Document:

<PAGE>   1

                                    DVI, INC.
                               SEVERANCE PAY PLAN

                           (Effective January 1, 2000)
<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
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                                                                         PAGE
<S>                                                                      <C>
PART 1.  DEFINITIONS ................................................     1
1.1      Board ......................................................     1
1.2      Cause ......................................................     1
1.3      Change of Control ..........................................     1
1.4      Employee ...................................................     2
1.5      Employer ...................................................     2
1.6      Good Reason ................................................     2
1.7      Plan .......................................................     2
1.8      Plan Administrator .........................................     3
1.9      Plan Year ..................................................     3
1.10     Termination Event ..........................................     3

PART 2.  PARTICIPATION ..............................................     3
2.1      Commencement of Participation ..............................     3
2.2      Eligibility for Regular Severance Benefits .................     3
2.3      Eligibility for Change-of-Control Severance Benefits .......     3
2.4      Work-Through Date ..........................................     4

PART 3.  BENEFITS; FUNDING ..........................................     4
3.1      Regular Severance Benefit ..................................     4
3.2      Change-of-Control Severance Benefits .......................     4
3.3      Retention Bonus ............................................     4
3.4      Plan Not Funded ............................................     5
3.5      Limitation on Payments .....................................     5

PART 4.  FORM AND TIMING OF SEVERANCE PAYMENTS ......................     5
4.1      Severance Payments .........................................     5
4.2      Payments After Death .......................................     5

PART 5.  OTHER PLAN FEATURES ........................................     5
5.1      Assignment of Benefit Prohibited ...........................     5
5.2      Claims .....................................................     6
5.3      Amendment or Termination of Plan ...........................     7

PART 6.  MISCELLANEOUS ..............................................     7
6.1      Governing Law ..............................................     7
6.2      Severability ...............................................     7
6.3      Entire Agreement ...........................................     7
6.4      Successor Employer .........................................     7
</TABLE>

                                      -i-
<PAGE>   3
                                   DVI, INC.
                               SEVERANCE PAY PLAN

         WHEREAS, DVI, Inc. ("DVI"), a Delaware corporation, desires to
establish a severance pay plan for the benefit of its eligible employees;

         WHEREAS, the terms of the plan are set forth in this document and are
to supersede entirely all prior rules and policies regarding severance benefits,
if any;

         WHEREAS, all payments under the plan will be made from general
corporate assets of DVI or an affiliated employer;

         WHEREAS, payments under the plan are not contingent, directly or
indirectly, upon the retirement of the Employees;

         WHEREAS, in adopting the plan, the Board of Directors of DVI intends
for the plan to be legally and contractually binding on DVI even though
individual contracts will not be entered into between DVI and the Employees in
the plan;

         NOW, THEREFORE, in consideration of the provisions contained herein and
intending to be legally bound hereby, DVI adopts the severance pay plan under
the following terms and conditions:

                               PART 1. DEFINITIONS

         When the following terms are used in this document with initial capital
letters, they shall have the following meanings:

         1.1  Board - the Board of Directors of DVI.

         1.2  Cause - means that an Employee's employment is involuntarily
terminated due to one or more of the following events:

          (a) an Employee's act or acts of dishonesty that were intended to
     result in such Employee's personal enrichment;

          (b) an Employee's conviction of a felony; or

          (c) prior to the occurrence of an event described in Section 1.6
     below, an Employee's documented willful and deliberate insubordination, or
     documented willful malfeasance or willful misconduct in connection with
     such Employee's employment.

         1.3  Change of Control - a Change of Control shall be deemed to have
taken place if:

                                      -1-
<PAGE>   4
          (a) any person - including a group of persons acting in concert for
     the purpose of acquiring, holding, voting or disposing of voting securities
     of DVI, but excluding DVI and the officers and directors of DVI (but only
     to the extent acting in that capacity and not when acting in the capacity
     of shareholders) - becomes the beneficial owner (as beneficial ownership is
     defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
     amended, and any successor rule thereto) of voting securities of DVI having
     51 percent or more of the total number of votes that may be cast for the
     election of directors of DVI; or

          (b) there occurs any cash tender or exchange offer for shares of DVI,
     merger or other business combination involving DVI, sale of assets of DVI,
     or any combination of the foregoing transactions, and as a result of or in
     connection with any such event (including, without limitation, the
     voluntary resignation of one or more directors) persons who were directors
     of DVI before the event shall cease to constitute a majority of the board
     of directors of DVI or any entity successor thereto or to substantially all
     of the assets thereof; or

          (c) there occurs a merger or other business combination involving DVI,
     and (ii) the persons who owned the issued and outstanding voting securities
     of DVI immediately prior to the transaction cease to beneficially own, as a
     result of this transaction, issued or outstanding voting securities of DVI
     or any entity successor thereto or substantially all of the assets thereof
     which entitle the holders thereof to cast a majority of the votes that may
     be cast in the election of directors.

         1.4 Employee - any individual employed full time (i.e., not less than
32 hours per week) by the Employer within the United States or (to the extent
participation is permitted by local law) outside of the United States.

         1.5 Employer - DVI and its majority-owned subsidiaries and joint
ventures, including any employer organized outside of the United States (to the
extent participation is permitted by local law).

         1.6 Good Reason - means that an Employee terminates his employment as a
result of either of the following events occurring after a Change of Control:

          (a) the Employee's annual salary rate as in effect on the day before
     the Change of Control is reduced;

          (b) the Employer requires such Employee to be based at an office which
     is at least 35 miles further from his residence than his office on the day
     before the Change of Control (other than travel reasonably required in the
     performance of such Employee's responsibilities); or

          (c) the Employee's duties or position is materially and adversely
     changed in a manner inconsistent with the Employee's training or
     professional status.

                                      -2-
<PAGE>   5
         1.7 Plan - the DVI, Inc. Severance Pay Plan, as set forth herein and as
it may be amended from time to time.

         1.8 Plan Administrator - the Compensation Committee of the Board. The
Plan Administrator shall have the responsibility, power, authority, and
discretion to supervise and control the operation of the Plan in accordance with
its terms. The Plan Administrator shall be the "named fiduciary" of the Plan
within the meaning of section 402 of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). A majority of the members of the Compensation
Committee shall constitute a quorum for the transaction of business related to
the Plan. All resolutions or other actions taken by such Committee at any
meeting shall be by vote of the majority of the members of such Committee.
Resolutions may be adopted and other action taken by the unanimous written
consent of all members of such Committee without a meeting of such Committee.

         1.9 Plan Year - the 12-consecutive month period beginning on any
January 1 and ending on the following December 31.

         1.10 Termination Event - an event described in Section 2.3(a).

                              PART 2. PARTICIPATION

         2.1 Commencement of Participation. An Employee shall become a
participant in the Plan on the later of the effective date of the Plan or the
date such Employee commenced employment with the Employer, provided such
Employee is not covered by an individual agreement with the Employer providing
payments and benefits upon a Change of Control.

         2.2 Eligibility for Regular Severance Benefits. An Employee shall be
eligible to receive "Regular Severance Benefits" (as provided in Section 3.1) if
such Employee's employment terminates prior to the date of a Change of Control.
An Employee whose termination is due to the Employee's disability, death,
voluntary termination, or for Cause is not eligible for severance benefits.

         2.3 Eligibility for Change-of-Control Severance Benefits. An Employee
is eligible to receive "Change-of-Control Severance Benefits" (as provided in
Section 3.2) if he experiences a Termination Event on or after the date he
becomes a participant in the Plan, subject to the Work-Through provision as
provided in Section 2.4.

               (a) Termination Event. A Termination Event occurs, except as
     provided in subsection (b) below, if, within one year following the date of
     a Change of Control, an Employee ceases to be employed by the Employer for
     either of the following reasons:

                                      -3-
<PAGE>   6
               (1) the Employer terminates the Employee's employment other than
          for Cause; or

               (2) if the Employee terminates his employment for Good Reason.

          (b) Terminations Not Qualifying as Termination Events. An Employee is
     not eligible to receive Change-of-Control Severance Benefits under the Plan
     if any of the following applies:

               (1) his employment is terminated due to his disability or death;

               (2) the Employer terminates his employment for Cause; or

               (3) he terminates his employment without Good Reason.

         2.4 Work-Through Date. At any time during the 90-day period following a
Change of Control, the Employer may condition an Employee's eligibility for
Change-of-Control Severance Benefits on such Employee's continued employment
with the Employer, upon the Employer's written request, for a period of not more
than 180 days after the date the Employer delivers the written request. After
the Employer delivers the written request, the Employer may not terminate the
Employee prior to the work-through date except for cause. The last day of the
period of required employment is the Employee's "work-through date"; provided,
however, that the work-through date requirement shall be waived in the event
such Employee terminates employment for Good Reason.

                            PART 3. BENEFITS; FUNDING

         3.1 Regular Severance Benefit. If an Employee is terminated other than
for Cause and not in the context of a Change-of-Control, he will be entitled to
receive Regular Severance Benefits as follows:

             (a) Severance Allowance. . The Employer will pay him a severance
     allowance in an amount based on his years of service with the Employer and
     his annual salary rate in effect on the date of termination, up to a
     maximum of one times such annual salary rate. The specific amount payable
     for a specific number of years of service and the payment periods is set
     forth on Exhibit A attached hereto; and

             (b) Medical, Dental, and Life Insurance. The Employer will provide
     such Employee with group medical, dental plan, and life insurance coverage,
     paid for by the Employer, that such employee was entitled to as of the date
     of termination, for a period beginning with the date of termination and
     continuing over the period for which he receives severance benefits under
     subsection (a) above; provided, however, that if the plan does not permit
     continued participation, then DVI shall reimburse the Employee and his
     family member(s) for the cost of reasonable coverage under personal medical
     and dental policies.

                                      -4-
<PAGE>   7
         3.2 Change-of-Control Severance Benefits. If an Employee experiences a
Termination Event, he will be entitled to receive severance benefits as follows,
subject to Section 3.5:

             (a) Severance Allowance. The Employer will pay him a severance
     allowance in an amount based on his years of service with the Employer and
     his annual salary rate in effect on the date of the Termination Event, up
     to a maximum of one times such annual salary rate. The specific amount
     payable for a specific number of years of service and the payment periods
     is set forth on Exhibit A attached hereto.

             (b) Medical, Dental, and Life Insurance. The Employer will provide
     such Employee with group medical, dental plan, and life insurance coverage,
     paid for by the Employer, that such employee was entitled to as of the date
     the Termination Event occurs, for a period beginning with the date of the
     Termination Event and continuing over the period for which he receives
     severance benefits under subsection (a) above; provided, however, that if
     the plan does not permit continued participation, then DVI shall reimburse
     the Employee and his family member(s) for the cost of reasonable coverage
     under personal medical and dental policies.

         3.3 Retention Bonus. An Employee who remains employed with the Employer
for the 90-day period following the date of a Change of Control will be entitled
to receive a bonus in an amount equal to 1/12th of his annual salary rate in
effect on the date of the Change of Control. The bonus shall be paid in a single
sum as soon as practicable after 90 days following the Change of Control. Should
his employment terminate prior to the end of such 90-day period (other than a
termination for Cause or without Good Reason), he will receive his salary for
the remainder of the 90-day period at the salary rate in effect on the date of
termination; but, he will not receive the Retention Bonus.

         3.4 Plan Not Funded. The Employer will not make any contributions to
fund this Plan. Any severance payments made pursuant to the Plan will be paid
out of the general funds of the Employer. An Employee will not have any secured
or preferred interest by way of trust, escrow, lien, or otherwise in any
specific assets. An Employee's rights shall be solely those of an unsecured
general creditor of the Employer.

                                      -5-
<PAGE>   8
         3.5 Limitation on Payments. Amounts otherwise payable to Employees
under the Plan shall be limited to the extent required to avoid the imposition
of excise taxes on Employees under section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), or the disallowance of a deduction to the
Employer under section 280G(a) of the Code. Notwithstanding any other provision
of the Plan, severance benefits payable under Section 3.2 of the Plan, to the
extent they are parachute payments (as defined in section 280G(b)(2) of the
Code), shall be modified to the extent necessary so that the aggregate present
value (as defined in section 280G(d)(4) of the Code) of such parachute payments
payable under the Plan and any other parachute payments payable pursuant to any
other plan or agreement between each Employee and the Employer shall be at least
one dollar less than three times each Employee's "base amount" (as defined in
section 280G(b)(3) of the Code).

                  PART 4. FORM AND TIMING OF SEVERANCE PAYMENTS

         4.1 Severance Payments. Severance payments under Section 3.1 or 3.2
will be paid in accordance with the payroll practices of the Employer in effect
at the time of termination of employment.

         4.2 Payments After Death. If any portion of an Employee's severance
payments remains unpaid at his death, the remaining amount will be paid in a
single sum to the Employee's estate.

                           PART 5. OTHER PLAN FEATURES

         5.1 Assignment of Benefit Prohibited. No severance benefits under this
Plan shall be subject in any manner to anticipation, alienation, assignment
(either at law or in equity), encumbrance, garnishment, levy, execution, or
other legal or equitable process.

         5.2 Claims. If an Employee believes he may be entitled to benefits
under the Plan that he has not received, or if he disagrees with any
determination that has been made, he should follow the following procedure:

             (a) Making a Claim. An Employee's claim must be written and must be
     delivered to the Plan Administrator. The Plan Administrator will approve or
     disapprove the claim within 30 days following the receipt of the necessary
     information, unless special circumstances require more time. If more time
     is required, written notice of the extension will be forwarded to the
     Employee before the extension begins. In no event will the extension exceed
     60 days after the Plan Administrator receives the claim. If the claim is
     wholly or partially denied, the Employee will receive a written notice
     specifying: (i) the reasons for denial; (ii) the Plan provisions on which
     the denial is based; and (iii) any additional information needed from the
     Employee in connection with the claim and the reason such information is
     needed. The Employee also will receive a copy of paragraph (b) below
     concerning his right to request a review.

                                      -6-
<PAGE>   9
             (b) Requesting Review of a Denied Claim. The Employee may request
     that a denied claim be reviewed. The Employee's request for review must be
     written and must be delivered to the Plan Administrator within 60 days
     after the Employee receives the written notice that his claim was denied.
     The Employee's request for review may (but is not required to) include
     issues and comments the Employee wants considered in the review. The
     Employee may examine pertinent Plan documents by asking the Plan
     Administrator. The Plan Administrator will act upon the appeal within 30
     days after receiving it, unless special circumstances require more time. If
     more time is required, written notice of the extension will be forwarded to
     the Employee before the extension begins. In no event will the extension
     exceed 60 days after the Plan Administrator receives the appeal. The
     decision will be in writing and will specify the Plan provisions on which
     it is based.

             (c) Arbitration. In the event any controversy or claim arising out
     of or relating to the Plan or the breach, termination, or validity thereof
     is not resolved pursuant to subsection (a) above or subsection (b) above,
     such controversy or claim shall be settled by arbitration in accordance
     with the Commercial Arbitration Rules of the American Arbitration
     Association, and judgment upon the award rendered by the arbitrator(s) may
     be entered by any court having jurisdiction thereof. The parties shall
     share equally the costs of arbitration.

             (d) In General. This Section shall be the sole method in which
     controversies or claims under this Plan shall be determined. All decisions
     on claims and on review of denied claims under subsections (a) and (b)
     above will be made by the Plan Administrator. The Plan Administrator may,
     in its discretion, hold one or more hearings. If the Employee does not
     receive a decision within the specified time, the Employee may assume the
     claim was denied or re-denied on the date the specified time expired. The
     Plan Administrator shall have the sole discretion to carry out its duties
     under the Plan, to construe and interpret the provisions of the Plan, and
     to determine all questions concerning benefit entitlements, including the
     power to construe and determine disputed or doubtful terms. To the maximum
     extent permissible under law, the Plan Administrator's determinations on
     all such matters shall be final and binding on all persons involved.

         5.3 Amendment or Termination of Plan. DVI, by written action of the
Board, reserves the right to amend the Plan or to terminate the Plan at any
time, provided that no such amendment or termination shall impair an Employee's
rights under the Plan if (i) a Change of Control occurs before the date of such
amendment or termination or (ii) if such amendment or termination occurs in
contemplation of an imminent Change of Control or pursuant to the request of any
party involved with an imminent Change of Control. If the Plan is amended or
terminated, all Employees will be so notified.

                              PART 6. MISCELLANEOUS

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<PAGE>   10
         6.1 Governing Law. The law of the State of Delaware shall be the
controlling state law in all matters relating to the Plan (without reference to
principles of conflict of laws), and shall apply to the extent it is not
preempted by ERISA.

         6.2 Severability. If any provision of the Plan is held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision, and the Plan shall be construed and enforced as if such provision had
not been included.

         6.3 Entire Agreement. This Plan contains the entire agreement by the
Employer with respect to the subject matter hereof. No modification or claim of
waiver of any of the provisions hereof shall be valid unless in writing and
signed by the party against whom such modification or waiver is sought to be
enforced.

         6.4 Successor Employer

             (a) Assumption of Plan. DVI shall require any successor (whether
     direct or indirect, by purchase, merger, consolidation, or otherwise) to
     all or substantially all of the business or assets of DVI to assume and
     agree to perform this Plan. Such successor shall perform in the same manner
     and to the same extent that DVI would have been required to perform if no
     such succession had taken place. If DVI fails to obtain such assumption and
     agreement prior to the effective date of any such succession (the
     "Succession Date"), the failure will be a breach of this Plan. Such breach
     shall entitle each Employee to the benefits described in Section 3.2 and to
     the bonus described in Section 3.3 as if a Change of Control had occurred
     on the day before such Succession Date and as if a Termination Event had
     occurred on the Succession Date.

             (b) Form of Payment. If DVI breaches this Plan under subsection (a)
     above, the gross amount of the payments described in Sections 3.2 and 3.3
     shall be paid in a single sum to each Employee within 10 days after the
     Succession Date. In addition, DVI shall in good faith pay a single-sum
     estimate of the cost of reasonable coverage for the Employee and his family
     member(s) under personal medical policies for the entire period described
     in Section 3.2(b). DVI shall pay such estimate to the Employee within 10
     days after the Succession Date.

         IN WITNESS WHEREOF, DVI, Inc. has caused this Plan to be duly executed
this ____ day of ________________________, 2000.

Attest:                                  DVI, INC.

_________________________                By:______________________________
   Melvin C. Breaux,                            Michael A. O'Hanlon,
   Secretary                                    President

<PAGE>   11
                    DVI, INC. SEVERANCE PAY PLAN - EXHIBIT A

PLAN PURPOSE
The Severance Pay Plan is intended to assist eligible employees whose employment
ends for other than Cause and Change of Control.

PLAN EFFECTIVE DATE
The Severance Pay Plan is in effect February 1, 2000.

WHO IS ELIGIBLE
You are eligible for Severance Pay Plan benefits if you are a full-time employee
of DVI, whose employment is terminated for one of the reasons indicated below.
The Plan covers all employees of DVI and it's majority- owned subsidiaries.

HOW THE PLAN WORKS
The Plan will provide severance pay benefits and continued group medical and
life insurance benefits to all eligible employees, if employment ends for one of
the following:

     -    Involuntary termination other than for Cause

     -    Reduction in force

     -    Resignation for Good Reason after Change-in-Control

You will not qualify for any benefit if employment ends under circumstances,
such as:

     -    Termination for Cause (unsatisfactory performance, misconduct, neglect
          of duties, etc.)

     -    Voluntary resignation without Good Reason

     -    Retirement

     -    Death

     -    Become eligible for Long-Term Disability Plan benefits

Your benefit will be reduced by: - All deductions required by the law.

     -    Sick Pay

     -    Disability benefits

     -    Income tax or other amounts withheld by law

<PAGE>   12

YOUR BENEFIT AMOUNT
The Plan benefit amount is adjusted upward for years of service in accordance
with the following table:

                                  YOUR MONTHLY BENEFIT AMOUNT
<TABLE>
<CAPTION>

                   SEVERANCE ONLY(i)       CHANGE OF CONTROL                           CHANGE OF CONTROL
                                                                                       PLUS SEVERANCE(ii)
--------------------------------------------------------------------------------------------------------
   EMPLOYED                                STAY PERIOD(iii)        BONUS
<S>                <C>                     <C>                     <C>                 <C>
< 180 days                 2                     3                    1                     6
181 - 1 year               3                     3                    1                     7
1 - 1.5 years              4                     3                    1                     8
1.6 - 2 years              5                     3                    1                     9
2 - 3 years                6                     3                    1                    10
3 - 4 years                8                     3                    1                    12
4 - 5 years                10                    3                    1                    14
5 - 6 years                11                    3                    1                    15
6 - 7 years                12                    3                    1                    16
7 - 8 years                12                    3                    1                    16
8 +                        12                    3                    1                    16
</TABLE>

(i) SEVERANCE ONLY: Employee receives Severance Only if termination for other
than Cause and no Change of Control has occurred.

(ii) CHANGE OF CONTROL PLUS SEVERANCE: Employee receives total amount of the
Severance Only plus Change of Control amounts as they apply.

(iii) STAY PERIOD: Assumes Change of Control. Employee guaranteed 90 days from
date of Change of Control. Explanation: After 90 days, Employee is entitled to
Bonus (one months salary) paid shortly after 90th day plus Severance Pay. If
employee is terminated before 90 days, Employee is entitled to balance of 90
days salary and Severance Pay, but no Bonus Payment.

HOW PAYMENTS ARE MADE
Your payments will be made in a number of periodic installments paid through the
payroll department. The number and timing of such payments will be provided
through the existing payroll system used by the Employer.

If you die before you receive your entire benefit, DVI will pay the remainder in
a lump sum payment to your estate.

NOTE: Your employment ends on or before the date Severance Plan payments begin.
Severance Plan payments are not to be construed as an employment continuation.

WHEN BENEFITS END
You will stop receiving benefits if:

     -    You have received all payments to which you are entitled.

     -    You are reemployed by DVI or an eligible affiliate

WRITTEN RELEASE
DVI will require you to complete a written release before making any severance
payments to you.

PLAN DOCUMENT
You are entitled to receive a copy of the DVI, Inc. Severance Pay Plan upon
request to the DVI Human Resources Department Manager.<PAGE>   1
                                                                    EXHIBIT 10.1

                                SECOND AMENDMENT
                                       TO
                      AMENDED AND RESTATED CREDIT AGREEMENT

       SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
November 16, 1999 (this "Amendment"), by and among Cannondale Corporation, a
corporation organized under the laws of the State of Delaware ("Cannondale");
each of the Subsidiaries of Cannondale that is a signatory to the Credit
Agreement (as defined below) (such Subsidiaries of Cannondale, together with
Cannondale, the "Borrowers"); BANK OF AMERICA, N.A., a national banking
association organized under the laws of the United States of America ("Bank of
America"), as successor-in-interest to NATIONSBANK, N.A.; FLEET NATIONAL BANK, a
national banking association organized under the laws of the United States of
America ("Fleet"); THE CHASE MANHATTAN BANK, a bank organized under the laws of
New York ("Chase"); and CITIZENS BANK OF MASSACHUSETTS ("Citizens"), as
successor-in-interest to STATE STREET BANK AND TRUST COMPANY; and BANKBOSTON,
N.A., a national banking association organized under the laws of the United
States of America ("BankBoston") (each of Bank of America, Fleet, Chase, and
Citizens, and BankBoston shall be referred to herein individually as a "Bank"
and collectively as the "Banks"); and Bank of America, in its capacity as
administrative agent for the Banks (in such capacity, together with its
successors in such capacity, the "Administrative Agent").

                                   Background

       A.     Reference is made to that certain Amended and Restated Credit
Agreement dated as of January 22, 1999 (the "Original Credit Agreement") among
the Borrowers, the Banks, the Administrative Agent and the other parties
signatory thereto.

       B.     The Original Credit Agreement was amended by that certain First
Amendment to Amended and Restated Credit Agreement dated as of May 1, 1999 (the
"First Amendment"), among the Borrowers, the Banks, the Administrative Agent and
the other parties signatory thereto. The Original Credit Agreement, as amended
by the First Amendment, shall be referred to herein as the "Credit Agreement."

       C.     The parties hereto wish to further amend the Credit Agreement as
herein provided.

       D.     Capitalized terms not otherwise defined shall have the meanings
ascribed to them in the Credit Agreement, as amended hereby.

<PAGE>   2
                                                                               2

                                    Agreement

       In consideration of the Background, which is incorporated by reference,
the parties hereto, intending to be legally bound, hereby agree as follows:

       1.     Modification. All the terms and provisions of the Credit Agreement
and the other Facility Documents, as amended to date, shall remain in full force
and effect except as follows:

              (a)    The terms "Administrative Agent" and "Documentation Agent,"
shall mean Bank of America, N.A., a national banking association organized under
the laws of the United States of America, and its successors in such capacities.

              (b)    The following definitions are inserted into Section 1.1 of
the Credit Agreement immediately following the definition of "Borrowing":

              "Borrowing Base" means, as of the date of determination thereof,
              for each Bank, an amount equal to the lesser of: (a) 110% of the
              Eligible Receivables or (b) the Revolving Credit Commitment for
              such Bank. Unless the Administrative Agent shall otherwise
              determine, the Borrowing Base as of any date shall be the
              Borrowing Base set forth on the most current Borrowing Base
              Certificate certified and delivered by the applicable Borrower
              pursuant to Section 7.8.

              "Borrowing Base Certificate" means a certificate substantially in
              the form of Exhibit P hereto.

              (c)    The following definition is inserted into Section 1.1 of
the Credit immediately following the definition of "Eligible Assignee":

              "Eligible Receivable" means, as of any date of determination
              thereof, all Receivables owing to a Borrower and its Subsidiaries
              net of the Borrowers' and its Subsidiaries' customary reserves,
              unearned customer deposits, taxes, trade or other documents,
              discounts, claims, credits, returns, rebates, allowances or
              set-offs.

              (d)    The definition of "Fronting Bank" contained in Section 1.1
of the Credit Agreement is deleted and the following is substituted therefor:

              "Fronting Bank" means, as the case may be, either the Standby
              Letter of Credit Fronting Bank which will be

<PAGE>   3
                                                                               3

              responsible solely for the issuance of standby Letters of Credit
              or the Trade Letter of Credit Fronting Bank which will be
              responsible solely for the issuance of documentary trade Letters
              of Credit."

              (e)    The definition of "Letter(s) of Credit contained in Section
1.1 of the Credit Agreement is deleted and the following is substituted
therefor:

              "Letter(s) of Credit" means any standby or documentary trade
              Letter of Credit issued by a Fronting Bank (either the Standby
              Letter of Credit Fronting Bank or the Trade Letter of Credit
              Fronting Bank, as the case may be) for the account of a Borrower
              pursuant to Section 3.1 for the purpose of supporting performance,
              payment deposit, or surety obligations of such Borrower, in any
              case if required by law or governmental rule or regulation or if
              in the ordinary course of business of such Borrower.

              (f)    The definition of "Margin" contained in Section 1.1 of the
Credit Agreement is deleted and the following is substituted therefor: "Margin"
means (a) for each type of Revolving Loan, 200 basis points; (b) for each type
of Term Loan, 200 basis points; and (c) for each Swingline Loan, 200 basis
points.

              (g)    The following definition is inserted into Section 1.1 of
the Credit Agreement immediately following the definition of "Principal Office":

              "Receivable" and "Receivables" means all amounts owing to a
              Borrower arising out of or in connection with the bona fide sale
              or lease of goods or services in the ordinary course of business.

              (h)    The definition of "Reference Bank" contained in Section 1.1
of the Credit Agreement is deleted and the following is substituted therefor:

              "Reference Bank" means Bank of America, N.A. (or its applicable
              Lending Office, as the case may be).

<PAGE>   4
                                                                               4

              (i)    The definition of "Restricted Payment Allowance" contained
in Section 1.1 of the Credit Agreement is deleted in its entirety.

              (j)    The definition of "Revolving Credit Commitment" contained
in Section 1.1 of the Credit Agreement is deleted and the following is
substituted therefor:

              "Revolving Credit Commitment" means, with respect to each Bank,
              the obligation of such Bank to make Revolving Loans and
              participate in Letters of Credit under this Agreement, subject to
              Borrowing Base limitations, in the following aggregate principal
              amount, as such amount may be reduced or otherwise modified from
              time to time:

              Bank of America, N.A.:                        $12,941,177;
              Fleet National Bank:                          $12,941,177;
              The Chase Manhattan Bank:                     $9,705,882;
              Citizens Bank of Massachusetts:               $9,705,882;
              BankBoston, N.A.                              $9,705,882;

              Total:   $55,000,000.

              (k)    The definition of "Shareholder Pledge Agreement" contained
in Section 1.1 of the Credit Agreement is deleted and the following is
substituted therefor:

              "Shareholder Pledge Agreement" means the Amended and Restated
              Pledge Agreement dated as of September 15, 1998, entered into by
              Joseph Montgomery in favor of Cannondale, securing the Shareholder
              Note, as the same may be amended, modified, supplemented, or
              restated from time to time.

              (l)    The following definition is inserted into Section 1.1 of
the Credit Agreement immediately following the definition of "Spot Exchange
Rate":

              "Standby Letter of Credit Fronting Bank" means Bank of America,
              N.A., a national banking association organized under the laws of
              the United States of America, acting in its capacity as the issuer
              of the standby Letters of Credit hereunder.

<PAGE>   5
                                                                               5

              (m)    The definition of "Swingline Bank" contained in Section 1.1
of the Credit Agreement is deleted and the following is substituted therefor:

              "Swingline Bank" means Bank of America, N.A., a national banking
              association organized under the laws of the United States of
              America, acting in its capacity as the lender of the Swingline
              Loans hereunder.

              (n)    The definition of "Term Loan Commitment" contained in
Section 1.1 of the Credit Agreement is deleted and the following is substituted
therefor:

              "Term Loan Commitment" means, with respect to each Bank, the
              obligation of such Bank to make Term Loans under this Agreement in
              the following aggregate principal amount:

              Bank of America, N.A.:                          $4,705,882;
              Fleet National Bank:                            $4,705,882;
              The Chase Manhattan Bank:                       $3,529,412;
              Citizens Bank of Massachusetts:                 $3,529,412;
              BankBoston, N.A.                                $3,529,412;

              Total:   $20,000,000.

              (o)    The following definition is inserted into Section 1.1 of
the Credit Agreement immediately following the definition of "Total Outstandings
Amount":

              "Trade Letter of Credit Fronting Bank" means The Chase Manhattan
              Bank, a bank organized under the laws of New York, acting in its
              capacity as the issuer of the documentary trade Letters of Credit.

              (p)    Article II of the Credit Agreement shall be modified in all
respects to reflect that the Borrowers shall not have the right, on or after the
date hereof, to request either a borrowing or a renewal of, or a conversion
into, any Eurocurrency Loans, and neither the Banks nor the Administrative Agent
shall be obligated to make, renew, or convert any other type of Loan into a
Eurocurrency Loan on or after the date hereof. All Loans (including Swingline
Loans) made to the Borrowers under the Credit Agreement, on or after the date
hereof, shall be Variable Rate Loans. Specifically, the Swingline Loans shall no
longer accrue interest at the Swingline Rate, but, instead, shall accrue
interest at the Variable Rate plus the applicable Margin. In addition, from and
after the date hereof, Variable Rate Loans may be denominated in one or more
Alternative Currencies, provided however, that any prepayment of such Variable
Rate Loans denominated in one or more Alternative Currencies must be accompanied
by a prepayment penalty determined by the

<PAGE>   6
                                                                               6

Banks in their sole discretion. Without limiting any of the foregoing, to the
extent that any Loans are currently outstanding as Eurocurrency Loans and are
accruing interest prior to the date hereof at a Fixed Rate plus the applicable
Margin, all such Loans shall begin to accrue interest on the outstanding and
unpaid principal amount of each such Loan from and including the date hereof to
but excluding the date such Loan is due at a variable rate per annum equal to
the Variable Rate plus the Margin.

              (q)    The first sentence of Section 2.3(a) of the Credit
Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:

              Subject to the terms and conditions of this Agreement, each of the
              Banks, severally and not jointly, agrees to make revolving credit
              loans (the "Revolving Loans") to each Borrower (as specified in
              the notice of each Borrowing pursuant to Section 2.11) from time
              to time from and including the date hereof to and including the
              Banking Day next preceding the Termination Date, in an aggregate
              principal amount at any one time outstanding up to but not
              exceeding the amount of the Borrowing Base of such Bank to the
              Borrowers; provided the Revolving Loans of such Bank outstanding
              plus the Letters of Credit Usage outstanding of such Bank shall
              not at any time exceed its Borrowing Base and provided further
              that the Outstandings Amount (which includes the aggregate amount
              of Revolving Loans outstanding, the aggregate amount of Swingline
              Loans outstanding plus the Letters of Credit Usage) shall not at
              any time exceed the aggregate amount of the Borrowing Base of the
              Banks.

              (r)    The following shall be added as a new Section 2.3(c) to the
Credit Agreement:

              (c) Each of the parties hereto agrees that, to the extent that
              Joseph Montgomery sells Securities (as such term is defined in the
              Shareholder Pledge Agreement) pursuant to Section 15 of the
              Shareholder Pledge Agreement, the proceeds of which are required
              to be applied in accordance with Section 2(e) of the Loan
              Agreement dated as of September 15, 1998 between Cannondale and
              Joseph Montgomery (the "Loan Agreement"), the Revolving Credit
              Commitment shall be reduced by one dollar for every dollar
              resulting from such proceeds that are so applied toward the
              payment of interest owed by Joseph Montgomery to Cannondale under
              the Loan

<PAGE>   7
                                                                               7

              Agreement and the related note(s). Once reduced, the Revolving
              Credit Commitment cannot be reinstated.

              (s)    The first sentence of Section 2.8(b) of the Credit
Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:

              If any time prior to the Termination Date, as a result of a
              partial reduction or termination of Revolving Credit Commitments,
              as a result of fluctuations in currencies or otherwise, the
              aggregate amount of all Revolving Loans and Swingline Loans
              outstanding at such time shall exceed the aggregate amount of the
              Borrowing Base, the Borrowers shall repay the Banks forthwith such
              amounts as may be necessary to eliminate such excess (and if the
              repayment in full of the Revolving Loans and Swingline Loans does
              not eliminate such excess due to the amount of outstanding Letters
              of Credit Usage, at such time, Cannondale shall also deposit with
              the Administrative Agent sufficient cash collateral to cover such
              remaining excess), and the failure of the Borrowers to make and
              the Banks to receive such payment shall constitute an Event of
              Default hereunder.

              (t)    The words "Revolving Credit Commitments" in the first
sentence of Section 2.12 of the Credit Agreement shall be deleted, and the words
"applicable Borrowing Base" shall be substituted in lieu thereof.

              (u)    The following sentence shall be added to the end of Section
3.1(a) of the Credit Agreement:

              Without limiting the foregoing, all requests made by the Borrower
              with respect to the issuance of standby Letters of Credit shall be
              made to the Standby Letter of Credit Fronting Bank, and all
              requests made by the Borrower with respect to the issuance of
              documentary trade Letters of Credit shall be made to the Trade
              Letter of Credit Fronting Bank. Furthermore, any documentary trade
              Letters of Credit issued pursuant to the terms of this Agreement
              shall be Letters of Credit requested by the Borrower to be issued
              for its account on or after the date hereof, it being the
              intention of the Banks not to participate with the Trade Letter of
              Credit Fronting Bank in any Letter of Credit previously issued by
              Chase prior to the date hereof.

<PAGE>   8
                                                                               8

              (v)    The following condition precedent shall be added as an
additional condition precedent as Section 5.2(g) of the Credit Agreement: "the
Administrative Agent shall have received a Borrowing Base Certificate required
to be delivered pursuant to this Agreement, which Borrowing Base Certificate
shall be dated not earlier than five business days prior to the date on which
the Borrower gives a Notice of Borrowing to the Bank of the subject Borrowing to
be made pursuant to Section 2.7 of the Agreement.

              (w)    The following covenant shall be added as an additional
covenant as Section 7.8(p) of the Credit Agreement: "as soon as available, and
in any event within 10 days of the end of each calendar month, a Borrowing Base
Certificate."

              (x)    Section 8.5 of the Credit Agreement is deleted and the
following is substituted therefor:

              Make, or permit any of its Subsidiaries to make, any loan or
              advance to any Person or purchase or otherwise acquire, or permit
              any such Subsidiary to purchase or otherwise acquire, any capital
              stock, assets, obligations or other securities of, make any
              capital contribution to, or otherwise invest in, or acquire any
              interest in, any Person, except for: (a) Cash and Cash Equivalents
              held or acquired by such Borrower or any such Subsidiary; (b)
              stock, obligations or securities received in settlement of debts
              (created in the ordinary course of business) owing to such
              Borrower or any such Subsidiary; (c) any Acceptable Acquisition or
              any Interest Rate Protection Agreement; (d) joint ventures with
              third-parties (including dealer loans) that, together with all
              other joint ventures (including dealer loans) entered into by all
              Borrowers and their Subsidiaries on or after June 9, 1997, do not
              exceed an aggregate amount of $5,000,000 during the term hereof
              (other than joint ventures (including dealer loans) existing at
              the Closing Date); and (e) intercompany loans made by Cannondale
              to any Subsidiary or Affiliate, including any Subsidiary Borrower,
              that do not exceed an aggregate principal amount of $5,000,000
              outstanding at any one time (exclusive of such intercompany loans
              set forth in Schedule 8.5 hereto). Neither the Borrower nor any of
              its Subsidiaries shall make any loans or advances to their
              respective employees, except for (i) such loans or advances
              previously made to employees of the Borrower or any of its
              Subsidiaries prior to the date hereof, which loans or advances do
              not currently exceed an aggregate principal amount of
              $13,000,144.00; and (ii) such

<PAGE>   9
                                                                               9

              loans or advances made to employees in the ordinary course of
              Borrower's business (e.g., advances for travel and relocation),
              which loans or advances shall not exceed at any one time the
              aggregate principal amount of $500,000.

              (y)    Section 8.6 of the Credit Agreement is deleted and the
following is substituted therefor:

              Declare or pay any dividends, purchase, redeem, retire, or
              otherwise acquire for value any of its capital stock now or
              hereafter outstanding, or make any distribution of assets to its
              stockholders as such whether in cash, assets, or in obligations of
              such Borrower, or allocate or otherwise set apart any sum for the
              payment of any dividend or distribution on, or for the purchase,
              redemption, or retirement of any shares of its capital stock, or
              make any other distribution by reduction of capital or otherwise
              in respect of any shares of its capital stock or permit any of its
              Subsidiaries to purchase or otherwise acquire for value any stock
              of such Borrower or another such Subsidiary, provided, however,
              that each Borrower may declare and deliver dividends and make
              distributions to its stockholders payable solely in common stock
              of such Borrower; and provided further, however, that no such
              dividends shall be declared or paid and no such distributions
              shall be made if any Default or Event of Default shall have
              occurred and be continuing or shall result therefrom.

       2.     Waiver. The Banks and the Administrative Agent hereby waive any
Event of Default that has occurred or may occur as the result of the Borrowers'
failure to comply with the covenants contained in Sections 9.1 ("Interest
Coverage Ratio") and 9.4 ("Debt Service Coverage Ratio") of the Credit Agreement
for the first fiscal quarter of the 2000 Fiscal Year of the Borrowers,
commencing on July 4, 1999 and ended on October 2, 1999 and for the period
commencing on October 3, 1999 (the first day of the second fiscal quarter of the
2000 Fiscal Year of the Borrowers) through, but not including, the last day of
said second fiscal quarter of the Borrowers; provided, however, that such waiver
shall only operate for the specific instance for which it is given, it being the
intention of the parties hereto that the Borrowers shall be in compliance in all
respects with all financial covenants set forth in Article IX of the Credit
Agreement, including the covenants contained in Sections 9.1 and 9.4 therein, on
the last day of the second fiscal quarter of the 2000 Fiscal Year of the
Borrowers and thereafter. The execution and delivery of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power, or remedy that the Banks or the Administrative Agent may have under any
of the Facility Documents.

<PAGE>   10
                                                                              10

       3.     Amendment Fee. The Borrowers hereby agree to pay to the
Administrative Agent, on or prior to the effective date of this Amendment, for
the account of each Bank executing this Amendment, an amendment fee in the
amount of .20% of such Bank's Commitment (used and unused, without giving effect
to Borrowing Base limitations), which Commitment has been reduced by this
Amendment.

       4.     Amendment of Shareholder Pledge Agreement. The Borrowers hereby
agree to enter into an amendment of the Shareholder Pledge Agreement with the
Administrative Agent and Joseph Montgomery ("Montgomery") in form and substance
satisfactory to the Administrative Agent (the "Shareholder Pledge Amendment"),
in order that the parties to the Shareholder Pledge Amendment expressly
acknowledge, among other things, the dollar-for-dollar reduction in the
Revolving Credit Commitment that will occur upon the sale of Securities (as
defined in the Shareholder Pledge Agreement) and the application of the proceeds
from such sale(s) toward interest in accordance with the terms of Section 2(e)
of the Loan Agreement dated as of September 15, 1998 between Cannondale and
Joseph Montgomery.

       5.     Conditions to Effectiveness. This Amendment shall not be effective
until such date as the Administrative Agent shall have received the following,
all in form, scope, and content acceptable to the Administrative Agent and the
Banks in their sole discretion, and then shall be effective as of the date first
above written:

              (a)    this Amendment, executed by the Borrowers and the Required
Banks;

              (b)    the Shareholder Pledge Amendment, executed by Cannondale
and Montgomery;

              (c)    the fully executed Pennsylvania Mortgage and related UCC-1
financing statements to be delivered in connection therewith;

              (d)    a Borrowing Base Certificate setting forth the Borrowing
Base within 5 business days prior to the date hereof;

              (e)    payment of all reasonable fees, including those due under
Section 3 of this Amendment and all reasonable legal fees due Cummings &
Lockwood as counsel to the Administrative Agent;

              (f)    such other agreements and instruments as the Administrative
Agent shall reasonably require.

       6.     Reaffirmation by the Borrowers. Each of the Borrowers
acknowledges, agrees, and reaffirms, both prior to and after taking into account
this Amendment, that each is legally, validly, and enforceably indebted to the
Banks under the Notes without defense, counterclaim, or offset, and that each is
legally, validly, and enforceably liable to the Banks

<PAGE>   11
                                                                              11

for all costs and expenses of collection and reasonable attorneys' fees as and
to the extent provided in this Amendment, the Credit Agreement, the Notes, and
the other Facility Documents. Each of the Borrowers hereby restates and agrees
to be bound by all covenants contained in the Credit Agreement and the other
Facility Documents and hereby reaffirms that all of the representations and
warranties contained in the Credit Agreement and the other Facility Documents
remain true and correct in all material respects with the exception that the
representations and warranties regarding the financial statements described
therein are deemed true as of the date made. Each of the Borrowers represents
that, except as set forth in the Credit Agreement and the other Facility
Documents, there are neither pending, nor to each Borrower's knowledge,
threatened, legal proceedings to which any of the Borrowers is a party that
materially or adversely affect the transactions contemplated by this Amendment
or the ability of any of the Borrowers to conduct its business on a consolidated
basis. Cannondale and Cannondale Europe B.V. each acknowledge and represent that
the resolutions of each dated January 6, 1999, in the case of Cannondale, and
January 19, 1999, and January 21, 1999, in the case of Cannondale Europe B.V.,
remain in full force and effect and have not been amended, modified, rescinded,
or otherwise abrogated.

       7.     Reaffirmation re: Collateral. Cannondale reaffirms the mortgages,
liens, security interests, and pledges granted to Bank of America, N.A.
(successor-in-interest to NationsBank, N.A.), as Administrative Agent, for the
benefit of the Banks pursuant to the Credit Agreement and the other Facility
Documents to secure the obligations of each Borrower thereunder.

       8.     Other representations by the Borrowers. Each of the Borrowers
represents and confirms that: (a) no Default or Event of Default has occurred
and is continuing, and that neither the Agents nor the Banks has given its
consent to or waived any Default or Event of Default other than as expressly set
forth herein, and (b) the Credit Agreement and the other Facility Documents are
in full force and effect and enforceable against the Borrowers in accordance
with the terms thereof. Each of the Borrowers represents and confirms that as of
the date hereof, each has no claim or defense (and each of the Borrowers hereby
waives every claim and defense as of the date hereof) against the Agents or the
Banks arising out of or relating to the Credit Agreement or the other Facility
Documents or arising out of or relating to the making, administration, or
enforcement of the Loans or the remedies provided for under the Facility
Documents.

       9.     Miscellaneous.

              (a)    This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.

<PAGE>   12
                                                                              12

              (b)    This Amendment and the rights and obligations of the
parties hereunder shall be governed by, and construed in accordance with, the
laws of the State of New York.

              (c)    This Amendment shall be deemed a, and included in the
definition of, Facility Document under the Credit Agreement for all purposes.

              (d)    The Credit Agreement, as amended hereby, and the other
Facility Documents remain in full force and effect in accordance with their
terms.

    [The balance of this page left intentionally blank. The next page is the
                                signature page.]

<PAGE>   13
                                                                              13

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

                              BORROWERS

                              CANNONDALE CORPORATION

                              By  /S/  WILLIAM A. LUCA
                                 ------------------------------
                                    Name:  William A. Luca
                                    Title:  Vice President, Treasurer,
                                               Chief Financial Officer

                              CANNONDALE EUROPE B.V.

                              By  /S/  BEPPO HILFIKER
                                 --------------------
                                    Name:  Beppo Hilfiker
                                    Title:  Managing Director

                              CANNONDALE JAPAN K.K.

                              By  /S/  BILL CONRADT
                                 ------------------
                                    Name:  Bill Conradt
                                    Title:   President, Cannondale Japan

                              ADMINISTRATIVE AGENT

                              BANK OF AMERICA, N.A.

                              By  /S/  JOHN W. POCALYKO
                                 ----------------------
                                    Name:  John W. Pocalyko
                                    Title:  Managing Director

<PAGE>   14
                                                                              14

                              BANKS

                              BANK OF AMERICA, N.A.

                              By  /S/  JOHN W. POCALYCO
                                 ----------------------
                                    Name:  John W. Pocalyko
                                    Title:  Managing Director

                              FLEET NATIONAL BANK

                              By
                                 ----------------------------------
                                    Name:
                                    Title:

                              THE CHASE MANHATTAN BANK

                              By  /S/  THOMAS D. MCCORMICK
                                 -------------------------
                                    Name: Thomas D. McCormick
                                    Title:  Vice President

                              CITIZENS BANK OF MASSACHUSETTS

                              By  /S/  ARLENE M. DOHERTY
                                 -----------------------
                                    Name:  Arlene M. Doherty
                                    Title:  Vice President

                              BANKBOSTON, N.A.

                              By
                                 ----------------------------------
                                    Name:
                                    Title:

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