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                                                                 EXHIBIT 10.42

                           SECOND AMENDED AND RESTATED
                                CREDIT AGREEMENT
                           (RECEIVABLES AND INVENTORY)



            This SECOND AMENDED AND RESTATED CREDIT AGREEMENT (RECEIVABLES AND
INVENTORY) (this "Agreement") is entered into as of August 12, 1996 among Bank
of America National Trust and Savings Association ("Bank") and GT Bicycles
California, Inc. ("GTBC"), Riteway Products East, Inc. ("East"), Riteway
Products North Central, Inc. ("North Central"), Rite-Way Distributors Central,
Inc. ("Central"), Rite-Way Distributors, Inc. ("Distributors"), GT Bicycles,
Inc. ("GT"). GTBC, East, North Central, Central, and Distributors are sometimes
hereinafter referred to collectively as "Borrowers" and individually as a
"Borrower."


                                    RECITALS


            A. By this Agreement, the parties hereto desire to amend and restate
the First Amended and Restated Credit Agreement (Receivables and inventory)
dated as of November 29, 1995, as amended, between the Borrowers and Bank (the
"Existing Agreement") on the terms and conditions set forth herein by, among
other things, providing for a new Term Loan not exceeding $17,000,000 for GTBC
to finance its acquisition of Caratti Sport, Ltd ("Caratti"), of which 
$3,000,000 will be used to refinance the Barclays Bank Facilities upon
termination of such facilities.

            B. Bank has extended credit to two of its subsidiaries, Riteway
Products Japan K.K. and Riteway Products France S.A.R.L., under separate loan
documents through Bank's lending offices in Japan and France, respectively (the
"Significant Subsidiary Lines"). The parties hereto have agreed that the
Borrowing Base and the Revolving Credit Limit shall be reduced by the total
amount of any credit commitments extended by Bank under Significant Subsidiary
Lines.

            C. GT has also requested that Bank extend credit to Caratti under
separate loan documents through Bank's lending offices in London.
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                                    AGREEMENT

            NOW, THEREFORE, the parties hereto agree as follows:

1.  Definitions and Financial Requirements.

            1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated for the purposes
hereof:

                  "Acceptable Inventory" means Inventory which:

                        (a) is owned by any Borrower free and clear of all
                  security interests, liens, encumbrances, and rights of others,
                  except the security interest in favor of Bank;

                        (b) is (1) either In-Transit Inventory or (2)
                  permanently located at the locations specified on Schedule
                  1.1(b) hereto or other locations acceptable to Bank and is not
                  covered by a negotiable document of title unless such document
                  has been delivered to Bank;

                        (c) in Bank's opinion, is not obsolete, unsalable,
                  damaged, subject to a product recall unless the problem giving
                  rise to the recall has been corrected, or unfit for further
                  processing. For purposes of this Agreement, the value of
                  slow-moving or obsolete Inventory shall equal the total amount
                  of Borrower's inventory reserve as determined either by
                  Borrowers' independent certified public accountant or by
                  Borrowers, whichever is greater, and in either case subject to
                  periodic adjustment in Bank's reasonable discretion based upon
                  Bank's periodic audits of Borrowers' books and records;

                        (d) does not consist of display items, stickers and
                  decals, promotional catalogues and other, similar advertising
                  materials, "miscellaneous product lines" designated by
                  Borrowers as bearing, product code "ZZ," packing and shipping
                  materials, discontinued or slow-moving items, work-in-process,
                  or finished goods of substandard quality. Without limiting the
                  foregoing, Prior Model Year Bicycles will be deemed to be 
                  slow-moving if not sold on or before November 30 of the year 
                  following the year in which bicycles qualified as Prior 
                  Model Year 
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                  Bicycles under this Agreement;

                        (e) is not placed by any Borrower on consignment;

                        (f) is of a type held for sale, use or lease in the
                  ordinary course of any Borrower's business;

                        (g) is otherwise reasonably acceptable to Bank.

                  "Acceptable Receivable" means an Account:

                        (a) arising from the sale of goods or the performance of
                  services by any Borrower in the ordinary course of such
                  Borrower's business as presently conducted;

                        (b) upon which any Borrower's right to receive payment
                  is absolute and not contingent upon the fulfillment of any
                  condition whatever;

                        (c) against which is asserted no defense, counterclaim
                  or setoff, whether well-founded or otherwise;

                        (d) that is a true and correct statement of a bona fide
                  indebtedness incurred in the amount of the Account for
                  merchandise sold and accepted by, or for services performed
                  for and accepted by, the Receivable Debtor obligated upon such
                  Account;

                        (e) that, by its terms, must be paid no later than the
                  210 day period starting on its invoice date;

                        (f) that is owned by any Borrower and not subject to any
                  right, claim, or interest of another other than the security
                  interest in favor of Bank;

                        (g) that does not arise from a sale to or performance of
                  services for an employee, affiliate, parent, or subsidiary of
                  any Borrower, or an entity which has common officers or
                  directors with any Borrower;

                        (h) that is not the obligation of a Receivable Debtor
                  that is the federal government 

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                  or a political subdivision thereof unless Bank has agreed to
                  the contrary in writing and the Borrower which owns the
                  Receivable has complied with the Federal Assignment of Claims
                  Act of 1940, and any amendments thereto, with respect to such
                  obligation;

                        (i) that is not the obligation of a Receivable Debtor
                  that is any state of the United States or any city, town,
                  municipality or division thereof;

                        (j) that is not the obligation of a Receivable Debtor
                  located in a foreign country, unless (a) the Receivable Debtor
                  is located in Canada, outside of the Province of Quebec, or
                  (b) the obligation is supported by a letter of credit issued
                  by a financial institution acceptable to Bank;

                        (k) that is not the obligation of a Receivable Debtor to
                  whom any Borrower is or may become liable for goods sold or
                  services rendered by the Receivable Debtor to such Borrower;

                        (l) that does not arise with respect to goods which are
                  delivered on a cash-on-delivery basis or placed on
                  consignment, guaranteed sale or other terms by reason of which
                  the payment by the Receivable Debtor may be conditional;

                        (m) that is not in default. An Account shall be deemed
                  in default upon the occurrence of any of the following:

                              (1) The Account is not paid within the 60 day
                        period starting on its due date in the case of Accounts
                        without dating terms, or in the case of Accounts with
                        dating terms, the 30 day period starting on its due
                        date;

                              (2) Any Receivable Debtor obligated upon such
                        Account suspends business, makes a general assignment
                        for the benefit of creditors, or fails to pay its debts
                        generally as they come due; or

                              (3) Any petition is filed by or against any
                        Receivable Debtor obligated upon such 
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                        Account under any bankruptcy law or any other law or
                        laws for the relief of debtors;

                        (n) that is not the obligation of a Receivable Debtor
                  who is in default (as defined in subparagraph (m) above) on
                  25% or more of the Accounts upon which such Receivable Debtor
                  is obligated;

                        (o) that does not arise from the sale or lease of goods
                  which remain in any Borrower's possession or under any
                  Borrower's control;

                        (p) that does not arise from the sale of minerals or the
                  like (including oil and gas) at the wellhead or minehead;

                        (p) that is otherwise reasonably acceptable to Bank.

            In addition to the foregoing limitations, the dollar amount of
            Acceptable Receivables included in the Borrowing Base which are
            obligations of a single Receivable Debtor shall not exceed the
            concentration limit established for that Receivable Debtor. To the
            extent the total of such Acceptable Receivables exceeds a Receivable
            Debtor's concentration limit, the amount of any such excess shall be
            excluded. The concentration limit for each debtor shall be equal to
            10% of the total amount of all Borrowers' Acceptable Receivables as
            of the time in question.

                  "Account" means any right to the payment of money owned by any
            Borrower and arising out of the sale of goods or the rendering of
            services by such Borrower which is not evidenced by an instrument or
            chattel paper.

                 "Applicable Margin" means a variable rate of interest that can
            move up or down each quarter depending on the most recent compliance
            certificate delivered to Bank pursuant to Paragraph 8.2(c), as
            follows: if the last compliance certificate received by Bank
            indicates that the ratio of Borrower's total liabilities to Tangible
            Net Worth is less than 1.50 to 1.00, the Applicable Margin shall be
            1.00% per annum from the Start Date following receipt of such
            compliance certificate to, but excluding, the next Start Date; if
            the last compliance certificate received
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            by Bank indicates that the ratio of Borrower's total liabilities to
            Tangible Net Worth is 1.50 to 1.00 or more, the Applicable Margin
            shall again be 1.25% per annum from the Start Date following receipt
            of such compliance certificate to, but excluding, the next Start
            Date. Until December 1, 1996, the Applicable Margin shall be 1.25%
            per annum. Thereafter, the Applicable Margin shall be determined
            from the most recent compliance certificate received by Bank. "Start
            Date" means, with respect to each date the compliance certificate is
            due to be delivered pursuant to Paragraph 8.2, the date indicated
            below:

                  Compliance certificate as      Related
                   of fiscal period ending      Start Date

                        June 30                 September 1
                        September 30            December 1
                        December 31             March 1
                        March 31                June 1

                  "Availability Period" means the period commencing on the date
            of this Agreement and ending on June 30, 1998.

                  "Banking Day" means, unless otherwise defined in this
            Agreement, a day other than a Saturday or a Sunday on which Bank is
            open for business in California.

                  "Barclays Bank Facilities" means (a) the Novation Agreement
            dated as of December 14, 1988, as amended, among Caratti, Mr. P V A
            Edwards, Mr. M B A Edwards, Barclays Invoice Discounting Limited and
            Barclays Commercial Services Limited, and (b) the letter loan
            agreement dated May 9, 1996 between Caratti and Barclays Bank.

                  "Bicycling Accessories" means apparel and accessories.

                  "Borrowing Base" means the difference between:

                        (a)  the sum of:

                                (i) 80% of the balance due on Acceptable
                        Receivables; and

                                (ii) The sum of:
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                                    (A) (1) 65% of the value of Acceptable
                              Inventory consisting of Current Model Year
                              Bicycles, bicycle parts, and In-Transit Inventory
                              as shown on the borrowing certificates as of the
                              last day of the months of November through April,
                              inclusive, of each year, or (2) 50% of the value
                              of such Acceptable Inventory as shown on the
                              borrowing certificates as of the last day of the
                              months of May through October, inclusive, of each
                              year, commencing with May 1996; provided, however,
                              that for purposes of calculating the Borrowing
                              Base the total value of any In-Transit Inventory
                              shall not exceed 15% of the Borrowing Base as it
                              would be calculated without reference to this
                              limitation and without the amount added under
                              Subparagraph (c) of this definition of Borrowing
                              Base; and

                                    (B) 30% of the value of Acceptable Inventory
                              consisting of Bicycling Accessories; provided,
                              however, that for purposes of calculating the
                              Borrowing Base the total value of any such
                              Acceptable Inventory shall not exceed 10% of the
                              Borrowing Base as it would be calculated without
                              reference to this limitation and without the
                              amount added under Subparagraph (c) of this
                              definition of Borrowing Base; and

                                    (C) 55% of the value of Acceptable Inventory
                              consisting of Prior Model Year Bicycles as shown
                              on the borrowing certificates as of the last day
                              of the months of November through April,
                              inclusive, of each year and 40% of the value of
                              such Acceptable Inventory as shown on the
                              borrowing certificates as of the last day of the
                              months of May through October, inclusive, of each
                              year; provided, however, that with respect to the
                              borrowing certificates as of the last day of the
                              months of June through October, inclusive, of each
                              year, for purposes of calculating the
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                              Borrowing Base, the total value of Acceptable
                              Inventory consisting of Prior Model Year Bicycles
                              shall not exceed $5,000,000;

                              (iii) During the period from and including August
                        1, 1996 to and including November 30, 1996 only,
                        $3,000,000; and

                              (iv)  During the period from and
                        including January 1 to and including April 30
                        of each year, $5,000,000; and

                        (b) The U.S. Dollar equivalent, determined by Bank, of
                  the maximum total amount of credit commitments issued by Bank
                  to Significant Subsidiaries under Significant Subsidiary
                  Lines.

                  The value of Acceptable Inventory shall be the lesser of any
                  Borrower's cost or Bank's independent determination of the
                  resale value of such Inventory in such quantities and on such
                  terms as Bank may reasonably deem appropriate.

                  "Caratti Facility" means a credit facility between Bank and
            Caratti in a maximum principal amount of U.K.#5,000,000 having terms
            and conditions, and in form and substance, satisfactory to Bank.

                  "CD Rate" means for each Interest Period for a CD Rate Portion
            the rate of interest (rounded upward, if necessary, to the nearest
            1/100th of one percent) determined pursuant to the following
            formula:

                  CD Rate = Certificate of Deposit Rate + Assessment
                               1.00 - Reserve Percentage     Rate

            Where,

                              (i) "Assessment Rate" means the annual assessment
                        rate that is payable to the Federal Deposit Insurance
                        Corporation (or any successor) ("FDIC") by a member of
                        the Bank Insurance Fund that is classified as well
                        capitalized and within supervisory subgroup "A" (or a
                        comparable successor assessment risk classification
                        within the meaning of 12 C.F.R. Section 327.3(d)) for
                        insuring time deposits at offices of such member in the
                        United
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                        States. If the FDIC ceases to assess time deposits based
                        upon such classifications, then Bank shall, in its
                        discretion, select an appropriate successor Assessment
                        Rate from among the range of annual assessment rates
                        that are payable to the FDIC by commercial banks for
                        insuring time deposits at offices of such banks in the
                        United States. In the event of a retroactive reduction
                        in the Assessment Rate or the Reserve Percentage after
                        the first day of the applicable interest period, the
                        Bank will not retroactively adjust the CD Rate.

                              (ii) "Certificate of Deposit Rate" means for such
                        Interest Period the rate of interest determined by Bank
                        to be the arithmetic average (rounded upward, if
                        necessary, to the nearest 1/100th of one percent) of the
                        rates of interest bid by two or more certificate of
                        deposit dealers of recognized standing selected by Bank
                        for the purchase at face value of U.S. dollar
                        certificates of deposit issued by major United States
                        banks for such Interest Period and in the amount of the
                        CD Rate Portion to be outstanding during such period at
                        the time selected by Bank on the first day of such
                        Interest Period.

                              (iii) "Reserve Percentage" means for such Interest
                        Period the total (expressed as a decimal) of the maximum
                        reserve percentages (including, but not limited to,
                        marginal, emergency, supplemental, special, and other
                        reserve percentages) in effect on the first day of such
                        Interest Period as prescribed by the Board of Governors
                        of the Federal Reserve System for determining the
                        reserves to be maintained by member banks of the Federal
                        Reserve System for non-personal time deposits in the
                        amount of $100,000 or more with a maturity equal to such
                        Interest Period.

                  "CD Rate Portion" means all or such part of the principal
            balance of credit provided under this Agreement for which interest
            is payable at the rate related to the CD Rate.
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                  "Collateral" means the real or personal property described in
            the Collateral Agreements.

                  "Collateral Agreements" means the security agreement(s)
            required under Article 6 of this Agreement.

                  "Current Model Year Bicycles" means Acceptable Inventory
            consisting of bicycles that are designated by any Borrower on its
            inventory records as being current models in a manner consistent
            with past record keeping procedures and practices.

                  "ERISA" means the Employee Retirement Income Act of 1974, as
            amended from time to time.

                  "ERISA Plan" means any employee pension benefit plan
            maintained or contributed to by any Borrower and insured by the
            Pension Benefit Guaranty Corporation under Title IV of ERISA.

                  "Event of Default" means any event listed in Article 9 of 
            this Agreement.

                  "Fixed Charge Coverage Ratio" means, for any period of
            calculation, the ratio of net income (or net loss) from operations
            (determined without giving effect to extraordinary or non-recurring
            gains) plus, to the extent deducted in calculating such net income
            (or loss), the sum of (i) interest expense, plus (ii) depreciation
            expense, plus (iii) amortization expense, plus (iv) contribution of
            equity or loans that are subordinated, in a manner satisfactory to
            Bank, to indebtedness owing to Bank, minus (v) dividends paid to the
            sum of (x) current portion of long term debt and capital leases,
            plus (y) capital expenditures made in cash, and plus (z) interest
            expense.

                  "Guarantors" means GT, each of its U.S. Subsidiaries and any
            U.S. Subsidiary which guaranties the obligations under the Agreement
            pursuant to Paragraph 8.12 below; individually a "Guarantor."

                  "Interest Period" means:

                        (a) for each Offshore Rate Portion the period commencing
                  on the date such portion shall begin to bear interest at a
                  rate related to the Offshore Rate and ending no less than 14
                  days (for
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                  Offshore Rate Portions of $1,000,000 or more) or 30 days and
                  no more than six months (for all Offshore Rate Portions)
                  thereafter, as agreed by Bank and any Borrower at the time
                  such Borrower requests the portion; provided, however, that
                  the last day of each Offshore Rate Interest Period shall be
                  determined in accordance with the practices of the offshore
                  Dollar inter-bank markets as from time to time in effect.

                        (b) for each LIBOR Rate Portion the period commencing on
                  the date such portion shall begin to bear interest at a rate
                  related to the LIBOR Rate and ending no less than 14 days (for
                  LIBOR Rate Portions of $1,000,000 or more) or 30 days and no
                  more than six months (for all LIBOR Rate Portions) thereafter,
                  as agreed by Bank and any Borrower at the time such Borrower
                  requests the portion; provided, however, that the last day of
                  each LIBOR Rate Interest Period shall be determined in
                  accordance with the practices of the London inter-bank market
                  as from time to time in effect; and

                        (c) for each CD Rate Portion the period commencing on
                  the date such portion shall begin to bear interest at the CD
                  Rate and ending 14-29 days (for CD Rate Portions of $1,000,000
                  or more) or 30, 60, 90, or 180 days (for all CD Rate Portions)
                  thereafter, as requested by any Borrower or, at Bank's option,
                  such other periods requested by such Borrower at the time such
                  Borrower requests the portion.

                  "In-Transit Inventory" means Inventory consisting of bicycles,
            bicycle parts, and Bicycling Accessories that is in-transit, as to
            which title has been transferred to any Borrower, and which is fully
            covered by marine cargo insurance issued by an insurer and with
            terms reasonably acceptable to Bank, with Bank named as loss payee.

                  "Inventory" means all goods owned by any Borrower and held for
            sale or lease in such Borrower's business, or to be furnished under
            a contract of service, or consisting of materials and supplies to be
            used or consumed in such Borrower's business.

                  "LIBOR Rate" means for each Interest Period for 
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            each LIBOR Rate Portion the rate of interest (rounded upward, if
            necessary, to the nearest 1/100th of one percent) determined
            pursuant to the following formula:

                  LIBOR Rate =         London Rate
                                 (1.00 - Reserve Percentage)

            Where,

                        (i) "London Rate" means for such Interest Period the
                  rate of interest (rounded upward, if necessary, to the nearest
                  1/16th of one percent) at which Dollar deposits for such
                  Interest Period would be offered by Bank's London Branch,
                  London, Great Britain, to other major banks in the London
                  inter-bank market as approximately 11:00 a.m. London time two
                  Banking Days before the commencement of such Interest Period.

                        (ii) "Reserve Percentage" means for such Interest Period
                  the total (expressed as a decimal) of the maximum reserve
                  percentages (including, but not limited to, marginal,
                  emergency, supplemental, special, and other reserve
                  percentages) in effect on the first day of such Interest
                  Period as prescribed by the Board of Governors of the Federal
                  Reserve System for determining the reserves to be maintained
                  by member banks of the Federal Reserve System for Eurocurrency
                  Liabilities, as defined in Federal Reserve Board Regulation D,
                  rounded upward, if necessary, to the nearest 1/100th of one
                  percent.

                  "LIBOR Rate Portion" means all or such part of the principal
            balance of credit provided under this Agreement for which interest
            is payable at the rate related to the LIBOR Rate.

                  "Material Adverse Impact" means a material adverse impact on
            GT's or any of its Subsidiary's financial condition, operations, or
            ability to perform obligations under this Agreement or any
            instrument or agreement required under this Agreement.

                  "Offshore Rate" means for each Interest Period for each
            Offshore Rate Portion the rate of interest (rounded upward, if
            necessary, to the nearest 1/100th of one percent) determined
            pursuant to the following formula:
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                  Offshore Rate =      Grand Cayman Rate

                                    (1.00 - Reserve Percentage)

            Where,

                        (i) "Grand Cayman Rate" means for such Interest Period
                  the rate of interest (rounded upward, if necessary, to the
                  nearest 1/16th of one percent) at which Dollar deposits for
                  such Interest Period would be offered by Bank's Grand Cayman
                  Branch, Grand Cayman, British West Indies, to other major
                  banks in the offshore Dollar inter-bank markets upon the
                  request of such banks.

                        (ii) "Reserve Percentage" means for such Interest Period
                  the total (expressed as a decimal) of the maximum reserve
                  percentages (including, but not limited to, marginal,
                  emergency, supplemental, special, and other reserve
                  percentages) in effect on the first day of such Interest
                  Period as prescribed by the Board of Governors of the Federal
                  Reserve System for determining the reserves to be maintained
                  by member banks of the Federal Reserve System for Eurocurrency
                  Liabilities, as defined in Federal Reserve Board Regulation D,
                  rounded upward, if necessary, to the nearest 1/100th of one
                  percent.

                  "Offshore Rate Portion" means all or such part of the
            principal balance of credit provided under this Agreement for which
            interest is payable at the rate related to the Offshore Rate.

                  "Permitted Subordinated Debt" means unsecured indebtedness
            subordinated to amounts owing by GT or any of its Subsidiaries to
            Bank hereunder or under any other agreement or facility on terms and
            conditions and in an amount acceptable to Bank in its sole
            discretion.

                  "Prior Model Year Bicycles" means Acceptable Inventory
            consisting of bicycles that were designated by any Borrower on its
            inventory records as having been a current model in the immediately
            preceding model year in a manner consistent with past record keeping
            practices and procedures.

                  "Receivables" means all rights to the payment of 
<PAGE>   14
            money owned by any Borrower, whether due or to become due and
            whether or not earned by performance including, but not limited to,
            Accounts, contract rights, chattel paper, instruments and documents.

                  "Receivable Debtor" means the person or entity obligated upon
            a Receivable.

                  "Reference Rate" means the rate of interest publicly announced
            from time to time by Bank in San Francisco, California, as its
            reference rate. Any change in the Reference Rate shall take effect
            on the day specified in the public announcement of such change. The
            Reference Rate is set by Bank based on various factors, including
            Bank's costs and desired return, general economic conditions and
            other factors, and is used as a reference point for pricing some
            loans. Bank may price loans at, above or below the Reference Rate.

                  "Revolving Credit Limit" means the difference between (a)
            $60,000,000 and (b) the U.S. Dollar equivalent, determined by Bank,
            of the maximum total amount of credit commitments issued by Bank to
            Significant Subsidiaries under Significant Subsidiary
            Lines.

                  "Revolving Facility" means the line of credit described in
            Paragraphs 2.1, 2.2, 2.3 and 2.4 of this Agreement.

                  "Significant Subsidiaries" means Riteway Products France
            S.A.R.L., a corporation organized under the laws of France, Riteway
            Products Japan K.K., a corporation organized under the law of Japan;
            individually, a "Significant Subsidiary."

                  "Subsidiary" means any corporation, partnership, joint
            venture, limited liability company, trust or estate of which (or in
            which) GT directly or indirectly owns more than 50% of (a) the
            issued and outstanding capital stock having ordinary voting power to
            elect a majority of the board of directors of such corporation
            (irrespective of whether at the time capital stock of any other
            class or classes of such corporation shall or might have voting
            power upon the occurrence of any contingency), (b) the interest in
            the capital or profits of such limited liability company,
            partnership or joint venture or (c) the beneficial interest in such
<PAGE>   15
            trust or estate is at the time directly or indirectly owned or
            controlled by GT or any of its Subsidiaries; collectively,
            "Subsidiaries."

                        "Tangible Net Worth" means the consolidated gross book
            value of the assets of GT and its Subsidiaries (exclusive of
            goodwill, patents, trademarks, trade names, organization expense,
            treasury stock, unamortized debt discount and expense, deferred
            charges and other like intangibles) less (a) reserves applicable
            thereto, and (b) all liabilities (including accrued and deferred
            income taxes).

                        "Term Loan" means the term loan described in Paragraph
                  2.5.

                        1.2 Financial Requirements. Unless otherwise specified
            in this Agreement, all accounting terms used in this Agreement shall
            be interpreted, all financial computations required under this
            Agreement shall be made, and all financial information required
            under this Agreement shall be prepared in accordance with generally
            accepted accounting principles consistently applied.


2.  The Credit Facilities

            2.1 The Revolving Facility (All Borrowers). From time to time during
the Availability Period, Bank, on a revolving basis, will make advances to
Borrowers and create and issue commercial and standby letters of credit for
Borrowers' account as provided herein. The total of all advances and the undrawn
and the drawn and unreimbursed amount of all letters of credit may not exceed at
any one time the lesser of the Borrowing Base or the Revolving Credit Limit.

            2.2  Advances Under the Revolving Facility.

                  (a) Borrowers shall use the proceeds of advances under the
            Revolving Facility to finance Borrowers' working capital.

                  (b) Borrowers shall repay the entire principal balance of
            advances under the Revolving Facility on the last day of the
            Availability Period.

                  (c) Advances under the Revolving Facility shall bear interest
            at a rate per annum equal to the 
<PAGE>   16
            Reference Rate or, subject to the requirements set forth in Section 
            2.6, the Offshore Rate plus the Applicable Margin, the LIBOR Rate
            plus the Applicable Margin, or, until March 31, 1997 only, the CD
            Rate plus the Applicable Margin, or a combination thereof; provided,
            however, that no more than seven designations of optional interest
            rates under the Revolving Facility and Term Loan may be in effect at
            any one time. No CD Rate Portion may be outstanding after March 31,
            1997.

                  (d) Borrowers shall pay interest monthly on the first day of
            each month and, with respect to each Offshore Rate Portion, LIBOR
            Rate Portion and CD Rate Portion, on the last day of the each
            Interest Period applicable thereto, in each case until the last day
            of the Availability Period, on which date all accrued and unpaid
            interest shall be due and payable.

                  (e) The minimum amount of any advance requested to bear
            interest at the Reference Rate shall be $100,000. Each Offshore Rate
            Portion, LIBOR Rate Portion and CD Rate portion shall be for an
            amount not less than $500,000 or not less than $1,000,000 for
            Interest Periods less than 30 days.

                  2.3 Letters of Credit under the Revolving Facility.

                  (a) The total of the undrawn and the drawn and unreimbursed
            amount of all commercial and standby letters of credit outstanding
            at any one time under the Revolving Facility may not exceed
            $15,000,000.

                  (b) Each commercial letter of credit shall be issued pursuant
            to the terms and conditions hereof and of a Bank standard form
            Application and Agreement for Commercial Letter of Credit executed
            by any Borrower.

                  (c)  Each commercial letter of credit shall:

                        (1) expire on or before 90 days after the last day of
                  the Availability Period;

                        (2)  require drafts payable at sight; and

                        (3) be otherwise in form and substance and in favor of
                  beneficiaries reasonably satisfactory to Bank.
<PAGE>   17
                  (d) Borrowers shall pay Bank issuance fees, negotiation fees
            and other fees at the times and in the amounts Bank advises
            Borrowers from time to time as being applicable to any Borrower's
            commercial letters of credit.

                  (e) Any sum owed to Bank with respect to a commercial letter
            of credit issued for any Borrower's account which is not paid when
            due shall, at the option of Bank in each instance, be added to
            advances outstanding under the Revolving Facility and shall
            thereafter bear interest at the rate applicable to advances.

                  (f) In addition to any other rights or remedies which Bank may
            have under this Agreement or otherwise, upon the occurrence of an
            Event of Default Bank may require Borrowers to prepay in full or
            pledge cash collateral in the amount of any commercial letters of
            credit outstanding under this Agreement.

            2.4 Standby Letters of Credit Under the Revolving Facility.

                  (a) The total of the undrawn and the drawn and unreimbursed
            amount of all standby and commercial letters of credit outstanding
            at any one time under the Revolving Facility may not exceed
            $15,000,000.

                  (b) Each standby letter of credit shall be issued pursuant to
            the terms and conditions hereof and of a Bank standard form
            Application and Agreement for Standby Letter of Credit executed by
            any Borrower.

                  (c)  Each standby letter of credit shall:

                        (1) expire on or before 365 days after the date such
                  letter of credit is issued, but in no event later than 90 days
                  after the last day of the Availability Period;

                        (2) be otherwise in form and substance and in favor of
                  beneficiaries reasonably satisfactory to Bank. Without
                  limiting the foregoing, no standby letter of credit shall
                  contain automatic renewal or "evergreen" classes.

                  (d) Borrowers shall pay Bank a non-refundable fee equal to
            1.25% per annum of the outstanding undrawn 
<PAGE>   18
            amount of each standby letter of credit, payable annually in
            advance, and calculated on the basis of the face amount outstanding
            on the day the fee is calculated. It is provided, however, that if
            an Event of Default occurs under this Agreement, at the option of
            Bank, the amount of the fee shall be increased to 3% per annum,
            commencing on the day Bank provides notice of the increase to
            Borrowers. Borrowers shall also pay such other reasonable and
            customary fees and commissions at the times and in the amounts Bank
            advises Borrowers from time to time as being applicable to any
            Borrower's standby letters of credit.

                  (e) Any sum owed to Bank with respect to a standby letter of
            credit issued for any Borrower's account which is not paid when due
            shall, at the option of Bank in each instance, be added to advances
            outstanding under the Revolving Facility and shall thereafter bear
            interest at the rate applicable to advances.

                  (f) In addition to any other rights or remedies which Bank may
            have under this Agreement or otherwise, upon the occurrence of an
            Event of Default Bank may require Borrowers to prepay in full or
            pledge cash collateral in the amount of any standby letters of
            credit outstanding under this Agreement.

            2.5  The Term Loan (GTBC Only).

                  (a) Borrowers shall use $14,000,000 of the proceeds of the
            Term Loan to prepay Loans under the Revolving Facility and
            $3,000,000 of the proceeds of the Term Loan to prepay a portion of
            the Barclays Bank Facilities concurrently upon termination of such
            facility (collectively, the "Term Loan").

                  (b) Bank shall lend the principal amount of the Term Loan to
            GTBC in two disbursements: $14,000,000 on the Closing Date and
            $3,000,000 on the date all conditions precedent to the effectiveness
            of the Caratti Facility are being satisfied.

                  (c) GTBC shall repay the principal of the Term Loan in
            approximately equal quarterly installments, commencing December 31,
            1996, and continuing on the last Banking day of each March, June,
            September and December thereafter until September 30, 2000 (the
            "Term Loan Maturity Date"), on which date all remaining 
<PAGE>   19
            principal and interest then owing with respect to the Term Loan
            shall be due and payable, together with all accrued and unpaid
            interest thereon.

                  (d) Notwithstanding the repayment schedule set forth in the
            immediately preceding Paragraph, if the Revolving Facility, as now
            in effect or as hereafter renewed, amended or restated, terminates
            for any reason, the entire principal balance of the Term Loan,
            together with all accrued interest thereon, shall be due and payable
            on the effective date of such termination. Such termination could be
            the result of:

                        (1) Borrowers' request to cancel the Revolving Facility;

                        (2) cancellation of the Revolving Facility by Bank
                  because of Borrowers' default;

                        (3) Bank's decision not to renew the Revolving Facility
                  beyond any Availability Period applicable thereto; or

                        (4) Borrowers' decision not to accept Bank's offer to
                  renew the Revolving Facility upon such terms and conditions as
                  may be offered by Bank.

                  (e) Borrower may at any time prepay the Term Loan in full or
            in part provided such prepayment is accompanied by the fee set forth
            in Paragraph 3.3. Partial prepayments shall be applied to the most
            remote installments of the Term Loan.

                  (f) The Term Loan shall, at GTBC's election, bear interest at
            a rate per annum equal to the Reference Rate or, subject to the
            requirements set forth in Section 2.6, the Offshore Rate plus 1.85
            percent, the LIBOR Rate plus 1.85 percent, or a combination thereof;
            provided, however, that no more than seven designations of optional
            interest rates under the Revolving Credit and the Term Loan may be
            in effect at any one time. No CD Rate Portion shall be available for
            the Term Loan.

                  (g) GTBC shall pay interest monthly on the first day of each
            month and, with respect to each Offshore Rate Portion and LIBOR Rate
            Portion, on the last day of the each Interest Period applicable
            thereto, in each case until the last day of the Term Loan Maturity
            Date, on which date all accrued and unpaid interest shall be 
<PAGE>   20
            due and payable.

                  (h) Each Reference Rate Portion shall be in a principal amount
            not less than $100,000. Each Offshore Rate Portion and LIBOR Rate
            Portion shall be in a principal amount not less than $500,000 or not
            less than $1,000,000 for Interest Periods less than 30 days.

            2.6 Special Provisions Relating to Offshore Rate Portions, LIBOR
Rate Portions and CD Rate Portions. Offshore Rate Portions, LIBOR Rate Portions
and CD Rate Portions are subject to the following:

                  (a) No Interest Period for an Offshore Rate Portion, LIBOR
            Rate Portion or a CD Rate Portion under the Revolving Facility shall
            end later than the last day of the Availability Period, and no
            Interest Period for an Offshore Rate Portion, a LIBOR Rate Portion
            or a CD Rate Portion relating to the Term Loan shall end later than
            the Term Loan Maturity Date.

                  (b) Borrower may not elect an Offshore Rate or a LIBOR Rate
            with respect to any portion of the principal balance of the Term
            Loan which is scheduled to be repaid before the last day of the
            applicable Interest Period.

                  (c) An Offshore Rate Portion, a LIBOR Rate Portion and a CD
            Rate Portion shall not be converted to a different interest rate
            during its Interest Period. Upon the expiration of an Interest
            Period, an Offshore Rate Portion, a LIBOR Rate Portion and a CD Rate
            Portion shall thereafter bear interest at the rate related to the
            Reference Rate unless Borrowers elects a new interest rate as
            provided hereunder.

                  (d) Any payment of an Offshore Rate Portion, a LIBOR Rate
            Portion or a CD Rate Portion prior to the last day of the Interest
            Period for such portion, whether voluntary, by reason of
            acceleration or otherwise, including mandatory payments required
            under this Agreement and applied by Bank to an Offshore Rate
            Portion, a LIBOR Portion or a CD Rate Portion shall be accompanied
            by the amount of accrued interest on the amount repaid and by the
            amount (if any) by which (i) the additional interest which would
            have been payable on the amount repaid had it not been paid until
            the last day of its Interest Period exceeds (ii) the interest which
            would have been recoverable by Bank by 
<PAGE>   21
            placing the amount repaid on deposit in the offshore Dollar
            inter-bank markets, the London inter-bank markets or the certificate
            of deposit markets, as applicable, for a period starting on the date
            it was repaid and ending on the last day of the Interest Period for
            such portion.

                  (e) Bank shall have no obligation to accept an election for an
            Offshore Rate Portion, a LIBOR Portion or a CD Rate Portion if any
            of the following described events has occurred and is continuing:

                              (i) Dollar deposits in the principal amount, and
                        for periods equal to the interest period, of an Offshore
                        Rate Portion, a LIBOR Portion or a CD Rate Portion are
                        not available in the offshore Dollar inter-bank markets,
                        the London inter-bank markets or the certificate of
                        deposit markets, as applicable; or

                              (ii) the Offshore Rate, LIBOR Rate or CD Rate does
                        not accurately reflect the cost of an Offshore Rate
                        Portion, a LIBOR Portion or a CD Rate Portion.

                  (f) Upon the occurrence of an Event of Default, Bank may
            terminate the availability of the Offshore Rate, LIBOR Rate and CD
            Rate for Interest Periods commencing after the occurrence of the
            Event of Default.

            2.7 Mandatory Payment. If at any time and for any reason the total
amount of credit outstanding under this Agreement exceeds the limitations set
forth herein, Borrowers shall pay to Bank, upon Bank's election and demand, the
amount of the excess. Payments under this Paragraph may be applied to the
obligations of Borrowers to Bank in the order and manner as Bank in its
discretion may determine. Payments to be applied to outstanding letters of
credit and drafts accepted under letters of credit may, at Bank's option, be
used to prepay, or held as cash collateral to secure, Borrowers' obligations to
Bank with respect thereto.


3.  Fees and Expenses.

            3.1 Unused commitment fee. Borrowers shall pay Bank a fee on any
difference between (a) the Revolving Credit Limit and 
<PAGE>   22
(b) the amount of credit (including outstanding advances and issued but undrawn
letters of credit) Borrowers actually use hereunder under the Revolving
Facility, determined by the weighted average of the unused portion of the
Revolving Credit provided under this Agreement during the specified period. The
fee will be calculated at the rate of 0.25% per annum. This fee is due on
September 30, 1996 and quarterly thereafter until the last day of the
Availability Period.

            3.2 Waiver Fee. If Bank, at its discretion, agrees to waive or amend
any terms of this Agreement, Borrowers shall pay Bank a waiver fee in the amount
of $1,000 for each waiver or amendment. Nothing in this Paragraph shall imply
that Bank is obligated to agree to any waiver or amendment requested by
Borrowers. Bank may impose additional requirements as a condition to any waiver
or amendment.

            3.3 Prepayment Fee. If any portion of the Term Loan is prepaid,
directly or indirectly, other than with the proceeds of Permitted Subordinated
Debt or a private or public secondary stock offering, then Borrower shall pay to
Bank, concurrently with any such prepayment, a fee equal to the percentage
indicated below of the prepaid principal portion of the Term Loan:


<TABLE>
<CAPTION>
                        Period                         Percentage Fee

<S>                                                        <C>  
            From and including the Closing                  1.00%
            Date to but excluding the first
            anniversary thereof

            From and including the first                    0.75%
            anniversary of the Closing Date
            to but excluding the second
            anniversary thereof

            From and including the second                   0.50%
            anniversary of the Closing Date to
            but excluding the third anniversary
            thereof

            From and including the third                    None
            anniversary of the Closing Date
            and thereafter
</TABLE>

            3.4  Expenses.

                  (a) Borrowers agree to pay to Bank, on demand, all reasonable
            out-of-pocket costs and expenses 
<PAGE>   23
            incurred by Bank in connection with this Agreement, including, but
            not limited to, filing and search fees.

                  (b) Borrowers agree to pay to Bank, on demand, all costs and
            expenses incurred by Bank in connection with the preparation of this
            Agreement and any agreement or instrument required by this Agreement
            Expenses include, but are not limited to, reasonable attorneys'
            fees, including any allocated costs of Bank's in-house counsel.

                  (c) Borrowers agree to reimburse Bank for the cost of periodic
            audits and appraisals (excluding Bank's audit conducted in October
            1995, which shall be for the account of Bank) of the Collateral at
            such intervals as Bank may reasonably require; provided, however,
            that Borrowers' obligations under this Paragraph 3.3(c) shall not
            exceed $35,000 in any calendar year so long as no Event of Default
            has occurred and is continuing. The audits and appraisals may be
            performed by employees of Bank or by independent auditors or
            appraisers.

4.  Collateral.

            4.1 Personal Property (Borrowers). All obligations of Borrowers
under this Agreement and under any interest rate protection agreements from time
to time entered into with Bank shall be secured by one or more security
agreements executed by Borrowers as debtor in favor of Bank as secured party,
granting Bank a security interest in the following personal property of
Borrowers:

                  (a)  Receivables.

                  (b)  Inventory.

                  (c)  Machinery, equipment, and fixtures.

                  (d)  Patents, trademarks and other general intangibles.

The personal property shall be more particularly described in the security
agreement(s) executed by Borrowers. All personal property securing this
Agreement and any interest rate protection agreements shall also secure all
other present and future obligations of Borrowers to Bank and all personal
property securing any other present or future obligations of Borrowers to Bank
shall also secure Borrowers' obligations under this 
<PAGE>   24
Agreement.

In addition, all obligations of GTBC under the Term Loan shall be secured by one
or more security agreements executed by GTBC as debtor in favor of Bank as
secured party, granting Bank a security interest in 65% of any stock and other
securities of Caratti owned by GTBC (provided that Bank shall hold, but not have
a security interest in, all stock and other securities of Caratti and Bank will
have "come-along" rights with respect to such other stock). Regulation U of the
Board of Governors of the Federal Reserve System places certain restrictions on
loans secured by margin stock (as defined in the Regulation). If any of such
stock collateral is margin stock, GTBC shall provide Bank with a Form U-1
Purpose Statement, confirming that none of the proceeds of credit provided under
this Agreement will be used to buy or carry any margin stock. If GTBC has
obtained any other credit from Bank for the purpose of buying or carrying margin
stock (purpose loan), then such stock collateral shall not secure such purpose
loan, and any collateral securing the purpose loan shall not secure GTBC's
obligations under its Guaranty.

            4.2 Personal Property (Guarantors). All obligations of Guarantors
shall be secured by one or more security agreements executed by such guarantor
in favor of Bank, granting Bank a security interest in the following personal
property of such guarantor:

                  (a)  Receivables.

                  (b)  Inventory.

                  (c)  Machinery, equipment, and fixtures.

                  (d)  Patents, trademarks and other general intangibles.

The personal property shall be more particularly described in the security
agreement(s) executed by such guarantors.


5.  Extensions of Credit, Payments and Interest Calculations

            5.1 Requests for Credit. Each request for an extension of credit
shall be made in writing on a form acceptable to Bank or in any other manner
acceptable to Bank.

            5.2 Oral Requests. At Bank's sole discretion in each instance, Bank
may honor telephone instructions for advances or repayments or for the
designation of optional interest rates. 
<PAGE>   25
Advances will be deposited into and repayments will be withdrawn from GTBC's
commercial account number 14586-26007 at Bank's South Orange County Regional
Commercial Banking Office, or such other account(s) as may be specified in
writing by Borrowers. Telephone requests may be made by any one of the
individuals authorized to sign loan agreements on behalf of any Borrower, or any
other individual designated by any one of such authorized signers. Bank shall be
entitled to rely upon telephone instructions from persons it reasonably believes
to be authorized by any Borrower to make such requests without making
independent inquiry. Borrowers and each of them hereby indemnify Bank for, and
holds Bank harmless from, any and all losses, damages, claims and expenses
(including reasonable attorneys' fees and allocated costs of Bank's in-house
counsel), however arising, which Bank suffers or incurs based on or arising out
of extensions of credit or payments made on any telephone request except that
Bank shall not be indemnified against its own gross negligence or wilful
misconduct. The provisions of this Paragraph shall survive termination of this
Agreement.

            5.3 Disbursements and Payments. Each disbursement by Bank and each
payment by Borrowers under this Agreement shall be made in immediately available
funds and at Bank's South Orange County Regional Commercial Banking Office or
such other branch of Bank as Bank and Borrowers may from time to time select by
mutual agreement.

            5.4 Branch Accounts. Each extension of credit under this Agreement
shall be made for the account of such branch of Bank as Bank may from time to
time select.

            5.5 Evidence of Indebtedness. Principal, interest and all other sums
due Bank under this Agreement shall be evidenced by entries in records
maintained by Bank, and, if required by Bank, by a promissory note or notes.
Each payment on and any other credits with respect to principal, interest and
all other sums due under this Agreement shall be evidenced by entries to records
maintained by Bank.

            5.6  Direct Debit (Pre-Billing)

                  (a) Borrowers hereby authorizes Bank to debit GTBC's account
            number 14586-26007 at Bank's South Orange County Regional Commercial
            Banking Office (the "Designated Account") in the amount of
            principal, interest, fees or any other amount due under this
            Agreement or under any instrument or agreement required under this
            Agreement. Bank shall debit the account on the date such amounts
            become due, or, if such due date 
<PAGE>   26
            is not a Banking Day, on the next Banking Day after such due date.
            If there are insufficient funds in the account to cover the amount
            debited to the account in accordance with this Paragraph, such debit
            will be reversed and such amount will remain unpaid.

                  (b) Approximately 10 days prior to each due date, Bank will
            mail to Borrowers a statement of the amounts that will be due on
            that due date (the "Billed Amount"). The calculation will be made on
            the assumption that no new extensions of credit or payments will be
            made between the date of the billing statement and the due date, and
            that there will be no changes in the applicable interest rate.

                  (c) Bank will debit the Designated Account for the Billed
            Amount, regardless of the actual amount due on that date (the
            "Accrued Amount"). If the Billed Amount debited to the Designated
            Account differs from the Accrued Amount, the discrepancy will be
            treated as follows:

                        (1) If the Billed Amount is less than the Accrued
                  Amount, the Billed Amount for the following due date will be
                  increased by the amount of the discrepancy. Borrowers will not
                  be in default by reason of any such discrepancy.

                        (2) If the Billed Amount is more than the Accrued
                  Amount, the Billed Amount for the following due date will be
                  decreased by the amount of the discrepancy.

            Regardless of any such discrepancy, interest will continue to accrue
            based on the actual amount of principal outstanding without
            compounding. Bank will not pay Borrowers interest on any
            overpayment.

            5.7 Banking Day. Any sum payable by Borrowers hereunder which
becomes due on a day which is not a Banking Day shall be due on the next Banking
Day after such due date. Any payments received by Bank on a day which is not a
Banking Day shall be deemed to be received on the next Banking Day after such
date of receipt.

            5.8 Taxes and Other Charges. Borrowers agree to make all payments or
reimbursements under this Agreement free and clear of and without deduction for
any present or future taxes, levies, imposts, fees or other charges of any kind
which may be
<PAGE>   27
imposed by any governmental authority with respect to such payments or
reimbursements. If any such taxes are imposed by any governmental authority,
Borrowers will pay such taxes and will also pay to Bank, at the time interest is
paid, any additional amount which Bank specifies as necessary to preserve the
after-tax yield Bank would have received if such taxes had not been imposed.
Upon request by Bank, Borrowers will confirm payment of all such taxes by
delivery of official tax receipts or notarized copies thereof to Bank within 30
days after the due date for each tax payment. This Paragraph shall not apply
with respect to any taxes which are imposed on or measured by Bank's net income
by any jurisdiction.

            5.9 Increased Costs. Borrowers shall reimburse or compensate Bank,
upon demand by Bank, for all costs incurred, losses suffered or payments made by
Bank which are applied or allocated by Bank to this Agreement (all as determined
by Bank using any reasonable method of calculation) by reason of any statute,
regulation, or any request or requirement of any regulatory agency, whether or
not having the force of law, which is applicable to all or a class of all
national banks, including:

                  (a) any and all present or future reserve, deposit or similar
            requirements applied against (or against any class of or change in
            or in the amount of) assets or liabilities of, or commitments or
            extensions of credit by, Bank; and

                  (b) any and all present or future capital or similar
            requirements against (or against any class of or change in or in the
            amount of) assets or liabilities of, or commitments or extensions of
            credit by, Bank.

            5.10 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, payable under this Agreement shall be
computed on the basis of a 360 day year and actual days elapsed, which results
in more interest or a larger fee than if a 365 day year were used.

            5.11 Late Payments; Compounding. Any sum payable by Borrowers
hereunder (including unpaid interest) if not paid when due shall bear interest
(payable on demand) from its due date until payment in full at a rate per annum
equal to the Reference Rate plus three percentage points. At the option of Bank,
in each instance, any sum payable hereunder which is not paid when due
(including unpaid interest) may be added to principal of the Revolving Facility
and shall thereafter bear interest at the rate applicable to principal.
<PAGE>   28
            5.12 Default Rate. Upon the occurrence and during the continuation
of any Event of Default, and without constituting a waiver of any such Event of
Default, advances under the Revolving Facility shall at the option of Bank bear
interest at a rate per annum which is one percentage point higher than the rate
of interest otherwise provided under this Agreement.

            5.13 Overdrafts. At Bank's sole option in each instance, Bank may do
one of the following if any Borrower overdraws any of its accounts with Bank:

                  (a) Bank may make advances under the Revolving Facility to
            prevent or cover an overdraft on any account of any Borrower with
            Bank. Each such advance will accrue interest from the date of the
            advance or the date on which the account is overdrawn, whichever
            occurs first, at the interest rate applicable to advances under the
            Revolving Facility.

                  (b) Bank may reduce the amount of credit otherwise available
            under this Agreement by the amount of any overdraft on any account
            of any Borrower with Bank.

This Paragraph shall not be deemed to authorize any Borrower to create
overdrafts on any of such Borrower's accounts with Bank.

            5.14 Payments in Kind. The proceeds of collections of Receivables,
when received by Bank in kind, shall be credited to interest, principal, and
other sums due Bank under this Agreement in the order and proportion determined
by Bank in its sole discretion. All such credits shall be conditioned upon
collection and any returned items may, at Bank's option, be charged to
Borrowers.


6.  Conditions to Availability of Credit.

            Bank's obligation to extend credit under this Agreement is subject
to Bank's receipt of the following, each of which must be in form and substance
satisfactory to Bank:

            6.1 Conditions to Revolving Facility and Term Loan. Before the
continuation of the Revolving Facility under this Agreement and the making of
the Term Loan:

                  (a)  The Collateral Agreements;

                  (b) All Collateral, if any, in which Bank wishes 
<PAGE>   29
            to have a possessory security interest, except for the Caratti
            stock, which shall be delivered as soon as issued, but in no event
            later than 45 days after the date hereof;

                  (c) Financing statements, fixture filings with respect to the
            real properties commonly known as 3100 West Segerstrom Avenue, Santa
            Ana, California, and 2330 South Yale Street, Santa Ana, California
            (collectively, the "Santa Ana Property"), assignments, notices and
            such other documentation as Bank may reasonably request to perfect
            Bank's security interest in the Collateral;

                  (d) Evidence that the security interests and liens in favor of
            Bank are valid, enforceable and prior to the rights and interests of
            others except those consented to in writing by Bank;

                  (e) Continuing Cross-Guaranty of GT and all U.S. Subsidiaries
            of GT in favor of Bank, guarantying all amounts owing hereunder and
            any extensions of credit by Bank or any of its affiliates to any
            Borrower and Caratti;

                  (f) Evidence that the execution, delivery, and performance by
            each Borrower of this Agreement and the execution, delivery, and
            performance by each Borrower and any guarantor of any instrument or
            agreement
<PAGE>   30
            required under this Agreement, as appropriate, have been duly
            authorized;

                  (g) Evidence that Borrowers have obtained the insurance
            coverage required under Article 8 of this Agreement;

                  (h) Evidence that GTBC has acquired all the issued and
            outstanding capital stock of Caratti;

                  (i) All representations and warranties, including without
            limitation, all financial and business information previously
            delivered or conveyed to Bank shall have been true and correct in
            all material respects.

            6.2 Conditions to Each Extension of Credit. Before each extension of
credit, including the first:

                  (a) If required by Bank (1) a borrowing certificate, in form
            and detail satisfactory to Bank, setting forth the Acceptable
            Receivables and the Acceptable Inventory on which the requested
            extension of credit is to be based, (2) copies of the invoices or
            the record of invoices from any Borrower's sales journal for such
            Acceptable Receivables and a listing of the names and addresses of
            the Receivable Debtors, and (3) as soon as reasonably practicable
            but in no event later than 30 days after Bank's request, copies of
            the delivery receipts, purchase orders, shipping instructions, bills
            of lading and other documentation pertaining to such Acceptable
            Receivables; and

                  (b) Any original executed instruments or agreements required
            under Article 2.

            6.3 Conditions to Second Disbursement of Term Loan. Before making
the second $3,000,000 disbursement of the Term Loan, evidence that concurrently
therewith all conditions precedent to the effectiveness of the Caratti Facility
are being satisfied, including without limitation that all amounts owing under
the Barclays Bank Facilities are then being paid in full with the proceeds of
the second disbursement of the Term Loan and the proceeds of the Caratti
Facility, and any liens of Barclays Bank in connection therewith are being
terminated.


7.  Representations and Warranties
<PAGE>   31
            Each Borrower and each Guarantor jointly and severally represents
and warrants (and each request for an extension of credit under this Agreement
shall be deemed a representation and warranty made on the date of such request)
that:

            7.1 Organization. GT and each of its Subsidiaries are corporations
duly organized and existing under the laws of the state of their respective
organization, and the execution, delivery, and performance of this Agreement by
each Borrower and each Guarantor and of any instrument or agreement required by
this Agreement are within each Borrower's and each Guarantor's corporate powers,
have been duly authorized, and are not in conflict with the terms of any
charter, bylaw, or other organizational papers of each Borrower and each
Guarantor;

            7.2 No Conflicts. Except as disclosed in Schedule 7.2 hereto, the
execution, delivery, and performance of this Agreement and of any instrument or
agreement required by this Agreement are not in conflict with any law or any
indenture, agreement, or undertaking to which GT or any of its Subsidiaries is a
party or by which GT or any of its Subsidiaries is bound or affected;

            7.3 Enforceability. This Agreement is a legal, valid and binding
agreement of each Borrower and each Guarantor, enforceable against each Borrower
and each Guarantor in accordance with its terms, and any instrument or agreement
required under this Agreement, when executed and delivered, will be similarly
legal, valid, binding and enforceable, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other, similar laws affecting the enforcement of creditor's rights generally or
by general principles of equity;

            7.4 Good Standing. GT and each of its Subsidiaries are properly
licensed and in good standing in each state in which GT and its Subsidiaries are
doing business, and GT and its Subsidiaries have qualified under, and complied
with, where required, the fictitious name statute of each state in which GT and
its Subsidiaries are doing business, except where the failure to be so licensed,
in good standing,or qualified would not have a Material Adverse Impact;

            7.5 Compliance with Laws. GT and each of its Subsidiaries have
complied with all federal, state, and local laws, rules, and regulations
affecting the business of GT and each of its Subsidiaries including, but not
limited to, laws regulating GT's or its Subsidiaries' sales or the furnishing of
services to Receivable Debtors and disclosures in connection 
<PAGE>   32
therewith, except where the failure to so comply would not have a Material
Adverse Impact;

            7.6 Ownership of Collateral. Except as has been disclosed in writing
to Bank, all Collateral described in Article 4 of this Agreement is owned by
Borrowers or Guarantors free and clear of all security interests, liens,
encumbrances and rights of others except the rights of Bank under any security
agreements required under this Agreement and those consented to in writing by
Bank;

            7.7 Permits, Franchises. GT and its Subsidiaries possess all 
permits, memberships, franchises, contracts and licenses required and all
trademark rights, trade name rights, patent rights and fictitious name rights
necessary to enable GT and its Subsidiaries to conduct the business in which
they are now engaged, except where the failure to possess such items would have
a Material Adverse Impact;

            7.8 Perfected Security Interest in Collateral. No further action is
necessary in order to establish and perfect Bank's lien on or security interest
in the Collateral, except for (i) the filing of a financing statement with
respect to the Collateral, (ii) the delivery to Bank of any Collateral as to
which possession is the only method of perfecting a security interest therein,
(iii) the filing of a security agreement covering patents, trademarks, and
similar collateral with the U.S. Patent and Trademark Office, and (iv) the
recording of a fixture filing with any county recorder's office;

            7.9 Litigation. Except as disclosed on Schedule 7.9 hereto, there is
no litigation, tax claim, proceeding or dispute pending, or, to the knowledge of
GT or any of its Subsidiaries, threatened, against or affecting such Borrower or
its Subsidiaries or its property, the adverse determination of which might have
a Material Adverse Impact;

            7.10 No Event of Default. No event has occurred and is continuing or
would result from the extension of credit under this Agreement which constitutes
or would constitute an Event of Default or which, upon a lapse of time or notice
or both, would become an Event of Default;

            7.11 Other Obligations. Neither GT nor any of its Subsidiaries is in
default under any other agreement involving the borrowing of money, the
extension of credit, or the lease of real or personal property to which GT or
any of its Subsidiaries is a party as borrower, guarantor, installment purchaser
or lessee, except where being in default of such obligations would 
<PAGE>   33
have a Material Adverse Impact;

            7.12 Income Tax Returns. Except as disclosed on Schedule 7.12
hereto, neither GT nor any of its Subsidiaries has any knowledge of any pending
assessments or adjustments with respect to its income tax liabilities for any
year;

            7.13 Information Submitted. All financial and other information that
has been or will be submitted by GT or any of its Subsidiaries to Bank,
including GT's consolidated financial statement dated as of June 30, 1996, is
and will be:

                  (a) prepared in accordance with generally accepted accounting
            principles consistently applied;

                  (b) true and correct in all material respects and is complete
            insofar as may be necessary to give Bank a true and accurate
            knowledge of the subject matter thereof;

                  (c)  in form and content required by Bank; and

                  (d) in compliance with all government regulations applicable
            thereto;

            7.14 No Material Adverse Change. There has been no material adverse
change in the financial condition of GT or any of its Subsidiaries since the
date of its most recent financial statements submitted to Bank;

            7.15 Merchantable Inventory. All Inventory which is included in the
Borrowing Base is of good and merchantable quality and free from any material
defects;

            7.16  ERISA Plan Compliance.

                  (a) GT and its Subsidiaries have fulfilled their obligations,
            if any, under the minimum funding standards of ERISA and the
            Internal Revenue Code of 1986, as amended from time to time, (the
            "Code") with respect to each ERISA Plan and is in compliance in all
            material respects with the presently applicable provisions of ERISA
            and the Code, and has not incurred any liability in excess of
            $250,000 with respect to any ERISA Plan under Title IV of ERISA;

                  (b) No reportable event has occurred under Section 4043(b) of
            ERISA for which the Pension Benefit Guaranty Corporation requires 30
            day notice;
<PAGE>   34
                  (c) No action by GT or any of its Subsidiaries to terminate or
            withdraw from any ERISA Plan has been taken and no notice of intent
            to terminate an ERISA Plan has been filed under Section 4041 of
            ERISA; and

                  (d) No proceeding has been commenced with respect to an ERISA
            Plan under Section 4042 of ERISA, and no event has occurred or
            condition exists which might constitute grounds for the commencement
            of such a proceeding;

            7.17 Location of GT and Subsidiaries. GT's and each of its
Subsidiaries' place of business (or, if GT or any of its Subsidiaries has more
than one place of business, its chief executive office) is located at the
address listed on Schedule 7.17 hereto.


8.  Covenants

            So long as credit is available under this Agreement and until full
and final payment of all of Borrowers' obligations under this Agreement and any
instrument or agreement required under this Agreement, GT shall, and shall cause
each of its Subsidiaries to, unless Bank waives compliance in writing:

            8.1 Notices of Certain Events. Promptly give written notice to Bank
of:

                  (a) all litigation affecting GT or any of its Subsidiaries
            where the amount claimed is $500,000 or more;

                  (b) any substantial dispute which may exist between GT or any
            of its Subsidiaries and any governmental regulatory body or law
            enforcement authority;

                  (c) any Event of Default or any event which, upon a lapse of
            time or notice or both, would become an Event of Default;

                  (d) the occurrence of any reportable event under Section 
            4043(b) of ERISA for which the Pension Benefit Guaranty Corporation
            requires 30 day notice; any action by GT or any of its Subsidiaries
            to terminate or withdraw from an ERISA Plan or the filing of any
            notice of intent to terminate under Section 4041 of ERISA; any
<PAGE>   35
            notice of noncompliance made with respect to an ERISA Plan under
            Section 4041(b) of ERISA; or the commencement of any proceeding with
            respect to an ERISA Plan under Section 4042 of ERISA;

                  (e) any other matter which has resulted or is reasonably
            likely to have a Material Adverse Impact;

            8.2 Financial and Other Information. Deliver to Bank in form and
detail reasonably satisfactory to Bank, and in such number of copies as Bank may
reasonably request:

                  (a) Within 90 days after the end of each fiscal year, GT's
            consolidated financial statements for such year, audited by a
            certified public accountant with an unqualified opinion, and GT's
            consolidating financial statements for such year, prepared by GT
            with a comparison to projections for such fiscal year and the
            results of the prior fiscal year;

                  (b) Within 30 days after the end of each month, GT's
            consolidated and consolidating financial statements for such period
            and the fiscal year to date, prepared by GT with a comparison to
            projections for such period and year-to-date and the same period and
            year-to-date period for the prior fiscal year;

                  (c) Within 30 days after the end of each fiscal quarter, a
            compliance certificate, substantially in the form of Exhibit A
            attached hereto, with appropriate insertions, signed by a
            responsible officer of GT;

                  (d) Not less than 30 days prior to the end of each fiscal year
            of GT, monthly projections for the following fiscal year, prepared
            by GT. The balance sheet and cash flow projections shall be prepared
            on a consolidated basis and the income statement projection shall be
            prepared on a consolidated and consolidating basis;

                  (e) Within 30 days after the date of filing with the
            Securities and Exchange Commission, copies of GT's Form 10-K Annual
            Report, Form 10-Q Quarterly Report and any Form 8-K Current Report;

                  (f) Within 20 days after the end of each monthly accounting
            period, a borrowing certificate setting forth the respective amounts
            of Acceptable Receivables and Acceptable Inventory as of the last
            day of the
<PAGE>   36
            preceding month;

                  (g) Within 20 days after the end of each monthly accounting
            period, a summary report and detailed statement showing, separately
            for (i) Receivable Debtors located in the United States and Canada
            outside of Quebec and (ii) Receivable Debtors located elsewhere, an
            aging and reconciliation of Receivables;

                  (h) Within 20 days after the end of each monthly accounting
            period, a summary report and detailed statement showing an aging of
            accounts payable and held checks;

                  (i) If collections are required to be delivered to Bank, a
            schedule of the amounts so collected and delivered to Bank;

                  (j) Within 20 days after the end of each monthly accounting
            period a summary report and detailed schedule of Inventory itemizing
            and describing separately for each class of Inventory the kind,
            quality and quantity thereof, its cost, and such other information
            as Bank may reasonably request;

                  (k)  Within 20 days after the end of each semi-
            annual period, a listing of the names and addresses of
            all Receivable Debtors;

                  (l) Promptly upon request of Bank, such other statements,
            lists of property and accounts, budgets, forecasts or reports as to
            GT or any of its Subsidiaries as Bank may reasonably request;

            8.3 Books, Records, Audits and Inspections. Maintain adequate books,
accounts and records and prepare all financial statements required hereunder in
accordance with generally accepted accounting principles consistently applied,
and in compliance with the regulations of any governmental regulatory body
having jurisdiction over GT or any of its Subsidiaries or GT's or any of its
Subsidiaries' business. Further, GT and each of its Subsidiaries will permit
employees or agents of Bank at any reasonable time, at least semi-annually, to
inspect the Collateral and GT's and any of its Subsidiaries' properties, to
conduct appraisals of the Collateral, and to examine or audit GT's and any of
its Subsidiaries' books, accounts, and records and make copies and memoranda
thereof. Notwithstanding anything to the contrary elsewhere in this Agreement,
if Bank elects to conduct more than two (2) audits of GT or any of its
Subsidiaries 
<PAGE>   37
in any calendar year at a time when no Event of Default has occurred and is
continuing, Bank will bear the cost of such additional audits. In the event any
Collateral, properties, books, accounts or records are in the possession of or
under the control of a third party, GT and each of its Subsidiaries shall direct
and hereby authorize such third party to permit access to Bank's employees or
agents for the purpose of performing the inspections, appraisals, examinations
or audits permitted under this Paragraph, and to respond to any requests from
Bank for information concerning the amount, status or condition of any
Collateral in such third party's possession or control;

            8.4 Fixed Charge Coverage Ratio. Cause GT to achieve on a
consolidated basis a Fixed Charge Coverage Ratio of at least (a) 1.45 to 1.00
through December 30, 1997 and (b) 1.75 to 1.00 thereafter. This ratio shall be
calculated quarterly using the results of the most recently concluded quarterly
accounting period and each of the three immediately preceding quarterly
accounting periods; provided, however, that: (i) the current portion of long
term debt and capital leases shall be measured as of the last day of the most
recently concluded quarterly accounting period, and (ii) with respect to the
calculations as of the first, second, and third fiscal quarters of GT's fiscal
year ending 1996, interest expense in the denominator of the ratio calculation
shall be annualized on a year-to-date basis;

            8.5 Quick Ratio. Cause GT to maintain at all times on a consolidated
basis, measured quarterly, the sum of cash, short-term cash investments,
marketable securities not classified as long-term investments, and trade
accounts receivable, at least equal to 0.55 times the sum of current liabilities
plus that portion of the Revolving Facility classified as long-term debt;

            8.6 Other Indebtedness. Not create or incur any indebtedness for
borrowed money or for the deferred purchase price of property under capital
leases, or become liable as a surety, guarantor, accommodation endorser, or
otherwise for or upon the obligation of any other person, firm or corporation;
provided, however, that this Paragraph shall not be deemed to prohibit:

                  (a) direct or contingent obligations owed to Bank;

                  (b) the acquisition of goods, supplies or merchandise on
            normal trade credit;

                  (c) the execution of bonds or undertakings in the ordinary
            course of its business as presently conducted;
<PAGE>   38
                  (d) the endorsement of negotiable instruments received in the
            ordinary course of its business as presently conducted;

                  (e) indebtedness and lease obligations existing as of the date
            of this Agreement and which have been disclosed to Bank in writing;

                  (f) obligations under guaranties which do not exceed at any
            time an aggregate amount for GT and its Subsidiaries of $500,000;

                  (g) additional indebtedness for the acquisition of fixed or
            capital assets, including capital lease obligations, which does not
            exceed an aggregate principal amount for GT and its Subsidiaries of
            $2,000,000 in any fiscal year of GT;

                  (h) indebtedness of any party to this Agreement owing to any
            other party to this Agreement;

                  (i) Permitted Subordinated Debt; and

                  (j) until the earlier of (i) 30 days after the date hereof and
            (ii) the closing of the Caratti Facility, indebtedness outstanding
            on the date hereof owing to Barclays Bank under the Barclays Bank
            Facilities;

            8.7 Liens. Not create, assume or suffer to exist any security
interest, lien (including the lien of an attachment, judgment or execution) or
encumbrance, securing a charge or obligation, on or of any of its property, real
or personal, whether now owned or hereafter acquired, except:

                  (a)  security interest(s) and deed(s) of trust in
            favor of Bank;

                  (b) liens, security interests and encumbrances in existence as
            of the date of this Agreement which have been disclosed to Bank in
            writing;

                  (c)  liens for current taxes, assessments or other
            governmental charges which are not delinquent or remain
            payable without any penalty;

                  (d) purchase money security interests in personal property
            hereafter acquired securing the obligations 
<PAGE>   39
            described in Paragraph 8.6(g) above, when the security interest does
            not extend beyond the property purchased;

                  (e) statutory liens of landlords and liens of carriers,
            warehousemen, mechanics, materialmen and other liens imposed by law
            incurred in the ordinary course of business for sums not yet
            delinquent or being diligently contested in good faith;

                  (f) liens incurred or deposits made in the ordinary course of
            business in connection with worker's compensation, unemployment
            insurance and other types of Social Security, or to secure the
            performance of tenders, statutory obligations, surety and appeal
            bonds, bids, leases, government contracts, performance and return of
            money bonds and other similar obligations (exclusive of obligations
            for the payment of borrowed money);

                  (g) any attachment or judgment lien (including judgment or
            appeal bonds) which shall, within 45 days after the entry thereof,
            have been discharged, bonded or execution thereof stayed pending
            appeal, or which shall have been discharged or bonded within 45 days
            after the expiration of any such stay;

                  (h) leases or subleases of real property granted to others not
            interfering with the ordinary conduct of the business of GT and its
            Subsidiaries;

                  (i) easements, rights of way, restrictions and other similar
            charges or encumbrances which do not, individually or in the
            aggregate, materially interfere with the ordinary conduct of the
            business of GT or any of its Subsidiaries at any location;

                  (j) any interest, title or lien of a lessor under any
            operating lease;

                  (k) liens in favor of customs and revenue authorities arising
            as a matter of law to secure payment of customs duties in connection
            with the importation of goods;

                  (l) liens (including capitalized leases) and respective
            property acquired, constructed, or improved by GT or any of its
            Subsidiaries after the date of this Agreement, which liens exist or
            are created at the time of acquisition or completion of construction
            or 
<PAGE>   40
            improvement of such property, or within 60 days thereafter, to
            secure indebtedness incurred pursuant to Section 8.6(g), but any
            such lien shall cover only the property so acquired or constructed
            and any improvements thereto (and any real property on which such
            property is located, if such property is a building, improvement or
            fixtures); and

                  (m) until the earlier of (i) 30 days after the date hereof and
            (ii) the closing of the Caratti Facility, liens securing
            indebtedness outstanding on the date hereof owing to Barclays Bank
            under the Barclays Bank Facilities;

            8.8 Acquisitions. Without Bank's prior written consent, not acquire
or purchase all or substantially all of the assets or business of any other
person, firm, corporation, or any division thereof, or acquire or purchase
securities; provided, however, that this Paragraph shall not prohibit:

                  (a) the acquisition or purchase of obligations issued or
            guarantied by the United States;

                  (b) the acquisition or purchase of short term marketable
            securities that do not constitute more than five percent of the
            capital stock, partnership interests, membership interests, or
            equity of any person, firm, or corporation;

                  (c) the acquisition or purchase of assets, business, or
            securities of a person, firm, or corporation if (i) such acquisition
            or purchase has been approved by the board of directors or similar
            governing body of the person, firm, or corporation whose assets,
            business, or securities are to be acquired or purchased, (ii) the
            total consideration to be paid (including assumption of debt) for
            any such acquisition or purchase does not exceed $1,000,000 in any
            fiscal year, (iii) the outstanding indebtedness of the person, firm,
            or corporation to be acquired or purchased would not, when incurred
            or assumed by GT or any of its Subsidiaries and added to the
            outstanding indebtedness of GT and its Subsidiaries, violate any
            provision of Paragraph 8.6 above, and (iv) the total rental payments
            due in the then current fiscal year of GT under operating leases of
            the person, firm, or corporation to be acquired would not, when
            added to the total rental payments under operating and capital
            leases of GT and its Subsidiaries due in GT's then 
<PAGE>   41
            current fiscal year, exceed the amount permitted for such fiscal
            year in Paragraph 8.10 below;

                  (d) Any subsidiary of GT may be merged or consolidated with or
            into GT, any Borrower, or any of GT's Subsidiaries, or be
            liquidated, wound up or dissolved, or all or substantially all of
            the business, property or assets may be conveyed, sold, leased,
            transferred or otherwise disposed of in one transaction or a series
            of transactions, to GT or any of GT's U.S. Subsidiaries; provided,
            however, that in the case of such a merger or consolidation (i) GT
            or one of GT's U.S. Subsidiaries shall be the continuing or
            surviving corporation, (ii) immediately before and immediately after
            any such consolidation, merger or other disposition, no Event of
            Default or event which with notice, lapse of time, or both would
            become an Event of Default shall have occurred and be continuing,
            and (iii) no disposition under this Subsection 8.8(d) shall release
            GT, any surviving Borrower or any of GT's Subsidiaries from
            liability in respect of the indebtedness hereunder; and

                  (e) the acquisition by GTBC of the stock of Caratti for a cash
            purchase price not exceeding U.K.#9,000,000;

            8.9 Dividends. Not declare or pay any dividends on any of its shares
except dividends payable in capital stock of GT or any of its Subsidiaries, and
not purchase, redeem or otherwise acquire for value any of its shares, or create
any sinking fund in relation thereto;

            8.10 Operating and Capital Leases. Not enter into any operating or
capital lease of any real or personal property which would cause its aggregate
annual rental payments under all such operating leases plus payments under all
such capital leases to exceed $3,000,000 in any fiscal year of GT;

            8.11 Capital Ownership. Not cause, permit, or suffer any change,
direct or indirect, in any Subsidiaries' capital ownership;

            8.12 Covenant to Guarantee Obligations. At such time as any new
direct or indirect domestic Subsidiary is formed or acquired by GT (excluding
Subsidiaries of GT that are also Borrowers), cause such new Subsidiary that is a
wholly owned Subsidiary to (i) within 10 days thereafter or such later time as
Borrowers, GT, and Bank shall agree (but in any event no later 
<PAGE>   42
than 30 additional days thereafter), duly execute and deliver to Bank
guarantees, in form and substance satisfactory to Bank, guaranteeing Borrowers'
obligations under this Agreement;

            8.13 Sales and Leasebacks. Not dispose of any of its assets except
for full, fair and reasonable consideration, or enter into any sale and
leaseback agreement covering any of its fixed or capital assets;

            8.14 Existence and Properties. Maintain and preserve GT's and each
of its Subsidiaries' existence and all rights, privileges and franchises now
enjoyed, conduct GT and each of its Subsidiaries' business in an orderly,
efficient and customary manner, keep all properties of GT and each of its
Subsidiaries in good working order and condition consistent with past practices,
and from time to time make all needed repairs, renewals or replacements thereto
and thereof consistent with past practices so that the efficiency of such
property shall be fully maintained and preserved;

            8.15 Liquidations and Mergers. Not liquidate or dissolve or enter
into any consolidation, merger, partnership, joint venture or other combination,
except as permitted in Paragraph 8.8(d) of this Agreement;

            8.16 Sale of Assets. Not sell, lease, or otherwise dispose of its
business or assets as a whole or such as in the opinion of Bank constitute a
substantial portion of its business or assets except in the ordinary course of
its business as heretofore conducted, except as permitted in Paragraph 8.8(d) of
this Agreement;

            8.17 Consignments. Prior to placement of any Inventory on
consignment with any person ("Consignee"):

                  (a) Provide Bank with all consignment agreements and other
            instruments and documentation to be used in connection with such
            consignment, all of which agreements, instruments and documentation
            must be in form and substance satisfactory to Bank;

                  (b) Prepare, execute and file appropriate financing statements
            with respect to any consigned Inventory showing the Consignee as
            debtor, the relevant Borrower or the relevant Guarantor as secured
            party, and Bank as assignee of secured party;

                  (c) Prepare, execute and file appropriate financing statements
            with respect to any consigned 
<PAGE>   43
            Inventory showing the relevant Borrower or the relevant Guarantor as
            debtor and Bank as secured party;

                  (d) After all financing statements referred to in
            subparagraphs (b) and (c) above have been filed, conduct a search of
            all filings made against the Consignee in all jurisdictions in which
            the consigned Inventory is to be located, and deliver to Bank copies
            of the results of all such searches;

                  (e) Notify, in writing, all creditors of the Consignee which
            are or may be holders of security interests in the Inventory to be
            consigned that the relevant Borrower and the relevant Guarantor
            expects to deliver certain Inventory to the Consignee, all of which
            Inventory shall be described in such notice by item or type;

            8.18 Insurance. Maintain and keep in force fire and hazard insurance
policies covering the tangible property comprising the Collateral. Each such
insurance policy shall be in an amount equal to the full replacement value of
such Collateral, shall include a replacement cost endorsement, shall be issued
by an insurance company reasonably acceptable to Bank, and shall include a loss
payable endorsement in favor of Bank in a form reasonably acceptable to Bank. GT
and each of its Subsidiaries shall also maintain and keep in force insurance
reasonably satisfactory to Bank as to amount, nature and carrier covering
property damage (including use and occupancy) to GT's and each of its
Subsidiaries' other properties, public liability insurance including coverage
for contractual liability, product liability, property damage and workers'
compensation, and any other insurance which is usual for GT's and each of its
Subsidiaries' business. Without limiting the foregoing, policies of product
liability insurance shall provide coverage in an aggregate amount per year of
not less than $25,000,000 with deductibles or self-insured retention not
exceeding $100,000 per claim and $500,000 per year for all claims in the
aggregate. If at any time the premium due for the product liability coverage
described in the preceding sentence should become so expensive as to be neither
commercially reasonable nor prudent to carry such coverage, GT and its
Subsidiaries may reduce such coverage; provided, however, that the reduced
coverage shall in no event be less than $5,000,000 in the aggregate per year. GT
and each of its Subsidiaries shall deliver to Bank upon Bank's request a copy of
each insurance policy or, if permitted by Bank, a certificate of insurance
listing all insurance in force;

            8.19 Compliance with Laws. At all times comply with, 
<PAGE>   44
or cause to be complied with in all material respects, all laws, statutes
(including but not limited to any fictitious name statute), rules, regulations,
orders and directions of any governmental authority having jurisdiction over GT
or any of its Subsidiaries or GT's or any of its Subsidiaries' businesses,
including but not limited to laws regulating GT's or any of its Subsidiaries'
sales to or performance of services for Receivable Debtors and disclosures in
connection therewith;

            8.20 Accuracy of Financial Information. Cause all financial
information, including information relating to the Collateral, upon submission
by GT or any of its Subsidiaries to Bank to be true and correct in all material
respects and complete to the extent necessary to give Bank a true and accurate
knowledge of the subject matter thereof;

            8.21 Additional Acts. Perform, on request of Bank, such acts as may
be necessary or advisable to perfect any lien or security interest provided for
herein or otherwise to carry out the intent of this Agreement;

            8.22 Business Activities. Not engage in any business activities or
operations substantially different from or unrelated to present business
activities and operations;

            8.23 Change in Name, Structure or Location. Notify Bank in writing
prior to any change in (a) GT's or any of its Subsidiaries' name, (b) GT's or
any its Subsidiaries' business or legal structure, or (c) GT's or any of its
Subsidiaries' place of business or chief executive office if GT or any of its
Subsidiaries has more than one place of business;

9.  Events of Default

            The occurrence of any of the following Events of Default shall
terminate any obligation on the part of Bank to extend credit under this
Agreement and, at the option of Bank under all Paragraphs except Paragraphs 9.5
and 9.6, and automatically in the case of Paragraphs 9.5 and 9.6, shall make all
obligations of Borrowers to Bank under or in respect of this Agreement and any
instrument or agreement required under this Agreement immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor, or other notices or demands of any kind or
character, except as specifically provided below:

            9.1 Failure to Pay. Any Borrower fails to pay, within two (2)
Banking Days of when due, any installment of interest or principal or any other
sum due under this Agreement in accordance 
<PAGE>   45
with the terms hereof;

            9.2 Breach of Representation or Warranty. Any representation or
warranty herein or in any agreement, instrument or certificate executed pursuant
hereto or in connection with any transaction contemplated hereby proves to have
been false or misleading in any material respect when made;

            9.3 Falsity of Information. Any financial or other information
delivered by GT or any of its Subsidiaries to Bank proves to be false or
misleading in any material respect;

            9.4 Security Interest. Bank fails to have a valid and enforceable
perfected security interest in or lien on the Collateral or such security
interest or lien fails to be prior to the rights and interest of others except
those consented to in writing by Bank;

            9.5 Failure to Pay Debts; Voluntary Bankruptcy. GT or any of its
Subsidiaries fails to pay its debts generally as they come due, or files any
petition, proceeding, case, or action for relief under any bankruptcy,
reorganization, insolvency, or moratorium law, or any other law or laws for the
relief of, or relating to, debtors;

            9.6 Involuntary Bankruptcy. An involuntary petition is filed under
any bankruptcy or similar statute against GT or any of its Subsidiaries, or a
receiver, trustee, liquidator, assignee, custodian, sequestrator, or other
similar official is appointed to take possession of the properties of GT or any
of its Subsidiaries, and such petition or appointment is not dismissed or
withdrawn or does not cease to be in effect within 60 days of filing or
appointment;

            9.7 Suits. One or more suits are filed against GT or any of its
Subsidiaries, by a trade creditor or trade creditors of such person in the
aggregate amount of $500,000 or more and are not being contested in good faith
by appropriate proceedings by such person;

            9.8 Judgments. One or more judgments or arbitration awards are
entered against GT or any of its Subsidiaries on a claim or claims not covered
by insurance and remain undischarged, unvacated, unbonded, or unstayed for a
period of 30 days or in any event later than five days prior to any proposed
sale under any such judgment or award, or GT or any of its Subsidiaries enters
into any settlement agreements with respect to any litigation or arbitration, in
the aggregate amount of $500,000 or more on a claim or claims not covered by
insurance;
<PAGE>   46
            9.9 Suspension of Business. GT or any of its Subsidiaries
voluntarily suspends its business for more than five business days in any 30 day
period;

            9.10 Governmental Action. Any governmental regulatory authority
takes or institutes action which, in the opinion of Bank, will materially
adversely affect GT's or any of its Subsidiaries' condition, operations or
ability to pay any of their respective obligations owing to Bank;

            9.11 Default of Other Financial Obligations. Any default which is
not waived (prospectively or retroactively) occurs under any other agreement
involving the borrowing of money or the extension of credit in the amount of
$250,000 or more to which GT or any of its Subsidiaries may be a party as
borrower, guarantor or installment purchaser if such default consists of the
failure to pay any obligation when due or if such default gives to the holder of
the obligation concerned the right to accelerate the obligation;

            9.12 Default under Guaranty or Subordination Agreement. Any
guaranty, subordination agreement or other agreement or instrument required
hereunder is breached or becomes ineffective or any default which is not waived
(prospectively or retroactively) occurs under any such agreement or instrument;

            9.13 Misuse of Collateral. Bank, in good faith, considers any
Collateral to be unsafe or in danger of misuse by GT or any of its Subsidiaries
to the extent that Bank's prospect of or right to payment or performance under
this Agreement or any instrument or agreement required hereunder is materially
impaired;

            9.14 Default of Other Bank Obligations. Any default which is not
waived (prospectively or retroactively) occurs under any other obligation of GT
or any of its Subsidiaries to Bank or to any subsidiary or affiliate of Bank and
such default is not cured within 30 days if in Bank's reasonable discretion such
default is capable of being cured;

            9.15 Material Adverse Change. Any material adverse change occurs in
the financial condition or results of operations of GT or any of its
Subsidiaries or in GT's or any of its Subsidiaries' ability to perform its
obligations under this Agreement or under any instrument or agreement required
by this Agreement;

            9.16 ERISA Plan Termination. Any ERISA Plan 
<PAGE>   47
termination or any full or partial withdrawal from an ERISA Plan occurs which
could result in liability of GT or any of its Subsidiaries to the Pension
Benefit Guaranty Corporation or to the ERISA Plan in an aggregate amount which,
in the reasonable opinion of Bank, will have a material adverse effect on the
financial condition of GT or any of its Subsidiaries;

            9.17 Breach of Certain Covenants. Any Borrower or any Guarantor
fails to comply with or perform any term or provision contained in Paragraphs
8.2(a) through 8.2(e), inclusive, Paragraphs 8.2(j) through 8.2(l), inclusive,
and Paragraph 8.3 of this Agreement, and such failure is not remedied or waived
in writing of Bank within 30 days of the occurrence thereof, or any Borrower or
any Guarantor fails to comply with or perform any term or provision contained in
Paragraphs 8.2(f) through 8.2(i), inclusive, of this Agreement and such failure
is not remedied or waived in writing by Bank within 10 days of the occurrence
thereof;

            9.18 Breach of Other Covenants. Any Borrower or any Guarantor fails
to comply with or perform any term or condition contained in this Agreement
other than those specifically referred to in Paragraph 9.17 above or elsewhere
in this Article 9;

            9.19 Effectiveness of Caratti Facility. Failure for any reason of
the Barclays Bank Facilities to be terminated, and the Caratti Facility to
concurrently become effective, within 30 days after the date hereof.

            9.20 Registry and Delivery of Caratti Stock. All shares of Caratti
have not been entered in Caratti's U.K. Register of Members showing GTBC as the
holder of such shares or all of such shares have not been delivered to Bank with
undated signed stock power certificates within 45 days after the date hereof.
<PAGE>   48
                  Upon the occurrence of any event which, with notice or lapse
of time or both would become an Event of Default, Bank may decline to extend
further credit to Borrowers under this Agreement until the event has been cured
or no longer exists.

10.  Miscellaneous

            10.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns;
provided, however, that neither any Borrower nor any Guarantor shall assign this
Agreement or any of the rights, duties or obligations of such Borrower or any
Guarantor hereunder without the prior written consent of Bank.

            10.2 Consents and Waivers. No consent or waiver under this Agreement
shall be effective unless in writing. No waiver of any breach or default shall
be deemed a waiver of any breach or default thereafter occurring.

            10.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California.

            10.4 Administration Costs. Borrowers and GT agree to pay to Bank, on
demand, all reasonable costs and expenses incurred by Bank in connection with
the administration of this Agreement and any instrument or agreement required
under this Agreement, subject to any limitations provided elsewhere in this
Agreement.

            10.5  Joint and Several Liability.

                  (a) Each Borrower agrees that it is jointly and severally
            liable to Bank for the payment of all obligations arising under this
            Agreement, and that such liability is independent of the obligations
            of the other Borrowers or any Guarantor. Bank may bring an action
            against any Borrower, whether an action is brought against any other
            Borrower or any Guarantor.

                  (b) Each Borrower agrees that any release which may be given
            by Bank to any other Borrower or any Guarantor will not release such
            Borrower from its obligations under this Agreement.

                  (c) Each Borrower waives any right to assert against Bank any
            defense, setoff, counterclaim, or claims which such Borrower may
            have against any other Borrower or any Guarantor or any other party
            liable to 
<PAGE>   49
            Bank for the obligations of Borrowers under this Agreement.

                  (d) Each Borrower agrees that it is solely responsible for
            keeping itself informed as to the financial condition of any other
            Borrower or any Guarantor and of all circumstances which bear upon
            the risk of nonpayment. Each Borrower waives any right it may have
            to require the Bank to disclose to such Borrower any information
            which the Bank may now or hereafter acquire concerning the financial
            condition of any other Borrower or any Guarantor.

                  (e) Each Borrower waives all rights to notices of default or
            nonperformance by any other Borrower or any Guarantor under this
            Agreement. Each Borrower further waives all rights to notices of the
            existence or the creation of new indebtedness by any other Borrower
            or any Guarantor.

                  (f) Borrowers and each of them represent and warrant to the
            Bank that each will derive benefit, directly and indirectly, from
            the collective administration and availability of credit under this
            Agreement. Borrowers agree that Bank will not be required to inquire
            as to the disposition by any Borrower of funds disbursed in
            accordance with the terms of this Agreement.

                  (g) Each Borrower waives any right of subrogation,
            reimbursement, indemnification and contribution (contractual,
            statutory or otherwise), including without limitation, any claim or
            right of subrogation under the Bankruptcy Code (Title 11 of the U.S.
            Code) or any successor statute, which such Borrower may now or
            hereafter have against any other Borrower or any Guarantor with
            respect to the indebtedness incurred under this Agreement. Each
            Borrower waives any right to enforce any remedy which Bank now has
            or may hereafter have against any other Borrower or any Guarantor,
            and waives any benefit of, and any right to participate in, any
            security now or hereafter held by Bank.

            10.6 Attorneys' Fees. Borrowers and GT agree to pay to Bank, on
demand, all reasonable costs, expenses and attorneys' fees (including allocated
costs for in-house legal services) incurred by Bank in connection with the
enforcement and preservation of any rights or remedies under this Agreement and
<PAGE>   50
any instrument or agreement required under this Agreement, and including any
amendment, waiver, "workout" or restructuring under this Agreement. In the event
a legal action or arbitration proceeding is commenced in connection with the
enforcement of this Agreement or any instrument or agreement required under this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees
(including allocated costs for in-house legal services), costs and necessary
disbursements incurred in connection with such action or proceeding, as
determined by the court or arbitrator.

            10.7 Integration. This Agreement and any instrument, agreement or
document attached hereto or referred to herein (a) integrate all the terms and
conditions mentioned herein or incidental hereto, (b) supersede all oral
negotiations and prior writings in respect to the subject matter hereof, and (c)
are intended by the parties as the final expression of the agreement with
respect to the terms and conditions set forth in this Agreement and any such
instrument, agreement or document and as the complete and exclusive statement of
the terms agreed to by the parties. In the event of any conflict between the
terms, conditions and provisions of this Agreement and any such instrument,
agreement, or document, the terms, conditions and provisions of this Agreement
shall prevail.

            10.8 Disposition of Schedules, Reports, Etc. Delivered by GT or
Subsidiaries. Bank shall be under no obligation to return any schedules,
invoices, statements, budgets, forecasts, reports or other papers delivered by
GT or any of its Subsidiaries and shall destroy or otherwise dispose of same at
such time as Bank, in its discretion, deems appropriate.

            10.9 Confidentiality. Bank agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
non-public information provided to it by GT or any of its Subsidiaries in
connection with this Agreement and agrees and undertakes that neither it nor any
of its affiliates shall use any such information for any purpose or in any
manner other than pursuant to the terms contemplated by this Agreement. Bank may
disclose such information (i) at the request of any regulatory authority or in
connection with an examination of Bank by any such authority; (ii) pursuant to
subpoena or other court process; (iii) when required to do so in accordance with
the provisions of any applicable law; (iv) at the express direction or any other
agency of any State of the United States of America or of any other jurisdiction
in which Bank conducts its business; and (v) to Bank's independent auditors and
other professional advisors.
<PAGE>   51
            10.10 Returned Merchandise. Until Bank exercises its rights to
collect the Receivables as provided under any security agreement required under
this Agreement, each Borrower or each Guarantor may continue its present
policies for returned merchandise and adjustments. Credit adjustments with
respect to returned merchandise shall be made immediately upon receipt of the
merchandise by such Borrower or such Guarantor or upon such other disposition of
the merchandise by the Receivable Debtor in accordance with such Borrower's or
such Guarantor's instructions. If a credit adjustment is made with respect to
any Acceptable Receivable, the amount of such adjustment shall no longer be
included in the amount of such Acceptable Receivable in computing the Borrowing
Base.

            10.11 Verification of Receivables. Bank may at any time, either
orally or in writing, request confirmation from any Receivable Debtor of the
current amount and status of the Receivable upon which such Receivable Debtor is
obligated.

            10.12 Participations. Bank may at any time sell to any other person,
firm, or corporation (a "Participant") participations in a portion of the
obligations of Borrowers and Guarantors under this Agreement. On condition that
any Participant or prospective Participant agrees to keep information concerning
GT or any of its Subsidiaries confidential on substantially the terms of
Paragraph 10.9 above, Borrowers and Guarantors authorize Bank to disclose to any
prospective Participant and any Participant any and all information in Bank's
possession concerning GT and any of its Subsidiaries, this Agreement and the
Collateral.

            10.13 Indemnification. Each Borrower and each Guarantor agree to
indemnify Bank against, and hold Bank harmless from, all claims, actions,
losses, costs and expenses (including reasonable attorneys' fees and allocated
costs for in-house legal services) incurred by Bank and arising from any
contention, whether well-founded or otherwise, that there has been a failure to
comply with any law regulating any Borrower's or any Guarantor's sales to or
performance of services for Receivable Debtors and disclosures in connection
therewith. The provisions of this Paragraph shall survive termination of this
Agreement.

            10.14  Arbitration; Reference Proceeding.

                  (a) Any controversy or claim between or among the parties,
            including but not limited to those arising out of or relating to
            this Agreement or any agreements or instruments relating hereto or
            delivered in connection herewith and any claim based on or arising
            from an 
<PAGE>   52
            alleged tort, shall at the request of any party be determined by
            arbitration. The arbitration shall be conducted in accordance with
            the United States Arbitration Act (Title 9, U.S. Code),
            notwithstanding any choice of law provision in this Agreement, and
            under the Commercial Rules of the American Arbitration Association
            ("AAA"). The arbitrator(s) shall give effect to statutes of
            limitation in determining any claim. Any controversy concerning
            whether an issue is arbitrable shall be determined by the
            arbitrator(s). Judgment upon the arbitration award may be entered in
            any court having jurisdiction. The institution and maintenance of an
            action for judicial relief or pursuit of a provisional or ancillary
            remedy shall not constitute a waiver of the right of any party,
            including the plaintiff, to submit the controversy or claim to
            arbitration if any other party contests such action for judicial
            relief.

                  (b) Notwithstanding the provisions of subparagraph (a), no
            controversy or claim shall be submitted to arbitration without the
            consent of all parties if, at the time of the proposed submission,
            such controversy or claim arises from or relates to an obligation to
            Bank which is secured by real property collateral located in
            California. If all parties do not consent to submission of such a
            controversy or claim to arbitration, the controversy or claim shall
            be determined as provided in subparagraph (c).

                  (c) A controversy or claim which is not submitted to
            arbitration as provided and limited in subparagraphs (a) and (b)
            shall, at the request of any party, be determined by a reference in
            accordance with California Code of Civil Procedure Sections 638 et
            seq. If such an election is made, the parties shall designate to the
            court a referee or referees selected under the auspices of the AAA
            in the same manner as arbitrators are selected in AAA-sponsored
            proceedings. The presiding referee of the panel, or the referee if
            there is a single referee, shall be an active attorney or retired
            judge. Judgment upon the award rendered by such referee or referees
            shall be entered in the court in which such proceeding was commenced
            in accordance with California Code of Civil Procedure Sections 644
            and 645.

                  (d) No provision of this paragraph shall limit the right of
            any party to this Agreement to exercise 
<PAGE>   53
            self-help remedies such as setoff, to foreclose against or sell any
            real or personal property collateral or security, or to obtain
            provisional or ancillary remedies from a court of competent
            jurisdiction before, after, or during the pendency of any
            arbitration or other proceeding. The exercise of a remedy does not
            waive the right of either party to resort to arbitration or
            reference. At Bank's option, foreclosure under a deed of trust or
            mortgage may be accomplished either by exercise of power of sale
            under the deed of trust or mortgage or by judicial foreclosure.

            10.15 Notices. All notices required hereunder shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses set
forth on the signature page of this Agreement, or to such other addresses as the
parties hereto may specify from time to time in writing.

            10.16 Headings. Article and paragraph headings are for reference
only and shall not affect the interpretation or meaning of any provisions of
this Agreement.

            10.17 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.

            10.18 Counterparts. This Agreement may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but one and the
same agreement.

            10.19 Amendment and Restatement of Existing Agreement. This
Agreement amends and restates the Existing Agreement. Any extensions of credit
outstanding under the Existing Agreement shall be deemed outstanding hereunder
with the same tenor and, as applicable, interest periods as under the Existing
Agreement, but with any changes in interest rate margins set forth herein to be
effective on any continuing LIBOR Rate Portions and Offshore Rate Portions
outstanding as of the date hereof.


            IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
<PAGE>   54
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION


By:_________________________
       E. M. Amendt
       Vice President


Address where notices to Bank are to be sent:

3233 Park Center Drive, 2nd
Floor
Costa Mesa, California  92626
<PAGE>   55
GT BICYCLES CALIFORNIA, INC.
RITEWAY PRODUCTS EAST, INC.
RITEWAY PRODUCTS NORTH
  CENTRAL, INC.
RITE-WAY DISTRIBUTORS
  CENTRAL, INC.
RITE-WAY DISTRIBUTORS, INC.
GT BICYCLES, INC.


By:_________________________
        Michael Haynes
         President

Address where notices to all
Borrowers and GT are to be
sent:

3100 West Segerstrom Avenue
Santa Ana, California  92704
Attn:  Chief Financial
Officer
<PAGE>   56
                                 SCHEDULE 1.1(b)

                            (Locations of Inventory)
<PAGE>   57
                                  SCHEDULE 7.2

                             (Conflicting Documents)
<PAGE>   58
                                  SCHEDULE 7.9

                                  (Litigation)
<PAGE>   59
                                  SCHEDULE 7.12

                 (Pending Income Tax Assessments or Adjustments)
<PAGE>   60
                                  SCHEDULE 7.17

                       (Locations of GT and Subsidiaries)
<PAGE>   61
                                    EXHIBIT A

                                     FORM OF
                             COMPLIANCE CERTIFICATE


To:  BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION


        Reference is made to that certain Second Amended and Restated Credit
Agreement (Receivables and Inventory) dated as of August 12, 1996, among Bank of
America National Trust and Savings Association and GT Bicycles California, Inc.,
Riteway Products East, Inc., Riteway Products North Central, Inc., Rite-Way
Distributors Central, Inc., Rite-Way Distributors, Inc. and GT Bicycles, Inc.
(the "Credit Agreement"). Capitalized terms not otherwise defined in this
Certificate shall have the meanings ascribed to them in the Credit Agreement.
This Certificate is delivered in accordance with Paragraph 8.2(c) of the Credit
Agreement.

I.      COMPLIANCE WITH FINANCIAL COVENANTS

        Computations showing compliance with certain paragraphs of the Credit
Agreement are as follows:

        Paragraph 8.5; Quick Ratio. As of the date of the attached financial
     statements, the quick ratio was calculated as follows:

    (a)     The sum of:

            cash                                             $

            plus short-term cash investments                 $

            plus marketable securities not
            classified as long-term investments              $

            plus trade accounts receivable                   $

            equals                                           $

            Divided by                                       $

    (b)     The sum of:

            current liabilities                              $
<PAGE>   62
            plus the portion of the
            Revolving Facility classified
            as long-term debt                                $


            equals                                           $

    (c)     The sum of the components of
            section (a) above divided by the
            sum of the components of section (b)
            above equals, expressed as a ratio:              : 1

            minimum permitted:                               : 1

        Paragraph 8.4; Fixed Charge Coverage Ratio. As of the date of the
    attached financial statements, the Fixed Charge Coverage Ratio was
    calculated as follows for the period consisting of the most recently ended
    fiscal quarter plus the immediately preceding three fiscal quarters ("Fiscal
    Period"):

    (a)     The sum of:

            net income (or loss) from operations
            (excluding extraordinary or non-
            recurring gains) for the Fiscal
            Period                                           $

            plus interest expense                            $

            plus depreciation expense for
            the Fiscal Period                                $

            plus amortization expense                        $

            plus equity contributions and
            subordinated loans                               $

            minus dividends paid                             $

            equals                                           $

            Divided by                                       $

    (b)     The sum of:

            current portion of long-term
            debt and capital leases for
            the Fiscal Period                                $
<PAGE>   63
            plus capital expenditures made
            in cash for the Fiscal Period                    $

            plus interest expense for
            the Fiscal Period                                $

            equals                                           $

    (c)     The sum of the components of section
            (a) above divided by the sum of the
            components of section (b) above
            equals, expressed as a ratio:                    : 1

            minimum permitted:                               : 1

    Paragraph 8.6; Other Indebtedness.  As of the date of the
    attached financial statements:

            the outstanding amount of obligations under guaranties
            described in Paragraph 8.6(f) was $_________________.

            maximum permitted:                             $500,000

            the outstanding amount of indebtedness incurred for the acquisition
            of fixed or capital assets in the current fiscal year of GT under
            Paragraph 8.6(g) was $               .

            maximum permitted:                             $2,000,000 in
                                                           any fiscal year

    Paragraph 8.7; Liens.  As of the date of the attached
    financial statements, the outstanding amount of obligations
    secured by liens was $              .

            maximum permitted:                             $2,000,000 in
                                                           any fiscal year


    Paragraph 8.8; Acquisitions. [Neither GT nor any Subsidiary has acquired or
    purchased any assets or businesses except as permitted under subparagraphs
    (a) and (b) and (e) of Paragraph 8.8.] [The following acquisitions or
    purchases of assets or businesses, excluding those permitted under
    subsections (a) and (b) of Paragraph 8.8, have occurred: [briefly describe
    transactions]. The total consideration paid (including assumption of debt)
    in the current fiscal year of GT for these transactions was
    $________________.]
<PAGE>   64
            maximum permitted:                             $1,000,000 in
                                                           any fiscal year

    Paragraph 8.10; Operating Capital Leases. As of the date of the attached
    financial statements, the aggregate amount of rental payments due under
    operating leases and payments due under capital leases in the current fiscal
    year of GT is $______________.

            maximum permitted:                             $3,000,000 in
                                                           any fiscal year


II.     PERFORMANCE OF OBLIGATIONS

        A review of the activities of GT and Borrowers during the fiscal period
covered by this Certificate has been made under the supervision of the
undersigned with a view to determining whether during such fiscal period all
Guarantors and Borrowers performed and observed all of their respective
obligations. To the best knowledge of the undersigned, during the fiscal period
covered by this Certificate, all covenants and conditions have been so performed
and observed and no Event of Default or event which with notice or lapse of time
or both would be an Event of Default has occurred and is continuing, with any
exceptions set forth below, in response to which Borrowers and GT have taken or
propose to take the following actions (if none, so state):




III.    NO MATERIAL ADVERSE CHANGE

        To the best knowledge of the undersigned, no event or circumstance has
occurred that constitutes a material adverse change under Paragraph 9.15 of the
Credit Agreement since the date the most recent Certificate was executed and
delivered, with any exceptions being set forth below (if none, so state):



        This Certificate is by a responsible officer of GT and Borrowers. The
undersigned hereby certify that each and every matter contained herein is
derived from GT's and its 
<PAGE>   65
Subsidiaries' books and records and is, to the best knowledge of the
undersigned, true and correct.


        Dated:   ___________, 19___.


            In signing below, the undersigned is executing this Certificate on
behalf of all Guarantors and all Borrowers.


                                    _________________________

                                    _________________________
                                    Printed Name and Title
<PAGE>   66
                            CONTINUING CROSS-GUARANTY



To:   Bank of America National Trust
      and Savings Association



      (1) For valuable consideration, the undersigned ("Guarantors") jointly and
severally unconditionally guarantee and promise to pay to Bank of America
National Trust and Savings Association ("Bank"), or order, on demand, in lawful
money of the United States, any and all indebtedness of GT Bicycles California,
Inc., Riteway Products East, Inc., Riteway Products North Central, Inc.;
Rite-Way Distributors Central, Inc., and Rite-Way Distributors, Inc., and
Caratti Sport Ltd (collectively, the "Borrowers") to Bank. The word
"indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Borrowers or any one or
more of them, heretofore, now, or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether direct or acquired by Bank
by assignment or succession, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Borrowers
may be liable individually or jointly with others, or whether recovery upon such
indebtedness may be or hereafter become barred by any statute of limitations, or
whether such indebtedness may be or hereafter become otherwise unenforceable.

      (2) The liability of Guarantors under this Guaranty (exclusive of
liability under any other guaranties executed by Guarantors) shall not exceed at
any one time the U.S. Dollar equivalent total of (a) an amount equal to the sum
of (i) all indebtedness owing by any Borrower to Bank in connection with
interest rate protection agreements entered into with Bank, (ii) all
indebtedness owing by any Borrower to Bank relating to any duty/VAT deferment
guaranties issued by Bank in the United Kingdom, and (iii) $95,000,000, for the
principal amount of other indebtedness owing by any Borrower to Bank and (b) all
interest, fees, and other costs and expenses relating to or arising out of such
indebtedness. If, due to currency exchange rate fluctuations, the indebtedness
exceeds the foregoing limitation in U.S. Dollars, such increased indebtedness
shall nonetheless be covered by this Continuing Guaranty. Bank may permit the
indebtedness to exceed Guarantors' liability, and may apply any amounts received
from any source, other than from Guarantors, to the unguaranteed portion of the
indebtedness. This is a continuing guaranty relating to any indebtedness,
including that arising under successive transactions which shall either continue
the indebtedness or from time to time renew it after it has been satisfied. Any
payment by Guarantors shall not reduce Guarantors' maximum obligation hereunder,
unless written notice to that effect be actually received by Bank at or prior to
the time of such payment.

      (3) The obligations hereunder are joint and several, and independent of
the obligations of Borrowers, and a separate action or actions may be brought
and prosecuted against Guarantors whether action is brought against any Borrower
or whether any Borrower be joined in any such action or actions; and Guarantors
waive the benefit of any statute of limitations affecting Guarantors' liability
hereunder.
<PAGE>   67
      (4) Guarantors authorize Bank, without notice or demand and without
affecting Guarantors' liability hereunder, from time to time, either before or
after revocation hereof, to (a) renew, compromise, extend, accelerate or
otherwise change the time for payment of, or otherwise change the terms of the
indebtedness or any part thereof, including increase or decrease of the rate of
interest thereon; (b) receive and hold security for the payment of this Guaranty
or any of the indebtedness, and exchange, enforce, waive, release, fail to
perfect, sell, or otherwise dispose of any such security; (c) apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine; and (d) release or substitute any one or more of the
endorsers or guarantors.

      (5) Guarantors waive any right to require Bank to (a) proceed against any
Borrower; (b) proceed against or exhaust any security held from any Borrower; or
(c) pursue any other remedy in Bank's power whatsoever. Guarantors waive any
defense arising by reason of any disability or other defense of any Borrower, or
the cessation from any cause whatsoever of the liability of any Borrower, or any
claim that Guarantors' obligations exceed or are more burdensome than those of
any Borrower. Until the indebtedness shall have been paid in full, even though
the indebtedness is in excess of Guarantors' liability hereunder, Guarantors
waive any right of subrogation, reimbursement, indemnification, and contribution
(contractual, statutory or otherwise), including without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11 of the U.S. Code) or
any successor statute, arising from the existence or performance of this
Guaranty, and Guarantors waive any right to enforce any remedy which Bank now
has or may hereafter have against any Borrower, and waive any benefit of, and
any right to participate in, any security now or hereafter held by Bank.
Guarantors waive all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance of this Guaranty and of the existence, creation, or incurring of
new or additional indebtedness.

      (6) (a) Guarantors understand and acknowledge that if Bank forecloses,
either by judicial foreclosure or by exercise of power of sale, any deed of
trust securing the indebtedness, that foreclosure could impair or destroy any
ability that Guarantors may have to seek reimbursement, contribution, or
indemnification from Borrowers or others based on any right Guarantors may have
of subrogation, reimbursement, contribution, or indemnification for any amounts
paid by Guarantors under this Guaranty. Guarantors further understand and
acknowledge that in the absence of this paragraph, such potential impairment or
destruction of Guarantors' rights, if any, may entitle Guarantors to assert a
defense to this Guaranty based on Section 580d of the California Code of Civil
Procedure as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968).
By executing this Guaranty, Guarantors freely, irrevocably, and unconditionally:
(i) waive and relinquish that defense and agree that Guarantors will be fully
liable under this Guaranty even though Bank may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing the
indebtedness; (ii) agree that Guarantors will not assert that defense in any
action or proceeding which Bank may commence to enforce this Guaranty; (iii)
acknowledge and agree that the rights and defenses waived by Guarantors in this
Guaranty include any right or defense that Guarantors may have or be entitled to
assert based upon or arising out of any one or more of Sections 580a, 580b,
580d, or 726 of the California Code of Civil Procedure or Section 2848 of the
California Civil Code; and (iv) acknowledge and agree that Bank is relying on
this waiver in creating the indebtedness, and that this waiver is a material
part of the consideration which Bank is receiving for creating the indebtedness.
<PAGE>   68
            (b) Guarantors waive any rights and defenses available to Guarantors
by reason of Sections 2787 to 2855, inclusive, of the California Civil Code
including, without limitation, (1) any defenses Guarantors may have to its
obligations under this Guaranty by reason of an election of remedies by Bank and
(2) any rights or defenses Guarantors may have by reason of protection afforded
to any Borrower with respect to any of the indebtedness pursuant to the
antideficiency or other laws of California limiting or discharging any of the
indebtedness, including, without limitation, Sections 580a, 580b, 580d, or 726
of the California Code of Civil Procedure.

            (c) Guarantors waive all rights and defenses arising out of an
election of remedies by Bank, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed Guarantors' rights of subrogation and reimbursement against any
Borrower by the operation of Section 580d of the California Code of Civil
Procedure or otherwise.

            (d) No provision or waiver in this Guaranty shall be construed as
limiting the generality of any other waiver contained in this Guaranty.

      (7) Guarantors acknowledge and agree that they shall have the sole
responsibility for obtaining from each Borrower such information concerning such
Borrower's financial condition or business operations as Guarantors may require,
and that Bank has no duty at any time to disclose to Guarantors any information
relating to the business operations or financial conditions of any Borrower.

      (8) To secure all of Guarantors' obligations hereunder, Guarantors assign
and grant to Bank a security interest in all moneys, securities and other
property of Guarantors now or hereafter in the possession of Bank, all deposit
accounts of Guarantors maintained with Bank, and all proceeds thereof. Upon
default or breach of any of Guarantors' obligations to Bank, Bank may apply any
deposit account to reduce the indebtedness, and may foreclose any collateral as
provided in the Uniform Commercial Code and in any security agreements between
Bank and Guarantors.

      (9) Any obligations of any Borrower to Guarantors, now or hereafter
existing, including but not limited to any obligations to Guarantors as
subrogees of Bank or resulting from Guarantors' performance under this Guaranty,
are hereby subordinated to the indebtedness. Such obligations of any Borrower to
Guarantors if Bank so requests shall be enforced and performance received by
Guarantors as trustees for Bank and the proceeds thereof shall be paid over to
Bank on account of the indebtedness to Bank, but without reducing or affecting
in any manner the liability of Guarantors under the other provisions of this
Guaranty.

      (10) This Guaranty may be revoked at any time by Guarantors in respect to
future transactions, unless there is a continuing consideration as to such
transactions which Guarantors do not renounce. Such revocation shall be
effective upon actual receipt by Bank at the address shown below of written
notice of revocation. Revocation shall not affect any of Guarantors' obligations
or Bank's rights with respect to transactions which precede Bank's receipt of
such notice, regardless of whether or not the indebtedness related to such
transactions, before or after revocation, has been renewed, compromised,
extended, 
<PAGE>   69
accelerated, or otherwise changed as to any of its terms, including time for
payment or increase or decrease of the rate of interest thereon, and regardless
of any other act or omission of Bank authorized hereunder. Revocation by any
other guarantor of the indebtedness shall not affect any obligations of any
nonrevoking Guarantors. If this Guaranty is revoked, returned, or canceled, and
subsequently any payment or transfer of any interest in property by any Borrower
to Bank is rescinded or must be returned by Bank to any Borrower, this Guaranty
shall be reinstated with respect to any such payment or transfer, regardless of
any such prior revocation, return, or cancellation.

      (11) It is not necessary for Bank to inquire into the powers of any
Borrower or of the officers, directors, partners or agents acting or purporting
to act on such Borrower's behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed
hereunder.

      (12) Bank may, without notice to Guarantors and without affecting
Guarantors' obligations hereunder, assign the indebtedness and this Guaranty, in
whole or in part. Guarantors agree that Bank may disclose to any assignee or
purchaser and any purchaser of all or part of the indebtedness any and all
information in Bank's possession concerning Guarantors, this Guaranty, and any
security for this Guaranty.

      (13) Guarantors agree to pay all reasonable attorneys' fees, including
allocated costs of Bank's in-house counsel, and all other costs and expenses
which may be incurred by Bank (a) in the enforcement of this Guaranty or (b) in
the preservation, protection, or enforcement of any rights of Bank in any case
commenced by or against Guarantors under the Bankruptcy Code (Title 11, United
States Code) or any similar or successor statute.

      (14) (a) Any controversy or claim between or among the parties, including
but not limited to those arising out of or relating to this Guaranty or any
agreements or instruments relating hereto or delivered in connection herewith
and any claim based on or arising from an alleged tort, shall at the request of
any party be determined by arbitration. The arbitration shall be conducted in
accordance with the United States Arbitration Act (Title 9, U.S. Code),
notwithstanding any choice of law provision in this Agreement, and under the
Commercial Rules of the American Arbitration Association ("AAA"). The
arbitrators shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrators. Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.

            (b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to Bank which is secured by real
property collateral located in California. If all parties do not consent to
submission of such a controversy or claim to arbitration, the controversy or
claim shall be determined as provided in subparagraph (c).

            (c) A controversy or claim which is not submitted to arbitration as
provided and limited in subparagraphs (a) and (b) shall, at the request of any
party, be determined by 
<PAGE>   70
a reference in accordance with California Code of Civil Procedure Sections 638
et seq. If such an election is made, the parties shall designate to the court a
referee or referees selected under the auspices of the AAA in the same manner as
arbitrators are selected in AAA-sponsored proceedings. The presiding referee of
the panel, or the referee if there is a single referee, shall be an active
attorney or retired judge. Judgment upon the award rendered by such referee or
referees shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.

            (d) No provision of this paragraph shall limit the right of any
party to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference. At Bank's option, foreclosure under a deed
of trust or mortgage may be accomplished either by exercise of power of sale
under the deed of trust or mortgage or by judicial foreclosure.

      (15) This Guaranty shall be governed by and construed according to the
laws of the State of California, to the jurisdiction of which the parties hereto
submit.

      (16) In each instance when any Borrower shall have agreed, relative to any
indebtedness, to pay or provide any of your branches or affiliates with any
amount of money that is other than that which is locally in common circulation
at the time as currency in the place where such agreement is made, and such
amount is not actually paid or provided as and when agreed or within such time
as you may deem reasonable, the undersigned will, upon request and as you may
elect, either pay or provide the amount in the exact currency and place as
agreed by such Borrower or pay or provide you at your lending office in the
United States with the equivalent of the amount in U.S. Dollars at your then
prevailing rate for sales of the kind of currency agreed to be paid or provided.

      (17) Notwithstanding the foregoing, the liability of each Guarantor except
GT Bicycles, Inc. (each, a "Subsidiary Guarantor" and collectively, the
"Subsidiary Guarantors") ) under this guaranty shall not exceed at any time the
"Maximum Guarantied Amount" as to such Subsidiary Guarantor. As used herein,
"Maximum Guarantied Amount" as to any Subsidiary Guarantor shall mean the
greatest of, in the sole judgment and at the election of Bank (i) the reasonably
equivalent value actually received by such Subsidiary Guarantor as a result of
the indebtedness (including, without limitation, investments made in, and
capital contributions or advances made to, such Subsidiary Guarantor, directly
or indirectly, by any Borrower with the proceeds of any credit extended under
the any agreement relating to the indebtedness), in exchange for or in
connection with its guaranty of the indebtedness, and (ii) 95% of the "Qualified
Net Worth" of such Subsidiary Guarantor, as of the date hereof, and (iii) 95% of
the "Qualified Net Worth" of such Subsidiary Guarantor, as of the date demand
for payment is made under this guaranty.

      As used herein, "Qualified Net Worth" means the excess of (A) the amount
of the "Fair Value" of the assets of such Subsidiary Guarantor as of the date of
determination, over the (B) the amount of the "Fair Value" of the consolidated
liabilities of such Subsidiary Guarantor as of the date of determination.
<PAGE>   71
      As used herein, "Fair Value" of any assets means the amount which may be
realized, as of the calculation date, within a reasonable time, either through
collection of such assets or sale of such assets at the regular market value,
understanding "regular market value" to mean the amount which could be obtained
for the assets in question within such period by a capable and diligent business
person from an interested buyer who is willing to purchase under ordinary
selling conditions. As used herein, "Fair Value" of consolidated liabilities
means the present value, as of a calculation date, of all liabilities, whether
matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent,
but excluding any liabilities under this guaranty; and provided that contingent
or unliquidated liabilities shall be valued as of a calculation date at the
amount which, in light of all the facts and circumstances existing at such time,
represents the amount which could reasonably be expected to become an actual
matured liability. Notwithstanding the foregoing, Bank may permit the
indebtedness of the Borrowers to exceed any Subsidiary Guarantor's liability
under this guaranty.
<PAGE>   72
      (18) This guaranty amends and restates that certain guaranty dated as of
November 29, 1995 executed and delivered by GT Bicycles, Inc.


      Executed as of August 12, 1996.





                      GT BICYCLES, INC.
                      GT BICYCLES CALIFORNIA, INC.
                      RITEWAY PRODUCTS EAST, INC.
                      RITEWAY PRODUCTS NORTH CENTRAL, INC.
                      RITE-WAY DISTRIBUTORS CENTRAL, INC.
                      RITE-WAY DISTRIBUTORS, INC.


                      By:____________________________________
                                Michael Haynes
                                 President

Address for notices to Bank:                   Address for notices to Guarantor:

3233 Park Center Drive, 2nd Floor              3100 West Segerstrom Avenue
Costa Mesa, California  92626                  Santa Ana, California  92704
                                               Attn: Chief Financial Officer
<PAGE>   73
                           FIRST AMENDED AND RESTATED
                               SECURITY AGREEMENT



                 1. THE SECURITY. Each of GT Bicycles, Inc., GT Bicycles
California, Inc., Riteway Products East, Inc., Riteway Products North Central,
Inc., Rite-Way Distributors Central, Inc., Rite-Way Distributors, Inc.
(individually, a "Debtor" and collectively, "Debtors") hereby assigns and grants
to Bank of America National Trust and Savings Association ("Bank") a security
interest in the following described property ("Collateral"):

                        A. All of the following, whether now owned or hereafter
                  acquired such Debtor: accounts, contract rights, chattel
                  paper, instruments, deposit accounts, and general intangibles.

                         B. All inventory now owned or hereafter acquired by
                 such Debtor.

                         C. All machinery, furniture, fixtures and other
                 equipment of every type now owned or hereafter acquired by such
                 Debtor.

                         D. All negotiable and nonnegotiable documents of title
                 now owned or hereafter acquired by such Debtor covering any of
                 the above-described property.

                         E. All patents and patent applications and all rights
                 corresponding thereto throughout the world, and all unpatented
                 or unpatentable developments and inventions.

                         F. All trademarks, service marks, logos, and all United
                 States, state and/or foreign applications for registration and
                 registrations thereof, all trade names, trade styles, designs,
                 and the like, all elements of package or trade dress of goods,
                 the goodwill of such Debtor's business connected with the use
                 of, and symbolized by any of the above, and all property of
                 such Debtor necessary to produce any products sold under any of
                 the above.

                         G. All copyrights and copyrighted works, all derivative
                 works thereof, all mask works of semiconductor chip products,
                 and United States and/or foreign applications for registration
                 and registrations thereof.

                         H. All computer software programs developed or to be
                 developed by such Debtor or in which such Debtor asserts or
                 could assert a proprietary interest; all personal property,
                 including but not limited to source codes, object codes or
                 similar information, which is necessary to the practical
                 utilization of such programs; all tangible property of such
                 Debtor embodying or incorporating any such programs.

                         I. All trade secrets, proprietary information, customer
                 lists, instructional materials, working drawings, manufacturing
                 techniques, process
<PAGE>   74
                 technology documentation, and product formulations.

                         J. All rights to damages or profits due or accrued
                 arising out of past, present or future infringement of the
                 Collateral or injury to such Debtor's good will connected with
                 the use of the Collateral and the right to sue therefor.

                         K. All renewals, modifications, amendments, re-issues,
                 divisions, continuations in whole or part, and extensions of
                 any Collateral.

                         L. All rights under contracts of insurance now owned or
                 hereafter acquired by such Debtor covering any of the
                 above-described property.

                         M. All proceeds, products, rents and profits now owned
                 or hereafter acquired by such Debtor of any of the
                 above-described property.

                         N. All books and records now owned or hereafter
                 acquired by such Debtor pertaining to any of the above-
                 described property, including but not limited to any
                 computer-readable memory and any computer hardware or
                 software necessary to process such memory ("Books and
                 Records").

                 2. THE INDEBTEDNESS. The Collateral secures and will secure all
obligations of each Debtor to Bank under (i) that certain Continuing
Cross-Guaranty dated as of August 12, 1996, executed by Debtors in favor of Bank
(as such guaranty may be amended, extended, renewed or otherwise modified from
time to time, the "Guaranty"), (ii) that certain Second Amended and Restated
Credit Agreement (Receivables and Inventory) dated as of August 12, 1996 (as
such agreement may be amended, extended, renewed or otherwise modified from time
to time, the "Credit Agreement") and (iii) under any instrument or agreement
required under or in connection with the Guaranty or the Credit Agreement (the
"Indebtedness"), whether the Indebtedness is now or hereafter existing,
voluntary or involuntary, due or not due, or absolute or contingent.

                 3. WARRANTIES AND REPRESENTATIONS. Each Debtor jointly and
severally represents and warrants to Bank as follows:

                         A. Exhibit A to this Agreement is a complete list of
                 all patents, federal trademark and service mark registrations,
                 copyright registrations, mask work registrations, and all
                 applications therefor, in which any Debtor has registered, or
                 has registrations pending, with the United States Copyright
                 Office or the United States Patent and Trademark Office.

                         B. Exhibit B to this Agreement is a complete list of
                 all patents, trademark and service mark registrations,
                 copyright registrations, mask work registrations, and all
                 applications therefor, in which any Debtor has registered, or
                 has registrations pending, with appropriate offices outside of
                 the United States.

                         C. Exhibit C to this Agreement is a complete list of
                 all patents, trademark and service mark registrations,
                 copyright registrations, mask work 
<PAGE>   75
                 registrations, and all applications therefor, in which any
                 Debtor has registered, or has registrations pending, with any
                 State patent or trademark registration office.

                         D. Each Debtor has full power and authority to execute
                 this Agreement and perform its obligations hereunder, and to
                 subject the Collateral to the security interest transferred
                 hereby.

                         E. Each Debtor is the lawful owner of the entire right,
                 title and interest in and to all the Collateral, free and clear
                 of all liens, charges, encumbrances, claims of infringement,
                 setoffs, counterclaims, licenses, shop rights, and covenants
                 not to sue third persons, except such rights and licenses as
                 are granted upon commercially reasonable terms and in the
                 ordinary course of business or as Bank has consented to in
                 writing.

                 4. DEBTORS' COVENANTS RE PATENTS, TRADEMARKS, ETC. Each Debtor
jointly and severally covenants and warrants that unless compliance is waived by
Bank in writing:

                         A. Debtors will at their expense properly maintain the
                 Collateral and shall not fail to renew and shall not otherwise
                 abandon any Collateral. Debtors will, at their expense,
                 diligently prosecute all patent, trademark or service mark or
                 copyright applications pending on or after the date hereof,
                 will maintain in effect all issued patents and will renew all
                 trademark and service mark registrations, including payment of
                 any and all maintenance and renewal fees relating thereto;
                 Debtors also will promptly make application on any patentable
                 but unpatented inventions, registerable but unregistered
                 trademarks and service marks, and copyrightable but
                 uncopyrighted works. This Paragraph 4.A shall not apply to any
                 Collateral, or any such applications or registrations, which
                 Debtors determine in good faith is or are not material to their
                 ordinary course of business.

                         B. Debtors will at its expense protect and defend all
                 rights in the Collateral against any claims and demands of all
                 persons other than the Bank and will, at its expense, enforce
                 all rights in the Collateral against any and all infringers of
                 the Collateral, except in those instances where Debtors, in
                 good faith, determine that it would not be commercially
                 reasonable to enforce such rights and that the infringement
                 will not have a material adverse impact on Debtors or their
                 business or operations. No Debtor will license or transfer any
                 of the Collateral except upon commercially reasonable terms and
                 in the ordinary course of business.

                         C. Debtors will promptly notify Bank of any acquisition
                 (by adoption and use, purchase, license or otherwise) of any
                 patent, trademark or service mark registration, copyright
                 registration, mask work registration, and applications
                 therefor, and unregistered trademarks and service marks and
                 copyrights, throughout the world, which are granted or filed or
                 acquired after the date hereof or which are not listed on
                 Exhibit A, Exhibit B, or Exhibit C hereto. Debtors authorize
                 Bank, without notice to any Debtor, to modify this 
<PAGE>   76
                 Agreement by amending Exhibit A, Exhibit B, or Exhibit C, as
                 applicable, to include any such Collateral.

                         D. Debtors will promptly notify Bank of any legal
                 process which is levied against the Collateral and any other
                 event which may have a material adverse effect on the value of
                 the Collateral (including, but not limited to, conduct which
                 might infringe on any Collateral) or the rights and remedies of
                 Bank in relation thereto, and Debtors will enforce all rights
                 in the Collateral against any and all infringers thereof,
                 except in those instances where Debtors, in good faith,
                 determines that it would not be commercially reasonable to
                 enforce such rights and that the infringement will not have a
                 material adverse impact on Debtors or their businesses or
                 operations.

                 5. DEBTORS' COVENANTS RE ALL COLLATERAL. Each Debtor jointly
and severally covenants and warrants that unless compliance is waived by Bank in
writing:

                         A. Each Debtor will, at the request of Bank, execute
                 such other agreements, documents or instruments in connection
                 with this Agreement as Bank may reasonably deem necessary,
                 including, but not limited to, those documents prepared by Bank
                 which, at Bank's option, Bank chooses to record with any
                 governmental entity, in any State or at the Federal level or in
                 any foreign country, relating to the security interest Bank
                 holds in the Collateral.

                         B. Debtors will pay to Bank, on demand, the amounts of
                 any fees required to be paid in connection with recordation of
                 this Agreement or any other agreement, document, or instrument
                 evidencing Bank's security interest and any other rights in or
                 to the Collateral.

                         C. Debtors will properly preserve the Collateral;
                 defend the Collateral against any adverse claims and demands;
                 and keep accurate Books and Records.

                         D. Debtors have notified Bank in writing of, and will
                 notify Bank in writing prior to any change in, the locations of
                 (i) any Debtor's place of business or any Debtor's chief
                 executive office if any Debtor has more than one place of
                 business, and (ii) any Collateral, including the Books and
                 Records.

                         E. Debtors will notify Bank in writing prior to any
                 change in any Debtor's name, identity or business structure.

                         F. Debtors will maintain and keep in force insurance
                 covering Collateral designated by Bank against fire and
                 extended coverages. Such insurance shall require losses to be
                 paid on a replacement cost basis, be issued by insurance
                 companies reasonably acceptable to Bank and include a loss
                 payable endorsement in favor of Bank in a form reasonably
                 acceptable to Bank.
<PAGE>   77
                         G. Except as may otherwise be permitted by the Credit
                 Agreement, no Debtor has granted nor will grant any security
                 interest in any of the Collateral except to Bank, and will keep
                 the Collateral free of all liens, claims, security interests
                 and encumbrances of any kind or nature except the security
                 interest of Bank.

                         H. No Debtor will sell, lease, agree to sell or lease,
                 or otherwise dispose of, or remove from any Debtor's places of
                 business (i) any inventory except in the ordinary course of
                 business as heretofore conducted by Debtors, or (ii) any other
                 Collateral except for commercially reasonable terms in the
                 ordinary course of business.

                         I. Debtors will promptly notify Bank in writing of any
                 event which materially adversely affects the value of the
                 Collateral, the ability of any Debtor or Bank to dispose of the
                 Collateral, or the rights and remedies of Bank in relation
                 thereto, including, but not limited to, the levy of any legal
                 process against any Collateral and the adoption of any
                 marketing order, arrangement or procedure affecting the
                 Collateral, whether governmental or otherwise.

                         J. If any Collateral is or becomes the subject of any
                 registration certificate or negotiable document of title,
                 including any warehouse receipt or bill of lading, Debtors
                 shall immediately deliver such document to Bank.

                         K. After the date of this Agreement, no Debtor will
                 attach any material amount of Collateral to any real property
                 or fixture in a manner which might cause such Collateral to
                 become a part thereof unless Debtors first obtain (i) the
                 written consent of any owner, holder of any lien on the real
                 property or fixture, or other person having an interest in such
                 property to the removal by Bank of the Collateral from such
                 real property or fixture or (ii) Bank's written waiver of the
                 requirement of obtaining such consent. Such written consent
                 shall be in form and substance acceptable to Bank and shall
                 provide that Bank has no liability to such owner, holder of any
                 lien, or any other person except to repair any damage caused by
                 Bank's removal of the Collateral.

                         L. Until Bank exercises its rights to make collection,
                 Debtors will diligently collect all Collateral consisting of
                 rights to payment, including without limitation accounts and
                 general intangibles.

                 6. ADDITIONAL OPTIONAL REQUIREMENTS. Each Debtor jointly and
severally agreed that Bank may at its option at any time, whether or not any
Debtor is in default:

                         A. Require Debtors to deliver to Bank (i) copies of or
                 extracts from the Books and Records, and (ii) information on
                 any contracts or other matters affecting the Collateral.

                         B. Examine the Collateral, including the Books and
                 Records, and 
<PAGE>   78
                 make copies of or extracts from the Books and Records, and
                 for such purposes enter at any reasonable time upon the
                 property where any Collateral or any Books and Records are
                 located.

                         C. Require Debtors to deliver to Bank any instruments
                 or chattel paper.

                         D. Require Debtors to obtain Bank's prior written
                 consent to any sale, lease, agreement to sell or lease, or
                 other disposition of any inventory outside of the ordinary
                 course of Debtors' business.

                 7. DEFAULTS. Any one or more of the following shall be a
default hereunder:

                         A. An Event of Default occurs under and as defined in
                 the Guaranty or the Credit Agreement.

                         B. Any Debtor breaches any term, provision, warranty or
                 representation under this Agreement; provided, however, that
                 Debtors shall have thirty (30) days within which to cure any
                 breach under Paragraphs 3.B or 3.C above.

                         C. Except as permitted under the Credit Agreement, any
                 involuntary lien of any kind or character attaches to any
                 Collateral.

                 8. BANK'S REMEDIES AFTER DEFAULT. In the event of any default
Bank may do any one or more of the following:

                         A. Declare any Indebtedness immediately due and
                 payable, without notice or demand.

                         B. Enforce the security interest given hereunder
                 pursuant to the Uniform Commercial Code and any other
                 applicable law.

                         C. Enforce the security interest of Bank in any deposit
                 account of any Debtor maintained with Bank by applying such
                 account to the Indebtedness.

                         D. Require Debtors to assemble the Collateral,
                 including the Books and Records, and make them available to
                 Bank at a place designated by Bank.

                         E. Enter upon the property where any Collateral,
                 including any Books and Records, are located and take
                 possession of such Collateral and such Books and Records, and
                 use such property (including any buildings and facilities) and
                 any of Debtors' equipment, if Bank deems such use necessary or
                 advisable in order to take possession of, hold, preserve,
                 process, assemble, prepare for sale or lease, market for sale
                 or lease, sell or lease, or otherwise dispose of, any
                 Collateral.
<PAGE>   79
                         F. Grant extensions and compromise or settle claims
                 with respect to the Collateral for less than face value, all
                 without prior notice to any Debtor.

                         G. Use or transfer any of Debtors' rights and interests
                 in any Intellectual Property now owned or hereafter acquired by
                 Debtors, if Bank deems such use or transfer necessary or
                 advisable in order to take possession of, hold, preserve,
                 process, assemble, prepare for sale or lease, market for sale
                 or lease, sell or lease, or otherwise dispose of, any
                 Collateral. Debtors agree that any such use or transfer shall
                 be without any additional consideration to Debtors. As used in
                 this paragraph, "Intellectual Property" includes, but is not
                 limited to, all trade secrets, computer software, service
                 marks, trademarks, trade names, trade styles, copyrights,
                 patents, applications for any of the foregoing, customer lists,
                 working drawings, instructional manuals, and rights in
                 processes for technical manufacturing, packaging and labelling,
                 in which any Debtor has any right or interest, whether by
                 ownership, license, contract or otherwise.

                         H. Have a receiver appointed by any court of competent
                 jurisdiction to take possession of the Collateral.

                         I. Require Debtors to segregate all collections and
                 proceeds of the Collateral so that they are capable of
                 identification and deliver daily such collections and proceeds
                 to Bank in kind.

                         J. Notify any account debtors, any buyers of the
                 Collateral, or any other persons of Bank's interest in the
                 Collateral.

                         K. Require Debtors to direct all account debtors to
                 forward all payments and proceeds of the Collateral to a post
                 office box under Bank's exclusive control.

                         L. Demand and collect any payments and proceeds of the
                 Collateral. In connection therewith Debtors irrevocably
                 authorize Bank to endorse or sign any Debtor's name on all
                 checks, drafts, collections, receipts and other documents, and
                 to take possession of and open the mail addressed to any Debtor
                 and remove therefrom any payments and proceeds of the
                 Collateral.

                         M. Take such measures as Bank may deem necessary or
                 advisable to take possession of, hold, preserve, process,
                 assemble, insure, prepare for sale or lease, market for sale or
                 lease, sell or lease, or otherwise dispose of, any Collateral,
                 and each Debtor hereby irrevocably constitutes and appoints
                 Bank as such Debtor's attorney-in-fact to perform all
                 acts and execute all documents in connection therewith.

                 9.      JOINT AND SEVERAL LIABILITY.

                         A. Each Debtor agrees that it is jointly and severally
                 liable to Bank 
<PAGE>   80
                 for the payment of all obligations arising under this
                 Agreement, and that such liability is independent of the
                 obligations of the other Debtors. Bank may bring an action
                 against any Debtor, whether an action is brought against any
                 other Debtor.

                         B. Each Debtor agrees that any release which may be
                 given by Bank to any other Debtor will not release such Debtor
                 from its obligations under this Agreement.

                         C. Each Debtor waives any right to assert against Bank
                 any defense, setoff, counterclaim, or claims which such Debtor
                 may have against any other Debtor or any other party liable to
                 Bank for the obligations of Debtors under this Agreement.

                         D. Each Debtor agrees that it is solely responsible for
                 keeping itself informed as to the financial condition of any
                 other Debtor and of all circumstances which bear upon the risk
                 of nonpayment. Each Debtor waives any right it may have to
                 require the Bank to disclose to such Debtor any information
                 which the Bank may now or hereafter acquire concerning the
                 financial condition of any other Debtor.

                         E. Each Debtor waives all rights to notices of default
                 or nonperformance by any other Debtor under this Agreement.
                 Each Debtor further waives all rights to notices of the
                 existence or the creation of new indebtedness by any other
                 Debtor.

                         F. Debtors and each of them represent and warrant to
                 the Bank that each will derive benefit, directly and
                 indirectly, from the collective administration and availability
                 of credit under this Agreement. Debtors agree that Bank will
                 not be required to inquire as to the disposition by any Debtor
                 of funds disbursed in accordance with the terms of this
                 Agreement.

                         G. Each Debtor waives any right of subrogation,
                 reimbursement, indemnification and contribution (contractual,
                 statutory or otherwise), including without limitation, any
                 claim or right of subrogation under the Bankruptcy Code (Title
                 11 of the U.S. Code) or any successor statute, which such
                 Debtor may now or hereafter have against any other Debtor with
                 respect to the indebtedness incurred under this Agreement. Each
                 Debtor waives any right to enforce any remedy which Bank now
                 has or may hereafter have against any other Debtor, and waives
                 any benefit of, and any right to participate in, any security
                 now or hereafter held by Bank.

                 10.     MISCELLANEOUS.

                         A. Any waiver, express or implied, of any provision
                 hereunder and any delay or failure by Bank to enforce any
                 provision shall not preclude Bank from enforcing any such
                 provision thereafter.

                         B. Each Debtor shall, at the request of Bank, execute
                 such other 
<PAGE>   81
                 agreements, documents, instruments, or financing statements in
                 connection with this Agreement as Bank may reasonably deem
                 necessary.

                         C. All notes, security agreements, subordination
                 agreements and other documents executed by any Debtor or
                 furnished to Bank in connection with this Agreement must be in
                 form and substance satisfactory to Bank.

                         D. This Agreement shall be governed by and construed
                 according to the laws of the State of California, to the
                 jurisdiction of which the parties hereto submit.

                         E. All rights and remedies herein provided are
                 cumulative and not exclusive of any rights or remedies
                 otherwise provided by law. Any single or partial exercise of
                 any right or remedy shall not preclude the further exercise
                 thereof or the exercise of any other right or remedy.

                         F. All terms not defined herein are used as set forth
                 in the Uniform Commercial Code.

                         G. In the event of any action by Bank to enforce this
                 Agreement or to protect the security interest of Bank in the
                 Collateral, or to take possession of, hold, preserve, process,
                 assemble, insure, prepare for sale or lease, market for sale or
                 lease, sell or lease, or otherwise dispose of, any Collateral,
                 Debtors agree to pay immediately the costs and expenses
                 thereof, together with reasonable attorney's fees and allocated
                 costs for in-house legal services.

                         H. This Agreement and any agreement or document
                 attached hereto, referred to herein or executed concurrently
                 herewith, integrate all the terms and conditions mentioned
                 herein or incidental hereto, and supersede all oral
                 negotiations and prior writings in respect to the subject
                 matter hereof. In the event any term of this Agreement
                 conflicts with any term of the Credit Agreement or other
                 document evidencing or relating to the Indebtedness, the term
                 of the Credit Agreement or such other document shall govern the
                 rights of the parties.
<PAGE>   82
                         I. This Agreement amends and restates as one agreement
                 (i) each separate Security Agreement (Receivables, Inventory
                 and Equipment) dated November 29, 1995, as amended, executed by
                 each Debtor, and (ii) each separate Security Agreement
                 (Patents, Trademarks, Copyrights, Computer Software) dated
                 November 29, 1995, as amended, executed by GT Bicycles
                 California, Inc., and Riteway Products North Central, Inc.


Dated:  August 27, 1996


                          BANK OF AMERICA NATIONAL TRUST
                          AND SAVINGS ASSOCIATION


                          By:
                              ___________________________________
                                       E. M. Amendt
                                      Vice President


                          GT BICYCLES, INC.
                          GT BICYCLES CALIFORNIA, INC.
                          RITEWAY PRODUCTS EAST, INC.
                          RITEWAY PRODUCTS NORTH CENTRAL,
                           INC.
                          RITE-WAY DISTRIBUTORS CENTRAL, INC.
                          RITE-WAY DISTRIBUTORS, INC.


                          By:
                              ___________________________________
                                      Michael Haynes
                                        President
<PAGE>   83
                                    EXHIBIT A

                      UNITED STATES PATENTS AND TRADEMARKS

      All owned by GT Bicycles California, Inc. unless otherwise indicated


<TABLE>
<CAPTION>
                                                                              Patents
  Patent
Description                                                       Patent No.              Issue Date

<S>                                                               <C>                      <C>
Changeable Dropout Assembly                                       5,082,303                01/21/92
Bicycle Construction with Grooved                                 5,236,212                08/17/93
Structural Member
Rocker Arm and Rear Suspension                                    5,244,224                09/14/93
Bicycle
Bicycle Frame Composition (Elostomer                              5,269,552                09/03/92
TTI Suspension)
Bicycle Rear Suspension                                           5,259,637                11/09/93
(Double Rocker)
Bicycle Rear Suspension (Continuation)                            5,306,036                04/26/94
Bicycle Rear Suspension System                                    5,409,249                04/25/95
</TABLE>


                           Pending Patent Applications
<TABLE>
<CAPTION>


Patent Description                                                Application              Application
                                                                  Serial No.               Filing Date

<S>                                                               <C>                      <C>
Bicycle Rear Suspension System                                    08/227,009               04/13/94
(Continuation of LTS)
Aerodynamic Bicycle (Super Bike)                                  29/032,641               12/15/94
</TABLE>


                             Trademark Registrations
<TABLE>
<CAPTION>

Trademark Description                                          Registration No.         Registration
                                                                                             Date

<S>                                                               <C>                      <C>
Groove Tube                                                       1,774,659                06/01/93
Mt. Shasta                                                        1,688,959                05/26/92
GT All Terra and Design                                           1,683,721                04/21/92
Cycle Design CD and Design                                        1,680,245                03/24/92
Cycle Design (Black Letters)                                      1,832,703                04/26/94
</TABLE>
<PAGE>   84
                              EXHIBIT A (CONTINUED)

                         Trademark Registrations (Cont.)


<TABLE>
<CAPTION>
Trademark Description                                          Registration No.          Registration
                                                                                             Date

<S>                                                               <C>                      <C>
Cycle Design (Stylized)                                           1,859,145                10/18/94
TCP Total Concept Plan                                            1,674,484                02/04/92
Rileway and Design                                                1,645,618                05/21/91
Dyno (Stylized Letters)                                           1,582,622                02/13/90
Hybrid                                                            1,573,225                12/26/89
Geicel and Design                                                 1,571,759                12/19/89
GT Triple Triangle and Design                                     1,567,013                11/21/89
Crossover                                                         1,563,269                10/31/89
GT                                                                1,516,316                12/13/88
Drain Pipe and Design                                             1,433,766                03/24/87
GT BMX and Design                                                 1,345,992                07/02/85
GT Bicycles Plus Design                                           1,818,446                01/25/94
Timberline                                                        1,884,831                03/21/95
Robinson and Design                                               1,320,570                02/19/85
Powerlite                                                         1,852,340                09/06/94
Dyno Boy                                                          1,447,655                09/02/94
Auburn                                                            1,553,648                04/23/90

Sanwa                                                             1,109,960                12/26/78
Traker1                                                           1,218,337                11/30/82
Timberlin1                                                        1,357,921                09/03/85
</TABLE>

                         Pending Trademark Applications

<TABLE>
<CAPTION>
Trademark Description                                             Application            Application
                                                                  Serial No.             Filing Date

<S>                                                               <C>                      <C>
Performer                                                         74/420,483               07/28/93
Duo Cycle (Stylized Letters)                                      74/360,681               02/22/93
Gearheads (Word Only)                                             74/607,023               12/05/94
HammerDown (Word Only)                                            74/607,024               12/05/94
Spin (Word Only)                                                  74/648,540               03/20/95
</TABLE>
<PAGE>   85
                                    EXHIBIT B

                         FOREIGN PATENTS AND TRADEMARKS

                    All owned by GT Bicycles California, Inc.


                                     Patents

<TABLE>
<CAPTION>
Country                  Patent Description        Patent No.    Issue Date

<S>                      <C>                          <C>         <C>  
Japan                    Rocker Arm Rear              61771       04/11/93
                         Suspension
</TABLE>



                           Pending Patent Applications



<TABLE>
<CAPTION>
Country                  Patent Description                        Application           Application
                                                                    Serial No.           Filing Date

<S>                      <C>                                      <C>                      <C>
Europe                   Rocker Arm Rear Suspension               PCT/US93/02227           03/05/93
(also filed for
in Taiwan)
New Zealand              Rocker Arm Rear Suspension                       251158           03/05/93
                         Bicycle
Brazil                   Rocker Arm Rear Suspension                            ?                  ?
                         Bicycle
</TABLE>
<PAGE>   86
                              EXHIBIT B (CONTINUED)


                             Trademark Registrations

<TABLE>
<CAPTION>
Country                  Trademark Description     Registration No.         Registration

GT All Terra and Design (GTA):

<S>                      <C>                           <C>                     <C>  
France                   GTA (France)                  1,651,360               02/21/91
United Kingdom           GTA (United Kingdom)          1,464,384               05/16/91
Switzerland              GTA (Switzerland)               389,923               05/14/91
Canada                   GTA (Canada)-                   438,411               01/27/95
                         (clothing only)
Germany                  GTA (Germany)                 2,027,743               01/11/93
Benelux                  GTA (Benelux)                   763,737               05/15/91
Austria                  GTA (Austria)                   140,409               02/19/92
Paraguay                 GTA (Paraguay)                  165,958               11/19/93
Colombia                 GTA (Columbia)                    17516               04/28/94
Japan                    GTA (Japan)                   2,694,728               09/30/94
Mexico                   GTA (Mexico)                    412,802               11/26/91

GT BMX:

Mexico                   GT BMX (Mexico)                 412,801               11/26/91
Japan                    GT BMX (Japan)                2,694,727               09/30/94
Switzerland              GT BMX (Switzerland)            344,157               08/20/85
South Africa             GT BMX (South Africa)           84/0051               01/18/84
Italy                    GT BMX (Italy)                  464,541               08/01/85
Australia                GT BMX (Australia)             A403,140 (Cls 12)      09/13/83
Australia                GT BMX (Australia)             A403,139 (Cls 25)      09/13/83
United Kingdom           GT BMX (Australia)             B1211971               03/26/86
Spain                    GT BMX (Spain)                1,111,359               05/05/88
Germany                  GT BMX (Germany)           1,087,401/12               02/09/94
Germany                  GT BMX (New '95 Design)    394 06 583.2               12/14/94
Benelux                  GT BMX (Benelux)                395,632               01/17/84
France                   GT BMX (France)               1,260,257               02/10/84
Canada                   GT BMX (Canada)                 322,523               01/09/87
Colombia                 GT BMX - New '95              94/058.693 (Cls 12)      03/00/95
                         Design (Colombia)
Colombia                 GT BMX - New '95             94/058.698 (Cls 25)      03/00/95
                         Design (Colombia)
</TABLE>
<PAGE>   87
                              EXHIBIT B (CONTINUED)


                         Trademark Registrations (Cont.)

<TABLE>
<CAPTION>
Country              Trademark Description     Registration No.           Registration


GT BICYCLES (plus Wing Design):

<S>                  <C>                          <C>                        <C>  
Mexico               GT w/wings (Mexico)               412,804               11/26/91
Germany              GT w/wings (Germany)         394 06 581.6               12/14/94
Germany              GT - for letterhead only     394 06 584.0               12/14/94
                     (Germany)

ALL GT TERRA:

Canada               All GT Terra (Canada)             744,899               07/00/94
Germany              All GT Terra (Canada)        394 06 582.4               12/14/94
Mexico               Dyno (plus Design)                412,803               11/26/91
Mexico               Powerlite (plus Design)           451,425               05/17/93
Mexico               Robinson (plus Design)            451,426               05/17/93
Mexico               Riteway (plus Design)             400,198               08/31/90
France               Robinson                        1,647,826               03/04/91
France               Dyno (Stylized)                 1,647,825               03/04/91
France               D & Dyno (Stylized)             1,647,824               03/04/91
France               Karakorom                       1,649,507               03/12/91
France               Avalanche                       1,649,501               03/12/91
France               Timberline                      1,649,505               03/12/91
France               Outpost                         1,649,506               03/12/91
France               Zaskar                          1,649,508               03/12/91
France               Xizang                          1,649,504               03/12/91
Canada               Dyno                              391,880               12/20/91
Canada               Riteway                           413,295               06/11/93
Colombia             Powerlite (Colombia)           94/058,695 (Cls 12)      03/00/95
Colombia             Powerlite (Colombia)           94/058,699 (Cls 16)      03/00/95
Colombia             Auburn (Colombia)              94/058,555 (Cls 16)      12/27/94
Colombia             Auburn (Colombia)              94/058,697 (Cls 12)      12/28/94
Colombia             Dyno (Colombia)                94/058,554 (Cls 12)      12/12/94
Colombia             Dyno (Colombia)                94/058,692 (Cls 16)      12/12/94
Colombia             Dyno (Colombia)                94/058,694 (Cls 25)      12/12/94
</TABLE>
<PAGE>   88
                              EXHIBIT B (CONTINUED)


                         Pending Trademark Registrations


<TABLE>
<CAPTION>
Country               Trademark Description            Application               Application
                                                        Serial No.               Filing Date

<S>                      <C>                            <C>                         <C>
United Kingdom           GT Only (U.K.)                 1,570,367                          ?
Venezuela                GTA (Venezuela)                   323-93 (Cls 12)                 ?
Venezuela                GTA (Venezuela)                   324-93 (Cls 25)                 ?
Argentina                GTA (Argentina)                  1868139 (Cls 12)                 ?
Argentina                GTA (Argentina)                  1868140 (Cls 25)                 ?
Chile                    GTA (Chile)                      233,422 (Cls 12)                 ?
Chile                    GTA (Chile)                      233,423 (Cls 25)                 ?
Brazil                   GTA (Brazil)                   817433040                   08/13/93
</TABLE>
<PAGE>   89
                                    EXHIBIT C

                          STATE PATENTS AND TRADEMARKS

                    All owned by GT Bicycles California, Inc.

                             California Trademarks


<TABLE>
<CAPTION>
Trademark Description              Registration No.            Issue Date

<S>                                    <C>                      <C>  
GT Bicycles and Design                 0095486                  01/29/92
Duo Cycle and Design                   0094470                  07/26/91
Powerlite                              0093402                  12/18/90
Hybrid and Design                      0090347                  08/25/89
Auburn                                 0087391                  04/12/88
RRP and Design                         0065591                  02/24/82
Dyno                                   0077783                  07/10/85
</TABLE>
<PAGE>   90
                               SECURITY AGREEMENT:
                           SECURED PARTY IN POSSESSION



               (1) In consideration of any financial accommodation given, to be
given or continued to GT Bicycles California, Inc., Caratti Sport Ltd
("Caratti"), Riteway Products East, Inc., Riteway Products North Central, Inc.,
Rite-Way Distributors Central, Inc., and Rite-Way Distributors, Inc.
(collectively, "Borrowers" and, individually, a "Borrower") by BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association organized
under the laws of the United States of America ("Secured Party"), and as
security for the payment of all debts, obligations or liabilities now or
hereafter existing, absolute or contingent, of Borrowers and GT Bicycles, Inc.,
("Debtor"), or any one or more of them to Secured Party (hereinafter called
indebtedness), Debtor pursuant to the provisions of the Uniform Commercial Code
of the State of California hereby grants to Secured Party a security interest in
(a) all money and property this day delivered to and deposited with Secured
Party, and all money and property heretofore delivered or which shall hereafter
be delivered to or come into the possession, custody or control of Secured Party
in any manner during the existence of this Security Agreement, and whether held
in a general or special account or deposit or for safe-keeping or otherwise;
provided, however, that Bank's security interest in the capital stock of Caratti
("Caratti Stock") shall not extend beyond 65% of the Caratti Stock; and (b) any
stock rights, rights to subscribe, liquidating dividends, stock dividends,
dividends, dividends paid in stock, new securities or other property to which
Debtor is or may hereafter become entitled to receive on account of such
property; and in the event that Debtor receives any such property, Debtor will
immediately deliver it to Secured Party to be held by Secured Party hereunder in
the same manner as the property originally delivered hereunder. All money and
property so delivered to Secured Party under this paragraph is hereinafter
called collateral.

               (2) At any time, without notice, and at the expense of Debtor,
Secured Party in its name or in the name of Debtor may, but shall not be
obligated to: (a) collect by legal proceedings or otherwise, endorse, receive
and receipt for all dividends, interest, principal payments and other sums now
or hereafter payable upon or on account of said collateral; (b) make any
compromise or settlement it deems desirable or proper with reference to the
collateral; (c) insure, process and preserve the collateral; (d) participate in
any recapitalization, reclassification, reorganization, consolidation,
redemption, stock split, merger or liquidation of any issuer of securities which
constitute collateral, and in connection therewith may deposit or surrender
control of the collateral, accept money or other property in exchange for the
collateral, and take such action as it deems proper in connection therewith, and
any other money or property received in exchange for the collateral shall be
applied to the indebtedness or held by Secured Party thereafter as collateral
pursuant to the provisions hereof; (e) cause collateral to be transferred to its
name or to the name of its nominee; (f) exercise as to the collateral all the
rights, powers and remedies of an owner necessary to exercise its rights under
this paragraph (3), but, except pursuant to paragraph (7) hereof, Secured Party
shall not vote any securities constituting collateral except as instructed by
Debtor.

               (3) The Debtor agrees to pay prior to delinquency all taxes,
charges, liens and assessments against the collateral, and upon the failure of
Debtor to do so Secured Party at its option may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same.

               (4) All advances, charges, costs and expenses, including
reasonable attorneys' fees, incurred or paid by Secured Party in exercising any
right, power or remedy conferred by this Security 
<PAGE>   91
Agreement or in the enforcement thereof, shall become a part of the 
indebtedness secured hereunder and shall be paid to Secured Party by Debtor
immediately and without demand, with interest thereon at seven percent per
annum.

               (5) Any failure to keep or perform any of the terms or provisions
of this Security Agreement shall constitute an "Event of Default" as defined in
the Second Amended and Restated Credit Agreement (Receivables and inventory)
dated as of August 12, 1996, as amended, restated, supplemented or otherwise
modified from time to time among the Borrower and Debtor (the "Credit
Agreement").

               (6) Upon the happening of any Event of Default under the Credit
Agreement, Secured Party may then exercise as to such collateral all the rights,
powers and remedies of an owner including the right to vote any securities
constituting collateral, and may elect to sell the collateral in one or more
sales after giving a notice in writing by mail to Debtor of such sale at least
five (5) days before the date fixed for such sale, provided, however, that if
the collateral is perishable, or threatens to decline speedily in value, or is
of a type customarily sold on a recognized market, then such notice may be
dispensed with; the proceeds of such sale shall be applied to: (a) the
reasonable expenses of retaking, holding, preparing for sale, selling and the
like, reasonable attorneys' fees and legal expenses incurred by Secured Party
and (b) the indebtedness secured by the security interest herein created and the
surplus if any to the person or persons entitled thereto; if there be a
deficiency, Debtor will promptly pay the same to Secured Party; the Secured
Party may buy at any public sale and if the collateral is customarily sold in a
recognized market, or is the subject of widely or regularly distributed standard
price quotations, Secured Party may buy at private sale. Any sale may be
conducted by an auctioneer or by an officer, attorney or agent of Secured Party.

               (7) Secured Party shall be under no duty or obligation
whatsoever, (a) to make or give any presentment, demands for performances,
notices of nonperformance, protests, notices of protest or notices of dishonor
in connection with any obligations or evidences of indebtedness held by Secured
Party as collateral, or in connection with any obligation or evidences of
indebtedness which constitute in whole or in part the indebtedness secured
hereunder, or (b) to give Debtor notice of, or to exercise any subscription
rights or privileges, any rights or privileges to exchange, convert or redeem or
any other rights or privileges relating to or affecting any collateral held by
Secured Party.

               (8) Debtor waives any right to require Secured Party to (a)
proceed against any person, (b) proceed against or exhaust any collateral, or
(c) pursue any other remedy in Secured Party's power; and waives any defense
arising by reason of any disability or other defense of any Borrower or any
other person, or by reason of the cessation from any cause whatsoever of the
liability of any Borrower or any other person. Until all indebtedness shall have
been paid in full Debtor shall have no right of subrogation and waives any right
to enforce any remedy which Secured Party now has or may hereafter have against
any Borrower or against any other person and waives any benefit of and any right
to participate in any collateral or security whatsoever now or hereafter held by
Secured Party. Debtor authorizes Secured Party without notice or demand and
without affecting Debtor's liability hereunder or on the indebtedness, from time
to time to: (a) renew, extend, accelerate or otherwise change the time for
payment of, or otherwise change the terms of, the indebtedness or any part
thereof, including increase or decrease of the rate of interest thereon; (b)
take and hold security, other than the collateral herein described for the
payment of the indebtedness or any part thereof, and exchange, enforce, waive
and release the collateral herein described or any part thereof or any such
other security; and (c) release or substitute any Borrower, or any of the
endorsers or guarantors of the indebtedness or any part thereof, or any other
parties thereto.
<PAGE>   92
               (9) Secured Party may at any time deliver the collateral or any
part thereof to Debtor and the receipt of Debtor shall be a complete and full
acquittance for the collateral so delivered, and Secured Party shall thereafter
be discharged from any liability or responsibility therefor.

               (10) Upon the transfer of all or any part of the indebtedness
Secured Party may transfer all or any part of the collateral and shall be fully
discharged thereafter from all liability and responsibility with respect to such
collateral so transferred, and the transferee shall be vested with all the
rights and powers of Secured Party hereunder with respect to such collateral so
transferred; but with respect to any collateral not so transferred Secured Party
shall retain all rights and powers hereby given.

               (11) This is a continuing Security Agreement and all the rights,
powers and remedies hereunder shall apply to all past, present and future
indebtedness of Debtor to Secured Party, including that arising under successive
transactions which shall either continue the indebtedness, increase or decrease
it, or from time to time create new indebtedness after all or any prior
indebtedness has been satisfied, and notwithstanding the death, incapacity, or
bankruptcy of Debtor, or any other event or proceeding affecting Debtor.

               (12) Until all indebtedness shall have been paid in full the
power of sale and all other rights, powers and remedies granted to Secured Party
hereunder shall continue to exist and may be exercised by Secured Party at the
time specified hereunder irrespective of the fact that the indebtedness or any
part thereof may have become barred by any statute of limitations, or that the
personal liability of Debtor may have ceased.

               (13) The rights, powers and remedies given to Secured Party by
this Security Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any statute or rule of law. Secured Party
may exercise its banker's lien or right of setoff with respect to the
indebtedness in the same manner as if the indebtedness were unsecured. Any
forbearance or failure or delay by Secured Party in exercising any right, power
or remedy hereunder shall not be deemed to be a waiver of such right, power or
remedy, and any single or partial exercise of any right, power or remedy
hereunder shall not preclude the further exercise thereof; and every right,
power and remedy of Secured Party shall continue in full force and effect until
such right, power or remedy is specifically waived by an instrument in writing
executed by Secured Party.

               (14) Debtor represents and warrants that Debtor has its chief
executive office in the state specified on the signature page hereof. Debtor
agrees to give Secured Party at least thirty (30) days notice before changing
its state of residence or chief executive office.

               (15) In all cases where more than one party executes this
Security Agreement all words used herein in the singular shall be deemed to have
been used in the plural where the context and construction so require, and the
obligations and undertakings hereunder are joint and several.

               (16) (a) If, at any time when Secured Party has the right to sell
the collateral under the terms of this Agreement, (i) Secured Party obtains an
offer from a third party in a bona fide transaction to acquire all, but not less
than all, of the Caratti Stock, Secured Party shall promptly notify Debtor, and
(ii) if no better offer is obtained by Debtor within 30 days of its receipt of
the Come-Along Notice (as defined below), then Secured Party shall have the
right (the "Come-Along Right") to compel Debtor to sell and Debtor hereby agrees
to sell all, but not less than all, of the Caratti Stock owned, directly or
indirectly, by Debtor, and further agrees to vote in favor of, and otherwise
authorize and take all further action necessary or desirable to consummate, the
sale of all or substantially all of the assets 
<PAGE>   93
of Caratti, to such third party; provided, however, that Debtor shall receive
consideration per share identical to that received by Secured Party pursuant to
such transfer. This Come-Along Right may be exercised by Secured Party by
providing Debtor with notice (the "Come-Along Notice") setting forth (w) the
name and address of the third party, (x) the time and place of the proposed
closing of the Come-Along Right, which time and place shall not be less than 5
business days after the expiration of the 30 day period described in clause (ii)
above, (y) the terms and conditions of such transfer, and (z) the expected
compensation to be paid per share of the Caratti Stock at such closing.

                       (b) At the closing of the Come-Along Right, Debtor and
Secured Party shall cause the third party to remit to Secured Party and Debtor
stockholders identical consideration for each share of the Caratti Stock sold
pursuant to the Come-Along Right, against delivery by Debtor of certificates for
all shares of the Caratti Stock owned by Debtor, duly endorsed or with duly
executed stock powers, warranting as to good and marketable title, free and
clear of any liens, encumbrances and adverse claims, and the compliance with any
other conditions of closing applicable to Secured Party. If either Debtor or
Secured Party receives funds in excess of identical consideration for its shares
of the Caratti Stock sold pursuant to the Come-Along Right, as aforesaid, such
party shall remit funds to the other party in order that each party receive such
identical consideration.

                       (c) The parties hereto agree to use all reasonable
efforts to take, or cause to be taken and to do, or cause to be done, all things
necessary, proper, or advisable to implement and make effective as promptly as
practicable any Come-Along Right pursuant to the provisions hereof.

               (17) Debtor hereby irrevocably appoints Secured Party as its
attorney-in-fact to do (but Secured Party shall not be obligated to and shall
incur no liability to Debtor or any third party for failure to do so), any act
which Debtor is obligated hereunder to do, and to exercise all come along rights
and powers as Debtor might exercise with respect to the collateral, including,
without limitation, the right to (i) collect by legal proceedings or otherwise
and endorse, and receive all dividends, distributions, interests, payments,
proceeds and other sums and property now or hereafter payable on or on account
of the collateral; (ii) enter into any extension, reorganization, deposit,
merger, reorganization (not including a reorganization pursuant to any filing
for protection under applicable bankruptcy laws), consolidation or other
agreement pertaining to, or deposit, surrender, accept, hold or apply other
property in exchange for the collateral; (iii) insure, process and preserve the
collateral; (iv) transfer the collateral to Secured Party's own or its nominee's
name; (v) make any compromise or settlement, and take any other action it deems
advisable with respect to the collateral; and (vi) exercise any Come-Along
Right. Debtor agrees to reimburse Secured Party upon demand for any reasonable
costs and expenses, including, without limitation, attorneys' fees (including,
without limitation, the allocated cost of in-house counsel), Secured Party may
incur while acting as Debtor's attorney-in-fact hereunder, all of which costs
and expenses are included in the indebtedness secured hereby.

               (18) If Debtor fails to perform any agreement contained herein,
Secured Party may itself perform, or cause performance of, such agreement, and
the reasonable expenses of Secured Party incurred in connection therewith shall
be payable by Debtor as aforesaid.


               IN WITNESS WHEREOF, Debtor has executed this Security Agreement
as of August 12, 1996.


                                GT BICYCLES, INC.
<PAGE>   94
                                    By:____________________________________
                                                Michael Haynes
                                                   President


Address for notices to Secured Party:         Address for notices to Guarantor:

3233 Park Center Drive, 2nd Floor             3100 West Segerstrom Avenue
Costa Mesa, California  92626                 Santa Ana, California  92704
                                              Attn:  Chief Financial Officer