<PAGE>

================================================================================


                          The Derby Cycle Corporation


                              Warrant to Purchase
                         Shares of Class A Common Stock



                               Warrant Agreement



                         Dated as of November 22, 2000


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<PAGE>

     This WARRANT AGREEMENT (the "Agreement"), dated as of November 22, 2000
among The Derby Cycle Corporation, a Delaware corporation (the "Company"), and
Thayer Equity Investors III, L.P. ("Thayer"), Perseus Cycle, L.L.C. ("Perseus")
and Quantum Industrial Partners LDC, a Cayman Islands limited duration company
("Quantum" and together with Thayer and Perseus, the "Holders" and each a
"Holder").

     WHEREAS, each Holder is purchasing shares of the Company's Series D
Preferred Stock pursuant to a Series D Purchase Agreement dated the date hereof
(the "Purchase Agreement"); and

     WHEREAS, the Company will issue Class A warrants (the "Warrants") to
initially purchase an aggregate of 9,000 shares of Class A Common Stock, par
value $0.01 per share (the "Common Stock"), of the Company (the Common Stock
issuable on exercise of the Warrants being referred to herein as the "Warrant
Shares"), to the Holders in connection with, and in consideration for, the
Holders' entering into the Purchase Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:

SECTION 1.  CERTAIN DEFINITIONS.

     As used in this Agreement, the following terms shall have the following
respective meanings:

     "Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as used with respect to any Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such specified Person, whether through the ownership
of voting securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the voting securities of a Person shall be deemed to
be control.

     "Business Day" means any day other than a Legal Holiday.

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

     "Exercise Rate" has the meaning given it in Section 7.

     "Holder" is defined in the recitals hereto.

     "Nonpublic Warrant Shares" shall mean Warrant Shares that have not been
sold to the public (or pursuant to Rule 144, Rule 144A or Regulation S under the
Securities Act) and bear the legend set forth in Section 2.2(b) below.

     "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political
<PAGE>

subdivision thereof, including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business.

     "Private Placement and Transfer Restriction Legend" means the legend set
forth in Section 2.2(b) to be placed on all Warrants issued under this Warrant
         --------------
Agreement except where otherwise permitted by the provisions of this Warrant
Agreement.

     "Rule 144" means Rule 144 promulgated under the Securities Act.

     "Rule 144A" means Rule 144A promulgated under the Securities Act.

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

SECTION 2. ISSUANCE OF WARRANTS; WARRANT CERTIFICATES.

     2.1.  Form and Dating.

     The Warrant shall be substantially in the form of Exhibits A-1, A-2 and A-3
hereto (the "Warrant Certificates").  The Warrant may have notations, legends or
endorsements required by law, stock exchange rule or usage.  The Warrant shall
be dated the date hereof.

     The terms and provisions contained in the Warrants shall constitute, and
are hereby expressly made, a part of this Warrant Agreement. The Company and the
Holders, by their execution and delivery of this Warrant Agreement, expressly
agree to such terms and provisions and to be bound thereby. However, to the
extent any provision of the Warrant conflicts with the express provisions of
this Warrant Agreement, the provisions of this Warrant Agreement shall govern
and be controlling.

     2.2.  Transfer and Exchange.

     (a)   Subject to the transfer conditions referred to in the legends
endorsed on the Warrant, the Warrant and all rights thereunder are transferable
in whole or in part, without charge to the registered holder, upon surrender of
the Warrant with a properly executed Assignment (in the form of Exhibit B
                                                                ---------
hereto) at the principal office of the Company.

     (b)   Legend.

     The following legend shall appear on the face of all the Warrants issued
under this Warrant Agreement unless specifically stated otherwise in the
applicable provisions of this Warrant Agreement.

     "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
(THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED
UNDER THE WARRANT AGREEMENT PURSUANT TO WHICH THIS SECURITY IS ISSUED) AND IN

                                      -2-
<PAGE>

ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER
OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PURCHASER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN
(A) ABOVE.

     2.3.  Replacement Warrants.

     If a mutilated Warrant is surrendered to the Company and the Company
receives evidence to its satisfaction of the destruction, loss or theft of the
Warrant, the Company shall issue a replacement Warrant. If required by the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the reasonable judgment of the Company to protect the Company from any loss that
it may suffer if a Warrant is replaced. The Company may charge for its expenses
in replacing a Warrant.

     Every replacement Warrant is an additional warrant of the Company and shall
be entitled to all of the benefits of this Warrant Agreement equally and
proportionately with all other Warrants duly issued hereunder.

SECTION 3. TERMS OF THE WARRANT; EXERCISE OF THE WARRANT.

     3.1.  Subject to the terms of this Agreement, each Warrant holder shall
have the right, which may be exercised during the period commencing the date
hereof and until 5:00 p.m., New York City time on November 22, 2010, to receive
from the Company the number of fully paid and nonassessable Warrant Shares which
the holder may at the time be entitled to receive on exercise of such Warrants
upon payment to the Company of $.01(the "Exercise Price") either by (i) a bank
or certified check payable to the Company in an amount equal to the product of
the Exercise Price multiplied by the number of shares of Warrant Shares being
purchased upon such exercise (the "Aggregate Exercise Price"), (ii) the
surrender to the Company of securities of the Company or its

                                      -3-
<PAGE>

subsidiaries having a Market Value equal to the Aggregate Exercise Price of the
Warrant Shares being purchased upon such exercise (provided that for purposes of
this subparagraph, and notwithstanding the definition of Market Value set forth
below, the Market Value of any note or other debt security or any preferred
stock shall be deemed to be equal to the aggregate outstanding principal amount
or liquidation value thereof plus all accrued and unpaid interest thereon or
accrued and unpaid dividends thereon) or (iii) a written notice to the Company
that the Holder is exercising the Warrant (or a portion thereof) and authorizing
the Company to withhold from issuance a number of Warrant Shares issuable upon
such exercise of the Warrant which when multiplied by the Market Value of the
Warrant Shares is equal to the Aggregate Exercise Price (and such withheld
shares shall no longer be issuable under this Warrant). Each Warrant not
exercised prior to 5:00 p.m., New York City time, on November 22, 2010 (the
"Expiration Date") shall become void and all rights thereunder and all rights in
respect thereof under this Agreement shall cease as of such time. No adjustments
as to dividends will be made upon exercise of the Warrants.

     3.2. In order to exercise all or any of the Warrants represented by the
Warrant Certificate, the Holder must surrender for exercise the Warrant
Certificate to the Company together with the form of election to purchase on the
reverse thereof duly filled in and signed, and upon payment to the Company of
the Exercise Price, which is set forth in the form of Warrant Certificate
attached hereto as Exhibit A, as adjusted as herein provided, for the number of
Warrant Shares in respect of which such Warrants are then exercised.

     3.3. Subject to the provisions of Section 4 hereof, upon compliance with
clause 3.1 above, the Company shall deliver or cause to be delivered with all
reasonable dispatch, to or upon the written order of the Holder and in such name
or names as the Holder may designate, a certificate or certificates for the
number of whole Warrant Shares issuable upon the exercise of such Warrants or
other securities or property to which such holder is entitled hereunder,
together with cash as provided in Section 8 hereof; provided that if any
consolidation, merger or lease or sale of assets is proposed to be effected by
the Company as described in Section 7(l) hereof, or a tender offer or an
exchange offer for shares of Common Stock shall be made, upon such surrender of
Warrants and payment of the Exercise Price as aforesaid, the Company shall, as
soon as possible, but in any event not later than two business days thereafter,
deliver or cause to be delivered the full number of Warrant Shares issuable upon
the exercise of such Warrants in the manner described in this sentence or other
securities or property to which such holder is entitled hereunder, together with
cash as provided in Section 8 hereof. Such certificate or certificates shall be
deemed to have been issued and any Person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.

     3.4. The Warrants shall be exercisable, at the election of the Holder,
either in full or from time to time in part. If less than all the Warrants
represented by the Warrant Certificate are exercised, the Warrant Certificate
shall be surrendered and a new Warrant Certificate of the same tenor and for the
number of Warrants which were not exercised shall be executed by the Company,
registered in such name or names as may be directed in writing by the Holder,
and the Company shall deliver the new Warrant Certificate to the Person or
Persons entitled to receive the same.

     3.5. All Warrant Certificates surrendered upon exercise of Warrants shall
be canceled by the Company.

                                      -4-
<PAGE>

     3.6.  The Company shall keep copies of this Agreement and any notices given
or received hereunder available for inspection by the Holder during normal
business hours at its office.

SECTION 4. PAYMENT OF TAXES.

     The Company will pay all documentary stamp taxes attributable to the
initial issuance of Warrant Shares upon the exercise of the Warrant; provided
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue of any Warrant
Certificates or any certificates for Warrant Shares in a name other than that of
the registered holder of a Warrant Certificate surrendered upon the exercise of
a Warrant, and the Company shall not be required to issue or deliver such
Warrant Certificates unless or until the Person or Persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.

SECTION 5. RESERVATION OF WARRANT SHARES.

     5.1.  The Company will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Class A
Common Stock or its authorized and issued Class C Common Stock held in its
treasury, for the purpose of enabling it to satisfy any obligation to issue
Warrant Shares upon exercise of the Warrant, the maximum number of shares of
Class A Common Stock which may then be deliverable upon the exercise of all
outstanding Warrants.

     5.2.  The Company or, if appointed, the transfer agent for the Class A
Common Stock (the "Transfer Agent") and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid will be irrevocably authorized and directed at all
times to reserve such number of authorized shares as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Company will supply such Transfer Agent with
duly executed certificates for such purposes and will provide or otherwise make
available any cash which may be payable as provided in Section 8 hereof. The
Company will furnish such Transfer Agent a copy of all notices of adjustments,
and certificates related thereto, transmitted to each holder pursuant to Section
9 hereof.

     5.3.  Before taking any action which would cause an adjustment pursuant to
Section 8 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take any corporate action which may, in
the opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.

     5.4.  The Company covenants that all Warrant Shares which may be issued
upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free
of preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issuance thereof.

                                      -5-
<PAGE>

SECTION 6. OBTAINING STOCK EXCHANGE LISTINGS.

     The Company will from time to time take all action which may be necessary
so that the Warrant Shares, immediately upon their issuance upon the exercise of
the Warrant, will be listed on the principal securities exchanges, automated
quotation systems or other markets within the United States of America, if any,
on which other shares of Class A Common Stock are then listed, if any.

SECTION 7. ADJUSTMENT OF NUMBER OF WARRANT SHARES.

     Each Warrant will initially be exercisable by the holder thereof into one
share of Class A Common Stock at the Exercise Price.  The number of Warrant
Shares that may be purchased upon the exercise of each Warrant (the "Exercise
Rate") will be subject to adjustment from time to time upon the occurrence of
the events enumerated in this Section 7.  For purposes of this Section 7,
                              ---------                        ---------
"Common Stock" means the Class A Common Stock and any other capital stock of the
Company into or for which such Class A Common Stock is converted or exchanged
pursuant to any merger, consolidation, or recapitalization involving the Company
in each case, for which the Warrants may be exercised and where, as a result of
this definition, the term refers to more than one class of securities, the
adjustment provisions of this Section 7 shall be equitably adjusted to achieve
                              ---------
as nearly as practicable the intended result as evidenced by the text of such
adjustment provisions.

     (a)   Adjustments for Change in Capital Stock. If at any time after the
date of this Agreement the Company:

               (1)  pays a dividend or makes a distribution on its Common Stock
                    exclusively in shares of its Common Stock;

               (2)  subdivides its outstanding shares of Common Stock into a
                    greater number of shares;

               (3)  combines its outstanding shares of Common Stock into a
                    smaller number of shares;

               (4)  pays a dividend or makes a distribution on its Common Stock
                    in shares of its capital stock other than Common Stock; or

               (5)  issues by reclassification of its Common Stock any shares of
                    its capital stock;

then the Exercise Rate in effect immediately prior to such action shall be
proportionately adjusted upon occurrence of such event so that the holder of any
Warrant thereafter exercised may receive the aggregate number and kind of shares
of capital stock of the Company which such holder would have owned immediately
following such action if such Warrant had been exercised immediately prior to
such action. If upon exercise of a Warrant after an adjustment to the Exercise
Rate pursuant to clauses (4) or (5) of this Section 7(a), the holder of such
                         ---    ---         ------------
Warrant may receive shares of two or more classes or series of capital stock of
the Company, the exercise rights and the Exercise Rate of each class of capital
stock shall thereafter be subject to further adjustment on terms comparable to
those applicable to Common Stock in this Section 7.  The adjustment pursuant to
                                         ---------
this Section 7(a) shall be made successively each time that any event listed in
    -------------
this Section 7(a) above shall occur.
     ------------

                                      -6-
<PAGE>

     (b)  Adjustment for Rights Issue. In case the Company shall issue to all
holders of Common Stock, or shall make a dividend or other distribution on the
Common Stock consisting exclusively of, rights, options or warrants entitling
the holders thereof to subscribe for or purchase Common Stock or securities
convertible into or exchangeable for Common Stock at a price per share
(determined in the case of such rights, options, warrants or convertible or
exchangeable securities, by dividing (x) the total consideration payable to the
Company upon exercise, conversion or exchange of such rights, options, warrants
or convertible or exchangeable securities, by (y) the total number of shares of
such class or series of Common Stock covered by such rights, options, warrants
or convertible or exchangeable securities) less than the Current Market Price
(determined as provided in paragraph (f) of this Section 7) on the date fixed
                                     ---         ---------
for the determination of shareholders entitled to receive such rights, options,
or warrants or convertible or exchangeable securities, the number of Warrant
Shares for which each Warrant may be exercised shall be determined (and the
Exercise Rate shall be appropriately adjusted) by multiplying the number of
Warrant Shares issuable upon exercise of such Warrant immediately prior to the
close of business on the date fixed for the determination of shareholders
entitled to receive such rights, options or warrants, or convertible or
exchangeable securities, by a fraction (not less than one) of which the
numerator shall be the number of shares of Common Stock outstanding immediately
after giving effect to such dividend or other distribution (and assuming that
such rights, options, warrants or convertible or exchangeable securities had
been fully exercised or converted, as the case may be) and the denominator of
which shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for the determination of shareholders entitled to
receive such rights, options, or warrants or convertible or exchangeable
securities plus the number of shares of Common Stock determined by dividing the
aggregate consideration that would be received by the Company for the additional
shares of Common Stock to be issued, purchased or subscribed for upon exercise
of such rights, options or warrants or upon conversion or exchange of such
convertible or exchangeable securities by the Current Market Price (determined
as provided in paragraph (f) of this Section 7) on the date fixed for the
                         ---         ---------
determination of shareholders entitled to receive such rights, options or
warrants, or convertible or exchangeable securities; provided, however, that no
                                                     --------  -------
further adjustment to the number of Warrant Shares shall be made upon the
subsequent issue or sale of Common Stock pursuant to such rights, options or
warrants or convertible or exchangeable securities.  For the purposes of this
paragraph (b), the number of shares of Common Stock at any time outstanding
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of Common Stock.

     (c)  Adjustments for Issuances. In case the Company shall issue Common
Stock or rights, options or warrants entitling the holders thereof to subscribe
for or purchase Common Stock or securities convertible into or exchangeable for
Common Stock for a consideration per share of Common Stock (determined in the
case of such rights, options, warrants or convertible or exchangeable
securities, by dividing (x) the total amount receivable by the Company in
consideration of the sale and issuance of such rights, options, warrants or
convertible or exchangeable securities, plus the total consideration payable to
the Company upon exercise, conversion or exchange thereof, by (y) the total
number of shares of Common Stock covered by such rights, options, warrants or
convertible or exchangeable securities) less than the Current Market Price
(determined as provided in paragraph (f) of this Section 7), the number of
                                     ---        ----------
Warrant Shares for which each Warrant may be exercised shall be determined (and
the Exchange Rate shall

                                      -7-
<PAGE>

be appropriately adjusted) by multiplying the number of Warrant Shares issuable
immediately prior to the close of business on the date on which the Company
fixes the offering price of such additional shares by a fraction (not less than
one) of which the numerator shall be the number of shares of Common Stock
outstanding immediately after giving effect to such issuance (and assuming, in
the case of rights, options, warrants or convertible or exchangeable securities
that such rights, options, warrants or convertible or exchangeable securities
had been fully exercised or converted, as the case may be) and the denominator
of which shall be the number of shares of Common Stock outstanding at the close
of business on the date on which the Company fixes the offering price of such
additional shares plus a number of shares of Common Stock determined by dividing
the aggregate consideration received by or payable to the Company for the
additional shares of Common Stock so issued or sold or to be issued, purchased
or subscribed for upon exercise of such rights, options or warrants or upon
conversion or exchange of such convertible or exchangeable securities by the
Current Market Price (determined as provided in paragraph (f) of this Section 7)
                                                          ---         ---------
on the date on which the Company fixes the offering price of such additional
shares; provided that, in the event that the Company issues equity securities as
        --------
part of a unit with debt securities, the allocation of the purchase price shall
be determined in good faith by the Board of Directors of the Company. The
increase in the number of Warrant Shares provided for in the preceding sentence
shall not apply upon (i) the issuance of securities in transactions described in
paragraphs (a) or (b) of this Section 7 or pursuant to the exercise, exchange or
           ---    ---         ---------
conversion of any such securities issued under this paragraph (c); (ii) the
issuance of Common Stock to shareholders of any Person that immediately or
subsequently merges with or into the Company or any subsidiary thereof in
proportion to their stock holdings of such Person immediately prior to such
merger; (iii) the issuance of Common Stock in a bona fide underwritten public
offering; (iv) the issuance of Common Stock upon the exercise of options held by
management outstanding on the Closing Date; (v) the issuance of Common Stock
upon the exercise of Warrants; (vi) Common Stock issued to the Company's
employees, directors or consultants (or any of the foregoing of its
subsidiaries) under bona fide employee benefit plans adopted by the Board of
Directors (but only to the extent that the aggregate number of shares excluded
hereby and issued after the date of this Warrant Agreement shall not, together
with the shares of Common Stock underlying the options described in the last
paragraph of subsection 7(b) hereof, exceed 3% of the Class A Common Stock
outstanding at the time of the adoption of each such plan, exclusive of anti-
dilution adjustments thereunder); and (vi) the exercise of conversion rights
pursuant to the Company's certificate of incorporation.

     (d)  Superseding Adjustment. If, at any time (x) after any adjustment in
the number of shares issuable upon exercise of the Warrants shall have been made
pursuant to Section 7(b) or 7(c) on the basis of the issuance of rights, options
            ------------    ----
or warrants entitling the holders thereof to subscribe for or purchase Common
Stock or securities convertible into or exchangeable for Common Stock, or (y)
after new adjustments in the number of shares issuable upon exercise of the
Warrants shall have been made pursuant to this Section 7(d),
                                               -------------

               (i) the right of conversion, exercise or exchange in such rights,
     options or warrants, or convertible or exchangeable securities shall
     expire, and the right of conversion, exercise or exchange in respect of any
     or all of such rights, options or warrants, or convertible or exchangeable
     securities shall not have been exercised, and/or

                                      -8-
<PAGE>

               (ii)   the consideration per share for which shares of Common
     Stock are issuable pursuant to the terms of such rights, options or
     warrants, or convertible or exchangeable securities shall be increased or
     decreased by virtue of provisions therein or by virtue of the conversion
     rate or exchange rate of such security being changed contained for an
     automatic increase or decrease in such consideration per share upon the
     arrival of a specified date or the happening of a specified event or by
     agreement between the Company and the holders of such securities,

such previous adjustment shall be rescinded and annulled.  Thereupon, a
recomputation shall be made of the effect of such rights, options or warrants,
or convertible or exchangeable securities on the basis of

               (iii)  treating the number of shares of Common Stock, if any,
     theretofore actually issued or issuable pursuant to the previous exercise
     of such right of conversion, exercise or exchange as having been issued on
     the date or dates of such exercise and for the consideration actually
     received and receivable therefor, and treating the rights, options or
     warrants, or convertible or exchangeable securities which have expired and
     shall not have been exercised as if such securities had not been issued,
     and

               (iv)   with respect to securities as to which the consideration
     per share of Common Stock has been changed, treating any such rights,
     options or warrants or convertible or exchangeable securities which then
     remain outstanding as having been granted or issued immediately after the
     time of such increase or decrease for the consideration per share for which
     shares of Common Stock are issuable under such rights, options or warrants
     or convertible or exchangeable securities, and

in each such case, a new adjustment in the number of shares issuable upon
exercise of the Warrants shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled. No adjustment in the number of
shares issuable upon exercise of the Warrants pursuant to this Section 7(d)
                                                              -------------
shall change the number of or otherwise affect any shares of Common Stock issued
prior to such adjustment upon exercise of the Warrants.

     (e)  Adjustment for Other Distributions. In case the Company shall (i) make
a dividend or other distribution on the Common Stock (other than a distribution
covered by any of paragraphs (a), (b), or (c) of this Section 7), (ii) purchase
                             ---  ---     ---         ---------
or otherwise acquire for value any shares of Common Stock, then the number of
Warrant Shares for which each Warrant may be exercised shall be determined by
multiplying the number of Warrant Shares issuable upon exercise of such Warrant
immediately prior to the close of business on the date fixed for the
determination of shareholders entitled to receive such distribution or the date
of such purchase by a fraction (not less than one) of which the numerator shall
be the Current Market Price (determined as provided in paragraph (f) of this
                                                                 ---
Section 7) on the date fixed for the determination of shareholders entitled to
---------
receive such distribution on the date of such purchase and the denominator of
which shall be such Current Market Price minus the result obtained by dividing
the aggregate amount of cash and the fair market value of any property
distributed or paid to effect such distribution or repurchase, as the case may
be, by the number of shares of Common Stock outstanding immediately prior to the
date fixed for the determination of shareholders entitled to receive such
distribution on the date

                                      -9-
<PAGE>

of such purchase; provided that, any particular adjustment of the number of
                  --------
Warrant Shares pursuant to this paragraph (e) shall be of no force and effect if
the Company pays in respect of a distribution or a purchase which gave rise to
such adjustment to each Warrant holder, upon exercise of such Warrant holder's
Warrant(s), an amount of consideration to which such Warrant holder would have
been entitled in connection with such distribution or purchase had such Warrant
holder exercised its Warrant(s) immediately prior to the close of business on
the date fixed for the determination of shareholders entitled to receive such
distribution or the date of such purchase.

     (f) Current Market Price.  For the purpose of any computation under this

Section 7, the current market price (the "Current Market Price") per share of
---------                                 --------------------
Common Stock of the Company or any other security) (the "Applicable Share") on
                                                         ----------------
any date shall be deemed to be the average of the daily closing prices of such
Applicable Share on the principal national securities exchange, on which the
Applicable Shares are listed or admitted to trading or, if the Applicable Shares
are not so listed, the average daily closing bid prices of such Applicable
Shares on the NASDAQ National Market System if the Applicable Shares are quoted
thereon, in any such case, for the 20 consecutive trading days ending on the
5/th/ trading day before the date in question.  If, on any date on which
computation of the Current Market Price is to be made hereunder, the Applicable
Shares are not so listed or quoted on a national securities exchange or the
NASDAQ National Market System, the Current Market Price (except as otherwise
provided herein) shall be determined in accordance with Section 7(p) below.

     (g) No Amendments. The Company will not, by amendment of its articles of
incorporation or through any consolidation, merger, reorganization, transfer of
assets, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Agreement, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Warrant holders thereof
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (i) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock on the exercise of the Warrants from
time to time outstanding and (ii) will not take any action which results in any
adjustment of the number of Warrant Shares if the total number of shares of
Common Stock issuable after the action upon the exercise of all of the Warrants
would exceed the total number of shares of Common Stock then authorized by the
Company's articles of incorporation and available for the purposes of issue upon
such exercise.

     (h) Voluntary Increases.  The Company may, but shall not be obligated to,
make such increases in the number of Warrant Shares, in addition to those
required by paragraphs (a) through (c) of this Section 7, as it considers to be
                       ---         ---         ---------
advisable in order that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights shall not be taxable to the
recipients or if that is not possible, to diminish any income taxes that are
otherwise payable because of such event.

     (i) When De Minimis Adjustment May Be Deferred.  No adjustment in the
number of Warrant Shares shall be required unless such adjustment (plus any
other adjustments not previously made by reason of this paragraph (i)) would
require an increase or decrease of at least

                                      -10-
<PAGE>

1% in the number of Warrant Shares; provided, however, that any adjustments
                                    --------  -------
which by reason of this paragraph (i) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.

     (j)  Consolidation, Merger, Reorganization or Recapitalization of the
Company. In case at any time the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all or
substantially all of the Company's assets, liquidation or recapitalization of
the Common Stock not subject to adjustment under any of the paragraphs (a)
                                                                       ---
through (h) of this Section 7) in which the previously outstanding Common Stock
        ---         ---------
shall be converted or changed into or exchanged for different securities of the
Company or common stock or other securities of another corporation or interests
in a non-corporate entity or other property (including cash) or any combination
of the foregoing (each such transaction being herein called a "Transaction"),
                                                               -----------
provision shall be made so that each holder of a Warrant, upon the exercise
thereof at any time on or after the consummation of the Transaction, shall be
entitled to receive, and such Warrant shall thereafter represent the right to
receive, in lieu of the Common Stock issuable upon such conversion prior to such
consummation, the securities, cash or other property to which such holder would
have been entitled upon consummation of the Transaction if such holder had
exercised such Warrant immediately prior thereto (subject to adjustments from
and after the consummation date as nearly equivalent as possible to the
adjustments provided for in this Section 7). The Company will not effect any
                                 ---------
Transaction unless prior to the consummation thereof each corporation or entity
(other than the Company) which may be required to deliver any securities or
other property upon the exercise of the Warrants as provided herein shall
assume, by written instrument delivered to each holder of the Warrants, the
obligation to deliver to such holder such securities or other property as in
accordance with the foregoing provisions such holder may be entitled to receive,
and such corporation or entity shall have similarly mailed or delivered to each
holder of the Warrants an opinion of counsel for such corporation or entity,
reasonably satisfactory to the holders of a majority of the Warrants then
outstanding, which opinion shall state that all of the outstanding Warrants,
including, without limitation, the provisions of this Section 7, shall
                                                      ---------
thereafter continue in full force and effect and shall be enforceable against
the Company and such corporation or entity in accordance with the terms hereof
and thereof, together with such other matters as such holders may reasonably
request. The foregoing provisions of this Section 7(j) shall similarly apply to
                                          ------------
successive mergers, consolidations, sales of assets, liquidations and
recapitalizations.

     (k)  Consideration Received.  For purposes of any computation respecting
consideration received pursuant to this Section 7, the following shall apply:
                                        ---------

               (1) in the case of the issuance of shares of Common Stock for
     cash, the consideration shall be the amount of such cash, provided that in
                                                               --------
     no case shall any deduction be made for any commissions, discounts or other
     expenses incurred by the Company for any underwriting of the issue or
     otherwise in connection therewith;

               (2) in the case of the issuance of shares of Common Stock for a
     consideration in whole or in part other than cash, the consideration other
     than cash shall

                                      -11-
<PAGE>

     be deemed to be the fair market value thereof as determined in accordance
     with Section 12; and
          ----------

               (3) in the case of the issuance of securities convertible into or
     exchangeable for shares, the aggregate consideration received therefor
     shall be deemed to be the consideration received by the Company for the
     issuance of such securities plus the additional minimum consideration, if
     any, to be received by the Company upon the conversion or exchange thereof
     (the consideration in each case to be determined in the same manner as
     provided in clauses (1) and (2) of this paragraph (k)).

          (l)  When Issuance or Payment May Be Deferred.  In any case in which
this Section 7 shall require that an adjustment in the Exercise Rate be made
     ---------
effective as of a record date for a specified event, the Company may elect to
defer until the occurrence of such event (i) issuing to the holder of any
Warrant exercised after such record date the Warrant Shares and other capital
stock of the Company, if any, issuable upon such exercise over and above the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Exercise Rate and (ii) paying to such holder
any amount in cash in lieu of a fractional share pursuant to Section 13;
                                                             ----------
provided, however, that the Company shall deliver to such holder a due bill or
--------  -------
other appropriate instrument evidencing such holder's right to receive such
additional Warrant Shares, other capital stock and cash upon the occurrence of
the event requiring such adjustment.

          (m)  Form of Warrants. Irrespective of any adjustments in the Exercise
Price or the Exercise Rate or kind of shares or other assets purchasable upon
the exercise of the Warrants, Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares or other assets
as are stated in the Warrants initially issuable pursuant to this Agreement.

          (n)  Adjustment in Exercise Price.  Upon each adjustment in the number
of Warrant Shares for which a Warrant is exercisable pursuant to this Section 7,
                                                                      ---------
the Exercise Price for such Warrant shall be adjusted to equal an amount per
share of Common Stock equal to the Exercise Price before such adjustment
multiplied by a fraction, of which the numerator is the number of Warrant Shares
for which a Warrant is exercisable immediately before giving effect to such
adjustment and the denominator of which is the number of Warrant Shares for
which a Warrant is exercisable immediately after giving effect to such
adjustment; provided, however, that in no event shall the Exercise Price be
            --------  -------
reduced below the $0.01 per share par value of the Common Stock for which the
Warrant is exercisable.

          (o)  No Dilution or Impairment.  If any event shall occur as to which
the provisions of Section 7 are not strictly applicable but the failure to make
                  ---------
any adjustment would adversely affect the purchase rights represented by the
Warrants in a way that is contrary to the manifest and essential intent and
principles of Section 7, then, in each such case, the Company shall appoint an
              ---------
Independent Financial Expert, which shall give its opinion upon the adjustment,
if any, on a basis consistent with the essential intent and principles
established in Section 7 of this Agreement to preserve, without dilution, such
               ---------
exercise rights.  Upon receipt of such opinion, the Company will promptly mail a
copy thereof to the holders and shall make the adjustments

                                      -12-
<PAGE>

described therein. The Company will at all times in good faith assist in the
carrying out of the terms of this Agreement.

          (p)  Valuation by Independent Financial Expert. For purposes of this
Agreement, the Current Market Price of Warrant Shares or other property shall be
equal to the Fair Market Value (as defined below) of such Warrant Shares or
property, as the case may be, and will be determined as follows. Upon the
request of the holders of a majority of the Warrant Shares, a "big-six"
accounting firm or a nationally recognized investment bank with experience in
transactions of comparable size and magnitude and which shall not have performed
significant work for the Company (other than the preparation of the Annual Value
Report) during the immediately preceding one year (an "Independent Financial
Expert") heretofore appointed by the Board of Directors of the Company for
purposes of determining such Fair Market Value shall deliver to the Company and
the Warrant holders a written report (an "Annual Value Report") specifying such
Fair Market Value. At any time the Current Market Price of Warrant Shares or
other property is to be determined under this Agreement, such Current Market
Value shall be equal to the greater of (x) the Fair Market Value of such Warrant
Shares or property, as the case may be, specified in the most recent Annual
Value Report and (y) the Fair Market Value of such Warrant Shares or property,
as the case may be, as determined in good faith by the Board of Directors of the
Company; provided that if such Current Market Price is being determined more
         --------
than six months after the date of the most recent Annual Value Report and the
Warrant holders holding the majority of the then outstanding Warrants disagree
with such determination, the Board of Directors of the Company shall appoint an
Independent Financial Expert and cause such Independent Financial Expert to
promptly prepare and to deliver to the Warrant holders a written report (a
"Value Report") specifying such Fair Market Value within the time period
specified below. In such circumstance, the Fair Market Value of the Warrant
Shares or other property, as the case may be, will be equal to the greater of
such Fair Market Value (1) specified in the Value Report, (2) specified in the
most recent Annual Value Report and (3) determined in good faith by the Board of
Directors, as aforesaid. The Fair Market Value so determined shall, absent
manifest error, be conclusive and binding on all parties hereto.

          The Company shall use its best efforts to ensure that the information
shall be complete and accurate in all material respects and that any forecasts
shall be based on unbiased assessments made in good faith. The Company shall
cooperate fully with such Independent Financial Experts in the conduct of their
valuation, including making management reasonably available and offering access
to the premises of the Company to the Independent Financial Experts during
regular business hours and on reasonable notice.

          "Fair Market Value" of the Warrant Shares or other property, as the
case may be, as of the date of determination shall mean the price that a willing
buyer would pay to a willing seller for the relevant Warrant Shares or other
property, as the case may be, in an arm's length transaction, with neither party
being under any immediate obligation or need to consummate the transaction, it
being understood that the buyer and seller in arriving at such price in
determining the value of Warrant Shares would each consider, among other
factors, the past and prospective earnings of the Company, the initial public
offering value of the Company if shares of Common Stock of the Company were
offered to the public in a widely distributed initial public offering and listed
on one or more major stock exchanges, and comparable stock market valuations
assuming

                                      -13-
<PAGE>

such shares of Common Stock are publicly traded and widely distributed with no
discount for lack of liquidity; provided that such valuation shall exclude any
                                --------
minority discount.

           The Fair Market Value for the Warrant Shares or other property, as
the case may be, shall be stated in U.S. dollars. The Company shall be
responsible for all compensation of the Independent Financial Experts; provided
                                                                       --------
that the Warrant holders shall be responsible for the compensation of the
Independent Financial Expert with respect to the Value Report in the event that
the Fair Market Value specified in such Value Report is less than the greater of
(x) the Fair Market Value specified in the Annual Value Report and (y) the Fair
Market Value determined by the Board of Directors pursuant to the first
paragraph of this Section 12. When the Independent Financial Expert is asked to
                  ----------
deliver a Value Report it shall submit such Value Report simultaneously to the
Company and the Warrant holders at 12:00 noon New York time on the thirtieth day
after being jointly instructed by the Company and the Warrant holders to
initiate the valuation calculation or, if such day is not a business day, on the
next business day.

SECTION 8. FRACTIONAL INTERESTS.

           The Company shall not be required to issue fractional Warrant Shares
on the exercise of Warrants. If more than one Warrant shall be presented for
exercise in full at the same time by the same holder, the number of full Warrant
Shares which shall be issuable upon the exercise thereof shall be computed on
the basis of the aggregate number of Warrant Shares purchasable on exercise of
the Warrants so presented. If any fraction of a Warrant Share would, except for
the provisions of this Section 8, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall pay an amount in cash equal to the
Fair Value per Warrant Share, as determined on the day immediately preceding the
date the Warrant is presented for exercise, multiplied by such fraction,
computed to the nearest whole U.S. cent.

SECTION 9  NOTICES TO WARRANT HOLDERS.

           9.1. Upon any adjustment of the Exercise Price pursuant to Section 9
hereof, the Company shall promptly thereafter (i) cause to be prepared a
certificate of a firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company (who may be the regular
auditors of the Company) setting forth the Exercise Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculations are based and setting forth the number of Warrant
Shares (or portion thereof) issuable after such adjustment in the Exercise
Price, upon exercise of a Warrant and payment of the adjusted Exercise Price,
which certificate shall be conclusive evidence of the correctness of the matters
set forth therein, and (ii) cause to be given to each of the holders of Warrants
at such holder's address as it appears in the records of the Company (unless
otherwise indicated by any such holder) written notice of such adjustments by
first-class mail, postage prepaid. Where appropriate, such notice may be given
in advance and included as a part of the notice required to be mailed under the
other provisions of this Section 9.

          9.2.  In case:

                                      -14-
<PAGE>

          (i)   the Company shall authorize the issuance to all holders of
shares of Class A Common Stock of rights, options or warrants to subscribe for
or purchase shares of Class A Common Stock or of any other subscription rights
or warrants;

          (ii)  the Company shall authorize the distribution to all holders of
shares of Class A Common Stock of evidences of its indebtedness or assets (other
than dividends or cash distributions paid out of consolidated current or
retained earnings as shown on the books of the Company prepared in accordance
with generally accepted accounting principles or dividends payable in shares of
Class A Common Stock or distributions referred to in subsection 9.1 hereof);

          (iii) of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, or of any reclassification or change of Class A Common Stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or a tender offer or exchange offer for
shares of Class A Common Stock;

          (iv)  of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or

          (v)   the Company proposes to take any action (other than actions of
the character described in subsection 7.1 hereof) which would require an
adjustment of the Exercise Price pursuant to Section 7 hereof;

then the Company shall cause to be given to each of the registered holders of
Warrants at such holder's address as it appears in the records of the Company
(unless otherwise indicated by any such holder), at least 20 days (or 10 days in
any case specified in clauses (i) or (ii) above) prior to the applicable record
date hereinafter specified, or promptly in the case of events for which there is
no record date, by first-class mail, postage prepaid, a written notice stating
(x) the date as of which the holders of record of shares of Class A Common Stock
to be entitled to receive any such rights, options, warrants or distribution are
to be determined, (y) the initial expiration date set forth in any tender offer
or exchange offer for shares of Class A Common Stock, or (z) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of Class A Common Stock
shall be entitled to exchange such shares for securities or other property, if
any, deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure to give the notice
required by this Section 9 or any defect therein shall not affect the legality
or validity of any distribution, right, option, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any action.

          9.3.  Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders of Warrants the
right to vote or to consent or to receive notice as stockholders in respect of
the meetings of stockholders or the election of directors of the Company or any
other matter, or any rights whatsoever as stockholders of the Company.

                                      -15-
<PAGE>

SECTION 10.  REPORTS

          10.1.  The Company agrees with Holder, for so long as any Warrants or
Warrant Shares remain outstanding and during any period in which the Company (i)
is not subject to Section 13 or 15(d) of the Exchange Act, to make available,
upon request of Holder, to such Holder or beneficial owner of Warrants or
Warrant Shares in connection with any sale thereof and any prospective purchaser
of such Warrants or Warrant Shares designated by such Holder or beneficial
owner, the information required by Rule 144(A)(d)(4) under the Securities Act in
order to permit resales of such Warrants or Warrant Shares pursuant to Rule
144A, and (ii) is subject to Section 13 or 15(d) of the Exchange Act, to make
all filings required thereby in a timely manner in order to permit resales of
such Warrants or Warrant Shares pursuant to Rule 144A.

SECTION 11.  NOTICES TO COMPANY.

          Any notice or demand authorized by this Agreement to be given or made
by the registered holder of any Warrant to or on the Company shall be
sufficiently given or made when received if deposited in the mail, first class
or registered, postage prepaid, addressed (until another address is filed in
writing by the Company) as follows:

          The Derby Cycle Corporation
          300 First Stamford Place
          Stamford, CT 06902
          Telecopier No.:
          Attention: Daniel Lynch

With a copy to:

          Kirkland & Ellis
          International Financial Centre
          Old Broad Street
          London EC2N 1HQ
          UK
          Telecopier No.: 44 171 816-8800
          Attention: M. Gilbey Strub, Esq.

SECTION 12.  FURTHER AGREEMENTS.

          12.1.  Public Equity Offering.

          The Company agrees that it shall not undertake any initial Public
Equity Offering of Class A Common Stock of any class other than the class of
Class A Common Stock into which the Warrants are exercisable, unless the Company
provides Holders of the Warrants and Non Public Warrant Shares the ability to
convert their Warrant Shares or to exercise their Warrants for Class A Common
Stock of the same class as is the subject of the initial Public Equity Offering.

          12.2.  Investment Company.

                                      -16-
<PAGE>

          The Company agrees that it shall not, and shall not permit any of its
subsidiaries, to take any action that would subject it to the requirements of
the Investment Company Act of 1940.

SECTION 13.  SUPPLEMENTS AND AMENDMENTS.

          The Company may from time to time supplement or amend this Agreement
without the approval of any holders of Warrants in order to cure any ambiguity
or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
may deem necessary or desirable and which shall not in any way adversely affect
the interests of the holders of Warrants.  Any amendment or supplement to this
Agreement that has an adverse effect on the interests of the holders of Warrants
shall require the written consent of the holders of Warrants exercisable into a
majority of the Warrant Shares.  The consent of each holder of Warrants affected
shall be required for any amendment pursuant to which the Exercise Price would
be increased or the number of Warrant Shares purchasable upon exercise of
Warrants would be decreased (other than pursuant to adjustments provided in this
Agreement) or which would affect any holder of Warrants in a manner different
from any other holder of Warrants.

SECTION 14.  SUCCESSORS.

          All the covenants and provisions of this Agreement by or for the
benefit of the Company or Holder shall bind and inure to the benefit of their
respective successors and assigns hereunder.

SECTION 15.  TERMINATION.

          This Agreement shall terminate at 5:00 p.m., New York City time on
November 22, 2010.  Notwithstanding the foregoing, this Agreement will terminate
on any earlier date if all Warrants have been exercised.

SECTION 16.  GOVERNING LAW.

          This Agreement and the Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of New York and for all
purposes shall be construed in accordance with the internal laws of said State.

SECTION 17.  BENEFITS OF THIS AGREEMENT.

          Nothing in this Agreement shall be construed to give to any Person
other than the Company and the registered holders of Warrants any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company and the registered holders
of Warrants.

                                      -17-
<PAGE>

SECTION 18.  COUNTERPARTS.

          This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.



                           [Signature Page Follows]

                                      -18-
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed, as of the day and year first above written.


                              The Derby Cycle Corporation


                              By:   /s/ Daniel S. Lynch
                                 ------------------------------
                                 Name:  Daniel S. Lynch
                                 Title: Chief Financial Officer


                              Thayer Equity Investors III, L.P.


                              By:   /s/ Robert E. Michalik
                                 ------------------------------
                                 Name:  Robert E. Michalik
                                 Title: Manager


                              Perseus Cycle, L.L.C.


                              By:   /s/ William B. Ford
                                 ------------------------------
                                 Name:  William B. Ford
                                 Title: Managing Director

                              Quantum Industrial Partners LDC


                              By:   /s/ Michael C. Neus
                                 ------------------------------
                                 Name:  Michael C. Neus
                                 Title: Attorney-in-Fact

                                      -19-