Document:

<PAGE>   1

                                                                    EXHIBIT 4.11

THIS CONVERTIBLE DEBENTURE AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAW. NEITHER THIS CONVERTIBLE DEBENTURE NOR THESE SECURITIES
MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
FIRST REGISTERED UNDER SUCH LAWS, OR UNLESS THE COMPANY HAS RECEIVED EVIDENCE
REASONABLY SATISFACTORY TO IT THAT REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED.

THE RIGHTS OF THE HOLDER HEREOF AND OF EACH TRANSFEREE AND ASSIGNEE OF SUCH
HOLDER OR ANY SUBSEQUENT HOLDER ARE SUBJECT TO THE TERMS OF THE SUBORDINATION
AGREEMENT DATED AS OF APRIL 27, 2001, AMONG JAMES R. PYNE, THE CIT
GROUP/BUSINESS CREDIT, INC. AND ABLECO FINANCE LLC AND THE TERMS OF SUCH
SUBORDINATION AGREEMENT ARE INCORPORATED HEREIN BY REFERENCE.

<Table>
<S>                                                              <C>
       $2,000,000                                                April 27, 2001
</Table>

                             CANNONDALE CORPORATION

            8% CONVERTIBLE SUBORDINATED DEBENTURE DUE APRIL 28, 2004

            THIS CONVERTIBLE SUBORDINATED DEBENTURE is issued by Cannondale
Corporation, a corporation organized and existing under the laws of the State of
Delaware (the "Company"), and is designated as its 8% Convertible Subordinated
Debenture Due April 28, 2004 (the "Convertible Debenture")

            FOR VALUE RECEIVED, the Company promises to pay to James R. Pyne
("Holder"), or his registered assigns, the principal sum of Two Million Dollars
($2,000,000.00) or such lesser amount as shall then equal the outstanding
principal amount hereof and to pay interest on the principal sum outstanding
from time to time quarterly in arrears at the rate of 8% per annum accruing from
the date of initial issuance. Accrual of interest shall commence on the first
day to occur after the date of initial issuance and continue until payment in
full of the principal sum has been made or duly provided for. Interest shall be
payable quarterly on the last business day of each quarter, commencing on the
last business day of the third month following the date of initial issuance
(each, an "Interest Payment Date"). Unless earlier converted pursuant to Section
4 below, all unpaid

<PAGE>   2

principal, together with any then unpaid and accrued interest and other amounts
payable hereunder, shall be due and payable on the earlier of (i) April 28, 2004
(the "Maturity Date") or (ii) when such amounts are automatically due and
payable upon or after the occurrence of an Event of Default (as defined herein)
(the "Acceleration Date"). If payment of accrued interest is not made on the
applicable Interest Payment Date, or if payment of the unpaid principal and
accrued interest is not made on the earlier to occur of the Maturity Date or the
Acceleration Date, then interest shall accrue on the outstanding principal
amount and on any unpaid accrued interest due hereunder from and after such date
of default to the date of the payment in full of such unpaid accrued interest or
such unpaid principal and accrued interest, as the case may be, at an annual
rate equal to the lesser of 15% or the maximum rate of interest permitted by
applicable law. The following is a statement of the rights of Holder and the
conditions to which this Convertible Debenture is subject, and to which the
Holder hereof, by the acceptance of this Convertible Debenture, agrees:

      1.    Definitions. As used in this Convertible Debenture, the following
capitalized terms have the following meanings:

            (a) "Holder" shall mean James R. Pyne or any Person who shall at the
time be the registered holder of this Convertible Debenture.

            (b) "Company" includes the corporation initially executing this
Convertible Debenture and any Person which shall succeed to or assume the
obligations of the Company under this Convertible Debenture.

            (c) "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.

      2.    Events of Default.  The occurrence of any of the following shall
constitute an "Event of Default" under this Convertible Debenture:

            (a) Failure to Pay. The Company shall fail to pay (i) any principal
payment on the due date hereunder or (ii) any interest or other payment required
under the terms of this Convertible Debenture on the date due and such payment
shall not have been made within ten (10) days of the Company's receipt of
Holder's written notice to the Company of such failure to pay; or

            (b) Breaches of Covenants. The Company shall fail in any material
respect to observe or perform any covenant, obligation, condition or agreement
contained in this Convertible Debenture and such failure shall continue for ten
(10) days following Holder's written notice to the Company of such failure; or

            (c) Representations and Warranties. Any representation or warranty
made by the Company to Holder in this Convertible Debenture or the Convertible
Debenture Purchase Agreement of even date herewith (the "Convertible Debenture
Purchase Agreement") shall be untrue in any material respect when made; or

            (d) Voluntary Bankruptcy or Insolvency Proceedings. The Company
shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to pay its debts
generally as they mature, (iii) make a general assignment for the benefit of its
or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v)
become insolvent (as such term may be defined or interpreted under any
applicable statute), (vi) commence a voluntary case or

<PAGE>   3
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it, or (vii) take any
action for the purpose of effecting any of the foregoing; or

            (e) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect shall be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within thirty (30) days of commencement.

      3. Rights of Holder upon Default. Upon the occurrence or existence of any
Event of Default (other than an Event of Default referred to in Sections 2(d)
and 2(e) hereof) and at any time thereafter during the continuance of such Event
of Default, Holder may, by written notice to the Company, declare all
outstanding obligations payable by the Company hereunder to be immediately due
and payable without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived, anything contained herein to the
contrary notwithstanding. Upon the occurrence or existence of any Event of
Default described in Sections 2(d) and 2(e) hereof, immediately and without
notice, all outstanding obligations payable by the Company hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein to the contrary notwithstanding. In addition
to the foregoing remedies, upon the occurrence or existence of any Event of
Default, Holder may exercise any other right, power or remedy granted to it or
otherwise permitted to it by law, either by suit in equity or by action at law,
or both.

      4.    Conversion.  The Holder of the Convertible Debenture shall have
the following conversion rights:

            (a) Conversion Right. At any time commencing on the date of initial
issuance and prior to the payment in full of this Convertible Debenture
(including, without limitation, after the occurrence of an Event of Default),
the Holder of this Convertible Debenture shall be entitled, upon the written
election of such Holder to the Company and without the payment of any additional
consideration, to convert the unpaid principal amount of the Convertible
Debenture or any portion thereof (but not any accrued interest thereon) (the
"Unpaid Principal Balance") into shares of the Company's common stock (the
"Common Stock") at an initial conversion price of $3.75 per share, subject to
adjustment pursuant to Section 5 below (the "Conversion Price").

            (b) No Fractional Shares. No fractional shares of Common Stock will
be issued upon conversion of this Convertible Debenture. In lieu of any
fractional share to which the holder would otherwise be entitled upon conversion
of this Convertible Debenture, the Company shall pay to the Holder an amount in
cash equal to the product of (x) such fractional share times (y) the Conversion
Price.
<PAGE>   4

            (c) Mechanics and Effect of Conversion. To convert all or part of
the Unpaid Principal Balance of this Convertible Debenture into shares of Common
Stock pursuant to this Section 4, the Holder of this Convertible Debenture shall
surrender this Convertible Debenture, duly endorsed, at the principal offices of
the Company, together with a written notice in the form attached hereto as
Exhibit A (the "Conversion Notice"), to the Company of the Holder's election to
convert. The Holder shall have the option to convert all or less than all of the
then outstanding Unpaid Principal Balance into Common Stock at the time of
conversion. At its expense, the Company will, as soon as practicable thereafter,
and in any event within three (3) business days thereafter, issue and deliver to
the Holder a certificate or certificates for the number of shares of Common
Stock to which the Holder is entitled upon such conversion (bearing the
securities legend set forth on this Convertible Debenture and any other legends
that may be required by applicable state or federal securities law in the
opinion of legal counsel for the Company), together with any other securities or
property to which the Holder is entitled upon such conversion under the terms of
this Convertible Debenture, including a check payable to the order of the Holder
for any cash amounts payable as provided above as a result of the conversion of
this Convertible Debenture into a fractional share of Common Stock. Upon full
conversion of the entire Unpaid Principal Balance of this Convertible Debenture
and the payment of any unpaid and accrued interest thereon, the Company will be
released from all of its obligations and liabilities under this Convertible
Debenture.

            (d) When Conversion Effected. A conversion of all or part of the
Unpaid Principal Balance of this Convertible Debenture shall be deemed to have
been effected immediately prior to the close of business on the business day on
which this Convertible Debenture and the corresponding conversion notice is
surrendered to the Company as provided above, and at such time, the person in
whose name any certificates for shares of Common Stock shall be issuable upon
conversion as provided herein shall be deemed to be the record holder of such
shares of Common Stock as of such date for all purposes.

            (e) Conversion Restrictions. If the Common Stock is then listed for
trading on the Nasdaq Stock Market and the Company has not obtained the
Stockholder Approval (as defined below), then the Company may not, upon
conversion of this Convertible Debenture, issue in excess of 1,505,682 shares
(which equals 19.999% of the number of shares of Common Stock outstanding on the
Closing Date) (such number of shares, subject to adjustment for stock splits,
reverse stock splits, stock dividends and similar events affecting the Common
Stock, the "Issuable Maximum"). If, on any date of conversion pursuant to
Section 4(a) above (A) the Common Stock is listed for trading on the Nasdaq
Stock Market, (B) the Conversion Price then in effect is such that the aggregate
number of shares of Common Stock that would then be issuable upon conversion in
full of this Convertible Debenture, together with any shares of Common Stock
previously issued upon conversion of this Convertible Debenture, would equal or
exceed the Issuable Maximum, and (C) the Company shall not have previously
obtained the vote of stockholders, if any, as may be required by the applicable
rules and regulations of the Nasdaq Stock Market to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum pursuant to the terms
hereof (the "Stockholder Approval"), then the Company shall issue to the Holder
a number of shares of Common Stock equal to the Issuable Maximum and, with
respect to the shares whose issuance would result in an issuance of shares of
Common Stock in excess of the Issuable Maximum, (the "Excess Debenture Shares"),
the Holder shall have the option to require the Company to either (1) use its
best efforts to obtain the
<PAGE>   5
Stockholder Approval applicable to such issuance as soon as possible, but in any
event no later than 90 days after such request (such 90th day, the "Target
Date") or (2) pay to the Holder, within three (3) business days from the request
therefor, an amount in cash equal to the product of (x) the Excess Debenture
Shares multiplied by (y) the closing sales price of the Common Stock on (a) the
Target Date or (b) the date of conversion giving rise to the obligation to seek
Stockholder Approval, whichever is greater (the "Cash Payment"). In the event
the Holder has elected to require the Company to seek the Stockholder Approval
pursuant to clause (1) of the immediately preceding sentence and the Company
does not obtain the Stockholder Approval on or prior to the Target Date, then,
on the Target Date, the Company shall pay the Cash Payment to the Holder. The
Company and the Holder understand and agree that shares of Common Stock issued
upon conversion of this Convertible Debenture and then held by the Holder or an
affiliate thereof may not cast votes or be deemed outstanding for purposes of
any vote to obtain the Stockholder Approval.

      5. Adjustments to Conversion Price. The Conversion Price in effect from
time to time shall be subject to adjustment from and after the date of issuance
of this Convertible Debenture and through the earlier of (i) the Maturity Date
or (ii) the effective date of conversion of the Convertible Debenture, as
follows:

            (a) Stock Dividends, Subdivisions and Combinations. Upon the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding shares
of Common Stock into a greater number of shares of Common Stock or the
combination of outstanding shares of Common Stock into a smaller number of
shares of Common Stock, the Conversion Price shall, simultaneously with the
happening of such dividend, subdivision or combination, be adjusted by
multiplying the then-effective Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event. An adjustment made
pursuant to this Section 5(a) shall be given effect (i) in the case of such a
dividend or distribution, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution (on a retroactive
basis), and (ii) in the case of such a subdivision or combination, immediately
as of the effective date thereof.

            (b) Sale of Common Stock. In the event the Company shall at any
time, or from time to time, issue, sell or exchange any shares of Common Stock
(including shares held in the Company's treasury, but excluding any shares of
Common Stock issued upon the exercise of Excluded Options (as defined in Section
5(c) hereof)), for a consideration per share less than the applicable Conversion
Price in effect immediately prior to the issuance, sale or exchange of such
shares, then, and thereafter successively upon each such issuance, sale or
exchange, the applicable Conversion Price in effect immediately prior to the
issuance, sale or exchange of such shares shall forthwith be reduced to an
amount determined by multiplying such Conversion Price by a fraction:

                  (i) the numerator of which shall be the sum of (x) the number
of shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock (excluding treasury shares) plus all shares of
Common Stock issuable upon conversion, exercise or exchange of the Convertible
Debenture or any outstanding options,
<PAGE>   6
warrants, rights or convertible or exchangeable securities, plus (y) the number
of shares of Common Stock which the Net Aggregate Consideration (as defined
herein) received by the Company for the total number of such additional shares
of Common Stock so issued would purchase at the Conversion Price (prior to
adjustment), and

                  (ii) the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares) plus all
shares of Common Stock issuable upon conversion, exercise or exchange of the
Convertible Debenture or any outstanding options, warrants, rights or
convertible or exchangeable securities, plus (y) the number of such additional
shares of Common Stock so issued.

            (c) Sales of Options, Rights or Convertible Securities. In the event
the Company shall at any time or from time to time, issue options, warrants or
rights to subscribe for shares of Common Stock (other than options which are
granted to officers, directors, employees, consultants, advisors or agents of
the Company pursuant to employee stock option plans and programs approved by the
Company's Board of Directors and stockholders (collectively, the "Excluded
Options")), or issue any securities convertible into or exchangeable for shares
of Common Stock, for a consideration per share (determined by dividing the Net
Aggregate Consideration (as determined herein), by the aggregate number of
shares of Common Stock that would be issued if all such options, warrants,
rights or convertible or exchangeable securities were exercised, converted or
exchanged to the fullest extent permitted by their terms) less than the
applicable Conversion Price in effect immediately prior to the issuance of such
options, warrants, rights or convertible or exchangeable securities, then the
applicable Conversion Price in effect immediately prior to the issuance of such
options, warrants, rights or convertible or exchangeable securities shall
forthwith be reduced to an amount determined by multiplying such Conversion
Price by a fraction:

                  (i) the numerator of which shall be the sum of (x) the number
of shares of Common Stock outstanding immediately prior to the issuance of such
options, rights or convertible or exchangeable securities (excluding treasury
shares) plus all shares of Common Stock issuable upon conversion, exercise or
exchange of the Convertible Debenture or any outstanding options, warrants,
rights or convertible securities, plus (y) the number of shares of Common Stock
which the total amount of consideration received by the Company for the issuance
of such options, warrants, rights or convertible or exchangeable securities plus
the minimum amount set forth in the terms of such security as payable to the
Company upon exercise, conversion or exchange thereof (the "Net Aggregate
Consideration") would purchase at such Conversion Price (prior to adjustment),
and

                  (ii) the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to the issuance
of such options, warrants, rights or convertible or exchangeable securities
(excluding treasury shares) plus all shares of Common Stock issuable upon
conversion, exercise or exchange of the Convertible Debenture or any outstanding
options, warrants, rights or convertible or exchangeable securities, plus (y)
the aggregate number of shares of Common Stock that would be issued if all such
options, warrants, rights or convertible or exchangeable securities were
exercised, converted or exchanged.
<PAGE>   7
            (d) Expiration or Change in Price. If the consideration per share
provided for in any options, warrants or rights to subscribe for shares of
Common Stock or any securities exchangeable for or convertible into shares of
Common Stock changes at any time, the Conversion Price in effect at the time of
such change shall be readjusted to the Conversion Price which would have been in
effect at such time had such options, warrants, rights or convertible or
exchangeable securities provided for such changed consideration per share
(determined as provided in Section 5(c) hereof), at the time initially granted,
issued or sold; provided, that such adjustment of the Conversion Price will be
made only as and to the extent that the Conversion Price effective upon such
adjustment remains less than or equal to the Conversion Price that would be in
effect if such options, warrants, rights or convertible or exchangeable
securities had not been issued. No adjustment of the Conversion Price shall be
made under this Section 5 upon the issuance of any shares of Common Stock which
are issued pursuant to the exercise of any options, warrants or other
subscription or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any convertible or exchangeable securities if an adjustment
shall previously have been made upon the issuance of such options, warrants,
rights or convertible or exchangeable securities. Any adjustment of the
Conversion Price shall be disregarded if, as, and when the rights to acquire
shares of Common Stock upon exercise or conversion of the options, warrants,
rights or convertible or exchangeable securities which gave rise to such
adjustment expire or are canceled, in whole or in part, without having been
exercised, converted or exchanged, so that the Conversion Price effective
immediately upon such cancellation or expiration shall be equal to the
Conversion Price in effect at the time of the issuance of the expired or
canceled warrants, options, rights or convertible securities, with such
additional subsequent adjustments as would have been made to such Conversion
Price under this Section 5 had the expired or canceled warrants, options, rights
or convertible securities not been issued.

            (e) Other Adjustments. If the Common Stock issuable upon the
conversion of the Convertible Debenture shall be changed into the same or
different number of shares of any class or classes of stock, whether by
reorganization, reclassification or otherwise (other than a subdivision,
combination of shares, stock dividend or other event provided for elsewhere in
this Section 5), then and in each such event, the Holder of the Convertible
Debenture shall have the right thereafter to convert such share into the kind
and amount of shares of stock and other securities and property receivable upon
such reorganization, reclassification or other change by holders of the number
of shares of Common Stock into which the Convertible Debenture might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.

            (f) Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company other than shares of
Common Stock, then in each such event lawful provision shall be made so that the
Holder of the Convertible Debenture shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Company which they would have received had the
Convertible Debenture been converted into Common Stock on the date of such event
and had they thereafter, during the period from the date of such event to and
including the date of conversion, retained such securities receivable by them as
aforesaid during such period, subject to all other
<PAGE>   8

adjustments called for during such period under this Section 5 with respect to
the rights of the holder of the Convertible Debenture.

            (g) Notices. In each case of an adjustment or readjustment of the
Conversion Price, the Company will furnish to the holder of the Convertible
Debenture a certificate, prepared by the chief financial officer of the Company,
showing such adjustment or readjustment and stating in detail the facts upon
which such adjustment or readjustment is based.

      6. Redemption. The Company shall have the right to redeem all or any
portion of the principal amount of this Convertible Debenture upon at least five
(5) business days prior written notice to the Holder, at a price equal to 115%
of the then outstanding principal balance of the Convertible Debenture (the
"Redemption Price"). The Company shall pay to the Holder, within three (3)
business days of the redemption date set forth in the Company's notice of
redemption (the "Redemption Date"), the Redemption Price plus any accrued and
unpaid interest through the Redemption Date. Notwithstanding the foregoing, the
Holder shall have the right to convert all or any portion of the principal
amount of this Convertible Debenture pursuant to Section 4 hereof prior to the
Redemption Date.

      7.    Subordination.

            (a) The indebtedness evidenced by this Convertible Debenture is
hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of all of the Company's
Senior Indebtedness, as hereinafter defined.

            (b) As used in this Convertible Debenture, the term "Senior
Indebtedness" shall mean the principal of and unpaid accrued interest on: (i)
all current and future indebtedness of the Company to banks, commercial finance
lenders, insurance companies or other financial institutions regularly engaged
in the business of lending money, which is for money borrowed by the Company
(whether or not secured), and (ii) any such indebtedness or any debentures,
notes or other evidence of indebtedness issued in exchange for or to refinance
such Senior Indebtedness, or any indebtedness arising from the satisfaction of
such Senior Indebtedness by a guarantor.

            (c) If there should occur any receivership, insolvency, assignment
for the benefit of creditors, bankruptcy, reorganization or arrangement with
creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale
of all or substantially all of the assets, dissolution, liquidation or any other
marshalling of the assets and liabilities of the Company, or if this Convertible
Debenture shall be declared due and payable upon the occurrence of an event of
default with respect to any Senior Indebtedness, then (i) no amount shall be
paid by the Company in respect of the principal of or interest on this
Convertible Debenture at the time outstanding, unless and until all of the
principal of and interest on the Senior Indebtedness then outstanding shall be
satisfied, and (ii) no claim or proof of claim shall be filed with the Company
by or on behalf of the Holder of this Convertible Debenture that shall assert
any right to receive any payments in respect of the principal of and interest on
this Convertible Debenture, except subject to the satisfaction of all of the
principal of and interest on all of the Senior Indebtedness then outstanding. If
there occurs an event of default that has been declared in writing with respect
to any Senior Indebtedness, or in the instrument under which any Senior
Indebtedness is

                                       8
<PAGE>   9
outstanding, permitting the holder of such Senior Indebtedness to accelerate the
maturity thereof, then, unless and until such event of default shall have been
cured or waived or shall have ceased to exist, or all Senior Indebtedness shall
have been satisfied, no payment shall be made in respect of the principal of or
interest on this Convertible Debenture.

            (d) Subject to the rights, if any, of the holders of Senior
Indebtedness under this Section 7 to receive cash, securities or other
properties otherwise payable or deliverable to the Holder of this Convertible
Debenture, nothing contained in this Section 7 shall impair, as between the
Company and the Holder, the obligation of the Company, subject to the terms and
conditions hereof, to pay to the Holder the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent the Holder of this
Convertible Debenture, upon default hereunder, from exercising all rights,
powers and remedies otherwise provided herein or by applicable law.

            (e) Subject to the payment in full of all Senior Indebtedness and
until this Convertible Debenture shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent of
payments or distributions previously made to such holders of Senior Indebtedness
pursuant to the provisions of Section 7(c) above) to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between the Company and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the Company to or on
account of this Convertible Debenture; and for the purposes of such subrogation,
no payments or distributions to the holders of Senior Indebtedness to which the
Holder would be entitled except for the provisions of this Section 7 shall, as
between the Company and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the Company to or on
account of the Senior Indebtedness.

            (f) By its acceptance of this Convertible Debenture, the Holder
agrees to execute and deliver such documents as may be reasonably requested from
time to time by the Company or the holder of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 7.

            (g) This Convertible Debenture is unsecured, but it shall be senior
in right of payment at any time to any and all indebtedness owed by the Company
to Joseph S. Montgomery or his permitted assigns, including without limitation
the $2,000,000 loan made by Mr. Montgomery to the Company on or about the date
hereof.

      8. Successors and Assigns. Subject to the restrictions on transfer
described in Sections 10 and 11 below, the rights and obligations of the Company
and Holder shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties.

      9.    Waiver and Amendment. Any provision of this Convertible Debenture
may be amended, waived or modified upon the written consent of the Company
and Holder or pursuant to Section 10.3 of the Convertible Debenture Purchase
Agreement.
<PAGE>   10

      10. Transfer of this Convertible Debenture or Common Stock Issuable on
Conversion Hereof. This Convertible Debenture and the shares of Common Stock
into which this Convertible Debenture may be converted may only be transferred
in accordance with Section 9 of the Convertible Debenture Purchase Agreement.

      11.   Treatment of Convertible Debenture.

            (a) To the extent permitted by generally accepted accounting
principles, the Company will treat, account and report the Convertible Debenture
as debt and not equity for accounting purposes and to the extent permitted by
applicable law, the Company will treat the Convertible Debenture as indebtedness
with respect to any returns filed with federal, state or local tax authorities.

      12. Notices. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given upon receipt or, if earlier, (a) five (5) days after
deposit with the U.S. Postal Service or other applicable postal service, if
delivered by first class mail, postage prepaid, (b) upon delivery, if delivered
by hand, (c) one business day after the business day of deposit with Federal
Express or similar overnight courier, freight prepaid or (d) one business day
after the business day of a facsimile or e-mail transmission, if delivered by
facsimile or e-mail transmission with copy by first class mail, postage prepaid,
and shall be addressed (i) if to the Holder, at the Holder's address on the
register maintained by the Company, and (ii) if to the Company, at the address
of its principal corporate offices (Attn: Chief Financial Officer), or at such
other address as a party may designate by written notice to the other party
pursuant to the provisions above.

Each such notice or other communication shall for all purposes of this Agreement
be treated as effective or having been given when delivered if delivered
personally, by messenger or by telecopy, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.

      13.   Payment.  Payment shall be made in lawful tender of the United
States.

      14. Usury. This Convertible Debenture is hereby expressly limited so that
in no event whatsoever, whether by reason of acceleration of maturity of the
loan evidenced hereby or thereby, or otherwise, shall the amount paid or agreed
to be paid to the Holder hereunder for the loan, use, forbearance or detention
of money exceed that permissible under applicable law. If at any time the
performance of any provision hereof or of this Convertible Debenture or any
other such agreement involves a payment exceeding the limit of the price that
may be validly charged for the loan, use, forbearance or detention of money
under applicable law, then automatically and retroactively, ipso facto, the
obligation to be performed shall be reduced to such limit, it being the specific
intent of the Company and the Holder that all payments under this Convertible
Debenture are to be credited first to interest as permitted by law, but not in
excess of (i) the agreed rate of interest set forth herein or therein or (ii)
that permitted by law, whichever is the lesser, and the balance toward the
reduction of principal. The provisions of this Section 14 shall never be
superseded or waived and shall control every other provision of this Convertible
Debenture and all other agreements between the Company and the Holder.
<PAGE>   11
      15. Governing Law. This Convertible Debenture and all actions arising out
of or in connection with this Convertible Debenture shall in all respects be
governed by and construed and enforced in accordance with the laws of the State
of Connecticut, as such laws apply to contracts entered into and wholly to be
performed within such state.

      IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be issued as of the date first written above.

                                           CANNONDALE CORPORATION
                                           a Delaware corporation

                                          By:   /s/ William A. Luca
                                             -----------------------------------
                                             Name:  William A. Luca
                                             Title: Vice President

<PAGE>   12

                                    EXHIBIT A

                              NOTICE OF CONVERSION

  (To be Executed by the registered Holder in order to Convert the Convertible
                                   Debenture)

            The undersigned hereby irrevocably elects to convert $
________________ of the principal amount of the above Convertible Debenture into
Shares of Common Stock of CANNONDALE CORPORATION (the "Company") according to
the conditions hereof, as of the date written below.

Date of Conversion
                   ------------------------------------------------------------

Applicable Conversion Price
                            ---------------------------------------------------

Accrued Interest
                   ------------------------------------------------------------

Number of Shares to be Issued
                             --------------------------------------------------

Name of Holder
                ---------------------------------------------------------------

Signature of Holder
                     ----------------------------------------------------------

        Address for Delivery of Shares
        or DTC Account Number for
        Electronic Deposit of Shares:

------------------------------------------------------------

------------------------------------------------------------

------------------------------------------------------------<PAGE>   1
                                                                    EXHIBIT 10.3

         FIRST AMENDMENT AND WAIVER dated as of April 30, 2001 ("Amendment") to
FINANCING AGREEMENT, dated as of June 27, 2000 (the "Financing Agreement"),
among CANNONDALE CORPORATION, as Borrower (the "Borrower"), the lenders party
thereto (each a "Lender" and collectively the "Lenders") and THE CIT
GROUP/BUSINESS CREDIT, INC., as agent for the Lenders (in such capacity, the
"Agent"). Terms which are capitalized in this Amendment and not otherwise
defined shall have the meanings ascribed to such terms in the Financing
Agreement.

         WHEREAS, the Borrower has requested the Lenders to waive as Events of
Default violations of certain of the financial covenants contained in the
Financing Agreement, and to modify certain provisions contained in the Financing
Agreement, and the Lenders have agreed to the foregoing request;

         NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Agent and the
Lenders hereby agree as follows:

         SECTION ONE. AMENDMENT. Effective as of the date hereof, upon the
satisfaction of the conditions precedent set forth in Section Four hereof, the
Financing Agreement is hereby amended as follows; provided, however, that the
new definition of "Applicable Increment" set forth below shall be effective, on
a retroactive basis, as of December 31, 2000:

         (a) SECTION 1.01 DEFINED TERMS. Section 1.01 is amended by deleting the
definitions of the terms "Applicable Increment," "Case 6" and "EBITDA," by
substituting the following definitions in lieu thereof and by adding the terms
"Case 7" and "First Amendment" and the following definitions thereof, each in
the appropriate alphabetical order:

         "Applicable Increment shall mean ON ANY DATE OF DETERMINATION, WITH
         RESPECT TO ANY REVOLVING LOAN BEARING INTEREST BASED ON THE BASE RATE
         OR LIBOR, OR ANY PORTION OF THE TERM LOAN BEARING INTEREST BASED ON THE
         BASE RATE OR LIBOR, THE APPLICABLE RATE PER ANNUM SET FORTH BELOW UNDER
         THE APPLICABLE CAPTION, BASED UPON THE FIXED CHARGE COVERAGE RATIO
         CORRESPONDING THERETO FOR THE PERIOD OF FOUR CONSECUTIVE FISCAL
         QUARTERS ENDING IMMEDIATELY PRIOR TO SUCH DATE OF DETERMINATION. THE
         APPLICABLE INCREMENT SHALL APPLY DURING THE PERIOD COMMENCING ON THE
         FIRST DAY OF THE MONTH FOLLOWING THE MONTH DURING WHICH THE AGENT SHALL
         HAVE RECEIVED THE FINANCIAL STATEMENTS REQUIRED TO BE DELIVERED
         PURSUANT TO SECTION 8.01 FOR ANY REFERENCED FISCAL QUARTER, AND ENDING
         ON THE LAST DAY OF THE MONTH DURING WHICH THE AGENT SHALL HAVE RECEIVED
         SUCH FINANCIAL STATEMENTS FOR THE
<PAGE>   2
         NEXT SUCCEEDING FISCAL QUARTER; PROVIDED, HOWEVER, THAT UNTIL SUCH TIME
         AS THE AGENT RECEIVES SUCH FINANCIAL STATEMENTS FOR THE FISCAL QUARTER
         ENDING IN MARCH 2001, THE APPLICABLE INCREMENT SHALL BE AS SET FORTH
         BELOW OPPOSITE CASE 1."

<TABLE>
<CAPTION>
                          Applicable
                          Increment for            Applicable               Applicable               Applicable
Fixed Charge              Revolving Loans          Increment for            Increment for            Increment for
Coverage Ratio            based on the             Revolving Loans          Term Loan based          Term Loan based
                          Base Rate                based on LIBOR           on the Base Rate         on LIBOR
<S>                       <C>                      <C>                      <C>                      <C>
Case 1                    1.25%                     N/A                     1.75%                     N/A

Case 2                    1.00%                     N/A                     1.50%                     N/A

Case 3                     .75%                    2.50%                    1.25%                    3.00%

Case 4                     .50%                    2.25%                    1.00%                    2.75%

Case 5                     .25%                    2.00%                     .75%                    2.50%

Case 6                     .00%                    1.75%                     .50%                    2.25%

Case 7                     .00%                    1.75%                     .25%                    2.00%"
</TABLE>

         "CASE 6 SHALL MEAN A FIXED CHARGE COVERAGE RATIO OF EQUAL TO OR GREATER
         THAN 2.50 TO 1.00 AND LESS THAN 2.75 TO 1.00."

         "CASE 7 SHALL MEAN A FIXED CHARGE COVERAGE RATIO OF EQUAL TO OR GREATER
         THAN 2.75 TO 1.00."

         "EBITDA shall mean, for any period, Net Income for such period plus, to
         the extent deducted in determining Net Income for such period and
         without duplication, Interest Expense, income tax expense,
         depreciation, amortization and other non-cash charges for such period,
         including non-cash charges in respect of (w) write offs of fees and
         expenses incurred in connection with the prepayment of all or any
         portion of the principal of the Term Loan or the Mezzanine Debt, (x)
         write offs of deferred taxes, (y) write downs to the lower of cost or
         market of the Borrower's motorcycle division inventory to the extent
         required by GAAP ("inventory write downs"), provided, however, that the
         aggregate amount of such inventory write downs for (I) the Fiscal
         Quarter ending in March 2001 may not exceed the lesser of the actual
         amount of such inventory write downs for such Fiscal Quarter and the
         sum of $326,000 and (II) the Fiscal Quarter ending in June

                                      -2-
<PAGE>   3
         2001 may not exceed the lesser of the actual amount of such inventory
         write downs for such Fiscal Quarter and the sum of $500,000 and (z) any
         beneficial conversion premium arising from the difference, if any,
         between the market price of the Borrower's common stock and the
         conversion price of the Borrower's common stock into which the
         Institutional Infusion or the Montgomery Infusion (as such terms are
         defined in the First Amendment), as the case may be, may be converted
         (the date of consummation of the Institutional Infusion or the
         Montgomery Infusion, as applicable, being the date upon which the
         amount of such premium shall be calculated, and the date on which such
         conversion price shall be determined), minus, to the extent included in
         determining Net Income for such period, without duplication (i)
         interest income for such period that has been deferred or has not been
         paid in cash, (ii) interest income for such period with respect to the
         Montgomery Debt, (iii) dividends paid in cash to the Borrower by any
         Subsidiary during such period, except to the extent such dividends are
         payable solely from the earnings of operations of such Subsidiary for
         the twelve month period immediately preceding the date of payment of
         such dividends and (iv) all amounts paid in cash to the Borrower during
         such period resulting from the unwinding of any Hedging Obligation of
         the Borrower, all determined in accordance with GAAP on a consistent
         basis, but excluding the effect of extraordinary or non-recurring gains
         or losses for such period."

         "First Amendment shall mean that certain First Amendment and Waiver
         dated as of April 30, 2001, executed and delivered by the Borrower, the
         Lenders and the Agent in connection with this Financing Agreement."

         (b) SECTION 4.02 MANDATORY PREPAYMENTS. Section 4.02 (d) is deleted in
its entirety, and the following is substituted in lieu thereof:

         "(d) Beginning with the Fiscal Year ending in June 2001, THE BORROWER
         SHALL MAKE A MANDATORY PREPAYMENT OF THE UNPAID PRINCIPAL BALANCE OF
         THE TERM LOAN NO LATER THAN NINETY DAYS AFTER THE END OF EACH FISCAL
         YEAR, IN AN AGGREGATE AMOUNT EQUAL TO FIFTY PERCENT (50%) OF SURPLUS
         CASH FOR THE FISCAL YEAR THEN ENDED (SUCH AMOUNT, THE "REFERENCED
         AMOUNT"), AS CALCULATED IN ACCORDANCE WITH AND AS SET FORTH IN THE
         AUDITED NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE BORROWER FOR THE
         FISCAL YEAR THEN ENDED, WHICH CALCULATION SHALL BE CERTIFIED BY AN
         AUTHORIZED OFFICER, PROVIDED, HOWEVER, THAT IF AT THE TIME ANY SUCH
         MANDATORY PREPAYMENT SHALL BE MADE, ANY PORTION OF THE PRINCIPAL OF THE
         MEZZANINE DEBT SHALL BE OUTSTANDING AND UNPAID,

                                      -3-
<PAGE>   4
         THEN THE BORROWER SHALL INSTEAD PAY TO THE AGENT, AS A MANDATORY
         PREPAYMENT OF THE UNPAID PRINCIPAL BALANCE OF THE TERM LOAN, ONLY THE
         LENDERS' PROPORTIONATE SHARE OF THE REFERENCED AMOUNT, AND THE BORROWER
         SHALL CONCURRENTLY MAKE A PREPAYMENT OF THE UNPAID PRINCIPAL BALANCE OF
         THE MEZZANINE DEBT IN AN AMOUNT EQUAL TO THE MEZZANINE LENDERS'
         PROPORTIONATE SHARE OF SUCH REFERENCED AMOUNT, PROVIDED, FURTHER, THAT
         THE PROCEEDS OF THE INTERCOMPANY PAYMENT AND THE 2001 SUBORDINATED
         DEBT, AS SUCH TERMS ARE DEFINED IN THE FIRST AMENDMENT, RECEIVED BY THE
         BORROWER DURING THE FISCAL YEAR ENDING IN JUNE 2001, SHALL BE EXCLUDED
         FROM THE CALCULATION OF SURPLUS CASH FOR SUCH FISCAL YEAR."

         (c) SECTION 6.03. COLLECTION OF TRADE ACCOUNTS RECEIVABLE. Section 6.03
is amended by adding the following language immediately after the last sentence
thereof:

         "Without in any way waiving or limiting the Agent's right to require
         the Borrower to strictly comply with this Section, the Borrower hereby
         agrees to take the following actions with respect to each account of
         the Borrower held at a bank or other depository institution located in
         Canada, into which any proceeds of Collateral may be deposited at any
         time (each, a "Canadian Account"): (a) the Borrower shall deliver to
         the Agent, together with each Borrowing Base Certificate, a report
         setting forth the amount on deposit in each Canadian Account on the
         date of such Borrowing Base Certificate; (b) the Borrower shall deliver
         to the Agent copies of all periodic account statements with respect to
         each Canadian Account, promptly upon the Borrower's receipt thereof;
         and (c) on Monday of each week (or on the next Business Day, if such
         Monday is not a Business Day) the Borrower shall cause to be
         transferred, by wire or book-entry transfer, in immediately available
         funds, all funds on deposit in each Canadian Account to a Blocked
         Account or to such other bank account as the Agent may from time to
         time designate for such purpose. The Borrower hereby confirms and
         agrees that all amounts deposited in each Canadian Account, whether as
         proceeds of Inventory or other Collateral or otherwise, shall be the
         property of the Agent."

         (d) SECTION 8.01. FISCAL STATEMENTS, PROJECTIONS, BORROWING BASE
CERTIFICATES AND OTHER INFORMATION. Section 8.01 (d) is deleted in its entirety,
and the following is substituted in lieu thereof:

         "(d) CONCURRENTLY WITH ANY DELIVERY OF FINANCIAL STATEMENTS UNDER
         CLAUSE (a), (b) or (c) ABOVE, A CERTIFICATE OF AN AUTHORIZED OFFICER OF
         THE BORROWER (i) CERTIFYING AS TO WHETHER A DEFAULT HAS

                                      -4-
<PAGE>   5
         OCCURRED AND, IF A DEFAULT HAS OCCURRED, SPECIFYING THE DETAILS THEREOF
         AND ANY ACTION TAKEN OR PROPOSED TO BE TAKEN WITH RESPECT THERETO, (ii)
         SETTING FORTH REASONABLY DETAILED CALCULATIONS (A) IN THE CASE OF
         QUARTERLY FINANCIAL STATEMENTS, OF THE FIXED CHARGE COVERAGE RATIO FOR
         THE PERIOD OF FOUR FISCAL QUARTERS THEN ENDED AND (B) DEMONSTRATING
         COMPLIANCE WITH SECTIONS 9.09 THROUGH AND INCLUDING 9.11, (iii) STATING
         WHETHER ANY CHANGE IN GAAP OR IN THE APPLICATION THEREOF HAS OCCURRED
         SINCE THE DATE OF THE AUDITED FINANCIAL STATEMENTS REFERRED TO IN
         CLAUSE (a) AND, IF ANY SUCH CHANGE HAS OCCURRED, SPECIFYING THE EFFECT
         OF SUCH CHANGE ON THE FINANCIAL STATEMENTS ACCOMPANYING SUCH
         CERTIFICATE AND (iv) SETTING FORTH REASONABLY DETAILED CALCULATIONS, IN
         THE CASE OF QUARTERLY FINANCIAL STATEMENTS, OF ALL NON-CASH CHARGES
         DEDUCTED IN DETERMINING NET INCOME FOR THE APPLICABLE FISCAL QUARTER,
         INCLUDING WITHOUT LIMITATION ALL OF THE NON-CASH CHARGES DESCRIBED IN
         CLAUSES (w), (x), (y) AND (z) OF THE DEFINED TERM EBITDA."

         (e) SECTION 8.14. NEW COLLATERAL LOCATIONS. Section 8.14 is deleted in
its entirety and the following is substituted in lieu thereof:

         "SECTION 8.14. NEW COLLATERAL LOCATIONS. AS SOON AS POSSIBLE AND IN ANY
         EVENT NO LATER THAN TEN (10) DAYS AFTER ANY COLLATERAL IS FIRST HELD AT
         A LOCATION (WHETHER LEASED PREMISES, A WAREHOUSE, A PROCESSOR'S
         LOCATION OR OTHER LOCATION) WHICH IS NOT SET FORTH ON ANNEX II, THE
         BORROWER SHALL (a) NOTIFY THE AGENT OF THE ADDRESS OF SUCH LOCATION AND
         THE TYPE AND VALUE OF THE COLLATERAL BEING HELD AT SUCH LOCATION AND
         (b) DELIVER TO THE AGENT SUCH UCC FINANCING STATEMENTS AS THE AGENT IN
         ITS DISCRETION SHALL REQUIRE to ensure the Agent's first priority
         perfected security interest hereunder in such Collateral. In addition,
         the Borrower shall use its reasonable best efforts to deliver to the
         Agent, within sixty (60) days of the date on which any Collateral is
         first held at a location (whether leased premises, a warehouse, a
         processor's location or otherwise) which is not set forth on Annex II,
         a warehouseman's or processor's waiver substantially in the form of
         Exhibit E-1 or Exhibit E-2, as applicable, duly executed by the lessor
         or owner of such location."

         (f) SECTION 9.03 FUNDAMENTAL CHANGES. Section 9.03(d) is deleted in its
entirety, the following is substituted in lieu thereof, and a new paragraph (e)
is added to Section 9.03, as follows:

         "(d) WITHOUT THE PRIOR WRITTEN CONSENT OF THE AGENT, THE BORROWER WILL
         NOT (i) CONSENT TO ANY AMENDMENT OR OTHER MODIFICATION OF THE MEZZANINE
         FINANCING AGREEMENT OR ANY OF

                                      -5-
<PAGE>   6
         THE OTHER MEZZANINE DEBT DOCUMENTS RESULTING IN (A) AN INCREASE IN THE
         PRINCIPAL AMOUNT OF THE MEZZANINE DEBT, (B) A CHANGE (OTHER THAN BY
         POSTPONEMENT) IN ANY SCHEDULED PAYMENT OR PREPAYMENT OF THE MEZZANINE
         DEBT, (C) AN INCREASE IN ANY INTEREST RATE APPLICABLE TO THE MEZZANINE
         DEBT, OR (D) THE ADDITION OF NEW FINANCIAL COVENANTS OR NEW EVENTS OF
         DEFAULT OR THE IMPOSITION OF STRICTER LEVELS OR RATIOS WITH RESPECT TO
         EXISTING FINANCIAL COVENANTS APPLICABLE TO THE MEZZANINE DEBT, OR (ii)
         make any voluntary prepayment of the Mezzanine Debt, provided, however,
         that at any time after the date on which the Agent receives the
         Borrower's consolidated and consolidating financial statements for the
         Fiscal Quarter and Fiscal Year ending in June, 2001, on not less than
         ten (10) days prior written notice to the Agent, the Borrower may make
         prepayments of all or any portion of the principal of the Mezzanine
         Debt, so long as, at the time the Borrower proposes to make such
         prepayment (A) no Event of Default shall have occurred and then be
         continuing, (B) the Fixed Charge Coverage Ratio of the Borrower, on a
         consolidated basis with its consolidated Subsidiaries, for the most
         recently ended period of twelve consecutive fiscal months shall be
         greater than 1.00 to 1.00, (C) the Agent shall have received, in
         accordance with Section 8.01 (c), the Borrower's consolidated and
         consolidating financial statements for the most recently ended fiscal
         month, (D) after giving effect to such proposed prepayment, the
         Borrower's Availability, on a pro forma basis, calculated as if a
         prepayment of $2,000,000 of principal of the Institutional Infusion (as
         such term is defined in the First Amendment), to the extent not
         previously converted to equity, were being made concurrently with the
         proposed prepayment of the Mezzanine Debt, shall be not less than
         $10,000,000, (E) no material portion of the Borrower's trade payables
         shall be past due beyond the Borrower's historic payment practices, and
         the Agent shall have verified the foregoing to its satisfaction, (F)
         the ratio of (1) the value of the Borrower's Inventory, based on the
         lower of cost or market, to (2) the aggregate face amount of all of the
         Borrower's trade payables then outstanding is not less than .50 to 1.00
         and (G) the Agent shall have received a certificate, duly executed by
         an Authorized Officer, setting forth in reasonable detail the
         calculation of (1) the minimum Fixed Charge Coverage Ratio required
         pursuant to clause (B) hereof, (2) the minimum pro forma Availability
         required pursuant to clause (D) hereof, and (3) the minimum inventory
         to trade payables ratio required pursuant to clause (F) hereof."

         "(e) Without the prior written consent of the Agent, the Borrower will
         not (i) consent to any amendment or other modification of any

                                      -6-
<PAGE>   7
         instruments evidencing the 2001 Subordinated Debt, as such term is
         defined in the First Amendment, or any agreements or documents pursuant
         to which such instruments were issued or are governed, which amendment
         or modification results in (A) an increase in the principal amount of
         the 2001 Subordinated Debt, (B) a change (other than by postponement)
         in any scheduled payment or prepayment of the 2001 Subordinated Debt,
         (C) an increase in any interest rate applicable to the 2001
         Subordinated Debt or (D) the addition of new financial covenants or new
         events of default or the imposition of stricter levels or ratios with
         respect to existing financial covenants applicable to the 2001
         Subordinated Debt or (ii) make any voluntary prepayment of the 2001
         Subordinated Debt, provided, however, that at any time after the date
         on which the Agent receives the Borrower's consolidated and
         consolidating financial statements for the Fiscal Quarter and Fiscal
         Year ending in June, 2001 and on not less than ten (10) ten days prior
         written notice to the Agent, the Borrower may make prepayments of up to
         (x) $2,000,000 in the aggregate of the principal of the Institutional
         Infusion, as such term is defined in the First Amendment, together with
         the payment of interest accrued thereon and any premium included in the
         applicable Redemption Price (as defined in the documents evidencing the
         Institutional Infusion as in effect on the date of the First
         Amendment), but only to the extent set forth in the document evidencing
         the Institutional Infusion or the agreement pursuant to which the
         Institutional Infusion was issued or is governed, as in effect on the
         date of issuance of such document or the date of execution of such
         agreement, as the case may be and (y) at any time after the date on
         which the Institutional Infusion shall have been paid or otherwise
         satisfied in full (including all accrued interest thereon), or
         converted to equity, $2,000,000 in the aggregate of the principal of
         the Montgomery Infusion, as such term is defined in the First
         Amendment, together with payments of accrued interest thereon and the
         payment of any premium included in the applicable Redemption Price (as
         defined in the documents evidencing the Montgomery Infusion as in
         effect on the date of the First Amendment), but only to the extent set
         forth in the document evidencing the Montgomery Infusion or the
         agreement pursuant to which the Montgomery Infusion was issued or is
         governed, as in effect on the date of issuance of such document or the
         date of execution of such agreement, as the case may be, so long as, at
         the time the Borrower proposes to make any such prepayment of
         principal, payment of accrued interest or payment of premium described
         in clause (x) or any such prepayment of principal, payment of accrued
         interest or payment of premium described in clause (y) hereof, (A) no
         Event of Default shall have occurred and then be continuing, (B) the

                                      -7-
<PAGE>   8
         Fixed Charge Coverage Ratio of the Borrower, on a consolidated basis
         with its consolidated Subsidiaries, for the most recently ended period
         of twelve consecutive fiscal months, shall be greater than 1.00 to
         1.00, (C) the Agent shall have received, in accordance with Section
         8.01(c), the Borrower's consolidated and consolidating financial
         statements for the most recently ended fiscal month, (D) after giving
         effect to such proposed prepayment, the Borrower's Availability, on a
         pro forma basis, shall be not less than $10,400,000, (E) with respect
         to any Fiscal Year in which such payment is proposed to be made, the
         net shipments, expressed in dollars, for the prior Fiscal Year
         (commencing with the Fiscal Year ending in June 2001) made by the
         Borrower's domestic bicycle division shall be not less than
         $103,839,000 and (F) the Agent shall have received a certificate, duly
         executed by an Authorized Officer, setting forth in reasonable detail
         the calculation of (1) the consolidated Fixed Charge Coverage Ratio
         required pursuant to clause (B) hereof, (2) the minimum pro forma
         Availability required pursuant to clause (D) hereof and (3) the amount
         of the net shipments required pursuant to clause (E) hereof."

         (g) SECTION 9.09 NET WORTH Section 9.09 is deleted in its entirety and
the following is substituted in lieu thereof:

         "SECTION 9.09. NET WORTH. THE BORROWER SHALL MAINTAIN AT ALL TIMES
         DURING AND AS OF THE END OF EACH FISCAL MONTH SET FORTH IN SUBSECTIONS
         (a) THROUGH (m) BELOW, AND DURING AND AS OF THE END OF EACH FISCAL
         QUARTER SET FORTH IN SUBSECTIONS (n) THROUGH (v) BELOW, A NET WORTH OF
         NOT LESS THAN THE AMOUNT SET FORTH BELOW OPPOSITE SUCH FISCAL MONTH OR
         FISCAL QUARTER. FOR PURPOSES OF CALCULATING THE BORROWER'S COMPLIANCE
         WITH THIS COVENANT, NET WORTH SHALL NOT BE REDUCED BY (i) NON-CASH
         WRITE OFFS OF FEES AND EXPENSES INCURRED IN CONNECTION WITH THE
         PREPAYMENT OF ALL OR ANY PORTION OF THE PRINCIPAL OF THE TERM LOAN OR
         THE MEZZANINE DEBT, (ii) NON-CASH WRITE OFFS OF DEFERRED TAXES, OR
         (iii) THE UNPAID PRINCIPAL BALANCE OF, AND ALL ACCRUED AND UNPAID
         INTEREST ON, THE MONTGOMERY DEBT:

<TABLE>
<CAPTION>
                         FISCAL MONTH OR FISCAL QUARTER              MINIMUM NET WORTH

<S>                      <C>                                         <C>
             (a)         JUNE 2000                                   $ 27,400,000

             (b)         JULY 2000                                     25,200,000

             (c)         AUGUST 2000                                   23,465,000
</TABLE>

                                      -8-
<PAGE>   9
<TABLE>
<S>                      <C>                                         <C>
             (d)         SEPTEMBER 2000                                23,900,000

             (e)         OCTOBER 2000                                  24,125,000

             (f)         NOVEMBER 2000                                 24,135,000

             (g)         DECEMBER 2000                                 25,250,000

             (h)         JANUARY 2001                                  25,230,000

             (i)         FEBRUARY 2001                                 25,425,000

             (j)         MARCH 2001                                    37,700,000

             (k)         APRIL 2001                                    37,140,000

             (l)         MAY 2001                                      36,785,000

             (m)         JUNE 2001                                     37,110,000

             (n)         FISCAL QUARTER ENDING IN                      36,795,000
                         SEPTEMBER 2001

             (o)         FISCAL QUARTER ENDING IN                      36,840,000
                         DECEMBER 2001

             (p)         FISCAL QUARTER ENDING IN MARCH                37,330,000
                         2002

             (q)         FISCAL QUARTER ENDING IN JUNE                 38,925,000
                         2002

             (r)         FISCAL QUARTER ENDING IN                      40,060,000
                         SEPTEMBER 2002

             (s)         FISCAL QUARTER ENDING IN                      41,430,000
                         DECEMBER 2002

             (t)         FISCAL QUARTER ENDING IN MARCH                42,900,000
                         2003

             (u)         FISCAL QUARTER ENDING IN JUNE                 45,930,000
                         2003

             (v)         FISCAL QUARTER ENDING IN
                         SEPTEMBER 2003, AND EACH FISCAL
                         QUARTER THEREAFTER, A NET WORTH
                         IN AN AMOUNT EQUAL TO $45,930,000
                         PLUS FIFTY PER CENT (50%) OF NET
</TABLE>

                                      -9-
<PAGE>   10
<TABLE>
<S>                      <C>                                         <C>
                         INCOME FOR EACH FISCAL QUARTER
                         (TO THE EXTENT NET INCOME FOR
                         SUCH FISCAL QUARTER IS POSITIVE),
                         COMMENCING WITH THE FISCAL
                         QUARTER ENDING IN JUNE 2003."
</TABLE>

         (h) SECTION 9.10. FIXED CHARGE COVERAGE RATIO. Section 9.10 is deleted
in its entirety, and the following is substituted in lieu thereof:

         "SECTION 9.10. FIXED CHARGE COVERAGE RATIO. THE BORROWER SHALL HAVE A
         FIXED CHARGE COVERAGE RATIO, AS OF THE END OF EACH PERIOD OF TWELVE
         CONSECUTIVE FISCAL MONTHS ENDING ON THE LAST DAY OF THE FISCAL MONTH
         SET FORTH BELOW, OF NOT LESS THAN THE RATIO SET FORTH BELOW OPPOSITE
         SUCH MONTH:

<TABLE>
<CAPTION>
                        TWELVE FISCAL MONTHS                  MINIMUM FIXED
                        ENDING                                CHARGE COVERAGE RATIO

<S>                     <C>                                   <C>
             (a)        JULY 2000                              .20 TO 1.00

             (b)        AUGUST 2000                            .20 TO 1.00

             (c)        SEPTEMBER 2000                         .35 TO 1.00

             (d)        OCTOBER 2000                           .35 TO 1.00

             (e)        NOVEMBER 2000                          .35 TO 1.00

             (f)        DECEMBER 2000                          .15 TO 1.00

             (g)        JANUARY 2001                           .10 TO 1.00

             (h)        FEBRUARY 2001                          .08 TO 1.00

             (i)        MARCH 2001                             .09 TO 1.00

             (j)        APRIL 2001                             .08 TO 1.00

             (k)        MAY 2001                               .09 TO 1.00

             (l)        JUNE, JULY AND AUGUST 2001             .01 TO 1.00

                        SEPTEMBER, OCTOBER
</TABLE>

                                      -10-
<PAGE>   11
<TABLE>
<S>                     <C>                                   <C>
             (m)        NOVEMBER 2001                          .01 TO 1.00

             (n)        DECEMBER 2001 AND JANUARY              .15 TO 1.00
                        AND FEBRUARY 2002

             (o)        MARCH, APRIL AND MAY 2002              .45 TO 1.00

             (p)        JUNE, JULY AND AUGUST 2002             .75 TO 1.00

             (q)        SEPTEMBER, OCTOBER AND                 .92 TO 1.00
                        NOVEMBER 2002

             (r)        DECEMBER 2002 AND JANUARY             1.00 TO 1.00
                        AND FEBRUARY 2003

             (s)        MARCH, APRIL AND MAY 2003             1.00 TO 1.00

             (t)        JUNE 2003, AND EACH FISCAL            1.02 TO 1.00
                        MONTH THEREAFTER,
                        IN EACH CASE TOGETHER WITH
                        THE 11 PRECEDING
                        FISCAL MONTHS"
</TABLE>

         (i) SECTION 9.11 CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Section 9.11
is deleted in its entirety, and the following is substituted in lieu thereof:

         "SECTION 9.11. CONSOLIDATED FIXED CHARGE COVERAGE RATIO. THE BORROWER
         SHALL HAVE, ON A CONSOLIDATED BASIS WITH ITS CONSOLIDATED SUBSIDIARIES,
         A FIXED CHARGE COVERAGE RATIO, AS OF THE END OF EACH PERIOD OF TWELVE
         CONSECUTIVE FISCAL MONTHS ENDING ON THE LAST DAY OF THE FISCAL MONTH
         SET FORTH BELOW, OF NOT LESS THAN THE RATIO SET FORTH BELOW OPPOSITE
         SUCH PERIOD:

<TABLE>
<CAPTION>
                     TWELVE FISCAL MONTHS ENDING                        MINIMUM CONSOLIDATED
                                                                        FIXED CHARGE
                                                                        COVERAGE RATIO

<S>                  <C>                                                <C>
          (a)        JUNE 2000                                             .60 TO 1.00

          (b)        JULY 2000                                             .60 TO 1.00
</TABLE>

                                      -11-
<PAGE>   12
<TABLE>
<S>                  <C>                                                <C>
          (c)        AUGUST 2000                                           .60 TO 1.00

          (d)        SEPTEMBER 2000                                        .65 TO 1.00

          (e)        OCTOBER 2000                                          .65 TO 1.00

          (f)        NOVEMBER 2000                                         .65 TO 1.00

          (g)        DECEMBER 2000                                         .40 TO 1.00

          (h)        JANUARY 2001                                          .35 TO 1.00

          (i)        FEBRUARY 2001                                         .30 TO 1.00

          (j)        MARCH 2001                                            .22 TO 1.00

          (k)        APRIL 2001                                            .20 TO 1.00

          (l)        MAY 2001                                              .19 TO 1.00

          (m)        JUNE, JULY AND AUGUST 2001                            .13 TO 1.00

          (n)        SEPTEMBER, OCTOBER AND NOVEMBER 2001                  .20 TO 1.00

          (o)        DECEMBER 2001 AND JANUARY AND FEBRUARY 2002           .30 TO 1.00

          (p)        MARCH, APRIL AND MAY 2002                             .59 TO 1.00

          (q)        JUNE, JULY AND AUGUST 2002                            .82 TO 1.00

          (r)        SEPTEMBER, OCTOBER AND NOVEMBER 2002                  .95 TO 1.00

          (s)        DECEMBER 2002, AND EACH FISCAL MONTH                 1.00 TO 1.00
                     THEREAFTER, IN EACH CASE TOGETHER WITH THE
                     11 PRECEDING FISCAL MONTHS"
</TABLE>

         (j) SECTION 9.12 EBITDA Section 9.12 is deleted in its entirety and the
following is substituted in lieu thereof:

         "SECTION 9.12. EBITDA. THE BORROWER SHALL HAVE EBITDA, AS OF THE END OF
         EACH PERIOD OF FOUR CONSECUTIVE FISCAL QUARTERS SET FORTH BELOW, OF NOT
         LESS THAN THE AMOUNT SET FORTH BELOW OPPOSITE SUCH PERIOD:

                                      -12-
<PAGE>   13
<TABLE>
<CAPTION>
                        FOUR FISCAL QUARTERS ENDING IN                        MINIMUM EBITDA

<S>                     <C>                                                   <C>
             (a)        SEPTEMBER 2000                                        $ 4,750,000

             (b)        DECEMBER 2000                                           2,000,000

             (c)        MARCH 2001                                              1,200,000

             (d)        JUNE 2001                                                 100,000

             (e)        SEPTEMBER 2001                                            200,000

             (f)        DECEMBER 2001                                           2,200,000

             (g)        MARCH 2002                                              7,000,000

             (h)        JUNE 2002                                              12,000,000

             (i)        SEPTEMBER 2002                                         14,500,000

             (j)        DECEMBER 2002                                          15,500,000

             (k)        MARCH 2003                                             15,500,000

             (l)        JUNE, 2003, AND EACH FISCAL QUARTER                    16,000,000
                        THEREAFTER, IN EACH CASE TOGETHER WITH THE
                        THREE PRECEDING FISCAL QUARTERS"
</TABLE>

         (k) SECTION 9.13 ADJUSTED EBITDA Section 9.13 is deleted in its
entirety, and the following is substituted in lieu thereof:

         "SECTION 9.13 Adjusted EBITDA. The Borrower shall have Adjusted EBITDA,
         as of the end of each period of four consecutive Fiscal Quarters set
         forth below, of not less than the amount set forth below opposite such
         period:

<TABLE>
<CAPTION>
                      FOUR FISCAL QUARTERS ENDING IN                          MINIMUM ADJUSTED EBITDA

<S>                   <C>                                                     <C>
             (a)      SEPTEMBER 2000                                          $ 11,580,000

             (b)      DECEMBER 2000                                             10,000,000

             (c)      MARCH 2001                                                10,585,000

             (d)      JUNE 2001                                                  9,830,000

             (e)      SEPTEMBER 2001                                             8,000,000
</TABLE>

                                      -13-
<PAGE>   14
<TABLE>
<S>                   <C>                                                     <C>
             (f)      DECEMBER 2001                                              5,500,000

             (g)      MARCH 2002                                                 4,000,000

             (h)      JUNE 2002                                                  3,700,000

             (i)      SEPTEMBER 2002                                             4,000,000

             (j)      DECEMBER 2002                                              4,200,000

             (k)      MARCH 2003                                                 4,200,000

             (l)      JUNE 2003,AND EACH FISCAL QUARTER                          4,500,000
                      THEREAFTER, IN EACH CASE TOGETHER WITH
                      THE THREE PRECEDING FISCAL QUARTERS"
</TABLE>

         (l) SECTION 9.14 SENIOR LEVERAGE RATIO Section 9.14 is deleted in its
entirety, and the following is substituted in lieu thereof:

         "SECTION 9.14 SENIOR LEVERAGE RATIO. THE BORROWER SHALL HAVE A SENIOR
         LEVERAGE RATIO, AS OF THE END OF EACH PERIOD OF FOUR CONSECUTIVE FISCAL
         QUARTERS SET FORTH BELOW, OF NOT GREATER THAN THE RATIO SET FORTH BELOW
         OPPOSITE SUCH PERIOD:

<TABLE>
<CAPTION>
                                                                          MAXIMUM SENIOR
                      FOUR FISCAL QUARTERS ENDING IN                      LEVERAGE RATIO

<S>                   <C>                                                 <C>
             (a)      SEPTEMBER 2000                                       12.50 TO 1.00

             (b)      DECEMBER 2000                                        19.00 TO 1.00

             (c)      MARCH 2001                                           34.60 TO 1.00

             (d)      JUNE 2001                                           471.63 TO 1.00

             (e)      SEPTEMBER 2001                                      511.94 TO 1.00

             (f)      DECEMBER 2001                                        20.00 TO 1.00

             (g)      MARCH 2002                                            6.00 TO 1.00

             (h)      JUNE 2002                                             3.20 TO 1.00

             (i)      SEPTEMBER 2002                                        2.90 TO 1.00

             (j)      DECEMBER 2002                                         2.60 TO 1.00

             (k)      MARCH 2003                                            2.15 TO 1.00
</TABLE>

                                      -14-
<PAGE>   15
<TABLE>
<S>                   <C>                                                 <C>
             (l)      JUNE 2003,AND EACH FISCAL QUARTER                     1.80 TO 1.00
                      THEREAFTER, IN EACH CASE TOGETHER WITH THE
                      THREE PRECEDING FISCAL QUARTERS"
</TABLE>

         (m) SECTION 9.15 AVAILABILITY SECTION 9.15 IS DELETED IN ITS ENTIRETY,
IS RE-CAPTIONED "COLLATERAL MANAGEMENT FEE AND AVAILABILITY" AND THE FOLLOWING
IS SUBSTITUTED IN LIEU THEREOF:

         "SECTION 9.15 COLLATERAL MANAGEMENT FEE AND AVAILABILITY. THE BORROWER
         SHALL PAY TO THE AGENT, FOR THE RATABLE BENEFIT OF THE LENDERS, IN
         CASH, ON APRIL 30, 2001, AND ON THE FIRST BUSINESS DAY OF EACH OF JULY
         AND OCTOBER, 2001, AND JANUARY, APRIL AND JULY 2002, A NON-REFUNDABLE
         COLLATERAL MANAGEMENT FEE OF $50,000, WHICH FEE SHALL BE DUE AND
         PAYABLE, AND DEEMED TO BE FULLY EARNED, ON EACH SUCH DATE. IN ADDITION,
         WITH RESPECT TO EACH CALENDAR MONTH PRIOR TO THE FIRST BUSINESS DAY
         FOLLOWING THE SUNDAY CLOSEST TO JULY 1, 2002, THE BORROWER'S AVERAGE
         AVAILABILITY FOR THE 30 OR 31 DAY PERIOD (OR 28 DAY PERIOD, IN THE CASE
         OF THE MONTH OF FEBRUARY) ENDING AT THE END OF EACH SUCH MONTH SHALL
         NOT BE LESS THAN $1,500,000. BEGINNING WITH THE FIRST BUSINESS DAY
         FOLLOWING THE SUNDAY CLOSEST TO JULY 1, 2002, THROUGH THE END OF THE
         FISCAL YEAR BEGINNING ON SUCH SUNDAY, THE BORROWER'S AVAILABILITY AT
         THE END OF EACH DAY DURING SUCH FISCAL YEAR SHALL NOT BE LESS THAN
         $1,500,000. BEGINNING WITH THE FIRST BUSINESS DAY FOLLOWING THE SUNDAY
         CLOSEST TO JULY 1, 2003, AND AT ALL TIMES THEREAFTER, THE BORROWER'S
         AVAILABILITY AT THE END OF EACH DAY SHALL NOT BE LESS THAN $2,000,000."

         (n) SECTION 10.09 ADMINISTRATIVE MANAGEMENT FEE SECTION 10.09 IS
AMENDED BY DELETING THE NUMBER "35,000" CONTAINED THEREIN AND SUBSTITUTING IN
LIEU THEREOF THE NUMBER "50,000", AND IS FURTHER AMENDED BY ADDING THE FOLLOWING
PROVISO AT THE END THEREOF:

         "PROVIDED, HOWEVER, THAT THE ADMINISTRATIVE MANAGEMENT FEE PAYABLE FOR
         THE PERIOD FROM THE CLOSING DATE THROUGH THE FIRST ANNIVERSARY THEREOF
         SHALL BE PAID IN TWO INSTALLMENTS; THE FIRST INSTALLMENT OF $35,000
         SHALL BE FULLY EARNED, DUE AND PAYABLE ON THE CLOSING DATE, AND THE
         SECOND INSTALLMENT OF $15,000 SHALL BE DUE AND PAYABLE ON APRIL 30,
         2001, UPON THE EXECUTION OF THE FIRST AMENDMENT."

                                      -15-
<PAGE>   16
         (o) ANNEX II LIEN PERFECTION INFORMATION. ANNEX II TO THE FINANCING
AGREEMENT IS DELETED IN ITS ENTIRETY, AND ANNEX II TO THIS AMENDMENT IS
SUBSTITUTED IN LIEU THEREOF.

         SECTION TWO. WAIVER. EFFECTIVE AS OF THE DATE HEREOF, UPON THE
SATISFACTION OF THE CONDITIONS PRECEDENT SET FORTH IN SECTION FOUR HEREOF, THE
LENDERS HEREBY WAIVE AS SEPARATE EVENTS OF DEFAULT (i) EACH EVENT OF DEFAULT SET
FORTH ON SCHEDULE A HERETO AND (ii) THE OCCURRENCE AND CONTINUANCE AS OF THE
DATE OF THIS AMENDMENT OF AN "EVENT OF DEFAULT" UNDER, AND AS DEFINED IN, THE
MEZZANINE FINANCING AGREEMENT, PROVIDED, HOWEVER, THAT NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO BE A WAIVER OF ANY OTHER EVENT OF DEFAULT, WHETHER OR NOT THE
LENDERS HAVE ANY KNOWLEDGE THEREOF, NOR SHALL ANYTHING CONTAINED HEREIN BE
DEEMED TO BE A WAIVER OF ANY FUTURE EVENT OF DEFAULT WHATSOEVER.

         SECTION THREE. REPRESENTATIONS AND WARRANTIES. TO INDUCE THE AGENT AND
THE LENDERS TO ENTER INTO THIS AMENDMENT, THE BORROWER WARRANTS AND REPRESENTS
TO THE AGENT AND THE LENDERS AS FOLLOWS:

         (a) ALL OF THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THE
FINANCING AGREEMENT AND EACH OTHER LOAN DOCUMENT TO WHICH THE BORROWER IS A
PARTY CONTINUE TO BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE DATE
HEREOF, AS IF REPEATED AS OF THE DATE HEREOF, EXCEPT FOR SUCH REPRESENTATIONS
AND WARRANTIES WHICH, BY THEIR TERMS, ARE ONLY MADE AS OF A PREVIOUS DATE;

         (b) THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AMENDMENT BY THE
BORROWER IS WITHIN ITS CORPORATE POWERS, HAS BEEN DULY AUTHORIZED BY ALL
NECESSARY CORPORATE ACTION, AND THE BORROWER HAS RECEIVED ALL NECESSARY CONSENTS
AND APPROVALS (IF ANY SHALL BE REQUIRED) FOR THE EXECUTION AND DELIVERY OF THIS
AMENDMENT;

         (c) UPON ITS EXECUTION, THIS AMENDMENT SHALL CONSTITUTE THE LEGAL,
VALID AND BINDING OBLIGATION OF THE BORROWER, ENFORCEABLE AGAINST THE BORROWER
IN ACCORDANCE WITH ITS TERMS, EXCEPT AS SUCH ENFORCEABILITY MAY BE LIMITED BY
(i) BANKRUPTCY, INSOLVENCY OR SIMILAR LAWS AFFECTING CREDITORS' RIGHTS GENERALLY
AND (ii) GENERAL PRINCIPLES OF EQUITY;

         (d) THE BORROWER IS NOT IN DEFAULT UNDER ANY INDENTURE, MORTGAGE, DEED
OF TRUST, OR OTHER MATERIAL AGREEMENT (OTHER THAN THE MEZZANINE FINANCING
AGREEMENT) OR MATERIAL INSTRUMENT TO WHICH IT IS A PARTY OR BY WHICH IT MAY BE
BOUND. NEITHER THE EXECUTION AND DELIVERY OF THIS AMENDMENT, NOR THE
CONSUMMATION OF THE TRANSACTIONS HEREIN CONTEMPLATED, NOR COMPLIANCE WITH THE
PROVISIONS HEREOF WILL (i) VIOLATE ANY LAW OR REGULATION APPLICABLE TO IT, (ii)
CAUSE A VIOLATION BY THE BORROWER OF ANY ORDER OR DECREE OF ANY COURT OR
GOVERNMENT INSTRUMENTALITY APPLICABLE TO IT, (iii) CONFLICT WITH, OR RESULT IN
THE BREACH OF, OR CONSTITUTE A DEFAULT UNDER, ANY INDENTURE, MORTGAGE, DEED OF
TRUST, OR OTHER MATERIAL AGREEMENT OR MATERIAL INSTRUMENT TO WHICH THE BORROWER
IS A PARTY OR BY WHICH IT MAY BE BOUND, (iv) RESULT IN THE CREATION OR
IMPOSITION OF ANY LIEN, CHARGE, OR ENCUMBRANCE UPON ANY

                                      -16-
<PAGE>   17
OF THE PROPERTY OF THE BORROWER, EXCEPT IN FAVOR OF THE AGENT, TO SECURE THE
OBLIGATIONS, OR (v) VIOLATE ANY PROVISION OF THE CERTIFICATE OF INCORPORATION,
BY-LAWS OR ANY CAPITAL STOCK PROVISIONS OF THE BORROWER;

         (e) NO EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, EXCEPT FOR
THOSE EVENTS OF DEFAULT WHICH HAVE BEEN WAIVED PURSUANT TO SECTION TWO HEREOF;
AND

         (f) SINCE THE DATE OF THE RECEIPT BY THE AGENT AND THE LENDERS OF THE
FINANCIAL STATEMENTS OF THE BORROWER AND ITS CONSOLIDATED SUBSIDIARIES FOR THE
FIVE-MONTH PERIOD ENDED IN FEBRUARY, 2001, NO CHANGE OR EVENT HAS OCCURRED WHICH
HAS HAD OR IS REASONABLY LIKELY TO HAVE A MATERIAL ADVERSE EFFECT.

         SECTION FOUR. CONDITIONS PRECEDENT. THIS AMENDMENT SHALL BECOME
EFFECTIVE UPON THE DATE THAT THE LAST OF THE FOLLOWING EVENTS SHALL HAVE
OCCURRED:

         (a) THE BORROWER SHALL HAVE RECEIVED THE PROCEEDS OF A CASH INFUSION IN
AN AGGREGATE AMOUNT OF NOT LESS THAN $7,000,000 (THE "CASH INFUSION"), WHICH
SHALL CONSIST OF (i) AN INFUSION OF NO MORE THAN $3,000,000 IN THE FORM OF CASH
FROM ONE OR MORE FOREIGN SUBSIDIARIES IN THE FORM OF REPAYMENT OF INTERCOMPANY
INDEBTEDNESS OWING TO THE BORROWER BY ANY ONE OR MORE OF SUCH FOREIGN
SUBSIDIARIES, NET OF ANY TAX CONSEQUENCES OR RIGHTS OF SET-OFF (THE
"INTERCOMPANY PAYMENT"), (ii) AN INFUSION OF $2,000,000 FROM JOSEPH MONTGOMERY,
WHICH MAY BE IN THE FORM OF EITHER EQUITY OR UNSECURED SUBORDINATED
INDEBTEDNESS, WHICH MAY BE CONVERTIBLE INTO THE COMMON STOCK OF THE BORROWER
(THE "MONTGOMERY INFUSION") AND (iii) AN INFUSION OF $2,000,000 FROM AN
INVESTOR, WHICH IS NOT AN AFFILIATE OF THE BORROWER, WHICH MAY BE IN THE FORM OF
EITHER EQUITY OR UNSECURED SUBORDINATED INDEBTEDNESS, WHICH MAY BE CONVERTIBLE
INTO THE COMMON STOCK OF THE BORROWER (THE "INSTITUTIONAL INFUSION"; THE
MONTGOMERY INFUSION AND THE INSTITUTIONAL INFUSION SHALL BE REFERRED TO
COLLECTIVELY AS THE "2001 SUBORDINATED DEBT").

         (b) (i) THE AGENT, THE LENDERS AND THEIR COUNSEL SHALL HAVE RECEIVED
AND REVIEWED TO THEIR REASONABLE SATISFACTION (x) ALL OF THE TERMS AND
CONDITIONS OF THE MONTGOMERY INFUSION, INCLUDING WITHOUT LIMITATION, COVENANTS,
EVENTS OF DEFAULT AND TERMS OF SUBORDINATION PERTAINING TO THE MONTGOMERY
INFUSION, AND (y) THE INSTRUMENTS THAT EVIDENCE THE MONTGOMERY INFUSION, AND THE
AGREEMENTS AND DOCUMENTS PURSUANT TO WHICH THE MONTGOMERY INFUSION OR SUCH
INSTRUMENTS, AS THE CASE MAY BE, WILL BE ISSUED OR WILL BE GOVERNED. THE AGENT,
ON BEHALF OF THE LENDERS, AND JOSEPH MONTGOMERY SHALL HAVE ENTERED INTO A
SUBORDINATION AGREEMENT SUBSTANTIALLY IN THE FORM OF EXHIBIT A ATTACHED HERETO.

         (ii) THE PRINCIPAL OF THE MONTGOMERY INFUSION SHALL BE PAYABLE IN A
SINGLE INSTALLMENT WHICH, BY ITS TERMS, MAY ONLY BE PAYABLE ON THE EARLIER TO
OCCUR OF (x) THE DATE FOLLOWING THE DATE ON WHICH THE OBLIGATIONS ARE PAID AND
SATISFIED IN FULL IN CASH AND (y) THE DATE ON WHICH ALL OF THE EVENTS SPECIFIED
IN CLAUSES (A), (B), (C), (D), (E) AND (F) TO THE

                                      -17-
<PAGE>   18
PROVISO CONTAINED IN SECTION 9.03(e) OF THE FINANCING AGREEMENT SHALL HAVE
OCCURRED. INTEREST ON THE MONTGOMERY INFUSION MAY BE PAID IN CASH, ON THE FIRST
DAY OF EACH CALENDAR QUARTER IN ARREARS FOR THE PREVIOUS CALENDAR QUARTER AND
UPON THE FULL CONVERSION OF THE ENTIRE UNPAID PRINCIPAL BALANCE THEREOF INTO
EQUITY IN ACCORDANCE WITH THE TERMS THEREOF, SO LONG AS (x) THE FIXED CHARGE
COVERAGE RATIO OF THE BORROWER, ON A CONSOLIDATED BASIS WITH ITS CONSOLIDATED
SUBSIDIARIES, FOR THE MOST RECENTLY ENDED PERIOD OF TWELVE CONSECUTIVE FISCAL
MONTHS, SHALL BE GREATER THAN 1.00 TO 1.00, (y) THE AGENT SHALL HAVE RECEIVED A
CERTIFICATE, DULY EXECUTED BY AN AUTHORIZED OFFICER, SETTING FORTH IN REASONABLE
DETAIL THE CALCULATION OF SUCH FIXED CHARGE COVERAGE RATIO AND (z) NO EVENT OF
DEFAULT SHALL HAVE OCCURRED AND THEN BE CONTINUING. PREPAYMENTS OF PRINCIPAL OF
AND PAYMENTS OF ACCRUED INTEREST ON THE MONTGOMERY INFUSION MAY BE MADE SOLELY
IN ACCORDANCE WITH THE TERMS OF SECTION 9.03(e) OF THE FINANCING AGREEMENT.

         (c) (i) THE IDENTITY OF THE HOLDERS OF THE INSTITUTIONAL INFUSION SHALL
BE ACCEPTABLE TO THE LENDERS, IN THEIR COMMERCIALLY REASONABLE JUDGMENT, AND THE
AGENT, THE LENDERS AND THEIR COUNSEL SHALL HAVE RECEIVED AND REVIEWED TO THEIR
REASONABLE SATISFACTION (i) ALL OF THE TERMS AND CONDITIONS OF THE INSTITUTIONAL
INFUSION, INCLUDING WITHOUT LIMITATION THE PRINCIPAL AMOUNT, RATE OF INTEREST,
COVENANTS, EVENTS OF DEFAULT AND TERMS OF SUBORDINATION PERTAINING THERETO, AND
(ii) THE INSTRUMENTS THAT EVIDENCE THE INSTITUTIONAL INFUSION, AND THE
AGREEMENTS AND DOCUMENTS PURSUANT TO WHICH THE INSTITUTIONAL INFUSION, OR SUCH
INSTRUMENTS, AS THE CASE MAY BE, WILL BE ISSUED OR WILL BE GOVERNED. THE AGENT,
ON BEHALF OF THE LENDERS, AND THE HOLDERS OF THE INSTITUTIONAL INFUSION SHALL
HAVE ENTERED INTO A SUBORDINATION AGREEMENT SUBSTANTIALLY IN THE FORM OF EXHIBIT
B ATTACHED HERETO.

         (ii) THE DOCUMENTS GOVERNING THE INSTITUTIONAL INFUSION (x) MAY PROVIDE
FOR THE CURRENT PAYMENT OF INTEREST, (y) MAY NOT ALLOW FOR THE SCHEDULED
REPAYMENT OF THE PRINCIPAL THEREOF IN WHOLE OR IN PART PRIOR TO THE DAY ONE
BUSINESS DAY AFTER THE MATURITY DATE OF THE MEZZANINE DEBT AND (z) MAY ALLOW FOR
PREPAYMENTS OF THE PRINCIPAL THEREOF SOLELY IN ACCORDANCE WITH THE TERMS OF
SECTION 9.03(e) OF THE FINANCING AGREEMENT.

         (d) THE AGENT AND THE LENDERS SHALL HAVE RECEIVED AND REVIEWED TO THEIR
REASONABLE SATISFACTION (i) A FIELD EXAMINATION, PERFORMED AS OF A RECENT DATE
BY THE MEMBERS OF THE AGENT'S FIELD EXAMINATION STAFF, OF THE BORROWER'S BOOKS,
RECORDS AND COLLATERAL, (ii) A UCC SEARCH, PERFORMED AS OF A RECENT DATE AT THE
BORROWER'S EXPENSE, WITH RESPECT TO ALL OF THE LOCATIONS AT WHICH THE BORROWER'S
BOOKS AND RECORDS, AND ANY ASSETS OR PROPERTIES OWNED OR LEASED BY THE BORROWER,
ARE LOCATED, STORED OR MAINTAINED, AND (iii) AN UPDATED ANNEX II TO THE
FINANCING AGREEMENT, COMPLETED BY THE BORROWER;

         (e) THE AGENT AND THE LENDERS SHALL HAVE RECEIVED AND REVIEWED TO THEIR
REASONABLE SATISFACTION (i) A CURRENT AGING OF THE BORROWER'S TRADE PAYABLES, NO
MATERIAL PORTION OF WHICH MAY BE PAST DUE BEYOND THE BORROWER'S HISTORIC PAYMENT
PRACTICES, (ii)

                                      -18-
<PAGE>   19
INTERNALLY PREPARED FINANCIAL STATEMENTS OF THE BORROWER AND ITS
CONSOLIDATED SUBSIDIARIES FOR THE SIX MONTH PERIOD ENDED IN DECEMBER 2000 AND
(iii) A PRO FORMA BALANCE SHEET OF THE BORROWER, PREPARED BY ITS CHIEF FINANCIAL
OFFICER, REFLECTING THE BORROWER'S RECEIPT, AND THE ACCOUNTING TREATMENT, OF THE
CASH INFUSION;

         (f) EACH OF THE LENDERS SHALL HAVE OBTAINED THE APPROVAL BY ITS
EXECUTIVE CREDIT COMMITTEE OF THE TRANSACTIONS CONTEMPLATED TO OCCUR HEREUNDER;

         (g) THE AGENT, THE LENDERS AND THEIR COUNSEL SHALL HAVE RECEIVED AND
REVIEWED A FINAL DRAFT OF (i) AN AMENDMENT TO THE MEZZANINE FINANCING AGREEMENT
CONTAINING FINANCIAL COVENANT MODIFICATIONS THAT ARE CONSISTENT WITH THE
MODIFICATIONS CONTAINED IN THIS AMENDMENT AND (ii) A WAIVER OF ALL EVENTS OF
DEFAULT THAT HAVE OCCURRED AND ARE CONTINUING THEREUNDER, EACH OF WHICH DRAFTS
SHALL CONTAIN SUCH TERMS AND CONDITIONS (INCLUDING CONDITIONS TO ITS
EFFECTIVENESS) AS SHALL BE REASONABLY SATISFACTORY TO THE AGENT, THE LENDERS AND
THEIR COUNSEL;

         (h) THE LENDERS SHALL HAVE RECEIVED THIS AMENDMENT, DULY EXECUTED BY
THE BORROWER;

         (i) EXCEPT FOR THOSE EVENTS OF DEFAULT WHICH HAVE BEEN WAIVED PURSUANT
TO SECTION TWO HEREOF, NO DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING WHICH
CONSTITUTES AN EVENT OF DEFAULT OR WOULD CONSTITUTE AN EVENT OF DEFAULT UPON THE
GIVING OF NOTICE OR LAPSE OF TIME OR BOTH, AND NO EVENT OR DEVELOPMENT WHICH HAS
HAD OR IS REASONABLY LIKELY TO HAVE A MATERIAL ADVERSE EFFECT SHALL HAVE
OCCURRED, IN EACH CASE SINCE THE DATE OF DELIVERY TO THE LENDERS OF THE
BORROWER'S MOST RECENT FINANCIAL STATEMENTS;

         (j) THE LENDERS SHALL HAVE RECEIVED (i) AN OFFICER'S CERTIFICATE,
EXECUTED BY THE CHIEF FINANCIAL OFFICER OR CHIEF EXECUTIVE OFFICER OF THE
BORROWER, CONFIRMING THE TRUTH AND ACCURACY OF THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN SECTION THREE HEREOF AND CONTAINED IN SECTION FOUR (j)
HEREOF, AND (ii) A SECRETARY'S CERTIFICATE, EXECUTED BY THE CORPORATE SECRETARY
OF THE BORROWER, CERTIFYING THAT THE BORROWER'S BOARD OF DIRECTORS SHALL HAVE
MET AND CONSIDERED THE TRANSACTIONS CONTEMPLATED TO OCCUR UNDER THIS AMENDMENT,
AND SHALL HAVE APPROVED THE SAME; AND

         (k) COUNSEL TO THE AGENT AND THE LENDERS SHALL HAVE RECEIVED PAYMENT OF
ALL FEES AND DISBURSEMENTS INCURRED IN CONNECTION WITH THE PREPARATION,
NEGOTIATION AND CLOSING OF THIS AMENDMENT AND THE TRANSACTIONS CONTEMPLATED TO
OCCUR HEREUNDER.

         SECTION FIVE. GENERAL PROVISIONS.

         (a) EXCEPT AS HEREIN EXPRESSLY AMENDED, THE FINANCING AGREEMENT AND ALL
OTHER AGREEMENTS, DOCUMENTS, INSTRUMENTS AND CERTIFICATES EXECUTED IN CONNECTION
THEREWITH,

                                      -19-
<PAGE>   20
ARE RATIFIED AND CONFIRMED IN ALL RESPECTS AND SHALL REMAIN IN FULL FORCE AND
EFFECT IN ACCORDANCE WITH THEIR RESPECTIVE TERMS.

         (b) ALL REFERENCES TO THE FINANCING AGREEMENT IN THE FINANCING
AGREEMENT SHALL MEAN THE FINANCING AGREEMENT AS AMENDED AS OF THE EFFECTIVE DATE
HEREOF, AND AS AMENDED HEREBY AND AS HEREAFTER AMENDED, SUPPLEMENTED AND
MODIFIED FROM TIME TO TIME.

         (c) IN CONSIDERATION OF THE WILLINGNESS OF THE LENDERS TO ENTER INTO
THIS AMENDMENT AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED TO OCCUR
HEREUNDER, AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, THE BORROWER IRREVOCABLY AGREES TO
PAY IN CASH TO THE AGENT, FOR THE RATABLE BENEFIT OF THE LENDERS, A
NON-REFUNDABLE ACCOMMODATION FEE IN THE AMOUNT OF $125,000, WHICH SHALL BE
DEEMED TO BE FULLY EARNED ON THE DATE OF THIS AMENDMENT, BUT SHALL BE PAYABLE IN
THREE INSTALLMENTS ON THE FOLLOWING DATES AND IN THE FOLLOWING AMOUNTS (i) JUNE
1, 2001 - $41,000, (ii) JULY 2, 2001 - $41,000 AND (iii) AUGUST 1 - $43,000.

         (d) THE BORROWER SHALL PAY TO THE AGENT, ON THE DATE HEREOF, FOR THE
AGENT'S OWN ACCOUNT, $15,000 IN PAYMENT OF THAT PORTION OF THE ADMINISTRATIVE
FEE (WHICH IS BEING INCREASED RETROACTIVELY PURSUANT TO SECTION 1(j) HEREOF) FOR
THE PERIOD FROM THE CLOSING DATE THROUGH THE FIRST ANNIVERSARY THEREOF AND
PAYABLE ON APRIL 30, 2001, UPON THE EXECUTION OF THIS AMENDMENT.

         (e) THE BORROWER HEREBY AUTHORIZES THE AGENT TO CHARGE THE BORROWER'S
LOAN ACCOUNT WITH THE AMOUNT OF EACH INSTALLMENT OF THE FEES SET FORTH IN
CLAUSES (c) AND (d) ABOVE AS AND WHEN SUCH FEES AND INSTALLMENTS OF FEES BECOMES
PAYABLE.

         (f) PROMPTLY AFTER EXECUTION HEREOF, THE BORROWER SHALL DELIVER TO THE
AGENT SUCH UCC FINANCING STATEMENTS AS THE AGENT SHALL, IN ITS DISCRETION,
REQUIRE WITH RESPECT TO THE LOCATIONS SET FORTH IN ANNEX II, AS REVISED HEREBY.
THE BORROWER SHALL USE ITS REASONABLE BEST EFFORTS TO DELIVER TO THE AGENT A
WAREHOUSEMAN'S OR PROCESSOR'S WAIVER SUBSTANTIALLY IN THE FORM OF EXHIBIT E-1 OR
EXHIBIT E-2, AS APPLICABLE, DULY EXECUTED BY THE LESSOR OR OWNER OF EACH
LOCATION SET FORTH IN ANNEX II, AS REVISED HEREBY, WITHIN SIXTY (60) DAYS AFTER
THE DATE HEREOF.

         (g) THE BORROWER ACKNOWLEDGES THAT, WITHIN A REASONABLE TIME AFTER THE
DATE HEREOF, THE AGENT AND THE LENDERS WILL CAUSE TO BE PERFORMED (i) A
COMPREHENSIVE INVENTORY APPRAISAL PERFORMED BY AN APPRAISAL FIRM ENGAGED AND
PAID FOR BY THE BORROWER AND ACCEPTABLE TO THE AGENT, WHICH APPRAISAL SHALL
INCLUDE WITHOUT LIMITATION AN EXAMINATION OF THE VALUE, COUNT, AND MIX OF THE
BORROWER'S INVENTORY, AND (ii) THE FIELD STUDY PERFORMED BY AN INDUSTRY
SPECIALIST ENGAGED AND PAID FOR BY THE BORROWER AND ACCEPTABLE TO THE AGENT, OF
THE ALTERATIONS MADE BY THE BORROWER TO ITS MOTORCYCLE PLANT LOCATED IN BEDFORD,
PENNSYLVANIA;

                                      -20-
<PAGE>   21
         (h) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS
OF LAW PRINCIPALS THEREOF.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -21-
<PAGE>   22
         IN WITNESS WHEREOF, EACH OF THE BORROWER, THE AGENT AND EACH OF THE
LENDERS HAS SIGNED BELOW TO INDICATE ITS AGREEMENT WITH THE FOREGOING AND ITS
INTENT TO BE BOUND THEREBY.

                                  CANNONDALE CORPORATION
                                  AS BORROWER

                                  BY:    /S/ WILLIAM A. LUCA
                                     ------------------------------------
                                       NAME:        WILLIAM A. LUCA
                                       TITLE:       VICE PRESIDENT

                                  THE CIT GROUP/BUSINESS CREDIT, INC.,
                                  AS AGENT AND AS A LENDER

                                  BY:   /S/ NICK MALATESTINIC
                                     ------------------------------------
                                       NAME:        NICK MALATESTINIC
                                       TITLE:       V.P. - TEAM LEADER

                                  GMAC COMMERCIAL CREDIT LLC,
                                  AS A LENDER

                                  BY:   /S/ FRANK IMPERATO, S.V.P.
                                     ----------------------------------------
                                       NAME:        FRANK IMPERATO
                                       TITLE:       SENIOR VICE PRESIDENT
<PAGE>   23
                                   SCHEDULE A

                                EVENTS OF DEFAULT

1.       VIOLATIONS OF SECTION 9.11 OF FINANCING AGREEMENT. THE BORROWER FAILED
         TO HAVE, ON A CONSOLIDATED BASIS WITH ITS CONSOLIDATED SUBSIDIARIES, A
         FIXED CHARGE COVERAGE RATIO, AS OF THE END OF EACH PERIOD OF TWELVE
         CONSECUTIVE FISCAL MONTHS ENDING ON THE LAST SAY OF THE FISCAL MONTH
         SET FORTH BELOW, OF NOT LESS THAN THE RATIO SET FORTH BELOW OPPOSITE
         SUCH MONTH, IN VIOLATION OF SECTION 9.11 OF THE FINANCING AGREEMENT
         (BEFORE GIVING EFFECT TO THIS AMENDMENT):

<TABLE>
<CAPTION>
                                                                       MINIMUM CONSOLIDATED FIXED CHARGE
               TWELVE FISCAL MONTHS ENDING                                      COVERAGE RATIO
            ---------------------------------                          ---------------------------------
<S>                                                                    <C>
            (a)      DECEMBER 2000                                               .75 TO 1.00

            (b)      JANUARY 2001                                                .75 TO 1.00

            (c)      FEBRUARY 2001                                               .75 TO 1.00

            (d)      MARCH 2001                                                  .90 TO 1.00
</TABLE>

2.       VIOLATION OF SECTION 9.15 OF FINANCING AGREEMENT. THE BORROWER FAILED
         TO MAINTAIN AN AVERAGE AVAILABILITY FOR THE MONTH OF MARCH 2001 OF AT
         LEAST $1,500,000, IN VIOLATION OF SECTION 9.15 OF THE FINANCING
         AGREEMENT (BEFORE GIVING EFFECT TO THIS AMENDMENT).

                                 SCHEDULE A - 1
<PAGE>   24
                                    ANNEX II

                           LIEN PERFECTION INFORMATION

                                [TO BE ATTACHED]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00030-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00030-of-00352.parquet"}]]