40,615 39,269
Intangibles, net...................................................................... 38,044 37,214
Other assets.......................................................................... 50 50
Prepaid pension assets................................................................ 57,345 57,885
---------- ----------
Total assets..................................................................... $ 389,584 $ 429,665
========== ==========

Liabilities and Shareholders' Deficit

Current liabilities:
Accounts payable.................................................................... $ 60,985 $ 70,588
Accrued liabilities................................................................. 23,776 27,294
Income taxes payable................................................................ 3,344 4,612
Short-term borrowings............................................................... 69,207 97,405
Other current liabilities........................................................... 5,721 10,931
---------- ----------
Total current liabilities........................................................ 163,033 210,830
---------- ----------
Other liabilities:
Long-term debt...................................................................... 176,410 175,277
Excess of assets acquired over cost of acquisitions................................. 10,404 10,184
Deferred income taxes............................................................... 18,878 19,114
Other liabilities................................................................... 10,853 10,348
---------- ----------
Total liabilities................................................................ 379,578 425,753
---------- ----------
Minority interest..................................................................... 32 32
Commitments and contingencies
Preferred stock with redemption rights, $0.01 par value, 25,000 shares authorized,
issued, & outstanding of Series A and 3,000 shares authorized, issued, & outstanding
of Series B & 100 shares authorized of Series C...................................... 49,141 50,490
Stock rights.......................................................................... 23,300 23,300
Shareholders' equity (deficit):
Class A common stock, $0.01 par value, 200,000 shares authorized, 47,160 & 47,760
shares issued & outstanding as of December 31, 1999 & April 2, 2000................ 1 1
Class B common stock, $0.01 par value, 15,000 shares authorized, nil shares issued
& outstanding as of December 31, 1999 & April 2, 2000.............................. - -
Class C common stock, $0.01 par value, 30,000 shares authorized, 23,490 & 23,640
issued & outstanding as of December 31, 1999 & April 2, 2000....................... - -
Additional paid-in capital.......................................................... 48,949 49,699
Class C common stock warrants....................................................... - 2,900
Receivable from shareholders........................................................ (3,113) (3,788)
Accumulated deficit................................................................. (100,460) (110,119)
Accumulated other comprehensive income (loss)....................................... (7,844) (8,603)
---------- ----------
Total shareholders' deficit...................................................... (62,467) (69,910)
---------- ----------
Total liabilities and shareholders' deficit...................................... $ 389,584 $ 429,665
========== ==========
</TABLE>

2
<PAGE>

The Derby Cycle Corporation
Unaudited Consolidated Statements of Operations
(Dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>
Quarter ended
-------------------------
Mar 28, Apr 2,
1999 2000
--------- ---------
<S> <C> <C>
Net revenues........................................................................... $ 138,387 $ 148,164
Cost of goods sold..................................................................... (105,420) (112,902)
--------- ---------
Gross profit...................................................................... 32,967 35,262
Selling, general, and administrative expenses.......................................... (26,323) (29,805)
Restructuring charge................................................................... (724) -
Non-recurring items.................................................................... (269) -
--------- ---------
Operating income.................................................................. 5,651 5,457
Other income (expense):
Interest expense..................................................................... (6,517) (10,335)
Interest income...................................................................... 88 237
Other income (expense), net.......................................................... - (23)
Loss on dispositions of property, plant and equipment................................ - (558)
--------- ---------
Loss before income taxes and minority interest.................................... (778) (5,222)
Provision for income taxes............................................................. (434) (1,857)
Minority interest...................................................................... (9) -
--------- ---------
Net loss.......................................................................... (1,221) (7,079)
Dividends accrued on preferred stock................................................... - (1,349)
--------- ---------
Net loss applicable to common stockholders........................................ $ (1,221) $ (8,428)
========= =========
Basic and diluted net income (loss) applicable to common stockholders per share........ $ (20.66) $ (116.99)
========= =========
Weighted average number of shares of common stock outstanding.......................... 59,108 72,038
========= =========
</TABLE>

3
<PAGE>

The Derby Cycle Corporation
Unaudited Consolidated Statement of Shareholders' Deficit
(Dollars in thousands)

<TABLE>
<CAPTION>
Accumulated
Additional Receivable Other
Common Paid-In Stock From Accumulated Comprehensive
Stock Capital Warrants Shareholders Deficit Income Total
------ ---------- -------- ------------ ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 2000.......................... $ 1 $ 48,949 $ - $ (3,113) $ (100,460) $ (7,844) $(62,467)
Comprehensive loss-
Net loss............................... - - - - (7,079) - (7,079)
Translation adjustments................ - - - - - (759) (759)
------ ---------- -------- ------------ ----------- ------------- --------
Total comprehensive income............... - - - - (7,079) (759) (7,838)
------ ---------- -------- ------------ ----------- ------------- --------
Issuance of common stock............... - 750 - - - - 750
Issuance of common stock warrants...... - - 2,900 - - - 2,900
Receivable from shareholders........... - - - (675) - - (675)
Accrued dividend on preferred stock.... - - - - (1,349) - (1,349)
Accrued dividend on common stock....... - - - - (1,231) - (1,231)
------ ---------- -------- ------------ ----------- ------------- --------
April 2, 2000............................ $ 1 $ 49,699 $ 2,900 $ (3,788) $ (110,119) $ (8,603) $(69,910)
====== ========== ======== ============ =========== ============= ========
</TABLE>

4
<PAGE>

The Derby Cycle Corporation
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)

<TABLE>
<CAPTION>
Quarter ended
------------------------
Mar 28, Apr 2,
1999 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (1,221) $ (7,079)
Adjustments to reconcile net income (loss) to net cash provided by (used by)
operating activities-
Depreciation..................................................................... 2,525 2,124
Amortization of intangibles, goodwill and investment grants...................... (68) 60
Amortization of deferred financing costs......................................... 480 477
Minority interest................................................................ 9 -
Change in fair value of currency options and interest rate cap................... - (76)
Net periodic pension income...................................................... (1,332) (1,360)
Loss on dispositions of property, plant and equipment............................ - 558
Net changes in operating assets and liabilities, net of acquisitions-
(Increase) decrease in receivables............................................... (57,383) (40,063)
(Increase) decrease in inventories............................................... (5,034) (20,144)
(Increase) decrease in other current assets...................................... 1,239 (1,616)
Increase (decrease) in accounts payable.......................................... 8,896 9,819
Increase (decrease) in accrued liabilities....................................... 8,257 5,291
Increase (decrease) in income taxes payable...................................... (3,719) 1,308
Increase (decrease) in other current liabilities................................. 4,561 5,193
Increase (decrease) in deferred income taxes..................................... (852) 509
Increase (decrease) in other liabilities......................................... (171) (1,550)
-------- --------
Net cash used by operating activities......................................... $(43,813) (46,549)
-------- --------

Cash flows from investing activities:
Purchases of property, plant and equipment.......................................... (1,077) (1,962)
Proceeds of property, plant & equipment dispositions................................ 30 2
Cash paid for acquisitions, net of cash acquired.................................... (42,774) -
-------- --------
Net cash used in investing activities......................................... $(43,821) $ (1,960)
-------- --------
</TABLE>

5
<PAGE>

The Derby Cycle Corporation
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)

<TABLE>
<CAPTION>
Quarter ended
------------------------
Mar 28, Apr 2,
1999 2000
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from stock issue........................................ $ 24,250 $ 750
Proceeds from Class C stock warrants issue....................... - 2,900
Secured promissory notes receivable from shareholders............ (1,500) (675)
Proceeds from Subordinated Note issue............................ 20,000 -
Short term borrowings, net....................................... 31,071 28,192
Deferred financing costs......................................... (345) -
Contributions made to pension plans.............................. (20) (22)
-------- --------
Net cash provided by financing activities................. 73,456 31,145
-------- --------
Effect of exchange rate changes.................................... 3,598 659
-------- --------
Net decrease in cash and cash equivalents.......................... (10,580) (16,705)
Cash and cash equivalents, beginning of period..................... 17,453 28,938
-------- --------
Cash and cash equivalents, end of period........................... $ 6,873 $ 12,233
======== ========

Supplemental cash flow information:
Interest paid.................................................... $ 1,286 $ 1,528
Income taxes paid................................................ 5,005 1,780
Income taxes refunded............................................ - 1,740
======== ========
</TABLE>

6
<PAGE>

The Derby Cycle Corporation

Notes to Consolidated Financial Statements

1. Nature of the Business and Basis of Presentations

The consolidated financial statements for the quarter ended March 28, 1999 and
April 2, 2000 together with the balance sheet as of April 2, 2000 included
herein have not been audited by independent public accountants, but in the
opinion of The Derby Cycle Corporation (the "Company"), all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position at April 2, 2000 and the results of operations and the cash
flows for the periods presented herein have been made. The results of operations
for the quarter ended April 2, 2000 are not indicative of the operating results
for the full fiscal year due to the seasonal nature of the business.

The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Although the Company believes that the disclosures made are adequate to make the
information not misleading, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
regulations. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K for the year ended December 31, 1999.

The Company operates via a number of bicycle and bicycle component companies
worldwide that predominantly operate as stand-alone entities. Each of the
companies manufactures, assembles and/or distributes bicycles and bicycle
components. These bicycle and bicycle component companies, have significant
operations in The Netherlands ("Gazelle"), the United Kingdom ("Raleigh UK" and
"Sturmey Archer"), Canada ("Raleigh Canada"), Germany ("Derby Germany"), South
Africa ("Probike") and the United States (the "Derby USA" division of the
Company). The Company owns or licenses many of the most recognized brands in the
bicycle industry, including leading global brands such as Raleigh, Diamond Back,
Nishiki (for USA only) and Univega, and leading national brands such as Gazelle
in The Netherlands and Kalkhoff, Musing, Winora and Staiger in Germany.

The Company expects that the existing revolving credit facility will not be
sufficient to cover its liquidity requirements after January 2001. Based on the
Company's business plan, the Company estimates that approximately an additional
$30 million will be required to fund the Company's operations through 2001. The
revolving credit facility continues to be available subject to compliance with
its terms and conditions and the Company will be seeking to review this in
September 2000. In addition the directors have obtained a commitment from Thayer
Equity Investors III L.P. ("Thayer") and Perseus Capital L.L.C. ("Perseus") to
provide a bridge loan of up to $7 million in 2001 should it be required.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern.

During 1999, the terms of the Revolving Credit Agreement were amended to avoid
breaching certain of the covenants and to safeguard compliance with the
covenants in 2000.

2. Restructuring Charge

In 1999 the Company completed the plans to restructure its businesses in the
U.K. and the Raleigh distribution operations in Germany, The Netherlands,
Belgium and Ireland. Raleigh U.K. ceased manufacturing steel bicycle frames at
the end of 1999 due to increased consumer demand for aluminum frames. Steel
frames manufactured by the company accounted for approximately 50% of all frames
sold by the company in 1999, with the balance being fabricated mostly from
aluminum and imported from Asia. Other components of the restructuring at
Raleigh U.K. included streamlining the company's product development and
marketing functions. The company has granted an option to a property developer
for the sale of the site used for employee car parking, storage and the parts
and accessories

7
<PAGE>

business that will be released. Management of the Raleigh distribution
operations in Germany, The Netherlands and Belgium, previously run on a stand-
alone basis, has been combined with the Gazelle and Derby Germany operations.
The Raleigh Ireland warehouse has been closed and distribution outsourced,
leaving only a sales and marketing organization in Ireland. These restructuring
steps are projected to reduce on-going product costs and selling expenses by
approximately $3 million in 2000. In aggregate, 182 employees were engaged in
these activities which have ceased and their employment has been terminated. Of
the total restructuring charge of $5,093,000 in 1999. $724,000 was incurred in
respect of involuntary termination benefits and closure expenses in the quarter
ended March 28, 1999.

20 employees volunteered to leave, all of whom left and were paid their
termination benefits in 1999. 162 employees were terminated involuntarily of
whom 153 left during 1999 and were paid $3,123,000 in termination benefits. 9
compulsorily terminated employees remained on the payroll as at April 2, 2000
and $141,000 of accrued termination benefits in respect of these employees is
included in other liabilities. The closure expenses were mainly in respect of
inventory written-off on the closure of operations and costs incurred on the re-
configuration of assembly tracks, all of which were written-off or paid during
1999.

3. Non-Recurring Items

In 1999 the Company restructured its corporate management and established its
headquarters in Stamford, CT to organize the finance, marketing and purchasing
functions on a global basis. The Company also reviewed the logistics of Raleigh
and Diamond Back distribution in the U.S.A. and undertook strategic reviews to
leverage global scale and strengthen the brands. Of the total non-recurring
items of $4,495,000 in 1999, $269,000 was incurred on the recruitment of
headquarters staff during the first quarter.

4. Derivative Financial Instruments

Adoption of SFAS 133

For the quarter ended March 28, 1999, changes in the fair value of derivative
instruments designated as hedges subsequent to the adoption of SFAS 133 are
included in accumulated other comprehensive income (loss). During this period
the Company recorded in accumulated other comprehensive income (loss) (i) an
unrealized gain of $596,000 on the fair value accounting of the forward foreign
currency exchange contracts and, (ii) an unrealized gain of $102,000 on the fair
value accounting of the currency option and interest rate cap. The unrealized
amounts held in other comprehensive income (loss) as at March 28, 1999 have been
subsequently realized and therefore recognized in the 1999 consolidated
statement of operations with the related hedged transactions.

For the quarter ended April 2, 2000 the Company had no derivatives designated as
hedges. Income and expense related to the fair value accounting of the Company's
derivative instruments are included in the statement of operations. During this
period the Company recorded in other income (expense) (i) a $99,000 decrease in
the fair value of the unexpired forward foreign exchange contracts and, (ii) a
$76,000 increase in the fair value of the unexpired currency option and
unexpired interest rate cap.

5. Short-term Borrowings

On February 15, 2000 the Company received a bridge loan of $7 million provided
by Thayer and Perseus. The bridge loan is repayable in July 2000 subject to (1)
the Company's reduction of the revolving credit facility by $13.5 million, (2)
the non-existence of a payment default under the revolving credit facility and,
(3) the Company having availability under the revolving credit facility of at
least $7 million prior to the repayment of the bridge loan. In the event of non-
repayment by August 1, 2000, the bridge loan converts into warrants for the
purchase of 7,000 shares of Class C common stock at an exercise price of $0.01
per share ("Class C Warrants"). The Company has issued 2,500 Class C Warrants in
consideration for the use of the bridge loan, with an estimated fair value of
$2.9 million, which has been included in interest expense.

8
<PAGE>

Dec 31, Apr 2,
1999 2000
unaudited
-------- ---------
Short-term bank borrowings...................... $ 67,602 $88,572
Bank overdraft.................................. 1,605 1,833
Shareholder bridge loan......................... - 7,000
-------- -------
Total short-term borrowings................... $ 69,207 $97,405
======== =======

6. Long-term Debt

On February 4, 1999 the Company issued $20 million principal amount in a
subordinated note (the "Subordinated Note") to Vencap Holding (1992) PTE Ltd.
which matures in 2010 and bears interest at 19% compounded daily. As of December
31, 1999, and April 2, 2000, long-term debt consists of the following (in
thousands):

Dec 31, Apr 2,
1999 2000
unaudited
-------- ---------

10% $100,000,000 Senior Notes................... $100,000 $100,000
9 3/8% DM110,000,000 Senior Notes............... 56,410 55,277
19% $20,000,000 Subordinated Note............... 20,000 20,000
-------- --------
Total long-term debt.......................... $176,410 $175,277
======== ========

7. Contingencies

International operations; dependence on foreign suppliers and sales

A significant portion of the Company's operations are conducted in foreign
countries and are subject to the risks that are inherent in operating abroad,
including, without limitation, the risks associated with foreign governmental
regulation, foreign taxes, import duties and trade restrictions. The Company's
business is highly dependent upon products manufactured by foreign suppliers
located primarily in Taiwan, Japan and the People's Republic of China. A
substantial majority of the Company's multi-speed bicycles contain components
supplied on a purchase order basis by one Japanese manufacturer. The Company's
business is also subject to the risks generally associated with doing business
abroad, such as delays in shipment and foreign governmental regulations which
could have a material adverse effect on the results of operations and financial
condition of the Company. In addition, several of the Company's manufacturing
operations are unionized.

Product liability

Because of the nature of the Company's business, the Company at any particular
time is a defendant in a number of product liability lawsuits and expects that
this will continue to be the case in the future. These lawsuits generally seek
damages, sometimes in substantial amounts, for personal injuries allegedly
sustained as a result of defects in the Company's products. Although the Company
maintains product liability insurance, due to the uncertainty as to the nature
and extent of manufacturers' and distributors' liability for personal injuries,
there is no assurance that the product liability insurance maintained by the
Company is or will be adequate to cover product liability claims or that the
applicable insurer will be solvent at the time of any covered loss. In addition,
due to deductibles, self-retention levels and aggregate coverage amounts
applicable under the Company's insurance policies, the Company may bear
responsibility for a significant portion of the defense costs (which include
attorneys' fees and expenses incurred in the defense of any claim), and the
related payments to satisfy any judgments associated with any claim asserted
against the Company in excess of any applicable coverage. The successful
assertion or

9
<PAGE>

settlement of an uninsured claim, the settlement of a significant number of
insured claims, or a claim exceeding the Company's insurance coverage could have
a material adverse effect on the Company's business, results of operations and
financial condition. In addition, there can be no assurance that insurance will
remain available or, if available, will not be prohibitively expensive.

Common stock and preferred stock

During the quarter ended April 2, 2000 the Company issued 600 Class A and 150
Class C common shares to executives of the Company for $1,000 per share under
the management stock plan.

In addition the Company issued 1,250 Class C Warrants to Thayer and 1,250
Class C Warrants to Perseus, in consideration for the use of the bridge loan,
for a fair value of $2.9 million.

The issue of shares to executives of the Company was partly financed by the
issue of secured promissory notes, shown within shareholders' deficit in the
balance sheet. Following the issue of stock as listed above, the stock in the
Company (at issue price plus accrued preference dividends) is held by the
following shareholders and their affiliates (in thousands) :

<TABLE>
<CAPTION>
Thayer Derby
Capital Perseus International
Number Partners Capital Corporation
of Shares L.L.C. L.L.C. S.A. Management Total
--------- -------- ------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock
Series A.................................. 25,000 $ 37,500 $ - $ - $ - $ 37,500
Accrued dividend $200 per share pa........ 9,438 - - - 9,438
Series B.................................. 3,000 - - 3,000 - 3,000
Accrued dividend 9.75% pa................. - - 552 - 552
-------- ------- ------------- ---------- -----------
$ 46,938 $ - $ 3,552 $ - $ 50,490
======== ======= ============= ========== ===========
Stock rights
Class A common............................ 8,300 - - 8,300 - 8,300
Class B common............................ 15,000 - - 15,000 - 15,000
-------- ------- ------------- ---------- -----------
$ - $ - $ 23,300 $ - $ 23,300
======== ======= ============= ========== ===========
Paid in capital
Class A common............................ 26,060 12,500 10,000 - 3,560 26,060
Class C common............................ 23,640 18,950 3,800 - 890 23,640
-------- ------- ------------- ---------- -----------
$ 31,450 $13,800 $ - $ 4,450 $ 49,700
======== ======= ============= ========== ===========
Stock warrants
Class C common............................ 2,500 $ 1,450 $ 1,450 $ - $ - $ 2,900
======== ======= ============= ========== ===========
Retained equity
Class A common............................ 21,700 $ - $ - $ 21,700 $ - $ 21,700
======== ======= ============= ========== ===========
</TABLE>

8. Acquisitions

On February 4, 1999, the Company acquired the assets (and assumed certain
liabilities) of the Diamond Back Group which consisted of Diamond Back
International Company Limited, a private British Virgin Islands company
("Diamond Back"), Western States Import Company Inc., a Delaware corporation
("Western States") and Bejka Trading A.B., a private Swedish company ("Bejka"),
each of which was engaged in the bicycle, bicycle parts and accessories and
fitness equipment distribution business.

10
<PAGE>

The results of the Diamond Back Group are included in the consolidated financial
statements from February 4, 1999. A pro forma consolidated income statement
incorporating the results of the Diamond Back Group on the basis that the group
was acquired on January 1, 1999 is as follows.

The Derby Cycle Corporation
Unaudited Pro Forma Consolidated Statements of Income
(Dollars in thousands, except share and per share data)

Net loss applicable to common shareholders per share..................... $ (32.41) $(116.99)
-------- --------
Weighted average number of shares of common stock outstanding............ 68,260 72,038
======== ========
</TABLE>

9. Segmental Information: Reportable Business Segments

The Company manages its business in seven reportable segments as shown in the
following tables. Consolidation adjustments, certain small operating companies,
non-operating companies and the headquarters are included in "Other companies".
The reportable segments are managed separately because each business has
differing customer requirements, either as a result of the regional environment
of the country or differences in products and services offered. A summary of net
revenues and operating income categorized by business segment is as follows (in
thousands):

<TABLE>
<CAPTION>
Quarter ended
------------------------
Mar 28, Apr 2,
1999 2000
un- un-
audited audited
-------- --------
<S> <C> <C>
Net revenues:
Raleigh UK........................................................... $ 13,308 $ 12,253
Gazelle, The Netherlands............................................. 34,738 38,131
Derby Germany........................................................ 45,246 48,361
Derby USA............................................................ 21,302 24,915
Raleigh Canada....................................................... 11,550 12,540
Sturmey Archer, UK and The Netherlands............................... 6,215 6,104
Probike, South Africa................................................ 3,801 3,916
Other companies...................................................... 2,227 1,944
-------- --------
Total net revenues................................................ $138,387 $148,164
======== ========

Operating income:
Raleigh UK........................................................... $ (2,304) $ (820)
Gazelle, The Netherlands............................................. 5,202 5,425
Derby Germany........................................................ 2,978 3,357
Derby USA............................................................ (718) (1,706)
Raleigh Canada....................................................... 1,035 1,281
Sturmey Archer, UK and The Netherlands............................... 23 259
Probike, South Africa................................................ 228 336
Other companies...................................................... (793) (2,675)
-------- --------
Total operating income (loss)..................................... $ 5,651 $ 5,457
======== ========
</TABLE>

11
<PAGE>

10. Lyon Investments B.V. Summarized Financial Information

Lyon Investments B.V. ("Lyon"), a Dutch company, is a wholly owned subsidiary of
the Company which is a co-issuer of $20,250,000 of the $100,000,000 of 10
percent Senior Notes and all of the DM110,000,000 of 9 3/8 percent Senior Notes
(collectively, the "Senior Notes"). As co-issuers, Lyon and the Company are
joint and severally liable with respect to the Senior Notes. The following
summarized financial information sets forth the combined financial position and
results of operations of Lyon, together with its subsidiaries, Derby Nederland
B.V. and Engelbert Wiener Bike Parts GmbH. Derby Nederland B.V. is a holding
company owning 100 percent of Koninklijke Gazelle B.V., Sturmey Archer Europa
B.V. and Raleigh B.V.

Lyon Investments B.V.
Summarized Consolidated Balance Sheets
(Dollars in thousands)

<TABLE>
<CAPTION>
Dec 31, Apr 2,
1999 2000
un-
Assets audited
-------- --------
<S> <C> <C>
Current assets :
Cash and cash equivalents............................................. $ 7,817 $ 6,582
Accounts receivable, net.............................................. 11,642 24,944
Inventories........................................................... 20,986 22,718
Loans to internal group companies..................................... 103,906 119,828
Other current assets.................................................. 6,799 7,187
-------- --------
Total current assets............................................... 151,150 181,259
-------- --------
Property, plant and equipment, net....................................... 9,805 9,287
Intangibles, net......................................................... 2,080 1,978
Prepaid pension asset.................................................... 16,807 16,937
-------- --------
Total assets....................................................... $179,842 $209,461
======== ========

Liabilities and Shareholders' Deficit

Current liabilities :
Loans from internal group companies................................... $ 78,189 $ 94,119
Short-term borrowings................................................. 26,567 30,982
Other current liabilities............................................. 22,876 30,917
-------- --------
Total current liabilities.......................................... 127,632 156,018

Other liabilities :
10% $100,000,000 Senior Notes......................................... 20,250 20,250
9 3/8% DM110,000,000 Senior Notes..................................... 56,410 55,277
Other liabilities..................................................... 5,791 5,834
-------- --------
Total liabilities.................................................. 210,083 237,379
Shareholders' deficit.................................................... (30,241) (27,918)
-------- --------
Total liabilities and shareholders' deficit........................ $179,842 $209,461
======== ========
</TABLE>

12
<PAGE>

Lyon Investments B.V.
Unaudited Summarized Consolidated Statements of Operations
(Dollars in thousands)

<TABLE>
<CAPTION>
Quarter ended
------------------------
Mar 28, Apr 2,
1999 2000
-------- --------
<S> <C> <C>
Net revenues.......................................................... $ 42,823 $ 46,369
Cost of goods sold.................................................... (32,020) (35,269)
-------- --------
Gross profit..................................................... 10,803 11,100
Selling, general, and administrative expenses......................... (5,562) (6,437)
-------- --------
Operating income................................................. 5,241 4,663
Other income (expense):
Interest expense.................................................... (4,089) (3,876)
Interest income..................................................... 2,046 2,164
Other income net.................................................... (8) 305
-------- --------
Income before income taxes....................................... 3,190 3,256
Provision for income taxes............................................ (1,114) (1,015)
-------- --------
Net income....................................................... $ 2,076 $ 2,241
======== ========
</TABLE>

13
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Overview

The Company is a world-leading designer, manufacturer and marketer of bicycles.
The Company holds the leading market share in the United Kingdom, The
Netherlands, Canada and Ireland, holds the leading market share in the adult
bicycle market in Germany and is also a leading bicycle supplier in the United
States. Competing primarily in the medium-to premium-priced market, the Company
owns or licenses many of the most recognized brand names in the bicycle
industry, including leading global brands such as Raleigh, Diamond Back, Nishiki
and Univega, and leading regional brands such as Gazelle in The Netherlands and
Kalkhoff, Musing, Winora and Staiger in Germany. The Company designs,
manufactures and markets a wide range of bicycles in all major product
categories: (i) all-terrain or mountain bicycles ("M.T.B.s"), (ii) city
bicycles, also called touring or upright bicycles, (iii) hybrid bicycles, also
called comfort or cross bicycles, (iv) juvenile bicycles, including bicycle
motocross ("B.M.X.") bicycles, and (v) race/road bicycles. The Company
distributes branded bicycles through extensive local market networks of
independent bicycle dealers ("I.B.D.s") as well as through national retailers,
and distributes private label bicycles through mass merchandisers and specialty
stores.

Through a series of acquisitions and plant expansions, the Group has created a
global bicycle business distinguished by its leading market positions, low cost
production, extensive distribution network and reputation for high quality.
Organized in 1986 for the purpose of acquiring the Raleigh, Gazelle and Sturmey
Archer bicycle and bicycle component businesses from TI Group plc, the Group
expanded into the United States and Germany in 1988. From 1992 to 1993, taking
advantage of substantial incentives from the German government the Group built a
factory in Rostock, in the former German Democratic Republic. Since then, the
Group has acquired additional well-known brands and leveraged its existing
manufacturing plants and component sourcing operations to lower unit costs for
its acquired businesses.

On February 4, 1999, the Company acquired the assets (and assumed certain
liabilities) of the Diamond Back Group for approximately $44.3 million in cash.
The Diamond Back Group consisted of Diamond Back International Company Limited,
a private British Virgin Islands company ("Diamond Back"), Western States Import
Company Inc., a Delaware corporation ("Western States") and Bejka Trading A.B.,
a private Swedish company ("Bejka"), each of which was engaged in the bicycle,
bicycle parts and accessories and fitness equipment distribution business.
Western States and Bejka had worldwide revenues of approximately $62.9 million
and $3.1 million, respectively, in 1998. Diamond Back was essentially a holding
company for the company's intellectual property and did not generate material
revenues. The Company financed the acquisition of the Diamond Back Group by
issuing $20 million principal amount in a Subordinated Note to Vencap Holding
(1992) PTE Ltd. and $22.75 million in Class C common stock to DC Cycle, L.L.C.
and Perseus Cycle L.L.C. The Subordinated Note matures in 2010 and bears
interest at an annual rate of 19% compounded daily.

The Company's operations are concentrated in the United Kingdom, The
Netherlands, Germany, the United States and Canada, with manufacturing
operations in these countries, each led by experienced local management.

The Company maintains marketing or purchasing operations in six additional
countries. Each local operation manages national distribution channels, dealer
service and working capital and benefits from shared product design and
manufacturing technologies as well as from economies of scale generated by the
Company's aggregate purchasing power. Consequently, each local operation has the
flexibility to respond to shifts in local market demand and product preference.

In 1999, 54% of the Company's net revenues were denominated in currencies linked
to the Euro, 22% were denominated in U.S. dollars, 15% were denominated in
pounds sterling and 9% were denominated in other currencies. The Company reduces
its currency exposure by maintaining operations in the major markets in which it
sells its products.

14
<PAGE>

Results of Operations

All comparisons in the following discussion and analysis are against the
corresponding quarter ended March 28, 1999, unless otherwise stated.

<TABLE>
<CAPTION>
Units sold: Quarter ended
-----------------------
Thousands of bicycles Mar 28, Apr 2,
1999 2000
--------- --------
<S> <C> <C>
Raleigh UK.................................................. 71 64
Gazelle..................................................... 92 111
Derby Germany............................................... 177 205
Derby USA................................................... 85 97
Raleigh Canada.............................................. 131 144
Probike..................................................... 32 44
Other companies and group transactions...................... 2 1
--------- --------
Total units sold.......................................... 590 666
========= ========
</TABLE>

Units sold. Units sold increased by 76 thousand units for the quarter, of which
29 thousand units was achieved through organic growth, 16 thousand units
represented Diamond Back sales in January 1999 not included in the 1999 results
as that business was acquired on February 4, 1999 and 31 thousand units related
to the 5 days through April 2, 1999 included in the second quarter's results in
1999. Particularly strong growth was seen at Gazelle and Derby Germany following
successful product range launches, advertising and lower retail inventories. The
change in sales volume at Raleigh UK arose because a major customer ended 1999
with excess inventory and cut back its purchase from 12 thousand units in the
first quarter of 1999 to less than 1 thousand units this quarter.

<TABLE>
<CAPTION>
Net revenues: Quarter ended
-----------------------
$ millions Mar 28, Apr 2,
1999 2000
-------- -------
<S> <C> <C>
Raleigh UK.................................................. $ 13.3 $ 12.3
Gazelle..................................................... 34.7 38.1
Derby Germany............................................... 45.2 48.4
Derby USA................................................... 21.3 24.9
Raleigh Canada.............................................. 11.6 12.6
Sturmey Archer.............................................. 6.2 6.1
Probike..................................................... 3.8 3.9
Other companies and group transactions...................... 2.3 1.9
-------- -------
Total net revenues.......................................... $138.4 $148.2
======== =======
</TABLE>

Net revenues. Net revenues increased by $9.8 million to $148.2 million for the
quarter. This was driven by the 12.9% increase in units sold and a 2.2% increase
in average unit selling price, tempered by the weakness of the Euro which
reduced revenues by 7.4% upon translation into U.S. Dollars. Sales of parts and
accessories saw double digit percentage growth in all markets apart from U.S.A.,
where revenues were flat. The recovery seen in the Diamond Back fitness business
in the last quarter of 1999 with the launch of the new range of products
continued, with revenues of $2.0 million in the quarter, more than double that
of a year ago.

Gross profit. Gross profit for the quarter increased by $2.3 million in-line
with the growth in revenues. Gross margin was at the same level as year ago.

15
<PAGE>

Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $3.5 million to $29.8 million for the
quarter. This included $1.6 million of expenses at Diamond Back in January 1999
not included in the 1999 results as that business was acquired on February 4,
1999 and $1.8 million costs of the corporate headquarters and Bikeshop.com,
neither of which had been established in the first quarter of 1999.

<TABLE>
<CAPTION>
Operating income: Quarter ended
-----------------------
$ millions Mar 28, Apr 2,
1999 2000
-------- --------
<S> <C> <C>
Raleigh UK.................................................. $ (2.3) $ (0.9)
Gazelle..................................................... 5.2 5.4
Derby Germany............................................... 3.0 3.4
Derby USA................................................... (0.7) (1.7)
Raleigh Canada.............................................. 1.0 1.3
Sturmey Archer.............................................. 0.2 0.3
Probike..................................................... 0.2 0.3
Other companies and group transactions...................... - (2.6)
-------- --------
Underlying operating income............................... 6.6 5.5
Restructuring charge................................... (0.7) -
Non-recurring items.................................... (0.3) -
-------- --------
Total operating income.................................... $ 5.6 $ 5.5
======== ========
</TABLE>

Operating income. Underlying operating income, of $5.5 million for the quarter,
decreased by $1.1 million due to selling, general and administrative expenses
increasing more than gross profit.

Restructuring charge and non-recurring items. The Company reorganized parts of
its business in 1999, as described in Notes 2 and 3 of the attached financial
statements, at a total cost of $9.6 million, of which $1.0 million arose in the
quarter ended March 28, 1999.

<TABLE>
<CAPTION>
Interest expense: Quarter ended
-----------------------
$ millions Mar 28, Apr 2,
1999 2000
-------- --------
<S> <C> <C>
Senior Notes................................................ $ 3.9 $ 4.1
Subordinated Note........................................... 0.6 1.0
Revolving credit facility................................... 1.2 1.5
Bridge loan................................................. - 2.9
Other interest.............................................. 0.3 0.3
Amortization of deferred financing costs.................... 0.5 0.5
-------- --------
Total interest expense.................................... $ 6.5 $ 10.3
======== ========
</TABLE>

Interest expense. Interest expense increased by $3.8 million to $10.3 million
for the quarter, of which $2.9 million represents the fair value of Class C
common stock warrants issued in consideration for the use of the bridge loan.
The remaining increase was caused almost equally by three factors: a longer
accounting period, higher revolver borrowings and interest on the Subordinated
Note for January, which was before the issue of the note in 1999. Interest on
the Subordinated Note is paid-in-kind by way of the issue of further
subordinated notes.

Interest income. Interest income was earned in the first quarter of 2000 on the
cash proceeds of a property disposition in December 1999, which were placed on
deposit. The deposit has since been released.

Loss on dispositions of property, plant and equipment. Additional costs
associated with the property disposition in December 1999 were identified in the
current period and therefore expensed.

16
<PAGE>

<TABLE>
<CAPTION>
Provision for income taxes: Quarter ended
-----------------------
$ millions Mar 28, Apr 2,
1999 2000
-------- --------
<S> <C> <C>
Current taxes............................................... $ 1.3 $ 1.4
Deferred taxes.............................................. (0.9) 0.5
-------- --------
Total provision for income taxes.......................... $ 0.4 $ 1.9
======== ========
</TABLE>

Provision for income taxes. Deferred tax has been calculated in 2000 using the
same more prudent assumptions adopted in the 1999 year end financials, resulting
in a reduction in the deferred tax recovery. Taxable losses continue to be made
in certain jurisdictions which cannot be offset against the taxable income in
other jurisdictions.

Net income. Net income decreased by $5.9 million to give a loss of $7.1 million
in the quarter. The decrease was the result of higher selling, general and
administrative expense, interest expense and provision for income taxes.

Dividends accrued on preferred stock. Dividends were not accrued on the
preferred stock in the first quarter of 1999 to correct an over-accrual in the
prior period.

<TABLE>
<CAPTION>
EBITDA: Quarter ended
-----------------------
$ millions Mar 28, Apr 2,
1999 2000
-------- --------
<S> <C> <C>
Raleigh UK.................................................. $ (1.9) $ (0.8)
Gazelle..................................................... 5.5 5.6
Derby Germany............................................... 4.0 4.2
Derby USA................................................... (0.5) (1.5)
Raleigh Canada.............................................. 1.4 1.4
Sturmey Archer.............................................. 0.2 0.3
Probike..................................................... 0.3 0.4
Other companies and group transactions...................... (0.5) (2.3)
-------- --------
Total EBITDA.............................................. $ 8.5 $ 7.3
======== ========
</TABLE>

EBITDA. EBITDA of $7.3 million for the quarter decreased by $1.2 million due to
a $1.1 million decrease in underlying operating income explained above.

17
<PAGE>

EBITDA is calculated as follows:

<TABLE>
<CAPTION>
Quarter ended
-----------------------
EBITDA: Mar 28, Apr 2,
$ millions 1999 2000
-------- -------
<S> <C> <C>
Underlying operating income................................................ $ 6.6 $ 5.5
Foreign currency contracts allocated to other income....................... - 0.2
Depreciation............................................................... 2.5 2.1
Amortization
Intangibles.............................................................. 0.1 0.2
Investment grants........................................................ (0.1) (0.1)
Positive goodwill........................................................ 0.1 0.1
Negative goodwill........................................................ (0.1) (0.1)
Pension transition asset................................................. (0.6) (0.6)
-------- -------
$ 8.5 $ 7.3
======== =======
</TABLE>

From September 27, 1999 the Company did not designate its forward foreign
currency exchange contracts as hedges, recording any realized gain or loss
through other income in the income statement in accordance with SFAS 133. As all
of these contracts were initiated to mitigate the Company's foreign currency
trading transaction exposure, the realized gain of $0.2 million arising from
them has been included in EBITDA to match these contracts with the transactions
they relate to, albeit that they do not meet all the hedge designation
requirements of SFAS 133. The resulting EBITDA is consistent with the
calculation used for the quarter ended March 28, 1999, when the realized gain or
loss resulting from all such contracts was included in operating income.

Liquidity and Capital Resources

Demand for bicycles in the Company's principal markets is seasonal,
characterized in most cases by a majority of consumer sales in the spring and
summer months. The exceptions to this are in the United Kingdom, South Africa
and Ireland, where consumer sales of bicycles increase in the months preceding
Christmas: accordingly, dealers' peak purchasing months in those countries are
October and November when they build inventory in anticipation of Christmas
sales of juvenile bicycles. Excluding this holiday seasonality, the Company's
working capital requirements are greatest during February, March and April (the
Company's "Peak Season") as receivable levels increase. The Company offers
extended credit terms on sales during the months prior to the Peak Season,
although the Company encourages early payments through trade discounts.

Finished goods inventory remains relatively constant throughout the fiscal year
and the level of raw materials increases and decreases normally only to
accommodate production needs. Work in process represents, on average, nine days'
production. Inventory levels reach a minimum at the end of the season.

Net cash flows used by operating activities increased by $2.7 million to a $46.5
million outflow for the first quarter from $43.8 million in 1999. Two of the
constituent elements of cash flow changed significantly year-on-year. Firstly,
although receivables were $5.3 million below year ago, the increase in the cash
flow was $17.3 million lower due to an $11.0 million higher starting position
(including the Diamond Back acquisition balance sheet in the 1999 opening
figure) due to the strong sales in the final quarter of 1999. The lower
receivables at the end of the quarter, despite higher revenues, resulted from
good collections performance, with the collection period of 72 days being 3 days
less than year ago. Secondly, higher planned production in the second quarter
has lead to a $15.1 million greater increase in inventories. Some production
arrears in Germany have also lead to an increase in consolidated inventories,
which have increased by 5 days usage year-on-year.

18
<PAGE>

The net cash flow used by operating activities of $46.5 million in the first
quarter was provided by $28.2 million of drawings under the revolving credit,
the application of $16.7 million in cash balances held at the beginning of the
year and $2.9 million from the issue of Class C common stock warrants. At the
end of the period the amount available by way of revolver drawdowns was fully
utilized and cash of $12.2 million was held.

The Company adopted SFAS 87, "Employers' Accounting for Pensions and other Post
Retirement Benefits" on January 1, 1993. The impact of adopting SFAS 87 was the
recognition of a transition asset of $37.8 million. The transition asset is
being amortized into income over 15 years from January 1, 1989, the effective
date of SFAS 87. Net periodic pension income was $1.3 million and $1.4 million
in the first quarter of 1999 and 2000 respectively. Net periodic pension income
includes amortization of the transition asset into income of $0.6 million in the
first quarter of both 1999 and 2000.

The Company's capital expenditures were $1.1 million and $2.0 million in the
first quarter of 1999 and 2000. Apart from $0.3 million invested in Bikehsop.com
systems, this comprised (i) on-going cost reduction projects, (ii) replacements
and (iii) items required to satisfy statutory environmental and health and
safety legislation.

The Company is primarily financed by equity purchased by Thayer, Perseus, DICSA
and management as part of a recapitalization in May 1998 and subsequently, plus
retained equity that was not recapitalized of, in aggregate, $135.2 million and
debt in the form of Senior Notes and the revolving credit facility. The Company
incurred significant indebtedness in connection with the Recapitalization. As of
April 2, 2000, the Company had $277.7 million of combined indebtedness,
comprising $155.3 of Senior Notes, a $20.0 million Subordinated Note, a bridge
loan of $7.0 million from Thayer and Perseus, as well as $88.6 million of
borrowings and $5.0 million of guarantees under the revolving credit facility
and $1.8 million under the South African Credit Facility. The Senior Notes are
issued under Indentures which contain certain covenants that, among other
things, restrict the ability of the Company and its Restricted Subsidiaries to
incur additional indebtedness, pay dividends, redeem capital stock, redeem
subordinated obligations, make investments, undertake sales of assets and
subsidiary stock, engage in transactions with affiliates, issue capital stock,
permit liens to exist, operate in other lines of business, engage in certain
sale and leaseback transactions and engage in mergers, consolidations or sales
of all or substantially all the assets of the Company. Accordingly, certain
activities or transactions that the Company may want to pursue or enter into may
be restricted or prohibited, and such restrictions and prohibitions could, from
time to time, impact available cash on hand and the liquidity of the Company.

The Company uses derivative financial instruments including interest rate caps,
forward foreign exchange contracts, and currency options. The Company enters
into forward foreign exchange contracts and options to reduce the impact of
currency movements, principally on purchases of inventory and sales of goods
denominated in currencies other than the subsidiaries' functional currencies.
Interest rate caps were purchased to limit the blended interest rate paid on the
revolving credit facility to under 8.4% until July 2001. Currency options were
purchased to substantially maintain the value of part of the foreign operating
income upon conversion into U.S. Dollars, in order to protect the ability to
service the U.S. Dollar Senior Notes from the effect of changes in foreign
exchange rates until May 2001.

The Revolving Credit Agreement provides for a seven-year DM214 million secured
senior revolving credit facility to be made available to the Company's operating
companies. Borrowings under this revolving credit facility are available subject
to a borrowing base determined as a percentage of eligible assets. The Company's
borrowings peak in February, March and April each year.

The facility will be reduced during 2000 by the $13.5 million proceeds of a
property sale completed in December 1999. The interest free bridge loan of $7.0
million provided by Thayer and Perseus is repayable in July 2000 subject to (1)
the Company's reduction of the revolving credit facility by $13.5 million, (2)
the non-existence of a payment default under the revolving credit facility and,
(3) the Company having availability under the revolving credit facility of at
least $7 million prior to the repayment of the bridge loan. In the event of non-
repayment by August 1, 2000, the bridge loan converts into warrants for the
purchase of 7,000 shares of Class C common stock at an exercise price of $0.01
per share ("Class C

19
<PAGE>

Warrants"). The Company has issued 2,500 Class C Warrants in consideration for
the use of the bridge loan.

The Company expects that the existing revolving credit facility will not be
sufficient to cover its liquidity requirements after January 2001. Based on the
Company's business plan, the Company estimates that approximately an additional
$30 million will be required to fund the Company's operations through 2001. The
revolving credit facility continues to be available subject to compliance with
its terms and conditions and the Company will be seeking to review this in
September 2000. In addition the directors have obtained a commitment from Thayer
and Perseus to provide a bridge loan of up to $7 million in 2001 should it be
required.

Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk from changes in foreign currency exchange
rates and interest rates. In order to manage the risk arising from these
exposures, the Company enters into a variety of foreign currency and interest
rate contracts and options. The Company's accounting policies for derivative
instruments are included in Note 2 to the consolidated financial statements
included in the Company's form 10-K for the year ended December 31, 1999.

Foreign currency exchange rate risk

The Company has foreign currency exposures related to buying and selling in
currencies other than the functional currencies in which it operates. The
Company's net trading position is long in the Euro, Canadian Dollar and South
African Rand, arising from its revenues in those currencies, and short of the
New Taiwan Dollar, Japanese Yen and U.S. Dollar as a result of components
purchased in those currencies. The Company has a natural currency hedge against
fluctuations in Pounds Sterling arising from its position as both an importer
and exporter in U.K.. Sturmey Archer also has a competitive exposure to the
currencies of Japan and Germany in which its two main competitors manufacture.

The Company generally introduces its new bicycle model ranges annually in the
fall of each year, at a similar time to most of its competitors. Product
specifications, component costs and selling prices are kept as stable as
possible during the model year to satisfy the requirements of mass-merchandisers
and facilitate orderly marketing of branded products amongst I.B.D.s. The
Company initiates foreign currency forward exchange contracts or options in the
fall to hedge some of its foreign currency trading transaction exposure for the
upcoming season. The fair value of such contracts at December 31, 1999 was $0.9
million. The potential loss in fair value for such financial instruments from a
hypothetical 10% adverse change in quoted foreign currency exchange rates would
be approximately $2.0 million for 1999. Each year the Company changes the
specification of its products to endeavor to optimize its competitive position
and margins. Since most of the Company's competitors purchase comparable
components from similar sources to the Company and are believed not to hedge
beyond the current season, the Company does not generally hedge its transaction
exposure beyond the end of the season, to stay competitive. Management believes
the likelihood of obtaining a competitive advantage would not justify the cost
of hedging beyond the end of the season. Sales and purchases in currencies other
than the functional currencies in which the Company operates were $30.4 million
and $127.4 million respectively in 1999, treating the currencies within the Euro
currency area as one.

The foreign currency element of the Company's debt under the Senior Notes and
revolving credit facility is generally arranged to align with the denomination
of the book value of net assets. By doing this, the Company reduces the
translation exposure of net worth to changes in foreign currency exchange rates.
The three principal exceptions are: (1) $38 million of net assets denominated in
Pounds Sterling arising from the Company's former large presence in U.K., (2)
$40 million of foreign pension assets in U.K. and The Netherlands, and, (3) $6
million denominated in South African Rand due to limits placed by the South
African Reserve Bank on the maximum indebtedness allowed by foreign owned
corporations, based on the balance sheet as at December 31, 1999.

The Company generates most of its trading income in foreign currencies. In order
to ensure that such trading income can be converted to yield sufficient U.S.
Dollars to service 67% of the interest on the $100

20
<PAGE>

million 10% Senior Notes through May 2001, currency options were purchased in
1998. These currency options are for $6.7 million per year, selling NLG6
million, GBP2 million and C$1.2 million. At December 31, 1999 the fair value of
these currency options was $0.1 million. As the purchaser of options has no
obligations to exercise them, any weakening of the value of the U.S. Dollar can
do no more than reduce the fair value of these currency options to zero.

Interest rate risk
Interest expense relating to the Senior Notes was $15.6 million in 1999, which
was at fixed interest rates. Interest expense on the Subordinated Note of $3.8
million in 1999 is paid-in-kind through the issue of additional Subordinated
Notes. The other major element of the Company's interest expense was $4.3
million on the revolving credit facilities in 1999. These were at floating rates
of 2.0% above the London Interbank Offer Rate through August 31, 1999 and 2.5%
thereafter. A hypothetical one percentage point shift in floating interest rates
would have a $0.7 million approximate impact on annual interest expense. As
interest rates on the revolving credit facilities have been capped at 8.4%
effective August 1998 through July 2001, increases in floating interest rates
above that level would only have limited impact on expense.

Commodity price risk
The business of the Company does not carry a significant direct exposure to the
prices of commodities.

Unsecured status of senior notes and asset encumbrance
The Senior Note Indentures permit the Company to incur certain secured
indebtedness, including indebtedness under the Revolving Credit Agreement, which
is secured and guaranteed by the obligors thereunder through a first priority
fully protected security interest in all the assets, properties and undertakings
of the Company and each other obligor thereunder where available and cost
effective to do so, and to the extent permissible by local laws. The Company has
facilities available under the Revolving Credit Agreement of DM214.0 million
($107.5 million). As of April 2, 2000, the Company had indebtedness outstanding
under the Revolving Credit Agreement of $93.6 million. Borrowings of $1.8
million under the South African Credit Facility are secured by a security
interest in certain of the assets of the Company's South African subsidiaries.
The Senior Notes are unsecured and therefore do not have the benefit of any such
collateral. Accordingly, if an event of default were to occur under the
Revolving Credit Agreement or the South African Credit Facility, the lenders
thereunder would have the right to foreclose upon the collateral securing such
indebtedness to the exclusion of the holders of the Senior Notes,
notwithstanding the existence of an event of default with respect to the Senior
Notes. In such event, the assets constituting such collateral would first be
used to repay in full all amounts outstanding under the Revolving Credit
Agreement or the South African Credit Facility, as applicable, resulting in all
or a portion of the assets of the Issuers being unavailable to satisfy the
claims of holders of the Senior Notes and other unsecured indebtedness of the
Issuers. The Company may also incur other types of secured indebtedness under
the Senior Note Indentures, including up to $20 million in indebtedness of any
type, indebtedness of an acquired company where the Company would have been able
to incur $1.00 of additional indebtedness under its Consolidated Coverage Ratio,
indebtedness in respect of performance bonds, bankers' acceptances, letters of
credit, and the like, purchase money indebtedness and capitalized lease
obligations in an aggregate amount not exceeding $10 million, indebtedness
incurred by foreign subsidiaries not exceeding $5 million, and indebtedness
incurred by a securitization entity.

Restrictive loan covenants
The Revolving Credit Agreement contains a number of covenants that, among other
things, restrict the ability of the Company and its subsidiaries to dispose of
shares in any subsidiary, dispose of assets, incur additional indebtedness,
engage in mergers and acquisitions, exercise certain options, make investments,
incur guaranty obligations, make loans, make capital distributions, enter into
joint ventures, repay the Notes, make loans or pay any dividend or distribution
to the Issuers for any reason other than (among other things) to pay interest
(but not principal) owing in respect of the Notes, incur liens and encumbrances
and permit the amount of receivables and inventory to exceed specified
thresholds.

The ability of the Company to comply with the covenants and other provisions of
the Revolving Credit Agreement may be affected by changes in general economic
and competitive conditions and by financial,

21
<PAGE>

business and other factors that are beyond the Company's control. The failure to
comply with the provisions of the Revolving Credit Agreement could result in an
event of default thereunder, and, depending upon the actions of the lenders
thereunder, all amounts borrowed under the Revolving Credit Agreement, together
with accrued interest, could be declared due and payable. If the Company were
not able to repay all amounts borrowed under the Revolving Credit Agreement,
together with accrued interest, the lenders thereunder would have the right to
proceed against the collateral granted to them to secure such indebtedness. If
the indebtedness outstanding under the Revolving Credit Agreement were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full such indebtedness, and there can be no assurance
that there would be sufficient assets remaining after such repayments to pay
amounts due in respect of any or all of the Notes.

In addition, the Senior Note Indentures contain certain covenants that, among
other things, restrict the ability of the Company and its Restricted
Subsidiaries to incur additional indebtedness, pay dividends on and redeem
capital stock, redeem certain subordinated obligations, make investments,
undertake sales of assets and subsidiary stock, engage in certain transactions
with affiliates, sell or issue capital stock, permit liens to exist, operate in
other lines of business, engage in certain sale and leaseback transactions and
engage in mergers, consolidations or sales of all or substantially all the
assets of the Company. A failure to comply with the restrictions contained in
either of the Senior Note Indentures could result in an event of default under
such indenture.

All of the Company's freehold property and intellectual property located in
Canada, Germany, Ireland, The Netherlands, Sweden, U.K. and U.S.A. is pledged as
security for the Company's seven year revolving credit facility of
DM214,000,000.

The Company was in compliance with all of its borrowing covenants as at April 2,
2000.

Risk of foreign exchange rate fluctuations; introduction of the Euro
The Company's business is conducted by operating subsidiaries in many countries,
and, accordingly, the Company's results of operations are subject to currency
translation risk and currency transaction risk. With respect to currency
translation risk, the results of operations of each of these operating
subsidiaries are reported in the relevant local currency and then translated
into U.S. Dollars at the applicable currency exchange rate for inclusion in the
Company's financial statements. The appreciation of the U.S. Dollar against the
local currencies of the operating subsidiaries will have a negative impact on
the Company's sales and operating margin. Conversely, the depreciation of the
U.S. Dollar against such currencies will have a positive impact. Fluctuations in
the exchange rate between the U.S. Dollar and the other currencies in which the
Company conducts its operations may also affect the book value of the Company's
assets and the amount of the Company's shareholders' equity. In addition, to the
extent indebtedness of the Company is denominated in different currencies,
changes in the values of such currencies relative to other currencies in which
the Company conducts its operations may have a negative impact on the Company's
ability to meet principal and interest obligations in respect of such
indebtedness.

In addition to currency translation risk, the Company incurs currency
transaction risk to the extent that the Company's operations involve
transactions in differing currencies. Fluctuations in currency exchange rates
will impact the Company's results of operations to the extent that the costs
incurred by the operating subsidiaries are denominated in currencies that differ
from the currencies in which the related sale proceeds are denominated. To
mitigate such risk, the Company may enter into foreign currency forward exchange
contracts primarily relating to the Pound Sterling, the U.S. Dollar, the Dutch
Guilder, the Deutsche Mark, the New Taiwan Dollar and the Yen. Given the
volatility of currency exchange rates, there can be no assurance that the
Company will be able effectively to manage its currency transaction risks or
that any volatility in currency exchange rates will not have a material adverse
effect on the Company's business, financial condition or results of operations.

Under the treaty on the European Economic and Monetary Union (the "Treaty"), to
which the Federal Republic of Germany and the Netherlands are signatories, on
January 1, 1999, a European single currency (the "Euro") replaced some of the
currencies of the member states of the European Union (the "E.U."), including
the Deutsche Mark and Dutch Guilder.

22
<PAGE>

Following introduction of the Euro, the existing sovereign currencies (the
"legacy currencies") of the eleven participating member countries of the E.U.
(the "participating countries") who adopted the Euro as their common legal
currency are scheduled to remain legal tender in the participating countries as
denominations of the Euro until January 1, 2002 (the "transition period"). The
Euro conversion may impact the Company's competitive position as the Company may
incur increased costs to conduct business in an additional currency during the
transition period. Additionally, the participating countries' pursuit of a
single monetary policy through the European Central Bank may affect the exchange
rate of the Euro, and therefore of the legacy currencies, as well as the
economies of significant markets of the Company. The Company will also need to
maintain and in certain circumstances develop information systems software to
(1) convert legacy currency amounts to Euro; (2) convert one legacy currency to
another; (3) perform prescribed rounding calculations to effect currency
conversions; and (4) permit transactions to take place in both legacy currencies
and the Euro during the transition period. Since the Company conducts extensive
business operations in, and exports its products to, several of the
participating countries, there can be no assurance that the conversion to the
Euro will not have a material adverse effect on the Company's business,
financial condition or results of operations. Similarly, in the event that the
Company materially underestimates the costs, timeliness and adequacy of
modifications to its information systems software, there could be a material
adverse effect on the Company's business, financial condition and results of
operations.

Substantial leverage and debt service obligations
The Company incurred substantial indebtedness in connection with the
recapitalization in 1998 and acquisition of Diamond Back in 1999 and has a
highly leveraged capital structure. As of April 2, 2000, the Company had
combined total indebtedness of $277.7 million (including all indebtedness and
guarantees of indebtedness under the Revolving Credit Agreement and indebtedness
under the South African Credit Facility, but excluding, in each case, unused
commitments thereunder), preferred stock of $50.5 million, stock rights of $23.3
million and shareholders' deficit was $69.9 million. The Company's ability to
make scheduled interest payments and repayment of principal is dependent upon
its future operating performance, which, in turn, is subject to general economic
and competitive conditions and to financial, business and other factors, many of
which are beyond the Company's control.

Although the Company believes that, based on current operations, it will have
sufficient cash flow from operations to service its obligations with respect to
its indebtedness, there can be no assurance that the Company will be able to
meet such obligations. In the event that the Company is unable to generate cash
flow from operations that is sufficient to service its obligations in respect of
its indebtedness, the Company may be required to take certain actions, including
delaying or reducing capital expenditures, attempting to restructure or
refinance its indebtedness, selling material assets or operations or seeking
additional equity. There can be no assurance that the Company will be able to
generate cash flow from operations that is sufficient to service its obligations
in respect of its indebtedness or that any such actions could be effected or
would be effective to allow the Company to service such obligations.

Forward Looking Statements
This discussion contains certain forward-looking statements that involve risks
and uncertainties. In addition, the Company may from time to time make oral
forward-looking statements. As discussed in the Company's prospectus on Form S-
4A filed with the SEC on December 4, 1998, actual results are uncertain and may
be impacted by various factors. In particular, certain risks and uncertainties
that may impact the accuracy of the forward-looking statements with respect to
revenues, expenses and operating results include, without limitation, cycles of
customer orders, general economic and competitive conditions and changing
consumer trends, foreign exchange rates, technological advances and the number
and timing of new product introductions, shipments of products and componentry
from foreign suppliers, the timing of operating and advertising expenditures and
changes in the mix of products ordered by independent bicycle dealers and mass
merchants. As a result, the actual results may differ materially from those
projected in the forward-looking statements. Because of these and other factors
that may affect the Company's operating results, past financial performance
should not be considered an indicator of future performance, and investors
should not use historical trends to anticipate results or trends in future
periods.

23
<PAGE>

PART II
-------

ITEM 1. LEGAL PROCEEDINGS

Product Liability

Due to the nature of the Company's business, the Company is a defendant in a
number of product liability lawsuits. The plaintiffs in these lawsuits generally
seek damages, in amounts that may be material, for personal injuries allegedly
sustained as a result of alleged defects in the Company's products. Although the
Company maintains product liability insurance, due to the uncertainty as to the
nature and extent of manufacturers' and distributors' liability for personal
injuries, there can be no assurance that the product liability insurance
maintained by the Company is or will be adequate to cover product liability
claims or that the applicable insurer will be solvent at the time of any covered
loss. In addition, due to deductibles, self-retention levels and aggregate
coverage amounts applicable under the Company's insurance policies, the Company
may bear responsibility for a significant portion, if not all, of the defense
costs (which include attorneys' fees and expenses incurred in the defense of any
claim) and the related payments to satisfy any judgments associated with any
claim asserted against the Company in excess of any applicable coverage. The
settlement of a significant number of insured claims, the settlement of a claim
exceeding the Company's insurance coverage or the successful assertion or
settlement of an uninsured claim could have a material adverse effect on the
Company's business, financial condition or results of operations. There can be
no assurance that insurance will remain available, or, if available, will not be
prohibitively expensive. The deductible under the Company's insurance policies
is currently $250,000 per claim; however, prior to 1993, the deductible was $1.0
million per claim. Not all claims arising during the period in which the
Company's deductible was $1.0 million have been resolved and it is possible that
additional claims may be filed. The aggregate amount of liability under existing
and potential claims could exceed the reserves established by the Company for
product liability claims.

Product Recalls

Although the Company has not recently experienced a significant product recall,
the Company has, in the past, recalled certain bicycle models. If the Company
were required to make a significant product recall, such a recall could have a
material adverse effect on the Company's business, financial condition or
results of operations. In common with the rest of the bicycle industry,
components fitted to its bicycles may be subject to a recall program of the
component supplier.

Liability For Environmental Matters

The Company is subject to a wide variety of governmental requirements related to
environmental protection including, among other things, the management of
hazardous substances and wastes. Although the Company has made and will continue
to make significant expenditures related to its environmental compliance
obligations, there can be no assurance that the Company will at all times be in
compliance with all such requirements. Moreover, the Company's existing and
historical operations, including the operations of its predecessors, expose the
Company to the risk of clean-up liabilities or environmental or personal injury
claims related to releases and emissions of hazardous substances and wastes.
Such liabilities and claims could require the Company to incur material costs
related to such releases or to the investigation or remediation of contaminated
property. Also, changes in existing environmental requirements or the imposition
of additional environmental liabilities related to existing or historical
operations could result in substantial cost to the Company.

24
<PAGE>

ITEM 2. CHANGES IN SECURITIES

During the quarter ended April 2, 2000 the Company issued 600 Class A and 150
Class C common shares to executives of the Company for $1,000 per share under
the management stock plan.

In addition the Company issued 1,250 Class C Warrants to Thayer Capital Partners
L.L.C. and 1,250 Class C Warrants to Perseus Capital L.L.C., in consideration
for the use of the bridge loan, for a fair value of $2.9 million.

25
<PAGE>

ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

10.1 Employment Agreement made as of April 30, 2000 between The Derby Cycle
Corporation and Nancy E. Uridil.

Reports on Form 8-K

None.

26
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Stamford, Connecticut on May 17, 2000.

The Derby Cycle Corporation Date
----

\s\ Daniel S. Lynch

By: ______________________________ May 17, 2000

Name: Daniel S. Lynch

Title: Chief Financial Officer

\s\ Simon J. Goddard

By: ______________________________ May 17, 2000

Name: Simon J. Goddard

Title: Vice President and Corporate Controller

<PAGE>

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT is made as of April 30, 2000, between The Derby Cycle
Corporation, a Delaware corporation (the "Company"), and Nancy Uridil
("Executive").

In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Employment. The Company shall employ Executive, and Executive
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in paragraph 4 hereof (the "Employment Period").

2. Position and Duties.

(a) During the Employment Period, Executive shall serve as the Global
Sourcing Vice President of the Company and shall have the duties and
responsibilities set forth in Exhibit A attached hereto and such other normal
----------
duties, responsibilities and authority of the Global Sourcing Vice President,
subject to the power of the Company's President and the Company's board of
directors ("Board") to expand or limit such duties, responsibilities and
authority and to override actions of officers of the Company.

(b) During the Employment Period, Executive shall report to the
Company's President and shall devote her best efforts and her full business time
and attention (except for permitted vacation periods and reasonable periods of
illness or other incapacity) to the business and affairs of the Company and its
subsidiaries. Executive shall perform her duties and responsibilities to the
Company and its subsidiaries hereunder to the best of her abilities in a
diligent, trustworthy, businesslike and efficient manner. The Executive and the
Company hereby agree that the Executive's principal office will be located in
the Stamford, Connecticut area.

3. Compensation and Benefits.

(a) During the Employment Period, Executive's base salary shall be
$225,000 per annum or such higher rate as the Company's President and the Board
may designate from time to time (the "Base Salary"), which salary shall be
payable in regular installments in accordance with the Company's general payroll
practices. In addition, during the Employment Period, Executive shall be
entitled to participate in all of the Company's employee benefit programs
(including medical, pension and life insurance) for which senior executive
employees of the Company are generally eligible, and Executive shall be entitled
to three weeks of paid vacation each year, which if not taken during any year
may not be carried forward to any subsequent year. Such vacation shall be taken
at such time or times as the Company's President approves in advance.

(b) For each calendar year during the Employment Period, beginning
with calendar year 2000, the Company shall pay to the Executive a bonus equal to
thirty-five percent
<PAGE>

(35%) of her Base Salary based upon the achievement of financial targets for the
Company for such fiscal year, with such financial targets to be determined by
the Board; provided that, at the discretion of the President and the Board, a
lower bonus may be paid if such financial targets are not met and a higher bonus
may be paid if such financial targets are exceeded. Executive shall also be
eligible for a discretionary bonus, with the grant and amount of such bonus, if
any, to be at the sole discretion of the Company's President and Board.

(c) During the Employment Period, the Company shall reimburse
Executive for all reasonable expenses incurred by her in the course of
performing her duties and responsibilities under this Agreement which are
consistent with the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses, subject to the Company's
requirements with respect to reporting and documentation of such expenses.

(d) In connection with Executive's relocation to the Stamford,
Connecticut area, Executive shall be reimbursed for her reasonable relocation
expenses, including real estate agent fees for selling her current residence,
moving expenses, legal fees associated with the closing on a new property in the
Stamford, Connecticut area and reasonable house hunting expenses, including
reasonable temporary housing expenses, if required.

4. Termination.

(a) The Employment Period shall continue until Executive's
resignation, death or disability or other incapacity (as determined by the Board
in its good faith judgment) or until the Board determines in its good faith
judgment that termination of Executive's employment is in the best interests of
the Company (the "Termination Date"); provided that, the Executive hereby agrees
not to resign from the Company and the Company hereby agrees not to terminate
the Executive's employment without Cause until and unless the party terminating
such employment provides to the other nine months prior written notice. The
Company may (in its absolute discretion at any time after notice of termination
has been given under this paragraph 4(a)) pay the Executive her remuneration due
under this Agreement for and in lieu of any unexpired period of notice, in which
event this Agreement and the Executive's employment with the Company shall
terminate with immediate effect from the date upon which such payment is made.

(b) Except as otherwise expressly provided herein, all of Executive's
rights to salary, bonuses, fringe benefits and other compensation hereunder
which accrue or become payable after the termination or expiration of the
Employment Period shall cease upon such termination or expiration. The Company
may offset any amounts Executive owes it or its subsidiaries against any amounts
it owes Executive hereunder.

(c) For purposes of this Agreement, "Cause" shall mean (i) the
commission of a felony or other crime involving moral turpitude or the
commission of any other act or omission involving dishonesty, disloyalty or
fraud with respect to the Company or any of its subsidiaries or any of their
customers or suppliers, (ii) chronic drug or alcohol abuse or other repeated
conduct causing the Company or any of its subsidiaries substantial public
disgrace or disrepute or economic harm, (iii) substantial and repeated failure
to perform duties as reasonably directed by the Board or the Company's
President, (iv) gross negligence or willful misconduct with respect to the
Company or any of its subsidiaries or (v) any other material breach of this
Agreement.

-2-
<PAGE>

5. Confidential Information. Executive acknowledges that the
information, observations and data (including trade secrets) obtained by her
while employed by the Company and its subsidiaries concerning the business or
affairs of the Company, and its subsidiaries ("Confidential Information") are
the property of the Company or such subsidiaries. Therefore, Executive agrees
that she shall not disclose to any unauthorized person or use for her own
purposes any Confidential Information without the prior written consent of the
Board.

6. Non-Compete, Non-Solicitation.

(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of her employment
with the Company and its subsidiaries she shall become familiar with the
Company's trade secrets and with other Confidential Information concerning the
Company and its subsidiaries and that her services shall be of special, unique
and extraordinary value to the Company and its subsidiaries. Therefore,
Executive agrees that, during the Employment Period and for one year thereafter
(the "Noncompete Period"), she shall not directly or indirectly own any interest
in, manage, control, participate in, consult with, render services for, or in
any manner engage in any business competing with the businesses of the Company
or its subsidiaries, as such businesses exist, within any geographical area in
which the Company or its subsidiaries engage in such businesses.

(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any of its subsidiaries to leave the employ of the Company or
such subsidiary, or in any way interfere with the relationship between the
Company or any of its subsidiary and any employee thereof, (ii) hire any person
who was an employee of the Company or any of its subsidiary at any time during
the Employment Period or (iii) induce or attempt to induce any customer,
supplier, licensee, licensor, franchisee or other business relation of the
Company or any of its subsidiary to cease doing business with the Company or
such subsidiary, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company or any of its
subsidiary (including, without limitation, making any negative or disparaging
statements or communications regarding the Company or its subsidiaries).

(c) If, at the time of enforcement of paragraphs 5 or 6 of this
Agreement, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. In the event a breach or
threatened breach of this Agreement, the Company or its successors or assigns,
in addition to other rights and remedies existing in their favor, shall be
entitled to specific performance and/or injunctive or other equitable relief
from a court of competent jurisdiction in order to enforce, or prevent any
violations of, the provisions hereof (without posting a bond or other security).

7. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which she is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery

-3-
<PAGE>

of this Agreement by the Company, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms. Executive
hereby acknowledges and represents that she has consulted with independent legal
counsel regarding her rights and obligations under this Agreement and that she
fully understands the terms and conditions contained herein.

8. Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way
(including, without limitation, the Letter Agreement between the parties hereto,
dated on or about November 19, 1999), but excluding any breaches thereof by
either party prior to the date hereof.

9. Governing Law. The validity, construction, interpretation,
administration and effect of this Agreement shall be governed, construed and
interpreted under the laws of the state of New York without giving any effect to
any choice of law rules of any state.

* * * * *

-4-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

THE DERBY CYCLE CORPORATION

/s/ Gary S. Matthews
By:____________________________________

Chief Executive Officer
Its:___________________________________

/s/ Nancy E. Uridil
_______________________________________
NANCY URIDIL

<PAGE>
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-02-2000
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<COMMON> 1
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<TOTAL-LIABILITY-AND-EQUITY> 429,665
<SALES> 148,164
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